SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
|X| Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended December 31, 1996; or
|_| Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from ______ to ______
Commission File Number 1-10315
HEALTHSOUTH CORPORATION
(Exact Name of Registrant as Specified in its Charter)
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DELAWARE 63-0860407
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
ONE HEALTHSOUTH PARKWAY
BIRMINGHAM, ALABAMA 35243
(Address of Principal Executive (Zip Code)
Offices)
Registrant's Telephone Number, Including Area Code: (205) 967-7116
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Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on which Registered
COMMON STOCK, PAR VALUE NEW YORK STOCK EXCHANGE
$.01 PER SHARE
9.5% SENIOR SUBORDINATED NEW YORK STOCK EXCHANGE
NOTES DUE 2001
5% CONVERTIBLE SUBORDINATED NEW YORK STOCK EXCHANGE
DEBENTURES DUE 2001
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Securities Registered Pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all Reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such Reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|
State the aggregate market value of the voting stock held by
non-affiliates of the Registrant as of March 18, 1997:
Common Stock, par value $.01 per share -- $6,940,206,270
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
Class Outstanding at March 18, 1997
Common Stock, par value
$.01 per share 328,838,938 shares
DOCUMENTS INCORPORATED BY REFERENCE
No documents are incorporated by reference into this Annual Report on Form 10-K.
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PART I
INTRODUCTORY NOTE: HEALTHSOUTH Corporation has declared a two-for-one
stock split to be effected in the form of a 100% stock dividend to be paid as of
March 17, 1997 to holders of record as of March 13, 1997. All share and
per-share amounts described in this Annual Report on Form 10-K (including the
financial statements included herein) have been restated to reflect such stock
split.
ITEM 1. BUSINESS.
GENERAL
HEALTHSOUTH Corporation ("HEALTHSOUTH" or the "Company) is the nation's
largest provider of outpatient surgery and rehabilitative healthcare services.
The Company provides these services through its national network of outpatient
and inpatient rehabilitation facilities, outpatient surgery centers, diagnostic
centers, occupational medicine centers, medical centers and other healthcare
facilities. The Company believes that it provides patients, physicians and
payors with high-quality healthcare services at significantly lower costs than
traditional inpatient hospitals. Additionally, the Company's national network,
reputation for quality and focus on outcomes has enabled it to secure contracts
with national and regional managed care payors. At December 31, 1996, the
Company had over 1,000 patient care locations in 50 states.
In its outpatient and inpatient rehabilitation facilities, the Company
provides interdisciplinary programs for the rehabilitation of patients
experiencing disability due to a wide variety of physical conditions, such as
stroke, head injury, orthopaedic problems, neuromuscular disease and
sports-related injuries. The Company's rehabilitation services include physical
therapy, sports medicine, work hardening, neurorehabilitation, occupational
therapy, respiratory therapy, speech-language pathology and rehabilitation
nursing. Independent studies have shown that rehabilitation services like those
provided by the Company can save money for payors and employers.
In addition to its rehabilitation facilities, the Company operates one
of the largest networks of free-standing outpatient surgery centers in the
United States. The Company's outpatient surgery centers provide the facilities
and medical support staff necessary for physicians to perform non-emergency
surgical procedures. While outpatient surgery is widely recognized as generally
less expensive than surgery performed in a hospital, the Company believes that
outpatient surgery performed at a free-standing outpatient surgery center is
generally less expensive than hospital-based outpatient surgery. Approximately
80% of the Company's surgery center facilities are located in markets served by
its rehabilitative service facilities, enabling the Company to pursue
opportunities for cross- referrals.
Over the last two years, the Company has completed several significant
acquisitions in the rehabilitation business and has expanded into the surgery
center, diagnostic and occupational medicine businesses. The Company believes
that these acquisitions complement its historical operations and enhance its
market position. The Company further believes that its expansion into the
outpatient surgery, diagnostic and occupational medicine businesses provides it
with platforms for future growth. The Company is continually evaluating
potential acquisitions in the outpatient and rehabilitative healthcare services
industry.
The Company was organized as a Delaware corporation in February 1984.
The Company's principal executive offices are located at One HealthSouth
Parkway, Birmingham, Alabama 35243, and its telephone number is (205) 967-7116.
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COMPANY STRATEGY
The Company's principal objective is to be the provider of choice for
patients, physicians and payors alike for outpatient surgery and rehabilitative
healthcare services throughout the United States. The Company's growth strategy
is based upon four primary elements: (i) the implementation of the Company's
integrated service model in appropriate markets, (ii) successful marketing to
managed care organizations and other payors, (iii) the provision of
high-quality, cost-effective healthcare services, and (iv) the expansion of its
national network.
o Integrated Service Model. The Company seeks, where appropriate, to provide
an integrated system of healthcare services, including outpatient
rehabilitation services, inpatient rehabilitation services, ambulatory
surgery services and outpatient diagnostic services. The Company believes
that its integrated system offers payors the convenience of dealing with a
single provider for multiple services. Additionally, it believes that its
facilities can provide extensive cross-referral opportunities. For example,
the Company estimates that approximately one-third of its outpatient
rehabilitation patients have had outpatient surgery, virtually all
inpatient rehabilitation patients will require some form of outpatient
rehabilitation, and virtually all inpatient rehabilitation patients have
had some type of diagnostic procedure. The Company has implemented its
Integrated Service Model in certain of its markets, and intends to expand
the model into other appropriate markets.
o Marketing to Managed Care Organizations and Other Payors. Since the late
1980s, the Company has focused on the development of contractual
relationships with managed care organizations, major insurance companies,
large regional and national employer groups and provider alliances and
networks. The Company's documented outcomes and experience with several
hundred thousand patients in delivering quality healthcare services at
reasonable prices has enhanced its attractiveness to such entities and has
given the Company a competitive advantage over smaller and regional
competitors. These relationships have increased patient flow to the
Company's facilities and contributed to the Company's same-store growth.
o Cost-Effective Services. The Company's goal is to provide high-quality
healthcare services in cost-effective settings. To that end, the Company
has developed standardized clinical protocols for the treatment of its
patients. This results in "best practices" techniques being utilized at all
of the Company's facilities, allowing the consistent achievement of
demonstrable, cost-effective clinical outcomes. The Company's reputation
for its clinical programs is enhanced through its relationships with major
universities throughout the nation, and its support of clinical research in
its facilities. Further, independent studies estimate that, for every
dollar spent on rehabilitation, $11 to $35 is saved. Finally, surgical
procedures typically are less expensive in outpatient surgery centers than
in hospital settings. The Company believes that outpatient and
rehabilitative healthcare services will assume increasing importance in the
healthcare environment as payors continue to seek to reduce overall costs
by shifting patients to more cost-effective treatment settings.
o Expansion of National Network. As the largest provider of outpatient
surgery and rehabilitative healthcare services in the United States, the
Company is able to realize economies of scale and compete successfully for
national contracts with large payors and employers while retaining the
flexibility to respond to particular needs of local markets. The national
network affords the Company the opportunity to offer large national and
regional employers and payors the convenience of dealing with a single
provider, to utilize greater buying power through centralized purchasing,
to achieve more efficient costs of capital and labor and to more
effectively recruit and retain clinicians. The Company believes that its
recent acquisitions in the outpatient surgery, diagnostic imaging and
occupational medicine fields will further enhance its national presence by
broadening the scope of its existing services and providing new
opportunities for growth. These national benefits are realized without
sacrificing local market responsiveness. The Company's objective is to
provide those outpatient and rehabilitative healthcare services needed
within each local market by tailoring its services and facilities to that
market's needs, thus bringing the benefits of nationally recognized
expertise and quality into the local setting.
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RECENT AND PENDING ACQUISITIONS
Beginning in 1994, the Company has consummated a series of significant
acquisitions. During 1995, the Company consummated pooling-of-interests mergers
with Surgical Health Corporation ("SHC"; 36 outpatient surgery centers in 11
states) and Sutter Surgery Centers, Inc. ("SSCI"; 12 outpatient surgery centers
in three states), as well as stock purchase acquisitions of the rehabilitation
hospitals division of NovaCare, Inc. ("NovaCare"; 11 inpatient rehabilitation
facilities, 12 other healthcare facilities and two Certificates of Need in eight
states) and Caremark Orthopedic Services Inc. ("Caremark"; 120 outpatient
rehabilitation facilities in 13 states). During 1996, the Company acquired
Surgical Care Affiliates, Inc. ("SCA"; 67 outpatient surgery centers in 24
states), Advantage Health Corporation ("Advantage Health"; approximately 136
inpatient and outpatient rehabilitation facilities in 11 states), Professional
Sports Care Management, Inc. ("PSCM"; 36 outpatient rehabilitation facilities in
New York, New Jersey and Connecticut) and ReadiCare, Inc. ("ReadiCare"; 37
occupational medicine centers in California and Washington) in
pooling-of-interests transactions. In addition, the Company entered into an
agreement to acquire Health Images, Inc. ("Health Images"; 55 diagnostic imaging
centers in 13 states and the United Kingdom) in a pooling-of-interests
transaction, which transaction was consummated in March 1997. Information on the
Company's facilities included herein includes all of the acquired facilities
other than the Health Images facilities. The NovaCare, Caremark, Advantage
Health and PSCM transactions have further enhanced the Company's position as the
nation's largest provider of inpatient and outpatient rehabilitative services,
while the SHC, SSCI and SCA transactions have made the Company one of the
largest providers of outpatient surgery services in the nation and the ReadiCare
and Health Images transactions have broadened the Company's services in
occupational medicine and diagnostic imaging. The Company believes that the
geographic dispersion of the more than 1,000 locations now operated by the
Company makes it more attractive to managed care networks, major insurance
companies, regional and national employers and regional provider alliances and
enhances the Company's ability to implement its Integrated Service Model in
additional markets. See Item 7, "Management's Discussion and Analysis of
Financial Conditions and Results of Operations".
On February 17, 1997, the Company and Horizon/CMS Healthcare
Corporation ("Horizon/CMS") signed a definitive agreement pursuant to which
HEALTHSOUTH will acquire Horizon/CMS in a stock-for-stock merger in which the
stockholders of Horizon/CMS will receive 0.84338 of a share of HEALTHSOUTH
Common Stock per share of Horizon/CMS Common Stock. Horizon/CMS operates the
nation's second-largest network of rehabilitation facilities. The proposed
transaction is valued at approximately $1,600,000,000 (including the assumption
of approximately $700,000,000 in debt). Horizon/CMS operates 33 inpatient
rehabilitation hospitals, 58 specialty hospitals and subacute units and 282
outpatient rehabilitation locations. Horizon/CMS also owns, leases or manages
267 long-term care facilities, a contract therapy business holding 1,400
contracts, an institutional pharmacy business serving 38,500 beds and other
healthcare services. The transaction is subject to the approval of Horizon/CMS's
stockholders and to various regulatory approvals, including clearance under the
Hart-Scott- Rodino Antitrust Improvements Act of 1976, as amended, as well as to
the satisfaction of certain other conditions. The Company and Horizon/CMS
currently anticipate that the transaction will be consummated in mid-1997.
INDUSTRY BACKGROUND
In 1991 (the most recent year for which data are available),
approximately 4,000,000 people in the United States received rehabilitative
healthcare services. "Rehabilitative healthcare services" refers to the range of
skilled services provided to individuals in order to minimize physical and
cognitive impairments, maximize functional ability and restore lost functional
capacity. The focus of rehabilitative healthcare is to ameliorate physical and
cognitive impairments resulting from illness or injury, and to restore or
improve functional ability so that individuals can return to work and lead
independent and fulfilling lives. Typically, rehabilitative healthcare services
are provided by a variety of healthcare professionals including physiatrists,
rehabilitation nurses, physical therapists, occupational therapists,
speech-language pathologists, respiratory therapists, recreation therapists,
social workers, psychologists,
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rehabilitation counselors and others. Over 80% of those receiving rehabilitative
healthcare services return to their homes, work, schools or active retirement.
Demand for rehabilitative healthcare services continues to be driven by
advances in medical technologies, an aging population and the recognition on the
part of the payor community (insurers, self-insured companies, managed care
organizations and federal, state and local governments) that appropriately
administered rehabilitative services can improve quality of life as well as
lower overall healthcare costs. Studies conducted by insurance companies
demonstrate the ability of rehabilitation to significantly reduce the cost of
future care. Estimates of the savings range from $11 to $35 per dollar spent on
rehabilitation. Further, reimbursement changes have encouraged the rapid
discharge of patients from acute-care hospitals while they remain in need of
rehabilitative healthcare services.
PATIENT CARE SERVICES
The Company began its operations in 1984 with a focus on providing
comprehensive orthopaedic and musculoskeletal rehabilitation services on an
outpatient basis. Over the succeeding 13 years, the Company has consistently
sought and implemented opportunities to expand its services through acquisitions
and de novo development activities that complement its historic focus on
orthopaedic, sports medicine and occupational medicine services and that provide
independent platforms for growth. The Company's acquisitions and internal growth
have enabled it to become the largest provider of rehabilitative healthcare
services, both inpatient and outpatient, in the United States. In addition, the
Company has added outpatient surgery services, diagnostic imaging services and
other outpatient services which provide natural enhancements to its
rehabilitative healthcare locations and facilitate the implementation of its
Integrated Service Model. The Company believes that these additional businesses
also provide opportunities for growth in other areas not directly related to the
rehabilitative business, and the Company intends to pursue further expansion in
those businesses.
Rehabilitative Services: General
When a patient is referred to one of the Company's rehabilitation
facilities, the patient undergoes an initial evaluation and assessment process
that results in the development of a rehabilitation care plan designed
specifically for that patient. Depending upon the patient's disability, this
evaluation process may involve the services of a single discipline, such as
physical therapy for a knee injury, or of multiple disciplines, as in the case
of a complicated stroke patient. HEALTHSOUTH has developed numerous
rehabilitation programs, which include stroke, head injury, spinal cord injury,
neuromuscular and work injury, that combine certain services to address the
needs of patients with similar disabilities. In this way, all of the facilities'
patients, regardless of the severity and complexity of their disabilities, can
receive the level and intensity of those services necessary for them to be
restored to as productive, active and independent a lifestyle as possible.
Outpatient Rehabilitation Services
The Company operates the largest group of affiliated proprietary
outpatient rehabilitation facilities in the United States. The Company's
outpatient rehabilitation centers offer a comprehensive range of rehabilitative
healthcare services, including physical therapy and occupational therapy, that
are tailored to the individual patient's needs, focusing predominantly on
orthopaedic injuries, sports injuries, work injuries, hand and upper extremity
injuries, back injuries, and various neurological neuromuscular conditions. As
of December 31, 1996, the Company provided outpatient rehabilitative healthcare
services through 739 outpatient locations, including freestanding outpatient
centers and their satellites and outpatient satellites of inpatient facilities.
The continuing emphasis on containing the increases in healthcare
costs, as evidenced by Medicare's prospective payment system, the growth in
managed care and the various alternative healthcare reform proposals, results in
the early discharge of patients from acute-care facilities. As a result, many
hospital patients do not receive
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the intensity of services that may be necessary for them to achieve a full
recovery from their diseases, disorders or traumatic conditions. The Company's
outpatient rehabilitation services play a significant role in the continuum of
care because they provide hospital-level services, in terms of intensity,
quality and frequency, in a more cost- efficient setting.
Patients treated at the Company's outpatient centers will undergo
varying courses of therapy depending upon their needs. Some patients may only
require a few hours of therapy per week for a few weeks, while others may spend
up to five hours per day in therapy for six months or more, depending on the
nature, severity and complexity of their injuries.
In general, the Company initially establishes an outpatient center in a
given market, either by acquiring an existing private therapy practice or
through de novo development, and institutes its clinical protocols and programs
in response to the community's general need for services. The Company will then
establish satellite clinics that are dependent upon the main facility for
management and administrative services. These satellite clinics generally
provide a specific evaluative or specialty service/program, such as hand therapy
or foot and ankle therapy, in response to specific market demands. The Company's
outpatient rehabilitation facilities range in size from 1,200 square feet for
specialty clinics to 20,000 square feet for large, full-service facilities.
Currently, the typical outpatient facility configuration ranges in size from
2,000 to 5,000 square feet and costs less than $500,000 to build and equip.
Patient utilization of the Company's outpatient rehabilitation
facilities cannot be measured in the conventional manner applied to acute-care
hospitals, nursing homes and other healthcare providers which have a fixed
number of licensed beds and serve patients on a 24-hour basis. Utilization
patterns in outpatient rehabilitation facilities will be affected by the market
to be served, the types of injuries treated, the patient mix and the number of
available therapists, among other factors. Moreover, because of variations in
size, location, hours of operation, referring physician base and services
provided and other differences among each of the Company's outpatient
facilities, it is not possible to accurately assess patient utilization against
a norm.
Inpatient Services
INPATIENT REHABILITATION FACILITIES. At December 31, 1996, the Company
operated 96 inpatient rehabilitation facilities with 5,749 beds, representing
the largest group of affiliated proprietary inpatient rehabilitation facilities
in the United States. The Company's inpatient rehabilitation facilities provide
high-quality comprehensive services to patients who require intensive
institutional rehabilitation care.
Inpatient rehabilitation patients are typically those who are
experiencing significant physical disabilities due to various conditions, such
as head injury, spinal cord injury, stroke, certain orthopaedic problems and
neuromuscular disease. The Company's inpatient rehabilitation facilities provide
the medical, nursing, therapy and ancillary services required to comply with
local, state and federal regulations as well as accreditation standards of the
Joint Commission on Accreditation of Healthcare Organizations (the "JCAHO") and
the Commission on Accreditation of Rehabilitation Facilities ("CARF").
All of the Company's inpatient rehabilitation facilities utilize an
interdisciplinary team approach to the rehabilitation process and involve the
patient and family, as well as the payor, in the determination of the goals for
the patient. Internal case managers monitor each patient's progress and provide
documentation of patient status, achievement of goals, functional outcomes and
efficiency.
The Company acquires or develops inpatient rehabilitation facilities in
those communities where it believes there is a demonstrated need for
comprehensive inpatient rehabilitation services. Depending upon the specific
market opportunity, these facilities may be licensed as rehabilitation hospitals
or skilled nursing facilities. The
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Company believes that it can provide high-quality rehabilitation services in
either type of facility, but prefers to utilize the rehabilitation hospital
form.
In certain markets where it does not provide free-standing outpatient
facilities, the Company's rehabilitation hospitals may provide outpatient
rehabilitation services as a complement to their inpatient services. Typically,
this opportunity arises when patients complete their inpatient course of
treatment but remain in need of additional therapy that can be accomplished on
an outpatient basis. Depending upon the demand for outpatient services and
physical space constraints, the rehabilitation hospital may establish the
services either within its building or in a satellite location. In either case,
the clinical protocols and programs developed for use in the free-standing
outpatient centers will be utilized by these facilities.
The Company's Nashville, Tennessee (Vanderbilt University), Memphis,
Tennessee (Methodist Hospitals), Dothan, Alabama (Southeast Alabama Medical
Center) and Charleston, South Carolina (North Trident Regional Medical Center)
hospital facilities have been developed in conjunction with local tertiary-care
facilities. This strategy of developing effective referral and service networks
prior to opening results in improved operating efficiencies for the new
facilities. The Company is utilizing this same concept in rehabilitation
hospitals under development with the University of Missouri and the University
of Virginia and is pursuing similar affiliations with a number of its existing
rehabilitation hospitals.
MEDICAL CENTERS. At December 31, 1996, the Company operated five
medical centers with 912 licensed beds in four distinct markets. These
facilities provide general and specialty medical and surgical healthcare
services, emphasizing orthopaedics, sports medicine and rehabilitation. One of
these facilities, the 112-bed HEALTHSOUTH Larkin Hospital in South Miami,
Florida, was sold in February 1997.
The Company acquired its medical centers as outgrowths of its
rehabilitative healthcare services. Often, patients require medical and surgical
interventions prior to the initiation of their rehabilitative care. In each of
the markets in which the Company has acquired a medical center, the Company had
well-established relationships with the medical communities serving each
facility. In addition, each of the facilities enjoyed well-established
reputations in orthopaedics and/or sports medicine prior to their acquisition by
the Company. Following the acquisition of each of its medical centers, the
Company has provided the resources to improve upon the physical plant and expand
services through the introduction of new technology. The Company has also
developed additional relationships between these facilities and certain
university facilities, including the University of Miami, Auburn University and
the University of Alabama at Birmingham. Through these relationships, the influx
of celebrity athletes and personalities and the acquisition of new technology,
all of the Company's medical centers have improved their operating efficiencies
and enhanced census.
Each of the Company's medical center facilities is licensed as an
acute-care hospital, is accredited by the JCAHO and participates in the Medicare
prospective payment system. See this Item, "Business -- Regulation".
INPATIENT FACILITY UTILIZATION. In measuring patient utilization of the
Company's inpatient facilities, various factors must be considered. Due to
market demand, demographics, start-up status, renovation, patient mix and other
factors, the Company may not treat all licensed beds in a particular facility as
available beds, which sometimes results in a material variance between licensed
beds and beds actually available for utilization at any specific time. The
Company is in a position to increase the number of available beds at such
facilities as market conditions dictate. During the year ended December 31,
1996, the Company's inpatient facilities achieved an overall utilization, based
on patient days and available beds, of 72.56%.
Surgery Centers
As a result of the acquisitions of SHC, SSCI and SCA in 1995 and early
1996, the Company became one of the largest operators of outpatient surgery
centers in the United States. At December 31, 1996, it operated 135
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free-standing surgery centers, including five mobile lithotripsy units, in 35
states, and had an additional ten free-standing surgery centers under
development. Approximately 80% of these facilities are located in markets served
by the Company's outpatient and rehabilitative service facilities, enabling the
Company to pursue opportunities for cross-referrals between surgery and
rehabilitative facilities as well as to centralize administrative functions. The
Company's surgery centers provide the facilities and medical support staff
necessary for physicians to perform non-emergency surgical procedures. Its
typical surgery center is a free-standing facility with three to six fully
equipped operating and procedure rooms and ancillary areas for reception,
preparation, recovery and administration. Each of the Company's surgery centers
is available for use only by licensed physicians, oral surgeons and podiatrists,
and the centers do not perform surgery on an emergency basis.
Outpatient surgery centers, unlike hospitals, have not historically
provided overnight accommodations, food services or other ancillary services.
Over the past several years, states have increasingly permitted the use of
extended-stay recovery facilities by outpatient surgery centers. As a result,
many outpatient surgery centers are adding extended recovery care capabilities
where permitted. Fifty-two of the Company's surgery centers currently provide
for extended recovery stays. The Company's ability to develop such recovery care
facilities is dependent upon state regulatory environments in the particular
states where its centers are located.
The Company's outpatient surgery centers implement quality control
procedures to evaluate the level of care provided the centers. Each center has a
medical advisory committee of three to ten physicians which reviews the
professional credentials of physicians applying for medical staff privileges at
the center.
Diagnostic Centers
At December 31, 1996, the Company operated 14 diagnostic centers in
eight states. These centers provide outpatient diagnostic imaging services,
including magnetic resonance imaging ("MRI"), computerized tomography ("CT")
services, X-ray services, ultrasound services, mammography services, nuclear
medicine services and fluoroscopy. Not all services are provided at all sites;
however, most of the Company's diagnostic centers are multi-modality centers.
On March 3, 1997, the Company completed the acquisition of Health
Images, which operated a total of 55 diagnostic imaging centers, including six
centers in the United Kingdom. The Health Images centers are located in 13
states, including seven states where the Company did not previously operate
freestanding diagnostic imaging centers. In addition, the Health Images
acquisition provides the Company with its first sites in the United Kingdom.
Occupational Medicine Services
The Company's December 1996 acquisition of ReadiCare brought it 37
freestanding occupational medicine centers in California and Washington. These
centers provide cost-effective, outpatient primary medical care and
rehabilitation services to individuals for the treatment of work-related medical
problems. While the Company has historically provided occupational medicine
services through certain of its outpatient rehabilitation centers and associated
physicians, the Company believes that the ReadiCare acquisition provides it with
an additional platform for growth, and the Company intends to pursue additional
expansion in that arena.
Other Patient Care Services
In certain of its markets, the Company provides other patient care
services, including home healthcare, physician services and contract management
of hospital-based rehabilitative healthcare services. The Company evaluates
market opportunities on a case-by-case basis in determining whether to provide
additional services of these types, which may be complementary to facility-based
services provided by the Company or stand-alone businesses.
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MARKETING OF FACILITIES AND SERVICES
The Company markets its facilities, and their services and programs, on
local, regional and national levels. Local and regional marketing activities are
typically coordinated by facility-based marketing personnel, whereas large-scale
regional and national efforts are coordinated by corporate-based personnel.
In general, the Company develops a marketing plan for each facility
based on a variety of factors, including population characteristics, physician
characteristics and incidence of disability statistics, in order to identify
specific service opportunities. Facility-oriented marketing programs are focused
on increasing the volume of patient referrals to the specific facility and
involve the development of ongoing relationships with area schools, businesses
and industries as well as physicians, health maintenance organizations and
preferred provider organizations.
The Company's larger-scale marketing activities are focused more
broadly on efforts to generate patient referrals to multiple facilities and the
creation of new business opportunities. Such activities include the development
and maintenance of contractual relationships or national pricing agreements with
large third-party payors, such as CIGNA, Metrahealth or other national insurance
companies, with national HMO/PPO companies, such as
Healthcare-COMPARE/AFFORDABLE, Hospital Network of America and Multiplan, with
national case management companies, such as INTRACORP and Crawford & Co., and
with national employers, such as Wal-Mart, Georgia-Pacific Corporation, Dillard
Department Stores, Goodyear Tire & Rubber and Winn-Dixie. In addition, since
many of the facilities acquired by the Company during the past two years had
very limited contractual relationships with payors, managed care providers,
employers and others, the Company is expanding its existing payor relationships
to include these facilities.
The Company carries out broader programs designed to further enhance
its public image. Among these is the HEALTHSOUTH Sports Medicine Council, headed
by Bo Jackson, which is dedicated to developing educational programs focused on
athletics for use in high schools. The Company has ongoing relationships with
the Ladies Professional Golf Association, the Southeastern Conference and more
than 125 universities and colleges and 700 high schools to provide sports
medicine coverage of events and rehabilitative healthcare services for injured
athletes. In addition, the Company has established relationships with or
provided treatment services for athletes from some 40-50 professional sports
teams, as well as providing sports medicine services for Olympic and amateur
athletes. In 1996, the Company and the United States Olympic Committee
established the Richard M. Scrushy/HEALTHSOUTH Sports Medicine and Sport Science
Center at the USOC's Colorado Springs campus.
The Company is a national sponsor of the United Cerebral Palsy
Association and the National Arthritis Foundation and supports many other
charitable organizations on national and local levels. Through these endeavors,
the Company provides its employees with opportunities to support their
communities.
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SOURCES OF REVENUES
Private pay revenue sources represent the majority of the Company's
revenues. The following table sets forth the percentages of the Company's
revenues from various sources for the periods indicated:
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YEAR ENDED YEAR ENDED
SOURCE DECEMBER 31, 1995 DECEMBER 31, 1996
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Medicare ............................................... 40.0% 37.8%
Commercial (1)................................................. 34.8 34.9
Workers' Compensation.......................................... 10.3 11.3
All Other Payors (2)........................................... 14.9 16.0
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100.0% 100.0%
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(1) Includes commercial insurance, HMOs, PPOs and other managed care plans.
(2) Medicaid is included in this category, but is insignificant in amount.
The above table does not reflect the SHC, SSCI, SCA, Advantage Health,
PSCM or ReadiCare facilities for periods or portions thereof prior to the
effective date of the acquisitions. Comparable information for those facilities
is not available and is not reflected in 1995 for the SHC or SSCI facilities or
in either year for the SCA, Advantage Health, PSCM or ReadiCare facilities.
See this Item "Business -- Regulation -- Medicare Participation and
Reimbursement" for a description of the reimbursement regulations applicable to
the Company's facilities.
COMPETITION
The Company competes in the geographic markets in which its facilities
are located. In addition, the Company's rehabilitation facilities compete on a
regional and national basis with other providers of specialized services such as
sports medicine and work hardening, and specific concentrations such as head
injury rehabilitation and orthopaedic surgery. The competition faced in each of
these markets is similar, with variations arising from the number of healthcare
providers in the given metropolitan area. The primary competitive factors in the
rehabilitation services business are quality of services, projected patient
outcomes, charges for services, responsiveness to the needs of the patients,
community and physicians, and ability to tailor programs and services to meet
specific needs of the patients. Competitors and potential competitors include
hospitals, private practice therapists, rehabilitation agencies and others. Some
of these competitors may have greater patient referral support and financial and
personnel resources in particular markets than the Company. Management believes
that the Company competes successfully within the marketplace based upon its
reputation for quality, competitive prices, positive rehabilitation outcomes,
innovative programs, clean and bright facilities and responsiveness to needs.
The Company's surgery centers compete primarily with hospitals and
other operators of freestanding surgery centers in attracting physicians and
patients, and in developing new centers and in acquiring existing centers. The
primary competitive factors in the outpatient surgery business are convenience,
cost, quality of service, physician loyalty and reputation. Hospitals have many
competitive advantages in attracting physicians and patients, including
established standing in a community, historical physician loyalty and
convenience for physicians making rounds or performing inpatient surgery in the
hospital. However, the Company believes that its national market system and its
historical presence in certain of the markets where its surgery centers are
located will enhance the Company's ability to operate these facilities
successfully.
- 10 -
<PAGE>
The Company's diagnostic centers compete with local hospitals, other
multi-center imaging companies, local independent diagnostic centers and imaging
centers owned by local physician groups. The Company believes that the principal
competitive factors in the diagnostic services are price, quality of service,
ability to establish and maintain relationships with managed care payors and
referring physicians, reputation of interpreting physicians, facility location
and convenience of scheduling. Management believes that the Company's diagnostic
facilities compete successfully within their respective markets taking into
account these factors.
The Company's medical centers are located in four urban areas of the
country, all with well established healthcare services provided by a number of
proprietary, not-for-profit, and municipal hospital facilities. The Company's
facilities compete directly with these local hospitals as well as various
nationally recognized centers of excellence in orthopaedics, sports medicine and
other specialties. Because the Company's facilities enjoy a national and
international reputation for orthopaedic surgery and sports medicine, the
Company believes that its medical centers' level of service and continuum of
care enable them to compete successfully, both locally and nationally.
The Company potentially faces competition any time it initiates a
Certificate of Need ("CON") project or seeks to acquire an existing facility or
CON. See this Item, "Business -- Regulation". This competition may arise either
from competing companies, national or regional, or from local hospitals which
file competing applications or oppose the proposed CON project. The necessity
for these approvals serves as a barrier to entry and has the potential to limit
competition by creating a franchise to provide services to a given area. To date
the Company has been successful in obtaining each of the CONs or similar
approvals which it has sought, although there can be no assurance that it will
achieve similar success in the future.
REGULATION
The healthcare industry is subject to regulation by federal, state and
local governments. The various levels of regulatory activity affect the
Company's business activities by controlling its growth, requiring licensure or
certification of its facilities, regulating the use of its properties and
controlling the reimbursement to the Company for services provided.
Licensure, Certification and Certificate of Need Regulations
Capital expenditures for the construction of new facilities, the
addition of beds or the acquisition of existing facilities may be reviewable by
state regulators under a statutory scheme which is sometimes referred to as a
CON program. States with CON programs place limits on the construction and
acquisition of healthcare facilities and the expansion of existing facilities
and services. In such states, approvals are required for capital expenditures
exceeding certain amounts which involve inpatient rehabilitation facilities or
services. Outpatient rehabilitation facilities and services do not require such
approvals in a majority of states.
State CON statutes generally provide that, prior to the addition of new
beds, the construction of new facilities or the introduction of new services, a
state health planning designated agency (a "SHPDA") must determine that a need
exists for those beds, facilities or services. The CON process is intended to
promote comprehensive healthcare planning, assist in providing high quality
healthcare at the lowest possible cost and avoid unnecessary duplication by
ensuring that only those healthcare facilities that are needed will be built.
Typically, the provider of services submits an application to the
appropriate SHPDA with information concerning the area and population to be
served, the anticipated demand for the facility or service to be provided, the
amount of capital expenditure, the estimated annual operating costs, the
relationship of the proposed facility or service to the overall state health
plan and the cost per patient day for the type of care contemplated. Whether the
CON is granted is based upon a finding of need by the SHPDA in accordance with
criteria set forth in CON statutes and state and regional health facilities
plans. If the proposed facility or service is found to be necessary and the
applicant to be the appropriate provider, the SHPDA will issue a CON containing
a maximum amount of expenditure and a specific time period for the holder of the
CON to implement the approved project.
- 11 -
<PAGE>
Licensure and certification are separate, but related, regulatory
activities. The former is usually a state or local requirement and the latter is
a federal requirement. In almost all instances, licensure and certification will
follow specific standards and requirements that are set forth in readily
available public documents. Compliance with the requirements is monitored by
annual on-site inspections by representatives of various government agencies.
All of the Company's inpatient rehabilitation facilities and medical centers and
substantially all of the Company's surgery centers are currently required to be
licensed, but only the outpatient rehabilitation facilities located in Alabama,
Arizona, Connecticut, Maryland, Massachusetts, New Hampshire, New Mexico and
Rhode Island currently must satisfy such a licensing requirement.
Medicare Participation and Reimbursement
In order to participate in the Medicare program and receive Medicare
reimbursement, each facility must comply with the applicable regulations of the
United States Department of Health and Human Services relating to, among other
things, the type of facility, its equipment, its personnel and its standards of
medical care, as well as compliance with all state and local laws and
regulations. All of the Company's inpatient facilities, except for the St. Louis
head injury center, participate in the Medicare program. Approximately 304 of
the Company's outpatient rehabilitation facilities currently participate in, or
are awaiting the assignment of a provider number to participate in, the Medicare
program. All of the Company's surgery centers and diagnostic centers are
certified (or awaiting certification) under the Medicare program. Its
Medicare-certified facilities, inpatient and outpatient, undergo annual on-site
Medicare certification surveys in order to maintain their certification status.
Failure to comply with the program's conditions of participation may result in
loss of program reimbursement or other governmental sanctions. All such
facilities have been deemed to be in satisfactory compliance on all applicable
surveys. The Company has developed its operational systems to assure compliance
with the various standards and requirements of the Medicare program and has
established ongoing quality assurance activities to monitor compliance. The
Company believes that all of such facilities currently meet all applicable
Medicare requirements.
As a result of the Social Security Act Amendments of 1983, Congress
adopted a prospective payment system ("PPS") to cover the routine and ancillary
operating costs of most Medicare inpatient hospital services. Under this system,
the Secretary of Health and Human Services has established fixed payment amounts
per discharge based on diagnosis-related groups ("DRGs"). With limited
exceptions, a hospital's payment for Medicare inpatients is limited to the DRG
rate, regardless of the number of services provided to the patient or the length
of the patient's hospital stay. Under PPS, a hospital may retain the difference,
if any, between its DRG rate and its operating costs incurred in furnishing
inpatient services, and is at risk for any operating costs that exceed its DRG
rate. The Company's medical center facilities are generally subject to PPS with
respect to Medicare inpatient services.
The PPS program has been beneficial for the rehabilitation segment of
the healthcare industry because of the economic pressure on acute-care hospitals
to discharge patients as soon as possible. The result has been increased demand
for rehabilitation services for those patients discharged early from acute-care
hospitals. Outpatient rehabilitation services and free-standing inpatient
rehabilitation facilities are currently exempt from PPS, and inpatient
rehabilitation units within acute-care hospitals are eligible to obtain an
exemption from PPS upon satisfaction of certain federal criteria.
Currently, seven of the Company's outpatient centers are
Medicare-certified Comprehensive Outpatient Rehabilitation Facilities ("CORFs")
and 222 are Medicare-certified rehabilitation agencies. CORFs have been
designated cost-reimbursed Medicare providers since 1982. Under the regulations,
CORFs are reimbursed reasonable costs (subject to certain limits) for services
provided to Medicare beneficiaries. Outpatient rehabilitation facilities
certified by Medicare as rehabilitation agencies are reimbursed on the basis of
the lower of reasonable costs for services provided to Medicare beneficiaries or
charges for such services. Outpatient rehabilitation facilities which are
physician-directed clinics, as well as outpatient surgery centers, are
reimbursed by Medicare on a fee screen basis; that is, they receive a fixed fee,
which is determined by the geographical area in which the facility is located,
for each procedure performed. The Company's outpatient rehabilitation facilities
submit monthly bills
- 12 -
<PAGE>
to their fiscal intermediaries for services provided to Medicare beneficiaries,
and the Company files annual cost reports with the intermediaries for each such
facility. Adjustments are then made if costs have exceeded payments from the
fiscal intermediary or vice versa.
The Company's inpatient facilities (other than the medical center
facilities) either are not currently covered by PPS or are exempt from PPS, and
are also cost-reimbursed, receiving the lower of reasonable costs or charges.
Typically, the fiscal intermediary pays a set rate based on the prior year's
costs for each facility. As with outpatient facilities subject to cost-based
reimbursement, annual cost reports are filed with the Company's fiscal
intermediary and payment adjustments are made, if necessary.
Congress has directed the United States Department of Health and Human
Services to develop regulations, which could subject inpatient rehabilitation
hospitals to PPS in place of the current "reasonable cost within limits" system
of reimbursement. In addition, informal proposals have been made for a
prospective payment system for Medicare outpatient care. Other proposals for a
prospective payment system for rehabilitation hospitals are also being
considered by the federal government. Therefore, the Company cannot predict at
this time the effect that any such changes may have on its operations.
Regulations relating to prospective payment or other aspects of reimbursement
may be developed in the future which could adversely affect reimbursement for
services provided by the Company.
Over the past several years an increasing number of healthcare
providers have been accused of violating the federal False Claims Act. That Act
prohibits the knowing presentation of a false claim to the United States
government. Because the Company performs thousands of similar procedures a year
for which it is reimbursed by Medicare and there is a relatively long statute of
limitations, a billing error could result in significant civil penalties. The
Company does not believe that it is or has been in violation of the False Claims
Act.
Relationships with Physicians and Other Providers
Various state and federal laws regulate relationships among providers
of healthcare services, including employment or service contracts and investment
relationships. These restrictions include a federal criminal law prohibiting (i)
the offer, payment, solicitation or receipt of remuneration by individuals or
entities, to induce referrals of patients for services reimbursed under the
Medicare or Medicaid programs or (ii) the leasing, purchasing, ordering,
arranging for or recommending the lease, purchase or order of any item, good,
facility or service covered by such programs (the "Fraud and Abuse Law"). In
addition to federal criminal sanctions, violators of the Fraud and Abuse Law may
be subject to significant civil sanctions, including fines and/or exclusion from
the Medicare and/or Medicaid programs.
In 1991, the Office of the Inspector General ("OIG") of the United
States Department of Health and Human Services promulgated regulations
describing compensation arrangements which are not viewed as illegal
remuneration under the Fraud and Abuse Law (the "Safe Harbor Rules"). The Safe
Harbor Rules create certain standards ("Safe Harbors") for identified types of
compensation arrangements which, if fully complied with, assure participants in
the particular arrangement that the OIG will not treat such participation as a
criminal offense under the Fraud and Abuse Law or as the basis for an exclusion
from the Medicare and Medicaid programs or an imposition of civil sanctions. The
OIG closely scrutinizes health care joint ventures involving physicians and
other referral sources. In 1989, the OIG published a Fraud Alert that outlined
questionable features of "suspect" joint ventures.
In 1992, regulations were published in the Federal Register
implementing the OIG sanction and civil money penalty provisions established in
the Fraud and Abuse Law. The regulations (the "Exclusion Regulations") provide
that the OIG may exclude a Medicare provider from participation in the Medicare
Program for a five-year period upon a finding that the Fraud and Abuse Law has
been violated. The regulations expressly incorporate a test adopted by three
federal circuit courts providing that if one purpose of remuneration that is
offered, paid, solicited or received is to induce referrals, then the statute is
violated. The regulations also provide that after the OIG
- 13 -
<PAGE>
establishes a factual basis for excluding a provider from the program, the
burden of proof shifts to the provider to prove that the Fraud and Abuse Law has
not been violated.
The Company currently operates four of its rehabilitation hospitals and
many of its outpatient rehabilitation facilities as limited partnerships with
third-party investors. Two of the rehabilitation hospital partnerships involve
physician investors, and two of the rehabilitation hospital partnerships involve
other institutional healthcare providers. Eight of the outpatient partnerships
currently have a total of 21 physician limited partners, some of whom refer
patients to the partnerships. Those partnerships which are providers of services
under the Medicare program, and their limited partners, are subject to the Fraud
and Abuse Law. A number of the relationships established by the Company with
physicians and other healthcare providers do not fit within any of the Safe
Harbors. The Safe Harbor Rules do not expand the scope of activities that the
Fraud and Abuse Law prohibits, nor do they provide that failure to fall within a
Safe Harbor constitutes a violation of the Fraud and Abuse Law; however, the OIG
has informally indicated that failure to fall within a Safe Harbor may subject
an arrangement to increased scrutiny.
Most of the Company's surgery centers are owned by limited
partnerships, which include as limited partners physicians who perform surgical
procedures at such centers. Subsequent to the promulgation of the Safe Harbor
Rules in 1991, the Department of Health and Human Services issued for public
comment additional proposed Safe Harbors, one of which specifically addresses
surgeon ownership interests in ambulatory surgery centers (the "Proposed ASC
Safe Harbor"). As proposed, the Proposed ASC Safe Harbor would protect payments
to be made to surgeons as a return on investment interest in a surgery center
if, among other conditions, all the investors are surgeons who are in a position
to refer patients directly to the center and perform surgery on such referred
patients. Since a subsidiary of the Company is an investor in each limited
partnership which owns a surgery center, the Company's arrangements with
physician investors do not fit within the Proposed ASC Safe Harbor as currently
proposed. The Company is unable at this time to predict whether the Proposed ASC
Safe Harbor will become final, and if so, whether the language and requirements
will remain as currently proposed, or whether changes will be made prior to
becoming final. There can be no assurance that the Company will ever meet the
criteria under the Proposed ASC Safe Harbor as proposed or as it may be adopted
in final form. The Company believes, however, that its arrangements with
physicians with respect to its surgery center facilities should not fall within
the activities prohibited by the Fraud and Abuse Law.
While several federal court decisions have aggressively applied the
restrictions of the Fraud and Abuse Law, they provide little guidance as to the
application of the Fraud and Abuse Law to the Company's limited partnerships.
The Company believes that it is in compliance with the current requirements of
applicable federal and state law, but no assurances can be given that a federal
or state agency charged with enforcement of the Fraud and Abuse Law and similar
laws might not assert a contrary position or that new federal or state laws, or
new interpretations of existing laws, might not adversely affect relationships
established by the Company with physicians or other healthcare providers or
result in the imposition of penalties on the Company or certain of its
facilities. Even the assertion of a violation could have a material adverse
effect upon the Company.
The so-called "Stark II" provisions of the Omnibus Budget
Reconciliation Act of 1993 amend the federal Medicare statute to prohibit the
making by a physician of referrals for "designated health services" (including
physical therapy, occupational therapy, radiology services or radiation therapy)
to an entity in which the physician has an investment interest or other
financial relationship, subject to certain exceptions. Such prohibition took
effect on January 1, 1995 and applies to all of the Company's outpatient
rehabilitation facility partnerships with physician limited partners. In
addition, a number of states have passed or are considering statutes which
prohibit or limit physician referrals of patients to facilities in which they
have an investment interest. In response to these regulatory activities, the
Company has restructured most of its rehabilitation facility partnerships which
involve physician investors, in order to eliminate physician ownership interests
not permitted by applicable law. The Company intends to take such actions as may
be required to cause the remaining partnerships to be in compliance with
applicable laws and regulations, including, if necessary, the prohibition of
physician partners from referring patients. The Company believes that this
restructuring has not adversely affected and will not adversely affect the
operations of its facilities.
- 14 -
<PAGE>
Ambulatory surgery is not identified as a "designated health service",
and the Company does not believe that ambulatory surgery is subject to the
restrictions set forth in Stark II. However, lithotripsy facilities operated by
the Company frequently operate on hospital campuses, and it is possible to
conclude that such services are "inpatient and outpatient hospital services" --
a category of proscribed services within the meaning of Stark II. Similarly,
physicians frequently perform endoscopic procedures in the procedure rooms of
the Company's surgery centers, and it is also possible to construe these
services to be "designated health services". While the Company does not believe
that Stark II was intended to apply to such services, if that were determined to
be the case, the Company intends to take steps necessary to cause the operation
of its facilities to comply with the law.
The Company cannot predict whether other regulatory or statutory
provisions will be enacted by federal or state authorities which would prohibit
or otherwise regulate relationships which the Company has established or may
establish with other healthcare providers or the possibility of materially
adverse effects on its business or revenues arising from such future actions.
Management of the Company believes, however, that the Company will be able to
adjust its operations so as to be in compliance with any regulatory or statutory
provision as may be applicable. See this Item, "Business -- Patient Care
Services" and "Business -- Sources of Revenues".
INSURANCE
Beginning December 1, 1993, the Company became self-insured for
professional liability and comprehensive general liability. The Company
purchased coverage for all claims incurred prior to December 1, 1993. In
addition, the Company purchased underlying insurance which would cover all
claims once established limits have been exceeded. It is the opinion of
management that as of December 31, 1996, the Company had adequate reserves to
cover losses on asserted and unasserted claims.
EMPLOYEES
As of December 31, 1996, the Company employed 36,410 persons, of whom
20,930 were full-time employees and 15,480 were part-time employees. Of the
above employees, 595 were employed at the Company's headquarters in Birmingham,
Alabama. Except for approximately 80 employees at one rehabilitation hospital
(about 18% of that facility's workforce), none of the Company's employees are
represented by a labor union. The Company is not aware of any current activities
to organize its employees at other facilities. Management of the Company
considers the relationship between the Company and its employees to be good.
ITEM 2. PROPERTIES.
The Company's executive offices currently occupy approximately 200,000
square feet in a newly-constructed headquarters building in Birmingham, Alabama.
The headquarters building, which was occupied by the Company in February 1997,
was constructed on a 73-acre parcel of land owned by the Company pursuant to a
tax retention operating lease structured through NationsBanc Leasing
Corporation. Substantially all of the Company's outpatient rehabilitation
operations are carried out in leased facilities. The Company owns 33 of its
inpatient rehabilitation facilities and leases or operates under management
contracts the remainder of its inpatient rehabilitation facilities. The Company
also owns 40 of its surgery centers and leases the remainder. Prior to the
acquisition of Health Images, substantially all of the Company's diagnostic
centers operated in leased facilities. The Company constructed its
rehabilitation hospitals in Florence and Columbia, South Carolina, Kingsport and
Nashville, Tennessee, Concord, New Hampshire, and Dothan, Alabama, and is
constructing its Columbia, Missouri and Charlottesville, Virginia rehabilitation
hospitals, on property leased under long-term ground leases. The property on
which the Company's Memphis, Tennessee rehabilitation hospital is located is
owned in partnership by the Company and Methodist Hospitals of Memphis. The
Company owns its four medical center facilities. The Company currently owns, and
from time to time may acquire, certain other improved and unimproved real
- 15 -
<PAGE>
properties in connection with its business. See Notes 5 and 7 of "Notes to
Consolidated Financial Statements" for information with respect to the
properties owned by the Company and certain indebtedness related thereto.
In management's opinion, the Company's physical properties are adequate
for the Company's needs for the foreseeable future, and are consistent with its
expansion plans described elsewhere in this Annual Report on Form 10-K.
- 16 -
<PAGE>
The following table sets forth a listing of the Company's patient care
services locations at December 31, 1996 (without giving effect to the Health
Images acquisition):
<TABLE>
<CAPTION>
OUTPATIENT INPATIENT
REHABILITATION REHABILITATION MEDICAL SURGERY DIAGNOSTIC OTHER
STATE CENTERS(1) FACILITIES (BEDS)(2) CENTERS (BEDS)(2) CENTERS CENTERS SERVICES
- ----- ---------- -------------------- ----------------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Alabama 16 9 (389) 1 (219) 5 3 10
Alaska 1
Arizona 26 3 (183) 2
Arkansas 1 1 (80) 2
California 48 1 (60) 21 31
Colorado 28 5 12
Connecticut 18 2 (40) 1
Delaware 7 2
District of Columbia 1 1
Florida 46 8 (613) 2 (397) 18 11
Georgia 13 1 (75) 3 1
Hawaii 5 1
Idaho 1
Illinois 50 2
Indiana 13 1 (80) 2
Iowa 3 1
Kansas 5 1
Kentucky 3 1 (40) 2
Louisiana 2 1 (43) 1 1
Maine 9 4 (155) 1
Maryland 14 1 (44) 6 3
Massachusetts 37 10 (639) 1 10
Michigan 3 1
Minnesota 11
Mississippi 2
Missouri 34 4 (107) 6 6
Montana 1
Nebraska 2
Nevada 4
New Hampshire 13 3 (148)
New Jersey 52 2 (170) 2 1 3
New Mexico 3 1 (60) 1
New York 39 1 (27) 1
North Carolina 12 3
North Dakota 1
Ohio 27 1 (24) 4 3
Oklahoma 11 1 (111) 2 1
Oregon 1
Pennsylvania 31 12 (1,041) 6
Rhode Island 3
South Carolina 9 4 (235) 2
South Dakota 1
Tennessee 13 5 (330) 6 1
Texas 72 10 (633) 1 (96) 16 2 14
Utah 1 1 (86) 1
Vermont 2 (52)
Virginia 11 2 (84) 1 (200) 1 2 10
Washington 36 2 17
West Virginia 4 (200) 1
Wisconsin 1 4
Wyoming 1
</TABLE>
- -----------------------
(1) Includes freestanding outpatient centers and their satellites and
outpatient satellites of inpatient rehabilitation facilities.
(2) "Beds" refers to the number of beds for which a license or certificate of
need has been granted, which may vary materially from beds available for
use.
- 17 -
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
In the ordinary course of its business, the Company may be subject,
from time to time, to claims and legal actions by patients and others. The
Company does not believe that any such pending actions, if adversely decided,
would have a material adverse effect on its financial condition. See Item 1,
"Business -- Insurance" and Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for a description of the
Company's insurance coverage arrangements.
From time to time, the Company appeals decisions of various rate-making
authorities with respect to Medicare rates established for the Company's
facilities. These appeals are initiated in the ordinary course of business.
Management believes that adequate reserves have been established for possible
adverse decisions on any pending appeals and that the outcomes of currently
pending appeals, either individually or in the aggregate, will have no material
adverse effect on the Company's operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On March 12, 1997, a Special Meeting of Stockholders of the Company was
held, at which shares of Common Stock represented at the Special Meeting were
voted for the approval of an Amendment to the Restated Certificate of
Incorporation of the Company to increase the authorized shares of Common Stock
to 500,000,000 shares as follows:
NUMBER
VOTING FOR AGAINST ABSTAIN
138,533,768 137,975,826 339,699 218,243
- 18 -
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is listed for trading on the New York Stock
Exchange (Symbol: HRC). The following table sets forth for the fiscal periods
indicated the high and low reported sale prices for the Company's Common Stock
as reported on the NYSE Composite Transactions Tape. All prices shown have been
adjusted for a two-for-one stock split effected in the form of a 100% stock
dividend paid on April 17, 1995 and a two-for-one stock split effected in the
form of a 100% stock dividend paid on March 17, 1997.
<TABLE>
<CAPTION>
REPORTED
SALE PRICE
HIGH LOW
---- ---
1995
<S> <C> <C>
First Quarter........................................................... $ 10.22 $ 9.03
Second Quarter.......................................................... 10.82 8.16
Third Quarter........................................................... 12.88 8.63
Fourth Quarter.......................................................... 16.19 11.25
1996
First Quarter........................................................... $ 19.07 $ 13.50
Second Quarter.......................................................... 19.32 16.16
Third Quarter........................................................... 19.32 14.25
Fourth Quarter.......................................................... 19.88 17.57
-------------------------
</TABLE>
The closing price for the Common Stock on the New York Stock Exchange
on March 25, 1997, was $20,875.
.
There were approximately 3,671 holders of record of the Common Stock as
of March 17, 1997, excluding those shares held by depository companies for
certain beneficial owners.
The Company has never paid cash dividends on its Common Stock (although
certain of the companies acquired by the Company in poolings-of-interests
transactions had paid dividends prior to such acquisitions) and does not
anticipate the payment of cash dividends in the foreseeable future. The Company
currently anticipates that any future earnings will be retained to finance the
Company's operations.
RECENT SALES OF UNREGISTERED SECURITIES
During the period covered by this Annual Report on Form 10-K, the
Company issued 52,584 shares of its Common Stock in a transaction not registered
under the Securities Act of 1933, as amended. Such shares were issued as of
November 14, 1996, to five individuals who were shareholders of a corporation
acquired by the Company in a merger transaction. Such shares were issued to such
individuals in exchange for all the issued and outstanding capital stock of the
acquired company. The Company issued such shares of its Common Stock in reliance
upon the exemption contained in Section 4(2) of the Securities Act of 1933, as
amended, inasmuch as the issuance of such shares did not involve any public
offering.
- 19 -
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
Set forth below is a summary of selected consolidated financial data
for the Company for the years indicated. All amounts have been restated to
reflect the effects of the 1994 acquisition of ReLife, Inc. ("ReLife"), the 1995
SHC and SSCI acquisitions and the 1996 SCA and Advantage Health acquisitions,
each of which was accounted for as a pooling of interests.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1992 1993 1994 1995 1996
------------- ------------- ------------ ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Income Statement Data:
<S> <C> <C> <C> <C> <C>
Revenues $ 750,134 $ 979,206 $ 1,649,199 $ 2,003,146 $ 2,436,537
Operating expenses
Operating units 521,619 668,201 1,161,758 1,371,740 1,586,003
Corporate general and administrative 25,667 37,043 61,640 56,920 66,807
Provision for doubtful accounts 16,553 20,026 32,904 37,659 54,112
Depreciation and amortization 42,107 63,572 113,977 143,322 188,966
Interest expense 18,237 24,200 73,644 101,790 94,553
Interest income (8,595) (5,903) (6,387) (7,882) (5,912)
Merger and acquisition related expenses (1) ---- 333 6,520 34,159 41,515
Gain on sale of equity securities (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) ---- ---- ----
------------- -------------- ------------ ------------- -------------
620,136 855,814 1,464,526 1,791,257 2,026,044
------------- ------------- ------------ ------------- -------------
Income before income taxes and
minority interests 129,998 123,392 184,673 211,889 410,493
Provision for income taxes 38,550 37,993 65,121 76,221 140,238
------------- ------------- ------------ ------------- -------------
91,448 85,399 119,552 135,668 270,255
Minority interests 25,943 29,377 31,469 43,147 49,437
------------- ------------- ------------ ------------- -------------
Income from continuing operations 65,505 56,022 88,083 92,521 220,818
Income from discontinued operations 3,283 4,452 ---- ---- ----
------------- ------------- ------------ ------------- -------------
Net income $ 68,788 $ 60,474 $ 88,083 $ 92,521 $ 220,818
============= ============= ============ ============= =============
Weighted average common and common
equivalent shares outstanding (3) 254,296 264,958 280,854 297,460 326,290
============= ============= ============ ============= =============
Net income per common and common
equivalent shares (3)
Continuing operations $ 0.26 $ 0.21 $ 0.31 $ 0.31 $ 0.68
Discontinued operations 0.01 0.02 ---- ---- ----
------------- ------------- ------------ ------------- -------------
$ 0.27 $ 0.23 $ 0.31 $ 0.31 $ 0.68
============= ============= ============ ============= =============
Net income per common share --
assuming full dilution (3)(4) N/A N/A $ 0.31 $ 0.31 $ 0.66
============= ============= ============ ============= =============
- 20 -
<PAGE>
<CAPTION>
December 31,
1992 1993 1994 1995 1996
------------- ------------- ------------ ------------- ---------
Balance Sheet Data: (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash and marketable securities $ 179,725 $ 148,308 $ 129,971 $ 156,321 $ 151,788
Working capital 269,120 284,691 282,667 406,125 543,975
Total assets 1,143,235 1,881,211 2,230,093 2,931,495 3,371,952
Long-term debt (5) 413,656 1,008,429 1,139,087 1,391,664 1,486,029
Stockholders' equity 581,954 646,397 757,583 1,185,898 1,515,924
</TABLE>
- ----------
(1) Expenses related to SHC's Ballas Merger in 1993, the ReLife and Heritage
Acquisitions in 1994, the SHC, SSCI and NovaCare Rehabilitation Hospitals
Acquisitions in 1995 and the SCA, Advantage Health, PSCM and ReadiCare
mergers in 1996.
(2) See "Notes to Consolidated Financial Statements".
(3) Adjusted to reflect a two-for-one stock split effected in the form of a
100% stock dividend paid on April 17, 1995 and a two-for-one stock split
effected in the form of a 100% stock dividend paid on March 17, 1997.
(4) Fully-diluted earnings per share in 1994, 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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
The following discussion is intended to facilitate the understanding
and assessment of significant changes and trends related to the results of
operations and financial condition of the Company, including certain factors
related to recent acquisitions by the Company, the timing and nature of which
have significantly affected the Company's results of operations. This discussion
and analysis should be read in conjunction with the Company's consolidated
financial statements and notes thereto included elsewhere in this Annual Report
on Form 10-K.
The Company completed the following acquisitions over the last three
years (common share amounts have been adjusted to reflect a two-for-one stock
split effected in the form of a 100% stock dividend paid on March 17, 1997):
- On December 29, 1994, the Company acquired ReLife, Inc. (the "ReLife
Acquisition"). A total of 22,050,580 shares of the Company's Common
Stock were issued in the transaction, representing a value of
$180,000,000 at the time of the acquisition. At that time, ReLife
operated 31 inpatient facilities with an aggregate of 1,102 licensed
beds, including nine free-standing rehabilitation hospitals, nine
acute rehabilitation units, five sub-acute rehabilitation units,
seven transitional living units and one residential facility, and
also provided outpatient rehabilitation services at 12 centers.
- On April 1, 1995, the Company purchased the operations of the
rehabilitation hospital division of NovaCare, Inc. (the "NovaCare
Rehabilitation Hospitals Acquisition"). The purchase price was
approximately $235,000,000. The NovaCare Rehabilitation Hospitals
consisted of 11 rehabilitation hospitals in seven states, 12 other
facilities and two Certificates of Need.
- On June 13, 1995, the Company acquired Surgical Health Corporation
(the "SHC Acquisition"). A total of 17,062,960 shares of the
Company's Common Stock were issued in the transaction, representing a
value of $155,000,000 at the time of the acquisition. The Company
also purchased SHC's $75,000,000 aggregate principal amount of 11.5%
Senior Subordinated Notes due 2004 for an aggregate consideration of
approximately $86,000,000. At that time, SHC operated a network of 36
free-standing surgery centers in 11 states, and five mobile
lithotripsy units.
- 21 -
<PAGE>
- On October 26, 1995, the Company acquired Sutter Surgery Centers,
Inc. (the "SSCI Acquisition"). A total of 3,552,002 shares of the
Company's Common Stock were issued in the transaction, representing a
value of $44,444,000 at the time of the acquisition. At that time,
SSCI operated a network of 12 freestanding surgery centers in three
states.
- On December 1, 1995, the Company acquired Caremark Orthopedic
Services Inc. (the "Caremark Acquisition"). The purchase price was
approximately $127,500,000. At that time Caremark owned and operated
approximately 120 outpatient rehabilitation centers in 13 states.
- On January 17, 1996, the Company acquired Surgical Care Affiliates,
Inc. (the "SCA Acquisition"). A total of 91,856,678 shares of the
Company's Common Stock were issued in the transaction, representing a
value of approximately $1,400,000,000 at the time of the acquisition.
At that time, SCA operated a network of 67 freestanding surgery
centers in 24 states.
- On March 14, 1996, the Company acquired Advantage Health Corporation
(the "Advantage Health Acquisition"). A total of 18,203,978 shares of
the Company's Common Stock were issued in the transaction,
representing a value of approximately $315,000,000 at the time of the
acquisition. At that time, Advantage Health operated a network of 136
sites of service, including four freestanding rehabilitation
hospitals, one freestanding multi-use hospital, one nursing home, 68
outpatient rehabilitation facilities, 14 inpatient managed
rehabilitation units, 24 rehabilitation services management contracts
and six managed sub-acute rehabilitation units, primarily located in
the northeastern United States.
- On August 20, 1996, the Company acquired Professional Sports Care
Management, Inc. (the "PSCM Acquisition"). A total of 3,622,888
shares of the Company's Common Stock were issued in the transaction,
representing a value of approximately $59,000,000 at the time of the
acquisition. At that time, PSCM operated a network of 36 outpatient
rehabilitation centers in three states.
- On December 2, 1996, the Company acquired ReadiCare, Inc. (the
"ReadiCare Acquisition"). A total of 4,007,954 shares of the
Company's Common Stock were issued in the transaction, representing a
value of approximately $76,000,000 at the time of the acquisition. At
that time, ReadiCare operated a network of 37 outpatient medical and
rehabilitation centers in two states.
The NovaCare Rehabilitation Hospitals Acquisition and the Caremark
Acquisition each were accounted for under the purchase method of accounting and,
accordingly, the acquired operations are included in the Company's consolidated
financial information from their respective dates of acquisition. Each of the
ReLife Acquisition, the SHC Acquisition, the SSCI Acquisition, the SCA
Acquisition and the Advantage Health Acquisition was accounted for as a pooling
of interests and, with the exception of data set forth relating to revenues
derived from Medicare and Medicaid, all amounts shown in the following
discussion have been restated to reflect such acquisitions. ReLife, SHC, SSCI,
SCA and Advantage Health did not separately track such revenues. The PSCM
Acquisition and the ReadiCare Acquisition were also accounted for as poolings of
interests. However, due to the immateriality of PSCM and ReadiCare, the
Company's historical financial statements for all periods prior to the quarters
in which the respective mergers took place have not been restated. Instead,
stockholders' equity has been increased during 1996 to reflect the effects of
the PSCM Acquisition and the ReadiCare Acquisition. The results of operations of
PSCM and ReadiCare are included in the accompanying financial statements and the
following discussion from the date of acquisition forward (see Note 2 of "Notes
to Consolidated Financial Statements" for further discussion).
The Company determines the amortization period of the cost in excess of
net asset value of purchased facilities based on an evaluation of the facts and
circumstances of each individual purchase transaction. The evaluation includes
an analysis of historic and projected financial performance, an evaluation of
the estimated useful life of the buildings and fixed assets acquired, the
indefinite useful life of certificates of need and licenses acquired, the
competition within local markets, lease terms where applicable, and the legal
terms of partnerships where applicable. The Company utilizes independent
appraisers and relies on its own management expertise in evaluating
- 22 -
<PAGE>
each of the factors noted above. With respect to the carrying value of the
excess of cost over net asset value of purchased facilities and other intangible
assets, the Company determines on a quarterly basis whether an impairment event
has occurred by considering factors such as the market value of the asset, a
significant adverse change in legal factors or in the business climate, adverse
action by regulators, history of operating losses or cash flow losses, or a
projection of continuing losses associated with an operating entity. The
carrying value of excess cost over net asset value of purchased facilities and
other intangible assets will be evaluated if the facts and circumstances suggest
that it has been impaired. If this evaluation indicates that the value of the
asset will not be recoverable, as determined based on the undiscounted cash
flows of the entity acquired over the remaining amortization period, the
Company's carrying value of the asset will be reduced by the estimated shortfall
of cash flows.
Governmental, commercial and private payors have increasingly
recognized the need to contain their costs for healthcare services. These
payors, accordingly, are turning to closer monitoring of services, prior
authorization requirements, utilization review and increased utilization of
outpatient services. During the periods discussed below, the Company has
experienced an increased effort by these payors to contain costs through
negotiated discount pricing. The Company views these efforts as an opportunity
to demonstrate the effectiveness of its clinical programs and its ability to
provide its rehabilitative healthcare services efficiently. The Company has
entered into a number of contracts with payors to provide services and has
realized an increased volume of patients as a result.
The Company's revenues include net patient service revenues and other
operating revenues. Net patient service revenues are reported at estimated net
realizable amounts from patients, insurance companies, third-party payors
(primarily Medicare and Medicaid) and others for services rendered. Revenues
from third-party payors also include estimated retroactive adjustments under
reimbursement agreements which are subject to final review and settlement by
appropriate authorities. Management determines allowances for doubtful accounts
and contractual adjustments based on historical experience and the terms of
payor contracts. Net accounts receivable include only those amounts estimated by
management to be collectible.
The Company, in many cases, operates more than one site within a
market. In such markets, there is customarily an outpatient center or inpatient
facility with associated satellite outpatient locations. For purposes of the
following discussion and analysis, same store operations are measured on
locations within markets in which similar operations existed at the end of the
period and include the operations of additional locations opened within the same
market. New store operations are measured on locations within new markets.
RESULTS OF OPERATIONS OF THE COMPANY
Twelve-Month Periods Ended December 31, 1994 and 1995
The company operated 537 outpatient rehabilitation locations at
December 31, 1995, compared to 283 outpatient rehabilitation locations at
December 31, 1994. In addition, the Company operated 95 inpatient rehabilitation
facilities, 122 surgery centers and five medical centers at December 31, 1995,
compared to 82 inpatient rehabilitation facilities, 112 surgery centers and five
medical centers at December 31, 1994.
The Company's operations generated revenues of $2,003,146,000 in 1995,
an increase of $353,947,000, or 21.5%, as compared to 1994 revenues. Same store
revenues for the twelve months ended December 31, 1995 were $1,817,359,000, an
increase of $168,160,000, or 10.2%, as compared to the same period in 1994. New
store revenues for 1995 were $185,787,000. New store revenues reflect (1) the 11
rehabilitation hospitals and 12 other facilities associated with the NovaCare
Rehabilitation Hospitals Acquisition, (2) the 120 outpatient rehabilitation
centers associated with the Caremark Acquisition, (3) the acquisition of five
surgery centers and one outpatient diagnostic imaging operation, and (4) the
acquisition of outpatient rehabilitation operations in 34 new markets. See Note
9 of "Notes to Consolidated Financial Statements". The increase in revenues is
primarily attributable to the addition of these operations and increases in
patient volume. Revenues generated from patients under the Medicare and Medicaid
programs respectively accounted for 40.0% and 2.5% of total revenues for 1995,
compared to 41.0% and 3.2% of total revenues for 1994. Revenues from any other
single third-party payor were not significant in
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<PAGE>
relation to the Company's total revenues. During 1995, same store outpatient
visits, inpatient days and surgery center cases increased 21.7%, 10.8% and 4.8%,
respectively. Revenue per outpatient visit, inpatient day and surgery case for
same store operations increased (decreased) by 0.8%, 2.5% and (0.9%),
respectively.
Operating expenses, at the operating unit level, were $1,371,740,000,
or 68.5% of revenues, for 1995, compared to 70.4% of revenues for 1994. Same
store operating expenses for 1995 were $1,243,508,000, or 68.4% of related
revenues. New store operating expenses were $128,232,000, or 69.0% of related
revenues. Corporate general and administrative expenses decreased from
$61,640,000 in 1994 to $56,920,000 in 1995. As a percentage of revenues,
corporate general and administrative expenses decreased from 3.7% in 1994 to
2.8% in 1995. Total operating expenses were $1,428,660,000, or 71.3% of
revenues, for 1995, compared to $1,223,398,000, or 74.2% of revenues, for 1994.
The provision for doubtful accounts was $37,659,000, or 1.9% of revenues, for
1995, compared to $32,904,000, or 2.0% of revenues, for 1994.
Depreciation and amortization expense was $143,322,000 for 1995,
compared to $113,977,000 for 1994. The increase represents the investment in
additional assets by the Company. Interest expense increased to $101,790,000 in
1995, compared to $73,644,000 for 1994, primarily because of the increased
average borrowings during 1995 under the Company's revolving line of credit. For
1995, interest income was $7,882,000, compared to $6,387,000 for 1994.
Merger expenses in 1994 of $6,520,000 represent costs incurred or
accrued in connection with completing the ReLife Acquisition ($2,949,000) and
SHC's acquisition of Heritage Surgical Corporation ($3,571,000). For further
discussion, see Note 2 of "Notes to Consolidated Financial Statements".
During 1994, the Company recognized a $10,500,000 loss on impairment of
assets. This amount relates to the termination of a ReLife management contract
and a permanently damaged ReLife facility. The Company determined not to attempt
to reopen such damaged facility because, under its existing licensure, the
facility was not consistent with the Company's plans. Also during 1994, the
Company recognized a $4,500,000 loss on abandonment of a ReLife computer
project. For further discussion, see Note 14 of "Notes to Consolidated Financial
Statements".
During the fourth quarter of 1994, the Company adopted a formal plan to
dispose of three surgery centers and certain other properties during fiscal
1995. Accordingly, a charge of $13,197,000 was made to reflect the expected
losses resulting from the disposal of these centers. The closings of the three
surgery centers were completed by December 31, 1995. For further discussion, see
Note 13 of "Notes to Consolidated Financial Statements".
As a result of the NovaCare and SHC acquisitions, the Company
recognized $29,194,000 in merger and acquisition related expenses during the
second quarter of 1995. Fees related to legal, accounting and financial advisory
services accounted for $3,400,000 of the expense. Costs and expenses related to
the purchase of the SHC Notes (see "Liquidity and Capital Resources" and Note 7
of "Notes to Consolidated Financial Statements") totaled $14,606,000. Accruals
for employee separations were approximately $1,188,000. In addition, the Company
provided approximately $10,000,000 for the write-down of certain assets to net
realizable value as the result of a facility consolidation in a market where the
Company's existing services overlapped with those of an acquired facility. The
employee separations and facility consolidation were completed by the end of
1995.
In the fourth quarter of 1995, the Company incurred direct costs and
expenses of $4,965,000 in connection with the SSCI Acquisition. These expenses
consist primarily of fees related to legal, accounting and financial advisory
services and are included in merger and acquisition related acquisition expenses
for the year ended December 31, 1995.
Also during 1995, the Company recognized a $53,549,000 loss on
impairment of assets. The impaired assets relate to six SHC facilities and eight
SCA facilities in which the projected undiscounted cash flows did not
- 24 -
<PAGE>
support the book value of the long-lived assets of such facilities. See Note 14
of "Notes to Consolidated Financial Statements".
Income before minority interests and income taxes for 1995 was
$211,889,000, compared to $184,673,000 for 1994. Minority interests reduced
income before income taxes by $43,147,000, compared to $31,469,000 for 1994. The
provision for income taxes for 1995 was $76,221,000, compared to $65,121,000 for
1994, resulting in effective tax rates of 45.2% for 1995 and 42.5% for 1994. Net
income for 1995 was $92,521,000.
Twelve-Month Periods Ended December 31, 1995 and 1996
The Company operated 739 outpatient rehabilitation locations at
December 31, 1996, compared to 537 outpatient rehabilitation locations at
December 31, 1995. In addition, the Company operated 96 inpatient rehabilitation
facilities, 135 surgery centers and five medical centers at December 31, 1996,
compared to 95 inpatient rehabilitation facilities, 122 surgery centers and five
medical centers at December 31, 1995.
The Company's operations generated revenues of $2,436,537,000 in 1996,
an increase of $433,391,000, or 21.6%, as compared to 1995 revenues. Same store
revenues for the twelve months ended December 31, 1996 were $2,276,676,000, an
increase of $273,530,000, or 13.7%, as compared to the same period in 1995. New
store revenues for 1996 were $159,861,000. New store revenues reflect the
acquisition of one inpatient rehabilitation hospital, the addition of eight new
outpatient surgery centers, and the acquisition of outpatient rehabilitation
operations in 57 new markets. See Note 9 of "Notes to Consolidated Financial
Statements". The increase in revenues is primarily attributable to the addition
of these operations and increases in patient volume. Revenues generated from
patients under the Medicare and Medicaid programs respectively accounted for
37.8% and 2.9% of total revenues for 1996, compared to 40.0% and 2.5% of total
revenues for 1995. Revenues from any other single third-party payor were not
significant in relation to the Company's total revenues. During 1996, same store
outpatient visits, inpatient days and surgery center cases increased 19.9%,
10.8% and 7.3%, respectively. Revenue per outpatient visit, inpatient day and
surgery case for same store operations increased (decreased) by (0.8)%, 3.8% and
1.1%, respectively.
Operating expenses, at the operating unit level, were $1,586,003,000,
or 65.1% of revenues, for 1996, compared to 68.5% of revenues for 1995. Same
store operating expenses for 1996 were $1,486,575,000, or 65.3% of related
revenues. New store operating expenses were $99,428,000, or 62.2% of related
revenues. Corporate general and administrative expenses increased from
$56,920,000 in 1995 to $66,807,000 in 1996. As a percentage of revenues,
corporate general and administrative expenses decreased from 2.8% in 1995 to
2.7% in 1996. Total operating expenses were $1,652,810,000, or 67.8% of
revenues, for 1996, compared to $1,428,660,000, or 71.3% of revenues, for 1995.
The provision for doubtful accounts was $54,112,000, or 2.2% of revenues, for
1996, compared to $37,659,000, or 1.9% of revenues, for 1995.
Depreciation and amortization expense was $188,966,000 for 1996,
compared to $143,322,000 for 1995. The increase resulted from the investment in
additional assets by the Company. Interest expense decreased to $94,553,000 in
1996, compared to $101,790,000 for 1995, primarily because of the favorable
interest rates on the Company's revolving credit facility (see "Liquidity and
Capital Resources"). For 1996, interest income was $5,912,000 compared to
$7,882,000 for 1995. The decrease in interest income resulted primarily from a
decrease in the average amount outstanding in interest-bearing investments.
Merger expenses in 1996 of $41,515,000 represent costs incurred or
accrued in connection with completing the SCA Acquisition ($19,727,000), the
Advantage Health Acquisition ($9,212,000), the PSCM Acquisition ($5,513,000) and
the ReadiCare Acquisition ($7,063,000). For further discussion, see Note 2 of
"Notes to Consolidated Financial Statements".
Income before minority interests and income taxes for 1996 was
$410,493,000, compared to $211,889,000 for 1995. Minority interests reduced
income before income taxes by $49,437,000, compared to $43,147,000 for
- 25 -
<PAGE>
1995. The provision for income taxes for 1996 was $140,238,000, compared to
$76,221,000 for 1995, resulting in effective tax rates of 38.8% for 1996 and
45.2% for 1995. Net income for 1996 was $220,818,000.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had working capital of $543,975,000,
including cash and marketable securities of $151,788,000. Working capital at
December 31, 1995 was $406,125,000, including cash and marketable securities of
$156,321,000. For 1996, cash provided by operations was $367,656,000, compared
to $306,157,000 for 1995. The Company used $451,343,000 for investing activities
during 1996, compared to $764,825,000 for 1995. Additions to property, plant and
equipment and acquisitions accounted for $172,962,000 and $91,391,000,
respectively, during 1996. Those same investing activities accounted for
$172,172,000 and $493,914,000, respectively, in 1995. Financing activities
provided $83,108,000 and $494,100,000 during 1996 and 1995, respectively. Net
borrowing proceeds (borrowings less principal reductions) for 1996 and 1995 were
$88,851,000 and $213,155,000, respectively.
Net accounts receivable were $510,567,000 at December 31, 1996,
compared to $409,150,000 at December 31, 1995. The number of days of average
revenues in average receivables was 66.7 at December 31, 1996, compared to 63.2
at December 31, 1995. The concentration of net accounts receivable from
patients, third-party payors, insurance companies and others at December 31,
1996 was consistent with the related concentration of revenues for the period
then ended.
The Company has a $1,250,000,000 revolving credit facility with
NationsBank, N.A. ("NationsBank") and other participating banks (the "1996
Credit Agreement"). The 1996 Credit Agreement replaced a previous $1,000,000,000
revolving credit agreement, also with NationsBank. Interest is paid based on
LIBOR plus a predetermined margin, a base rate or competitively bid rates from
the participating banks. This credit facility has a maturity date of March 31,
2001. The Company provided a negative pledge on all assets for the 1996 Credit
Agreement. The effective interest rate on the average outstanding balance under
the revolving credit facility was 5.98% for the twelve months ended December 31,
1996, compared to the average prime rate of 8.29% during the same period. At
December 31, 1996, the Company had drawn $995,000,000 under the 1996 Credit
Agreement. For further discussion, see Note 7 of "Notes to Consolidated
Financial Statements".
In 1994, the Company issued $115,000,000 principal amount of 5%
Convertible Subordinated Debentures due 2001 (the "Debentures"). The Company has
called the Debentures for redemption on April 1, 1997. Because the recent market
price of the Company's Common Stock substantially exceeds the conversion price
of the Debentures, the Company expects that substantially all of the Debentures
will be converted into Common Stock.
On February 17, 1997, the Company entered into a definitive agreement
to acquire Horizon/CMS Healthcare Corporation ("Horizon/CMS") in a
stock-for-stock merger in which the stockholders of Horizon/CMS will receive
0.84338 of a share of the Company's common stock per share of Horizon/CMS common
stock. The transaction is valued at approximately $1,600,000,000, including the
assumption by the Company of approximately $700,000,000 in Horizon/CMS debt. It
is expected that the transaction will be accounted for as a purchase.
Horizon/CMS operates 33 inpatient rehabilitation hospitals, 58 specialty
hospitals and subacute units and 282 outpatient rehabilitation centers.
Horizon/CMS also owns, leases or manages 267 long-term care facilities, a
contract therapy business, an institutional pharmacy business and other
healthcare services. Consummation of the transaction is subject to various
regulatory approvals, including clearance under the Hart-Scott-Rodino Antitrust
Improvements Act, and to the satisfaction of certain other conditions. The
Company currently anticipates that the transaction will be consummated in
mid-1997.
On March 3, 1997, the Company consummated the acquisition of Health
Images, Inc. ("Health Images") in a transaction accounted for as a pooling of
interests. In the transaction, Health Images stockholders received approximately
10,400,000 shares of the Company's common stock. Health Images operates 49
freestanding diagnostic imaging centers in 13 states and six in England. The
effects of conforming the accounting policies of the Company and Health Images
are not expected to be material. For further discussion, see Note 2 of "Notes to
Consolidated Financial Statements".
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<PAGE>
The Company intends to pursue the acquisition or development of
additional healthcare operations, including comprehensive outpatient
rehabilitation facilities, inpatient rehabilitation facilities, ambulatory
surgery centers, outpatient diagnostic centers and companies engaged in the
provision of rehabilitation-related services, and to expand certain of its
existing facilities. While it is not possible to estimate precisely the amounts
which will actually be expended in the foregoing areas, the Company anticipates
that over the next twelve months, it will spend approximately $50,000,000 on
maintenance and expansion of its existing facilities and approximately
$300,000,000 on development of the Integrated Service Model. See Item 1,
"Business -- Company Strategy".
Although the Company is continually considering and evaluating
acquisitions and opportunities for future growth, the Company has not entered
into any agreements with respect to material future acquisitions other than the
transactions with Horizon/CMS and Health Images. In connection with the pending
acquisition of Horizon/CMS, the Company has obtained a fully-underwritten
commitment from NationsBank, N.A. for a $1,000,000,000 Senior Bridge Loan
Facility on substantially the same terms as the 1996 Credit Agreement. The
Company believes that existing cash, cash flow from operations, and borrowings
under the revolving line of credit and the bridge loan facility will be
sufficient to satisfy the Company's estimated cash requirements for the next
twelve months, and for the reasonably foreseeable future.
Inflation in recent years has not had a significant effect on the
Company's business, and is not expected to adversely affect the Company in the
future unless it increases significantly.
Statements contained in this Annual Report on Form 10-K which are not
historical facts are forward-looking statements. In addition, the Company,
through its senior management, from time to time makes forward-looking public
statements concerning its expected future operations and performance and other
developments. Such forward- looking statements are necessarily estimates
reflecting the Company's best judgment based upon current information and
involve a number of risks and uncertainties, and there can be no assurance that
other factors will not affect the accuracy of such forward-looking statements.
While is impossible to identify all such factors, factors which could cause
actual results to differ materially from those estimated by the Company include,
but are not limited to, changes in the regulation of the healthcare industry at
either or both of the federal and state levels, changes in reimbursement for the
Company's services by governmental or private payors, competitive pressures in
the healthcare industry and the Company's response thereto, the Company's
ability to obtain and retain favorable arrangements with third-party payors,
unanticipated delays in the Company's implementation of its Integrated Service
Model, general conditions in the economy and capital markets, and other factors
which may be identified from time to time in the Company's Securities and
Exchange Commission filings and other public announcements.
- 27 -
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Consolidated financial statements of the Company meeting the
requirements of Regulation S-X are filed on the succeeding pages of this Item 8
of this Annual Report on Form 10-K, as listed below:
Page
----
Report of Independent Auditors 30
Consolidated Balance Sheets as of December 31, 1995 and 1996 31
Consolidated Statements of Income for the Years Ended
December 31, 1994, 1995 and 1996 33
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1994, 1995 and 1996 34
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1995 and 1996 35
Notes to Consolidated Financial Statements 37
Other financial statements and schedules required under Regulation S-X
are listed in Item 14(a)2, and filed under Item 14(d), of this Annual Report on
Form 10-K.
QUARTERLY RESULTS (UNAUDITED)
Set forth below is certain summary information with respect to the
Company's operations for the last eight fiscal quarters. All amounts have been
restated to reflect the effects of the 1995 acquisitions of SHC and SSCI and the
1996 acquisitions of SCA and Advantage Health, all of which were accounted for
as poolings of interests. All per share amounts have been adjusted to reflect a
two-for-one stock split effected in the form of a 100% stock dividend paid on
April 17, 1995 and a two-for-one stock split effected in the form of a 100%
stock dividend paid on March 17, 1997.
<TABLE>
<CAPTION>
1995
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues $ 451,844 $ 499,668 $ 518,537 $ 533,097
Net income 32,922 11,926 41,647 6,026
Net income per common and
common equivalent share 0.12 0.04 0.14 0.02
Net income per common share --
assuming full dilution 0.11 0.04 0.14 0.02
</TABLE>
- 28 -
<PAGE>
<TABLE>
<CAPTION>
1996
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues $ 581,234 $ 595,589 $ 616,943 $ 642,771
Net income 37,851 59,555 61,044 62,368
Net income per common and
common equivalent share 0.12 0.18 0.18 0.19
Net income per common share --
assuming full dilution 0.11 0.18 0.18 0.18
</TABLE>
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<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors
HEALTHSOUTH Corporation
We have audited the accompanying consolidated balance sheets of HEALTHSOUTH
Corporation and Subsidiaries as of December 31, 1995 and 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1996. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
HEALTHSOUTH Corporation and Subsidiaries at December 31, 1995 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Birmingham, Alabama
February 24, 1997
Except for the first paragraph of Note 15, as to
which the date is March 12, 1997
30
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
---------------------------------------------
1995 1996
---------------------------------------------
(In thousands)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents (Note 3) $ 152,244 $ 148,028
Other marketable securities (Note 3) 4,077 3,760
Accounts receivable, net of allowances for doubtful
accounts and contractual adjustments of $235,175,000
in 1995 and $307,781,000 in 1996 409,150 510,567
Inventories 39,239 47,107
Prepaid expenses and other current assets 76,844 126,197
Deferred income taxes (Note 10) 21,977 11,852
---------------------------------------------
Total current assets 703,531 847,511
Other assets:
Loans to officers 1,625 1,396
Other (Note 4) 68,868 82,514
---------------------------------------------
70,493 83,910
Property, plant and equipment, net (Note 5) 1,283,560 1,390,873
Intangible assets, net (Note 6) 873,911 1,049,658
---------------------------------------------
Total assets $ 2,931,495 $ 3,371,952
=============================================
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
December 31
---------------------------------------------
1995 1996
---------------------------------------------
(In thousands)
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 107,018 $ 110,265
Salaries and wages payable 67,905 66,455
Accrued interest payable and other liabilities 87,308 91,407
Current portion of long-term debt (Note 7) 35,175 35,409
---------------------------------------------
Total current liabilities 297,406 303,536
Long-term debt (Note 7) 1,356,489 1,450,620
Deferred income taxes (Note 10) 23,733 28,797
Other long-term liabilities (Note 14) 8,459 3,558
Deferred revenue 1,525 255
Minority interests - limited partnerships (Note 1) 57,985 69,262
Commitments and contingencies (Note 11)
Stockholders' equity (Notes 8, 12 and 15):
Preferred stock, $.10 par value-1,500,000 shares
authorized; issued and outstanding-none - -
Common stock, $.01 par value-500,000,000 shares
authorized; issued-152,193,000 in 1995 and
319,020,000 in 1996 1,522 3,190
Additional paid-in capital 888,216 996,205
Retained earnings 334,582 536,423
Treasury stock, at cost (1,324,000 shares in 1995 and
182,000 shares in 1996) (16,065) (323)
Receivable from Employee Stock Ownership
Plan (15,886) (14,148)
Notes receivable from stockholders (6,471) (5,423)
---------------------------------------------
Total stockholders' equity 1,185,898 1,515,924
---------------------------------------------
Total liabilities and stockholders' equity $ 2,931,495 $ 3,371,952
=============================================
See accompanying notes.
</TABLE>
32
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------------------------------------
1994 1995 1996
------------------------------------------------------------------
(In thousands, except for per share amounts)
<S> <C> <C> <C>
Revenues $ 1,649,199 $ 2,003,146 $ 2,436,537
Operating expenses:
Operating units 1,161,758 1,371,740 1,586,003
Corporate general and administrative 61,640 56,920 66,807
Provision for doubtful accounts 32,904 37,659 54,112
Depreciation and amortization 113,977 143,322 188,966
Interest expense 73,644 101,790 94,553
Interest income (6,387) (7,882) (5,912)
Merger and acquisition related expenses
(Notes 2 and 9) 6,520 34,159 41,515
Loss on impairment of assets (Note 14) 10,500 53,549 -
Loss on abandonment of computer project
(Note 14) 4,500 - -
Loss on disposal of surgery centers
(Note 13) 13,197 - -
Gain on sale of equity securities (Note
1) (7,727) - -
------------------------------------------------------------------
1,464,526 1,791,257 2,026,044
------------------------------------------------------------------
Income before income taxes and minority
interests 184,673 211,889 410,493
Provision for income taxes (Note 10) 65,121 76,221 140,238
------------------------------------------------------------------
119,552 135,668 270,255
Minority interests 31,469 43,147 49,437
------------------------------------------------------------------
Net income $ 88,083 $ 92,521 $ 220,818
==================================================================
Weighted average common and common
equivalent shares outstanding 280,854 297,460 326,290
==================================================================
Net income per common and common
equivalent share $ 0.31 $ 0.31 $ 0.68
==================================================================
Net income per common share-assuming
full dilution $ 0.31 $ 0.31 $ 0.66
==================================================================
See accompanying notes.
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
HEALTHSOUTH Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1994, 1995 and 1996
Additional
Common Stock Paid-In Retained Treasury Stock
Shares Amount Capital Earnings Shares Amount
------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 129,946 $1,300 $493,663 $ 177,979 318 $ (2,123)
Proceeds from exercise of options (Note 8) 2,296 23 16,341 - - -
Common shares exchanged in the exercise of
options (22) - (321) - - -
Proceeds from issuance of common shares 908 9 13,543 - - -
Income tax benefits related to incentive stock
options (Note 8) - - 6,470 - - -
Reduction in receivable from ESOP - - - - - -
Payments received on stockholders' notes
receivable - - - - - -
Purchase of limited partnership units - - - (1,838) - -
Purchase of treasury stock - - - - 601 (6,592)
Net income - - - 88,083 - -
Dividends paid - - - (6,237) - -
------------------------------------------------------------------------------
Balance at December 31, 1994 133,128 1,332 529,696 257,987 919 (8,715)
Adjustment for ReLife Merger (Note 2) 2,732 27 7,114 (3,734) - -
Proceeds from exercise of options (Note 8) 1,101 11 9,857 - - -
Proceeds from issuance of common shares 15,232 152 334,896 - - -
Income tax benefits related to incentive stock
options (Note 8) - - 6,653 - - -
Reduction in receivable from ESOP - - - - - -
Loans made to stockholders - - - - - -
Purchase of limited partnership units - - - (4,767) - -
Purchases of treasury stock - - - - 405 (7,350)
Net income - - - 92,521 - -
Dividends paid - - - (7,425) - -
------------------------------------------------------------------------------
Balance at December 31, 1995 152,193 1,522 888,216 334,582 1,324 (16,065)
Adjustment for Advantage Merger - - - (17,638) - -
Adjustment for 1997 mergers (Note 2) 4,047 40 68,785 (1,256) - -
Proceeds from exercise of options (Note 8) 3,270 33 32,774 - - -
Income tax benefits related to incentive stock
options (Note 8) - - 23,767 - - -
Reduction in receivable from ESOP - - - - - -
Loans made to stockholders - - - - - -
Purchase of limited partnership units - - - (83) - -
Retirement of treasury stock - - (15,742) - (1,233) 15,742
Net income - - - 220,818 - -
Stock split (Note 15) 159,510 1,595 (1,595) - 91 -
------------------------------------------------------------------------------
Balance at December 31, 1996 319,020 $3,190 $ 996,205 $ 536,423 182 $ (323)
==============================================================================
See accompanying notes.
</TABLE>
<TABLE>
<CAPTION>
Notes
Receivable Total
Receivable from Stockholders'
from ESOP Stockholders Equity
---------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1993 $ (18,932) $ (5,490) $ 646,397
Proceeds from exercise of options (Note 8) - - 16,364
Common shares exchanged in the exercise of
options - - (321)
Proceeds from issuance of common shares - - 13,552
Income tax benefits related to incentive stock
options (Note 8) - - 6,470
Reduction in receivable from ESOP 1,455 - 1,455
Payments received on stockholders' notes
receivable - 250 250
Purchase of limited partnership units - - (1,838)
Purchase of treasury stock - - (6,592)
Net income - - 88,083
Dividends paid - - (6,237)
---------------------------------------------
Balance at December 31, 1994 (17,477) (5,240) 757,583
Adjustment for ReLife Merger (Note 2) - - 3,407
Proceeds from exercise of options (Note 8) - - 9,868
Proceeds from issuance of common shares - - 335,048
Income tax benefits related to incentive stock
options (Note 8) - - 6,653
Reduction in receivable from ESOP 1,591 - 1,591
Loans made to stockholders - (1,231) (1,231)
Purchase of limited partnership units - - (4,767)
Purchases of treasury stock - - (7,350)
Net income - - 92,521
Dividends paid - - (7,425)
---------------------------------------------
Balance at December 31, 1995 (15,886) (6,471) 1,185,898
Adjustment for Advantage Merger - - (17,638)
Adjustment for 1997 mergers (Note 2) - - 67,569
Proceeds from exercise of options (Note 8) - - 32,807
Income tax benefits related to incentive stock
options (Note 8) - - 23,767
Reduction in receivable from ESOP 1,738 - 1,738
Loans made to stockholders - 1,048 1,048
Purchase of limited partnership units - - (83)
Retirement of treasury stock - - -
Net income - - 220,818
Stock split (Note 15) - - -
---------------------------------------------
Balance at December 31, 1996 $ (14,148) $ (5,423) $ 1,515,924
=============================================
See accompanying notes.
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
HEALTHSOUTH Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Year ended December 31
------------------------------------------------------
1994 1995 1996
------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Operating activities
Net income $ 88,083 $ 92,521 $ 220,818
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 113,977 143,322 188,966
Provision for doubtful accounts 32,904 37,659 54,112
Provision for losses on impairment of assets 10,500 53,549 -
Provision for losses on abandonment of
computer project 4,500 - -
Merger and acquisition related expenses 6,520 34,159 41,515
Loss on disposal of surgery center 13,197 - -
Income applicable to minority interests of
limited partnerships 31,469 43,147 49,437
(Benefit) provision for deferred income taxes (15,882) 380 13,525
Provision for deferred revenue (164) (1,990) (1,270)
Changes in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable (97,167) (65,382) (131,514)
Inventories, prepaid expenses and other
current assets (15,251) 732 (36,751)
Accounts payable and accrued expenses 86,209 (31,940) (31,182)
------------------------------------------------------
Net cash provided by operating activities 258,895 306,157 367,656
Investing activities
Purchases of property, plant and equipment (195,920) (172,172) (172,962)
Proceeds from sale of property, plant and equipment 68,330 14,541 -
Additions to intangible assets, net of effects of
acquisitions (69,119) (117,552) (174,446)
Assets obtained through acquisitions, net of
liabilities assumed (116,650) (493,914) (91,391)
Changes in other assets (21,962) (6,963) (12,861)
Proceeds received on sale of other marketable
securities 18,948 22,161 317
Investments in other marketable securities (9,126) (10,926) -
------------------------------------------------------
Net cash used in investing activities (325,499) (764,825) (451,343)
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
HEALTHSOUTH Corporation and Subsidiaries
Consolidated Statements of Cash Flows (continued)
Year ended December 31
------------------------------------------------------
1994 1995 1996
------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
FINANCING ACTIVITIES
Proceeds from borrowings $ 1,058,479 $ 685,816 $ 193,113
Principal payments on long-term debt (970,462) (472,661) (104,262)
Proceeds from exercise of options 14,727 9,868 32,807
Proceeds from issuance of common stock 1,136 330,954 -
Purchase of treasury stock (6,592) (7,350) -
Reduction in receivable from ESOP 1,455 1,591 1,738
Payments received on (loans made to) stockholders 250 (1,231) 1,048
Dividends paid (6,237) (7,425) -
Proceeds from investment by minority interests 2,268 1,103 510
Purchase of limited partnership interests (1,698) (10,076) (3,064)
Payment of cash distributions to limited partners (34,351) (36,489) (38,782)
------------------------------------------------------
Net cash provided by financing activities 58,975 494,100 83,108
------------------------------------------------------
(Decrease) increase in cash and cash equivalents (7,629) 35,432 (579)
Cash and cash equivalents at beginning of year (Note
2) 119,946 112,317 152,244
Cash flows related to mergers (Note 2) - 4,495 (3,637)
------------------------------------------------------
Cash and cash equivalents at end of year $ 112,317 $ 152,244 $ 148,028
======================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 59,833 $ 100,189 $ 91,560
Income taxes 60,166 83,059 62,515
</TABLE>
Non-cash investing activities:
The Company assumed liabilities of $32,027,000, $55,828,000 and $19,197,000
during the years ended December 31, 1994, 1995 and 1996, respectively, in
conjunction with its acquisitions.
During the year ended December 31, 1994, the Company issued 1,248,000 common
shares with a market value of $9,923,000 as consideration for acquisitions
accounted for as purchases (see Note 9).
During the year ended December 31, 1996, the Company issued 8,095,000 common
shares as consideration for mergers (see Note 2).
Non-cash financing activities:
During 1995 and 1997, the Company had a two-for-one stock split on its common
stock, which was effected in the form of a one hundred percent stock dividend.
The Company received a tax benefit from the disqualifying disposition of
incentive stock options of $6,470,000, $6,653,000 and $23,767,000 for the years
ended December 31, 1994, 1995 and 1996, respectively.
During the year ended December 31, 1994, 22,000 common shares were exchanged in
the exercise of options. The shares exchanged had a market value on the date of
exchange of $321,000.
See accompanying notes.
36
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by HEALTHSOUTH Corporation and its
subsidiaries ("the Company") are presented as an integral part of the
consolidated financial statements.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of HEALTHSOUTH
Corporation ("HEALTHSOUTH") and its wholly-owned subsidiaries, as well as its
limited partnerships. All significant intercompany accounts and transactions
have been eliminated in consolidation.
HEALTHSOUTH Corporation is engaged in the business of providing comprehensive
rehabilitative, clinical, diagnostic and surgical healthcare services on an
inpatient and outpatient basis.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the accompanying consolidated financial
statements and notes. Actual results could differ from those estimates.
MARKETABLE SECURITIES
Marketable equity securities and debt securities are classified as
available-for-sale. Available-for-sale securities are carried at fair value,
with the unrealized gains and losses, if material, reported as a separate
component of stockholders' equity, net of tax. During 1994, marketable
securities consisting of $13,360,507 of common stock were sold and the resulting
gain was recognized in the consolidated statement of income. The adjusted cost
of the specific security sold method is used to compute gain or loss on the sale
of
37
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
securities. Interest and dividends on securities classified as
available-for-sale are included in investment income. Marketable equity
securities and debt securities of the Company have maturities of less than one
year.
ACCOUNTS RECEIVABLE AND THIRD-PARTY REIMBURSEMENT ACTIVITIES
Receivables from patients, insurance companies and third-party contractual
insured accounts (Medicare and Medicaid) are based on payment agreements which
generally result in the Company collecting an amount different from the
established rates. Final determination of the settlement is subject to review by
appropriate authorities. Adequate allowances are provided for doubtful accounts
and contractual adjustments. Uncollectible accounts are written off against the
allowance for doubtful accounts after adequate collection efforts are made. Net
accounts receivable include only those amounts estimated by management to be
collectible.
The concentration of net accounts receivable from third-party contractual payors
and others, as a percentage of total net accounts receivable, was as follows:
DECEMBER 31
--------------------------------------
1995 1996
--------------------------------------
Medicare 24% 26%
Medicaid 6 5
Other 70 69
======================================
100% 100%
======================================
INVENTORIES
Inventories are stated at the lower of cost or market using the specific
identification method.
38
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost. Upon sale or retirement of
property, plant or equipment, the cost and related accumulated depreciation are
eliminated from the respective account and the resulting gain or loss is
included in the results of operations.
Interest cost incurred during the construction of a facility is capitalized. The
Company incurred interest of $76,038,000, $103,731,000 and $97,375,000, of which
$2,394,000, $1,941,000 and $2,822,000 was capitalized, during 1994, 1995 and
1996, respectively.
Depreciation and amortization is computed using the straight-line method over
the estimated useful lives of the assets or the term of the lease, as
appropriate. The estimated useful life of buildings is 30-40 years and the
general range of useful lives for leasehold improvements, furniture, fixtures
and equipment is 10-15 years.
INTANGIBLE ASSETS
Cost in excess of net asset value of purchased facilities is amortized over 20
to 40 years using the straight-line method. Organization and start-up costs
incurred prior to opening a new facility and partnership formation costs are
deferred and amortized on a straight-line basis over a period of 36 months.
Organization, partnership formation and start-up costs for a project that is
subsequently abandoned are charged to operations in that period. Debt issue
costs are amortized over the term of the debt. Noncompete agreements are
amortized using the straight-line method over the term of the agreements.
MINORITY INTERESTS
The equity of minority investors in limited partnerships and limited liability
companies of the Company is reported on the balance sheet as minority interests.
Minority interests reported in the consolidated income statement reflect the
respective interests in the income or loss of the limited partnerships or
limited liability companies attributable to the minority investors (ranging from
1% to 50% at December 31, 1996), the effect of which is removed from the results
of operations of the Company.
39
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUES
Revenues include net patient service revenues and other operating revenues. Net
patient service revenues are reported at the estimated net realizable amounts
from patients, third-party payors and others for services rendered, including
estimated retroactive adjustments under reimbursement agreements with
third-party payors.
INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Income per common and common equivalent share is computed based on the weighted
average number of common shares and common equivalent shares outstanding during
the periods, as adjusted for the two-for-one stock split declared in April 1995
and the two-for-one stock split declared in March 1997 (see Note 15). Common
equivalent shares include dilutive employees' stock options, less the number of
treasury shares assumed to be purchased from the proceeds using the average
market price of the Company's common stock. Fully diluted earnings per share
(based on 290,298,000, 309,686,000 and 338,516,000 shares in 1994, 1995 and
1996, respectively) assumes conversion of the 5% Convertible Subordinated
Debentures due 2001 (see Note 7).
IMPAIRMENT OF ASSETS
In accordance with FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed Of, the Company records
impairment losses on long-lived assets used in operations when events and
circumstances indicate that the assets might be impaired and the undiscounted
cash flows estimated to be generated by those assets are less than the carrying
amounts of those assets. Effective January 1, 1995, the Company adopted FASB 121
to account for long-lived assets.
With respect to the carrying value of the excess of cost over net asset value of
purchased facilities and other intangible assets, the Company determines on a
quarterly basis whether an impairment event has occurred by considering factors
such as: the market value of the asset; a significant adverse change in legal
factors or in the business climate; adverse action by a regulator; a history of
operating or cash flow losses or a projection of continuing losses associated
with an operating entity. The carrying value of excess cost over net asset value
of purchased facilities and other intangible assets will be evaluated if
40
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPAIRMENT OF ASSETS (CONTINUED)
the facts and circumstances suggest that it has been impaired. If this
evaluation indicates that the value of the asset will not be recoverable, as
determined based on the undiscounted cash flows of the entity acquired over the
remaining amortization period, an impairment loss is calculated based on the
excess of the carrying amount of the asset over the asset's fair value.
RECLASSIFICATIONS
Certain amounts in the 1994 and 1995 financial statements have been reclassified
to conform with the 1996 presentation. Such reclassifications had no effect on
previously reported consolidated net income.
2. MERGERS
Effective December 29, 1994, a wholly-owned subsidiary of the Company merged
with ReLife, Inc. ("ReLife"), and in connection therewith the Company issued
22,050,580 shares of its common stock in exchange for all of ReLife's
outstanding common stock. Prior to the merger, ReLife provided a system of
rehabilitation services and operated 31 inpatient facilities with an aggregate
of approximately 1,100 licensed beds, including nine freestanding rehabilitation
hospitals, nine acute rehabilitation units, five sub-acute rehabilitation units,
seven transitional living units and one residential facility, and provided
outpatient rehabilitation services at twelve outpatient centers. Costs and
expenses of $2,949,000, primarily legal, accounting and financial advisory fees,
incurred by HEALTHSOUTH in connection with the ReLife merger have been recorded
in operations in 1994 and reported as merger expenses in the accompanying
consolidated statements of income.
Effective June 13, 1995, a wholly-owned subsidiary of the Company merged with
Surgical Health Corporation ("SHC"), and in connection therewith the Company
issued 17,062,960 shares of its common stock in exchange for all of SHC's common
and preferred stock. Prior to the merger, SHC operated a network of 36
freestanding surgery centers and five mobile lithotripters in eleven states,
with an aggregate of 156 operating and procedure rooms. Costs and expenses of
approximately $19,194,000 incurred by the
41
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. MERGERS (CONTINUED)
Company in connection with the SHC merger have been recorded in operations
during 1995 and reported as merger expenses in the accompanying consolidated
statements of income. Fees related to legal, accounting and financial advisory
services accounted for $3,400,000 of the expense. Costs and expenses related to
the retirement of the SHC Notes (see Note 7) totaled $14,606,000. Costs related
to employee separations were approximately $1,188,000. SHC merged with Heritage
Surgical Corporation on January 18, 1994 in a transaction accounted for as a
pooling of interests. SHC recorded merger costs of $3,571,000 in connection with
this transaction in 1994.
Effective October 26, 1995, a wholly-owned subsidiary of the Company merged with
Sutter Surgery Centers, Inc. ("SSCI"), and in connection therewith the Company
issued 3,552,002 shares of its common stock in exchange for all of SSCI's
outstanding common stock. Prior to the merger, SSCI operated a network of 12
freestanding surgery centers in three states, with an aggregate of 54 operating
and procedure rooms. Costs and expenses of approximately $4,965,000, primarily
legal, accounting and financial advisory fees, incurred by the Company in
connection with the SSCI merger have been recorded in operations during 1995 and
reported as merger expenses in the accompanying consolidated statements of
income.
Effective January 17, 1996, a wholly-owned subsidiary of the Company merged with
Surgical Care Affiliates, Inc. ("SCA"), and in connection therewith the Company
issued 91,856,678 shares of its common stock in exchange for all of SCA's
outstanding common stock. Prior to the merger, SCA operated 67 surgery centers
in 24 states. Costs and expenses of approximately $19,727,000, primarily legal,
accounting and financial advisory fees, incurred by the Company in connection
with the SCA merger have been recorded in operations during 1996 and reported as
merger expenses in the accompanying consolidated statements of income.
Effective March 14, 1996, a wholly-owned subsidiary of the Company merged with
Advantage Health Corporation ("Advantage Health"), and in connection therewith
the Company issued 18,203,978 shares of its common stock in exchange for all of
Advantage Health's outstanding common stock. Prior to the merger, Advantage
Health operated a network of 136 sites of service, including four freestanding
rehabilitation hospitals, one freestanding multi-use hospital, one nursing home,
68 outpatient rehabilitation facilities, 14 inpatient managed rehabilitation
units, 24 rehabilitation services management
42
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. MERGERS (CONTINUED)
contracts and six managed sub-acute rehabilitation units. Costs and expenses of
approximately $9,212,000, primarily legal, accounting and financial advisory
fees, incurred by the Company in connection with the Advantage Health merger
have been recorded in operations during 1996 and reported as merger expenses in
the accompanying consolidated statements of income.
The mergers of the Company with ReLife, SHC, SSCI, SCA and Advantage Health were
accounted for as poolings of interests and, accordingly, the Company's
consolidated financial statements have been restated to include the results of
the acquired companies for all periods presented.
Combined and separate results of the Company and its material 1996 mergers, SCA
and Advantage Health, are as follows (in thousands):
<TABLE>
<CAPTION>
Advantage
HEALTHSOUTH SCA Health Combined
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended
December 31, 1994
Revenues $ 1,274,365 $ 239,272 $ 135,562 $ 1,649,199
Net income 50,493 29,280 8,310 88,083
Year ended
December 31, 1995
Revenues 1,556,687 263,866 182,593 2,003,146
Net income 78,949 3,322 10,250 92,521
Year ended
December 31, 1996
Revenues 2,380,587 11,028 44,922 2,436,537
Net income 216,654 1,746 2,418 220,818
</TABLE>
There were no material transactions among the Company, ReLife, SHC, SSCI, SCA
and Advantage Health prior to the mergers. The effects of conforming the
accounting policies of the combined companies are not material.
Prior to its merger with the Company, ReLife reported on a fiscal year ending on
September 30. The restated financial statements for all periods prior to and
including December 31, 1994, are based on a combination of the Company's results
for its
43
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
December 31 fiscal year and ReLife's results for its September 30 fiscal year.
Beginning
44
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. MERGERS (CONTINUED)
January 1, 1995, all facilities acquired in the ReLife merger adopted a December
31 fiscal year end; accordingly, all consolidated financial statements for
periods after December 31, 1994 are based on a consolidation of the Company and
the former ReLife subsidiaries on a December 31 year-end. ReLife's historical
results of operations for the three months ended December 31, 1994 are not
included in the Company's consolidated statements of income or cash flows. An
adjustment has been made to stockholders' equity as of January 1, 1995 to adjust
for the effect of excluding ReLife's results of operations for the three months
ended December 31, 1994. The following is a summary of ReLife's results of
operations and cash flows for the three months ended December 31, 1994 (in
thousands):
Statement of Income Data:
Revenues $ 38,174
Operating expenses:
Operating units 31,797
Corporate general and administrative 2,395
Provision for doubtful accounts 541
Depreciation and amortization 1,385
Interest expense 858
Interest income (91)
HEALTHSOUTH merger expense 3,050
Loss on disposal of fixed assets 1,000
Loss on abandonment of computer project 973
---------------------
41,908
---------------------
Net loss $ (3,734)
=====================
Statement of Cash Flow Data:
Net cash provided by operating activities $ 38,077
Net cash used in investing activities (9,632)
Net cash used in financing activities (23,950)
---------------------
Net increase in cash $ 4,495
=====================
45
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. MERGERS (CONTINUED)
During the three months ended December 31, 1994, ReLife received $7,141,000 in
proceeds from the exercise of stock options.
Prior to its merger with the Company, Advantage Health reported on a fiscal year
ending on August 31. Accordingly, the historical financial statements of
Advantage Health have been recast to a November 30 fiscal year-end to more
closely conform to the Company's calendar fiscal year-end. The restated
financial statements for all periods prior to and including December 31, 1995
are based on a combination of the Company's results for their December 31 fiscal
year and Advantage Health's results for its recast November 30 fiscal year.
Beginning January 1, 1996, all facilities acquired in the Advantage Health
merger adopted a December 31 fiscal year-end; accordingly, all consolidated
financial statements for periods after December 31, 1995 are based on a
consolidation of all of the Company's subsidiaries on a December 31 year-end.
Advantage Health's historical results of operations for the one month ended
December 31, 1995 are not included in the Company's consolidated statements of
income or cash flows. An adjustment has been made to stockholders' equity as of
January 1, 1996 to adjust for the effect of excluding Advantage Health's results
of operations for the one month ended December 31, 1995. The following is a
summary of Advantage Health's results of operations and cash flows for the one
month ended December 31, 1995 (in thousands):
Statement of Income Data:
Revenues $ 16,111
Operating expenses:
Operating units 14,394
Corporate general and administrative 1,499
Provision for doubtful accounts 1,013
Depreciation and amortization 283
Interest expense 288
Interest income (16)
Loss on impairment of assets 21,111
---------------------
38,572
---------------------
Loss before income taxes and minority interests (22,461)
Benefit for income taxes 4,959
Minority interest (136)
=====================
Net loss $ (17,638)
=====================
46
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. MERGERS (CONTINUED)
Statement of Cash Flow Data:
Net cash used in operating activities $ (2,971)
Net cash provided by investing activities 105
Net cash used in financing activities (771)
---------------------
Net decrease in cash $ (3,637)
=====================
In December 1995, Advantage Health recorded an asset impairment charge of
approximately $21,111,000 relating to goodwill and tangible assets identifiable
with one inpatient rehabilitation hospital, one subacute facility and 32
outpatient rehabilitation centers, all acquired by the Company in the Advantage
Health merger. The Company intends to operate these facilities on an ongoing
basis.
The Company has historically assessed recoverability of goodwill and other
long-lived assets using undiscounted cash flows estimated to be received over
the useful lives of the related assets. In December 1995, certain events
occurred which significantly impacted the Company's estimates of future cash
flows to be received from the facilities described above. Those events primarily
related to a decline in operating results combined with a deterioration in the
reimbursement environment at these facilities. As a result of these events, the
Company revised its estimates of undiscounted cash flows to be received over the
remaining estimated useful lives of these facilities and determined that
goodwill and other long-lived assets (primarily property and equipment) had been
impaired. The Company developed its best estimates of future operating cash
flows at these locations considering future requirements for capital
expenditures as well as the impact of inflation. The projections of cash flows
also took into account estimates of significant one-time expenses as well as
estimates of additional revenues and resulting income from future marketing
efforts in the respective locations. The amount of the impairment charge was
determined by discounting the estimates of future cash flows, using an estimated
8.5% incremental borrowing rate, which management believes is commensurate with
the risks involved. The resulting net present value of future cash flows was
then compared to the historical net book value of goodwill and other long-lived
assets at each operating location which resulted in an impairment loss relative
to these centers of $21,111,000.
47
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. MERGERS (CONTINUED)
During 1996, wholly-owned subsidiaries of the Company merged with Professional
Sports Care Management, Inc. ("PSCM"), Fort Sutter Surgery Center, Inc.
("FSSCI") and ReadiCare, Inc. ("ReadiCare"). In connection with these mergers
the Company issued an aggregate of 8,094,598 shares of its common stock. Costs
and expenses of approximately $12,576,000, primarily legal, accounting and
financial advisory fees, incurred by the Company in connection with the mergers
have been recorded in operations during 1996 and reported as merger expenses in
the accompanying consolidated statements of income.
The PSCM and ReadiCare mergers were accounted for as poolings of interests.
However, due to the immateriality of these mergers, the Company's historical
financial statements for all periods prior to the quarters in which the
respective mergers were completed have not been restated. Instead, stockholders'
equity has been increased by $43,230,000 to reflect the effects of the PSCM
merger and $15,431,000 to reflect the effects of the ReadiCare merger. The
results of operations of PSCM and ReadiCare are included in the accompanying
financial statements from the date of acquisition forward. In addition, the
FSSCI merger was a stock-for-stock acquisition. Stockholders' equity has been
increased by $8,908,000 to reflect the effects of the merger.
On December 2, 1996, the Company entered into an agreement to acquire Health
Images, Inc. ("Health Images") in a transaction to be accounted for as a
pooling-of-interests. In the proposed transaction, Health Images stockholders
will receive approximately 10,400,000 shares of the Company's common stock.
Health Images operates 49 freestanding diagnostic imaging centers in 13 states
and six in England. The effects of conforming the accounting policies of the
Company and Health Images are not expected to be material. The effects on the
accompanying financial statements of the pro forma results of operations,
assuming the Health Images acquisition had occurred at the beginning of each of
the three years ended December 31, 1996, are not material. This transaction is
expected to be consummated in March 1997.
48
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. CASH, CASH EQUIVALENTS AND OTHER MARKETABLE SECURITIES
Cash, cash equivalents and other marketable securities consisted of the
following:
<TABLE>
<CAPTION>
December 31
--------------------- ---------------------
1995 1996
--------------------- ---------------------
(In thousands)
<S> <C> <C>
Cash $ 140,476 $ 138,235
Cash equivalents 11,768 9,793
--------------------- ---------------------
Total cash and cash equivalents 152,244 148,028
Certificates of deposit 1,962 1,765
Municipal put bonds 615 495
Municipal put bond mutual funds 500 500
Collateralized mortgage obligations 1,000 1,000
--------------------- ---------------------
Total other marketable securities 4,077 3,760
--------------------- ---------------------
Total cash, cash equivalents and other
marketable securities (approximates
market value) $ 156,321 $ 151,788
===================== =====================
For purposes of the consolidated balance sheets and statements of cash flows,
marketable securities purchased with an original maturity of ninety days or less
are considered cash equivalents.
4. OTHER ASSETS
Other assets consisted of the following:
December 31
-------------------------------------------
1995 1996
--------------------- ---------------------
(In thousands)
Notes and accounts receivable $ 24,628 $ 38,359
Investment in Caretenders Health Corp. 7,417 7,370
Prepaid long-term lease 8,888 8,397
Investments in other unconsolidated subsidiaries 6,754 15,362
Real estate investments 14,324 10,020
Trusteed funds 1,879 1,879
Other 4,978 1,127
--------------------- ---------------------
$ 68,868 $ 82,514
===================== =====================
</TABLE>
49
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. OTHER ASSETS (CONTINUED)
The Company has a 19% ownership interest in Caretenders Health Corp.
("Caretenders"); accordingly, the Company's investment is being accounted for
using the equity method of accounting. The investment was initially valued at
$7,250,000. The Company's equity in earnings of Caretenders for the years ended
December 31, 1994, 1995 and 1996 was not material to the Company's results of
operations.
It was not practicable to estimate the fair value of the Company's various
investments in other unconsolidated subsidiaries (involved in operations similar
to those of the Company) because of the lack of a quoted market price and the
inability to estimate fair value without incurring excessive costs. The carrying
amount at December 31, 1996 represents the original cost of the investments,
which management believes is not impaired.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31
-------------------------------------------
1995 1996
--------------------- ---------------------
(In thousands)
<S> <C> <C>
Land $ 76,686 $ 81,089
Buildings 767,038 802,040
Leasehold improvements 87,216 112,149
Furniture, fixtures and equipment 603,985 722,095
Construction-in-progress 33,407 64,417
--------------------- ---------------------
1,568,332 1,781,790
Less accumulated depreciation and amortization 284,772 390,917
--------------------- ---------------------
$ 1,283,560 $ 1,390,873
===================== =====================
</TABLE>
50
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. INTANGIBLE ASSETS
Intangible assets consisted of the following:
<TABLE>
<CAPTION>
December 31
-------------------------------------------
1995 1996
--------------------- ---------------------
(In thousands)
<S> <C> <C>
Organizational, partnership formation and
start-up costs $ 163,820 $ 230,298
Debt issue costs 34,973 34,389
Noncompete agreements 70,636 85,894
Cost in excess of net asset value of purchased facilities 736,195 899,788
--------------------- ---------------------
1,005,624 1,250,369
Less accumulated amortization 131,713 200,711
--------------------- ---------------------
$ 873,911 $ 1,049,658
===================== =====================
7. LONG-TERM DEBT
Long-term debt consisted of the following:
December 31
-------------------------------------------
1995 1996
--------------------- ---------------------
(In thousands)
Notes and bonds payable:
Advances under a $1,000,000,000 credit agreement
with banks $ 790,000 $ -
Advances under a $1,250,000,000 credit agreement
with banks - 995,000
9.5% Senior Subordinated Notes due 2001 250,000 250,000
5.0% Convertible Subordinated Debentures due 2001 115,000 115,000
Notes payable to banks and various other notes
payable, at interest rates from 5.5% to 9.75% 180,166 77,270
Hospital revenue bonds payable 32,337 22,503
Noncompete agreements payable with payments due at
intervals ranging through December 2004 24,161 26,256
--------------------- ---------------------
1,391,664 1,486,029
Less amounts due within one year 35,175 35,409
--------------------- ---------------------
$ 1,356,489 $ 1,450,620
===================== =====================
</TABLE>
51
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Long-Term Debt (continued)
The fair value of total long-term debt approximates book value at December 31,
1995 and 1996. The fair values of the Company's long-term debt are estimated
using discounted cash flow analysis, based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.
During 1995, the Company entered into a Credit Agreement with NationsBank, N.A.
("NationsBank") and other participating banks (the "1995 Credit Agreement")
which consisted of a $1,000,000,000 revolving credit facility. On April 18,
1996, the Company amended and restated the 1995 Credit Agreement to increase the
size of the revolving credit facility to $1,250,000,000 (the "1996 Credit
Agreement"). Interest is paid based on LIBOR plus a predetermined margin, a base
rate, or competitively bid rates from the participating banks. The Company is
required to pay a fee on the unused portion of the revolving credit facility
ranging from 0.08% to 0.25%, depending on certain defined ratios. The principal
amount is payable in full on March 31, 2001. The Company provided a negative
pledge on all assets under the 1996 Credit Agreement, and the lenders released
the first priority security interest in all shares of stock of the Company's
subsidiaries and rights and interests in the Company's controlled partnerships
which had been granted under the 1995 Credit Agreement. At December 31, 1996,
the effective interest rate associated with the 1996 Credit Agreement was
approximately 5.87%.
On March 24, 1994, the Company issued $250,000,000 principal amount of 9.5%
Senior Subordinated Notes due 2001 (the "Notes"). Interest is payable on April 1
and October 1. The Notes are senior subordinated obligations of the Company and
as such are subordinated to all existing and future senior indebtedness of the
Company, and also are effectively subordinated to all existing and future
liabilities of the Company's subsidiaries and partnerships. The Notes rank
senior to all subordinated indebtedness of the Company, including the 5%
Convertible Subordinated Debentures due 2001 described below. The Notes mature
on April 1, 2001.
Also on March 24, 1994, the Company issued $100,000,000 principal amount of 5%
Convertible Subordinated Debentures due 2001 (the "Convertible Debentures"). An
additional $15,000,000 of Convertible Debentures was issued in April 1994 to
cover underwriters' overallotments. Interest is payable on April 1 and October
1. The
52
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Long-Term Debt (continued)
Convertible Debentures are convertible into common stock of the Company at the
option of the holder at a conversion price of $9.406 per share, subject to
adjustment upon the occurrence of certain events.
In June 1994, SHC (see Note 2) issued $75,000,000 principal amount of 11.5%
Senior Subordinated Notes due July 15, 2004 (the "SHC Notes"). The proceeds of
the SHC Notes were used to pay down indebtedness outstanding under other
existing credit facilities. During 1995, the Company purchased $67,500,000 of
the $75,000,000 outstanding principal amount of the SHC Notes in a tender offer
at 115% of the face value of the Notes, and the remaining $7,500,000 balance was
purchased on the open market, using proceeds from the Company's other long-term
credit facilities. The loss on retirement of the SHC Notes totaled approximately
$14,606,000. The loss consists of the premium, write-off of unamortized bond
issue costs and other fees and is included in merger and acquisition related
expenses in the accompanying 1995 consolidated statement of income (see Note 2).
Principal maturities of long-term debt are as follows:
Year ending December 31 (In thousands)
- ----------------------- ---------------------
1997 $ 35,409
1998 25,932
1999 16,715
2000 11,117
2001 1,367,788
After 2001 29,068
---------------------
$ 1,486,029
=====================
8. STOCK OPTIONS
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
Financial Accounting Standards Board Statement No. 123, "Accounting for
Stock-Based Compensation" ("FAS 123"), requires the use of
53
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Stock Options (continued)
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
The Company has various stockholder-approved stock option plans which provide
for the grant of options to directors, officers and other key employees to
purchase common stock at 100% of the fair market value as of the date of grant.
The Audit and Compensation Committee of the Board of Directors administers the
stock option plans. Options may be granted as incentive stock options or as
non-qualified stock options. Incentive stock options vest 25% annually,
commencing upon completion of one year of employment subsequent to the date of
grant. Non-qualified stock options generally are not subject to any vesting
provisions. The options expire at dates ranging from five to ten years from the
date of grant.
Pro forma information regarding net income and earnings per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1995
and 1996, respectively: risk-free interest rates of 5.87% and 6.01%; dividend
yield of 0%; volatility factors of the expected market price of the Company's
common stock of .36 and .37; and a weighted-average expected life of the options
of 4.3 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
54
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. STOCK OPTIONS (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in thousands, except for per share amounts):
1995 1996
-----------------------------------------
Pro forma net income $ 74,330 $ 193,417
Pro forma earnings per share:
Primary $ 0.25 $ 0.59
Fully diluted $ 0.25 $ 0.58
The effect of compensation expense from stock options on 1995 pro forma net
income reflects only the vesting of 1995 awards. However, 1996 pro forma net
income reflects the second year of vesting of the 1995 awards and the first year
of vesting of 1996 awards. Not until 1998 is the full effect of recognizing
compensation expense for stock options representative of the possible effects on
pro forma net income for future years.
A summary of the Company's stock option activity and related information for the
years ended December 31 follows:
<TABLE>
<CAPTION>
1994 1995 1996
------------------------- ------------------------ -------------------------
Weighted Weighted Weighted
Average Average Average
Options Exercise Options Exercise Options Exercise
(000) Price (000) Price (000) Price
----------- ------------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding January 1: 30,452 N/A 29,216 $ 4 33,988 $ 5
Granted 3,188 N/A 7,310 9 4,557 17
Exercised (3,856) N/A (2,202) 4 (6,540) 5
Canceled (568) N/A (336) 5 (255) 6
----------- ----------- -----------
Options outstanding at
December 31 29,216 N/A 33,988 $ 5 31,750 $ 7
Options exercisable at
December 31 22,466 N/A 26,003 $ 5 26,992 $ 6
Weighted average fair value of
options granted during the
year N/A $ 3.81 $ 7.13
</TABLE>
The weighted average remaining contractual life for options outstanding as of
December 31, 1996 is 6.63 years.
55
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. ACQUISITIONS
1994 Acquisitions
At various dates during 1994, the Company acquired 53 separate outpatient
operations and a majority equity interest in five outpatient surgery centers
located throughout the United States. The combined purchase price of these
acquired outpatient operations was approximately $80,456,000. The Company also
acquired a specialty medical center in Dallas, Texas, a therapy staffing
service, a diagnostic imaging company, four physical therapy practices and two
home health agencies. The combined purchase price of these operations was
approximately $32,044,000. The form of consideration constituting the total
purchase prices of $112,500,000 was approximately $88,455,000 in cash,
$14,122,000 in notes payable and approximately 624,000 shares of common stock
valued at $9,923,000.
In connection with these transactions, the Company entered into noncompete
agreements with former owners totaling $10,814,000. In general, these noncompete
agreements are payable in monthly or quarterly installments over periods ranging
from five to ten years.
The fair value of the total net assets relating to the 1994 acquisitions
described above was approximately $17,958,000. The total cost for 1994
acquisitions exceeded the fair value of the net assets acquired by approximately
$94,542,000. The Company evaluated each acquisition independently to determine
the appropriate amortization period for the cost in excess of net asset value of
purchased facilities. Each evaluation included an analysis of historic and
projected financial performance, evaluation of the estimated useful lives of
buildings and fixed assets acquired, the indefinite lives of certificates of
need and licenses acquired, the competition within local markets, lease terms
where applicable, and the legal term of partnerships where applicable. Based on
these evaluations, the Company determined that the cost in excess of net asset
value of purchased facilities relating to the 1994 acquisitions should be
amortized over periods ranging from 25 to 40 years on a straight-line basis. No
other identifiable intangible assets were recorded in the acquisitions described
above.
All of the 1994 acquisitions described above were accounted for as purchases
and, accordingly, the results of operations of the acquired businesses (not
material individually or in the aggregate) are included in the accompanying
consolidated financial statements from their respective dates of acquisition.
56
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. Acquisitions (continued)
1995 Acquisitions
Effective April 1, 1995, the Company acquired the rehabilitation hospitals
division of NovaCare, Inc. ("NovaCare"), consisting of 11 rehabilitation
hospitals, 12 other facilities, and certificates of need to build two other
facilities. The total purchase price for the NovaCare facilities was
approximately $235,000,000 in cash. The cost in excess of net asset value was
approximately $173,000,000. Of this excess, approximately $129,000,000 was
allocated to leasehold value and the remaining $44,000,000 to cost in excess of
net asset value of purchased facilities. As part of the acquisition, the Company
acquired approximately $4,790,000 in deferred tax assets. The Company also
provided approximately $10,000,000 for the write-down of certain assets to net
realizable value as the result of a planned facility consolidation in a market
where the Company's existing services overlapped with those of an acquired
facility. The planned employee separations and facility consolidation were
completed by the end of 1995.
Effective December 1, 1995, the Company acquired Caremark Orthopedic Services
Inc. ("Caremark"). At the time of the acquisition, Caremark owned and operated
approximately 120 outpatient rehabilitation centers in 13 states. The total
purchase price was approximately $127,500,000 in cash.
Also at various dates during 1995, the Company acquired 70 separate outpatient
rehabilitation operations located throughout the United States, three physical
therapy practices, one home health agency, one nursing home, 75 licensed
subacute beds, five outpatient surgery centers and one outpatient diagnostic
imaging operation. The combined purchase prices of these acquisitions was
approximately $136,724,000. The form of consideration constituting the combined
purchase prices was approximately $117,405,000 in cash and $19,319,000 in notes
payable.
In connection with these transactions, the Company entered into noncompete
agreements with former owners totaling $16,222,000. In general, these noncompete
agreements are payable in monthly or quarterly installments over periods ranging
from five to ten years.
The fair value of the total net assets relating to the 1995 acquisitions
described above, excluding the NovaCare acquisition, was approximately
$72,844,000. The total cost of these acquisitions exceeded the fair value of the
net assets acquired by approximately
57
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. ACQUISITIONS (CONTINUED)
$191,380,000. Based on the evaluation of each acquisition utilizing the criteria
described above, the Company determined that the cost in excess of net asset
value of purchased facilities relating to the 1995 acquisitions should be
amortized over periods ranging from 25 to 40 years on a straight-line basis. No
other identifiable intangible assets were recorded in the acquisitions described
above.
All of the 1995 acquisitions described above were accounted for as purchases
and, accordingly, the results of operations of the acquired businesses are
included in the accompanying consolidated financial statements from their
respective dates of acquisition. With the exception of NovaCare, none of the
above acquisitions were material individually or in the aggregate.
1996 Acquisitions
At various dates during 1996, the Company acquired 80 outpatient rehabilitation
facilities, three outpatient surgery centers, one inpatient rehabilitation
hospital, and one diagnostic imaging center. The acquired operations are located
throughout the United States. The total purchase price of the acquired
operations was approximately $104,321,000. The form of consideration
constituting the total purchase prices was approximately $92,319,000 in cash and
$12,002,000 in notes payable.
In connection with these transactions, the Company entered into noncompete
agreements with former owners totaling $11,900,000. In general, these noncompete
agreements are payable in monthly or quarterly installments over periods ranging
from five to ten years.
The fair value of the total net assets relating to the 1996 acquisitions
described above was approximately $40,259,000. The total cost of the 1996
acquisitions exceeded the fair value of the net assets acquired by approximately
$64,062,000. Based on the evaluation of each acquisition utilizing the criteria
described above, the Company determined that the cost in excess of net asset
value of purchased facilities relating to the 1996 acquisitions should be
amortized over periods ranging from 25 to 40 years on a straight-line basis. No
other identifiable intangible assets were recorded in the acquisitions described
above.
58
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. ACQUISITIONS (CONTINUED)
All of the 1996 acquisitions described above were accounted for as purchases
and, accordingly, the results of operations of the acquired businesses (not
material individually or in the aggregate) are included in the accompanying
consolidated financial statements from their respective dates of acquisition.
10. Income Taxes
HEALTHSOUTH and its subsidiaries file a consolidated federal income tax return.
The limited partnerships and limited liability companies file separate income
tax returns. HEALTHSOUTH's allocable portion of each partnership's income or
loss is included in the taxable income of the Company. The remaining income or
loss of each partnership is allocated to the limited partners.
The Company utilizes the liability method of accounting for income taxes, as
required by Financial Accounting Standards Board (FASB) Statement No. 109,
"Accounting for Income Taxes".
Significant components of the Company's deferred tax assets and liabilities as
of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Current Noncurrent Total
--------------------- --------------------- ---------------------
(In thousands)
<S> <C> <C> <C>
Deferred tax assets:
Accruals $ 8,016 $ - $ 8,016
Disposal of surgery centers 2,675 - 2,675
Impairment of assets 1,309 5,434 6,743
Development costs - 849 849
Acquired net operating loss - 16,277 16,277
Allowance for bad debts 29,089 - 29,089
Other 1,818 5,549 7,367
--------------------- --------------------- ---------------------
Total deferred tax assets 42,907 28,109 71,016
</TABLE>
59
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
<TABLE>
<CAPTION>
10. INCOME TAXES (CONTINUED)
Current Noncurrent Total
--------------------- --------------------- ---------------------
(In thousands)
<S> <C> <C> <C>
Deferred tax liabilities:
Depreciation and amortization $ - $ 30,960 $ 30,960
Non-accrual experience method 14,559 - 14,559
Purchase price accounting - 4,802 4,802
Contracts 3,849 - 3,849
Capitalized costs - 12,916 12,916
Other 2,522 3,164 5,686
--------------------- --------------------- ---------------------
Total deferred tax liabilities 20,930 51,842 72,772
--------------------- --------------------- ---------------------
Net deferred tax assets (liabilities) $ 21,977 $ (23,733) $ (1,756)
===================== ===================== =====================
</TABLE>
At December 31, 1996, the Company has net operating loss carryforwards of
approximately $13,546,000 for income tax purposes expiring through the year
2009. Those carryforwards resulted from the Company's acquisitions of Diagnostic
Health Corporation, Renaissance Rehabilitation Center, Inc. and Rebound, Inc.
Deferred income taxes reflect the net effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets and liabilities as of December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
Current Noncurrent Total
------------------- ------------------- -------------------
(In thousands)
<S> <C> <C> <C>
Deferred tax assets:
Acquired net operating loss $ - $ 5,283 $ 5,283
Development costs - 849 849
Accruals 6,626 - 6,626
Allowance for bad debts 31,704 - 31,704
Other 1,915 2,597 4,512
------------------- ------------------- -------------------
Total deferred tax assets 40,245 8,729 48,974
</TABLE>
60
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
Current Noncurrent Total
------------------- ------------------- -------------------
(In thousands)
<S> <C> <C> <C>
Deferred tax liabilities:
Depreciation and amortization $ - $ 14,361 $ 14,361
Purchase price accounting - 4,802 4,802
Non-accrual experience method 17,694 - 17,694
Contracts 3,849 - 3,849
Capitalized costs 5,013 17,436 22,449
Other 1,837 927 2,764
------------------- ------------------- -------------------
Total deferred tax liabilities 28,393 37,526 65,919
------------------- ------------------- -------------------
Net deferred tax assets (liabilities) $ 11,852 $ (28,797) $ (16,945)
=================== =================== ===================
The provision for income taxes was as follows:
Year ended December 31
-----------------------------------------------------------------
1994 1995 1996
--------------------- --------------------- ---------------------
(In thousands)
Currently payable:
Federal $ 70,641 $ 66,927 $ 113,262
State 10,362 8,914 13,451
--------------------- --------------------- ---------------------
81,003 75,841 126,713
Deferred (benefit) expense :
Federal (14,046) 342 12,138
State (1,836) 38 1,387
--------------------- --------------------- ---------------------
(15,882) 380 13,525
===================== ===================== =====================
Total provision $ 65,121 $ 76,221 $ 140,238
===================== ===================== =====================
</TABLE>
As part of the acquisitions of PSCM, Readicare and FSSCI, the Company acquired
approximately $1,664,000 in deferred tax liabilities.
61
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. INCOME TAXES (CONTINUED)
The difference between the provision for income taxes and the amount computed by
applying the statutory federal income tax rate to income before taxes was as
follows:
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------------------------------------
1994 1995 1996
--------------------- --------------------- ---------------------
(In thousands)
<S> <C> <C> <C>
Federal taxes at statutory rates $ 64,636 $ 74,161 $ 143,673
Add (deduct):
State income taxes, net of federal tax
benefit 4,899 5,832 9,645
Minority interests (11,014) (15,102) (17,303)
Disposal/impairment/merger charges 668 9,955 6,563
Other 5,932 1,375 (2,340)
--------------------- --------------------- ---------------------
$ 65,121 $ 76,221 $ 140,238
===================== ===================== =====================
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
The Company is a party to legal proceedings incidental to its business. In the
opinion of management, any ultimate liability with respect to these actions will
not materially affect the consolidated financial position or results of
operations of the Company.
At December 31, 1996, anticipated capital expenditures for the next twelve
months are $350,000,000. This amount includes expenditures for maintenance and
expansion of the Company's existing facilities as well as development and
integration of the Company's services in selected metropolitan markets.
Beginning December 1, 1993, the Company became self-insured for professional
liability and comprehensive general liability. The Company purchased coverage
for all claims incurred prior to December 1, 1993. In addition, the Company
purchased underlying insurance which would cover all claims once established
limits have been exceeded. It is the opinion of management that at December 31,
1996, the Company has adequate reserves to cover losses on asserted and
unasserted claims.
-62-
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Prior to consummation of the SCA and Advantage Health mergers (see Note 2),
these companies carried professional malpractice and general liability
insurance. The policies were carried on a claims made basis. The companies had
policies in place to track and monitor incidents of significance. Management is
unaware of any claims that may result in a loss in excess of amounts covered by
existing insurance.
Operating leases generally consist of short-term lease agreements for buildings
where facilities are located. These leases generally have 5-year terms, with one
or more renewal options, with terms to be negotiated at the time of renewal.
Total rental expense for all operating leases was $75,355,000, $100,183,000 and
$127,741,000 for the years ended December 31, 1994, 1995 and 1996, respectively.
The following is a schedule of future minimum lease payments under all operating
leases having initial or remaining non-cancelable lease terms in excess of one
year:
Year ending December 31 (In thousands)
- ----------------------- ---------------------
1997 $ 108,187
1998 99,079
1999 86,178
2000 71,485
2001 55,862
After 2001 249,566
---------------------
$ 670,357
=====================
12. EMPLOYEE BENEFIT PLANS
The Company has a 401(k) savings plan which matches 15% of the first 4% of
earnings that an employee contributes. All contributions are in the form of
cash. All employees who have completed one year of service with a minimum of
1,000 hours worked are eligible to participate in the plan. Company
contributions are gradually vested over a seven-year service period.
Contributions to the plan by the Company were approximately $1,168,000,
$1,287,000 and $2,087,000 in 1994, 1995 and 1996, respectively.
63
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. EMPLOYEE BENEFIT PLANS (CONTINUED)
In 1991, the Company established an Employee Stock Ownership Plan ("ESOP") for
the purpose of providing substantially all employees of the Company the
opportunity to save for their retirement and acquire a proprietary interest in
the Company. The ESOP currently owns approximately 3,320,000 shares of the
Company's common stock, which were purchased with funds borrowed from the
Company, $10,000,000 in 1991 (the "1991 ESOP Loan") and $10,000,000 in 1992 (the
"1992 ESOP Loan"). At December 31, 1996, the combined ESOP Loans had a balance
of $14,148,000. The 1991 ESOP Loan, which bears an interest rate of 10%, is
payable in annual installments covering interest and principal over a ten-year
period beginning in 1992. The 1992 ESOP Loan, which bears an interest rate of
8.5%, is payable in annual installments covering interest and principal over a
ten-year period beginning in 1993. Company contributions to the ESOP began in
1992 and shall at least equal the amount required to make all ESOP loan
amortization payments for each plan year. The Company recognizes compensation
expense based on the shares allocated method. Compensation expense related to
the ESOP recognized by the Company was $3,673,000, $3,524,000 and $3,198,000 in
1994, 1995 and 1996, respectively. Interest incurred on the ESOP Loans was
approximately $1,608,000, $1,460,000 and $1,298,000 in 1994, 1995 and 1996,
respectively. Approximately 1,212,000 shares owned by the ESOP have been
allocated to participants at December 31, 1996.
During 1993, the American Institute of Certified Public Accountants issued
Statement of Position 93-6, "Employers Accounting for Employee Stock Ownership
Plans" ("SOP 93-6"). Among other provisions, SOP 93-6 requires that compensation
expense relating to employee stock ownership plans be measured based on the fair
market value of the shares when allocated to the employees. The provisions of
SOP 93-6 apply only to leveraged ESOPs formed after December 31, 1992, or shares
newly acquired by an existing leveraged ESOP after December 31, 1992. Because
all shares owned by the Company's ESOP were acquired prior to December 31, 1992,
the Company's accounting policies for the shares currently owned by the ESOP are
not affected by SOP 93-6.
64
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. LOSS ON DISPOSAL OF SURGERY CENTERS
During the fourth quarter of 1994, the Company adopted a formal plan to dispose
of three surgery centers and certain other properties during 1995. Accordingly,
a loss of $13,197,000 was made to reflect the expected losses resulting from the
disposal of these centers. The loss is comprised primarily of losses on the sale
of owned facilities and equipment, write-off of intangible and other assets, and
accrual of future operating lease obligations and estimated operating losses
through the anticipated date of disposal.
The following are the major components of the loss (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Write-down of land, buildings and equipment $ 4,806
Write-off of excess of cost over fair value of net assets
acquired and other assets 2,762
Estimated operating losses through anticipated date of disposal 1,750
Accrual of future lease commitments and other obligations
resulting from disposal 3,879
----------------------
$ 13,197
======================
</TABLE>
The closings of the three surgery centers were completed by December 31, 1995.
An accrual of $929,000 is included in accrued liabilities on the accompanying
December 31, 1995 consolidated balance sheet for the remaining costs to be
incurred relative to the disposal of these surgery centers and the other
properties. The remaining accrual was used in 1996.
14. IMPAIRMENT OF LONG-TERM ASSETS
During 1994, certain events occurred which impaired the value of specific
long-term assets of ReLife (see Note 2). A hospital in Missouri with a distinct
part unit which ReLife was managing was purchased in 1994 by an acute care
provider which terminated the contract with ReLife. Remaining goodwill of
$1,700,000 and costs allocated to the management contract of $1,300,000 were
written off as there is no value remaining for the terminated contract.
65
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. IMPAIRMENT OF LONG-TERM ASSETS (CONTINUED)
A ReLife facility in central Florida incurred tornado damage and has not
operated since September 1993. During 1994, management of ReLife determined that
it was probable that this facility would not reopen. Start-up costs of
$1,600,000 were written off. This facility is leased under an operating lease as
described in Note 11 through the year 2001. An impairment accrual has been
established based on the projected undiscounted net cash flows related to this
non-operating facility for the remainder of the lease term. The accrual totaled
$5,900,000 and consists of $4,700,000 in lease payments and $1,200,000 in fixed
costs and operating expenses, including property taxes, maintenance, security
and other related costs.
During 1994, ReLife entered into a contract for a new information system.
Payments under the contract and related costs were capitalized during the year.
After the agreement to merge with HEALTHSOUTH was entered into, the computer
project was abandoned, resulting in a write-off of capitalized cost of
$4,500,000.
In 1995, the Company recorded an asset impairment charge of approximately
$53,549,000 relating to goodwill and tangible assets identifiable with fourteen
surgery centers. Approximately $47,984,000 of this charge related to ten surgery
centers which the Company intends to operate on an ongoing basis, while the
remaining loss of $5,565,000 is identifiable with four surgery centers which the
Company decided during the fourth quarter of 1995 to close.
With respect to the ten surgery centers the Company intends to continue
operating, certain events occurred in the fourth quarter of 1995 which
significantly impacted the Company's estimates of future cash flows to be
received from these centers. Those events primarily related to a decline in
operating results combined with a deterioration in relationships with key
physicians at certain of those locations. As a result of these events, the
Company revised its estimates of undiscounted cash flows to be received over the
remaining estimated useful lives of these centers and determined that goodwill
and other long-lived assets (primarily property and equipment) had been
impaired. The Company developed its best estimates of future operating cash
flows at these locations considering future requirements for capital
expenditures as well as the impact of inflation. The projections of cash flows
also took into account estimates of significant one-time expenses as well as
estimates of additional revenues and resulting income from future marketing
efforts in the respective locations. The amount of the impairment charge was
66
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. IMPAIRMENT OF LONG-TERM ASSETS (CONTINUED)
determined by discounting the estimates of future cash flows, using an estimated
8.5% incremental borrowing rate which management believes is commensurate with
the risks involved. The resulting net present value of future cash flows was
then compared to the historical net book value of goodwill and other long-lived
assets at each operating location which resulted in an impairment loss relative
to these centers of $47,984,000.
The remaining impairment charge of $5,565,000 relating to the centers to be
closed was based on the fair value of the related assets less estimated costs to
sell. One of these facilities is expected to be sold by the middle of 1997. The
Company continues to operate the remaining three facilities and is evaluating
its alternatives for their disposition. Assets held for sale having a remaining
net book value of $2,839,000 and $2,309,000 are included in property and
equipment on the accompanying December 31, 1995 and 1996 balance sheets,
respectively.
The above amounts are included in operations for 1995 in the accompanying
consolidated statement of income.
15. SUBSEQUENT EVENTS
On January 17, 1997, the Company's Board of Directors authorized a two-for-one
stock split to be effected in the form of a 100% stock dividend, subject to the
approval by the Company's stockholders of an amendment to its Certificate of
Incorporation increasing the number of authorized shares of common stock from
250,000,000 to 500,000,000. The Company's stockholders approved the amendment on
March 12, 1997. The stock dividend is payable on March 17, 1997 to holders of
record on March 13, 1997. Accordingly, all share and per share amounts included
in the accompanying financial statements have been restated to give effect to
the stock split.
On February 17, 1997, the Company entered into a definitive agreement to acquire
Horizon/CMS Healthcare Corporation ("Horizon/CMS") in a stock-for-stock merger
in which the stockholders of Horizon/CMS will receive .84338 (after adjustment
for the two-for-one stock split) of a share of the Company's common stock per
share of Horizon/CMS common stock. The transaction is valued at approximately
$1,600,000,000, including the assumption by the Company of approximately
$700,000,000 in Horizon/CMS debt. It is expected that the acquisition will be
accounted
67
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
15. SUBSEQUENT EVENTS (CONTINUED)
for as a purchase. Horizon/CMS operates 33 inpatient rehabilitation hospitals,
58 specialty hospitals and subacute units and 282 outpatient rehabilitation
centers. Horizon/CMS also owns, leases or manages 267 long-term care facilities,
a contract therapy business, an institutional pharmacy business and other
healthcare services. Consummation of the transaction is subject to various
regulatory approvals, including clearance under the Hart-Scott-Rodino Antitrust
Improvements Act, and to the satisfaction of certain other conditions. The
Company currently anticipates that the transaction will be consummated in
mid-1997.
68
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The Company has not changed independent accountants within the 24
months prior to December 31, 1996.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.
Directors
The following table sets forth certain information with respect to the
Company's Directors.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
AND ALL POSITIONS A DIRECTOR
NAME AGE WITH THE COMPANY SINCE
---- --- ---------------- -----
<S> <C> <C> <C>
Richard M. Scrushy 44 Chairman of the Board 1984
and Chief Executive Officer
and Director
James P. Bennett 39 President and Chief Operating Officer 1993
and Director
Phillip C. Watkins, M.D. 55 Physician, Birmingham, Alabama, 1984
and Director
George H. Strong 70 Private Investor, Locust, New Jersey, 1984
and Director
C. Sage Givens 40 General Partner, 1985
Acacia Venture Partners
and Director
Charles W. Newhall III 52 Partner, New Enterprise 1985
Associates Limited Partnerships,
and Director
Aaron Beam, Jr. 53 Executive Vice President and 1993
Chief Financial Officer
and Director
Larry R. House 53 Chairman of the Board, President 1993
and Chief Executive Officer,
MedPartners, Inc.,
and Director
Anthony J. Tanner 48 Executive Vice President-- 1993
Administration and Secretary
and Director
P. Daryl Brown 42 President-- HEALTHSOUTH Outpatient 1995
Centers and Director
- 69 -
<PAGE>
<CAPTION>
PRINCIPAL OCCUPATION
AND ALL POSITIONS A DIRECTOR
NAME AGE WITH THE COMPANY SINCE
---- --- ---------------- -----
<S> <C> <C> <C>
John S. Chamberlin 68 Private Investor, 1993
Princeton, New Jersey,
and Director
Richard F. Celeste 59 Managing Partner, 1991
Celeste and Sabaty, Ltd.
and Director
Joel C. Gordon 68 Private Investor, 1996
Nashville, Tennessee,
Consultant to the Company
and Director
Raymond J. Dunn III 54 Private Investor, 1996
Woburn, Massachusetts,
Consultant to the Company
and Director
</TABLE>
Richard M. Scrushy, one of the Company's management founders, has
served as Chairman of the Board and Chief Executive Officer of the Company since
1984, and also served as President of the Company from 1984 until March 1995.
From 1979 to 1984, Mr. Scrushy was with Lifemark Corporation, a publicly-owned
healthcare corporation, serving in various operational and management positions.
Mr. Scrushy is also a director of MedPartners, Inc., a publicly-traded physician
practice management company, and Chairman of the Board of Capstone Capital,
Inc., a publicly-traded real estate investment trust. He also serves on the
boards of directors of several privately-held healthcare corporations.
Phillip C. Watkins, M.D., FACC, is and has been for more than five
years in the private practice of medicine in Birmingham, Alabama. A graduate of
The Medical College of Alabama, Dr. Watkins is a Diplomate of the American Board
of Internal Medicine. He is also a Fellow of the American College of Cardiology
and the Subspecialty Board of Cardiovascular Disease.
George H. Strong retired as senior vice president and chief financial
officer of Universal Health Services, Inc. in December 1984, a position he held
for more than six years. Mr. Strong is a private investor and continued to act
as a Director of Universal Health Services, Inc., a publicly-traded hospital
management corporation, until 1993. Mr. Strong is also a director of Core Funds,
a public mutual fund group, Integrated Health Services, Inc., a publicly-traded
healthcare corporation, and AmeriSource, Inc., a large drug wholesaler.
C. Sage Givens is a general partner of Acacia Venture Partners, a
private venture capital fund capitalized at $66,000,000. From 1983 to June 30,
1995, Ms. Givens was a general partner of First Century Partners, a private
venture capital fund capitalized at $100,000,000. Ms. Givens managed the fund's
healthcare investments. Ms. Givens serves on the boards of directors of PhyCor,
Inc. and UroHealth Systems, Inc., both publicly-traded healthcare corporations,
and several privately-held healthcare companies.
Charles W. Newhall III is a general partner and founder of New
Enterprise Associates Limited Partnerships, Baltimore, Maryland, where he has
been engaged in the venture capital business since 1978. Mr. Newhall is also a
director of Integrated Health Services, Inc., MedPartners, Inc. and Opta Food
Ingredients, Inc., all of which are publicly-traded corporations.
- 70 -
<PAGE>
Aaron Beam, Jr., C.P.A., a management founder, serves as Executive Vice
President and Chief Financial Officer of the Company and was elected a Director
in February 1993. From 1980 to 1984, Mr. Beam was employed by Lifemark
Corporation in several financial and operational management positions for the
Shared Services Division, including division controller. Mr. Beam is a director
of Ramsey Healthcare, Inc., a publicly-traded healthcare corporation.
James P. Bennett joined the Company in May 1991 as Director of
Inpatient Operations, was promoted to Group Vice President -- Inpatient
Rehabilitation Operations in September 1991, again to President and Chief
Operating Officer -- HEALTHSOUTH Rehabilitation Hospitals in June 1992, to
President -- HEALTHSOUTH Inpatient Operations in February 1993, and to President
and Chief Operating Officer of the Company in March 1995. Mr. Bennett was
elected a Director in February 1993. From August 1987 to May 1991, Mr. Bennett
was employed by Russ Pharmaceuticals, Inc., Birmingham, Alabama, as Vice
President -- Operations, Chief Financial Officer, Secretary and director. Mr.
Bennett served as certified public accountant on the audit staff of the
Birmingham, Alabama office of Ernst & Whinney (now Ernst & Young LLP) from
October 1980 to August 1987.
Larry R. House is Chairman of the Board, President and Chief Executive
Officer of MedPartners, Inc. a publicly-traded physician practice management
firm, a position he assumed as his principal occupation in August 1993. Mr.
House was elected a Director of the Company in February 1993. At the same time
he became President -- HEALTHSOUTH International, Inc. and New Business
Ventures, a position which he held until August 31, 1994, when he terminated his
employment with the Company to concentrate on his duties at MedPartners. Mr.
House joined the Company in September 1985 as Director of Marketing,
subsequently served as Senior Vice President and Chief Operating Officer of the
Company, and in June 1992 became President and Chief Operating Officer --
HEALTHSOUTH Medical Centers. Prior to joining the Company, Mr. House was
president and chief executive officer of a provider of clinical contract
management services for more than ten years.
Anthony J. Tanner, Sc.D., a management founder, serves as Executive
Vice President -- Administration and Secretary of the Company and was elected a
Director in February 1993. From 1980 to 1984, Mr. Tanner was with Lifemark
Corporation in the Shared Services Division as director, clinical and
professional programs (1982-1984) and director, quality assurance and education
(1980-1982), where he was responsible for the development of clinical programs
and marketing programs.
P. Daryl Brown joined the Company in April 1986 and served until June
1992 as Group Vice President -- Outpatient Operations. He became President --
HEALTHSOUTH Outpatient Centers in June 1992, and was elected as a Director in
March 1995. From 1977 to 1986, Mr. Brown served with the American Red Cross,
Alabama Region, in several positions, including Chief Operating Officer,
Administrative Director for Financing and Administration and Controller.
John S. Chamberlin retired in 1988 as president and chief operating
officer of Avon Products, Inc., a position he had held since 1985. From 1976
until 1985, he served as chairman and chief executive officer of Lenox,
Incorporated, after 22 years in various assignments for General Electric. From
1990 to 1991, he served as chairman and chief executive officer of New Jersey
Publishing Co. Mr. Chamberlin is chairman of the board of Life Fitness Company
and WNS, Inc., and is a director of The Scotts Company and UroHealth Systems,
Inc. He is a member of the Board of Trustees of the Medical Center at Princeton
and the Board of Overseers of Parsons School of Design and is a trustee of the
Woodrow Wilson National Fellowship Foundation.
Richard F. Celeste originally joined the Board of Directors in 1991,
took a leave of absence from the Board of Directors in August 1993 to head the
Democratic National Committee's healthcare reform campaign, and rejoined the
Board in May 1994. He is Managing Partner of Celeste and Sabaty, Ltd., a
business advisory firm located in Columbus, Ohio, which assists United States
companies to build strategic business alliances in Europe, Africa, South Asia
and the Pacific Rim. He served as Governor of Ohio from 1983 to 1991, during
which time he chaired the National Governors' Association Committee on Science
and Technology, and directed the United States Peace Corps from 1979 to 1981. He
is a member of the Advisory Council of the Carnegie Commission on Science,
Technology
- 71 -
<PAGE>
and Government, and chairs Carnegie's Task Force on Science, Technology and the
States. He is a director of Navistar International, Inc. and Republic Engineered
Steels, Inc., both of which are publicly-traded companies.
Joel C. Gordon served as Chairman of the Board of Directors of SCA from
its founding in 1982 until January 17, 1996, when SCA was acquired by the
Company. Mr. Gordon also served as Chief Executive Officer of SCA from 1987
until January 17, 1996. Mr. Gordon serves on the boards of directors of Genesco,
Inc., an apparel manufacturer, and SunTrust Bank of Nashville, N.A.
Raymond J. Dunn, III served as Chief Executive Officer of Advantage
Health from 1986 until March 14, 1996, when Advantage Health was acquired by the
Company. In addition, he served as Chairman of its Board of Directors from 1990
to March 14, 1996 and as its President from 1994 to March 14, 1996. From 1987 to
1990, he served as Vice Chairman of the Board of Advantage Health. From 1979 to
1986, Mr. Dunn was Chief Executive Officer of a former subsidiary of Advantage
Health responsible for management of Advantage Health's operations. From 1970 to
1978, he was Administrator of New England Rehabilitation Hospital, Inc. Mr. Dunn
has elected to retire from the Board of Directors at the 1997 Annual Meeting of
Stockholders to pursue other interests.
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
Company's executive officers.
<TABLE>
<CAPTION>
ALL POSITIONS AN OFFICER
NAME AGE WITH THE COMPANY SINCE
---- --- ---------------- -----
<S> <C> <C> <C>
Richard M. Scrushy 44 Chairman of the Board 1984
and Chief Executive Officer and
Director
James P. Bennett 39 President and Chief Operating Officer 1991
and Director
Aaron Beam, Jr. 53 Executive Vice President and Chief 1984
Financial Officer and Director
Anthony J. Tanner 48 Executive Vice President-- Administration 1984
and Secretary and Director
Michael D. Martin 36 Executive Vice President-- 1989
Finance and Treasurer
Thomas W. Carman 45 Executive Vice President-- 1985
Corporate Development
P. Daryl Brown 42 President-- HEALTHSOUTH 1986
Outpatient Centers and Director
Robert E. Thomson 49 President-- HEALTHSOUTH 1987
Inpatient Operations
Russell H. Maddox 56 President-- HEALTHSOUTH 1995
Imaging Centers
- 72 -
<PAGE>
William T. Owens 38 Senior Vice President-- 1986
Finance and Controller
William W. Horton 37 Senior Vice President and 1994
Corporate Counsel and
Assistant Secretary
</TABLE>
Biographical information for Messrs. Scrushy, Bennett, Beam, Tanner and
Brown is set forth above under this Item, "Directors and Executive Officers --
Directors".
Michael D. Martin joined the Company in October 1989 as Vice President
and Treasurer, and was named Senior Vice President -- Finance and Treasurer in
February 1994 and Executive Vice President -- Finance and Treasurer in May 1996.
From 1983 through September 1989, Mr. Martin specialized in healthcare lending
with AmSouth Bank N.A., Birmingham, Alabama, where he was a Vice President
immediately prior to joining the Company. Mr. Martin is a Director of Capstone
Capital, Inc.
Thomas W. Carman joined the Company in 1985 as Regional Director --
Corporate Development, and now serves as Executive Vice President -- Corporate
Development. From 1983 to 1985, Mr. Carman was director of development for
Medical Care International. From 1981 to 1983, Mr. Carman was assistant
administrator at the Children's Hospital of Birmingham, Alabama.
Robert E. Thomson joined the Company in August 1985 as administrator of
its Florence, South Carolina inpatient rehabilitation facility, and subsequently
served as Regional Vice President -- Inpatient Operations, Vice President --
Inpatient Operations, Group Vice President -- Inpatient Operations, and Senior
Vice President -- Inpatient Operations. Mr. Thomson was named President --
HEALTHSOUTH Inpatient Operations in February 1996.
Russell H. Maddox became President -- HEALTHSOUTH Imaging Centers in
January 1996. He served as President -- HEALTHSOUTH Surgery & Imaging Centers
from June 1995 through January 1996. From January 1992 until May 1995, Mr.
Maddox served as Chairman of the Board, President and Chief Executive Officer of
Diagnostic Health Corporation, an outpatient diagnostic imaging company which
became a wholly-owned subsidiary of the Company in 1996. Mr. Maddox was founder
and President of Russ Pharmaceuticals, Inc., located in Birmingham, Alabama. In
March 1989 Russ Pharmaceuticals was acquired by Ethyl Corporation of Richmond,
Virginia.
William T. Owens, C.P.A., joined the Company in March 1986 as
Controller and was appointed Vice President and Controller in December 1986. He
was appointed Group Vice President -- Finance and Controller in June 1992 and
became Senior Vice President -- Finance and Controller in February 1994. Prior
to joining the Company, Mr. Owens served as a certified public accountant on the
audit staff of the Birmingham, Alabama office of Ernst & Whinney (now Ernst &
Young LLP) from 1981 to 1986.
William W. Horton joined the Company in July 1994 as Group Vice
President -- Legal Services and was named Senior Vice President and Corporate
Counsel in May 1996. From August 1986 through June 1994, Mr. Horton practiced
corporate, securities and healthcare law with the Birmingham, Alabama-based firm
of Haskell Slaughter Young & Johnston, Professional Association, where he served
as Chairman of the Healthcare Practice Group.
- 73 -
<PAGE>
GENERAL
Directors of the Company hold office until the next Annual Meeting of
Stockholders of the Company and until their successors are elected and
qualified. Executive officers of the Company are elected annually by, and serve
at the discretion of the Board of Directors. There are no arrangements or
understandings known to the Company between any of the Directors, nominees for
Director or executive officers of the Company and any other person pursuant to
which any of such persons was elected as a Director or an executive officer,
except the Employment Agreement between the Company and Richard M. Scrushy (see
Item 11, "Executive Compensation -- Chief Executive Officer Employment
Agreement") and except that the Company agreed to appoint Mr. Gordon and Mr.
Dunn to the Board of Directors in connection with the SCA and Advantage Health
mergers. There are no family relationships between any Directors, nominees for
Director or executive officers of the Company.
COMPLIANCE WITH SECTION 16(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and Directors, and persons who beneficially own more than 10%
of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and the New York Stock Exchange. Officers, Directors and beneficial owners of
more than 10% of the Company's Common Stock are required by Securities and
Exchange Commission regulations to furnish the Company with copies of all
Section 16(a) forms that they file. Based solely on review of the copies of such
forms furnished to the Company, or written representations that no reports on
Form 5 were required, the Company believes that for the period from January 1,
1996, through December 31, 1996, all of its officers, Directors and
greater-than-10% beneficial owners complied with all Section 16(a) filing
requirements applicable to them, except as set forth below.
Raymond J. Dunn, III, a retiring Director of the Company, did not
timely report sales aggregating 393,330 shares of the Company's Common Stock in
four transactions in September 1996 and "private collar" derivative security
transactions covering an aggregate of 2,162,478 shares of the Company's Common
Stock in June 1996. All such transactions were reported on Form 5 in February
1997.
- 74 -
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION -- GENERAL
The following table sets forth compensation paid or awarded to the
Chief Executive Officer and each of the other four most highly compensated
executive officers of the Company (the "Named Executive Officers") for all
services rendered to the Company and its subsidiaries in 1994, 1995 and 1996.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
BONUS/ANNUAL STOCK LONG-TERM ALL
INCENTIVE OPTION INCENTIVE OTHER COM-
NAME AND PRINCIPAL POSITION YEAR SALARY AWARD AWARDS PAYOUTS PENSATION (1)
- --------------------------- ---- ------ ----- ------ ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard M. Scrushy 1994 $1,207,228 $ 2,000,000 -- -- $ 12,991
Chairman of the Board 1995 1,737,526 5,000,000 2,000,000 -- 650,108 (2)
and Chief Executive Officer 1996 3,380,295 8,000,000 1,500,000 -- 34,280 (2)
James P. Bennett 1994 357,740 250,000 -- -- 10,760
President and Chief 1995 371,558 600,000 300,000 -- 7,835
Operating Officer 1996 485,110 800,000 200,000 -- 32,106 (2)
Michael D. Martin 1994 189,013 250,000 -- -- 7,311
Executive Vice President 1995 165,626 500,000 170,000 -- 7,919
and Treasurer 1996 270,164 750,000 120,000 -- 31,587 (2)
P. Daryl Brown 1994 272,573 200,000 -- -- 10,226
President-- HEALTHSOUTH 1995 263,462 300,000 260,000 -- 8,580
Outpatient Centers 1996 324,345 400,000 100,000 -- 11,181
Aaron Beam, Jr. 1994 298,223 175,000 -- -- 11,272
Executive Vice President 1995 247,903 300,000 200,000 -- 8,695
and Chief Financial Officer 1996 287,417 350,000 30,000 -- 33,314 (2)
</TABLE>
- --------------------
(1) Includes car allowances of $500 per month for Mr. Scrushy and $350 per
month for the other Named Executive Officers. Also includes (a) matching
contributions under the Company's Retirement Investment Plan for 1994, 1995
and 1996, respectively, of: $318, $292 and $708 to Mr. Scrushy; $355, $900
and $1,289 to Mr. Beam; $625, $900 and $1,425 to Mr. Bennett; $526, $900
and $1,371 to Mr. Martin; and $274, $900 and $1,897 to Mr. Brown; (b)
awards under the Company's Employee Stock Benefit Plan for 1994, 1995 and
1996, respectively, of $4,910, $1,626 and $3,389 to Mr. Scrushy; $4,910,
$1,626 and $3,389 to Mr. Beam; $4,910, $1,626 and $3,387 to Mr. Bennett;
$1,345, $1,626 and $3,386 to Mr. Martin; and $4,910, $1,626 and $3,389 to
Mr. Brown; and (c) split-dollar life insurance premiums paid in 1994 and
1995 of $1,723, $2,190 and $2,312 with respect to Mr. Scrushy; $1,807,
$1,969 and $2,559 with respect to Mr. Beam; $1,025, $1,109 and $1,217 with
respect to Mr. Bennett; $1,240, $1,193 and $752 with respect to Mr. Martin;
and $842, $1,854 and $1,695 with respect to Mr. Brown. See this Item,
"Executive Compensation-- Retirement Investment Plan" and "Executive
Compensation-- Employee Stock Benefit Plan".
(2) In addition to the amounts described in the preceding footnote, includes
the conveyance of real property valued at $640,000 to Mr. Scrushy in 1995,
and the forgiveness of loans in the amount of $21,877 each owed by Messrs.
Scrushy, Beam, Bennett and Martin in 1996.
- 75 -
<PAGE>
STOCK OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
% OF TOTAL
OPTIONS
NUMBER OF GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE EXPIRATION GRANT DATE
NAME GRANTED FISCAL YEAR PER SHARE DATE PRESENT VALUE (1)
- ----- --------- ------------- ------------- -------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Richard M. Scrushy 1,500,000 36.9% $ 16.25 1/17/06 $ 10,982,625
James P. Bennett 200,000 4.9% 16.25 1/17/06 1,464,350
Michael D. Martin 100,000 2.5% 16.25 1/17/06 732,175
20,000 0.5% 16.44 8/14/06 146,435
P. Daryl Brown 100,000 2.5% 16.25 1/17/06 732,175
Aaron Beam, Jr. 60,000 1.5% 16.25 1/17/06 439,305
</TABLE>
- ----------
(1) Based on the Black-Scholes option pricing model adapted for use in
valuating executive stock options. The actual value, if any, an
executive may realize will depend upon the excess of the stock price
over the exercise price on the date the option is exercised, so that
there is no assurance that the value realized by an executive will be
at or near the value estimated by the Black-Scholes model. The
estimated values under that model are based on arbitrary assumptions as
to certain variables, including the following: (i) stock price
volatility is assumed to be 37.5%; (ii) the risk-free rate of return is
assumed to be 6.21%; (iii) dividend yield is assumed to be 0; and (iv)
the time of exercise is assumed to be 5.5 years from the date of grant.
STOCK OPTION EXERCISES IN 1996 AND OPTION VALUES AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBER VALUE OF UNEXERCISED
OF SHARES NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED AT DECEMBER 31, 1996 (1) AT DECEMBER 31, 1996 (2)
ON VALUE --------------------------- --------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard M. Scrushy......1,000,000 $16,168,845 13,869,892 2,632 $188,007,958 $ 35,836
James P. Bennett........ 90,000 1,183,950 860,000 --- 9,353,300 ---
Michael D. Martin....... 83,500 1,291,461 200,000 105,000 888,750 1,200,381
P. Daryl Brown.......... 77,000 1,218,986 935,000 --- 12,048,828 ---
Aaron Beam, Jr.......... 152,500 2,053,794 260,000 --- 2,371,250 ---
</TABLE>
- --------------------
(1) Does not reflect any options granted and/or exercised after December 31,
1996. The net effect of any such grants and exercises is reflected in the
table appearing under Item 12, "Security Ownership of Certain Beneficial
Owners and Management".
(2) Represents the difference between market price of the Company's Common
Stock and the respective exercise prices of the options at December 31,
1996. Such amounts may not necessarily be realized. Actual values which may
be realized, if any, upon any exercise of such options will be based on the
market price of the Common Stock at the time of any such exercise and thus
are dependent upon future performance of the Common Stock.
- 76 -
<PAGE>
STOCK OPTION PLANS
Set forth below is information concerning the various stock option
plans of the Company at December 31, 1996. All share numbers and exercise prices
have been adjusted to reflect the Company's March 1997 two-for-one stock split.
1984 Incentive Stock Option Plan
The Company had a 1984 Incentive Stock Option Plan (the "ISO Plan"),
intended to qualify under Section 422(b) of the Internal Revenue Code of 1986,
as amended (the "Code"), covering an aggregate of 4,800,000 shares of Common
Stock. The ISO Plan expired on February 28, 1994, in accordance with its terms.
As of December 31, 1996, there were outstanding under the ISO Plan options to
purchase 31,702 shares of the Company's Common Stock at prices ranging from
$2.52 to $3.78 per share. All such options remain in full force and effect in
accordance with their terms and the ISO Plan. Under the ISO Plan, which was
administered by the Board of Directors, key employees could be granted options
to purchase shares of Common Stock at 100% of fair market value on the date of
grant (or 110% of fair market value in the case of a 10% stockholder/grantee).
The outstanding options granted under the ISO Plan must be exercised within ten
years from the date of grant, are cumulatively exercisable with respect to 25%
of the shares covered thereby after the expiration of each of the first through
the fourth years following the date of grant, are nontransferable except by will
or pursuant to the laws of descent and distribution, are protected against
dilution and expire within three months after termination of employment, unless
such termination is by reason of death.
1988 Non-Qualified Stock Option Plan
The Company also has a 1988 Non-Qualified Stock Option Plan (the "NQSO
Plan") covering a maximum of 4,800,000 shares of Common Stock. As of December
31, 1996, there were outstanding under the NQSO Plan options to purchase 57,300
shares of the Company's Common Stock at prices ranging from $8.37 to $16.25 per
share. The NQSO Plan, which is administered by the Audit and Compensation
Committee of the Board of Directors provides, that Directors, executive officers
and other key employees may be granted options to purchase shares of Common
Stock at 100% of fair market value on the date of grant. The NQSO Plan
terminates on the earliest of (a) February 28, 1998, (b) such time as all shares
of Common Stock reserved for issuance under the NQSO Plan have been acquired
through the exercise of options granted thereunder or (c) such earlier time as
the Board of Directors of the Company may determine. Options granted pursuant to
the NQSO Plan have a ten-year term are exercisable at any time during such
period, are nontransferable except by will or pursuant to the laws of descent
and distribution, are protected against dilution and expire within three months
of termination of association with the Company as a Director or termination of
employment, unless such termination is by reason of death.
1989, 1990, 1991, 1992, 1993 and 1995 Stock Option Plans
The Company also has a 1989 Stock Option Plan (the "1989 Plan"), a 1990
Stock Option Plan (the "1990 Plan"), a 1991 Stock Option Plan (the "1991 Plan"),
a 1992 Stock Option Plan (the "1992 Plan"), a 1993 Stock Option Plan (the "1993
Plan") and a 1995 Stock Option Plan (the "1995 Plan"), under each of which
incentive stock options ("ISOs") and non-qualified stock options ("NQSOs") may
be granted. The 1989, 1990, 1991, 1992, 1993 and 1995 Plans cover a maximum of
2,400,000 shares, 3,600,000 shares, 11,200,000 shares, 5,600,000 shares,
5,600,000 shares and 11,563,548 (to be increased by 0.9% of the outstanding
Common Stock of the Company on each January 1, beginning January 1, 1996)
shares, respectively, of the Company's Common Stock. As of December 31, 1996,
there were outstanding options to purchase an aggregate of 28,188,880 shares of
the Company's Common Stock under such Plans at exercise prices ranging from
$2.52 to $19.12 per share. An additional 2,778,356 shares were reserved for
grants under such Plans. Each of the 1989, 1990, 1991, 1992, 1993 and 1995 Plans
is administered in the same manner as the NQSO Plan and provides that Directors,
executive
- 77 -
<PAGE>
officers and other key employees may be granted options to purchase shares of
Common Stock at 100% of fair market value on the date of grant. The 1989, 1990,
1991, 1992, 1993 and 1995 Plans terminate on the earliest of (a) October 25,
1999, October 15, 2000, June 19, 2001, June 16, 2002, April 19, 2003 and June 5,
2005, respectively, (b) such time as all shares of Common Stock reserved for
issuance under the respective Plan have been acquired through the exercise of
options granted thereunder, or (c) such earlier times as the Board of Directors
of the Company may determine. Options granted under these Plans which are
designated as ISOs contain vesting provisions similar to those contained in
options granted under the ISO Plan and have a ten-year term. NQSOs granted under
these Plans have a ten-year term. Options granted under these Plans are
nontransferable except by will or pursuant to the laws of descent and
distribution (except for certain permitted transfers to family members or
charities), are protected against dilution and will expire within three months
of termination of association with the Company as a Director or termination of
employment, unless such termination is by reason of death.
1993 Consultants' Stock Option Plan
The Company also has a 1993 Consultants' Stock Option Plan (the "1993
Consultants' Plan"), under which NQSOs may be granted, covering a maximum of
3,000,000 shares of Common Stock. As of December 31, 1995, there were
outstanding under the 1993 Consultants' Plan options to purchase 1,636,000
shares of Common Stock at prices ranging from $3.37 to $17.75 per share. An
additional 40,000 shares were reserved for grants under such Plans. The 1993
Consultants' Plan, which is administered in the same manner as the NQSO Plan,
provides that certain non-employee consultants who provide significant services
to the Company may be granted options to purchase shares of Common Stock at such
prices as are determined by the Board of Directors or the appropriate committee.
The 1993 Consultants' Plan terminates on the earliest of (a) February 25, 2003,
(b) such time as all shares of Common Stock reserved for issuance under the 1993
Consultants' Plan have been acquired through the exercise of options granted
thereunder, or (c) such earlier time as the Board of Directors of the Company
may determine. Options granted under the 1993 Consultants' Plan have a ten-year
term. Options granted under the 1993 Consultants' Plan are nontransferable
except by will or pursuant to the laws of descent and distribution, are
protected against dilution and expire within three months of termination of
association with the Company as a consultant, unless such termination is by
reason of death.
Other Stock Option Plans
In connection with the acquisitions of SHC, SSCI, SCA, PSCM and
ReadiCare, the Company assumed certain existing stock option plans of the
acquired companies, and outstanding options to purchase stock of the acquired
companies under such plans were converted into options to acquire Common Stock
of the Company in accordance with the exchange ratios applicable to such
mergers. At December 31, 1996, there were outstanding under these assumed plans
options to purchase 1,906,200 shares of the Company's Common Stock at exercise
prices ranging from $2.14 to $25.75 per share. No additional options are being
granted under any such assumed plans.
EXECUTIVE LOANS
In order to enhance equity ownership by senior management, in 1989 the
Company adopted a program of making loans to officers holding the position of
Group Vice President and above to facilitate the exercise of stock options held
by such persons. Each loan bears interest at the prime rate announced from time
to time by AmSouth Bank of Alabama, Birmingham, Alabama and is secured by a
first lien on the shares of Common Stock acquired with the proceeds of the loan.
Each loan has a ten-year term, and the Company's lien on the shares of Common
Stock is released as the indebtedness is repaid at the rate of one share per the
weighted average option exercise price repaid. The only loan currently
outstanding under such program is a loan made on May 7, 1992 to P. Daryl Brown,
President -- HEALTHSOUTH Outpatient Centers, which had an original principal
balance of $213,613 and of which $190,000 remained outstanding at December 31,
1996.
- 78 -
<PAGE>
RETIREMENT INVESTMENT PLAN
Effective January 1, 1990, the Company adopted the HEALTHSOUTH
Retirement Investment Plan (the "401(k) Plan"), a retirement plan intended to
qualify under Section 401(k) of the Internal Revenue Code of 1986, as amended.
The 401(k) Plan is open to all full-time and part-time employees of the Company
who are over the age of 21, have one full year of service with the Company and
have at least 1,000 hours of service in the year in which they enter the 401(k)
Plan. Eligible employees may elect to participate in the Plan on January 1 and
July 1 in each year.
Under the 401(k) Plan, participants may elect to defer up to 20% of
their annual compensation (subject to nondiscrimination rules under the Internal
Revenue Code). The deferred amounts may be invested among four options, at the
participant's direction: a money market fund, a bond fund, a guaranteed
insurance contract or an equity fund. The Company will match a minimum of 10% of
the amount deferred by each participant, up to 4% of such participant's total
compensation, with the matched amount also directed by the participant. See Note
12 of "Notes to Consolidated Financial Statements".
Aaron Beam, Jr., Executive Vice President and Chief Financial Officer
of the Company, and Anthony J. Tanner, Executive Vice President --
Administration and Secretary of the Company, serve as Trustees of the 401(k)
Plan, which is administered by the Company.
EMPLOYEE STOCK BENEFIT PLAN
Effective January 1, 1991, the Company adopted the HEALTHSOUTH
Rehabilitation Corporation and Subsidiaries Employee Stock Benefit Plan (the
"ESOP"), a retirement plan intended to qualify under sections 401(a) and
4975(e)(7) of the Internal Revenue Code of 1986, as amended. The ESOP is open to
all full-time and part-time employees of the Company who are over the age of 21,
have one full year of service with the Company and have at least 1,000 hours of
service in the year in which they begin participation in the ESOP on the next
January 1 or July 1 after the date on which such employee satisfies the
aforementioned conditions.
The ESOP was established with a $10,000,000 loan from the Company, the
proceeds of which were used to purchase 1,655,172 shares of the Company's Common
Stock. In 1992, an additional $10,000,000 loan was made to the ESOP, which was
used to purchase an additional 1,666,664 shares of Common Stock. Under the ESOP,
a Company Common Stock account (a "company stock account") is established and
maintained for each eligible employee who participates in the ESOP. In each plan
year, such account is credited with such employee's allocable share of the
Common Stock held by the ESOP and allocated with respect to such plan year. Each
employee's allocable share for any given plan year is determined according to
the ratio which such employee's compensation for such plan year bears to the
compensation of all eligible participating employees for the same plan year.
Under the ESOP, eligible employees who participate in the ESOP and who
have attained age 55 and have completed 10 years of participation in the ESOP
may elect to diversify the assets in their company stock account by directing
the plan administrator to transfer to the 401(k) Plan a portion of their company
stock account to be invested, as the eligible employee directs, in one or more
of the investment options available under the 401(k) Plan.
See Note 12 of "Notes to Consolidated Financial Statements".
Richard M. Scrushy, Chairman of the Board and Chief Executive Officer
of the Company, Aaron Beam, Jr., Executive Vice President and Chief Financial
Officer of the Company, and Anthony J. Tanner, Executive Vice President --
Administration and Secretary of the Company, serve as Trustees of the ESOP,
which is administered by the Company.
- 79 -
<PAGE>
STOCK PURCHASE PLAN
In order to further encourage employees to obtain equity ownership in
the Company, the Company's Board of Directors adopted an Employee Stock Purchase
Plan (the "Stock Purchase Plan") effective January 1, 1994. Under the Stock
Purchase Plan, participating employees may contribute $10 to $200 per pay period
toward the purchase of the Company's Common Stock in open-market transactions.
The Stock Purchase Plan is open to regular full-time or part-time employees who
have been employed for six months and are at least 21 years old. After six
months of participation in the Stock Purchase Plan, the Company will provide a
10% matching contribution to be applied to purchases under the Stock Purchase
Plan. The Company also pays all fees and brokerage commissions associated with
the purchase of the stock. The Stock Purchase Plan is administered by a
broker-dealer firm not affiliated with the Company.
BOARD COMPENSATION
Directors who are not also employed by the Company are paid Directors'
fees of $10,000 per annum, plus $3,000 for each meeting of the Board of
Directors and $1,000 for each Committee meeting attended. In addition, Directors
are reimbursed for all out-of-pocket expenses incurred in connection with their
duties as Directors. The Directors of the Company, including Mr. Scrushy, have
been granted non-qualified stock options to purchase shares of the Company's
Common Stock. See this Item, "Executive Compensation -- Stock Option Plans"
above.
CHIEF EXECUTIVE OFFICER EMPLOYMENT AGREEMENT
The Company is a party to an Employment Agreement with Richard M.
Scrushy, pursuant to which Mr. Scrushy, a management founder of the Company. is
employed as Chairman of the Board and Chief Executive Officer of the Company for
a five-year term which ends December 31, 2000. Such term is automatically
extended for an additional year on December 31 of each year. In addition, the
Company has agreed to use its best efforts to cause Mr. Scrushy to be elected as
a Director of the Company during the term of the Agreement. Under the Agreement,
Mr. Scrushy received a base salary of $999,000, excluding incentive compensation
of up to $2,400,000, in 1996 and is to receive the same base salary in 1997 and
each year thereafter, with incentive compensation of up to $2,400,000, subject
to annual review by the Board of Directors, and is entitled to participate in
any bonus plan approved by the Board of Directors for the Company's management.
The incentive compensation is earned at $200,000 per month in 1996 and 1997,
contingent upon the Company's success in meeting certain monthly budgeted
earnings per share targets. Mr. Scrushy earned the entire $2,400,000 incentive
component of his compensation in 1996, as all such targets were met. In
addition, Mr. Scrushy was awarded $8,000,000 under the management bonus plan.
Such additional bonus was based on the Committee's assessment of Mr. Scrushy's
contribution to the establishment of the Company as the industry leader in
outpatient and rehabilitative healthcare services, including his role in the
negotiation and consummation of the SCA, Advantage Health, PSCM and ReadiCare
acquisitions and the negotiation of the Health Images and Horizon/CMS
acquisitions, as well as the Company's success in achieving annual budgeted net
income targets and certain other factors reflecting the Company's growth and
performance. Mr. Scrushy is also provided with a car allowance in the amount of
$500 per month and disability insurance. Under the Agreement, Mr. Scrushy's
employment may be terminated for cause or if he should become disabled.
Termination of Mr. Scrushy's employment under the Agreement will result in
certain severance pay arrangements. In the event that the Company shall be
acquired, merged or reorganized in such a manner as to result in a change of
control of the Company, Mr. Scrushy has the right to terminate his employment
under the Agreement, in which case he will receive a lump sum payment equal to
three years' annual base salary (including the gross incentive portion thereof)
under the Agreement. Mr. Scrushy has agreed not to compete with the Company
during any period to which any such severance pay relates. Mr. Scrushy may
terminate the Agreement at any time upon 180 days' notice, in which case he will
receive one year's base salary as severance pay.
- 80 -
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 17, 1997, (a) by each person
who is known by the Company to own beneficially more than 5% of the Company's
Common Stock, (b) by each of the Company's Directors and (c) by the Company's
five most highly compensated executive officers and all executive officers and
Directors as a group.
<TABLE>
<CAPTION>
PERCENTAGE
NAME AND NUMBER OF SHARES OF
ADDRESS OF OWNER BENEFICIALLY OWNED (1) COMMON STOCK
---------------- ---------------------- ------------
<S> <C> <C>
Richard M. Scrushy 15,076.658 (2) 4.51%
John S. Chamberlin 222,000 (3) *
C. Sage Givens 392,100 (4) *
Charles W. Newhall III 711,920 (5) *
George H. Strong 577,882 (6) *
Phillip C. Watkins, M.D. 797,854 (7) *
Aaron Beam, Jr. 323,620 (8) *
James P. Bennett 1,250,000 (9) *
Larry R. House 459,600 (10) *
Anthony J. Tanner 1,043,808 (11) *
Richard F. Celeste 260,000 (12) *
P. Daryl Brown 1,093,000 (13) *
Joel C. Gordon 3,660,668 (14) 1.14%
Raymond J. Dunn, III 3,226,166 (15) 1.01%
Michael D. Martin 457,008 (16) *
FMR Corp. 38,509,640 (17) 12.03%
82 Devonshire Street
Boston, Massachusetts 02109
Putnam Investments, Inc. 22,880,090 (18) 7.15%
One Post Office Square
Boston, Massachusetts 02109
All Executive Officers and Directors as a Group 32,119,688 (19) 9.33%
(20 persons)
- -------------------------
</TABLE>
(1) The persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
except as otherwise indicated.
(2) Includes 14,472,524 shares subject to currently exercisable stock options.
(3) Includes 150,000 shares subject to currently exercisable stock options.
(4) Includes 2,100 shares owned by Ms. Givens's spouse and 390,000 shares
subject to currently exercisable stock options.
(5) Includes 790 shares owned by members of Mr. Newhall's immediate family and
710,000 shares subject to currently exercisable stock options. Mr. Newhall
disclaims beneficial ownership of the shares owned by his family members
except to the extent of his pecuniary interest therein.
- 81 -
<PAGE>
(6) Includes 103,662 shares owned by trusts of which Mr. Strong is a trustee
and claims shared voting and investment power and 300,000 shares subject to
currently exercisable stock options.
(7) Includes 600,000 shares subject to currently exercisable stock options.
(8) Includes 320,000 shares subject to currently exercisable stock options.
(9) Includes 1,160,000 shares subject to currently exercisable stock options.
(10) Includes 457,996 shares subject to currently exercisable stock options.
(11) Includes 72,000 shares held in trust by Mr. Tanner for his children and
910,000 shares subject to currently exercisable stock options.
(12) All of the shares are subject to currently exercisable stock options.
(13) Includes 1,035,000 shares subject to currently exercisable stock options.
(14) Includes 364,340 shares owned by his spouse, 144,988 shares owned by trusts
of which he is a trustee and 384,520 shares subject to currently
exercisable stock options.
(15) Includes 50,000 shares subject to currently exercisable stock options.
(16) Includes 455,000 shares subject to currently exercisable stock options.
(17) Shares held by various investment funds for which affiliates of FMR Corp.
act as investment advisor. FMR Corp. or its affiliates claim sole power to
vote 1,407,440 of the shares and sole power to dispose of all of the
shares.
(18) Shares held by various investment funds for which affiliates of Putnam
Investments, Inc. act as investment advisor. Putnam Investments, Inc. or
its affiliates claim sole power to vote 2,070,760 of the shares and sole
power to dispose of all of the shares.
(19) Includes 24,215,544 shares subject to currently exercisable stock options
held by executive officers and Directors.
* Less than 1%
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During 1996, the Company paid $12,906,000 for the purchase of new NCR
computer equipment from GG Enterprises, a value-added reseller of computer
equipment which is owned by Grace Scrushy, the mother of Richard M. Scrushy,
Chairman of the Board and Chief Executive Officer of the Company, and Gerald P.
Scrushy, Senior Vice President -- Physical Resources of the Company. Such
purchases were made in the ordinary course of the Company's business. The price
paid for this equipment was more favorable to the Company than that which could
have been obtained from an independent third party seller.
During 1996, the Company paid $429,247 to MedPartners, Inc., a
publicly-traded physician practice management company, for management services
rendered to certain physician practices owned by the Company.
- 82 -
<PAGE>
Richard M. Scrushy, Chairman of the Board and Chief Executive Officer of the
Company, and Larry R. House, a Director of the Company, are directors of
MedPartners, Inc. Mr. House also serves as Chairman of the Board, President and
Chief Executive Officer of MedPartners, Inc., a position which has been his
principal occupation since August 1993. At March 1, 1997, Mr. Scrushy
beneficially owns approximately 0.48%, Mr. House beneficially owns approximately
0.71%, and the Company owns approximately 0.67% of the issued and outstanding
Common Stock of MedPartners, Inc. The Company believes that the price paid for
such services was no less favorable to the Company than that which could have
been obtained from an independent third-party provider.
In June 1994, the Company sold selected properties, including six
ancillary hospital facilities, three outpatient rehabilitation facilities, two
outpatient surgery centers, one uncompleted medical office building and one
research facility to Capstone Capital Corporation ("Capstone"), a
publicly-traded real estate investment trust. The net proceeds of the Company as
a result of the transaction were approximately $58,425,000. The net book value
of the properties was approximately $50,735,000. The Company leases back
substantially all these properties from Capstone and guarantees the associated
operating leases, payments under which aggregate approximately $6,900,000
annually. In addition, in 1995 Capstone acquired ownership of the Company's
Erie, Pennsylvania inpatient rehabilitation facility, which had been leased by
the Company from an unrelated lessor. The Company's annual lease payment under
that lease is $1,700,000. In 1996 Capstone also acquired ownership of the
Company's Altoona and Mechanicsburg, Pennsylvania inpatient rehabilitation
facilities, which had been leased by the Company from unrelated lessors. The
Company's annual lease payments under such leases aggregate $2,818,000. Richard
M. Scrushy, Chairman of the Board and Chief Executive Officer of the Company,
and Michael D. Martin, Executive Vice President and Treasurer of the Company,
were among the founders of Capstone and serve on its Board of Directors. At
March 1, 1997, Mr. Scrushy owned approximately 2.4% of the issued and
outstanding capital stock of Capstone, and Mr. Martin owned approximately 0.9%
of the issued and outstanding capital stock of Capstone. In addition, the
Company owned approximately 0.5% of the issued and outstanding capital stock of
Capstone at March 1, 1997. The Company believes that all transactions involving
Capstone were effected on terms no less favorable than those which could have
been obtained in transactions with independent third parties.
In order to enhance equity ownership by senior management, the Company
has adopted a program of making loans to officers holding the position of Group
Vice President and above to facilitate the exercise of stock options held by
such persons. See Item 11, "Executive Compensation -- Executive Loans".
At various times, the Company has made loans to executive officers to
assist them in meeting financial obligations at certain times when they were
requested by the Company to refrain from selling Common Stock in the open
market. At January 1, 1996, loans in the following original principal amounts
were outstanding: $460,000 to Larry R. House, a Director and a former executive
officer, and $140,000 to William T. Owens, Senior Vice President and Controller.
Outstanding principal balances at December 31, 1996 were $414,000 for Mr. House
and $126,000 for Mr. Owens. In addition, during 1995, the Company made an
additional loan of $350,000 to Mr. Owens and $500,000 to Aaron Beam, Jr.,
Executive Vice President and Chief Financial Officer of the Company, which loans
were outstanding in full at December 31, 1996. Such loans bear interest at the
rate of 1-1/4% per annum below the prime rate of AmSouth Bank of Alabama,
Birmingham, Alabama, and are payable on demand.
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<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements, Financial Statement Schedules and Exhibits.
1. Financial Statements.
The consolidated financial statements of the Company and its
subsidiaries filed as a part of this Annual Report on Form 10-K are listed in
Item 8 of this Annual Report on Form 10-K, which listing is hereby incorporated
herein by reference.
2. Financial Statement Schedules.
The financial statement schedules required by Regulation S-X are filed
under Item 14(d) of this Annual Report on Form 10-K, as listed below:
Schedules Supporting the Financial Statements
Schedule II Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission have been
omitted because they are not required under the related instructions or are
inapplicable, or because the information has been provided in the Consolidated
Financial Statements or the Notes thereto.
3. Exhibits.
The Exhibits filed as a part of this Annual Report are listed in Item
14(c) of this Annual Report on Form 10-K, which listing is hereby incorporated
herein by reference.
(b) Reports on Form 8-K.
During the last quarter of the period covered by this Annual Report on
Form 10-K, the Company filed no Current Reports on Form 8-K.
(c) Exhibits.
The Exhibits required by Regulation S-K are set forth in the following
list and are filed either by incorporation by reference from previous filings
with the Securities and Exchange Commission or by attachment to this Annual
Report on Form 10-K as so indicated in such list.
(2)-1 Amended and Restated Plan and Agreement of Merger, dated as of
September 18, 1994, among HEALTHSOUTH Rehabilitation
Corporation, RRS Acquisitions Company, Inc. and ReLife, Inc.,
filed as Exhibit (2)-1 to the Company's Registration Statement
on Form S-4 (Registration No. 33- 55929), is hereby
incorporated by reference.
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<PAGE>
(2)-2 Amended and Restated Plan and Agreement of Merger, dated as of
January 22, 1995, among HEALTHSOUTH Corporation, ASC Atlanta
Acquisition Company, Inc. and Surgical Health Corporation,
filed as Exhibit (2)-4 to the Company's Annual Report on Form
10-K for the Fiscal Year Ended December 31, 1994, is hereby
incorporated by reference.
(2)-3 Stock Purchase Agreement, dated February 3, 1995, among
HEALTHSOUTH Corporation, NovaCare, Inc. and NC Resources,
Inc., filed as Exhibit (2)-3 to the Company's Annual Report on
Form 10-K for the Fiscal Year Ended December 31, 1994, is
hereby incorporated by reference.
(2)-4 Plan and Agreement of Merger, dated August 23, 1995, among
HEALTHSOUTH Corporation, SSCI Acquisition Corporation and
Sutter Surgery Centers, Inc., filed as Exhibit (2) to the
Company's Registration Statement on Form S-4 (Registration No.
33-63-055) is hereby incorporated by reference.
(2)-5 Amendment to Plan and Agreement of Merger, dated October 26,
1995, among HEALTHSOUTH Corporation, SSCI Acquisition
Corporation and Sutter Surgery Centers, Inc., filed as Exhibit
(2)-5 to the Company's Annual Report on Form 10-K for the
Fiscal Year Ended December 31, 1995, is hereby incorporated by
reference.
(2)-6 Amended and Restated Plan and Agreement of Merger, dated as of
October 9, 1995, among HEALTHSOUTH Corporation, SCA
Acquisition Corporation and Surgical Care Affiliates, Inc.,
filed as Exhibit (2)-1 to Amendment No. 1 to the Company's
Registration Statement on Form S-4 (Registration No.
33-64935), is hereby incorporated by reference.
(2)-7 Agreement and Plan of Merger, dated December 16, 1995, among
HEALTHSOUTH Corporation, Aladdin Acquisition Corporation and
Advantage Health Corporation, filed as Exhibit (2)-1 to the
Company's Registration Statement on Form S-4 (Registration No.
333-825), is hereby incorporated by reference.
(2)-8 Plan and Agreement of Merger, dated May 16, 1996, among
HEALTHSOUTH Corporation, Empire Acquisition Corporation and
Professional Sports Care Management, Inc., filed as Exhibit
(2)-1 to the Company's Registration Statement on Form S-4
(Registration No. 333-08449), is hereby incorporated by
reference.
(2)-9 Plan and Agreement of Merger, dated September 11, 1996, among
HEALTHSOUTH Corporation, Warwick Acquisition Corporation and
ReadiCare, Inc., filed as Exhibit (2)-1 to the Company's
Registration Statement on Form S-4 (Registration No.
333-14697), is hereby incorporated by reference.
(2)-10 Plan and Agreement of Merger, dated December 2, 1996, among
HEALTHSOUTH Corporation, Hammer Acquisition Corporation and
Health Images, Inc., filed as Exhibit (2)-1 to the Company's
Registration Statement on Form S-4 (Registration No.
333-19439), is hereby incorporated by reference.
(2)-11 Plan and Agreement of Merger, dated February 17, 1997, among
HEALTHSOUTH Corporation, Reid Acquisition Corporation and
Horizon/CMS Healthcare Corporation.
(3)-1 Restated Certificate of Incorporation of HEALTHSOUTH
Corporation, as filed in the Office of the Secretary of State
of the State of Delaware on March 13, 1997.
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<PAGE>
(3)-2 Bylaws of HEALTHSOUTH Rehabilitation Corporation, filed as
Exhibit (3)-2 to the Company's Annual Report on Form 10-K for
the Fiscal Year Ended December 31, 1991, are hereby
incorporated by reference.
(4)-1 Indenture, dated March 24, 1994, between HEALTHSOUTH
Rehabilitation Corporation and NationsBank of Georgia,
National Association, relating to the Company's 9.5% Senior
Subordinated Notes due 2001, filed as Exhibit (4)-1 to the
Company's Annual Report on Form 10-K for the Fiscal Year Ended
December 31, 1994, is hereby incorporated by reference.
(4)-2 Indenture, dated March 24, 1994, between HEALTHSOUTH
Rehabilitation Corporation and PNC Bank of Kentucky, Inc.,
relating to the Company's 5% Convertible Subordinated
Debentures due 2001, filed as Exhibit (4)-2 to the Company's
Annual Report on Form 10-K for the Fiscal Year Ended December
31, 1994, is hereby incorporated by reference.
(10)-1 1984 Incentive Stock Option Plan, as amended, filed as Exhibit
(10)-1 to the Company's Annual Report on Form 10-K for the
Fiscal Year Ended December 31, 1987, is hereby incorporated
herein by reference.
(10)-2 1988 Non-Qualified Stock Option Plan, filed as Exhibit 4(a) to
the Company's Registration Statement on Form S-8 (Registration
No. 33-23642), is hereby incorporated herein by reference.
(10)-3 1989 Stock Option Plan, filed as Exhibit (10)-6 to the
Company's Annual Report on Form 10-K for the Fiscal Year Ended
December 31, 1989, is hereby incorporated by reference.
(10)-4 1990 Stock Option Plan, filed as Exhibit (10)-13 to the
Company's Annual Report on Form 10-K for the Fiscal Year ended
December 31, 1990, is hereby incorporated by reference.
(10)-5 Forms of Stock Option Agreements utilized under 1984 Incentive
Stock Option Plan, 1988 Non- Qualified Stock Option Plan, 1989
Stock Option Plan and 1990 Stock Option Plan, filed as Exhibit
(10)-14 to the Company's Annual Report on Form 10-K for the
Fiscal Year ended December 31, 1990, are hereby incorporated
herein by reference.
(10)-6 1991 Stock Option Plan, as amended, filed as Exhibit (10)-15
to the Company's Annual Report on Form 10-K for the Fiscal
Year ended December 31, 1991, is hereby incorporated herein by
reference.
(10)-7 Forms of Stock Option Agreements utilized under 1991 Stock
Option Plan, filed as Exhibit (10)-16 to the Company's Annual
Report on Form 10-K for the Fiscal Year Ended December 31,
1991, are hereby incorporated by reference.
(10)-8 1992 Stock Option Plan, filed as Exhibit (10)-8 to the
Company's Annual Report on Form 10-K for the Fiscal Year Ended
December 31, 1992, is hereby incorporated by reference.
(10)-9 Forms of Stock Option Agreements utilized under 1992 Stock
Option Plan, filed as Exhibit (10)-9 to the Company's Annual
Report on Form 10-K for the Fiscal Year Ended December 31,
1992, are hereby incorporated by reference.
(10)-10 1993 Stock Option Plan, filed as Exhibit (10)-10 to the
Company's Annual Report on Form 10-K for the Fiscal Year Ended
December 31, 1993, is hereby incorporated by reference.
- 86 -
<PAGE>
(10)-11 Forms of Stock Option Agreements utilized under 1993 Stock
Option Plan, filed as Exhibit (10)-11 to the Company's Annual
Report on Form 10-K for the Fiscal Year Ended December 31,
1993, are hereby incorporated by reference.
(10)-12 1993 Consultants Stock Option Plan, filed as Exhibit 4(a) to
the Company's Registration Statement on Form S-8 (Commission
File No. 33-64316), is hereby incorporated by reference.
(10)-13 Form of Stock Option Agreement utilized under the 1993
Consultants Stock Option Plan, filed as Exhibit 4(b) to the
Company's Registration Statement on Form S-8 (Commission File
No. 33-64316), is hereby incorporated by reference.
(10)-14 1995 Stock Option Plan, filed as Exhibit (10)-14 to the
Company's Annual Report on Form 10-K for the Fiscal Year Ended
December 31, 1995, is hereby incorporated by reference.
(10)-15 Form of Stock Option Agreement utilized under the 1995 Stock
Option Plan, filed as Exhibit (10)-15 to the Company's Annual
Report on Form 10-K for the Fiscal Year Ended December 31,
1995, is hereby incorporated by reference.
(10)-16 Employment Agreement, dated July 23, 1986, between HEALTHSOUTH
Rehabilitation Corporation and Richard M. Scrushy, as amended,
filed as Exhibit (10)-16 to the Company's Annual Report on
Form 10-K for the Fiscal Year Ended December 31, 1995, is
hereby incorporated by reference.
(10)-17 Third Amended and Restated Credit Agreement, dated as of April
11, 1996, between HEALTHSOUTH Corporation and NationsBank,
N.A.
(10)-18 Form of Indemnity Agreement entered into between HEALTHSOUTH
Rehabilitation Corporation and each of its Directors, filed as
Exhibit (10)-13 to the Company's Annual Report on Form 10-K
for the Fiscal Year Ended December 31, 1991, is hereby
incorporated by reference.
(10)-19 Surgical Health Corporation 1992 Stock Option Plan, filed as
Exhibit 10(aa) to Surgical Health Corporation's Registration
Statement on Form S-4 (Commission File No. 33-70582), is
hereby incorporated by reference.
(10)-20 Surgical Health Corporation 1993 Stock Option Plan, filed as
Exhibit 10(bb) to Surgical Health Corporation's Registration
Statement on Form S-4 (Commission File No. 33-70582), is
hereby incorporated by reference.
(10)-21 Surgical Health Corporation 1994 Stock Option Plan, filed as
Exhibit 10(pp) to Surgical Health Corporation's Quarterly
Report on Form 10-Q for the Quarter Ended September 30, 1994,
is hereby incorporated by reference.
(10)-22 Heritage Surgical Corporation 1992 Stock Option Plan, filed as
Exhibit 4(d) to the Company's Registration Statement on Form
S-8 (Commission File No. 33-60231), is hereby incorporated by
reference.
(10)-23 Heritage Surgical Corporation 1993 Stock Option Plan, filed as
Exhibit 4(e) to the Company's Registration Statement on Form
S-8 (Commission File No. 33-60231), is hereby incorporated by
reference.
(10)-24 Sutter Surgery Centers, Inc. 1993 Stock Option Plan,
Non-Qualified Stock Option Plan and Agreement (Saibeni),
Non-Qualified Stock Option Plan and Agreement (Shah),
Non-Qualified
- 87 -
<PAGE>
Stock Option Plan and Agreement (Akella), Non-Qualified Stock
Option Plan and Agreement (Kelly) and Non-Qualified Stock
Option Plan and Agreement (May), filed as Exhibits 4(a) - 4(f)
to the Company's Registration Statement on Form S-8
(Commission File No. 33-64615), are hereby incorporated by
reference.
(10)-25 Surgical Care Affiliates Incentive Stock Plan of 1986, filed
as Exhibit 10(g) to Surgical Care Affiliates Inc.'s Annual
Report on Form 10-K for the Fiscal Year Ended December 31,
1993, is hereby incorporated by reference.
(10)-26 Surgical Care Affiliates 1990 Non-Qualified Stock Option Plan
for Non-Employee Directors, filed as Exhibit 10(i) to Surgical
Care Affiliates, Inc.'s Annual Report on Form 10-K for the
Fiscal Year Ended December 31, 1990, is hereby incorporated by
reference.
(10)-27 Professional Sports Care Management, Inc. 1992 Stock Option
Plan, as amended, filed as Exhibits 10.1 - 10.3 to
Professional Sports Care Management, Inc.'s Registration
Statement on Form S-1 (Commission File No. 33-81654), is
hereby incorporated by reference.
(10)-28 Professional Sports Care Management, Inc. 1994 Stock Incentive
Plan, filed as Exhibit 10.4 to Professional Sports Care
Management, Inc.'s Registration Statement on Form S-1
(Commission File No. 33-81654), is hereby incorporated by
reference.
(10)-29 Professional Sports Care Management, Inc. 1994 Directors'
Stock Option Plan, filed as Exhibit 10.5 to Professional
Sports Care Management, Inc.'s Registration Statement on Form
S-1 (Commission File No. 33-81654), is hereby incorporated by
reference.
(10)-30 ReadiCare, Inc. 1991 Stock Option Plan, filed as an exhibit to
ReadiCare, Inc.'s Annual Report on Form 10-K for the Fiscal
Year Ended February 29, 1992, is hereby incorporated by
reference.
(10)-31 ReadiCare, Inc. Stock Option Plan for Non-Employee Directors,
as amended, filed as an exhibit to ReadiCare, Inc's Annual
Report on Form 10-K for the Fiscal Year Ended February 29,
1992 and as an exhibit to ReadiCare, Inc.'s Annual Report on
Form 10-K for the Fiscal Year Ended February 28, 1994, is
hereby incorporated by reference.
(11) HEALTHSOUTH Corporation and Subsidiaries, Computation of
Income Per Share.
(21) Subsidiaries of HEALTHSOUTH Corporation.
(23) Consent of Ernst & Young LLP.
(d) Financial Statement Schedules.
Schedule II: Valuation and Qualifying Accounts
- 88 -
<PAGE>
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at Additions Charged Additions Charged
Beginning of to Costs and to Other Accounts - Deductions - Balance at
Description Period Expenses Describe Describe End of Period
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1994:
Allowance for doubtful
accounts and con- 757,916 (1)
tractual adjustments $ 135,112 $ 32,904 $ 7,041 (2) $ 769,822 (3) $ 163,151
============== ============== ============== ============== ==============
Year ended December 31, 1995:
Allowance for doubtful
accounts and con- 958,552 (1)
tractual adjustments $ 163,151 $ 37,659 $ 28,650 (2) $ 952,837 (3) $ 235,175
============== ============== ============== ============== ==============
Year ended December 31, 1996:
Allowance for doubtful
accounts and con- 1,523,728 (1)
tractual adjustments $ 235,175 $ 54,112 $ 13,643 (2) $ 1,518,877 (3) $ 307,781
============== ============== ============== ============== ==============
</TABLE>
- -------------------------
(1) Provisions for contractual adjustments which are netted against gross
revenues.
(2) Allowances of acquisitions in years 1994, 1995 and 1996, respectively.
(3) Write-offs of uncollectible patient accounts receivable and third party
contractual adjustments, net of third party retroactive settlements.
- 89-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HEALTHSOUTH Corporation
By /s/RICHARD M. SCRUSHY
---------------------------------------
Richard M. Scrushy,
Chairman of the Board, President
and Chief Executive Officer
Date: March 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Capacity Date
RICHARD M. SCRUSHY Chairman of the Board March 26, 1997
- --------------------------------------
Richard M. Scrushy and Chief Executive Officer
and Director
AARON BEAM, JR. Executive Vice President and March 26, 1997
- --------------------------------------
Aaron Beam, Jr. Chief Financial Officer
and Director
WILLIAM T. OWENS Senior Vice President-Finance and March 26, 1997
- -------------------------------------- Controller (Principal Accounting
William T. Owens Officer)
C. SAGE GIVENS Director March 26, 1997
- --------------------------------------
C. Sage Givens
CHARLES W. NEWHALL III Director March 26, 1997
- --------------------------------------
Charles W. Newhall III
GEORGE H. STRONG Director March 26, 1997
- --------------------------------------
George H. Strong
PHILLIP C. WATKINS Director March 26, 1997
- --------------------------------------
Phillip C. Watkins
JOHN S. CHAMBERLIN Director March 26, 1997
- --------------------------------------
John S. Chamberlin
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<PAGE>
LARRY R. HOUSE Director March 26, 1997
- --------------------------------------
Larry R. House
ANTHONY J. TANNER Director March 26, 1997
- --------------------------------------
Anthony J. Tanner
JAMES P. BENNETT Director March 26, 1997
- --------------------------------------
James P. Bennett
RICHARD F. CELESTE Director March 26, 1997
- --------------------------------------
Richard F. Celeste
P. DARYL BROWN Director March 26, 1997
- --------------------------------------
P. Daryl Brown
JOEL C. GORDON Director March 26, 1997
- --------------------------------------
Joel C. Gordon
RAYMOND J. DUNN, III Director March 26, 1997
- --------------------------------------
Raymond J. Dunn
</TABLE>
- 91 -
EXHIBIT (2)-11
PLAN AND AGREEMENT OF MERGER
PLAN AND AGREEMENT OF MERGER (this "Plan of Merger"), made and entered
into as of the 17th day of February, 1997, by and among HEALTHSOUTH Corporation,
a Delaware corporation ("HEALTHSOUTH"), REID ACQUISITION CORPORATION, a Delaware
corporation (the "Subsidiary"), and HORIZON/CMS HEALTHCARE CORPORATION, a
Delaware corporation ("Horizon/CMS") (the Subsidiary and Horizon/CMS 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 Horizon/CMS have approved the merger of the Subsidiary with and
into Horizon/CMS (the "Merger"), upon the terms and subject to the conditions
set forth in this Plan of Merger, whereby each share of Common Stock, par value
$.001 per share, of Horizon/CMS (the "Horizon/CMS Common Stock"), not owned
directly or indirectly by Horizon/CMS, will be converted into the right to
receive the Merger Consideration (as hereinafter defined);
WHEREAS, each of HEALTHSOUTH, the Subsidiary and Horizon/CMS desires to
make certain representations, warranties, covenants and agreements in connection
with the Merger and also to prescribe various conditions to the Merger; and
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization under the provisions of Section 368 of
the Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, in consideration of the premises, and the mutual
covenants and agreements contained herein, the parties hereto do hereby agree as
follows:
Section 1. The Merger.
1.1 The Merger. Upon the terms and conditions set forth in this Plan of
Merger, and in accordance with the Delaware General Corporation Law (the
"DGCL"), the Subsidiary shall be merged with and into Horizon/CMS at the
Effective Time (as defined in Section 1.3). At the Effective Time, the separate
corporate existence of the Subsidiary shall cease and Horizon/CMS shall continue
as the surviving corporation (the "Surviving Corporation") under the name
"Horizon/CMS Healthcare Corporation" and shall succeed to and assume all the
rights and obligations of the Subsidiary and Horizon/CMS 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, 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.
91
<PAGE>
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 Horizon/CMS 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.
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 Horizon/CMS
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 Horizon/CMS Common
Stock that is owned by Horizon/CMS or by any wholly-owned subsidiary of
Horizon/CMS shall automatically be canceled and retired and shall cease to
exist, and no 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 Horizon/CMS Shares. Subject to Section 2.2(e), each
issued and outstanding share of Horizon/CMS Common Stock (other than shares to
be canceled in accordance with Section 2.1(b)) (collectively, the "Exchanging
Horizon/CMS Shares") shall be converted into 0.42169 (the "Exchange Ratio") of a
share of HEALTHSOUTH Common Stock, as may be adjusted as provided in Section
2.1(e) below (the "Merger Consideration"). All Exchanging Horizon/CMS Shares
shall, upon conversion thereof into shares of HEALTHSOUTH Common Stock at the
Effective Time, cease to be outstanding and shall automatically be cancelled and
retired, and each certificate previously evidencing Exchanging Horizon/CMS
Shares outstanding immediately prior to the Effective Time ("Certificates")
shall thereafter be deemed, for all purposes other than the payment of dividends
or distributions, to represent that number of shares of HEALTHSOUTH Common Stock
determined pursuant to the Exchange Ratio and, if applicable, the right to
receive cash pursuant to Section 2.2. The holders of certificates previously
evidencing Exchanging Horizon/CMS Shares shall cease to have any rights with
respect to such Exchanging Horizon/CMS Shares except as otherwise provided
herein or by law.
(d) Stock Options, Warrants and Convertible Securities. At the
Effective Time, all rights with respect to Horizon/CMS
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<PAGE>
Common Stock pursuant to any Horizon/CMS stock options, stock purchase warrants
or convertible securities which are outstanding at the Effective Time (which,
for purposes of this Section 2.1(d), includes any rights to purchase Horizon/CMS
Common Stock pursuant to Horizon/CMS's 1996 Employee Stock Purchase Plan),
whether or not then exercisable, shall be converted into and become rights with
respect to HEALTHSOUTH Common Stock, and HEALTHSOUTH shall assume each
Horizon/CMS stock option, stock purchase warrant and convertible security, in
accordance with the terms of any stock option plan under which it was issued and
any stock option agreement, warrant agreement or convertible security by which
it is evidenced. It is intended that, unless otherwise agreed between
HEALTHSOUTH and a particular optionee, the foregoing provisions shall be
undertaken in a manner that will not constitute a "modification", as defined in
Section 424 of the Code, as to any stock option which is an "incentive stock
option". Each Horizon/CMS stock option, stock purchase warrant or convertible
security so assumed shall be exercisable for or convertible into that number of
shares of HEALTHSOUTH Common Stock equal to the number of Horizon/CMS shares
subject thereto multiplied by the Exchange Ratio, and shall have an exercise
price per share or conversion price per share equal to the Horizon/CMS 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, including the proposed two-for-one
split of the HEALTHSOUTH Common Stock scheduled for consideration by the
stockholders of HEALTHSOUTH at a meeting thereof scheduled to be held on March
12, 1997, 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 or other
change or reclassification of the HEALTHSOUTH Common Stock (including without
limitation such a distribution, dividend or other change or reclassification of
the HEALTHSOUTH Common Stock made in connection with a recapitalization,
reclassification, merger, consolidation, reorganization, reclassification,
merger, consolidation, reorganization or similar transaction) then (i) the
Exchange Ratio shall be appropriately adjusted to reflect such stock split or
dividend or other distribution of securities and (ii) if such stock split,
dividend or distribution has a record date prior to the Effective Time, then the
number of shares of HEALTHSOUTH Common Stock to be issued upon conversion of a
share of Horizon/CMS 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
shall provide that HEALTH- SOUTH shall deposit with the Exchange Agent as of the
Effective Time, for the benefit of the holders of Exchanging Horizon/CMS 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 and any other
property issuable pursuant to Section 2.1(e), being hereinafter referred to as
the "Exchange Fund") issuable pursuant to Section 2.1.
(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 (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
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
- 93 -
<PAGE>
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 Horizon/CMS Common Stock which is not
registered in the transfer records of Horizon/CMS, 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.
(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, in each such case, the
surrender of such Certificate in accordance with this Section 2. Subject to the
effect of applicable laws, following surrender of any such Certificate, there
shall be paid to the holder of the certificate representing whole shares of
HEALTH- SOUTH Common Stock issued in exchange therefor, without interest, (i) at
the time of such surrender, the amount of any cash payable in lieu of a
fractional share of HEALTHSOUTH Common Stock to which such holder is entitled
pursuant to Section 2.2(e) and the amount of dividends or other distributions
with a record date after the Effective Time theretofore paid with respect to
such whole shares of 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 Horizon/CMS Shares. All
shares of HEALTHSOUTH Common Stock issued upon the conversion of Horizon/CMS
Common Stock 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
Horizon/CMS Shares. 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 HEALTHSOUTH Common Stock shall be issued upon the surrender
for exchange of Certificates, and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a stockholder of
HEALTHSOUTH. Notwithstanding any other provision of this Plan of Merger, each
holder of Exchanging Horizon/CMS Shares who would otherwise have been entitled
to receive a fraction of a share of HEALTHSOUTH Common Stock (after taking into
account all Exchanging Horizon/CMS Shares 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
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Common Stock multiplied by the closing sale price per share of HEALTHSOUTH
Common Stock on the date on which the Effective Time occurs, as reported on the
New York Stock Exchange Composite Transactions Tape; provided, however, that, if
there is no sale of HEALTHSOUTH Common Stock on the New York Stock Exchange on
such date, then the closing sale price per share on the next preceding trading
day on which such a sale occurred.
(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 HEALTHSOUTH 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, Horizon/CMS 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 HEALTH- SOUTH
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 may 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.
HEALTHSOUTH shall deposit with the Exchange Agent as part of the Exchange Fund
cash in an amount equal to any loss of principal resulting from such investments
promptly after the incurrence of such a loss.
2.3 Certificate of Incorporation of Surviving Corporation. The
Certificate of Merger shall include such lawful amendments and restatement of
the Certificate of Incorporation of Horizon/CMS as HEALTHSOUTH may desire, such
amendments and restatement to become effective at the Effective Time. The
Certificate of Incorporation of Horizon/CMS, as so amended and restated, shall
become the Certificate of Incorporation of the Surviving Corporation from and
after the Effective Time and until thereafter amended as provided by law.
2.4 Bylaws of the Surviving Corporation. The Bylaws of the Subsidiary
shall be the Bylaws of the Surviving Corporation from and after the Effective
Time and until thereafter altered, amended or repealed in accordance with the
laws of the State of Delaware, the Certificate of Incorporation of the Surviving
Corporation and the said Bylaws.
2.5 Directors of the Surviving Corporation. The Directors of the
Subsidiary immediately prior to the Effective Time shall be the Directors of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation.
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2.6 Assets, Liabilities, Reserves and Accounts. At the Effective Time,
the assets, liabilities, reserves and accounts of each of the Subsidiary and
Horizon/CMS 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.
Section 3. REPRESENTATIONS AND WARRANTIES OF HORIZON/CMS.
Horizon/CMS hereby represents and warrants to HEALTHSOUTH and the
Subsidiary as follows:
3.1 Organization, Existence and Good Standing. Horizon/CMS is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Horizon/CMS has all necessary corporate power to own
its properties and assets and to carry on its business as presently conducted.
3.2 Horizon/CMS Capital Stock. Horizon/CMS's authorized capital
consists of 150,000,000 shares of Horizon/CMS Common Stock, par value $.001 per
share, of which 52,157,806 shares were issued and outstanding as of January 31,
1997, and 641,413 shares were issued and held as treasury shares, and 500,000
shares of Preferred Stock, par value $.001 per share, none of which shares are
issued and outstanding or held as treasury stock. All of the issued and
outstanding shares of Horizon/CMS 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 Horizon/CMS to HEALTHSOUTH simultaneously with
the execution and delivery hereof (the "Disclosure Schedule") or otherwise
disclosed in the Horizon/CMS Annual Report on Form 10-K for the fiscal year
ended May 31, 1996 (the "Horizon/CMS 10- K") or the Horizon/CMS Quarterly Report
on Form 10-Q for the three months ended November 30, 1996, there are no options,
warrants, or similar rights granted by Horizon/CMS, securities convertible into
or exchangeable for Horizon/CMS Common Stock, or any other agreements to which
Horizon/CMS is a party providing for the issuance or sale by it of any
additional securities which would remain in effect after the Effective Time.
There is no liability for dividends declared or accumulated but unpaid with
respect to any of the shares of Horizon/CMS Common Stock.
3.3 Horizon/CMS Subsidiaries and Horizon/CMS Other Entities. (a) There
is included in the Disclosure Schedule, as Exhibit 3.3(a), a true and correct
list of all Subsidiaries of Horizon/CMS (individually, a "Horizon/CMS
Subsidiary", and collectively, the "Horizon/CMS Subsidiaries") and their states
of incorporation. Except as set forth on Exhibit 3.3(a), Horizon/CMS does not
own stock in and does not control, directly or indirectly, any other
corporation, association or business organization other than the Horizon/CMS
Other Entities (as defined below).
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(b) There is included in the Disclosure Schedule, as Exhibit 3.3(b), a
true and correct list of all general or limited partnerships in which a general
partner is Horizon/CMS, a Horizon/CMS Subsidiary, a Horizon/CMS LLC (as defined
below) or another Horizon/CMS Partnership (individually, a "Horizon/CMS
Partnership" and collectively, the "Horizon/CMS Partnerships"), and all limited
liability companies in which Horizon/CMS, a Horizon/CMS Subsidiary, another
Horizon/CMS LLC or a Horizon/CMS Partnership is a member (individually, a
"Horizon/CMS LLC" and collectively, the "Horizon/CMS LLCs") (the Horizon/CMS
Partnerships and the Horizon/CMS LLCs being collectively called the "Horizon/CMS
Other Entities"), and their states of organization. Except as set forth on
Exhibit 3.3(b), neither Horizon/CMS nor any Horizon/CMS 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 Horizon/CMS
Subsidiaries and Horizon/CMS Other Entities. (a) Each Horizon/CMS Subsidiary is
a corporation duly organized, validly existing and in good standing under the
laws of its respective state of incorporation. Each Horizon/CMS Subsidiary has
all necessary corporate power to own its properties and assets and to carry on
its business as presently conducted.
(b) Each Horizon/CMS Partnership that is a limited partnership is
validly formed, each Horizon/CMS Partnership that is a general partnership has
been duly organized, and each Horizon/CMS Partnership is in good standing under
the laws of its respective state of organization. Each Horizon/CMS Partnership
has all necessary partnership power to own its property and assets and to carry
on its business as presently conducted.
(c) Each Horizon/CMS LLC is a limited liability company validly formed
and in good standing under the laws of its respective state of organization.
Each Horizon/CMS LLC has all necessary organizational power to own its
properties and assets to carry on its business as presently conducted.
3.5 Foreign Qualifications. Horizon/CMS, each Horizon/CMS Subsidiary
and each Horizon/CMS 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 in which 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 Horizon/CMS.
3.6 Power and Authority. Subject to the satisfaction of the conditions
precedent set forth herein, Horizon/CMS has the corporate power to execute,
deliver and perform this Plan of Merger and all agreements and other documents
executed and delivered or to be executed and delivered by it pursuant to this
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
this Plan of Merger and such related documents. The execution and delivery of
this 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
any statute or other law, any rule or regulation of any governmental agency or
authority, the Certificate of Incorporation of Horizon/CMS or any provisions of,
or result in the acceleration of any obligation under, any mortgage, lien,
lease, agreement, instrument, order, arbitration award, judgment or decree, to
which Horizon/CMS or any Horizon/CMS Subsidiary
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or Horizon/CMS 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 Horizon/CMS. The execution
and delivery of this Plan of Merger has been approved by the Board of Directors
of Horizon/CMS. This Plan of Merger has been duly executed and delivered by
Horizon/CMS and, assuming this Plan of Merger constitutes a valid and binding
obligation of each of HEALTHSOUTH and the Subsidiary, constitutes a valid and
binding obligation of Horizon/CMS, enforceable against Horizon/CMS in accordance
with its terms.
3.7 Horizon/CMS Public Information; Undisclosed Liabilities. (a)
Horizon/CMS 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
"Horizon/CMS Documents") since January 1, 1995, which are all the documents
(other than preliminary material) that it was required to file with the SEC from
such date through the date of this Plan of Merger. Except as set forth in
Exhibit 3.7(a) to the Disclosure Schedule, as of their respective dates, the
Horizon/CMS 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 Horizon/CMS 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 Horizon/CMS 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), except as set forth
in Exhibit 3.7(a) to the Disclosure Schedule, reflect all known liabilities of
Horizon/CMS required to be stated therein, including all such known contingent
liabilities as of the end of each period reflected therein, and present fairly
the financial condition of Horizon/CMS at said dates and the consolidated
results of operations and cash flows of Horizon/CMS for the periods then ended.
The consolidated balance sheet of Horizon/CMS at November 30, 1996 included in
the Horizon/CMS Documents is herein sometimes referred to as the "Horizon/CMS
Balance Sheet".
(b) Except as disclosed in the Horizon/CMS Documents or as set forth in
Exhibit 3.7(b) to the Disclosure Schedule and except for liabilities and
obligations incurred in the ordinary course of business consistent with past
practices, since the date of the Horizon/CMS Balance Sheet, neither Horizon/CMS
nor any of the Horizon/CMS Subsidiaries or the Horizon/CMS Other Entities have
incurred any liabilities or obligations of any nature, whether or not accrued,
contingent or otherwise, that have, or would be reasonably likely to have, a
material adverse effect on Horizon/CMS. Except as disclosed in the Horizon/CMS
Documents or as set forth in Exhibit 3.7(b) to the Disclosure Schedule and
except for liabilities and obligations incurred in the ordinary course of
business consistent with past practices, since the date of the Horizon/CMS
Balance Sheet, neither Horizon/CMS nor any of the Horizon/CMS Subsidiaries or
the Horizon/CMS Other Entities have incurred any liabilities or obligations of
any nature, whether or not accrued, contingent or otherwise, that would be
required to be reflected or reserved against on a consolidated balance sheet of
Horizon/CMS (including the notes thereto) prepared in accordance with generally
accepted accounting principles as applied in preparing the Horizon/CMS Balance
Sheet.
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3.8 Supporting Information. All consolidated historical financial
information provided by Horizon/CMS to HEALTHSOUTH in connection with
HEALTHSOUTH's due diligence investigation prior to the date of this Plan of
Merger, and all such information provided to HEALTHSOUTH on or after the date of
this Plan of Merger, is supported by detailed information at the facility or
operating unit level and is in all respects consistent with and fairly
reflective of such detailed information.
3.9 Legal Proceedings. Except as disclosed in the Horizon/CMS Documents
or on Exhibit 3.9 to the Disclosure Schedule, there is no litigation,
governmental investigation or other proceeding pending or, so far as is known to
Horizon/CMS, threatened against or relating to Horizon/CMS or the Horizon/CMS
Subsidiaries or the Horizon/CMS Other Entities, their respective properties or
businesses, or the transactions contemplated by this Plan of Merger, except for
litigation, governmental investigations or other proceedings that would not,
individually or in the aggregate, have a material adverse effect on Horizon/CMS.
3.10 Contracts, etc. (a) Except as set forth on Exhibit 3.10(a) to the
Disclosure Schedule, all material contracts, leases, agreements and arrangements
to which Horizon/CMS or any of the Horizon/CMS Subsidiaries or Horizon/CMS Other
Entities is a party are legally valid and binding in accordance with their terms
and in full force and effect, and, to the knowledge of Horizon/CMS, 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 or unenforceablity 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 Horizon/CMS.
(b) Except as set forth on Exhibit 3.10(b) to the Disclosure Schedule,
no contract or agreement to which Horizon/CMS or any Horizon/CMS Subsidiary or
Horizon/CMS 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 or if
their enforceability were otherwise adversely affected, would not have a
material adverse effect on Horizon/CMS.
(c) Except as set forth on Exhibit 3.10(c) to the Disclosure Schedule,
none of Horizon/CMS, any Horizon/CMS Subsidiary or any Horizon/CMS Other Entity
has granted any right of first refusal or similar right in favor of any third
party with respect to any material portion of its properties or assets or
entered into any non-competition agreement or similar agreement restricting in
any material manner its ability to engage in any material business in any
location.
3.11 Subsequent Events. Except as (a) set forth on Exhibit 3.11 to the
Disclosure Schedule, (b) disclosed in the Horizon/CMS Documents (c) contemplated
by this Plan of Merger or (d) otherwise consented to in writing by HEALTHSOUTH,
none of Horizon/CMS, any Horizon/CMS Subsidiary nor any Horizon/CMS Other Entity
has, since the date of the Horizon/CMS Balance Sheet:
(i) Incurred any material adverse change;
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(ii) except as required hereby, amended its Articles or
Certificate of Incorporation or Bylaws, if any;
(iii) extended credit to anyone or guaranteed the obligation
of any person, firm or corporation (other than Horizon/CMS or any
Horizon/CMS Subsidiary or Horizon/CMS Other Entity) in an amount that,
in either case, is material to Horizon/CMS except in the ordinary
course of business consistent with prior practice;
(iv) discharged or satisfied any material lien or encumbrance,
or paid or satisfied any material obligation or liability (absolute,
accrued, contingent or otherwise) other than (a) liabilities shown or
reflected on the Horizon/CMS Balance Sheet or (b) liabilities incurred
since the date of the Horizon/CMS Balance Sheet in the ordinary course
of business, which discharge or satisfaction would have a material
adverse effect on Horizon/CMS;
(v) 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 Horizon/CMS, except as relates to the
consolidated results of operations of Horizon/CMS since the date of the
Horizon/CMS Balance Sheet;
(vi) sold or transferred any of its material assets, tangible
or intangible, cancelled any material debts or claims held by it or
waived any of its material rights, except in the ordinary course of
business;
(vii) mortgaged, pledged or subjected to any security interest
any of its material assets, tangible or intangible, other than as
required under the existing provisions of Horizon/CMS's primary credit
facility;
(viii) entered into any employment contract which is not
terminable upon notice of 30 days or less, at will, and without penalty
to Horizon/CMS except as provided herein or granted any general or
uniform increase in the rates of pay of employees or granted any
increase in salary payable or to become payable by Horizon/CMS to any
officer of Horizon/CMS or, by means of any bonus or pension plan,
contract or other commitment, increased the compensation of any officer
of Horizon/CMS or entered into any agreements providing for
compensation to any officer or employee of Horizon/CMS, any Horizon/CMS
Subsidiary or any Horizon/CMS Other Entity based upon a change in
control of Horizon/CMS;
(ix) made any contribution, payment or distribution to the
trustee under any Horizon/CMS Plan (as such term is defined in Section
3.15 herein), other than any such contribution, payment or distribution
that is in accordance with Horizon/CMS's past practice, or established
or terminated any Horizon/CMS Plan;
(x) issued any capital stock or other equity securities, other
than stock options granted to officers, employees, directors or
consultants of Horizon/CMS or
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warrants granted to third parties and shares of Horizon/CMS Common
Stock issuable upon the exercise thereof, all of which options and
warrants are disclosed on Exhibit 3.2 to the Disclosure Schedule or
reflected in the Horizon/CMS Documents; or
(xi) 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 or entered into any contract
or agreement in the ordinary course of business (i) which cannot be
performed within three months or less or (ii) which involves the
expenditure by Horizon/CMS of over $250,000.
3.12 Accounts Receivable. (a) Since the date of the Horizon/CMS 10-K,
Horizon/CMS 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.
Horizon/CMS (including the Horizon/CMS Subsidiaries and Horizon/CMS 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 Horizon/CMS.
(b) Without limiting the generality of the foregoing, each of
Horizon/CMS and the Horizon/CMS Subsidiaries and the Horizon/CMS Other Entities
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 Horizon/CMS.
3.13 Tax Returns. Horizon/CMS and each of the Horizon/CMS Subsidiaries
and the Horizon/CMS Other Entities 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
Horizon/CMS. Horizon/CMS or the applicable entity has made all payments shown as
due on such returns. Except as set forth on Exhibit 3.13 to the Disclosure
Schedule, neither Horizon/CMS nor any Horizon/CMS Subsidiary or Horizon/CMS
Other Entity has been notified that any tax returns of Horizon/CMS or any
Horizon/CMS Subsidiary or Horizon/CMS Other Entity are currently under audit by
the Internal Revenue Service or any state or local tax agency. No agreements
have been made by Horizon/CMS 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 Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") as indicated in Exhibit
3.14 to the Disclosure Schedule, 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 Horizon/CMS or its
officers or Directors, or any of them.
3.15 Employee Benefit Plans; Employment Matters. (a) Except as set
forth in Exhibit 3.15 to the Disclosure Schedule or as described in the
Horizon/CMS Documents, Horizon/CMS has
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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. Except as set forth in Exhibit 3.15 to
the Disclosure Schedule, all such plans (individually, a "Horizon/CMS Plan" and
collectively, the "Horizon/CMS Plans") have been operated and administered 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
Horizon/CMS has resulted in a "prohibited transaction" (as defined in ERISA)
with respect to the Horizon/CMS Plans that is not subject to a statutory or
regulatory exception. Except as set forth in Exhibit 3.15 to the Disclosure
Schedule, no "reportable event" (as defined in ERISA) has occurred with respect
to any of the Horizon/CMS Plans which is subject to Title IV of ERISA. Except as
set forth in Exhibit 3.15 to the Disclosure Schedule, Horizon/CMS has not
previously made, is not currently making, and is not obligated in any way to
make, any contributions to any multi-employer plan within the meaning of the
Multi-Employer Pension Plan Amendments Act of 1980.
(b) Except as set forth in Exhibit 3.15 to the Disclosure Schedule or
described in the Horizon/CMS Documents, Horizon/CMS 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 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 Horizon/CMS Documents,
Horizon/CMS has not received any notices of violations of any federal, state and
local laws, regulations and ordinances relating to its business and operations,
including, without limitation, the Occupational Safety and Health Act, the
Americans with Disabilities Act, the Medicare or applicable Medicaid statutes
and regulations and any Environmental Laws, which violation, if established,
would have a material effect on Horizon/CMS.
3.17 Licenses, Accreditation and Regulatory Approvals. Except as
disclosed in the Horizon/CMS Documents, Horizon/CMS and the Horizon/CMS
Subsidiaries and Horizon/CMS Other Entities hold all licenses, permits,
certificates of need and other regulatory approvals which are required by law
with respect to their businesses, operations and facilities as they are
currently or
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presently conducted or operated, except where the failure to possess such
licenses would not have a material adverse effect on Horizon/CMS (collectively,
the "Horizon/CMS Licenses"). Except with respect to those Horizon/CMS Licenses
for which renewal applications have been filed by Horizon/CMS, the Horizon/CMS
Subisidiaries or the Horizon/CMS Other Entities and which are being processed by
the applicable regulatory authorities, all such Horizon/CMS Licenses are in full
force and effect, and Horizon/CMS is in substantial compliance with all
conditions and requirements of the Horizon/CMS Licenses and with all rules and
regulations relating thereto. Horizon/CMS, the Horizon/CMS Subsidiaries and the
Horizon/CMS 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 substantial
compliance with the conditions of participation in the Medicare program except
for such matters as would not have a material adverse effect on Horizon/CMS.
Except to the extent that the failure to timely make such filings would not have
a material adverse effect on Horizon/CMS, and except as disclosed in the
Horizon/CMS Documents, Horizon/CMS, the Horizon/CMS Subsidiaries and the
Horizon/CMS 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. Except as set
forth on Exhibit 3.17 to the Disclosure Schedule, there are no current claims,
actions or appeals pending, and neither Horizon/CMS nor the Horizon/CMS
Subsidiaries nor the Horizon/CMS Other Entities have filed any claims or reports
which would 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 would have a
material adverse effect on Horizon/CMS. The amounts established as provisions
for adjustments by Medicare, Medicaid and other third-party payors set forth in
the Horizon/CMS Balance Sheet are sufficient to pay any amounts for which
Horizon/CMS believes it will be liable. To the knowledge of Horizon/CMS, except
to the extent that alleged violations have been disclosed in the Horizon/CMS
Documents, neither Horizon/CMS nor the Horizon/CMS Subsidiaries nor the
Horizon/CMS Other Entities nor their respective employees have committed a
violation of the Medicare and Medicaid fraud and abuse provisions of the Social
Security Act or any similar provisions of any federal, state or local law
relating to referrals or billings for healthcare services. Except for such
litigation as would not, if resolved adversely to Horizon/CMS or any Horizon/CMS
Subsidiary or Horizon/CMS Other Entity, have a material adverse effect on
Horizon/CMS, any and all past litigation concerning such Horizon/CMS Licenses,
and all claims and causes of action raised therein, have been finally
adjudicated or settled. Except as indicated in Exhibit 3.17 to the Disclosure
Schedule, no such License has been revoked, conditioned (except as may be
customary) or restricted, and no action (equitable, legal or administrative),
arbitration or other process is pending, or to the knowledge of Horizon/CMS,
threatened, which in any way challenges the validity of, or seeks to revoke,
condition or restrict any such License. Subject to compliance with applicable
securities laws, the Hart Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and state or local statutes, rules or regulations
requiring notice, approval, or other action upon the occurrence of a change in
control of Horizon/CMS or any of the Horizon/CMS Subsidiaries or any of the
Horizon/CMS Other Entities, the consummation of the Merger will not violate any
law or regulation
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to which Horizon/CMS is subject which, if violated, would have a material
adverse effect on Horizon/CMS.
3.18 Vote Required. The affirmative vote of the holders of a majority
of the outstanding shares of the Horizon/CMS Common Stock entitled to vote
thereon is the only vote of the holders of any class or series of Horizon/CMS
capital stock necessary to approve this Plan of Merger, the Merger and the
transactions contemplated hereby.
3.19 Opinion of Financial Advisor. The Board of Directors of
Horizon/CMS has received the oral opinion of Merrill Lynch to the effect that,
as of the date of this Plan of Merger, the Exchange Ratio is fair to the holders
of Horizon/CMS Common Stock from a financial point of view, a written copy of
which opinion will be delivered by Horizon/CMS 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.
Section 4. REPRESENTATIONS AND WARRANTIES OF THE SUBSIDIARY AND HEALTHSOUTH.
The Subsidiary and HEALTHSOUTH, jointly and severally, hereby represent
and warrant to Horizon/CMS 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 Horizon/CMS Common Stock.
4.2 Power and Authority. The Subsidiary has corporate power to execute,
deliver and perform this Plan of Merger and all agreements and other documents
executed and delivered, or to be executed and delivered, by it pursuant to this
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 this Plan of Merger and such related documents. The execution and delivery of
this 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, any statute or other law, any rule or regulation of any
governmental agency or authority, the Certificate of Incorporation or Bylaws of
the Subsidiary, or mortgage, lien, lease, agreement, instrument, order,
arbitration award, 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. The execution and delivery of
this Plan of Merger has been approved by the Board of Directors of the
Subsidiary.
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4.3 No Subsidiaries. The Subsidiary does not own any equity interest
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 this 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 Horizon/CMS as follows:
5.1 Organization, Existence and Good Standing. HEALTHSOUTH is a
corporation duly organized and validly existing and is in good standing under
the laws of the State of Delaware. HEALTHSOUTH has all necessary corporate power
to own its properties and assets and to carry on its business as presently
conducted. HEALTHSOUTH is duly qualified to do business and is in good standing
in all jurisdictions in which the character of the property owned, leased or
operated or the nature of the business transacted by it makes qualification
necessary.
5.2 Power and Authority. HEALTHSOUTH has corporate power to execute,
deliver and perform this Plan of Merger and all agreements and other documents
executed and delivered, or to be executed and delivered, by it pursuant to this
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 this Plan of Merger and such related documents. The execution and delivery of
this 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, any statute or other law, any rule or regulation of any
governmental agency or authority, 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 or any HEALTHSOUTH
Subsidiary or HEALTHSOUTH Other Entity (as such terms are defined in Section
5.6(b)) 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 Plan of
Merger has been approved by the Board of Directors of HEALTHSOUTH, and no
approval by the holders of HEALTHSOUTH Common Stock is required by law, the
Certificate of Incorporation or Bylaws of HEALTHSOUTH, the rules of the New York
Stock Exchange, Inc. (the "Exchange") or otherwise. This Plan of Merger has been
duly executed and delivered by HEALTHSOUTH and the Subsidiary and, assuming this
Plan of Merger constitutes a valid and binding obligation of Horizon/CMS,
constitutes a valid and binding obligation of
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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 Horizon/CMS Common
Stock in accordance with the provisions of this Plan of Merger. The HEALTHSOUTH
Common Stock to be issued pursuant to this 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 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
156,114,869 shares are issued and outstanding, and 93,000 shares are held in
treasury. HEALTHSOUTH has called a special meeting of its stockholders for March
12, 1997, to approve an amendment to its Certificate of Incorporation to
increase its authorized number of shares of HEALTHSOUTH Common Stock to
500,000,000. All of the issued and outstanding shares of HEALTHSOUTH Common
Stock have been duly and validly issued and are fully paid and non-assessable.
Except as disclosed in the HEALTHSOUTH Annual Report on Form 10-K for the fiscal
year ended December 31, 1995, as amended (the "HEALTHSOUTH 10-K"), and except
for shares of HEALTHSOUTH Common Stock reserved for issuance in connection with
(i) its pending acquisition of Health Images, Inc. and (ii) its proposed
two-for-one stock split to be effected March 13, 1997 in the form of a 100%
stock dividend (subject to the approval of the proposed amendment to its
Certificate of Incorporation described above), there are no options, warrants,
convertible debentures or similar rights granted by HEALTHSOUTH or any other
agreements to which HEALTHSOUTH is a party providing for the issuance or sale by
it of any additional securities, other than stock options granted in the
ordinary course since such date. There is no liability for dividends declared or
accumulated but unpaid with respect to any shares of HEALTHSOUTH Common Stock.
5.5 Subsidiary Common Stock. HEALTHSOUTH owns, beneficially and of
record, all of the issued and outstanding shares of Subsidiary Common Stock,
which are validly issued and outstanding, fully paid and nonassessable, free and
clear of all liens and encumbrances. HEALTHSOUTH has the corporate power to
endorse and surrender such Subsidiary Shares for cancellation pursuant to this
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. (a) HEALTHSOUTH has heretofore furnished
Horizon/CMS 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
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therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. As of their respective
dates, the HEALTHSOUTH Documents complied in all material respects with the
applicable requirements of the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated under such statutes. The financial statements contained in the
HEALTHSOUTH Documents, together with the notes thereto, have been prepared in
accordance with generally accepted accounting principles consistently followed
throughout the periods indicated (except as may be indicated in the notes
thereto, or, in the case of the unaudited financial statements, as permitted by
Form 10-Q), reflect all known liabilities of HEALTHSOUTH required to be stated
therein, including all known contingent liabilities as of the end of each period
reflected therein, and present fairly the financial condition of HEALTHSOUTH at
said dates and the consolidated results of operations and cash flows of
HEALTHSOUTH for the periods then ended. The consolidated balance sheet of
HEALTHSOUTH at December 31, 1996 included in the HEALTHSOUTH Documents is herein
sometimes referred to as the "HEALTHSOUTH Balance Sheet".
(b) Except as disclosed in the HEALTHSOUTH Documents and except for
liabilities and obligations incurred in the ordinary course of business
consistent with past practices, since the date of the HEALTHSOUTH Balance Sheet,
neither HEALTHSOUTH nor any of the HEALTHSOUTH Subsidiaries or the HEALTHSOUTH
Other Entities have incurred any liabilities or obligations of any nature,
whether or not accrued, contingent or otherwise, that have, or would be
reasonably likely to have, a material adverse effect on HEALTHSOUTH or would be
required to be reflected or reserved against on a consolidated balance sheet of
HEALTHSOUTH (including the notes thereto) prepared in accordance with generally
accepted accounting principles as applied in preparing the HEALTHSOUTH Balance
Sheet. As used in this Plan of Merger, the term "HEALTHSOUTH Subsidiaries" means
Subsidiaries of HEALTHSOUTH, and the term "HEALTHSOUTH Other Entities" means any
general or limited partnerships in which HEALTHSOUTH, a HEALTHSOUTH Subsidiary,
or any other HEALTHSOUTH Other Entity is a general partner and any limited
liability companies in which HEALTHSOUTH, a HEALTHSOUTH Subsidiary or any other
HEALTHSOUTH Other Entity is a member.
5.7 Supporting Information. All consolidated historical financial
information provided by HEALTHSOUTH to Horizon/CMS in connection with
Horizon/CMS's due diligence investigation prior to the date of this Plan of
Merger, and all such information provided to Horizon/CMS on or after the date of
this Plan of Merger, is supported by detailed information at the facility or
operating unit level and is in all respects consistent with and fairly
reflective of such detailed information.
5.8 Investment Intent. HEALTHSOUTH is acquiring the shares of
Horizon/CMS 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 Horizon/CMS Common Stock to any other
person, firm or corporation.
5.9 Legal Proceedings. Except as disclosed in the HEALTHSOUTH
Documents, 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, the
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HEALTHSOUTH Subsidiaries or the HEALTHSOUTH Other Entities, their respective
properties or businesses, or the transactions contemplated by this Plan of
Merger, except for litigation, governmental investigations or other proceedings
that would not, individually or in the aggregate, have a material adverse effect
on HEALTHSOUTH.
5.10 Subsequent Events. Except as disclosed in the HEALTHSOUTH
Documents, none of HEALTHSOUTH, any HEALTHSOUTH Subsidiary nor any HEALTHSOUTH
Other Entity has, since the date of the HEALTHSOUTH Balance Sheet:
(i) Incurred any material adverse change;
(ii) subject to the proposed amendment to HEALTHSOUTH's
Certificate of Incorporation described in Section 5.4 above, amended
its Articles or Certificate of Incorporation or Bylaws, if any;
(iii) extended credit to anyone or guaranteed the obligation
of any person, firm or corporation in an amount that, in either case,
is material to HEALTHSOUTH except in the ordinary course of business
consistent with prior practice;
(iv) discharged or satisfied any material lien or encumbrance,
or paid or satisfied any material obligation or liability (absolute,
accrued, contingent or otherwise) other than (a) liabilities shown or
reflected on the HEALTHSOUTH Balance Sheet or (b) liabilities incurred
since the date of the HEALTHSOUTH Balance Sheet in the ordinary course
of business, which discharge or satisfaction would have a material
adverse effect on HEALTHSOUTH;
(v) increased or established any reserve for taxes or any
other liability on its books or otherwise provided therefor that would
have a material adverse effect on HEALTHSOUTH, except as relates to the
consolidated results of operations of HEALTHSOUTH since the date of the
HEALTHSOUTH Balance Sheet;
(vi) sold or transferred any of its material assets, tangible
or intangible, cancelled any material debts or claims held by it or
waived any of its material rights, except in the ordinary course of
business;
(vii) mortgaged, pledged or subjected to any security interest
any of its material assets, tangible or intangible;
(viii) issued or agreed to issue any capital stock or other
equity securities with respect to any merger, consolidation or other
business combination with any corporation or other entity or the
acquisition of all or any significant part of the assets or capital
stock or other equity interests of any corporation or other entity,
which merger, consolidation, business combination or acquisition is
material to HEALTHSOUTH; or
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(ix) 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.
5.11 Tax Returns. HEALTHSOUTH and each of the HEALTHSOUTH Subsidiaries
and HEALTHSOUTH Other Entities 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 HEALTHSOUTH.
HEALTHSOUTH or the applicable entity has made all payments shown as due on such
returns. Except for audits of HEALTHSOUTH's 1992 and 1993 federal income tax
returns and certain state and local tax audits not material to HEALTHSOUTH,
neither HEALTHSOUTH nor any HEALTHSOUTH Subsidiary or HEALTHSOUTH Other Entity
has been notified that any tax returns of HEALTHSOUTH or any HEALTHSOUTH
Subsidiary or HEALTHSOUTH Other Entity are currently under audit by the Internal
Revenue Service or any state or local tax agency. No agreements have been made
by HEALTHSOUTH 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.
5.12 Accounts Receivable. (a) Since the date of the HEALTHSOUTH 10-K,
HEALTHSOUTH 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.
HEALTHSOUTH (including the HEALTHSOUTH Subsidiaries and HEALTHSOUTH 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 HEALTHSOUTH.
(b) Without limiting the generality of the foregoing, each of
HEALTHSOUTH and the HEALTHSOUTH Subsidiaries and the HEALTHSOUTH Other Entities
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 HEALTHSOUTH.
5.13 Employee Benefit Plans; Employment Matters. (a) Except as
described in the HEALTHSOUTH Documents, HEALTHSOUTH 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 "HEALTHSOUTH Plan" and collectively, the
"HEALTHSOUTH Plans") have been operated and administered 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 HEALTHSOUTH has
resulted in a "prohibited transaction" (as defined in ERISA) with respect to the
HEALTHSOUTH Plans that is not subject to a statutory or regulatory exception.
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No "reportable event" (as defined in ERISA) has occurred with respect to any of
the HEALTHSOUTH Plans which is subject to Title IV of ERISA. Except with respect
to certain employees at its Toms River, New Jersey inpatient facility,
HEALTHSOUTH has not previously made, is not currently making, and is not
obligated in any way to make, any contributions to any multi-employer plan
within the meaning of the Multi-Employer Pension Plan Amendments Act of 1980.
(b) Except as described in the HEALTHSOUTH Documents, HEALTHSOUTH is
not a party to any oral or written 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), other than a collective bargaining agreement covering certain of
its employees at its Toms River, New Jersey inpatient facility.
5.14 Compliance with Laws in General. Except as disclosed in the
HEALTHSOUTH Documents, HEALTHSOUTH has not received any notices of violations of
any federal, state and local laws, regulations and ordinances relating to its
business and operations, including, without limitation, the Occupational Safety
and Health Act, the Americans with Disabilities Act, the Medicare or applicable
Medicaid statutes and regulations and any Environmental Laws, which violation,
if established, would have a material effect on HEALTHSOUTH.
5.15 Licenses, Accreditation and Regulatory Approvals. Except as
disclosed in the HEALTHSOUTH Documents, HEALTHSOUTH and the HEALTHSOUTH
Subsidiaries and HEALTHSOUTH Other Entities hold all licenses, permits,
certificates of need and other regulatory approvals which are required by law
with respect to their businesses, operations and facilities as they are
currently or presently conducted or operated, except where the failure to
possess such licenses would not have a material adverse effect on HEALTHSOUTH
(collectively, the "HEALTHSOUTH Licenses"). Except with respect to those
HEALTHSOUTH Licenses for which renewal applications have been filed by
HEALTHSOUTH, the HEALTHSOUTH Subisidiaries or the HEALTHSOUTH Other Entities and
which are being processed by the applicable regulatory authorities, all such
HEALTHSOUTH Licenses are in full force and effect, and HEALTHSOUTH is in
substantial compliance with all conditions and requirements of the HEALTHSOUTH
Licenses and with all rules and regulations relating thereto. HEALTHSOUTH, the
HEALTHSOUTH Subsidiaries and the HEALTHSOUTH 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 substantial compliance with the conditions of participation in the
Medicare program except for such matters as would not have a material adverse
effect on HEALTHSOUTH. Except to the extent that the failure to timely make such
filings would not have a material adverse effect on HEALTHSOUTH, HEALTHSOUTH,
the HEALTHSOUTH Subsidiaries and the HEALTHSOUTH 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 HEALTHSOUTH nor the HEALTHSOUTH Subsidiaries nor the HEALTHSOUTH
Other Entities have filed any claims or reports which would result in such
claims, actions or appeals, before any commission, board or agency, including,
without limitation, any
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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 would have a material adverse effect on HEALTHSOUTH. The amounts
established as provisions for adjustments by Medicare, Medicaid and other
third-party payors set forth in the HEALTHSOUTH Balance Sheet are sufficient to
pay any amounts for which HEALTHSOUTH believes it will be liable. To the
knowledge of HEALTHSOUTH, neither HEALTHSOUTH nor the HEALTHSOUTH Subsidiaries
nor the HEALTHSOUTH Other Entities nor their respective employees have committed
a violation of the Medicare and Medicaid fraud and abuse provisions of the
Social Security Act or any similar provisions of any federal, state or local law
relating to referrals or billings for healthcare services. Except for such
litigation as would not, if resolved adversely to HEALTHSOUTH or any HEALTHSOUTH
Subsidiary or HEALTHSOUTH Other Entity, have a material adverse effect on
HEALTHSOUTH, any and all past litigation concerning such HEALTHSOUTH Licenses,
and all claims and causes of action raised therein, have been finally
adjudicated or settled. No such License has been revoked, conditioned (except as
may be customary) or restricted, and no action (equitable, legal or
administrative), arbitration or other process is pending, or to the knowledge of
HEALTHSOUTH, threatened, which in any way challenges the validity of, or seeks
to revoke, condition or restrict any such License. Subject to compliance with
applicable securities laws, 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 Horizon/CMS or any of the Horizon/CMS Subsidiaries or any
of the Horizon/CMS Other Entities, the consummation of the Merger will not
violate any law or regulation to which HEALTHSOUTH is subject which, if
violated, would have a material adverse effect on HEALTHSOUTH.
Section 6. ACCESS TO INFORMATION AND DOCUMENTS.
6.1 Access to Information. Between the date hereof and the Closing
Date, each of Horizon/CMS and HEALTHSOUTH will give to the other party and its
counsel, accountants and other representatives full access to all the personnel,
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, Horizon/CMS shall make available to
HEALTHSOUTH all such banking, investment and financial information as shall be
necessary to allow for the efficient integration of Horizon/CMS 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
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be deemed to be "Confidential Information" under the terms of the
Confidentiality Agreement dated January 27, 1997, between Horizon/CMS and
HEALTHSOUTH, (the "Confidentiality Agreement").
6.3 Effect of Access. (a) Nothing contained in this Section 6 shall be
deemed to create any duty or responsibility on the part of either party to
investigate or evaluate the value, validity or enforceability of any contract,
lease or other asset included in the assets of the other party.
(b) With respect to matters as to which any party has made express
representations or warranties herein, the other party or parties shall be
entitled to rely upon such express representations and warranties irrespective
of any investigations made by such party or parties, except to the extent that
such investigations result in actual knowledge by such party or parties of the
inaccuracy or falsehood of particular representations and warranties.
Section 7. COVENANTS.
7.1 Preservation of Business. Horizon/CMS will use its commercially
reasonable efforts to preserve the business organization of Horizon/CMS intact,
to keep available to HEALTHSOUTH and the Surviving Corporation the services of
the present key employees of Horizon/CMS, and to preserve for HEALTHSOUTH and
the Surviving Corporation the goodwill of the suppliers, customers and others
having business relations with Horizon/CMS.
7.2 Material Transactions. From the date hereof until the Effective
Time, Horizon/CMS will not (other than as required pursuant to the terms of this
Plan of Merger and the related documents, and other than with respect to (i)
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 and
(ii) such other matters as are described on Exhibit 7.2 to the Disclosure
Schedule), without first obtaining the written consent of HEALTHSOUTH, take any
action of a character described in Sections 3.11(ii) to 3.11(xi), inclusive.
7.3 Meeting of Horizon/CMS Stockholders. Horizon/CMS will take all
steps necessary in accordance with its Certificate 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
considering the approval of this Plan of Merger and the 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 Horizon/CMS
(subject to the provisions of Section 8.1(d) hereof) will (i) recommend to
Horizon/CMS 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 Horizon/CMS' stockholders of this Plan of
Merger and the transactions contemplated hereby.
7.4 Registration Statement. (a) HEALTHSOUTH shall prepare and file with
the SEC and any other applicable regulatory bodies, as soon as reasonably
practicable, a Registration
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Statement on Form S-4 with respect to the shares of HEALTHSOUTH Common Stock to
be issued in the Merger (the "Registration Statement"), and will otherwise
proceed promptly to satisfy the requirements of the Securities Act of 1933 (the
"Securities Act"), including Rule 145 thereunder. Such Registration Statement
shall contain a proxy statement of Horizon/CMS (the "Proxy Statement")
containing the information required by the Securities Exchange Act of 1934 (the
"Exchange Act"). HEALTHSOUTH shall take all reasonable steps to cause the
Registration Statement to be declared effective and to maintain such
effectiveness until all of the shares covered thereby have been distributed.
HEALTHSOUTH shall promptly amend or supplement the Registration Statement to the
extent necessary in order to make the statements therein not misleading or to
correct any misstatements which have become false or misleading. HEALTH- SOUTH
shall provide Horizon/CMS with copies of all filings made pursuant to this
Section 7.4 and shall consult with Horizon/CMS on responses to any comments made
by the Staff of the SEC with respect thereto.
(b) The information specifically designated as being supplied by
Horizon/CMS for inclusion in the Registration Statement shall not, at the time
the Registration Statement is declared effective, 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 Horizon/CMS 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
Horizon/CMS Common Stock, 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 Horizon/CMS, or its officers or directors,
should be discovered by Horizon/CMS that is required, under the applicable
provisions of the Securities Act or Exchange Act or the rules and regulations of
the SEC thereunder to be set forth in an amendment to the Registration Statement
or a supplement to the Proxy Statement, Horizon/CMS shall promptly so inform
HEALTHSOUTH. All documents, if any, that Horizon/CMS 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, 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 Horizon/CMS 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 Horizon/CMS Common Stock, 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 that is required,
under the applicable provisions of the Securities Act or Exchange Act or the
rules and regulations of the SEC
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thereunder to be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement, HEALTHSOUTH shall promptly inform Horizon/CMS
and shall promptly file such amendment to the Registration Statement. All
documents that HEALTHSOUTH is responsible for filing with the SEC in connection
with the transactions contemplated herein will comply as to form and substance
in all material respects with the applicable requirements of the Securities Act
and the rules and regulations thereunder and the Exchange Act and the rules and
regulations thereunder.
(d) Prior to the Closing Date, HEALTHSOUTH shall use its reasonable,
good faith efforts to cause the shares of HEALTHSOUTH Common Stock to be issued
pursuant to the Merger to be registered or qualified under all applicable
securities or Blue Sky laws of each of the states and territories of the United
States, and to take any other actions which may be necessary to enable the
Common Stock to be issued pursuant to the Merger to be distributed in each such
jurisdiction.
(e) Prior to the Closing Date, HEALTHSOUTH shall file an additional
listing application (the "Listing Application") with the Exchange relating to
the shares of HEALTHSOUTH Common Stock to be issued in connection with the
Merger, and shall use its reasonable, good faith efforts to cause such shares of
HEALTHSOUTH Common Stock to be approved for listing on the Exchange, upon
official notice of issuance, prior to the Closing Date.
(f) Horizon/CMS shall furnish all information to HEALTHSOUTH with
respect to Horizon/CMS and the Horizon/CMS Subsidiaries and Horizon/CMS 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; Horizon/CMS Rights. Horizon/CMS
shall take all reasonable steps necessary to (a) 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 Horizon/CMS's Board of Directors or otherwise, and (b) to
redeem the outstanding preferred share purchase rights ("Rights") of Horizon/CMS
or otherwise cause the Merger to be a transaction which does not trigger the
detachment and distribution of the Rights (otherwise than by issuing shares of
Horizon/CMS Common Stock or preferred stock in exchange for the Rights).
7.6 HSR Act Compliance. HEALTHSOUTH and Horizon/CMS 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
Horizon/CMS 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 Horizon/CMS 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
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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 or simultaneous separate press releases, mutually acceptable
to HEALTHSOUTH and Horizon/CMS, promptly upon execution and delivery of this
Plan of Merger.
7.8 Resignation of Horizon/CMS Directors. On or prior to the Closing
Date, Horizon/CMS shall deliver to HEALTHSOUTH evidence satisfactory to
HEALTHSOUTH of the resignation of the Directors of Horizon/CMS, such
resignations to be effective on the Closing Date. At the Effective Time, Neal M.
Elliott shall be added to the HEALTHSOUTH Board of Directors.
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. (a) Subject to the provisions of Section 7.10(b)
below, Horizon/CMS shall not, and shall not suffer any of the Horizon/CMS
Subsidiaries or the Horizon/CMS Other Entities or any of their respective
directors, officers, employees, agents or representatives to, directly or
indirectly (i) solicit or initiate (including by way of furnishing or publishing
nonpublic information) any inquiries or the making of any proposal with respect
to any merger, consolidation or other business combination involving Horizon/CMS
or any Horizon/CMS Subsidiary or Horizon/CMS Other Entity or the acquisition of
all or any significant part of the assets or capital stock or other equity
interests of Horizon/CMS or any Horizon/CMS Subsidiary or Horizon/CMS Other
Entity or any similar transaction (an "Acquisition Transaction"), (ii)
negotiate, explore or otherwise engage in discussions with any persons (other
than HEALTHSOUTH and its representatives) with respect to any Acquisition
Transaction or which may reasonably be expected to lead to a proposal for an
Acquisition Transaction or (iii) enter into any agreement, arrangement or
understanding with respect to any such Acquisition Transaction or which would
require Horizon/CMS to abandon, terminate or fail to consummate the Merger or
any other transaction contemplated by this Agreement. Except as may be required
by the fiduciary duties of Horizon/CMS's Board of Directors under applicable
law, Horizon/CMS agrees that, as of the date hereof, Horizon/CMS and the
Horizon/CMS Subsidiaries and the Horizon/CMS Other Entities and their respective
directors, officers, employees, agents and representatives shall immediately
cease and cause to be terminated any existing activities, discussions or
negotiations conducted heretofore with respect to any Acquisition Transaction.
(b) Notwithstanding the provisions of Section 7.10(a) above,
Horizon/CMS may (i), directly or indirectly, furnish information and access, in
response to an unsolicited written proposal for a Superior Transaction (as
defined below), to the same extent permitted by Section 6.1, to any
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corporation, partnership, person or other entity or group (in each case, a
"person"), 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 for a Superior
Transaction, if the Board of Directors of Horizon/CMS determines in its good
faith judgment in the exercise of its fiduciary duties, after consultation with
legal counsel and its financial advisors, that such action is appropriate in
furtherance of the best interest of its stockholders and (ii) comply with Rule
14e-2 promulgated under the Exchange Act with regard to an Acquisition
Transaction. Horizon/CMS shall promptly advise HEALTHSOUTH of the existence of
any inquiries or proposals received by, any requests for such information from,
or any negotiations or discussions initiated or continued with, Horizon/CMS or
any of the Horizon/CMS Subsidiaries or the Horizon/CMS Other Entities or any of
their respective directors, officers, employees, agents or representatives, in
each case from or by a person (other than HEALTHSOUTH and its representatives)
with respect to an Acquisition Transaction and the identity of such person and,
except as may otherwise be required pursuant to the fiduciary duties of
Horizon/CMS's Board of Directors under applicable law, the terms, the proposed
form of consideration and the general terms of any financing arrangement or
commitment in connection with such Acquisition Transaction. As used herein, the
term "Superior Proposal" means a bona fide, written and unsolicited proposal or
offer made by any person (other than HEALTHSOUTH) with respect to an Acquisition
Transaction on terms which the Board of Directors of Horizon/CMS determines in
good faith, and in the exercise of reasonable judgment (based upon the advice of
independent financial advisors and legal counsel), to be more favorable to
Horizon/CMS and its stockholders than the Merger (including taking into account
the consideration to be provided and any financing thereof).
7.11 Other Actions. Subject to the provisions of Section 7.10 hereof,
none of Horizon/CMS, 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
Horizon/CMS 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 Horizon/CMS 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 Horizon/CMS 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 Tax-Free Reorganization Treatment. Neither HEALTHSOUTH nor
Horizon/CMS shall take or cause to be taken any action, whether on or before the
Effective Time, which would disqualify the Merger as a "reorganization" within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended,
which action is taken with the intention of disqualifying the Merger as a
reorganization.
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7.14 Affiliate Agreements. Horizon/CMS 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 Horizon/CMS 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 Horizon/CMS shall together, or
pursuant to an allocation of responsibility agreed to between them, (i)
cooperate with one another in determining whether any filings are required to be
made or consents are required to be obtained in any jurisdiction prior to the
Effective Time in connection with the consummation of the transactions
contemplated hereby and in making any such filings promptly and in seeking to
obtain timely any such consents, (ii) use all commercially reasonable 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 Horizon/CMS shall use all commercially 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 this Plan of Merger and to consummate
the transactions contemplated hereby, subject to the vote of Horizon/CMS'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 or any other public or private third party
which is required to be obtained 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 Horizon/CMS 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 Horizon/CMS Stock Options, Warrants and Convertible Securities.
(a) As soon as reasonably practicable after the Effective Time of the Merger,
HEALTHSOUTH shall deliver to the holders of Horizon/CMS stock options (which,
for purposes of this Section 7.16, includes any rights to purchase Horizon/CMS
Common Stock pursuant to Horizon/CMS's 1996 Employee Stock Purchase Plan),
warrants and convertible securities appropriate notices setting forth such
holders' rights pursuant to any stock option plans under which such Horizon/CMS
stock options were issued, any stock option agreements or warrant agreements
evidencing such options or warrants and any instruments governing such
convertible securities, 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, warrants and convertible securities 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,
the warrant agreements and the instruments governing such convertible securities
as so
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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 Horizon/CMS 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 Horizon/CMS stock options and warrants and
conversion of convertible securities 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 Horizon/CMS stock options and
shall use its best efforts to maintain the effectiveness of such registration
statement (and to maintain the current status of the prospectus or prospectus
contained therein) for so long as such Horizon/CMS stock options and warrants
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 with respect to the Horizon/CMS stock
options awarded under any plan, program, or arrangement of Horizon/CMS 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 Certain Operations of Horizon/CMS. HEALTHSOUTH hereby covenants
and agrees that, from and for a period of at least one year after the Closing
Date, the following existing operating divisions of Horizon/CMS shall be
operated and managed by the Surviving Corporation at or through Horizon/CMS's
existing corporate offices and, subject to the provisions of any applicable
employment agreements and to such standards of performance as are customarily
imposed by HEALTHSOUTH on its managerial employees, existing management in
Albuquerque, New Mexico and their current divisional operating locations,
subject to reasonable restraints on managerial overhead: Long-Term Care
Division, Specialty Hospital Division, Meridian Healthcare Management Division,
Contract Rehab Therapy Division, Horizon Medical Management Division,
Institutional Pharmacy Division, Diagnostic Group/Clinical Lab Division, Medical
Specialty Services Division, Medical Innovations Division, Physician Services
Division, Horizon Facilities Management Division and the Cimarron HMO
investment. Moreover, HEALTHSOUTH covenants and agrees that, from and after the
Closing Date, (i) it shall cause the Surviving Corporation to complete the
development and construction of Horizon/CMS's corporate headquarters office
building project currently under development and construction in Albuquerque,
New Mexico (the "Alameda Project"), and to take occupancy of the Alameda Project
at such time as it is available for occupancy and (ii) the operation of the
aircraft currently under contract with Horizon/CMS shall be managed by
Horizon/CMS's existing management in Albuquerque, New Mexico.
7.18 Horizon/CMS Employees. HEALTHSOUTH shall retain all employees of
Horizon/CMS who are employed at the Effective Time as employees-at-will (except
to the extent that
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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, except as may otherwise
be agreed between HEALTHSOUTH and Horizon/CMS.
7.19 Certain Information. For as long as any affiliate (as defined for
purposes of Rule 145 under the Securities Act of 1933) of Horizon/CMS holds
shares of HEALTHSOUTH Common Stock issued in the Merger (but not for a period in
excess of two years from the date of consummation of the Merger), HEALTHSOUTH
shall file with the Securities and Exchange Commission or otherwise make
publicly available all information about HEALTHSOUTH required pursuant to Rule
144(c) under the Securities Act of 1933 to enable such affiliate to resell such
shares under the provisions of Rule 145(d) under the Securities Act of 1933.
7.20 Indemnification. (a) Horizon/CMS 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 Horizon/CMS 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
Horizon/CMS 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 Horizon/CMS (or them and HEALTHSOUTH and the Surviving
Corporation after the Effective Time), (ii) Horizon/CMS (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) Horizon/CMS (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
Horizon/CMS, 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 Horizon/CMS, 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 Horizon/CMS (or after
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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) HEALTHSOUTH shall cause to be maintained in effect until six years
from the Effective Time the current policies of directors' and officers'
liability insurance maintained by Horizon/CMS (or substitute policies providing
at least the same coverage and limits and conaining terms and conditions that
are not materially less advantageous) with respect to claims arising from facts
or events which occurred before the Effective Time; provided, however, that in
no event shall HEALTHSOUTH or the Surviving Corporation be required to expend
more than 200 percent of the current annual premiums paid by Horizon/CMS for
such insurance; provided, further, that, if HEALTHSOUTH or the Surviving
Corporation is unable to obtain insurance for any period for 200 percent of the
current annual premiums, then the obligation of HEALTHSOUTH and the Surviving
Corporation pursuant hereto shall be to obtain the best coverage reasonably
available under the circumstances subject to the foregoing limitations on
premiums.
(c) The provisions of this Section 7.20 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party and his or her
heirs and representatives.
7.21 Certain Change in Control Agreements. HEALTHSOUTH hereby agrees
that, at the Closing, it will deliver to each of the officers of Horizon/CMS
listed in Exhibit 7.21 to the Disclosure Schedule a written acknowledgment that,
at the Effective Time, both of the conditions set forth in the sections of the
Change of Control Agreements of such officers specified in Exhibit 7.21 to the
Disclosure Schedule shall have been fulfilled and that, if such officer's
employment by the Surviving Corporation is terminated by HEALTHSOUTH or the
Surviving Corporation or the officer within 18 months after the Effective Time,
the amounts specified in the Change of Control Agreements shall be paid by the
Surviving Corporation to the officer in accordance with the terms thereof.
7.22 Assumption of Employment Agreement. At the Closing, HEALTHSOUTH
shall assume the obligations of Horizon/CMS under that certain Employment and
Change of Control Agreement dated as of January 1, 1997, between Horizon/CMS and
Neal M. Elliott.
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 Horizon/CMS
Common Stock:
(a) by mutual written consent of HEALTHSOUTH and Horizon/CMS;
(b) by either HEALTHSOUTH or Horizon/CMS:
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(i) if, upon a vote at a duly held meeting of stockholders or
any adjournment thereof, any required approval of this Plan of Merger
and the Merger by the holders of shares of Horizon/CMS Common Stock
shall not have been obtained;
(ii) if the Merger shall not have been consummated on or
before December 31, 1997, unless the failure to consummate the Merger
is the result of a willful and material breach of this Plan of Merger
by the party seeking to terminate this Plan of Merger; provided,
however, that the passage of such period shall be tolled for any part
thereof (but not exceeding 60 days in the aggregate) during which any
party shall be subject to a nonfinal order, decree, ruling or action of
any court of competent jurisdiction or other governmental agency or
authority 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 agency or authority shall have issued an order, decree or
ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting 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 Horizon/CMS gives notice
of termination as a non-notifying party pursuant to Section 7.9;
(c) By either HEALTHSOUTH or Horizon/CMS if any of the
conditions to the obligation of such party to effect the Merger set
forth in Section 9.1, Section 9.2 (in the case of HEALTHSOUTH) or
Section 9.3 (in the case of Horizon/CMS) is not capable of being
satisfied prior to the end of the period referred to in Section
8.1(b)(ii); or
(d) By Horizon/CMS, if Horizon/CMS'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
Horizon/CMS Common Stock or shall have withdrawn such recommendation or
(ii) approved, recommended or endorsed any
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Acquisition Transaction (as defined in Section 7.10) other than this
Plan of Merger or (iii) resolved to do any of the foregoing.
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 shares of Horizon/CMS Common Stock; provided,
however, that, after any such approval, if any amendment pursuant to Section
251(d) of the DGCL requires further approval by such stockholders, the Merger
shall not be consummated without the further approval of such stockholders. This
Plan of Merger may not be amended except by an instrument in writing signed on
behalf of each of the parties.
8.4 Extension; Waiver. At any time prior to the Effective Time of the
Merger, the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties contained in this Plan of Merger or in any
document delivered pursuant to this Plan of Merger or (c), subject to the
proviso of Section 8.3, and except for the provisions of subsections (a) through
(f) of Section 9.1, 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 Horizon/CMS, 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, subject to the provisions of Section 8.6(b)(i)
below) incurred in connection with preparing, filing, printing and mailing the
Proxy Statement and the Registration Statement shall be shared equally by
Horizon/CMS and HEALTHSOUTH.
(b) (i) If this Plan of Merger is terminated by Horizon/CMS pursuant to
Section 8.1(d), and within one year after the effective date of such termination
Horizon/CMS 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
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<PAGE>
Act) (other than a party hereto), then at the time of consummation of such a
Third Party Acquisition Event, Horizon/CMS shall pay to HEALTHSOUTH a break-up
fee of $35,000,000 in immediately available funds, which fee represents the
parties' best estimates of the out-of-pocket costs incurred by HEALTHSOUTH and
the value of management time, overhead, opportunity costs and other unallocated
costs of HEALTHSOUTH incurred by or on behalf of HEALTHSOUTH in connection with
this Plan of Merger, and shall further pay, or reimburse HEALTHSOUTH for,
Expenses (as defined below), actually incurred by HEALTHSOUTH up to $5,000,000.
Horizon/CMS 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 and Expenses 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) Horizon/CMS shall enter into any agreement for, or
otherwise be the subject of, any Acquisition Transaction (as defined in
Section 7.10) which is consummated (regardless of whether such
consummation occurs within the one-year period described in Section
8.6(b)(i)); or
(B) any Person (other than a party hereto or its affiliates)
shall have acquired beneficial ownership (as such term is defined in
Rule 13d-3 under the Exchange Act) or the right to acquire beneficial
ownership of, or a new group has been formed which beneficially owns or
has the right to acquire beneficial ownership of, 30% or more of the
outstanding Horizon/CMS Common Stock.
(iii) As used herein, the term "Expenses" shall include all
reasonable out- of-pocket expenses (including without limitation all reasonable
fees and expenses of counsel, accountants, investment bankers, experts and
consultants) incurred by or on behalf of HEALTHSOUTH in connection with or
related to the authorization, preparation, negotiation, execution and
performance of this Plan of Merger, the preparation, printing, filing and
mailing of the Registration Statement and the Proxy Statement, and all other
matters related to the consummation of the transactions contemplated hereby.
(c) Horizon/CMS acknowledges that the provisions for the payment of
break-up fees and 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 and Expenses shall become due and payable by
Horizon/CMS, and Horizon/CMS 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 Horizon/CMS therefor, Horizon/CMS 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
(computed from the date incurred) at the prime rate of interest announced from
time to time by NationsBank, N.A. (South).
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<PAGE>
The obligations of Horizon/CMS under this Section 8.6 shall survive any
termination of this Plan of Merger.
Section 9. CONDITIONS TO CLOSING.
9.1 Mutual Conditions. The respective obligations of each party to
effect the Merger shall be subject to the satisfaction, at or prior to the
Closing Date of the following conditions (any of which may be waived in writing
by HEALTHSOUTH and Horizon/CMS):
(a) None of HEALTHSOUTH, the Subsidiary or Horizon/CMS nor any
of their respective subsidiaries shall be subject to any order, decree
or injunction by a court of competent jurisdiction or governmental
agency or authority 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 Horizon/CMS, the
Horizon/CMS Subsidiaries and the Horizon/CMS Other Entities, 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 Horizon/CMS Common Stock 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.
(g) HEALTHSOUTH and the Subsidiary shall have obtained, or
obtained the transfer of, any Licenses necessary to allow the Surviving
Corporation to operate the Horizon/CMS facilities, unless the failure
to obtain such transfer or approval would not have a material adverse
effect on the Surviving Corporation.
(h) 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 Horizon/CMS
Subsidiaries and the
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Horizon/CMS Other Entities are parties, which consents, approvals and
authorizations are required of such third parties by such documents, in
form and substance acceptable to HEALTHSOUTH, except where the failure
to obtain such consent, approval or authorization would not have a
material effect on the business of the Surviving Corporation.
9.2 Conditions to Obligations of HEALTHSOUTH and the Subsidiary. The
obligations of HEALTHSOUTH and the Subsidiary to consummate the Merger and the
other transactions contemplated hereby shall be subject to the satisfaction, at
or prior to the Closing Date, of the following conditions (any of which may be
waived by HEALTHSOUTH and the Subsidiary):
(a) Each of the agreements of Horizon/CMS to be performed at
or prior to the Closing Date pursuant to the terms hereof shall have
been duly performed in all material respects.
(b) The representations and warranties of Horizon/CMS 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. Each other
representation and warranty of Horizon/CMS set forth in this Plan of
Merger that is qualified as to materiality shall be true and correct,
and each representation and warranty that is 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 that any such representation and warranty
expressly relates to an earlier date (in which case any such
representation and warranty that is qualified as to materiality shall
be true and correct, and any such representation and warranty that is
not so qualified shall be true and correct in all material respects, as
of such earlier date); provided, however, that Horizon/CMS 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. For purposes of the foregoing sentence only, each sentence in this
Plan of Merger that is a representation and warranty of Horizon/CMS
shall be deemed to be a separate representation and warranty.
HEALTHSOUTH and the Subsidiary shall have been furnished with a
certificate, executed by a duly authorized officer of Horizon/CMS,
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, Horizon/CMS and the Subsidiary.
(d) HEALTHSOUTH shall have received an opinion from Vinson &
Elkins L.L.P., substantially to the effect set forth in Exhibit 9.2(d)
hereto.
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<PAGE>
9.3 Conditions to Obligations of Horizon/CMS. The obligations of
Horizon/CMS 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 Horizon/CMS):
(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.
(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. Each other
representation and warranty of HEALTHSOUTH or the Subsidiary set forth
in this Plan of Merger that is qualified as to materiality shall be
true and correct, and each representation and warranty that is 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 that any such representation and
warranty expressly relates to an earlier date (in which case any such
representation and warranty that is qualified as to materiality shall
be true and correct, and any such representation and warranty that is
not so qualified shall be true and correct in all material respects, as
of such earlier date). For purposes of the foregoing sentence only,
each sentence in this Plan of Merger that is a representation and
warranty of HEALTHSOUTH or the Subsidiary shall be deemed to be a
separate representation and warranty. HEALTHSOUTH and the Subsidiary
shall have been furnished with a certificate, executed by a duly
authorized officer of Horizon/CMS, 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) Horizon/CMS shall have received an opinion from Vinson &
Elkins L.L.P. 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,
Horizon/CMS and the Subsidiary.
(d) Horizon/CMS 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
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<PAGE>
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
One HealthSouth Parkway
Birmingham, Alabama 35243
Attention: Michael D. Martin
Facsimile: (205) 969-4719
with a copy to:
William W. Horton
HEALTHSOUTH Corporation
One HealthSouth Parkway
Birmingham, Alabama 35243
Facsimile: (205) 969-4732
If to Horizon/CMS:
Horizon/CMS Healthcare Corporation
6001 Indian School Road, N.E.
Suite 530
Albuquerque, New Mexico 87110
Attention:
Facsimile:
with a copy to:
William E. Joor III, Esq.
Vinson & Elkins L.L.P.
3600 First City Tower
1001 Fannin
Houston, Texas 77002-6760
Facsimile:
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.
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<PAGE>
10.4 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.
10.5 "Including". The word "including", when following any general
statement, term or matter, shall not be construed to limit such statement, term
or matter to the specific terms or matters as provided immediately following the
word "including" or to similar items or matters, whether or not non-limiting
language (such as "without limitation", "but not limited to", or words of
similar import) is used with reference to the word "including" or the similar
items or matters, but rather shall be deemed to refer to all other items or
matters that could reasonably fall within the broadest possible scope of the
general statement, term or matter.
10.6 "Knowledge". "To the knowledge", "to the best knowledge,
information and belief", or any similar phrase shall be deemed to refer to the
knowledge of the Chairman of the Board, Chief Executive Officer, Chief Operating
Officer or Chief Financial Officer of a party and to include the assurance that
such knowledge is based upon a reasonable investigation, unless otherwise
expressly provided.
10.7 "Material", "material adverse change" or "material adverse
effect". "Material" means, when used in connection with one or more entities,
material to the business, prospects, assets, properties, operations, results of
operations or condition (financial or other) of such entity or entities and all
other entities with which such entity or entities are consolidated for financial
accounting purposes, taken as a whole. "Material adverse change" or "material
adverse effect" means, when used in connection with one or more entities, any
change, effect, event, circumstance or occurrence that has, or is reasonably
likely to have, individually or in the aggregate, a material adverse impact on
the business, prospects, assets, properties, operations, results of operations
or condition (financial or other) of such entity or entities and all other
entities with which such entity or entities are consolidated for financial
accounting purposes, 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, (ii) the public
announcement of the Merger and compliance with the provisions of this Plan of
Merger, and (iii) any changes resulting from any restructuring or other similar
charges or write-offs taken by Horizon/CMS in its consolidated financial
statements with the consent of HEALTHSOUTH.
10.8 "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 10.9) regardless of the quantity
of any such material.
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<PAGE>
10.9 "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.
10.10 "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.
10.11 "Subsidiary". For purposes of this Agreement, the term
"Subsidiary" shall mean a corporation of which 50% or more of the class of
capital stock having voting power in the election of directors is owned,
directly or indirectly, by Horizon/CMS or HEALTHSOUTH.
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 Sections 7.16 and 7.20, 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
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used in this Plan of Merger. The parties agree that, because all parties
participated in negotiating and drafting this Plan of Merger, no rule of
construction shall apply to this Plan of Merger which construes ambiguous
language in favor of or against any party by reason of that party's role in
drafting this Plan of Merger.
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<PAGE>
IN WITNESS WHEREOF, HEALTHSOUTH, the Subsidiary and Horizon/CMS 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.
HORIZON/CMS HEALTHCARE
CORPORATION
By /s/ Neal M. Elliott
------------------------------------
Its Chairman, President and CEO
---------------------------------
ATTEST:
/s/ Scot Sauder
- -------------------------------------------
Secretary
[ CORPORATE SEAL ]
HEALTHSOUTH Corporation
By /s/ Michael D. Martin
------------------------------------
Its Executive Vice President
and Treasurer
---------------------------------
ATTEST:
/s/ William W. Horton
- --------------------------------------------
William W. Horton
Assistant Secretary
[ CORPORATE SEAL ]
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<PAGE>
REID ACQUISITION CORPORATION
By /s/ Michael D. Martin
-------------------------
Its Vice President
----------------------
ATTEST:
/s/ William W. Horton
- --------------------------------------------
William W. Horton
Assistant Secretary
[ CORPORATE SEAL ]
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<PAGE>
EXHIBIT 7.14
Gentlemen:
I have been advised that I might be considered to be an "affiliate" of
Horizon/CMS Healthcare Corporation ("Horizon/CMS") for purposes of Rule 145
under the Securities Exchange Act of 1933, as amended (the "1933 Act").
HEALTHSOUTH Corporation ("HEALTHSOUTH"), Reid Acquisition Corporation
and Horizon/CMS have entered into a Plan and Agreement of Merger dated as of the
17th day of February, 1997 (the "Plan of Merger"). Upon consummation of the
transactions contemplated by the Plan of Merger (the "Merger"), I will receive
shares of capital stock of HEALTHSOUTH for all of the shares of capital stock of
Horizon/CMS owned by me or as to which I may be deemed a beneficial owner. I own
_______ shares of common stock of Horizon/CMS. Such shares will be converted in
the Merger into shares of common stock of HEALTHSOUTH as described in the Plan
of Merger. The shares of Horizon/CMS capital stock and HEALTHSOUTH capital stock
owned by me or as to which I may deemed to be a beneficial owner prior to the
Merger are hereinafter collectively referred to as the "Pre-Merger Stock" and
the shares of HEALTHSOUTH capital stock received by me in the Merger are
hereinafter collectively referred to as the "Exchange Stock". This agreement is
hereinafter referred to as the "Letter Agreement".
I represent and warrant to, and agree with, HEALTHSOUTH, Horizon/CMS
and the Subsidiary that:
A. I have read this Letter Agreement and the Plan of Merger and have
discussed their requirements and other applicable limitations upon my ability to
sell, transfer or otherwise dispose of the Pre-Merger Stock and Exchange Stock,
to the extent I felt necessary, with my counsel or counsel for Horizon/CMS.
B. The shares of common stock of HEALTHSOUTH that I shall receive in
exchange for my shares of common stock of Horizon/CMS are not being acquired by
me with a view to their distribution except to the extent and in the manner
provided for in paragraph (d) of Rule 145 under the 1933 Act.
C. I agree with you not to dispose of any such shares of common stock
of HEALTHSOUTH in any manner that would violate Rule 145. I further agree with
you that the certificate or certificates representing such shares of common
stock of HEALTHSOUTH may bear a legend referring to the restrictions on
disposition thereof in accordance with the provisions of the foregoing paragraph
and that stop transfer instructions may be filed with respect to such shares
with the transfer agent for such shares.
<PAGE>
D. I understand that stop transfer instructions will be given to
HEALTHSOUTH, Horizon/CMS and their respective transfer agents, as the case may
be, with respect to the shares of Pre-Merger Stock and the Exchange Stock in
connection with the restrictions set forth herein.
It is understood and agreed that this Letter Agreement shall terminate
and be of no further force and effect if the Plan of Merger is terminated
pursuant to the terms thereof.
The agreements made by me in the foregoing paragraphs are on the
understanding and condition that you agree, in the event that any shares may be
disposed of in accordance with the provisions of Rule 145, to deliver in
exchange for the certificate or certificates representing such shares a new
certificate or certificates representing such shares not bearing the legend and
not subject to the stop transfer instruction referred to in paragraph D above,
and so long as I hold shares of stock subject to the provisions of the foregoing
paragraph (but not for a period in excess of two years from the date of
consummation of the Merger) to file with the Securities and Exchange Commission
or otherwise make publicly available all information about HEALTHSOUTH, to the
extent available to you without unreasonable effort or expense, necessary to
enable me to resell shares under the provisions of paragraph (d) of Rule 145.
This Letter Agreement shall be binding on my heirs, legal
representatives and successors.
Very truly yours,
[Name of Stockholder]
<PAGE>
EXHIBIT 9.2(d)
[DATE]
HEALTHSOUTH Corporation
One HealthSouth Parkway
Birmingham, Alabama 35243
Re: Plan and Agreement of Merger Among HEALTHSOUTH
Corporation, Reid Acquisition Corporation
and Horizon/CMS Healthcare Corporation
Gentlemen:
We have acted as legal counsel for Horizon/CMS Healthcare Corporation,
a Delaware corporation ("Horizon/CMS"), in connection with the transactions
contemplated by that certain Agreement and Plan of Merger (the "Plan of
Merger"), dated as of February 17, 1997, by and among HEALTHSOUTH Corporation, a
Delaware corporation, Reid Acquisition Corporation, a Delaware corporation, and
Horizon/CMS. The Plan of Merger, along with the other documents evidencing the
transactions contemplated by the Plan of Merger, are referred to collectively as
the "Merger Documents".
This opinion is being delivered pursuant to the Plan of Merger. Unless
otherwise defined herein, capitalized terms used herein shall have the meanings
set forth in the Plan of Merger.
In connection with the preparation of this opinion, we have examined
executed originals of the following documents:
(a) the Merger Documents; and
(b) the charter documents and bylaws of Horizon/CMS in effect
as of the date hereof.
We have also examined such other documents, certificates of public
officials and officers of Horizon/CMS, records and matters of law as we have
deemed necessary as a basis for the opinions hereinafter expressed. In our
examination, we have assumed the genuineness of all signatures, the authenticity
of all documents submitted to us as originals, the conformity to original
documents of all documents submitted to us as certified or photostatic copies,
and the authenticity of the originals of such latter documents. Further, our
review of matters of law has been limited to the laws of the State of New
Mexico, the laws of the State of Delaware referred to herein and the Federal
laws of the United States in effect as of the date hereof.
<PAGE>
Based upon the foregoing, and subject to the limitations hereinafter
set forth, we are of the opinion that:
1. Horizon/CMS has been duly incorporated and is validly existing as a
corporation in good standing under the General Corporation Law of the State of
Delaware (the "DGCL").
2. Horizon/CMS has full corporate power to execute and deliver the Plan
of Merger and to consummate the transactions contemplated thereby.
3. The Plan of Merger has been duly authorized and executed by
Horizon/CMS, and the Plan of Merger constitutes the valid and binding obligation
of Horizon/CMS, enforceable against Horizon/CMS in accordance with its terms,
except as limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting enforcement of creditors' rights generally and subject to
general principles of equity (regardless of whether enforcement is considered in
a proceeding at law or in equity).
4. The execution and delivery of the Plan of Merger by Horizon/CMS did
not, and the consummation of the transactions therein contemplated by
Horizon/CMS does not, constitute a breach or violation of, or a default under,
any federal law, rule or regulation of the United States or under the DGCL or,
to our knowledge, any court order, judgment or decree of any governmental or
regulatory body of the United States or of Delaware, in each case, to which
Horizon/CMS is subject or by which any of its material properties or assets are
bound or affected, or require any consent or approval of any other party under
any federal law, rule or regulation of the United States or under the DGCL,
except for required approvals under the federal securities laws, under the state
securities or blue sky laws, and under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and except under laws, rules and
regulations relating to the operation, regulation, licensing, and accreditation
of health care facilities, as to which we express no opinion, which breach,
violation or default would have a material adverse effect on Horizon/CMS and the
Horizon/CMS Subsidiaries and the Horizon/CMS Other Entities, taken as a whole.
This opinion is furnished to you by this Firm as legal counsel for
Horizon/CMS, solely for your benefit in connection with the transactions
contemplated by the Plan of Merger, upon the understanding that we are not
hereby assuming any professional responsibility to any other person whatsoever
and that this opinion may not be used for any other purpose whatsoever.
Very truly yours,
VINSON & ELKINS L.L.P.
By
<PAGE>
EXHIBIT 9.3(d)
[DATE]
Horizon/CMS Healthcare Corporation
6001 Indian School Road, N.E.
Suite 530
Albuquerque, New Mexico 87110
Re: Plan and Agreement of Merger Among
HEALTHSOUTH Corporation, Reid Acquisition Corporation
and Horizon/CMS Healthcare Corporation
Gentlemen:
We have acted as legal counsel for HEALTHSOUTH Corporation, a Delaware
corporation ("HEALTHSOUTH"), and Reid Acquisition Corporation, a Delaware
corporation (the "Subsidiary"), in connection with the transactions contemplated
by that certain Plan and Agreement of Merger (the "Plan of Merger"), dated as of
February 17, 1997, by and among HEALTHSOUTH, the Subsidiary and Horizon/CMS
Healthcare Corporation, a Delaware corporation. The Plan of Merger, along with
the other documents evidencing the transactions contemplated by the Plan of
Merger, are referred to collectively as the "Merger Documents".
This opinion is being delivered pursuant to the Plan of Merger. Unless
otherwise defined herein, capitalized terms used herein shall have the meanings
set forth in the Plan of Merger.
In connection with the preparation of this opinion, we have examined
executed originals (or copies thereof) of the following documents:
(a) the Merger Documents;
(b) the charter documents and bylaws of HEALTHSOUTH in effect
as of the date hereof; and
(c) the charter documents and bylaws of the Subsidiary in
effect as of the date hereof.
We have also examined such other documents, certificates of public
officials and officers of HEALTHSOUTH and the Subsidiary, records and matters of
law as we have deemed necessary or appropriate in connection with the opinions
hereinafter expressed. In our examination, we have assumed the genuineness of
all signatures, the authenticity of all documents submitted to us as originals,
the conformity to original documents of all documents submitted to us as
certified or photostatic copies, and the authenticity of the originals of such
latter documents. Further, our
<PAGE>
review of matters of law has been limited to the laws of the State of Alabama,
the laws of the State of Delaware referred to herein and the Federal laws of the
United States in effect as of the date hereof.
Based upon the foregoing, and subject to the limitations hereinafter
set forth, we are of the opinion that:
1. Each of HEALTHSOUTH and the Subsidiary has been duly incorporated
and is validly existing as a corporation in good standing under the General
Corporation Law of the State of Delaware (the "DGCL").
2. Each of HEALTHSOUTH and the Subsidiary has the corporate power to
execute and deliver the Plan of Merger and to consummate the transactions
contemplated thereby.
3. The Plan of Merger has been duly authorized and executed by
HEALTHSOUTH and the Subsidiary, and the Plan of Merger (except for the
provisions thereof respecting indemnification, as to which we express no
opinion) constitutes the valid and binding obligation of HEALTHSOUTH and the
Subsidiary, enforceable against HEALTHSOUTH and the Subsidiary in accordance
with its terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting enforcement of
creditors' rights generally and subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding at law or in
equity).
4. The execution and delivery of the Plan of Merger by HEALTHSOUTH and
the Subsidiary did not, and the consummation of the transactions therein
contemplated by HEALTH- SOUTH and the Subsidiary, if performed today, would not,
constitute a breach or violation of any federal law, rule or regulation of the
United States or any law, rule or regulation of Alabama or the DGCL or, to our
knowledge, any court order, judgment or decree of any governmental or regulatory
body of the United States or of Delaware or Alabama, in each case, to which
HEALTHSOUTH or the Subsidiary is subject or by which any of their material
properties or assets are bound or affected, which breach, violation or default
would have a material adverse effect on HEALTHSOUTH and its subsidiaries and
affiliated partnerships, taken as a whole, or require any consent or approval of
any other party under any federal law, rule or regulation of the United States
or any law, rule or regulation of Alabama or Delaware to which HEALTH- SOUTH or
the Subsidiary is subject (except for required consents or approvals under the
federal securities laws, the state securities or blue sky laws, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or any laws,
rules and regulations relating to the operation, regulation, licensing and
accreditation of health care facilities, as to all of which we express no
opinion).
5. The shares of HEALTHSOUTH Common Stock to be issued under the Plan
of Merger will be, when issued in accordance with the terms of the Plan of
Merger, validly issued, fully paid and nonassessable.
<PAGE>
This opinion is furnished to you by this Firm as legal counsel for
HEALTHSOUTH and the Subsidiary, solely for your benefit in connection with the
transactions contemplated by the Plan of Merger, upon the understanding that we
are not hereby assuming any professional responsibility to any other person
whatsoever and that this opinion may not be used for any other purpose
whatsoever.
Very truly yours,
HASKELL SLAUGHTER & YOUNG, L.L.C.
By
EXHIBIT (3)-1
RESTATED
CERTIFICATE OF INCORPORATION
OF
HEALTHSOUTH CORPORATION
HEALTHSOUTH Corporation, a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), hereby certifies as follows:
1. The name of the Corporation is HEALTHSOUTH Corporation.
The Corporation was originally incorporated under the name AMCARE, Inc.
The date of filing its original Certificate of Incorporation with the Secretary
of State was February 22, 1984.
2. This Restated Certificate of Incorporation further amends and
restates the Restated Certificate of Incorporation of the Corporation by
inserting therein a new Article FOURTH.
3. The text of the Restated Certificate of Incorporation, as amended or
supplemented heretofore, is further amended hereby to read as herein set forth
in full:
"FIRST: The name of the Corporation is HEALTHSOUTH Corporation.
<PAGE>
SECOND: The address of its registered office in the State of Delaware
is 1209 Orange Street, in the City of Wilmington, County of New Castle. The name
of its registered agent at such address is The Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or
promoted are:
(a) To engage in the business of providing comprehensive
rehabilitation and clinical healthcare services on an ambulatory and
inpatient basis in rehabilitation clinics and hospitals to the general
public through the provision of physician services, physical therapy,
social and/or psychological, respiratory therapy, cardiac
rehabilitation, pulmo- nary rehabilitation, occupational therapy,
speech pathology, prosthetic and orthotic devices, nursing care, drugs
and biologicals, supplies, appliances and equipment and other services
and to do any and all things necessary and appropriate to carry out
such business effectively, including, without limitation, the owning,
leasing, management and operation of medical facilities and other
physical properties, either directly or indirectly, or in concert with
others.
(b) To engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the
State of Delaware.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is Five Hundred One Million Five Hundred Thousand
(501,500,000) shares, consisting of Five Hundred Million (500,000,000) shares of
Common Stock, par value One Cent ($.01) per share, and One Million Five Hundred
Thousand (1,500,000) shares of Preferred Stock, par value Ten Cents ($.10) per
share.
Shares of Preferred Stock may be issued from time-to-time in one or
more series, each such series to have such distinctive designation or title as
may be stated and expressed in this Article FOURTH or as may be fixed by the
Board of Directors
<PAGE>
prior to the issuance of any shares thereof. Each such series of Preferred Stock
shall have such voting powers, full or limited, or no voting powers, and such
preferences and such relative, participating, optional or other special rights
(including, without limitation, the right to convert the shares of such
Preferred Stock into shares of the Corpora- tion's Common Stock at such rate and
upon such terms and conditions as may be fixed by the Corporation's Board of
Directors), with such qualifications, limitations or restrictions of such
preferences or rights as shall be stated and expressed in this Article FOURTH or
in the resolution or resolutions providing for the issue of such series of
Preferred Stock as may be adopted from time-to-time by the Board of Directors
prior to the issuance of any shares thereof, in accordance with the laws of the
State of Delaware.
Except as may be otherwise provided in this Article FOURTH or in the
resolution or resolutions providing for the issue of a particular series, the
Board of Directors may from time-to-time increase the number of shares of any
series already created by providing that any unissued shares of Preferred Stock
shall constitute part of such series, or may decrease (but not below the number
of shares thereof then outstanding) the number of shares of any series already
created by providing that any unissued shares previously assigned to such series
shall no longer constitute part thereof.
FIFTH: The Board of Directors shall have the power to make, alter or
repeal the Bylaws of the Corporation at any meeting at which a quorum is present
by the affirmative vote of a majority of the whole Board of Directors. Election
of Directors need not be by written ballot.
<PAGE>
SIXTH: Special Meetings of the stockholders of the Corporation may be
called only by the Board of Directors of the Corporation by resolution adopted
by a majority of the whole Board of Directors or in writing by the holders of at
least 20% of the outstanding shares of the Corporation entitled to vote in
elections of Directors.
SEVENTH: (a) Unless the conditions set forth in clauses (1) through (4)
of this Article SEVENTH, Section (a) are satisfied, the affirmative vote of the
holders of Sixty-Six and Two-Thirds Percent (66-2/3%) of all shares of the
Corporation entitled to vote in elections of Directors, considered for the
purposes of this Article SEVENTH as one class, shall be required for the
adoption or authorization of a business combination (as hereinafter defined)
with any other entity (as hereinafter defined) if, as of the record date for the
determination of stockholders entitled to notice thereof and to vote thereon,
the other entity is the beneficial owner, directly or indirectly, of more than
Twenty Percent (20%) of the outstanding shares of the Corporation entitled to
vote in elections of Directors, considered for the purposes of this Article
SEVENTH as one class. The Sixty-Six and Two-Thirds Percent (66-2/3%) voting
requirement set forth in the foregoing sentence shall not be applicable if:
(1) The cash, or fair market value of other consideration, to
be received per share by holders of the Corporation's Common Stock in
the business combination is at least an amount equal to (A) the highest
per share price paid by the other entity in acquiring any of its
holdings of the Corporation's Common Stock plus (B) the aggregate
amount, if any, by which Five Percent (5%) per annum of that per share
price exceeds the aggregate amount of all dividends paid in cash, in
each case since the date on which the other entity acquired the Twenty
Percent (20%) interest;
<PAGE>
(2) After the other entity has acquired a Twenty Percent (20%)
interest and prior to the consummation of the business combination: (A)
the other entity shall have taken steps to ensure that the
Corporation's Board of Directors included at all times representation
by continuing Director(s) (as hereinafter defined) proportionate to the
stockholders of the public holders of the Corporation's Common Stock
not affiliated with the other entity (with a continuing Director to
occupy any resulting fractional board position); (B) the other entity
shall not have acquired any newly issued shares, directly or
indirectly, from the Corporation (except upon conversion of convertible
securities acquired by it prior to obtaining a Twenty Percent (20%)
interest or as a result of a pro rata share dividend or share split);
and (C) the other entity shall not have acquired any additional
outstanding shares of the Corporation's Common Stock or securities
convertible into shares of the Corporation's Common Stock except as a
part of the transaction that resulted in the other entity's acquiring
its Twenty Percent (20%) interest;
(3) The other entity shall not have (A) received the benefit,
directly or indirectly (except proportionately as a stockholder), of
any loans, advances, guarantees, pledges or other financial assistance
or tax credits provided by the Corporation or (B) made any major change
in the Corporation's business or equity capital structure without in
either case the approval of at least a majority of all the Directors
and at least two-thirds of the continuing Directors prior to the
consummation of the business combination; and
(4) A proxy statement responsive to the requirements of the
Securities Exchange Act of 1934 shall have been mailed to public
stockholders of the Corporation for the purpose of soliciting
stockholder approval of the business combination and shall have
contained at the front thereof, in a prominent place, any
recommendations as to the advisability (or inadvisability) of the
business combination that the continuing Directors, or any of them, may
choose to state and, if deemed advisable by a majority of the
continuing Directors, an opinion of a reputable investment banking firm
as to the fairness of the terms of the business combination, from the
point of view of the remaining public stockholders of the Corporation
(the investment banking firm to be selected by a majority of the
continuing Directors and to be paid a reasonable fee for its services
by the Corporation upon receipt of the opinion).
The provisions of this Article SEVENTH shall also apply to a business
combination with any other entity that at any time has been the beneficial
owner, directly or indirectly, of more than Twenty Percent (20%) of the
outstanding shares of the Corporation entitled to vote in elections of
Directors, considered for the purposes of this
<PAGE>
Article SEVENTH as one class, notwithstanding the fact that the other entity has
reduced its shareholders below Twenty Percent (20%) if, as of the record date
for the determination of stockholders entitled to notice of and to vote on the
business combination, the other entity is an "affiliate" (as hereinafter
defined) of the Corporation.
(b) As used in this Article SEVENTH, (1) the term "other entity" shall
include any corporation, person or other entity and any other entity with which
it or its "affiliate" or "associate" (as defined below) has any agreement,
arrangement, or understanding, directly or indirectly, for the purpose of
acquiring, holding, voting, or disposing of shares of the Corporation, or that
is its "affiliate" or "associate" as those terms are defined in Rule 12b-2 of
the General Rules and Regulations under the Securities Exchange Act of 1934 as
in effect on September 1, 1986, together with the successors and assigns of
those persons in any transaction or series of transactions not involving a
public offering of the Corporation's shares within the meaning of the Securities
Act of 1933; (2) an other entity shall be deemed to be the beneficial owner of
any shares of the Corporation that the other entity (as defined above) has the
right to acquire pursuant to any agreement or upon exercise of conversion
rights, warrants or options, or otherwise; (3) the outstanding shares of any
class of the Corporation shall include shares deemed owned through application
of clause (2) above but shall not include any other shares that may be issuable
pursuant to any agreement or upon exercise of conversion rights, warrants or
options, or otherwise; (4) the term "business combination" shall include (A) the
sale, exchange, lease, transfer or other disposition by the Corporation of all,
or substantially all, of its assets or business to any other entity, (B) the
consolidation of the Corporation with or its merger into any other entity, (C)
the merger into the Corporation of any other entity, or (D) a combination or
major-
<PAGE>
ity share acquisition in which the Corporation is the acquiring corporation and
its voting shares are issued or transferred to any other entity or to
stockholders of any other entity, and the term "business combination" shall also
include any agreement, contract or other arrangement with an other entity
providing for any of the transactions described in (A) through (D) of this
clause (4); (5) the term "continuing Director" shall mean either a person who
was a member of the Corporation's Board of Directors on August 15, 1986, or a
person who was elected to the Corporation's Board of Directors by the public
stockholders of the Corporation prior to the time when the other entity acquired
in excess of five percent (5%) of the shares of the Corporation entitled to vote
in the election of Directors, considered for the purposes of this Article
SEVENTH as one class, or a person recommended to succeed a continuing Director
by a majority of the continuing Directors; and (6) for the purposes of Article
SEVENTH, Section (a), clause (1), the term "other consideration to be received"
shall mean shares of the Corporation's Common Stock retained by its existing
public stockholders in the event of a business combination with the other entity
in which the Corporation is the surviving corporation.
(c) A majority of the continuing Directors shall have the power and
duty to determine for the purposes of this Article SEVENTH, on the basis of
information known to them, whether (1) the other entity beneficially owns more
than Twenty Percent (20%) of the outstanding shares of the Corporation entitled
to vote in elections of Directors, (2) an other entity is an "affiliate" or
"associate" (as defined above) of another, or (3) an other entity has an
agreement, arrangement or understanding with another.
<PAGE>
(d) Nothing contained in this Article SEVENTH shall be construed to
relieve any other entity from any fiduciary obligation imposed by law.
EIGHTH: Subject to the last sentence of this Article EIGHTH, the
Corporation reserves the right to amend and repeal any provision contained in
this Certificate of Incorporation including, without limiting the generality of
the foregoing, the addition of a provision requiring a supermajority vote of
stockholders to remove Directors. The provisions set forth in Articles SIXTH,
SEVENTH and this Article EIGHTH of this Certificate of Incorporation may not be
repealed or amended in any respect, unless such action is approved by the
affirmative vote of the holders of Sixty-Six and Two- Thirds Percent (66-2/3%)
of all shares of the Corporation entitled to vote in elections of Directors,
considered for purposes of this Article EIGHTH as one class.
NINTH: No Director of this Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director; provided, however, that this Article NINTH shall not
eliminate the liability of a Director (a) for any breach of the Director's duty
of loyalty to the Corporation or its stockholders, (b) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (c) under Section 174 of the General Corporation Law of Delaware, or (d)
for any transaction from which the Director derived an improper personal
benefit.
(4) In accordance with the applicable provisions of Sections 242 and
245 of the General Corporation Law of the State of Delaware, this Restated
Certificate of
<PAGE>
Incorporation has been duly adopted by the Directors of the Corporation and by
vote of the stockholders.
IN WITNESS WHEREOF, said HEALTHSOUTH Corporation has caused its
corporate seal to be hereunto affixed and this Certificate to be signed by
Anthony J. Tanner, its Executive Vice President, and attested by William W.
Horton, its Group Vice President--Legal Services, this 13th day of March, 1997.
HEALTHSOUTH Corporation
By /s/ ANTHONY J. TANNER
----------------------------
Anthony J. Tanner
Executive Vice President
[ CORPORATE SEAL ]
ATTEST:
By /s/ WILLIAM W. HORTON
-------------------------------
William W. Horton
Assistant Secretary
EXHIBIT (10)-17
- --------------------------------------------------------------------------------
THIRD
AMENDED AND RESTATED
CREDIT AGREEMENT
by and among
HEALTHSOUTH CORPORATION,
as Borrower,
NATIONSBANK, NATIONAL ASSOCIATION,
as Agent
and
THE LENDERS PARTY HERETO FROM TIME TO TIME
April 18, 1996
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I
Definitions and Terms
<S> <C> <C>
1.1. Definitions............................................................................................... 2
1.2. Rules of Interpretation................................................................................... 30
1.3. Classes and Types of Loans................................................................................ 31
ARTICLE II
The Loans
2.1. Syndicated Loans.......................................................................................... 32
2.2. Competitive Bid Loans..................................................................................... 35
2.3. Payment of Interest....................................................................................... 40
2.4. Payment of Principal...................................................................................... 40
2.5. Non-Conforming Payments................................................................................... 41
2.6. Notes..................................................................................................... 41
2.7. Pro Rata Payments......................................................................................... 42
2.8. Reductions................................................................................................ 42
2.9. Conversions and Elections of Subsequent Interest
Periods................................................................................................... 43
2.10. Increase and Decrease in Amounts.......................................................................... 44
2.11. Unused Fees............................................................................................... 44
2.12. Deficiency Advances....................................................................................... 44
2.13. Use of Proceeds........................................................................................... 45
2.14. Extension of Stated Termination Date...................................................................... 45
ARTICLE III
Letters of Credit
3.1. Letters of Credit......................................................................................... 48
3.2. Reimbursement............................................................................................. 48
3.3. Letter of Credit Facility Fees............................................................................ 52
3.4. Administrative Fees....................................................................................... 52
ARTICLE IV
Termination of Eurodollar Rate and Yield Protection
4.1. Suspension of Loans....................................................................................... 53
4.2. Compensation.............................................................................................. 54
4.3. Taxes..................................................................................................... 55
ARTICLE V
Conditions to Making Loans and Issuing Letters of Credit
5.1. Conditions of Initial Advance............................................................................. 57
5.2. Conditions of Loans and Letters of Credit................................................................. 59
<PAGE>
<CAPTION>
ARTICLE VI
Representations and Warranties
<S> <C> <C>
6.1. Organization and Authority................................................................................ 61
6.2. Loan Documents............................................................................................ 61
6.3. Solvency.................................................................................................. 62
6.4. Subsidiaries.............................................................................................. 62
6.5. Ownership Interests....................................................................................... 62
6.6. Financial Condition....................................................................................... 62
6.7. Title to Properties....................................................................................... 63
6.8. Taxes..................................................................................................... 63
6.9. Other Agreements.......................................................................................... 63
6.10. Litigation................................................................................................ 64
6.11. Margin Stock.............................................................................................. 64
6.12. Investment Company........................................................................................ 65
6.13. Patents, Etc.............................................................................................. 65
6.14. No Untrue Statement....................................................................................... 65
6.15. No Consents, Etc.......................................................................................... 65
6.16. ERISA Requirement......................................................................................... 66
6.17. No Default................................................................................................ 66
6.18. Hazardous Materials....................................................................................... 66
6.19. Employment Matters........................................................................................ 66
6.20. RICO...................................................................................................... 67
6.21. Reimbursement from Third Party Payors..................................................................... 67
ARTICLE VII
Affirmative Covenants
7.1. Financial Statements, Reports, Etc........................................................................ 68
7.2. Maintain Properties....................................................................................... 70
7.3. Existence, Qualification, Etc............................................................................. 70
7.4. Regulations and Taxes..................................................................................... 70
7.5. Insurance................................................................................................. 70
7.6. True Books................................................................................................ 70
7.7. Right of Inspection....................................................................................... 71
7.8. Observe all Laws.......................................................................................... 71
7.9. Governmental Licenses..................................................................................... 71
7.10. Covenants Extending to Other Persons...................................................................... 71
7.11. Officer's Knowledge of Default............................................................................ 71
7.12. Suits or Other Proceedings................................................................................ 71
7.13. Notice of Discharge of Hazardous Material or
Environmental Complaint................................................................................... 72
7.14. Environmental Compliance.................................................................................. 72
7.15. Continuation of Current Business.......................................................................... 73
7.16. Management Contracts...................................................................................... 73
ARTICLE VIII
Negative Covenants
8.1. Financial Covenants....................................................................................... 74
8.2. Investments and Loans..................................................................................... 74
ii
<PAGE>
<CAPTION>
<S> <C> <C>
8.3. Indebtedness.............................................................................................. 74
8.4. Disposition of Assets..................................................................................... 75
8.5. Consolidation or Merger................................................................................... 75
8.6. Liens..................................................................................................... 75
8.7. Dividends and Distributions............................................................................... 75
8.8. Acquisitions.............................................................................................. 75
8.9. Restricted Payments....................................................................................... 75
8.10. Compliance with ERISA..................................................................................... 76
8.11. Fiscal Year............................................................................................... 76
8.12. Dissolution, etc.......................................................................................... 76
ARTICLE IX
Events of Default and Acceleration
9.1. Events of Default......................................................................................... 78
9.2. Agent to Act.............................................................................................. 81
9.3. Cumulative Rights......................................................................................... 81
9.4. No Waiver................................................................................................. 81
9.5. Allocation of Proceeds.................................................................................... 81
ARTICLE X
The Agent
10.1. Appointment.............................................................................................. 83
10.2. Attorneys-in-fact........................................................................................ 83
10.3. Limitation on Liability.................................................................................. 83
10.4. Reliance................................................................................................. 83
10.5. Notice of Default........................................................................................ 84
10.6. No Representations....................................................................................... 84
10.7. Indemnification.......................................................................................... 85
10.8. Lender................................................................................................... 85
10.9. Resignation.............................................................................................. 85
10.10. Sharing of Payments, etc................................................................................. 86
10.11. Fees..................................................................................................... 87
10.12. Independent Agreements................................................................................... 87
ARTICLE XI
Miscellaneous
11.1. Assignments and Participations........................................................................... 88
11.2. Notices.................................................................................................. 90
11.3. No Waiver................................................................................................ 91
11.4. Setoff................................................................................................... 92
11.5. Survival................................................................................................. 92
11.6. Expenses................................................................................................. 92
11.7. Amendments............................................................................................... 93
11.8. Counterparts............................................................................................. 94
11.9. Waivers by Borrower...................................................................................... 94
11.10. Termination.............................................................................................. 95
11.11. Governing Law............................................................................................ 96
iii
<PAGE>
<CAPTION>
<S> <C> <C>
11.12. Indemnification.......................................................................................... 96
11.13. Agreement Controls....................................................................................... 97
11.14. Integration.............................................................................................. 97
11.15. Successors and Assigns................................................................................... 97
11.16. Severability............................................................................................. 97
11.17. Usury Savings Clause..................................................................................... 97
EXHIBIT A Applicable Commitment Percentages...................................................................A-1
EXHIBIT B Form of Assignment and Acceptance...................................................................B-1
EXHIBIT C Notice of Appointment (or Revocation)
of Authorized Representative........................................................................C-1
EXHIBIT D Form of Borrowing Notice............................................................................D-1
EXHIBIT E Form of Competitive Bid Note........................................................................E-1
EXHIBIT F Form of Interest Rate Selection Notice..............................................................F-1
EXHIBIT G Form of Line of Credit Note.........................................................................G-1
EXHIBIT H Investments.........................................................................................H-1
EXHIBIT I Form of Revolving Note..............................................................................I-1
EXHIBIT J Form of Competitive Bid Quote Request...............................................................J-1
EXHIBIT K Form of Competitive Bid Quote.......................................................................K-1
EXHIBIT L Form of Opinion of Borrower's Counsel...............................................................L-1
EXHIBIT M Compliance Certificate..............................................................................M-1
EXHIBIT N Executive Officers..................................................................................N-1
Schedule 6.4 Subsidiaries
Schedule 6.19 Employment Matters
Schedule 8.3 Existing Subsidiary Indebtedness
</TABLE>
iv
<PAGE>
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
THIS THIRD AMENDED AND RESTATED CREDIT AGREEMENT dated as of April 18,
1996 (this "Agreement") is entered into by and among HEALTHSOUTH CORPORATION, a
Delaware corporation (the "Borrower"), the Lenders signatories hereto (the
"Lenders") and NATIONSBANK, N.A., a national banking association, as agent for
the Lenders (the "Agent").
RECITAL:
--------
Pursuant to a Credit Agreement dated as of November 20, 1992 as amended
by Amendments No. 1 and No. 2 (the "Original Agreement"), the lenders party
thereto (the "Original Lenders") agreed to make loans and cause to be issued
letters of credit all in an aggregate outstanding amount of not to exceed
$390,000,000. Pursuant to the terms of the Original Agreement all Participating
Subsidiaries and Participating Partnerships (each as defined in the Original
Agreement) guaranteed payment of all Credit Obligations (as defined in the
Original Agreement). In addition, the Borrower and certain of the Participating
Subsidiaries executed and delivered to the Agent, for the benefit of the
Lenders, Pledge Agreements conveying the property described therein as security
for the Credit Obligations. At the request of the Borrower, by Amended and
Restated Credit Agreement dated June 7, 1994 (the "First Restated Agreement")
the Borrower, the Agent and certain of the Original Lenders together with
additional lenders (the "First Restatement Lenders") amended and restated the
Original Agreement thereby increasing the amount of the credit facility to
$550,000,000, changing certain provisions of the Original Agreement and
resulting in the addition of certain Participating Subsidiaries. At the request
of the Borrower, by Second Amended and Restated Credit Agreement dated April 11,
1995, as amended by Amendment No. 1 and Amendment No. 2 (the "Second Restated
Agreement"), the Borrower, the Agent and the First Restatement Lenders together
with additional lenders (the "Second Restated Lenders") amended and restated the
First Restated Agreement thereby increasing the amount of the credit facility to
$1,000,000,000, changing certain provisions of the First Restated Agreement and
resulting in the addition of certain Participating Subsidiaries and
Participating Partnerships. The Borrower has requested that the Second Restated
Agreement be further amended and restated in its entirety in order to increase
the amount of the credit facility and to further change certain of the
provisions contained therein and to change certain of the lenders participating
therein. Accordingly, the Borrower, the Lenders and the Agent agree that the
Second Restated Agreement is hereby amended and restated in its entirety as
follows, effective as of the Closing Date:
<PAGE>
ARTICLE I
Definitions and Terms
---------------------
1.1. Definitions. For the purposes of this Agreement, in addition
to the definitions set forth above, the following terms shall have the
respective meanings set forth below:
"Absolute Rate" shall have the meaning assigned to such term
in Section 2.2(c)(ii)(D).
"Absolute Rate Auction" shall mean a solicitation of
Competitive Bid Quotes setting forth Absolute Rates pursuant
to Section 2.2.
"Absolute Rate Loans" shall mean the Competitive Bid Loans the
interest rates on which are determined on the basis of Absolute Rates
set at Absolute Rate Auctions.
"Acquisition" means the acquisition, whether with cash,
property, stock or promise to pay, of all or a portion of a Person or a
Facility or Facilities of a Person, permitted under Section 8.8;
provided such Person or Facilities is in substantially the same line of
business engaged in by Borrower or its Consolidated Entities.
"Actual/360 Basis" shall mean a method of computing interest
or other charges hereunder on the basis of an assumed year of 360 days
for actual number of days elapsed, meaning that interest or other
charges accrued for each day will be computed by multiplying the rate
applicable on that day by the unpaid principal balance (or other
relevant sum) on that day and dividing the result by 360.
"Advance" means a borrowing under the Revolving Credit
Facility or Line of Credit Facility consisting of the aggregate
principal amount of a Syndicated Loan or a Competitive Bid Loan.
"Affiliate" of any specified Person means any other Person (i)
which directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, such
specified Person; or (ii) which beneficially owns or holds 5% or more
of any class of the outstanding voting stock (or in the case of a
Person which is not a corporation, 5% or more of the equity interest)
of such specified Person; or 5% or more of any class of the outstanding
voting stock (or in the case of a Person which is not a corporation, 5%
or more of the equity interest) of which is beneficially owned or held
by such specified Person. The term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction
of the
2
<PAGE>
management and policies of a Person, whether through ownership of
voting stock, by contract or otherwise.
"Applicable Commitment Percentage" means, with respect to each
Lender, that portion of the Total Line of Credit Commitment and Total
Revolving Credit Commitment allocable to such Lender (a) with respect
to Lenders as of the Closing Date, as set forth on Exhibit A, and (b)
with respect to any Person who becomes a Lender thereafter, as
reflected in each Assignment and Acceptance to which such Lender is a
party assignee; provided that the Applicable Commitment Percentage of
each Lender shall be increased or decreased to reflect any assignments
to or by such Lender effected in accordance with Section 11.1.
"Applicable Margin" means that number of basis points per
annum set forth below determined based upon the more favorable of
either (i) the highest Rating of outstanding senior unsecured
Indebtedness of the Borrower from time to time or (ii) the ratio of
Consolidated EBITDA to Consolidated Interest Expense for the
Four-Quarter Period most recently ended as specified below:
Rating
------
Ratio of Consolidated Applicable
EBITDA to Consolidated Interest S&P or Moody's Margin
------------------------------- -------------- ------
a) Greater than 7.50 to 1.00 A- A3 25 b.p.
b) Equal to or Less than 7.50
to 1.00 but Greater than
6.50 to 1.00 BBB+ Baa1 30
c) Equal to or Less than 6.50
to 1.00 but Greater than
5.50 to 1.00 BBB Baa2 35
d) Equal to or Less than 5.50
to 1.00 but Greater than
4.50 to 1.00 BBB- Baa3 45
e) Equal to or Less than 4.50
to 1.00 but Greater than
3.50 to 1.00 BB+ Ba1 55
f) Equal to or Less than 3.50
to 1.00 but Greater than
3.00 to 1.00 BB Ba2 62.5
g) Equal to or Less than 3.00
to 1.00 but Greater than BB- Ba3
2.50 to 1.00 or Lower 75
3
<PAGE>
The Applicable Margin shall be established in the case of a Rating from
time to time based upon the Rating then in effect and, in the case of
the ratio, at the end of each fiscal quarter of the Borrower (the
"Ratio Determination Date"). Any change in the Applicable Margin
following each Ratio Determination Date shall be determined based upon
the computations set forth in the Compliance Certificate, subject to
review and approval of such computations by the Agent, and shall be
effective commencing on the date following the date such certificate is
received until the date following the date on which a new Compliance
Certificate is delivered or is required to be delivered, whichever
shall first occur; provided however, if the Borrower shall fail to
deliver any such certificate within the time period required by Section
7.1, then the Applicable Margin shall be 2% until the appropriate
certificate is so delivered. From the Closing Date to the first Ratio
Determination Date, the Applicable Margin shall be 45 basis points
unless there is an improvement in the Rating from the Rating in effect
at the Closing Date.
"Applicable Unused Fee" means that number of basis points per
annum set forth below, which shall be determined based upon the more
favorable of either (i) the highest Rating of outstanding senior
unsecured Indebtedness of the Borrower from time to time or (ii) the
ratio of Consolidated EBITDA to Consolidated Interest Expense for the
Four-Quarter Period most recently ended as specified below:
<TABLE>
<CAPTION>
Rating Applicable Unused Fee
------ ---------------------
Ratio of Consolidated Line of Revolving
EBITDA to Consolidated Interest S&P or Moody's Credit Facility Credit Facility
------------------------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
a) Greater than 7.50 to 1.00 A- A3 8 b.p. 9 b.p.
b) Equal to or Less than 7.50
to 1.00 but Greater than
6.50 to 1.00 BBB+ Baa1 9 10
c) Equal to or Less than 6.50
to 1.00 but Greater than
5.50 to 1.00 BBB Baa2 10 12.5
d) Equal to or Less than 5.50
to 1.00 but Greater than
4.50 to 1.00 BBB- Baa3 12.5 15
e) Equal to or Less than 4.50
to 1.00 but Greater than
3.50 to 1.00 BB+ Ba1 15 17.5
f) Equal to or Less than 3.50
to 1.00 but Greater than
3.00 to 1.00 BB Ba2 17.5 20
g) Equal to or Less than 3.00
to 1.00 but Greater than BB- Ba3
2.50 to 1.00 or Lower 22.5 25
</TABLE>
4
<PAGE>
The Applicable Unused Fee shall be established in the case of a Rating
from time to time based upon the Rating then in effect, and in the case
of the ratio, at the end of each fiscal quarter of the Borrower (the
"Ratio Determination Date"). Any change in the Applicable Unused Fee
following each Ratio Determination Date shall be determined based upon
the computations set forth in the Compliance Certificate, subject to
review and approval of such computations by the Agent and shall be
effective commencing on the date following the date such certificate is
received until the date following the date on which a new Compliance
Certificate is delivered or is required to be delivered, whichever
shall first occur; provided however, if the Borrower shall fail to
deliver any such certificate within the time period required by Section
7.1, then the Applicable Unused Fee shall be 2%. From the Closing Date
to the first Ratio Determination Date, the Applicable Unused Fee shall
be 15 basis points on the Revolving Credit Facility and 12.5 basis
points on the Line of Credit Facility unless there is an improvement in
the Rating from the Rating in effect at the Closing Date.
"Applications and Agreements for Letters of Credit" means,
collectively, the Applications and Agreements for Letters of Credit, or
similar documentation, executed by the Borrower from time to time and
delivered to the Issuing Bank to support the issuance of Letters of
Credit.
"Assignment and Acceptance" shall mean an Assignment and
Acceptance in the form of Exhibit B (with blanks appropriately filled
in) delivered to the Agent in connection with an assignment of a
Lender's interest under this Agreement pursuant to Section 11.1.
"Authorized Representative" means any of the Executive
Officers of the Borrower or, with respect to financial matters, the
Treasurer or the chief financial officer of the Borrower, or any other
Person expressly designated by the Board of Directors of the Borrower
(or the appropriate committee thereof) as an Authorized Representative
of the Borrower, as set forth from time to time in a certificate in the
form of Exhibit C.
"Base Rate" means the per annum rate of interest equal to the
greater of (i) the Prime Rate or (ii) the Federal Funds Effective Rate
plus one-half of one percent (1/2%). Any change in the Base Rate
resulting from a change in the Prime Rate or the Federal Funds
Effective Rate shall become effective as of 12:01 A.M. of the Business
Day on which each such change occurs. The Base Rate is a reference rate
used by the Agent in determining interest rates on certain loans and is
not intended to be the lowest rate of interest charged on any extension
of credit to any debtor.
5
<PAGE>
"Base Rate Loan" means a Loan for which the rate of interest
is determined by reference to the Base Rate.
"Base Rate Segment" means a Segment bearing interest or to
bear interest at the Base Rate.
"Base Rate Refunding Loan" means an Advance under the
Revolving Credit Facility which bears interest at a Base Rate made to
satisfy Reimbursement Obligations arising from a drawing under a Letter
of Credit.
"Board" means the Board of Governors of the Federal Reserve
System (or any successor body).
"Borrowing Notice" means the notice delivered by an Authorized
Representative in connection with an Advance under the Revolving Credit
Facility or Line of Credit Facility, in the form of Exhibit D.
"Business Day" means, (i) except in the case of a Eurodollar
Loan, any day which is not a Saturday, Sunday or a day on which banks
in the States of New York and North Carolina are authorized or
obligated by law, executive order or governmental decree to be closed
and, (ii) with respect to any Eurodollar Rate Loan, any day which is a
Business Day, as described above, and on which the relevant
international financial markets are open for the transaction of
business contemplated by this Agreement in London, England, New York,
New York and Charlotte, North Carolina.
"Capital Leases" means all leases which have been or should be
capitalized in accordance with GAAP as in effect from time to time
including Statement No. 13 of the Financial Accounting Standards Board
and any successor thereof.
"Capital Stock" of any Person means any and all shares, rights
to purchase, warrants or options (whether or not currently
exercisable), participation or other equivalents of or interest in
(however designated) the equity (including without limitation common
stock, preferred stock and partnership and joint venture interests) of
such Person (excluding any debt securities that are convertible into,
or exchangeable for, such equity).
"Change of Control" means, at any time:
(i) any "person" or "group" (each as used in Sections
13(d)(3) and 14(d)(2) of the Exchange Act), who are not as of
the Closing Date owners of one percent (1%) or more of the
Voting Stock of the Borrower, either (A) becomes the
"beneficial owner" (as defined in Rule 13d-3 of the Exchange
Act), directly or indirectly, of Voting Stock of the Borrower
(or securities convertible into or
6
<PAGE>
exchangeable for such Voting Stock) representing 15% or more
of the combined voting power of all Voting Stock of the
Borrower (on a fully diluted basis) or (B) otherwise has the
ability, directly or indirectly, to elect a majority of the
board of directors of the Borrower;
(ii) during any period of up to 24 consecutive months,
commencing on the Closing Date, individuals who at the
beginning of such period were directors of the Borrower shall
cease for any reason (other than the death, disability or
retirement of an officer of the Borrower that is serving as a
director at such time so long as another officer of the
Borrower replaces such Person as a director) to constitute a
majority of the board of directors of the Borrower; or
(iii) any Person or two or more Persons acting in concert
shall have acquired by contract or otherwise, or shall have
entered into a contract or arrangement that, upon consummation
thereof, will result in its or their acquisition, of the power
to exercise, directly or indirectly, a controlling influence
on the management or policies of the Borrower.
"Closing Date" means the date as of which this Agreement is
executed by the Borrower, the Lenders and the Agent and on which the
conditions set forth in Section 5.1 have been satisfied.
"Code" means the Internal Revenue Code of 1986, as amended,
and any regulations promulgated thereunder.
"Commitment" shall mean, as to each Lender, the obligation of
such Lender to make Loans pursuant to Section 2.1 in an aggregate
amount at any one time outstanding up to but not exceeding the amount
set opposite such Lender's name on the signature pages hereof under the
caption "Commitment" (as the same may be limited or reduced at any time
or from time to time pursuant to Section 2.8); provided that the
Commitment of each Lender shall be increased or decreased to reflect
any assignments to or by such Lender effected in accordance with
Section 11.1.
"Common Stock" means the common stock, par value $.01 per
share, of the Borrower.
"Competitive Bid Borrowing" shall have the meaning assigned to
such term in Section 2.2(b).
"Competitive Bid Loans" shall mean the Loans provided for by
Section 2.2.
7
<PAGE>
"Competitive Bid Notes" shall mean the promissory notes
provided for by Section 2.6(c) substantially in the form of Exhibit E
and all promissory notes delivered in substitution or exchange
therefor, in each case as the same shall be modified and supplemented
and in effect from time to time.
"Competitive Bid Quote" shall mean an offer in accordance with
Section 2.2(c) by a Lender to make a Competitive Bid Loan with one
single specified interest rate.
"Competitive Bid Quote Request" shall have the meaning
assigned to such term in Section 2.2(b).
"Compliance Certificate" shall have the meaning attributed to
that term in Section 7.1(c).
"Consistent Basis" in reference to the application of GAAP
means the accounting principles observed in the period referred to are
comparable in all material respects to those applied in the preparation
of the audited financial statements of the Borrower referred to in
Section 6.6(a).
"Consolidated Amortization Expense" of the Borrower for any
period means the amortization expense of the Borrower and its
Consolidated Entities for such period (to the extent included in the
computation of Consolidated Net Income), determined on a consolidated
basis in accordance with GAAP.
"Consolidated Depreciation Expense" of the Borrower means the
depreciation expense of the Borrower and its Consolidated Entities for
such period (to the extent included in the computation of Consolidated
Net Income of the Borrower), determined on a consolidated basis in
accordance with GAAP.
"Consolidated EBITDA" means, with respect to the Borrower and
its Consolidated Entities for any Four-Quarter Period ending on the
date of computation thereof, the sum of, without duplication, (i)
Consolidated Net Income, (ii) Consolidated Interest Expense, (iii)
Consolidated Income Tax Expense, (iv) Consolidated Amortization
Expense, (v) Consolidated Depreciation Expense and (vi) the minority
interest of any Person or Persons in Consolidated Entities, all
determined on a consolidated basis in accordance with GAAP applied on a
Consistent Basis.
"Consolidated Entity" shall mean any Person whose financial
statements are appropriately consolidated with the Borrower's financial
statements under GAAP.
"Consolidated Indebtedness" means all Indebtedness of the
Borrower and its Consolidated Entities, all determined on a
consolidated basis.
8
<PAGE>
"Consolidated Interest Expense" means, with respect to any
Four-Quarter Period ending on the date of computation thereof, the
gross interest expense of the Borrower and its Consolidated Entities,
including without limitation (i) the current amortized portion of debt
discounts to the extent included in gross interest expense, (ii) the
current amortized portion of all fees (including fees payable in
respect of any Rate Hedging Obligation) payable in connection with the
incurrence of Indebtedness to the extent included in gross interest
expense, (iii) the portion of any payments made in connection with
Capital Leases allocable to interest expense, and (iv) lease payments,
other than the Headquarters Obligations, made pursuant to the
Headquarters Lease, all determined on a consolidated basis in
accordance with GAAP applied on a Consistent Basis.
"Consolidated Net Income" of the Borrower for any period means
the net income (or loss) of the Borrower and its Consolidated Entities
for such period determined on a consolidated basis in accordance with
GAAP, without giving effect to dividends on any series of preferred
stock of any Consolidated Entity, whether or not in cash, to the extent
such consolidated net income was reduced thereby; provided that there
shall be excluded from such net income (for all purposes, other than
compliance with Section 8.1(a), to the extent otherwise included
therein), without duplication, (i) the net income of any Person (other
than a Consolidated Entity) to the extent that any such income has not
actually been received by the Borrower or a Consolidated Entity in the
form of dividends or similar distributions during such period, but
including, in any event, net income of any Person who becomes a
Consolidated Entity whose Acquisition is accounted for on a "pooling of
interests" basis; (ii) except to the extent includable in the
consolidated net income of the Borrower or a Consolidated Entity
pursuant to the foregoing clause (i), the net income of any Person that
accrued prior to the date that (a) such Person becomes a Consolidated
Entity or is merged into or consolidated with a Consolidated Entity or
(b) the assets of such Person are acquired by the Borrower or a
Consolidated Entity; (iii) the net income of any Consolidated Entity to
the extent that the declaration or payment of dividends or similar
distributions by such Consolidated Entity of that income is not
permitted by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Consolidated Entity during such period;
(iv) any gain (or loss), together with any related provisions for taxes
on any such gain, realized during such period by the Borrower or its
Consolidated Entities upon (a) the acquisition of any securities, or
the extinguishment of any Indebtedness, of the Borrower or its
Consolidated Entities or (b) any asset sale by the referent person or
any of its Subsidiaries; (v) any extraordinary gain (or
9
<PAGE>
extraordinary loss), together with any related provision for taxes or
tax benefit resulting from any such extraordinary gain or loss,
realized by the Borrower or its Consolidated Entities during such
period; and (vi) in the case of a successor to any Person by
consolidation, merger or transfer of its assets, any earnings of the
successor prior to such merger, consolidation or transfer of assets;
provided, further, however, that there shall be added back to net
income non-recurring, non-cash expenses and cash transaction costs
relating to professional fees arising in conjunction with an
Acquisition provided such expenses do not exceed 10% of the Cost of
Acquisition.
"Consolidated Net Worth" of the Borrower as of any date means
the Consolidated Stockholders' Equity (including any preferred stock
that is classified as equity under GAAP, other than Disqualified Stock)
of the Borrower and its Consolidated Entities (excluding any equity
adjustment for foreign currency translation for any period subsequent
to the Closing Date) on a consolidated basis at such date, as
determined in accordance with GAAP, less all write-ups subsequent to
the Closing Date in the book value of any asset owned by the Borrower
or any of its Consolidated Entities.
"Consolidated Stockholders' Equity" shall mean at any time as
at which the amount thereof is to be determined, the sum of the
following amounts in respect of the Borrower and the Consolidated
Entities: (i) the par or stated value of all Capital Stock of the
Borrower, (ii) retained earnings, (iii) additional paid in capital,
(iv) capital surplus and (v) earned surplus minus treasury stock.
"Consolidated Tangible Net Worth" means, as of any date on
which the amount thereof is to be determined, Consolidated
Stockholders' Equity minus (without duplication of deductions in
respect of items already deducted in arriving at surplus and retained
earnings) (i) all reserves (other than contingency reserves not
allocated to any particular purpose), including without limitation
reserves for depreciation, depletion, amortization, obsolescence,
deferred income taxes, insurance and inventory valuation and (ii) the
net book value of all assets which would be treated as intangible
assets, such as (without limitation) goodwill (whether representing the
excess of cost over book value of assets acquired or otherwise),
capitalized expenses, unamortized debt discount and expense,
consignment inventory rights, patents, trademarks, trade names,
copyrights, franchises and licenses, all as determined on a
consolidated basis in accordance with GAAP applied on a Consistent
Basis.
"Consolidated Total Assets" means, as of any date on which the
amount thereof is to be determined, the net book value of all assets of
the Borrower and its Consolidated
10
<PAGE>
Entities as determined on a consolidated basis in accordance with GAAP
applied on a Consistent Basis.
"Consolidated Total Capital" means, as of any date on which
the amount thereof is to be determined, the sum of Consolidated
Indebtedness plus Consolidated Shareholders' Equity of the Borrower and
its Consolidated Entities.
"Contract Provider" means any Person who provides professional
health care services under or pursuant to any contract with the
Borrower or any Subsidiary.
"Controlled Partnership" shall mean a general partnership of
which the Borrower or a Subsidiary is a general partner (but not
including Alabama World Football), or a limited partnership whose
general partners include the Borrower or a Subsidiary (but not
including Vanderbilt), or a limited liability company whose members
include the Borrower or a Subsidiary or another Controlled Partnership,
which partnership, whether general or limited, or limited liability
company has assets with a value in excess of $2,000.00, and with
respect to which partnership or limited liability company the Borrower
or a Subsidiary is entitled to receive not less than 50% of any
distributions of cash made to the partners or members thereof, other
than any preferred cash distribution arrangement in existence at the
Closing Date or approved by the Required Lenders in writing, or which
is otherwise a Consolidated Entity.
"Cost of Acquisition" means, in respect of any Acquisition,
the sum of (i) the amount of cash paid by the Borrower and its
Consolidated Entities in connection with such Acquisition, (ii) the
Fair Market Value of all Capital Stock or other ownership interests of
the Borrower or any Consolidated Entity issued or given in connection
with such Acquisition, (iii) the amount (determined by using the face
amount or the amount payable at maturity, whichever is greater) of all
Indebtedness incurred, assumed or acquired in connection with such
Acquisition, (iv) all additional purchase price amounts in the form of
earnouts and other contingent obligations that should be recorded on
the financial statements of the Borrower and its Consolidated Entities
in connection with Generally Accepted Accounting Principles, (v) all
amounts paid in respect of covenants not to compete, consulting
agreements and other affiliated contracts in connection with such
Acquisition and (vi) the aggregate fair market value of all other
consideration given by the Borrower and its Consolidated Entities in
connection with such Acquisition.
11
<PAGE>
"Default" means any event or condition which, with the giving
or receipt of notice or lapse of time or both, would constitute an
Event of Default.
"Default Rate" means (i) with respect to each Eurodollar Rate
Loan and Eurodollar Rate Segment, until the end of the Interest Period
applicable thereto, a rate of two percent (2%) plus the Eurodollar Rate
applicable to such Loan or Segment, and thereafter at a rate of
interest per annum which shall be two percent (2%) plus the Base Rate,
(ii) with respect to Base Rate Loans and Base Rate Segments, at a rate
of interest per annum which shall be two percent (2%) plus the Base
Rate and (iii) in any case, the maximum rate permitted by applicable
law, if lower.
"Disqualified Stock" means any Capital Stock that, by its
terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event,
matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder
thereof, in whole or in part, on or prior to the Revolving Credit
Termination Date.
"Dollars" and the symbol "$" mean dollars constituting legal
tender for the payment of public and private debts in the United States
of America.
"Employee Benefit Plan" means any employee benefit plan within
the meaning of Section 3(3) of ERISA which (i) is maintained for
employees of the Borrower or any of its ERISA Affiliates or is assumed
by the Borrower or any of its ERISA Affiliates in connection with any
Acquisition or (ii) has at any time been maintained for the employees
of the Borrower or any current or former ERISA Affiliate.
"Environmental Laws" means, collectively, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended, the Superfund Amendments and Reauthorization Act of 1986, the
Resource Conservation and Recovery Act, as amended, the Toxic
Substances Control Act, as amended, the Clean Air Act, as amended, the
Clean Water Act, as amended, any other "Superfund" or "Superlien" law
or any other federal, or applicable state or local statute, law,
ordinance, code, rule, regulation, order or decree regulating, relating
to, or imposing liability or standards of conduct concerning, any
Hazardous Material.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and any successor statute and all rules
and regulations promulgated thereunder.
"ERISA Affiliate", as applied to the Borrower, means any
Person or trade or business which is a member of a group which
12
<PAGE>
is under common control with the Borrower, who together with the
Borrower, is treated as a single employer within the meaning of Section
414(b) and (c) of the Code.
"Eurodollar Auction" shall mean a solicitation of Competitive
Bid Quotes setting forth Eurodollar Margins based on the Interbank
Offered Rate pursuant to Section 2.2.
"Eurodollar Margin" shall have the meaning assigned to such
term in Section 2.2(c)(ii)(C).
"Eurodollar Market Loans" shall mean Competitive Bid Loans
interest rates on which are determined on the basis of Interbank
Offered Rate pursuant to a Eurodollar Auction.
"Eurodollar Rate" means the interest rate per annum calculated
according to the following formula:
Eurodollar = Interbank Offered Rate + Applicable
--------------------------------
Rate 1- Eurodollar Reserve Percentage Margin
"Eurodollar Rate Loan" means a Loan or Segment of a Loan for
which the rate of interest is determined by reference to the Eurodollar
Rate.
"Eurodollar Rate Segment" means a Segment bearing interest or
to bear interest at the Eurodollar Rate.
"Eurodollar Reserve Percentage" means, for any day, that
percentage (expressed as a decimal) which is in effect from time to
time under Regulation D or any successor regulation, as the maximum
reserve requirement (including any basic, supplemental, emergency,
special, or marginal reserves) applicable with respect to Eurocurrency
liabilities as that term is defined in Regulation D (or against any
other category of liabilities that includes deposits by reference to
which the interest rate on Eurodollar Rate Loans is determined),
whether or not the Agent or any Lender has any Eurocurrency liabilities
subject to such requirements, without benefits of credits or proration,
exceptions or offsets that may be available from time to time to the
Agent or any Lender. The Eurodollar Rate shall be adjusted
automatically on and as of the effective date of any change in the
Eurodollar Reserve Percentage.
"Event of Default" means any of the occurrences set forth as
such in Section 9.1.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the regulations promulgated thereunder.
"Executive Officer" means any Person who from time to time
holds the offices with Borrower listed on Exhibit N.
13
<PAGE>
"Facility" shall mean an inpatient or outpatient
rehabilitation facility, certified outpatient rehabilitation facility,
skilled nursing facility, specialty medical center, specialty
orthopedic hospital or acute care hospital, subacute inpatient
facility, transitional living center, medical office building,
outpatient surgery center or outpatient diagnostic center with all
buildings and improvements associated therewith, that is owned or
leased, in whole or part, by the Borrower or a Subsidiary or any
partnership controlled directly or indirectly by the Borrower.
"Facility Termination Date" means the date on which both the
Revolving Credit Termination Date and the Line of Credit Termination
Date shall have occurred, no Letters of Credit shall remain outstanding
and the Borrower shall have fully, finally and irrevocably paid and
satisfied all Obligations.
"Fair Market Value" shall mean, with respect to any capital
stock or other ownership interests issued or given by the Borrower or
any Consolidated Entity in connection with an Acquisition, (i) in the
case of capital stock that is Common Stock and such Common Stock is
then designated as a national market system security by the National
Association of Securities Dealers, Inc. ("NASD") or is listed on a
national securities exchange, the average of the last reported bid and
ask quotations or prices reported thereon for Common Stock or such
other value as may be ascribed to the Common Stock in a definitive
merger or acquisition agreement provided such value is determined
according to customary methods for like transactions and is approved
(to the extent required by Borrower's charter or bylaws) by the
Borrower's Board of Directors or (ii) in the case of capital stock that
is not Common Stock or in the event that Common Stock is not so
designated by NASD or listed on such national exchange, or in the case
of any other ownership interests, the determination of the fair market
value thereof in good faith by a majority of disinterested members of
the board of directors of the Borrower or such Consolidated Entity, in
each case effective as of the close of business on the Business Day
immediately preceding the closing date of such Acquisition.
"Federal Funds Effective Rate" means, for any day, the rate
per annum (rounded upward to the nearest 1/100th of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions
with members of the Federal Reserve System arranged by Federal funds
brokers on such day, as published by the Federal Reserve Bank of New
York on the Business Day next succeeding such day, provided that (a) if
such day is not a Business Day, the Federal Funds Effective Rate for
such day shall be such rate on such transactions on the next preceding
Business Day, and (b) if no such rate is so published on such next
succeeding Business Day, the Federal Funds Effective Rate for such day
shall be the average rate
14
<PAGE>
quoted to the Agent on such day on such transaction as determined by
the Agent.
"Fiscal Year" means the twelve month fiscal period of the
Borrower commencing on January 1 of each calendar year and ending on
December 31 of each calendar year.
"Fixed Rate" shall mean the Absolute Rate or the Interbank
Offered Rate plus the Applicable Margin or the Eurodollar Margin, as
the case may be.
"Fixed Rate Loan" means a Loan for which the rate of interest
is determined by reference to the Fixed Rate.
"Fixed Rate Segment" shall mean a Segment to which a Fixed
Rate is (or is proposed to be) applicable.
"Four-Quarter Period" means a period of four full consecutive
fiscal quarters of the Borrower and its Subsidiaries, taken together as
one accounting period; provided, however, for purposes of this
Agreement, for periods prior to December 31, 1996 the results of
operations shall be determined for the Four-Quarter Period ending on
the last day of (i) the first quarter of Fiscal Year 1996 by
multiplying the results of operations for the first quarter by four
(4), (ii) the second quarter of Fiscal Year 1996 by multiplying the
results of operations for the first and second quarters by two (2), and
(iii) for the third quarter of Fiscal Year 1996 by multiplying the
results of operations of the sum of the first, second and third
quarters by four-thirds (4/3's).
"GAAP" or "Generally Accepted Accounting Principles" means
generally accepted accounting principles, being those principles of
accounting set forth in pronouncements of the Financial Accounting
Standards Board or the American Institute of Certified Public
Accountants or which have other substantial authoritative support and
are applicable in the circumstances as of the date of a report.
"Governmental Authority" shall mean any Federal, state,
municipal, national or other governmental department, commission,
board, bureau, court, agency or instrumentality or political
subdivision thereof or any entity or officer exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to any government or any court, in each case whether
associated with a state of the United States, the United States, or a
foreign entity or government.
"Guaranteed Obligations" of any person shall mean all
guaranties (including guaranties of guaranties and guaranties of
dividends and other monetary obligations), endorsements, assumptions
and other contingent obligations with respect to,
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or to purchase or to otherwise pay or acquire, Indebtedness of others;
provided, however, that such term shall not include obligations under
leases and other contracts initially incurred directly by another
Person and subsequently directly assumed by the Person in question, but
such term shall include obligations that, if the same had been
initially incurred directly by the Person in question, would have
constituted Guaranteed Obligations.
"Hazardous Material" means and includes any hazardous, toxic
or dangerous waste, substance or material, the generation, handling,
storage, disposal, treatment or emission of which is subject to any
Environmental Law.
"HCFA" means the United States Health Care Financing
Administration and any successor thereto.
"Headquarters Lease" means the Lease Agreement between
HEALTHSOUTH Holdings, Inc., as Lessee, and First Security Bank of Utah,
N.A., as Lessor, dated as of November 16, 1995 providing for the lease
to HEALTHSOUTH Holdings, Inc. of the land and improvements thereon
located on the property described therein, as such Lease Agreement may
be amended, modified or supplemented from time to time.
"Headquarters Obligations" means all of the Holder Advances
and Loans, as each such term is defined in the Participation Agreement.
"Indebtedness" of any Person at any date means, without
duplication: (i) all indebtedness of such Person for borrowed money
(whether or not the recourse of the lender is to the whole of the
assets of such Person or only to a portion thereof); (ii) all
obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments; (iii) all obligations (contingent or
otherwise) of such Person in respect of letters of credit or other
similar instruments (or reimbursement obligations with respect
thereto); (iv) all obligations of such Person with respect to Rate
Hedging Obligations (other than those that fix the interest rate on
variable rate indebtedness otherwise permitted hereunder or that
protect the Borrower and or its Consolidated Entities against changes
in foreign exchange rates); (v) obligations of such Person to pay the
deferred and unpaid purchase price of property or services, except
trade payables and accrued expenses incurred in the ordinary course of
business; (vi) all Capitalized Lease Obligations of such Person; (vii)
all indebtedness of others secured by a Lien on any assets of such
Person, whether or not such indebtedness is assumed by such Person;
(viii) all Guaranteed Obligations; (ix) the Headquarters Obligations;
and (x) all obligations of a like nature to those described in clauses
(i) through (ix) above of a partnership of which such Person is a
general partner. The
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amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as
described above, the maximum liability of such Person for any such
contingent obligations at such date and, in the case of clause (vii),
the amount of the Indebtedness secured.
"Interbank Offered Rate" means, with respect to any Eurodollar
Rate Loan or Eurodollar Rate Segment or Eurodollar Market Loans for the
Interest Period applicable thereto, the average (rounded upward to the
nearest one-sixteenth (1/16) of one percent) per annum rate of interest
determined by the Agent (each such determination to be conclusive and
binding absent manifest error) as of two Business Days prior to the
first day of such Interest Period, as the effective rate at which
deposits in immediately available funds in Dollars are being, have
been, or would be offered or quoted by the Agent to major banks in the
applicable interbank market for Eurodollar deposits at any time during
the Business Day which is the second Business Day immediately preceding
the first day of such Interest Period, for a term comparable to such
Interest Period and in the amount of such Eurodollar Rate Loan or
Eurodollar Rate Segment or Eurodollar Market Loan. If no such offers or
quotes are generally available for such amount, then the Agent shall be
entitled to determine the Eurodollar Rate by estimating in its
reasonable judgment the per annum rate (as described above) that would
be applicable if such quote or offers were generally available.
"Interest Period" shall mean:
(i) with respect to any Eurodollar Rate Loan, each period
commencing on the date such Eurodollar Rate Loan is made or converted
from a Loan of another Type or the last day of the next preceding
Interest Period for such Loan and ending on the numerically
corresponding day in the first, second, third or sixth calendar month
thereafter, as the Borrower may select as provided in Section 2.3,
except that each Interest Period that commences on the last Business
Day of a calendar month (or on any day for which there is no
numerically corresponding day in the appropriate subsequent calendar
month) shall end on the last Business Day of the appropriate subsequent
calendar month;
(ii) with respect to any Absolute Rate Loan, the period
commencing on the date such Absolute Rate Loan is made and ending on
any Business Day up to 180 days thereafter, as the Borrower may select
as provided in Section 2.2(b); and
(iii) with respect to any Eurodollar Market Loan, the period
commencing on the date such Eurodollar Market Loan is made and ending
on the numerically corresponding day in the first, second, third or
sixth calendar month thereafter, as
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the Borrower may select as provided in Section 2.2(b), except that each
Interest Period that commences on the last Business Day of a calendar
month (or any day for which there is no numerically corresponding day
in the appropriate subsequent calendar month) shall end on the last
Business Day of the appropriate subsequent calendar month.
Notwithstanding the foregoing: (i) if any Interest Period for any
Competitive Bid Loan would otherwise end after the Revolving Credit
Termination Date, such Interest Period shall end on the Revolving
Credit Termination Date; (ii) if any Interest Period for any Eurodollar
Rate Loan would otherwise end after the Revolving Credit Termination
Date or Line of Credit Termination Date, such Interest Period shall end
on the Revolving Credit Termination Date or Line of Credit Termination
Date, respectively; (iii) each Interest Period that would otherwise end
on a day which is not a Business Day shall end on the next succeeding
Business Day (or, in the case of an Interest Period for a Eurodollar
Rate Loan or a Eurodollar Market Loan, if such next succeeding Business
Day falls in the next succeeding calendar month, on the next preceding
Business Day); and (iv) notwithstanding clauses (i), (ii) and (iii)
above, no Interest Period for any Loan (other than an Absolute Rate
Loan) shall have a duration of less than one month (in the case of a
Eurodollar Rate Loan or a Eurodollar Market Loan) and, if the Interest
Period for any Eurodollar Rate Loan or Eurodollar Market Loan would
otherwise be a shorter period, such Loan shall not be available
hereunder for such period.
"Interest Rate Selection Notice" means the written notice
delivered by an Authorized Representative in connection with the
election of a subsequent Interest Period for any Eurodollar Rate Loan
or Eurodollar Rate Segment or the conversion of any Eurodollar Rate
Loan or Eurodollar Rate Segment into a Base Rate Loan or Base Rate
Segment or the conversion of any Base Rate Loan or Base Rate Segment
into a Eurodollar Rate Loan or Eurodollar Rate Segment, in the form of
Exhibit F.
"Issuing Bank" means NationsBank as issuer of Letters of
Credit under Article III.
"LC Account Agreement" means the LC Account Agreement dated as
of the date hereof between the Borrower and the Issuing Bank, as
amended, modified or supplemented from time to time.
"Lending Office" means, as to each Lender and for each Type of
Loan, the Lending Office of such Lender (or an Affiliate of such
Lender) designated for such Type of Loan on the signature pages hereof
or in an Assignment and Acceptance or such other office of such Lender
(or of an affiliate of
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such Lender) as such Lender may from time to time specify to an
Authorized Representative and the Agent as the office by which its
Loans are to be made and maintained.
"Letter of Credit" means a standby letter of credit issued by
the Issuing Bank pursuant to Article III for the account of the
Borrower in favor of a Person advancing credit or securing an
obligation on behalf of the Borrower.
"Letter of Credit Commitment" means, with respect to each
Lender, the obligation of such Lender to acquire Participations in
respect of Letters of Credit and Reimbursement Obligations up to an
aggregate amount at any one time outstanding equal to such Lender's
Applicable Commitment Percentage of the Total Letter of Credit
Commitment as the same may be increased or decreased from time to time
pursuant to this Agreement.
"Letter of Credit Facility" means the facility described in
Article III providing for the issuance by the Issuing Bank for the
account of the Borrower of Letters of Credit in an aggregate stated
amount at any time outstanding not exceeding, together with all
Reimbursement Obligations, the Total Letter of Credit Commitment.
"Letter of Credit Outstandings" means, as of any date of
determination, the aggregate amount remaining undrawn under all Letters
of Credit plus Reimbursement Obligations then outstanding.
"Lien" means any interest in property securing any obligation
owed to, or a claim by, a Person other than the owner of the property,
whether such interest is based on the common law, statute or contract,
and including but not limited to the lien or security interest arising
from a mortgage, encumbrance, pledge, security agreement, conditional
sale or trust receipt or a lease, consignment or bailment for security
purposes. For the purposes of this Agreement, the Borrower and any
Subsidiary shall be deemed to be the owner of any property which it has
acquired or holds subject to a conditional sale agreement, financing
lease, or other arrangement pursuant to which title to the property has
been retained by or vested in some other Person for security purposes.
"Line of Credit Commitment" means, with respect to each
Lender, the obligation of such Lender to make Line of Credit Loans to
the Borrower in a principal amount equal to such Lender's Applicable
Commitment Percentage of the Total Line of
Credit Commitment.
"Line of Credit Facility" means the facility described in
Section 2.1(b) providing for Line of Credit Loans to the
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Borrower by the Lenders in the original principal amount of the Total Line of
Credit Commitment.
"Line of Credit Loan" means a loan made pursuant to the Line
of Credit Facility in accordance with Section 2.1(b).
"Line of Credit Notes" means, collectively, the promissory
notes of the Borrower evidencing Line of Credit Loans executed and
delivered to the Lenders as provided in Section 2.6(b) substantially in
the form of Exhibit G, with appropriate insertions as to amounts, dates
and names of Lenders.
"Line of Credit Outstandings" means, as of any date of
determination, the aggregate principal amount of Line of Credit Loans
then outstanding and all interest accrued thereon.
"Line of Credit Termination Date" means (i) the Stated
Termination Date or (ii) such earlier date of termination of Lenders'
obligations pursuant to Section 9.1 upon the occurrence of an Event of
Default, or (iii) such date as the Borrower may voluntarily and
permanently terminate the Line of Credit Facility by payment in full of
all Line of Credit Outstandings.
"Loan" or "Loans" means any Syndicated Loans, Competitive Bid
Loans, Reimbursement Obligations and Letter of Credit Outstandings and
all extensions and renewals thereof.
"Loan Documents" means this Agreement, the Notes, the LC
Account Agreement, the Applications and Agreements for Letter of
Credit, and all other instruments and documents heretofore or hereafter
executed or delivered to or in favor of any Lender or the Agent in
connection with the Loans made, Letters of Credit issued and
transactions contemplated under this Agreement, as the same may be
amended, supplemented or replaced from time to time.
"Material Adverse Effect" means a material adverse effect on
(i) the business, properties, operations or condition, financial or
otherwise, of the Borrower and its Consolidated Entities, taken as a
whole, (ii) the ability of the Borrower to pay or perform its
obligations, liabilities and indebtedness under the Loan Documents as
such payment or performance becomes due in accordance with the terms
thereof, or (iii) the rights, powers and remedies of the Agent or any
Lender under any Loan Document or the validity, legality or
enforceability thereof (including for purposes of clauses (ii) and
(iii) the imposition of burdensome conditions thereon).
"Material Group" shall mean, at any time, any group, whether
one or more, or combination of Consolidated Entities
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(a) whose assets, in the aggregate, constitute 5% or more of the assets
of the Borrower and the Consolidated Entities on a consolidated basis
or (b) whose net revenues, in the aggregate, constitute 5% or more of
the net revenues of the Borrower and the Consolidated Entities on a
consolidated basis.
"Medicaid Certification" means certification by HCFA or a
state agency or entity under contract with HCFA that a health care
operation is in compliance with all the conditions of participation set
forth in the Medicaid Regulations.
"Medicaid Provider Agreement" means an agreement entered into
between a state agency or other entity administering the Medicaid
program and a health care operation under which the health care
operation agrees to provide services for Medicaid patients in
accordance with the terms of the agreement and Medicaid Regulations.
"Medicaid Regulations" means, collectively, (i) all federal
statutes (whether set forth in Title XIX of the Social Security Act or
elsewhere) affecting the medical assistance program established by
Title XIX of the Social Security Act and any statutes succeeding
thereto; (ii) all applicable provisions of all federal rules,
regulations, manuals and orders of all Governmental Authorities
promulgated pursuant to or in connection with the statutes described in
clause (i) above and all federal administrative, reimbursement and
other guidelines of all Governmental Authorities having the force of
law promulgated pursuant to or in connection with the statutes
described in clause (i) above; (iii) all state statutes and plans for
medical assistance enacted in connection with the statutes and
provisions described in clauses (i) and (ii) above; and (iv) all
applicable provisions of all rules, regulations, manuals and orders of
all Governmental Authorities promulgated pursuant to or in connection
with the statutes described in clause (iii) above and all state
administrative, reimbursement and other guidelines of all Governmental
Authorities having the force of law promulgated pursuant to or in
connection with the statutes described in clause (ii) above, in each
case as may be amended, supplemented or otherwise modified from time to
time.
"Medicare Certification" means certification by HCFA or a
state agency or entity under contract with HCFA that a health care
operation is in compliance with all the conditions of participation set
forth in the Medicare Regulations.
"Medicare Provider Agreement" means an agreement entered into
between a state agency or other entity administering the Medicare
program and a health care operation under which the health care
operation agrees to provide services for Medicare
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patients in accordance with the terms of the agreement and Medicare
Regulations.
"Medicare Regulations" means, collectively, all federal
statutes (whether set forth in Title XVIII of the Social Security Act
or elsewhere) affecting the health insurance program for the aged and
disabled established by Title XVIII of the Social Security Act and any
statutes succeeding thereto; together with all applicable provisions of
all rules, regulations, manuals and orders and administrative,
reimbursement and other guidelines having the force of law of all
Governmental Authorities (including without limitation, Health and
Human Services ("HHS"), HCFA, the Office of the Inspector General for
HHS, or any Person succeeding to the functions of any of the foregoing)
promulgated pursuant to or in connection with any of the foregoing
having the force of law, as each may be amended, supplemented or
otherwise modified from time to time.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA to which the Borrower or any ERISA
Affiliate is making, or is accruing an obligation to make,
contributions or has made, or been obligated to make, contributions
within the preceding six (6) Fiscal Years.
"NationsBank" means NationsBank, National Association.
"Notes" means, collectively, the Line of Credit Notes and the
Revolving Notes and the Competitive Bid Notes.
"Obligations" means the obligations, liabilities and
Indebtedness of the Borrower with respect to (i) the principal and
interest on the Loans as evidenced by the Notes, (ii) the Reimbursement
Obligations and otherwise in respect of the Letters of Credit, and
(iii) the payment and performance of all other obligations, liabilities
and Indebtedness of the Borrower to the Lenders or the Agent hereunder,
under any one or more of the other Loan Documents or with respect to
the Loans.
"Participation" means, with respect to any Lender (other than
the Issuing Bank) and a Letter of Credit, the extension of credit
represented by the participation of such Lender hereunder in the
liability of the Issuing Bank in respect of a Letter of Credit issued
by the Issuing Bank in accordance with the terms hereof.
"Participation Agreement" means the Participation Agreement
dated November 16, 1995 among HEALTHSOUTH Corporation, as Construction
Agent, HEALTHSOUTH Holdings, Inc., as Lessee, First Security Bank of
Utah, N.A., as
22
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Trustee, the Holders identified therein, the Lenders identified
therein, and NationsBank, National Association, as Agent.
"PBGC" means the Pension Benefit Guaranty Corporation and any
successor thereto.
"Pension Plan" means any employee pension benefit plan within the
meaning of Section 3(2) of ERISA, other than a Multiemployer Plan,
which is subject to the provisions of Title IV of ERISA or Section 412
of the Code and which (i) is maintained for employees of the Borrower
or any of its ERISA Affiliates or is assumed by the Borrower or any of
its ERISA Affiliates in connection with any Acquisition or (ii) has at
any time been maintained for the employees of the Borrower or any
current or former ERISA Affiliate.
"Permitted Encumbrances" shall mean:
(1) liens for taxes, assessments and other governmental
charges that are not delinquent or that are being contested in
good faith by appropriate proceedings duly pursued;
(2) mechanics', materialmen's, contractor's, landlord's or
other similar liens arising in the ordinary course of
business, securing obligations that are not delinquent or that
are being contested in good faith by appropriate proceedings
duly pursued;
(3) restrictions, exceptions, reservations, easements,
conditions, limitations and other matters of record other than
Liens that do not materially adversely affect the value or
utility of the affected property;
(4) Liens on assets securing Indebtedness the proceeds of
which are used to acquire such assets;
(5) Liens and other matters approved in writing by the
Required Lenders; and
(6) Liens in favor of landlords, the amount secured by which
landlords' Liens, in the aggregate, would not materially
adversely affect the Borrower or a Material Group.
"Permitted Investments" shall mean:
(1) direct obligations of, or obligations the payment of which
is guaranteed by, the United States of America or an interest
in any trust or fund that invests solely in such obligations
or repurchase agreements, properly secured, with respect to
such obligations.
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<PAGE>
(2) direct obligations of agencies or instrumentalities of the
United States of America having a rating of A or higher by S&P
or A2 or higher by Moody's;
(3) a certificate of deposit issued by, or other
interest-bearing deposits with, a bank having its principal
place of business in the United States of America and having
equity capital of not less than $250,000,000;
(4) a certificate of deposit issued by, or other
interest-bearing deposits with, any other bank organized under
the laws of the United States of America or any state thereof,
provided that such deposit is either (i) insured by the
Federal Deposit Insurance Corporation or (ii) properly secured
by such bank by pledging direct obligations of the United
States of America having a market value not less than the face
amount of such deposits;
(5) the capital stock of and partnership interests in, and
loans made by the Borrower to, Controlled Partnerships and
Subsidiaries;
(6) prime commercial paper maturing within 270 days of the
acquisition thereof and, at the time of acquisition, having a
rating of A-1 or higher by S&P, or P-1 or higher by Moody's;
(7) eligible banker's acceptances, repurchase agreements and
tax-exempt municipal bonds having a maturity of less than one
year, in each case having a rating, or that is the full
recourse obligation of a person whose senior debt is rated, A
or higher by S&P or A2 or higher by Moody's;
(8) loans made by the Borrower or a Consolidated Entity in an
aggregate amount of $2,000,000 or less to employees of the
Borrower or of a Consolidated Entity;
(9) loans made by the Borrower or a Controlled Partnership in
an aggregate amount of $1,000,000 or less to limited partners
(or potential limited partners) of Controlled Partnerships for
the purpose of enabling such limited partners to acquire
limited partnership interests in Controlled Partnerships, to
operate their practices or to restructure partnership
interests;
(10) loans in an aggregate amount of up to $20,000,000 made by
the Borrower to the HEALTHSOUTH Employee Stock Benefit Plan;
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<PAGE>
(11) scholarship loans made by the Borrower in an aggregate
amount not exceeding $1,000,000 to individuals who meet
certain eligibility requirements as established by the
Borrower from time to time;
(12) up to 100% of the outstanding shares of stock of
Caretenders Healthcorp (formerly known as Senior Services,
Inc.) provided that aggregate costs incurred to purchase such
shares shall not exceed $12,000,000;
(13) other investments of less than $5,000,000 in the
aggregate expressly approved in writing by the Agent and
investments of $5,000,000 or greater expressly approved in
writing by the Required Lenders;
(14) any other investment having a rating of A or higher
or A-1 or higher by S&P or A2 or higher or P-1 or higher
by Moody's;
(15) loans to health care practitioners and other persons not
to exceed in the aggregate $5,000,000;
(16) investments in Acacia Venture Partners, Wellmark,
HEALTHSMART, MedPartners and Austin Medical Office Building
which in the aggregate do not exceed $5,000,000; and
(17) additional investments existing on the Closing Date
and described in Exhibit H.
"Person" means an individual, partnership, corporation,
limited liability company, trust, unincorporated organization,
association, joint venture or a government or agency or political
subdivision thereof.
"Prime Rate" means the rate of interest per annum announced
publicly by the Agent as its prime rate from time to time.
"Principal Office" means the office of the Agent at
NationsBank, National Association, Independence Center, 15th Floor, NC1
001-15-04, Charlotte, North Carolina 28255, Attention: Agency Services,
or such other office and address as the Agent may from time to time
designate.
"Rate Hedging Obligations" means any and all obligations of
the Borrower or any Consolidated Entity, whether absolute or contingent
and howsoever and whensoever created, arising, evidenced or acquired
(including all renewals, extensions and modifications thereof and
substitutions therefor), under (i) any and all agreements, devices or
arrangements designed to protect at least one of the parties thereto
from the fluctuations of interest rates, exchange rates or forward
25
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rates applicable to such party's assets, liabilities or exchange
transactions, including, but not limited to, Dollar- denominated or
cross-currency interest rate exchange agreements, forward currency
exchange agreements, interest rate cap or collar protection agreements,
forward rate currency or interest rate options, puts, warrants and
those commonly known as interest rate "swap" agreements; and (ii) any
and all cancellations, buybacks, reversals, terminations or assignments
of any of the foregoing.
"Rating" means the rating of senior unsecured Indebtedness of
the Borrower in effect at any time which rating is made by either of
Moody's or S&P.
"Regulation D" means Regulation D of the Board as the same may
be amended or supplemented from time to time.
"Reimbursement Obligation" shall mean, at any time, the
obligation of the Borrower with respect to any Letter of Credit to
reimburse the Issuing Bank and the Lenders to the extent of their
respective Participations (including by the receipt by the Issuing Bank
of proceeds of Loans pursuant to Section 3.2) for amounts theretofore
paid by the Issuing Bank pursuant to a drawing under such Letter of
Credit.
"Required Lenders" means, as of any date, Lenders on such date
having Credit Exposures (as defined below) aggregating at least 51% of
the aggregate Credit Exposures of all the Lenders on such date. For
purposes of the preceding sentence, the amount of the "Credit Exposure"
of each Lender shall be equal to the aggregate principal amount of the
Loans without regard to any Competitive Bid Loan, so long as there
exists no Event of Default, owing to such Lender plus the aggregate
unutilized amounts of such Lender's Line of Credit Commitment and
Revolving Credit Commitment plus the amount of such Lender's Applicable
Commitment Percentage of Letter of Credit Outstandings; provided that,
if any Lender shall have failed to pay to the Issuing Bank its
Applicable Commitment Percentage of any drawing under any Letter of
Credit resulting in an outstanding Reimbursement Obligation, such
Lender's Credit Exposure attributable to Letters of Credit and
Reimbursement Obligations shall be deemed to be held by the Issuing
Bank for purposes of this definition.
"Restricted Payment" means (a) any dividend or other distribution,
direct or indirect, on account of any shares of any class of stock of
Borrower or any of its Consolidated Entities (other than those payable
or distributable solely to the Borrower) now or hereafter outstanding,
except a dividend payable solely in shares of a class of stock to the
holders of that class; (b) any redemption, conversion, exchange,
retirement or similar payment, purchase or other acquisition for value,
direct or indirect, of any shares of any class of
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stock of the Borrower or any of its Consolidated Entities (other than
those payable or distributable solely to the Borrower) now or hereafter
outstanding; (c) any payment made to retire, or to obtain the surrender
of, any outstanding warrants, options or other rights to acquire shares
of any class of stock of the Borrower or any of its Consolidated
Entities now or hereafter outstanding; and (d) any issuance and sale of
capital stock of any Consolidated Entity of the Borrower (or any
option, warrant or right to acquire such stock) other than to the
Borrower.
"Revolving Credit Commitment" means, with respect to each
Lender, the obligation of such Lender to make Revolving Loans to the
Borrower up to an aggregate principal amount at any one time
outstanding equal to such Lender's Applicable Commitment Percentage of
the Total Revolving Credit Commitment.
"Revolving Credit Facility" means the facility described in
Section 2.1(a) providing for Loans to the Borrower by the Lenders in
the aggregate principal amount of the Total Revolving Credit
Commitment.
"Revolving Credit Outstandings" means, as of any date of
determination, the aggregate principal amount of all Revolving Loans
then outstanding and all interest accrued thereon.
"Revolving Credit Termination Date" means (i) March 31, 2001
or (ii) such earlier date of termination of Lenders' obligations
pursuant to Section 9.1 upon the occurrence of an Event of Default, or
(iii) such date as the Borrower may voluntarily and permanently
terminate the Revolving Credit Facility by payment in full of all
Revolving Credit Outstandings, Competitive Bid Loans and Letter of
Credit Outstandings and cancellation of all Letters of Credit.
"Revolving Loan" means any borrowing pursuant to an Advance
under the Revolving Credit Facility in accordance with Section 2.1(a).
"Revolving Notes" means, collectively, the promissory notes of
the Borrower evidencing Revolving Loans executed and delivered to the
Lenders as provided in Section 2.6(a) substantially in the form of
Exhibit I, with appropriate insertions as to amounts, dates and names
of Lenders.
"S&P" means Standard & Poor's, a division of The McGraw Hill
Companies.
"Segment" means a portion of a Loan (or all thereof) with
respect to which a particular interest rate is (or is proposed to be)
applicable.
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"Single Employer Plan" means any employee pension benefit plan
covered by Title IV of ERISA in respect of which the Borrower or any
Subsidiary is an "employer" as described in Section 4001(b) of ERISA
and which is not a Multiemployer Plan.
"Solvent" means, when used with respect to any Person, that at
the time of determination:
(i) the fair value of its assets (both at fair
valuation and at present fair saleable value on an orderly
basis) is in excess of the total amount of its liabilities,
including contingent obligations; and
(ii) it is then able and expects to be able to pay
its debts as they mature; and
(iii) it has capital sufficient to carry on its
business as conducted and as proposed to be conducted.
"Stated Termination Date" means March 31, 1997 or such later
date as the parties may agree pursuant to Section 2.14.
"Subordinated Debt" means any unsecured Indebtedness of the
Borrower or any Consolidated Entity (other than inter-company
Indebtedness) which is subordinated in right of payment in all respects
to the Obligations in a manner reasonably acceptable to the Agent.
"Subsidiary" means any corporation or other entity in which
more than 50% of its outstanding voting stock or more than 50% of all
equity interests is owned directly or indirectly by the Borrower and/or
by one or more of the Borrower's Subsidiaries.
"Swap Agreement" means one or more agreements between the
Borrower and any Person with respect to Indebtedness evidenced by any
or all of the Notes, on terms mutually acceptable to Borrower and such
Person and approved by each of the Lenders, which agreements create
Rate Hedging Obligations; provided, however, that no such approval of
the Lenders shall be required to the extent such agreements are entered
into between the Borrower and any Lender.
"Syndicated Loans" shall mean the Revolving Loans and Line of
Credit Loans provided for by Section 2.1, which may be Base Rate Loans
or Eurodollar Rate Loans.
"Termination Event" means: (i) a "Reportable Event" described in
Section 4043 of ERISA and the regulations issued thereunder (unless the
notice requirement has been waived by applicable regulation); or (ii)
the withdrawal of the Borrower or any ERISA Affiliate from a Pension
Plan during a plan year
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in which it was a "substantial employer" as defined in Section
4001(a)(2) of ERISA or was deemed such under Section 4068(f) of ERISA;
or (iii) the termination of a Pension Plan, the filing of a notice of
intent to terminate a Pension Plan or the treatment of a Pension Plan
amendment as a termination under Section 4041 of ERISA; or (iv) the
institution of proceedings to terminate a Pension Plan by the PBGC; or
(v) any other event or condition which would constitute grounds under
Section 4042(a) of ERISA for the termination of, or the appointment of
a trustee to administer, any Pension Plan; or (vi) the partial or
complete withdrawal of the Borrower or any ERISA Affiliate from a
Multiemployer Plan; or (vii) the imposition of a Lien pursuant to
Section 412 of the Code or Section 302 of ERISA; or (viii) any event or
condition which results in the reorganization or insolvency of a
Multiemployer Plan under Section 4241 or Section 4245 of ERISA,
respectively; or (ix) any event or condition which results in the
termination of a Multiemployer Plan under Section 4041A of ERISA or the
institution by the PBGC of proceedings to terminate a Multiemployer
Plan under Section 4042 of ERISA.
"Total Letter of Credit Commitment" means an amount not to exceed
$75,000,000.
"Total Line of Credit Commitment" means a principal amount
equal to $350,000,000, as reduced from time to time in accordance with
Section 2.1(b) and Section 2.8.
"Total Revolving Credit Commitment" means a principal amount
equal to $900,000,000, as reduced from time to time in accordance with
Section 2.1(a) and Section 2.8.
"Type" shall have the meaning assigned to such term in Section
1.3.
"Unused Amount" shall mean with respect to each Lender, (a)
the Revolving Credit Commitment of such Lender less (b) such Lender's
pro rata share of outstanding Revolving Loans and Letter of Credit
Outstandings less (c) the outstanding principal amount of all
Competitive Bid Loans then held by such Lender; provided, that in no
event shall such amount be a negative number.
"Vanderbilt" shall mean Vanderbilt Stallworth Rehabilitation
Hospital, L.P., the partners of which are the Borrower, Vanderbilt
University and Vanderbilt Health Services.
"Voting Stock" means shares of Capital Stock issued by a
corporation, or equivalent interests in any other Person, the holders
of which are ordinarily, in the absence of contingencies, entitled to
vote for the election of directors (or persons performing similar
functions) of such Person, even
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if the right so to vote has been suspended by the happening of such a
contingency.
1.2 Rules of Interpretation.
-----------------------
(a) All accounting terms not specifically defined herein
shall have the meanings assigned to such terms and shall be interpreted
in accordance with GAAP applied on a Consistent Basis.
(b) The headings, subheadings and table of contents used
herein or in any other Loan Document are solely for convenience of
reference and shall not constitute a part of any such document or
affect the meaning, construction or effect of any provision thereof.
(c) Except as otherwise expressly provided, references
herein to articles, sections, paragraphs, clauses, annexes, appendices,
exhibits and schedules are references to articles, sections,
paragraphs, clauses, annexes, appendices, exhibits and schedules in or
to this Agreement.
(d) All definitions set forth herein or in any other Loan
Document shall apply to the singular as well as the plural form of such
defined term, and all references to the masculine gender shall include
reference to the feminine or neuter gender, and vice versa, as the
context may require.
(e) When used herein or in any other Loan Document, words
such as "hereunder", "hereto", "hereof" and "herein" and other words of
like import shall, unless the context clearly indicates to the
contrary, refer to the whole of the applicable document and not to any
particular article, section, subsection, paragraph or clause thereof.
(f) References to "including" means including without
limiting the generality of any description preceding such term, and for
purposes hereof the rule of ejusdem generis shall not be applicable to
limit a general statement, followed by or referable to an enumeration
of specific matters, to matters similar to those specifically
mentioned.
(g) All dates and times of day specified herein shall refer
to such dates and times at Charlotte, North Carolina.
(h) Each of the parties to the Loan Documents and their
counsel have reviewed and revised, or requested (or had the opportunity
to request) revisions to, the Loan Documents, and any rule of
construction that ambiguities are to be resolved against the drafting
party shall be inapplicable in the construing and interpretation of the
Loan Documents and all exhibits, schedules and appendices thereto.
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(i) Any reference to an officer of the Borrower or any
other Person by reference to the title of such officer shall be deemed
to refer to each other officer of such Person, however titled,
exercising the same or substantially similar functions.
(j) All references to any agreement or document as
amended, modified or supplemented, or words of similar effect, shall
mean such document or agreement, as the case may be, as amended,
modified or supplemented from time to time only as and to the extent
permitted therein and in the Loan Documents.
1.3. Classes and Types of Loans. Loans hereunder are distinguished
by "Class" and by "Type". The "Class" of a Loan refers to whether such Loan is a
Competitive Bid Loan or a Syndicated Loan (and if a Syndicated Loan, a Revolving
Loan or Line of Credit Loan), each of which constitutes a Class. The "Type" of a
Loan refers to whether such Loan is a Base Rate Loan, a Eurodollar Rate Loan, an
Absolute Rate Loan or a Eurodollar Market Loan, each of which constitutes a
Type. Loans may be identified by both Class and Type.
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ARTICLE II
The Loans
---------
2.1. Syndicated Loans.
----------------
(a) Revolving Credit Facility. Subject to the terms and
conditions of this Agreement, each Lender severally agrees to make Advances to
the Borrower under the Revolving Credit Facility from time to time from the
Closing Date until the Revolving Credit Termination Date on a pro rata basis as
to the total borrowing requested by the Borrower on any day determined by such
Lender's Applicable Commitment Percentage up to but not exceeding the Revolving
Credit Commitment of such Lender, provided, however, that the Lenders will not
be required and shall have no obligation to make any such Advance (i) so long as
a Default or an Event of Default has occurred and is continuing or (ii) if the
maturity of any of the Notes has been accelerated as a result of an Event of
Default; provided further, however, that immediately after giving effect to each
such Advance, the aggregate principal amount of Revolving Credit Outstandings
plus Letter of Credit Outstandings plus outstanding Competitive Bid Loans shall
not exceed the Total Revolving Credit Commitment. Within such limits, the
Borrower may borrow, repay and reborrow under the Revolving Credit Facility on a
Business Day from the Closing Date until, but (as to borrowings and
reborrowings) not including, the Revolving Credit Termination Date; provided,
however, that (y) no Revolving Loan that is a Eurodollar Rate Loan shall be made
which has an Interest Period that extends beyond the Revolving Credit
Termination Date and (z) each Revolving Loan that is a Eurodollar Rate Loan may,
subject to the provisions of Section 2.4, be repaid only on the last day of the
Interest Period with respect thereto unless such payment is accompanied by the
additional payment, if any, required by Section 4.2.
(b) Line of Credit Facility. Subject to the terms and
conditions of this Agreement, each Lender severally agrees to make Advances to
the Borrower under the Line of Credit Facility from time to time from the
Closing Date until the Line of Credit Termination Date on a pro rata basis as to
the total borrowing requested by the Borrower on any day determined by such
Lender's Applicable Commitment Percentage up to but not exceeding the Line of
Credit Commitment of such Lender, provided, however, that the Lenders will not
be required and shall have no obligation to make any such Advance (i) so long as
a Default or an Event of Default has occurred and is continuing or (ii) if the
maturity of any of the Notes has been accelerated as a result of an Event of
Default; provided further, however, that immediately after giving effect to each
such Advance, the principal amount of Line of Credit Outstandings shall not
exceed the Total Line of Credit Commitment. Within such limits, the Borrower may
borrow, repay and reborrow under the Line of Credit Facility on a Business Day
from the Closing Date until, but (as to borrowings and reborrowings) not
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including, the Line of Credit Termination Date; provided, however, that (y) no
Line of Credit Loan that is a Eurodollar Rate Loan shall be made which has an
Interest Period that extends beyond the Line of Credit Termination Date and (z)
each Line of Credit Loan that is a Eurodollar Rate Loan may, subject to the
provisions of Section 2.4, be repaid only on the last day of the Interest Period
with respect thereto unless such payment is accompanied by the additional
payment, if any, required by Section 4.2.
(c) Amounts. The aggregate unpaid principal amount of
the Revolving Credit Outstandings plus Letter of Credit Outstandings plus
outstanding Competitive Bid Loans shall not exceed at any time the Total
Revolving Credit Commitment, and the aggregate unpaid principal amount of the
Line of Credit Outstandings shall not exceed the Total Line of Credit Commitment
and, in the event there shall be outstanding any such excess, the Borrower shall
immediately make such payments and prepayments as shall be necessary to comply
with this restriction. Each Syndicated Loan hereunder, other than Base Rate
Refunding Loans, and each conversion under Section 2.9, shall be in an amount of
at least $5,000,000, and, if greater than $5,000,000, an integral multiple of
$1,000,000.
(d) Advances. An Authorized Representative shall give
the Agent (1) at least three (3) Business Days' irrevocable written notice by
telefacsimile transmission of a Borrowing Notice or Interest Rate Selection
Notice (as applicable) with appropriate insertions, effective upon receipt, of
each Syndicated Loan that is a Eurodollar Rate Loan (whether representing an
additional borrowing hereunder or the conversion of a borrowing hereunder from
Base Rate Loans to Eurodollar Rate Loans) prior to 10:30 A.M. and (2)
irrevocable written notice by telefacsimile transmission of a Borrowing Notice
or Interest Rate Selection Notice (as applicable) with appropriate insertions,
effective upon receipt, of each Syndicated Loan (other than Base Rate Refunding
Loans to the extent the same are effected without notice pursuant to Section
2.1(d)(iv)) that is a Base Rate Loan (whether representing an additional
borrowing hereunder or the conversion of borrowing hereunder from Eurodollar
Rate Loans to Base Rate Loans) prior to 10:30 A.M. on the day of such proposed
Syndicated Loan. Each such notice shall specify the amount of the borrowing,
whether the Loan is a Revolving Loan or Line of Credit Loan, the Type of Loan
(Base Rate or Eurodollar Rate), the date of borrowing and, if a Eurodollar Rate
Loan, the Interest Period to be used in the computation of interest. Notice of
receipt of such Borrowing Notice or Interest Rate Selection Notice, as the case
may be, together with the amount of each Lender's portion of an Advance
requested thereunder, shall be provided by the Agent to each Lender by
telefacsimile transmission with reasonable promptness, but (provided the Agent
shall have received such notice by 10:30 A.M.) not later than 1:00 P.M. on the
same day as the Agent's receipt of such notice.
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(ii) Not later than 2:00 P.M. on the date specified for each
borrowing under this Section 2.1, each Lender shall, pursuant to the terms and
subject to the conditions of this Agreement, make the amount of the Loan or
Loans to be made by it on such day available by wire transfer to the Agent in
the amount of its pro rata share, determined according to such Lender's
Applicable Commitment Percentage of the Syndicated Loan or Syndicated Loans to
be made on such day. Such wire transfer shall be directed to the Agent at the
Principal Office and shall be in the form of Dollars constituting immediately
available funds. The amount so received by the Agent shall, subject to the terms
and conditions of this Agreement, be made available to the Borrower by delivery
of the proceeds thereof as shall be directed in the applicable Borrowing Notice
by the Authorized Representative and reasonably acceptable to the Agent.
(iii) The Borrower shall have the option to elect the duration of the
initial and any subsequent Interest Periods and to convert the Syndicated Loans
in accordance with Section 2.9. Eurodollar Rate Loans and Base Rate Loans may be
outstanding at the same time, provided, however, there shall not be outstanding
at any one time Loans (whether Syndicated Loans or Competitive Bid Loans) having
more than eight (8) different Interest Periods. If the Agent does not receive a
Borrowing Notice or an Interest Rate Selection Notice giving notice of election
of the duration of an Interest Period or of conversion of any Loan to or
continuation of a Loan as a Eurodollar Rate Loan by the time prescribed by
Section 2.1(d) or 2.9, the Borrower shall be deemed to have elected to convert
such Segment to (or continue such Segment as) a Base Rate Loan until the
Borrower notifies the Agent in accordance with Section 2.9.
(iv) Notwithstanding the foregoing, if a drawing is made under any
Letter of Credit, such drawing is honored by the Issuing Bank prior to the
Revolving Credit Termination Date, and the Borrower shall not immediately fully
reimburse the Issuing Bank in respect of such drawing, (A) provided that the
conditions to making a Revolving Loan as herein provided shall then be
satisfied, the Reimbursement Obligation arising from such drawing shall be paid
to the Issuing Bank by the Agent without the requirement of notice to or from
the Borrower from immediately available funds which shall be advanced as a Base
Rate Refunding Loan by each Lender under the Revolving Credit Facility in an
amount equal to such Lender's Applicable Commitment Percentage of such
Reimbursement Obligation, and (B) if the conditions to making a Revolving Loan
as herein provided shall not then be satisfied, each of the Lenders shall fund
by payment to the Agent (for the benefit of the Issuing Bank) in immediately
available funds the purchase from the Issuing Bank of their respective
Participations in the related Reimbursement Obligation based on their respective
Applicable Commitment Percentages. If a drawing is presented under any Letter of
Credit in accordance with the terms thereof and the Borrower shall not
immediately reimburse the Issuing Bank in respect thereof, then notice of such
drawing or payment shall be provided promptly by the
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Issuing Bank to the Agent and the Agent shall provide notice to each Lender by
telephone or telefacsimile transmission. If notice to the Lenders of a drawing
under any Letter of Credit is given by the Agent at or before 12:00 noon on any
Business Day, each Lender shall, pursuant to the conditions specified in this
Section 2.1(d)(iv), either make a Base Rate Refunding Loan or fund the purchase
of its Participation in the amount of such Lender's Applicable Commitment
Percentage of such drawing or payment and shall pay such amount to the Agent for
the account of the Issuing Bank at the Principal Office in Dollars and in
immediately available funds before 2:30 P.M. on the same Business Day. If notice
to the Lenders of a drawing under a Letter of Credit is given by the Agent after
12:00 noon on any Business Day, each Lender shall, pursuant to the conditions
specified in this Section 2.1(d)(iv), either make a Base Rate Refunding Loan or
fund the purchase of its Participation in the amount of such Lender's Applicable
Commitment Percentage of such drawing or payment and shall pay such amount to
the Agent for the account of the Issuing Bank at the Principal Office in Dollars
and in immediately available funds before 12:00 noon on the next following
Business Day. Any such Base Rate Refunding Loan shall be advanced as, and shall
continue as, a Base Rate Loan unless and until the Borrower converts such Base
Rate Loan in accordance with the terms of Section 2.9.
2.2. Competitive Bid Loans.
---------------------
(a) In addition to borrowings of Syndicated Loans, at any time
prior to the Revolving Credit Termination Date the Borrower may, as set forth in
this Section 2.2, request the Lenders to make offers to make Competitive Bid
Loans to the Borrower in Dollars. The Lenders may, but shall have no obligation
to, make such offers and the Borrower may, but shall have no obligation to,
accept any such offers in the manner set forth in this Section 2.2. Competitive
Bid Loans may be Eurodollar Market Loans or Absolute Rate Loans (each a "Type"
of Competitive Bid Loan), provided that:
(i) the aggregate amount of outstanding Competitive Bid
Loans shall not exceed the Total Revolving Credit Commitment
less the sum of the principal amount of Revolving Credit
Outstandings and Letter of Credit Outstandings;
(ii) there may be no more than eight (8) different
Interest Periods for both Syndicated Loans and Competitive Bid
Loans outstanding at the same time (for which purpose Interest
Periods described in different lettered clauses of the
definition of the term "Interest Period" shall be deemed to be
different Interest Periods even if they are coterminous);
(iii) the aggregate amount of outstanding Competitive Bid
Loans of a Lender shall not exceed at any time an
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amount equal to such Lender's Revolving Credit Commitment;
(iv) the aggregate principal amount of all Competitive Bid
Loans, together with the sum of (i) the aggregate principal
amount of all outstanding Revolving Loans and (ii) the Letter
of Credit Outstandings shall not exceed the Total Revolving
Credit Commitment at such time; and
(v) no Competitive Bid Loan shall have a maturity date
subsequent to the Revolving Credit Termination Date.
(b) When the Borrower wishes to request offers to make
Competitive Bid Loans, it shall give the Agent (which shall promptly notify the
Lenders) notice (a "Competitive Bid Quote Request") to be received no later than
11:00 a.m. on (x) the fourth Business Day prior to the date of borrowing
proposed therein, in the case of a Eurodollar Auction or (y) the Business Day
next preceding the date of borrowing proposed therein, in the case of an
Absolute Rate Auction (or, in any such case, such other time and date as the
Borrower and the Agent, with the consent of the Required Lenders, may agree).
The Borrower may request offers to make Competitive Bid Loans for up to three
(3) different Interest Periods in a single notice (for which purpose Interest
Periods in different lettered clauses of the definition of the term "Interest
Period" shall be deemed to be different Interest Periods even if they are
coterminous); provided that the request for each separate Interest Period shall
be deemed to be a separate Competitive Bid Quote Request for a separate
borrowing (a "Competitive Bid Borrowing") and there shall not be outstanding at
any one time more than four (4) Competitive Bid Borrowings. Each such
Competitive Bid Quote Request shall be substantially in the form of Exhibit J
and shall specify as to each Competitive Bid Borrowing:
(i) the proposed date of such Competitive Bid
Borrowing, which shall be a Business Day;
(ii) the aggregate amount of such Competitive Bid
Borrowing, which shall be at least $10,000,000 (or a larger
integral multiple of $1,000,000) but shall not cause the
limits specified in Section 2.2(a) to be violated;
(iii) the duration of the Interest Period applicable
thereto;
(iv) whether the Competitive Bid Quotes requested for a
particular Interest Period are seeking quotes for Eurodollar
Market Loans or Absolute Rate Loans; and
(v) if the Competitive Bid Quotes requested are
seeking quotes for Absolute Rate Loans, the date on which
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the Competitive Bid Quotes are to be submitted if it is before
the proposed date of borrowing (the date on which such
Competitive Bid Quotes are to be submitted is called the
"Quotation Date").
Except as otherwise provided in this Section 2.2(b), no Competitive Bid Quote
Request shall be given within five (5) Business Days (or such other number of
days as the Borrower and the Agent, with the consent of the Required Lenders,
may agree) of any other Competitive Bid Quote Request.
(c) (i) Each Lender may submit one or more Competitive Bid
Quotes, each containing an offer to make a Competitive Bid Loan in response to
any Competitive Bid Quote Request; provided that, if the Borrower's request
under Section 2.2(b) specified more than one Interest Period, such Lender may
make a single submission containing one or more Competitive Bid Quotes for each
such Interest Period. Each Competitive Bid Quote must be submitted to the Agent
not later than (x) 2:00 p.m. on the fourth Business Day prior to the proposed
date of borrowing, in the case of a Eurodollar Auction or (y) 10:00 a.m. on the
Quotation Date, in the case of an Absolute Rate Auction (or, in any such case,
such other time and date as the Borrower and the Agent, with the consent of the
Required Lenders, may agree); provided that any Competitive Bid Quote may be
submitted by NationsBank (or its Applicable Lending Office) only if NationsBank
(or such Applicable Lending Office) notifies the Borrower of the terms of the
offer contained therein not later than (x) 1:00 p.m. on the fourth Business Day
prior to the proposed date of borrowing, in the case of a Eurodollar Auction or
(y) 9:45 a.m. on the Quotation Date, in the case of an Absolute Rate Auction.
Subject to Article IV, Article VI and Article IX, any Competitive Bid Quote so
made shall be irrevocable except with the consent of the Agent given on the
instructions of the Borrower.
(ii) Each Competitive Bid Quote shall be substantially in
the form of Exhibit K and shall specify:
(A) the proposed date of borrowing and the
Interest Period therefor;
(B) the principal amount of the Competitive
Bid Loan for which each such Competitive Bid Quote is
being made, which principal amount shall be at least
$5,000,000 (or a larger integral multiple of
$1,000,000); provided that the aggregate principal
amount of all Competitive Bid Loans for which a
Lender submits Competitive Bid Quotes (x) may not
exceed the Revolving Credit Commitment of such Lender
and (y) may not exceed the principal amount of the
Competitive Bid Borrowing for a particular Interest
Period for which offers were requested;
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(C) in the case of a Eurodollar Auction, the
margin above or below the applicable Interbank
Offered Rate adjusted for any Eurodollar Reserve
Percentage (the "Eurodollar Margin") offered for each
such Competitive Bid Loan, expressed as a percentage
(rounded upwards, if necessary, to the nearest
1/10,000th of 1%) to be added to or subtracted from
the applicable Interbank Offered Rate as so adjusted;
(D) in the case of an Absolute Rate Auction,
the rate of interest per annum (rounded upwards, if
necessary, to the nearest 1/10,000th of 1%) offered
for each such Competitive Bid Loan (the "Absolute
Rate"); and
(E) the identity of the quoting Lender.
Unless otherwise agreed by the Agent and the Borrower, no Competitive Bid Quote
shall contain qualifying, conditional or similar language or propose terms other
than or in addition to those set forth in the applicable Competitive Bid Quote
Request and, in particular, no Competitive Bid Quote may be conditioned upon
acceptance by the Borrower of all (or some specified minimum) of the principal
amount of the Competitive Bid Loan for which such Competitive Bid Quote is being
made.
(d) The Agent shall (x) in the case of a Eurodollar Auction,
by 4:00 p.m. on the day a Competitive Bid Quote is submitted or (y) in the case
of an Absolute Rate Auction, as promptly as practicable after the Competitive
Bid Quote is submitted (but in any event not later than 10:30 a.m. on the
Quotation Date), notify the Borrower of the terms (i) of any Competitive Bid
Quote submitted by a Lender that is in accordance with Section 2.2(c) and (ii)
of any Competitive Bid Quote that amends, modifies or is otherwise inconsistent
with a previous Competitive Bid Quote submitted by such Lender with respect to
the same Competitive Bid Quote Request. Any such subsequent Competitive Bid
Quote shall be disregarded by the Agent unless such subsequent Competitive Bid
Quote is submitted solely to correct a manifest error in such former Competitive
Bid Quote. The Agent's notice to the Borrower shall specify (A) the aggregate
principal amount of the Competitive Bid Borrowing for which Competitive Bid
Quotes have been received and (B) the respective principal amounts and
Eurodollar Margins or Absolute Rates, as the case may be, so offered by each
Lender (identifying the Lender that made each Competitive Bid Quote).
(e) Not later than 11:00 a.m. on (x) the third Business Day
prior to the proposed date of borrowing, in the case of a Eurodollar Auction or
(y) the Quotation Date, in the case of an Absolute Rate Auction (or, in any such
case, such other time and date as the Borrower and the Agent, with the consent
of the
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Required Lenders, may agree), the Borrower shall notify the Agent of its
acceptance or nonacceptance of the offers so notified to it pursuant to Section
2.2(d) (and the failure of the Borrower to give such notice by such time shall
constitute nonacceptance) and the Agent shall promptly notify each affected
Lender. In the case of acceptance, such notice shall specify the aggregate
principal amount of offers for each Interest Period that are accepted. The
Borrower may accept any Competitive Bid Quote in whole or in part (provided that
any Competitive Bid Quote accepted in part shall be at least $5,000,000 or a
larger integral multiple of $1,000,000); provided that:
(i) the aggregate principal amount of each Competitive Bid
Borrowing may not exceed the applicable amount set forth in
the related Competitive Bid Quote Request;
(ii) the aggregate principal amount of each Competitive
Bid Borrowing shall be at least $10,000,000 (or a larger
integral multiple of $1,000,000) but shall not cause the
limits specified in Section 2.2(a) to be violated;
(iii) acceptance of offers may be made only in ascending
order of Eurodollar Margins or Absolute Rates, as the case may
be, in each case beginning with the lowest rate so offered;
provided, however, that the Borrower, in its sole discretion,
may accept other than the lowest rate where acceptance of the
lowest rate will result in (x) the outstanding Loans other
than Line of Credit Loans of a Lender or Lenders offering the
lowest rate exceeding such Lender's Revolving Credit
Commitment and (y) an increase in the Unused Fee payable by
Borrower under Section 2.11(a); and
(iv) the Borrower may not accept any offer where the Agent
has correctly advised the Borrower that such offer fails to
comply with Section 2.2(c)(ii) or otherwise fails to comply
with the requirements of this Agreement (including, without
limitation, Section 2.2(a)).
If offers are made by two or more Lenders with the same Eurodollar Margins or
Absolute Rates, as the case may be, for a greater aggregate principal amount
than the amount in respect of which offers are permitted to be accepted for the
related Interest Period after the acceptance of all offers, if any, of all lower
Eurodollar Margins or Absolute Rates, as the case may be, offered by any Lender
for such related Interest Period, the principal amount of Competitive Bid Loans
in respect of which such offers are accepted shall be allocated by the Borrower
among such Lenders as nearly as possible (in amounts of at least $5,000,000 or
larger integral multiples of $1,000,000) in proportion to the aggregate
principal amount of such offers. Determinations by the Borrower of the
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amounts of Competitive Bid Loans and the lowest bid after adjustment as provided
in Section 2.2(e)(iii) shall be conclusive in the absence of manifest error.
(f) Any Lender whose offer to make any Competitive Bid Loan
has been accepted shall, not later than 1:00 p.m. on the date specified for the
making of such Loan, make the amount of such Loan available to the Agent at the
Principal Office in Dollars and in immediately available funds, for account of
the Borrower. The amount so received by the Agent shall, subject to the terms
and conditions of this Agreement, be made available to the Borrower on such date
by depositing the same, in Dollars and in immediately available funds, in an
account of the Borrower maintained at the Principal Office.
2.3. Payment of Interest. (a) The Borrower shall pay interest to
the Agent for the account of each Lender on the outstanding and unpaid principal
amount of each Loan made by such Lender for the period commencing on the date of
such Loan until such Loan shall be due at the then applicable Base Rate for Base
Rate Loans or applicable Fixed Rate for Fixed Rate Loans, as designated by the
Authorized Representative pursuant to Section 2.1 or Section 2.2; provided,
however, that if any amount payable under this Agreement shall not be paid when
due (at maturity, by acceleration or otherwise, subject to the provisions of
Section 9.1(a)), all amounts outstanding hereunder shall bear interest
thereafter at the Default Rate.
(b) Interest on each Loan shall be computed on an Actual/360
Basis. Interest on each Loan shall be paid (i) quarterly in arrears on the last
Business Day of each March, June, September and December, commencing June 30,
1996, for each Base Rate Loan, (ii) on the last day of the applicable Interest
Period for each Fixed Rate Loan and, if such Interest Period extends for more
than three (3) months, at intervals of three (3) months after the first day of
such Interest Period, and (iii) upon the Line of Credit Termination Date or
Revolving Credit Termination Date, as the case may be. Interest payable at the
Default Rate shall be payable on demand.
2.4. Payment of Principal. The principal amount of each Revolving
Loan shall be due and payable to the Agent for the benefit of each Lender in
full on the Revolving Credit Termination Date, or earlier as specifically
provided herein. The principal amount of each Line of Credit Loan shall be due
and payable to the Agent for the benefit of each Lender in full on the Stated
Termination Date, or earlier as specifically provided herein. The principal
amount of each Competitive Bid Loan shall be due and payable to the Agent for
the benefit of the applicable Lender in full on the last day of the Interest
Period applicable thereto, or earlier as specifically provided herein. The
principal amount of any Base Rate Loan may be prepaid in whole or in part at any
time. The principal amount of any Fixed Rate Loan may be prepaid only at
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the end of the applicable Interest Period unless the Borrower shall pay to the
Agent for the account of the Lenders the additional amount, if any, required
under Section 4.2. All prepayments of Syndicated Loans made by the Borrower
shall be in the amount of $5,000,000 or such greater amount which is an integral
multiple of $1,000,000, or the amount equal to all Revolving Credit Outstandings
or Line of Credit Outstandings, as the case may be, or such other amount as
necessary to comply with Section 2.1(c) or Section 2.9.
2.5. Non-Conforming Payments. (a) Each payment of principal (including
any prepayment) and payment of interest and fees, and any other amount required
to be paid to the Lenders with respect to the Loans, shall be made to the Agent
at the Principal Office, for the account of each Lender, in Dollars and in
immediately available funds before 10:00 A.M. on the date such payment is due.
The Agent may, but shall not be obligated to, debit the amount of any such
payment which is not made by such time to any ordinary deposit account, if any,
of the Borrower with the Agent. The Agent shall promptly notify the Borrower of
any such debit; however, failure to give such notice shall not affect the
validity of such debit.
(b) The Agent shall deem any payment made by or on behalf of the
Borrower hereunder that is not made both in Dollars and in immediately available
funds and prior to 10:00 A.M. to be a non-conforming payment. Any such payment
shall not be deemed to be received by the Agent until the later of (i) the time
such funds become available funds and (ii) the next Business Day. Any
non-conforming payment may constitute or become a Default or Event of Default.
Interest shall continue to accrue on any principal as to which a non-conforming
payment is made until the later of (x) the date such funds become available
funds or (y) the next Business Day at the Default Rate from the date such amount
was due and payable.
(c) In the event that any payment hereunder or under the Notes
becomes due and payable on a day other than a Business Day, then such due date
shall be extended to the next succeeding Business Day unless provided otherwise
under clause (ii) of the definition of "Interest Period"; provided that interest
shall continue to accrue during the period of any such extension and provided
further, that in no event shall any such due date be extended beyond the
Revolving Credit Termination Date or Line of Credit Termination Date, as the
case may be.
2.6. Notes. (a) Revolving Loans made by each Lender shall be
evidenced by the Revolving Note payable to the order of such Lender in the
respective amount of its Applicable Commitment Percentage of the Revolving
Credit Commitment, which Revolving Note shall be dated the Closing Date or a
later date pursuant to an Assignment and Acceptance and shall be duly completed,
executed and delivered by the Borrower.
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(b) Line of Credit Loans made by each Lender shall be evidenced by the
Line of Credit Note payable to the order of such Lender in the respective amount
of its Applicable Commitment Percentage of the Line of Credit Commitment, which
Line of Credit Note shall be dated the Closing Date or a later date pursuant to
an Assignment and Acceptance and shall be duly completed, executed and delivered
by the Borrower.
(c) Competitive Bid Loans made by each Lender shall be evidenced by the
Competitive Bid Note payable to the order of such Lender and representing the
obligation of the Borrower to pay the lesser of (a) the aggregate amount of the
Revolving Credit Commitment of such Lender and (b) the unpaid principal amount
of all Competitive Bid Loans made by such Lender, with interest on the unpaid
principal amount from time to time outstanding of each Competitive Bid Loan
evidenced thereby as prescribed in Section 2.3. Each Lender is hereby authorized
to record the date and amount of each Competitive Bid Loan made by such Lender,
the maturity date thereof, the date and amount of each payment of principal
thereof and the interest rate with respect thereto on the schedule attached to
and constituting part of its Competitive Bid Note, and any such recordation
shall constitute prima facie evidence of the accuracy of the information so
recorded; provided, however, that the failure to make any such recordation shall
not affect the obligations of the Borrower hereunder or under any Competitive
Bid Note. Each Competitive Bid Note shall be dated the Closing Date or a later
date pursuant to an Assignment and Acceptance and shall be duly completed,
executed and delivered by the Borrower.
2.7. Pro Rata Payments. Except as otherwise provided herein, (a)
each payment on account of the principal of and interest on the Syndicated Loans
and the fees described in Section 2.11 and the first sentence of Section 3.3(a)
shall be made to the Agent for the account of the Lenders pro rata based on
their Applicable Commitment Percentages, (b) all payments to be made by the
Borrower for the account of each of the Lenders on account of principal,
interest and fees, shall be made without diminution, setoff, recoupment or
counterclaim, and (c) the Agent will promptly distribute to the Lenders in
immediately available funds payments received in fully collected, immediately
available funds from the Borrower.
2.8. Reductions. The Borrower shall, by irrevocable notice from an
Authorized Representative, have the right from time to time but not more
frequently than once each calendar month, upon not less than three (3) Business
Days' written notice to the Agent, effective upon receipt, to permanently reduce
the Total Revolving Credit Commitment or the Total Line of Credit Commitment.
The Agent shall give each Lender, within one (1) Business Day of receipt of such
notice, telefacsimile notice, or telephonic notice (confirmed in writing), of
such reduction. Each such reduction shall be in the aggregate amount of
$10,000,000 or such greater amount which is
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in an integral multiple of $1,000,000, or the entire remaining Total Revolving
Credit Commitment or the Total Line of Credit Commitment, and shall permanently
reduce the Total Revolving Credit Commitment or the Total Line of Credit
Commitment, as the case may be. Each reduction of the Total Revolving Credit
Commitment shall be accompanied by payment of the Revolving Loans and
Competitive Bid Loans to the extent that the principal amount of Revolving
Credit Outstandings plus Letter of Credit Outstandings plus outstanding
Competitive Bid Loans exceeds the Total Revolving Credit Commitment after giving
effect to such reduction, together with accrued and unpaid interest on the
amounts prepaid. Each reduction of the Total Line of Credit Commitment shall be
accompanied by payment of Line of Credit Loans to the extent that the principal
amount of Line of Credit Outstandings exceeds the Total Line of Credit
Commitment after giving effect to such reduction, together with accrued and
unpaid interest on the amounts prepaid. If any such reduction shall result in
the payment of any Fixed Rate Loan other than on the last day of the Interest
Period of such Fixed Rate Loan such prepayment shall be accompanied by amounts
due, if any, under Section 4.2.
2.9. Conversions and Elections of Subsequent Interest Periods.
Provided that no Default or Event of Default shall have occurred and be
continuing and subject to the limitations set forth below and in Article IV, the
Borrower may:
(a) upon delivery, effective upon receipt, of a properly
completed Interest Rate Selection Notice to the Agent on or before 10:30 A.M. on
any Business Day, convert all or a part of Eurodollar Rate Loans under either
the Revolving Credit Facility or the Line of Credit Facility to Base Rate Loans
on the last day of the Interest Period for such Eurodollar Rate Loans; and
(b) upon delivery, effective upon receipt, of a properly
completed Interest Rate Selection Notice to the Agent on or before 10:30 A.M.
three (3) Business Days prior to the date of such election or conversion:
(i) elect a subsequent Interest Period for all
or a portion of Eurodollar Rate Loans under either the
Revolving Credit Facility or the Line of Credit Facility to
begin on the last day of the then current Interest Period for
such Eurodollar Rate Loans; and
(ii) convert Base Rate Loans under either the
Revolving Credit Facility or the Line of Credit Facility to
Eurodollar Rate Loans on any Business Day.
Each election and conversion pursuant to this Section 2.9 shall be
subject to the limitations on Eurodollar Rate Loans set forth in the definition
of "Interest Period" herein and in Sections 2.1 and 2.4 and Article IV. The
Agent shall give written notice to each Lender of such notice of election or
conversion prior to 3:00
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P.M. on the day such notice of election or conversion is received. All such
continuations or conversions of Loans shall be effected pro rata based on the
Applicable Commitment Percentages of the Lenders.
2.10. Increase and Decrease in Amounts. The amount of the Total
Revolving Credit Commitment which shall be available to the Borrower as Advances
shall be reduced by the aggregate amount of Letter of Credit Outstandings.
2.11. Unused Fees.
(a) Revolving Credit Facility. For the period beginning on the Closing
Date and ending on the Revolving Credit Termination Date, the Borrower agrees to
pay to the Agent, for the benefit of each Lender, an unused fee equal to the
Applicable Unused Fee multiplied by the average daily Unused Amount of such
Lender. Such fees shall be due in arrears on the last Business Day of each
March, June, September and December commencing June 30, 1996 to and on the
Revolving Credit Termination Date.
(b) Line of Credit Facility. For the period beginning on the Closing
Date and ending on the Line of Credit Termination Date, the Borrower agrees to
pay to the Agent, for the pro rata benefit of the Lenders based on their
Applicable Commitment Percentages, an unused fee equal to the Applicable Unused
Fee multiplied by the average daily amount by which the Total Line of Credit
Commitment exceeds the aggregate principal amount of Line of Credit
Outstandings. Such fees shall be due in arrears on the last Business Day of each
March, June, September and December commencing June 30, 1996 to and on the Line
of Credit Termination Date.
(c) Notwithstanding the foregoing, so long as any Lender fails to make
available any portion of its Revolving Credit Commitment or Line of Credit
Commitment when requested, such Lender shall not be entitled to receive payment
of its pro rata share of such fees until such Lender shall make available such
portion. All fees payable pursuant to this Section 2.11 shall be calculated on
an Actual/360 Basis.
2.12. Deficiency Advances. No Lender shall be responsible for any
default of any other Lender in respect of such other Lender's obligation to make
any Loan or fund its purchase of any Participation hereunder nor shall the
Revolving Credit Commitment or Line of Credit Commitment of any Lender hereunder
be increased as a result of such default of any other Lender. Without limiting
the generality of the foregoing, in the event any Lender shall fail to advance
funds to the Borrower under the Revolving Credit Facility or the Line of Credit
Facility as herein provided, the Agent may in its discretion, but shall not be
obligated to, advance under the Revolving Note or Line of Credit Note, as the
case may be, in its favor as a Lender all or any portion of such amount or
amounts (each, a "deficiency advance") and shall thereafter be
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entitled to payments of principal of and interest on such deficiency advance in
the same manner and at the same interest rate or rates to which such other
Lender would have been entitled had it made such advance under its Revolving
Note or Line of Credit Note, as the case may be; provided that, upon payment to
the Agent from such other Lender of the entire outstanding amount of each such
deficiency advance, together with accrued and unpaid interest thereon, from the
most recent date or dates interest was paid to the Agent by the Borrower on each
Loan comprising such deficiency advance at the interest rate per annum for
overnight borrowing by the Agent from the Federal Reserve Bank of Richmond,
Virginia, then such payment shall be credited against the applicable Note of the
Agent in full payment of such deficiency advance and the Borrower shall be
deemed to have borrowed the amount of such deficiency advance from such other
Lender as of the most recent date or dates, as the case may be, upon which any
payments of interest were made by the Borrower thereon.
2.13. Use of Proceeds. The proceeds of the Loans made pursuant to
this Agreement shall be used by the Borrower to provide funding for the
acquisition and development of Facilities and to provide for the working capital
needs and other corporate purposes of the Borrower and its Consolidated
Entities.
2.14. (a) Extension of Stated Termination Date. At the request of
the Borrower the Lenders may, in their sole discretion, elect to extend the
Stated Termination Date then in effect for additional periods of up to 364 days
each; provided, however, that at no time shall the committed term of the Line of
Credit Facility exceed 364 days. The Borrower shall notify the Lenders of its
request for such an extension by delivering to the Agent and the Lenders notice
of such request signed by an Authorized Representative not more than ninety (90)
days nor less than sixty (60) days prior to the Stated Termination Date then in
effect. If the Lenders shall elect to so extend, the Agent shall notify the
Borrower in writing within sixty (60) days of its receipt of such request for
extension of the decision of the Lenders as to whether to extend the Stated
Termination Date. Failure by any Lender to respond to a request for an extension
shall constitute a refusal of such Lender to give its consent to such extension.
Failure by the Agent to give such notice shall constitute refusal by the Lenders
to extend the Stated Termination Date. The Borrower, with the consent of the
Agent, shall be entitled to replace any Lender who is unwilling to consent to
the extension of the Stated Termination Date. Any Lender which elects not to
consent to an extension shall cooperate with the Borrower and the Agent in
assigning its interest as provided in Section 11.1 to a new lender; provided,
all obligations to such assigning Lender shall be paid in full, no assignment
fee shall be payable by such assigning Lender but shall be paid by Borrower and
such assigning Lender shall be entitled to the benefits of this Agreement set
forth in Sections 3.2(g), 11.6, and 11.12 and Article IV. In no event shall the
Stated Termination Date extend beyond the Revolving Credit Termination Date.
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(b) Amortization of Line of Credit Loans Outstanding at the
Maturity Date.
(i) Election to Amortize. The Borrower shall have the option
to pay all of the outstanding principal balance of the Line of Credit
Loans outstanding as of the Line of Credit Termination Date, provided
the Line of Credit Termination Date occurs on or prior to March 31,
1999, in eight (8) equal consecutive quarterly installments on the last
day of each March, June, September and December commencing with the
first of such dates to occur after the Line of Credit Termination Date
(each such date referred to herein as a "Term Loan Amortization Date"
and the last such date referred to herein as the "Term Loan Termination
Date"). The Borrower may exercise such option by giving written notice
to the Agent at least fifteen (15) days prior to the Line of Credit
Termination Date. In the event the Line of Credit Termination Date
shall occur subsequent to March 31, 1999 the Borrower shall have the
option upon the giving of fifteen (15) days' notice prior to the end of
a calendar quarter to pay the then outstanding Line of Credit Loans in
quarterly installments, which installments shall be in approximately
equal amounts determined by dividing the number of full calendar
quarters remaining from the date of exercise of such option to March
31, 2001 by such outstanding Line of Credit Loans. If the Agent does
not receive such notification within the time period specified in the
preceding two sentences (and unless such Line of Credit Termination
Date has been extended in accordance with the terms of subsection (a)
above), the principal amount of all Line of Credit Loans shall be due
and payable on the Line of Credit Termination Date. Line of Credit
Loans remaining outstanding after the Line of Credit Termination Date
at the election of the Borrower in accordance with the terms of this
subsection (b) shall be referred to collectively as the "Term Loans".
The Term Loans may be comprised of Base Rate Loans and Eurodollar Rate
Loans as the Borrower may elect in accordance with the provisions
hereof. Amounts repaid or prepaid on the Term Loans may not be
reborrowed. For purposes of this Agreement, in the event that the
Borrower shall elect to amortize the Line of Credit Loans outstanding
as of the Line of Credit Termination Date in accordance herewith, then
on and after the Line of Credit Termination Date (x) references herein
to the "Total Line of Credit Commitment" shall mean the aggregate
principal amount of the Term Loans as of the Line of Credit Termination
Date less all payments made or required to be made with respect to the
Term Loans hereunder, whether scheduled amortization payment, voluntary
or optional prepayment or otherwise, (y) references herein to "Line of
Credit Commitment" shall mean, with respect to each Lender, the
obligation of such Lender to make Term Loans in a principal amount
equal to such Lender's Applicable Commitment Percentage of the
aggregate Term Loans and (z) references herein to "Line of Credit
Termination Date"
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shall mean the Term Loan Termination Date. Any prepayments of the Term
Loan shall be applied to installments of principal in the inverse order
of maturities.
(ii) Interest on Term Loans. The Term Loans shall bear
interest on the same terms as apply to Line of Credit Loans prior to
the Line of Credit Termination Date.
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ARTICLE III
3.1. Letters of Credit. The Issuing Bank agrees, subject to the terms
and conditions of this Agreement, upon request of the Borrower to issue from
time to time for the account of the Borrower Letters of Credit upon delivery to
the Issuing Bank of an Application and Agreement for Letter of Credit relating
thereto in form and content acceptable to the Issuing Bank; provided, that (i)
the Letter of Credit Outstandings shall not exceed the Total Letter of Credit
Commitment, (ii) no Letter of Credit shall be issued so long as a Default or an
Event of Default has occurred or is continuing or if the applicable conditions
set forth in Article V shall not have been satisfied and (iii) no Letter of
Credit shall be issued if, after giving effect thereto, Letter of Credit
Outstandings plus the aggregate principal amount of Revolving Credit
Outstandings and outstanding Competitive Bid Loans shall exceed the Total
Revolving Credit Commitment. No Letter of Credit shall have an expiry date
(including all rights of the Borrower or any beneficiary named in such Letter of
Credit to require renewal) or payment date occurring later than the fifth
Business Day prior to the Revolving Credit Termination Date.
3.2. Reimbursement.
(a) The Borrower hereby unconditionally agrees to pay to the
Issuing Bank immediately on demand at the Principal Office all amounts required
to pay all drafts drawn or purporting to be drawn under the Letters of Credit
and all reasonable expenses incurred by the Issuing Bank in connection with the
Letters of Credit, and in any event and without demand to place in possession of
the Issuing Bank (which shall include Advances under the Revolving Credit
Facility if permitted by Section 2.1(d)) sufficient funds to pay all debts and
liabilities arising in respect of any Letter of Credit. The Issuing Bank agrees
to give the Borrower prompt notice of any request for a draw under a Letter of
Credit. The Issuing Bank may charge any account the Borrower may have with it
for any and all amounts the Issuing Bank pays under a Letter of Credit, plus
charges and reasonable expenses as from time to time agreed to by the Issuing
Bank and the Borrower; provided that to the extent permitted by Section
2.1(d)(iv), amounts shall be paid pursuant to Advances under the Revolving
Credit Facility. The Borrower agrees to pay the Issuing Bank interest on any
Reimbursement Obligations not paid when due hereunder at the Base Rate plus two
percent (2.0%), or the maximum rate permitted by applicable law, if lower, such
rate to be calculated on an Actual/360 Basis.
(b) In accordance with the provisions of Section 2.1(d), the
Issuing Bank shall notify the Agent of any drawing under any Letter of Credit
promptly following the receipt by the Issuing Bank of such drawing.
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(c) Each Lender (other than the Issuing Bank) shall automatically
acquire on the date of issuance thereof a Participation in the liability of the
Issuing Bank in respect of each Letter of Credit in an amount equal to such
Lender's Applicable Commitment Percentage of such liability, and to the extent
that the Borrower is obligated to pay the Issuing Bank under Section 3.2(a),
each Lender (other than the Issuing Bank) thereby shall absolutely,
unconditionally and irrevocably assume, and shall be unconditionally obligated
to pay to the Issuing Bank as hereinafter described, its Applicable Commitment
Percentage of the liability of the Issuing Bank under such Letter of Credit.
(i) Each Lender (including the Issuing Bank in its capacity as
a Lender) shall, subject to the terms and conditions of Article II, pay
to the Agent for the account of the Issuing Bank at the Principal
Office in Dollars and in immediately available funds, an amount equal
to its Applicable Commitment Percentage of any drawing under a Letter
of Credit, such funds to be provided in the manner described in Section
2.1(d)(iv).
(ii) Simultaneously with the making of each payment by a
Lender to the Issuing Bank pursuant to Section 2.1(d)(iv)(B), such
Lender shall, automatically and without any further action on the part
of the Issuing Bank or such Lender, acquire a Participation in an
amount equal to such payment (excluding the portion thereof
constituting interest accrued prior to the date such Lender made its
payment) in the related Reimbursement Obligation of the Borrower. The
Reimbursement Obligations of the Borrower shall be immediately due and
payable whether by Advances made in accordance with Section 2.1(d)(iv)
or otherwise.
(iii) Each Lender's obligation to make payment to the Agent
for the account of the Issuing Bank pursuant to Section 2.1(d)(iv) and
this Section 3.2(c), and the right of the Issuing Bank to receive the
same, shall be absolute and unconditional, shall not be affected by any
circumstance whatsoever and shall be made without any offset,
abatement, withholding or reduction whatsoever. If any Lender is
obligated to pay but does not pay amounts to the Agent for the account
of the Issuing Bank in full upon such request as required by Section
2.1(d)(iv) or this Section 3.2(c), such Lender shall, on demand, pay to
the Agent for the account of the Issuing Bank interest on the unpaid
amount for each day during the period commencing on the date of notice
given to such Lender pursuant to Section 2.1(d) until such Lender pays
such amount to the Agent for the account of the Issuing Bank in full at
the interest rate per annum for overnight borrowing by the Agent from
the Federal Reserve Bank of Richmond, Virginia.
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(iv) In the event the Lenders have purchased Participations in
any Reimbursement Obligation as set forth in clause (ii) above, then at
any time payment (in fully collected, immediately available funds) of
such Reimbursement Obligation, in whole or in part, is received by
Issuing Bank from the Borrower, the Issuing Bank shall promptly pay to
each Lender an amount equal to its Applicable Commitment Percentage of
such payment from the Borrower.
(d) Promptly following the end of each calendar quarter, the
Issuing Bank shall deliver to the Agent and the Agent shall deliver to each
Lender a notice describing the aggregate undrawn amount of all Letters of Credit
at the end of such quarter. The Agent shall promptly notify each Lender of the
issuance of a Letter of Credit.
(e) The issuance by the Issuing Bank of each Letter of Credit
shall, in addition to the conditions precedent set forth in Article V, be
subject to the conditions that such Letter of Credit be in such form and contain
such terms as shall be reasonably satisfactory to the Issuing Bank consistent
with the then current practices and procedures of the Issuing Bank with respect
to similar letters of credit, and the Borrower shall have executed and delivered
such other instruments and agreements relating to such Letters of Credit as the
Issuing Bank shall have reasonably requested consistent with such practices and
procedures and shall not be in conflict with any of the express terms herein
contained. All Letters of Credit shall be issued pursuant to and subject to the
Uniform Customs and Practice for Documentary Credits, 1993 revision,
International Chamber of Commerce Publication No. 500 and all subsequent
amendments and revisions thereto.
(f) The Borrower agrees that Issuing Bank may, in its sole
discretion, accept or pay, as complying with the terms of any Letter of Credit,
any drafts or other documents otherwise in order which may be signed or issued
by an administrator, executor, trustee in bankruptcy, debtor in possession,
assignee for the benefit of creditors, liquidator, receiver, attorney in fact or
other legal representative of a party who is authorized under such Letter of
Credit to draw or issue any drafts or other documents.
(g) Without limiting the generality of the provisions of Section
11.12, the Borrower hereby agrees to indemnify and hold harmless the Issuing
Bank, each other Lender and the Agent from and against any and all claims and
damages, losses, liabilities, reasonable costs and expenses which the Issuing
Bank, such other Lender or the Agent may incur (or which may be claimed against
the Issuing Bank, such other Lender or the Agent) by any Person by reason of or
in connection with the issuance or transfer of or payment or failure to pay
under any Letter of Credit; provided that the Borrower shall not be required to
indemnify the Issuing Bank, any other Lender or the Agent for any claims,
damages, losses, liabilities, costs or expenses to the extent, but only to the
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extent, (i) caused by the willful misconduct or negligence of the party to be
indemnified or (ii) in the case of the Issuing Bank, caused by the failure of
the Issuing Bank to pay under any Letter of Credit after the presentation to it
of a request for payment strictly complying with the terms and conditions of
such Letter of Credit, unless such payment is prohibited by any law, regulation,
court order or decree. The indemnification and hold harmless provisions of this
Section 3.2(g) shall survive repayment of the Obligations, occurrence of the
Revolving Credit Termination Date and expiration or termination of this
Agreement.
(h) Without limiting the Borrower's rights as set forth in Section
3.2(g), the obligation of the Borrower to immediately reimburse the Issuing Bank
for drawings made under Letters of Credit and to repay Loans made under Section
2.1(d) and the Issuing Bank's and each Lender's right to receive such payment
shall be absolute, unconditional and irrevocable, and such obligations of the
Borrower shall be performed strictly in accordance with the terms of this
Agreement and such Letters of Credit and the related Applications and Agreement
for any Letter of Credit, under all circumstances whatsoever, including the
following circumstances:
(i) any lack of validity or enforceability of any Letter of
Credit, the obligation supported by any Letter of Credit or any other
agreement or instrument relating thereto (collectively, the "Related LC
Documents");
(ii) any amendment or waiver of or any consent to or departure
from all or any of the Related LC Documents;
(iii) the existence of any claim, setoff, defense (other than
the defense of payment in accordance with the terms of this Agreement)
or other rights which the Borrower may have at any time against any
beneficiary or any transferee of a Letter of Credit (or any persons or
entities for whom any such beneficiary or any such transferee may be
acting), the Agent, the Lenders or any other Person, whether in
connection with the Loan Documents, the Related LC Documents or any
unrelated transaction;
(iv) any breach of contract or other dispute between the
Borrower and any beneficiary or any transferee of a Letter of Credit
(or any persons or entities for whom such beneficiary or any such
transferee may be acting), the Agent, the Lenders or any other Person;
(v) any draft, statement or any other document presented under
any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect whatsoever;
(vi) any delay, extension of time, renewal, compromise or
other indulgence or modification granted or agreed to by the Agent or
the requisite number of Lenders,
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with or without notice to or approval by the Borrower in respect of any
of Borrower's Obligations under this Agreement; or
(vii) any other circumstance or happening whatsoever, whether
or not similar to any of the foregoing;
provided, however, that nothing in this Section 3.2(h) shall give the Issuing
Bank any right to reimbursement for drawings made under a Letter of Credit
otherwise than pursuant to a request for payment strictly complying with the
terms and conditions of such Letter of Credit unless the Borrower has
specifically waived such strict compliance in writing.
3.3. Letter of Credit Facility Fees. (a) The Borrower shall pay to the
Agent, for the pro rata benefit of the Lenders based on their Applicable
Commitment Percentages, a fee on the aggregate amount available to be drawn on
each outstanding Letter of Credit at a rate equal to the Applicable Margin. In
addition, the Borrower agrees to pay to the Agent for the benefit of the Issuing
Bank an issuance fee equal to one-eighth of one percent (1/8%) per annum times
the amount of outstanding Letters of Credit. Such fees shall be due with respect
to each Letter of Credit quarterly in arrears on the last Business Day of each
March, June, September and December, the first such payment to be made on the
first such date occurring after the date of issuance of a Letter of Credit. The
fees described in this Section 3.3 shall be calculated on the basis of a year of
360 days for the actual number of days elapsed.
(b) The Borrower acknowledges that the Issuing Bank as issuer of each
Letter of Credit will be required by applicable rules and regulations of the
Board to maintain reserves for its liability to honor draws made pursuant to a
Letter of Credit notwithstanding the obligation of the Lenders for a
Participation in such liability. The Borrower agrees to promptly reimburse the
Issuing Bank for all additional costs which it may hereafter incur solely by
reason of its acting as issuer of the Letters of Credit and its being required
to reserve for such liability, it being understood by the Borrower that other
interest and fees payable under this Agreement do not include compensation of
the Issuing Bank for such reserves. The Issuing Bank shall furnish to the
Borrower at the time of its demand for payment of such additional costs, the
computation of such additional cost which shall be conclusive absent manifest
error, provided that such computations are made on a reasonable basis.
3.4. Administrative Fees. The Borrower shall pay to the Issuing Bank
such administrative fee and other fees, if any, in connection with the Letters
of Credit in such amounts and at such times as the Issuing Bank and the Borrower
shall agree from time to time.
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ARTICLE IV
Termination of Eurodollar Rate and Yield Protection
4.1. Suspension of Loans.
(a) If at any time the Agent shall reasonably determine (which
determination, if reasonable, shall be final, conclusive and binding upon all
parties) that:
(i) by reason of any changes arising after the Closing Date
affecting the applicable interbank market or affecting the position of
any Lender or the Agent in such market, adequate and fair means do not
exist for ascertaining the Interbank Offered Rate with respect to a
Eurodollar Loan or Eurodollar Market Loan; or
(ii) the continuation by any Lender of any Eurodollar Loans or
Eurodollar Market Loans or the funding thereof in the applicable
interbank market would be unlawful by reason of any law, governmental
rule, regulation, guidelines or order; or
(iii) the continuation by any Lender of any Eurodollar Loans
or Eurodollar Market Loans or the funding thereof in the applicable
interbank market would be impracticable as a result of a contingency
occurring after the date of this Agreement that materially and
adversely affects the applicable interbank market;
then, and in any such event, the Agent shall on such date give notice (by
telephone and confirmed in writing) to the Borrower of such determination. The
obligation of any Lender to make or maintain Fixed Rate Segments so affected or
to permit interest to be computed thereon based upon the Interbank Offered Rate
shall be terminated, and interest shall thereafter be computed on the affected
Segment or Segments at the then applicable Base Rate.
(b) It is the intention of the parties that the Fixed Rates
shall accurately reflect the cost to each Lender of maintaining any Fixed Rate
Segment during any period in which interest accrues thereon at a Fixed Rate.
Accordingly:
(i) if by reason of any change after the date hereof in any
applicable law or governmental rule, regulation or order (or any
interpretation thereof and including the introduction of any new law or
governmental rule, regulation or order), including any change in the
Eurodollar Reserve Percentage, the cost to any Lender of maintaining
any Fixed Rate Segment or funding the same by means of an interbank
market time deposit in the relevant interbank market shall increase,
the Fixed Rate applicable to such Fixed Rate Segment shall be adjusted
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as necessary to reflect such change in cost to such Lender, effective
as of the date on which such change in any applicable law, governmental
rule, regulation or order becomes effective; and
(ii) If any Lender shall have determined that the adoption
after the date of this Agreement of any law, rule, regulation or
guideline regarding capital adequacy, or any change in any of the
foregoing or in the interpretation or administration of any of the
foregoing by any Governmental Authority, central bank or comparable
agency charged with the interpretation or administration thereof, or
compliance by any Lender (or any lending office of any Lender) or such
Lender's holding company with any request or directive regarding
capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on such Lender's capital or on
the capital of such Lender's holding company, as a consequence of such
Lender's obligations under this Agreement or the Advances made by such
Lender pursuant hereto, to a level below that which such Lender or such
Lender's holding company could have achieved but for such adoption,
change or compliance (taking into consideration such Lender's
guidelines with respect to capital adequacy) by an amount reasonably
deemed by such Lender to be material, then from time to time the
Borrower shall pay to such Lender such additional amount or amounts as
will compensate such Lender or such Lender's holding company for any
such reduction suffered.
4.2. Compensation. The Borrower shall compensate any Lender for all
reasonable losses, expenses and liabilities (including any interest owed by such
Lender to lenders on funds borrowed by such Lender to make or carry any Fixed
Rate Segment and any loss sustained by such Lender in connection with the
re-employment of such funds), that such Lender may sustain: (a) if for any
reason (other than a default by such Lender) following agreement between the
Borrower and the Agent or the Borrower and such Lender, as the case may be, as
to the Fixed Rate applicable to a Fixed Rate Segment the Borrower fails to
accept such Fixed Rate Segment, (b) as a consequence of any unauthorized action
taken or default by the Borrower in the repayment of any Fixed Rate Segment when
required by the terms of this Agreement or (c) with respect to any loss of
income incurred by a Lender (as determined in a reasonable manner by such
Lender) associated with the payment of principal other than the last day of an
Interest Period with respect to any Fixed Rate Loan. A certificate as to the
amount of any additional amounts payable pursuant to this Section 4.2 (setting
forth in reasonable detail the basis for requesting such amounts) submitted by
such Lender to the Borrower shall be conclusive, in the absence of manifest
error. The Borrower shall pay to such Lender the
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amount shown as due on any such certificate delivered by such Lender within 30
days after the Borrower's receipt of the same.
4.3. All payments by the Borrower of principal of, and interest on, the
Loans and all other amounts payable hereunder shall be made free and clear of
and without deduction for any present or future excise, stamp or franchise taxes
or other taxes, whatsoever imposed by any taxing authority, but excluding
franchise taxes and taxes imposed on or measured by any Lender's net income or
receipts (such non-excluded items being called "Taxes"). In the event that any
withholding or deduction from any payment to be made by the Borrower hereunder
is required in respect of any Taxes pursuant to any applicable law, rule or
regulation, then the Borrower will
(a) pay directly to the relevant authority the full amount
required to be so withheld or deducted;
(b) promptly forward to the Agent an official receipt or other
documentation satisfactory to the Agent evidencing such payment to such
authority; and
(c) pay to the Agent for the account of each affected Lender such
additional amount or amounts as is necessary to ensure that the net
amount actually received by each Lender will equal the full amount such
Lender would have received had no such withholding or deduction been
required.
Moreover, if any Taxes are directly asserted against the Agent or any Lender
with respect to any payment received by the Agent or such Lender hereunder, the
Agent or such Lender may pay such Taxes and the Borrower will promptly pay such
additional amounts (including any penalties, interest or expenses) as is
necessary in order that the net amount received by the Agent or such Lender
after the payment of such Taxes (including any Taxes on such additional amount)
shall equal the amount the Agent or such Lender would have received had no such
Taxes been asserted. Upon the request of the Borrower or the Agent, each Lender
and each participant that is organized under the laws of a jurisdiction other
than the United States shall, prior to the due date of any payments hereunder or
under the Notes, execute and deliver to the Borrower and the Agent one or more
(as the Borrower or the Agent may reasonably request) United States Internal
Revenue Service Forms 4224 or Forms 1001 or such other forms or documents (or
successor forms or documents), appropriately completed, as may be applicable (if
any are) to establish the extent, if any, to which a payment to such Lender or
participant is exempt from withholding or deduction of Taxes.
If the Borrower fails to pay any Taxes when due to the appropriate
taxing authority or fails to remit to the Agent, for the account of the
respective Lender, the required amounts, receipts or other required documentary
evidence, the Borrower shall
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indemnify the Lenders for any incremental Taxes, interest or penalties that may
become payable by any Lender as a result of any such failure. For purposes of
this Section 4.3, a distribution hereunder by the Agent or any Lender to or for
the account of any Lenders shall be deemed a payment by the Borrower.
If Taxes are incorrectly or illegally paid or assessed, and if any
Lender or the Agent contests the assessment of such Taxes, such Lender or the
Agent shall refund, to the extent of any refund made to such Lender or the
Agent, any amounts paid by the Borrower under this Section in respect of such
Taxes (less the costs and expenses incurred by such Lender in connection with
such contest, including legal fees).
Without prejudice to the survival of any other agreements of the
Borrower hereunder or under any other Loan Document, the agreements of the
Borrower contained in this Section shall survive the payment in full of all its
Obligations and the termination of all Commitments.
To the extent any Lender shall become liable for the payment of any
Taxes hereunder and shall seek reimbursement therefor pursuant to this Section
4.3, the Borrower shall be entitled, upon the giving of five Business Days'
notice to the Agent and such Lender, (i) to replace such Lender with a
substitute lender, and (ii) in connection with such substitution, cause the
payment in full of the outstanding Obligation due to the Lender requesting
reimbursement without penalty or payment other than under Section 4.2; provided,
all obligations to such assigning Lender shall be paid in full, no assignment
fee shall be payable by such assigning Lender but shall be paid by Borrower and
such assigning Lender shall be entitled to the benefits of this Agreement set
forth in Sections 3.2(g), 11.6 and 11.12 and Article IV.
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ARTICLE V
5.1. Conditions of Initial Advance. The obligation of the Lenders to
make the initial Advance under the Revolving Credit Facility, the Line of Credit
Facility or the Competitive Bid Facility, and of the Issuing Bank to issue the
initial Letter of Credit, is subject to the conditions precedent that:
(a) the Agent shall have received on the Closing Date, in form
and substance satisfactory to the Agent and Lenders, the following:
(i) executed originals of each of this Agreement, the Notes,
the LC Account Agreement and the other Loan Documents, together
with all schedules and exhibits thereto;
(ii) the favorable written opinion or opinions with respect to
the Loan Documents and the transactions contemplated thereby of
counsel to the Borrower dated the Closing Date, addressed to the
Agent and the Lenders and satisfactory to Smith Helms Mulliss &
Moore, L.L.P., special counsel to the Agent, substantially in the
form of Exhibit L;
(iii) resolutions of the board of directors of the Borrower
certified by its secretary or assistant secretary as of the
Closing Date, approving and adopting the Loan Documents to be
executed by the Borrower, and authorizing the execution and
delivery and performance thereof;
(iv) specimen signatures of officers of the Borrower executing
the Loan Documents on behalf of the Borrower, certified by the
secretary or assistant secretary of the Borrower;
(v) the charter documents of the Borrower certified as of a
recent date by the Secretary of State of its state of
organization;
(vi) the bylaws of the Borrower certified as of the Closing
Date as true and correct by its secretary or assistant secretary;
(vii) certificates issued as of a recent date by the Secretary
of State of the jurisdiction of formation of the Borrower as to
the valid existence and good standing of the Borrower;
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(viii) appropriate certificates of qualification to do
business, good standing and, where appropriate, authority to
conduct business under assumed name, issued in respect of the
Borrower as of a recent date by the Secretary of State or
comparable official of each jurisdiction in which the failure to
be qualified to do business or authorized so to conduct business
could have a Material Adverse Effect;
(ix) notice of appointment of the initial Authorized
Representative(s);
(x) evidence of all insurance required by the Loan Documents;
(xi) a certificate in the form of Exhibit M completed as of
December 31, 1995;
(xii) an initial Borrowing Notice, if any, and, if elected by
the Borrower, Interest Rate Selection Notice;
(xiii) evidence that all fees payable by the Borrower on the
Closing Date to the Agent and the Lenders have been paid in full;
and
(xiv) such other documents, instruments, certificates and
opinions as the Agent or any Lender may reasonably request on or
prior to the Closing Date in connection with the consummation of
the transactions contemplated hereby; and
(b) In the good faith judgment of the Agent and the Lenders:
(i) there shall not have occurred or become known to the Agent
or the Lenders any event, condition, situation or status since the
date of the information contained in the financial and business
projections, budgets, pro forma data and forecasts concerning the
Borrower and its Consolidated Entities delivered to the Agent
prior to the Closing Date that has had or could reasonably be
expected to result in a Material Adverse Effect;
(ii) no litigation, action, suit, investigation or other
arbitral, administrative or judicial proceeding shall be pending
or threatened which could reasonably be likely to result in a
Material Adverse Effect; and
(iii) the Borrower and its Consolidated Entities shall have
received all approvals, consents and waivers, and shall have made
or given all necessary filings and notices, as shall be required
to consummate the
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transactions contemplated hereby without the occurrence of any
default under, conflict with or violation of (A) any applicable
law, rule, regulation, order or decree of any Governmental
Authority or arbitral authority or (B) any agreement, document or
instrument to which any of the Borrower or any Consolidated Entity
is a party or by which any of them or their properties is bound,
except for such approvals, consents, waivers, filings and notices
the receipt, making or giving of which will not have a Material
Adverse Effect.
5.2. Conditions of Loans and Letters of Credit. The obligations of the
Lenders to make any Loans, and the Issuing Bank to issue Letters of Credit,
hereunder on or subsequent to the Closing Date, are subject to the satisfaction
of the following conditions:
(a) the Agent shall have received a Borrowing Notice if required
by Article II;
(b) the representations and warranties of the Borrower and the
Subsidiaries set forth in Article VI and in each of the other Loan
Documents shall be true and correct in all material respects on and as
of the date of such Advance or Letter of Credit issuance or renewal,
with the same effect as though such representations and warranties had
been made on and as of such date, except to the extent that such
representations and warranties expressly relate to an earlier date and
except that the financial statements referred to in Section 6.6(a)
shall be deemed to be those financial statements most recently
delivered to the Agent and the Lenders pursuant to Section 7.1 from the
date financial statements are delivered to the Agent and the Lenders in
accordance with such Section;
(c) in the case of the issuance of a Letter of Credit, the
Borrower shall have executed and delivered to the Issuing Bank an
Application and Agreement for Letter of Credit in form and content
acceptable to the Issuing Bank together with such other instruments and
documents as it shall request;
(d) at the time of (and after giving effect to) each Advance or
the issuance of a Letter of Credit, no Default or Event of Default
shall have occurred and be continuing; and
(e) immediately after giving effect to:
(i) a Revolving Loan, the aggregate principal balance of all
outstanding Revolving Loans of a Lender plus such Lender's
Applicable Commitment Percentage of the aggregate amount of
Letter of Credit Outstandings shall not exceed such Lender's
Revolving Credit Commitment;
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(ii) a Line of Credit Loan, the aggregate principal balance
of all outstanding Line of Credit Loans for each Lender shall
not exceed such Lender's Line of Credit Commitment;
(iii) a Letter of Credit or renewal thereof, the aggregate
principal balance of all outstanding Participations in
Letters of Credit and Reimbursement Obligations (or in the
case of the Issuing Bank, its remaining interest after
deduction of all Participations in Letters of Credit and
Reimbursement Obligations of other Lenders) for each Lender
and in the aggregate shall not exceed, respectively, (X) such
Lender's Letter of Credit Commitment or (Y) the Total Letter
of Credit Commitment; and
(iv) a Revolving Loan or a Letter of Credit or renewal
thereof, the sum of Letter of Credit Outstandings plus the
aggregate principal amount of Revolving Credit Outstandings
plus outstanding Competitive Bid Loans shall not exceed the
Total Revolving Credit Commitment.
Each borrowing hereunder and each issuance of a Letter of Credit
hereunder shall constitute a representation and warranty by the
Borrower to the effect that the conditions set forth in clauses (b),
(d) and (e) have been satisfied as of the date thereof.
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ARTICLE VI
Representations and Warranties
The Borrower represents and warrants with respect to itself and (to the
extent expressly set forth below) its Consolidated Entities (which
representations and warranties shall survive the delivery of the documents
mentioned herein and the making of Loans and the issuance of a Letter of
Credit), that:
6.1. Organization and Authority.
(a) The Borrower and each Consolidated Entity is a corporation,
partnership or limited liability company duly organized and validly
existing under the laws of the jurisdiction of its formation;
(b) The Borrower and each Consolidated Entity (x) has the
requisite power and authority to own its properties and assets and to
carry on its business as now being conducted and as contemplated in the
Loan Documents, and (y) is qualified to do business in every
jurisdiction in which failure so to qualify would have a Material
Adverse Effect;
(c) The Borrower has the power and authority to execute, deliver
and perform this Agreement and the Notes, and to borrow and obtain other
extensions of credit hereunder, and to execute, deliver and perform each
of the other Loan Documents to which it is a party; and
(d) When executed and delivered, each of the Loan Documents to
which the Borrower is a party will be the legal, valid and binding
obligation or agreement, as the case may be, of the Borrower,
enforceable against the Borrower in accordance with its terms, subject
to the effect of any applicable bankruptcy, moratorium, insolvency,
reorganization or other similar law affecting the enforceability of
creditors' rights generally and to the effect of general principles of
equity (whether considered in a proceeding at law or in equity).
6.2. Loan Documents. The execution, delivery and performance by the
Borrower of each of the Loan Documents and the credit extensions hereunder:
(a) have been duly authorized by all requisite corporate actions
(including any required shareholder approval) of the Borrower required
for the lawful execution, delivery and performance thereof;
(b) do not violate any provisions of (i) applicable law, rule or
regulation, (ii) any judgment, writ, order, determination, decree or
arbitral award of any Governmental
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Authority or arbitral authority binding on the Borrower or any
Subsidiary or its or any Subsidiary's properties, or (iii) the charter
documents or bylaws of the Borrower;
(c) do not and will not be in conflict with, result in a breach of
or constitute an event of default, or an event which, with notice or
lapse of time or both, would constitute an event of default, under any
contract, indenture, agreement or other instrument or document to which
Borrower or any Consolidated Entity is a party, or by which the
properties or assets of the Borrower or any Consolidated Entity are
bound; and
(d) do not and will not result in the creation or imposition of
any Lien upon any of the properties or assets of Borrower or any
Subsidiary.
6.3. Solvency. The Borrower is Solvent and the Borrower and its
Consolidated Entities taken as a whole are Solvent, in each case after giving
effect to the transactions contemplated by the Loan Documents.
6.4. Subsidiaries. The Borrower has no Subsidiaries other than those
Persons listed as Subsidiaries in Schedule 6.4 and additional Subsidiaries
created or acquired after the Closing Date.
6.5. Ownership Interest. Borrower owns no interest in any Person other
than the Persons listed in Schedule 6.4, equity investments in Persons not
constituting Subsidiaries permitted under Section 8.2 and additional
Subsidiaries created or acquired after the Closing Date.
6.6. Financial Condition.
(a) The Borrower has heretofore furnished to each Lender an
audited consolidated balance sheet of the Borrower and its Consolidated
Entities as at December 31, 1995 and the notes thereto and the related
consolidated statements of income, stockholders' equity and cash flows
for the Fiscal Year then ended as examined and certified by Ernst &
Young LLP. Except as set forth therein, such financial statements
(including the notes thereto) present fairly the financial condition of
the Borrower and its Consolidated Entities as of the end of such Fiscal
Year and results of their operations and the changes in stockholders'
equity for the Fiscal Year then ended, all in conformity with GAAP
applied on a Consistent Basis;
(b) since December 31, 1995 there has been no material adverse
change in the condition, financial or otherwise, of the Borrower and
its Consolidated Entities taken as a whole or in the businesses,
properties, performance, prospects or operations of the Borrower and
Consolidated Entities taken as a whole, nor have such businesses or
properties been
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materially adversely affected as a result of any fire, explosion,
earthquake, accident, strike, lockout, combination of workers, flood,
embargo or act of God; provided that one-time expenses recognized in
the first quarter of 1996 with respect to the Acquisitions of Surgical
Care Affiliates, Inc. and Advantage Health Corporation shall not be
deemed to constitute material adverse changes; and
(c) neither the Borrower nor any Consolidated Entity has any
material Indebtedness, Guaranteed Obligations or other obligations or
liabilities, direct or contingent, in an aggregate amount in excess of
$300,000 other than (a) the liabilities reflected in such balance sheet
and the notes thereto or (b) liabilities incurred in the ordinary
course of business.
6.7. Title to Properties. The Borrower and each Consolidated Entity has
good and marketable title to all its real and personal properties, subject to no
transfer restrictions or Liens of any kind, except for the transfer restrictions
and Liens permitted by this Agreement.
6.8. Taxes. The Borrower and each Consolidated Entity have filed or
caused to be filed all federal, state and local tax returns which are required
to be filed by it and, except for taxes and assessments being contested in good
faith by appropriate proceedings diligently conducted and against which reserves
reflected in the financial statements described in Section 6.6(a) and
satisfactory to the Borrower's independent certified public accountants have
been established, have paid or caused to be paid all taxes as shown on said
returns or on any assessment received by it, to the extent that such taxes have
become due.
6.9. Other Agreements.
(a) Neither the Borrower nor any Consolidated Entity is a party to
or subject to any judgment, order, decree, agreement, lease or
instrument, or subject to other restrictions, compliance with the terms
of which individually or in the aggregate could reasonably be expected
to have a Material Adverse Effect;
(b) neither the Borrower nor any Consolidated Entity is in
default in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in (i) any Medicaid
Provider Agreement, Medicare Provider Agreement or other agreement or
instrument to which the Borrower or any Consolidated Entity is a party,
which default has resulted in, or if not remedied within any applicable
grace period could result in, the revocation, termination, cancellation
or suspension of Medicaid Certification or Medicare Certification of
Borrower or any Consolidated Entity which could have a Material Adverse
Effect or (ii) any other
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agreement or instrument to which the Borrower or any Consolidated
Entity is a party, which default has, or if not remedied within any
applicable grace period could reasonably be likely to have, a Material
Adverse Effect;
(c) to the knowledge of Borrower's Executive Officers, no
Contract Provider is a party to any judgment, order, decree, agreement
or instrument, or subject to restrictions, compliance with the terms of
which could individually or in the aggregate reasonably be expected to
have a Material Adverse Effect; and
(d) to the knowledge of Borrower's Executive Officers, no
Contract Provider is in default in the performance, observance or
fulfillment of any of the obligations, covenants or conditions
contained in any Medicaid Provider Agreement, Medicare Provider
Agreement or other agreement or instrument to which such Person is a
party, which default has resulted in, or if not remedied within any
applicable grace period could result in, the revocation, termination,
cancellation or suspension of Medicaid Certification or Medicare
Certification of such Person, which revocation, termination,
cancellation or suspension could reasonably be likely to have a
Material Adverse Effect.
6.10. Litigation. There is no action, suit, investigation or proceeding
at law or in equity or by or before any governmental instrumentality or agency
or arbitral body pending or, to the knowledge of the Borrower, threatened by or
against the Borrower or any Consolidated Entity or, to the knowledge of the
Borrower, pending or threatened by or against any Contract Provider, or
affecting the Borrower or any Consolidated Entity or, to the knowledge of the
Borrower, any Contract Provider or any properties or rights of the Borrower or
any Consolidated Entity or, to the knowledge of the Borrower, any Contract
Provider, which could reasonably be expected (i) to result in the revocation,
termination, cancellation or suspension of Medicaid Certification or Medicare
Certification of such Person, which revocation, termination, cancellation or
suspension could reasonably be likely to have a Material Adverse Effect, or (ii)
to have a Material Adverse Effect.
6.11. The proceeds of the borrowings and other extensions of credit
made hereunder will be used by the Borrower only for the purposes expressly
authorized herein. None of such proceeds will be used, directly or indirectly,
for the purpose of purchasing or carrying any margin stock or for the purpose of
reducing or retiring any Indebtedness which was originally incurred to purchase
or carry margin stock or for any other purpose which might constitute any of the
Loans or Letters of Credit under this Agreement a "purpose credit" within the
meaning of Regulation U or Regulation X of the Board. Neither the Borrower nor
any agent acting in its behalf has taken or will take any action which might
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cause this Agreement or any of the documents or instruments delivered pursuant
hereto to violate any regulation of the Board or to violate the Exchange Act or
the Securities Act of 1933, as amended, or any state securities laws, in each
case as in effect on the date hereof.
6.12. Investment Company. Neither the Borrower nor any Consolidated
Entity is an "investment company," or an "affiliated person" of, or "promoter"
or "principal underwriter" for, an "investment company", as such terms are
defined in the Investment Company Act of 1940, as amended (15 U.S.C. ss. 80a-1,
et seq.). The application of the proceeds of the Loans and repayment thereof by
the Borrower and the issuance of Letters of Credit and the performance by the
Borrower and any Consolidated Entity of the transactions contemplated by the
Loan Documents will not violate any provision of said Act, or any rule,
regulation or order issued by the Securities and Exchange Commission thereunder,
in each case as in effect on the date hereof.
6.13. The Borrower and each Consolidated Entity owns or has the right
to use, under valid license agreements or otherwise, all material patents,
licenses, franchises, trademarks, trademark rights, trade names, trade name
rights, trade secrets, service marks, service mark rights and copyrights
necessary to or used in the conduct of its businesses as now conducted and as
contemplated by the Loan Documents, without known conflict by, or with, any
patent, license, franchise, trademark, trade secret, trade name, service mark,
copyright or other proprietary right of, any other Person.
6.14. Neither (a) this Agreement nor any other Loan Document or
certificate or document executed and delivered by or on behalf of the Borrower
or any Consolidated Entity in accordance with or pursuant to any Loan Document
nor (b) any statement, representation, or warranty provided to the Agent or any
Lender in connection with the negotiation or preparation of the Loan Documents
contains any misrepresentation or untrue statement of material fact or omits to
state a material fact necessary, in light of the circumstance under which it was
made, in order to make any such warranty, representation or statement contained
therein not misleading.
6.15. Neither the respective businesses or properties of the Borrower
or any Consolidated Entity, nor any relationship between the Borrower or any
Consolidated Entity and any other Person, nor any circumstance in connection
with the execution, delivery and performance of the Loan Documents and the
transactions contemplated thereby, is such as to require a consent, approval or
authorization of, or filing, registration or qualification with, any
Governmental Authority or any other Person on the part of the Borrower or any
Consolidated Entity as a condition to the execution, delivery and performance
of, or consummation of the transactions contemplated by, or the validity
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or enforceability of, the Loan Documents, which, if not obtained or effected,
would be reasonably likely to have a Material Adverse Effect, or if so, such
consent, approval, authorization, filing, registration or qualification has been
duly obtained or effected, as the case may be;
6.16. ERISA Requirement. (i) The execution and delivery of the Loan
Documents will not involve any prohibited transaction within the meaning of
ERISA, (ii) the Borrower and each ERISA Affiliate has fulfilled its obligations
under the minimum funding standards imposed by ERISA and each is in compliance
in all material respects with the applicable provisions of ERISA, and (iii) no
"Reportable Event," as defined in Section 4043(b) of Title IV of ERISA, has
occurred with respect to any plan maintained by the Borrower or any of its ERISA
Affiliate.
6.17. No Default. As of the date hereof, there does not exist any
Default or Event of Default.
6.18. Hazardous Materials. The Borrower and each Consolidated Entity is
in compliance with all applicable Environmental Laws in all material respects.
Neither the Borrower nor any Consolidated Entity has been notified of any
action, suit, proceeding or investigation which, and neither the Borrower nor
any Consolidated Entity is aware of any facts which, (i) calls into question, or
could reasonably be expected to call into question, compliance in all material
respects by the Borrower or any Consolidated Entity with any Environmental Laws,
(ii) which seeks, or could reasonably be expected to form the basis of a
meritorious proceeding, to suspend, revoke or terminate any material license,
permit or approval necessary for the generation, handling, storage, treatment or
disposal of any Hazardous Material, or (iii) seeks to cause, or could reasonably
be expected to form the basis of a meritorious proceeding to cause, any property
of the Borrower or any Consolidated Entity to be subject to any material
restrictions on ownership, use, occupancy or transferability under any
Environmental Law.
6.19. Employment Matters. (a) Except as set forth on Schedule 6.19,
none of the employees of the Borrower or any Consolidated Entity is subject to
any collective bargaining agreement and there are no strikes, work stoppages,
election or decertification petitions or proceedings, unfair labor charges,
equal opportunity proceedings, or other material labor/employee related
controversies or proceedings pending or, to the best knowledge of the Borrower,
threatened against the Borrower or any Consolidated Entity or between the
Borrower or any Consolidated Entity and any of its employees, other than
employee grievances, controversies or proceedings arising in the ordinary course
of business which could not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect; and
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(b) Except to the extent a failure to maintain compliance would not
have a Material Adverse Effect, the Borrower and each Consolidated Entity is in
compliance in all respects with all applicable laws, rules and regulations
pertaining to labor or employment matters, including without limitation those
pertaining to wages, hours, occupational safety and taxation and there is
neither pending nor threatened any litigation, administrative proceeding or, to
the knowledge of the Borrower, any investigation, in respect of such matters
which, if decided adversely, could reasonably be likely, individually or in the
aggregate, to have a Material Adverse Effect.
6.20. RICO. Neither the Borrower nor any Consolidated Entity is engaged
in or has engaged in any course of conduct that could subject any of their
respective properties to any Lien, seizure or other forfeiture under any
criminal law, racketeer influenced and corrupt organizations law, civil or
criminal, or other similar laws.
6.21. Reimbursement from Third Party Payors. The accounts receivable of
the Borrower and each Consolidated Entity and each Contract Provider have been
and will continue to be adjusted to reflect reimbursement policies of third
party payors such as Medicare, Medicaid, Blue Cross/Blue Shield, private
insurance companies, health maintenance organizations, preferred provider
organizations, alternative delivery systems, managed care systems, government
contracting agencies and other third party payors. In particular, accounts
receivable relating to such third party payors do not and shall not exceed
amounts any obligee is entitled to receive under any capitation arrangement, fee
schedule, discount formula, cost-based reimbursement or other adjustment or
limitation to its usual charges.
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ARTICLE VII
Affirmative Covenants
Until the Facility Termination Date and termination of this Agreement
in accordance with the terms hereof, unless the Required Lenders shall otherwise
consent in writing, the Borrower will, and where applicable will cause each
Consolidated Entity to:
7.1. Financial Statements, Reports, Etc. The Borrower shall deliver or
cause to be delivered to the Agent and each Lender:
(a) Not later than 50 days after the end of each of the first
three quarters of each Fiscal Year, a balance sheet and a statement of
revenues and expenses of the Borrower and its Consolidated Entities on
a consolidated basis and a statement of cash flow of the Borrower and
its Consolidated Entities on a consolidated basis for such calendar
quarter and for the period beginning on the first day of such Fiscal
Year and ending on the last day of such quarter (in sufficient detail
to indicate the Borrower's and each Consolidated Entity's compliance
with the financial covenants set forth in Section 8.1), together with
statements in comparative form for the corresponding date or period in
the preceding Fiscal Year as summarized in the Borrower's Form 10-Q for
the corresponding period, and certified as to fairness, accuracy and
completeness by the chief executive officer, chief financial officer or
Treasurer of the Borrower.
(b) Not later than 100 days after the end of each Fiscal Year,
financial statements (including a balance sheet, a statement of
revenues and expenses, a statement of changes in shareholders' equity
and a statement of cash flow) of the Borrower and its Consolidated
Entities on a consolidated basis for such Fiscal Year (in sufficient
detail to indicate the Borrower's and each Consolidated Entity's
compliance with the financial covenants set forth in Section 8.1),
together with statements in comparative form as of the end of and for
the preceding Fiscal Year as summarized in the Borrower's Form 10-K for
the corresponding period, and accompanied by an opinion of certified
public accountants acceptable to the Agent, which opinion shall state
in effect that such financial statements (A) were audited using
generally accepted auditing standards, (B) were prepared in accordance
with generally accepted accounting principles applied on a Consistent
Basis, and (C) present fairly the financial condition and results of
operations of the Borrower and its Consolidated Entities for the
periods covered.
(c) Together with the financial statements required by paragraphs
(1) and (2) above a compliance certificate duly executed by the chief
executive officer or chief financial
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officer or Treasurer of the Borrower in the form of Exhibit M
("Compliance Certificate").
(d) Contemporaneously with the distribution thereof to the
Borrower's or any Consolidated Entity's stockholders or partners or the
filing thereof with the Securities and Exchange Commission, as the case
may be, copies of all statements, reports, notices and filings
distributed by the Borrower or any Consolidated Entity to its
stockholders or partners or filed with the Securities and Exchange
Commission (including reports on SEC Forms 10-K, 10-Q and 8-K).
(e) Promptly after the Borrower knows or has reason to know of the
occurrence of any "reportable event" under Section 4043 of ERISA
applicable to the Borrower or any ERISA Affiliate, a certificate of the
president or chief financial officer of the Borrower setting forth the
details as to such "reportable event" and the action that the Borrower
or the ERISA Affiliate has taken or will take with respect thereto, and
promptly after the filing or receiving thereof, copies of all reports
and notices that the Borrower and each Consolidated Entity files under
ERISA with the Internal Revenue Service or the PBGC or the United
States Department of Labor.
(f) Promptly after the Borrower or any of its Consolidated
Entities becomes aware of the commencement thereof, notice of any
investigation, action, suit or proceeding before any Governmental
Authority involving the condemnation or taking under the power of
eminent domain of any of its property or the revocation or suspension
of any permit, license, certificate of need or other governmental
requirement applicable to any Facility.
(g) Within 10 days of the receipt by the Borrower or any of its
Consolidated Entities, copies of all material deficiency notices,
compliance orders or adverse reports issued by any Governmental
Authority or accreditation commission having jurisdiction over
licensing, accreditation or operation of a Facility or by any
Governmental Authority or private insurance company pursuant to a
provider agreement, which, if not promptly complied with or cured,
could result in the suspension or forfeiture of any license,
certification or accreditation necessary in order for such Facility to
carry on its business as then conducted or the termination of any
material insurance or reimbursement program available to such Facility.
(h) Such other information regarding any Facility or the financial
condition or operations of the Borrower or its Consolidated Entities as
the Agent shall reasonably request from time to time or at any time.
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7.2. Maintain Properties. Maintain all properties necessary to its
operations in good working order and condition, make all needed repairs,
replacements and renewals to such properties, and maintain free from Liens all
trademarks, trade names, service marks, patents, copyrights, trade secrets,
know-how, and other intellectual property and proprietary information (or
adequate licenses thereto), in each case as are reasonably necessary to conduct
its business as currently conducted or as contemplated hereby, all in accordance
with customary and prudent business practices.
7.3. Existence, Qualification, Etc. Except as otherwise expressly
permitted under Section 8.4, do or cause to be done all things necessary to
preserve and keep in full force and effect its existence and all material rights
and franchises, and maintain its license or qualification to do business as a
foreign corporation and good standing in each jurisdiction in which its
ownership or lease of property or the nature of its business makes such license
or qualification necessary.
7.4. Regulations and Taxes. Comply in all material respects with or
contest in good faith all statutes and governmental regulations and pay all
taxes, assessments, governmental charges, claims for labor, supplies, rent and
any other obligation which, if unpaid, would become a Lien against any of its
properties except liabilities being contested in good faith by appropriate
proceedings diligently conducted and against which adequate reserves acceptable
to the Borrower's independent certified public accountants have been established
unless and until any Lien resulting therefrom attaches to any of its property
and becomes enforceable by its creditors.
7.5. Insurance. At all times maintain in force, and pay all premiums
and costs related to, insurance coverages in amounts deemed by the management of
the Borrower to be sufficient in accordance with usual and customary business
practices and any other coverages required under applicable governmental
requirements. The Borrower shall deliver to the Agent annually on or before each
anniversary date of this Agreement, and at such other time or times as the Agent
may request (but not more often than monthly), a certificate of the president or
chief financial officer of the Borrower setting out in such detail as the Agent
may reasonably require a description of all insurance coverages maintained by
the Borrower and each Consolidated Entity. The Agent shall have no obligation to
give the Borrower or any Consolidated Entity notice of any notification received
by the Agent with respect to any insurance policies or take any steps to protect
the Borrower's or any Consolidated Entity's interests under such policies.
7.6. True Books. Keep true books of record and account in which full,
true and correct entries will be made of all of its dealings and transactions,
and set up on its books such reserves as
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may be required by GAAP with respect to doubtful accounts and all taxes,
assessments, charges, levies and claims and with respect to its business in
general, and include such reserves in interim as well as year-end financial
statements.
7.7. Right of Inspection. Permit any Person designated by the Agent to
visit and inspect any of the properties, corporate books and financial reports
of the Borrower or any Subsidiary and to discuss its affairs, finances and
accounts with its principal officers and independent certified public
accountants, all at reasonable times, at reasonable intervals and with
reasonable prior notice.
7.8. Observe all Laws. Conform to and duly observe, and cause all
Contract Providers to conform to and duly observe, in all material respects all
laws, rules and regulations and all other valid requirements of any regulatory
authority with respect to the conduct of its business, including without
limitation Titles XVIII and XIX of the Social Security Act, Medicare
Regulations, Medicaid Regulations, and all laws, rules and regulations of
Governmental Authorities pertaining to the licensing of professional and other
health care providers, except where the failure to do so could not reasonably be
expected to have a Material Adverse Effect.
7.9. Governmental Licenses. Obtain and maintain, and use reasonable
effort to cause all Contract Providers to obtain and maintain, all licenses,
permits, certifications and approvals of all applicable Governmental Authorities
as are required for the conduct of its business as currently conducted and
herein contemplated, including without limitation professional licenses,
Medicaid Certifications and Medicare Certifications, except where the failure to
do so could not reasonably be expected to have a Material Adverse Effect.
7.10. Covenants Extending to Other Persons. Cause each of its
Consolidated Entities to do with respect to itself, its business and its assets,
each of the things required of the Borrower in Sections 7.2 through 7.9, 7.15
and 7.16 inclusive.
7.11. Officer's Knowledge of Default. Upon any Executive Officer of the
Borrower obtaining knowledge of any Default or Event of Default or any default
or event of default under any other obligation of the Borrower or any
Consolidated Entity to any Lender, or any event, development or occurrence which
could reasonably be expected to have a Material Adverse Effect, cause such
Executive Officer or an Authorized Representative to promptly notify the Agent
of the nature thereof, the period of existence thereof, and what action the
Borrower or such Consolidated Entity proposes to take with respect thereto. The
Agent shall notify the Lenders of receipt of such notice.
7.12. Suits or Other Proceedings. Upon any Executive Officer of the
Borrower obtaining knowledge of any litigation or
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other proceedings being instituted (i) against the Borrower or any Subsidiary,
or any attachment, levy, execution or other process being instituted against any
assets of the Borrower or any Subsidiary or Controlled Partnership, which if
adversely determined could reasonably be likely to have a Material Adverse
Effect or (ii) against the Borrower, any Subsidiary or any Contract Provider
(but only with respect to services provided to the Borrower or any Consolidated
Entity) to suspend, revoke or terminate any Medicaid Provider Agreement,
Medicaid Certification, Medicare Provider Agreement or Medicare Certification,
which suspension, revocation or termination could reasonably be likely to have a
Material Adverse Effect, cause such Executive Officer or an Authorized
Representative to promptly deliver to the Agent written notice thereof stating
the nature and status of such litigation, dispute, proceeding, levy, execution
or other process.
7.13. Notice of Discharge of Hazardous Material or Environmental
Complaint. Promptly provide to the Agent true, accurate and complete copies of
any and all notices, complaints, orders, directives, claims, or citations
received by the Borrower or any Consolidated Entity relating to any of the
following which is likely to have a Material Adverse Effect: (a) violation or
alleged violation by the Borrower or any Consolidated Entity of any applicable
Environmental Law; (b) release or threatened release by the Borrower or any
Consolidated Entity, or at any Facility or property owned or leased or operated
by the Borrower or any Consolidated Entity, of any Hazardous Material, except
where occurring legally; or (c) liability or alleged liability of the Borrower
or any Consolidated Entity for the costs of cleaning up, removing, remediating
or responding to a release of Hazardous Materials.
7.14. Environmental Compliance. If the Borrower or any Consolidated
Entity shall receive any letter, notice, complaint, order, directive, claim or
citation from any Governmental Authority alleging that the Borrower or any
Consolidated Entity has violated any Environmental Law or is liable for the
costs of cleaning up, removing, remediating or responding to a release of
Hazardous Materials within the time period permitted by the applicable
Environmental Law or the Governmental Authority responsible for enforcing such
Environmental Law, remove or remedy, or cause the applicable Consolidated Entity
to remove or remedy, such violation or release or satisfy such liability unless
and only during the period that the applicability of such Environmental Law, the
fact of such violation or liability or what is required to remove or remedy such
violation is being contested by the Borrower or the applicable Consolidated
Entity by appropriate proceedings diligently conducted and all reserves with
respect thereto as may be required under GAAP, if any, have been made, and no
Lien in connection therewith shall have attached to any property of the Borrower
or the applicable Consolidated Entity which shall have become enforceable
against creditors of such Person.
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7.15. Continuation of Current Business. Not engage in any business
other than the business now being conducted by the Borrower and other businesses
directly related to such services.
7.16. Management Contracts. Not enter into any agreement whereby the
management, supervision or control of its business or any Facility shall be
delegated to or placed in any persons other than its governing body and
officers, the Borrower or a Consolidated Entity, except that (i) management of
the Facility owned by Vanderbilt Stallworth Rehabilitation Hospital, L.P. is
vested in part in a Governance Committee and in part in a Subsidiary of the
Borrower pursuant to the applicable limited partnership agreement and a
management agreement and (ii) the Facility known as Nashville Rehabilitation
Hospital located in Nashville, Tennessee may be managed by an independent body
until such time as such Facility is sold.
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ARTICLE VIII
Negative Covenants
Until the Facility Termination Date and termination of this Agreement
in accordance with the terms hereof, unless the Required Lenders shall otherwise
consent in writing, the Borrower will not, nor (to the extent expressly set
forth below) will it permit any Consolidated Entity to:
8.1. Financial Convenants.
(a) Minimum Net Worth. Permit Consolidated Net Worth to be less
than $917,711,000 plus (A) 50% of Consolidated Net Income (if positive
and including for purposes of this Section 8.1(a) only any
extraordinary gain), on an ongoing basis for each fiscal quarter
beginning with the fiscal quarter ended March 31, 1996, plus (B) the
aggregate amount of all increases, if any, in its capital accounts
resulting from the issuance of Capital Stock or conversion of debt into
Capital Stock or other securities properly classified as equity in
accordance with generally accepted accounting principles, or from the
sale or other disposition of treasury shares, from the date of this
Agreement through the date of determination plus (c) without
duplication, any addition to Consolidated Stockholders' Equity
resulting from an Acquisition after the Closing Date which shall be
accounted for on a pooling-of-interests basis.
(b) Consolidated EBITDA to Consolidated Interest Expense Ratio.
Permit the ratio of Consolidated EBITDA to Consolidated Interest
Expense at any time to be less than or equal to 2.50 to 1.00.
(c) Consolidated Indebtedness to Consolidated Total Capital.
Permit the ratio of Consolidated Indebtedness to Consolidated Total
Capital at any time to equal or exceed .65 to 1.00.
8.2. Investments and Loans. Purchase or otherwise acquire any stock,
security, obligation or evidence of indebtedness of, make any capital
contribution to, own any equity interest in, or make any loan or advance to, any
other Person; provided, however, that the Borrower and its Consolidated Entities
may (A) continue to hold all stock of and own partnership interests in the
Persons that constitute Consolidated Entities on the Closing Date and Persons
that thereafter become Consolidated Entities as a result of Acquisitions
permitted under Section 8.8; (B) make Permitted Investments; and (C) make
investments in an amount not exceeding 15% of Consolidated Total Assets.
8.3. Indebtedness. Permit to exist Indebtedness, howsoever evidenced,
of Subsidiaries and Controlled Partnerships (exclusive
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of Indebtedness to the Borrower) in an aggregate amount at any time exceeding
the greater of $70,000,000 or 15% of Consolidated Tangible Net Worth, excluding,
however, Indebtedness of Subsidiaries and Controlled Partnerships existing as of
the date hereof and described on Schedule 8.3.
8.4. Disposition of Assets. Sell, lease, transfer or otherwise dispose
of assets in excess of 15% of Consolidated Total Assets as at the Closing Date
plus an amount equal to 15% of assets acquired following the Closing Date.
8.5. Consolidation or Merger. Merge or consolidate with another Person
unless (i) in the case of a merger or consolidation of the Borrower, the
Borrower is the continuing or surviving entity, (ii) in the case of a merger or
consolidation involving a Consolidated Entity, the continuing or surviving
entity is majority-owned by the Borrower (with such majority ownership
constituting a controlling interest), and (iii) before and after giving effect
to the proposed merger or consolidation, no Default or Event of Default shall
exist.
8.6. Liens. Incur, create, assume or permit to exist any Lien upon any
of its accounts receivable, contract rights, chattel paper, inventory,
equipment, instruments, general intangibles or other personal or real property
of any character, whether now owned or hereafter acquired, other than (i) Liens
that constitute Permitted Encumbrances, and (ii) Liens on assets which at no
time have a book value of greater than 5% of Consolidated Total Assets.
8.7. Dividends and Distributions. Permit any Consolidated Entity to be
or become subject to any restrictions on the ability of such Consolidated Entity
to pay dividends or to make partnership distributions other than as required by
this Agreement or restrictions imposed by applicable law.
8.8. Acquisitions. Enter into any agreement to acquire any Person or
Facility unless (i) the Person or Facility to be acquired is in substantially
the same line of business presently engaged in by the Borrower or its
Consolidated Entities, and (ii) if the Cost of Acquisition exceeds $150,000,000
the Borrower shall have furnished to the Agent (A) pro forma historical
financial statements as of the end of the most recently completed Fiscal Year of
the Borrower and most recent interim fiscal quarter, if applicable, giving
effect to such Acquisition and (B) a Compliance Certificate prepared on an
historical pro forma basis giving effect to such Acquisition, which certificate
shall demonstrate that no Default or Event of Default would exist immediately
after giving effect thereto.
8.9. Restricted Payments. Make any Restricted Payment or apply or set
apart any of their assets therefor or agree to do any of the foregoing;
provided, however, the Borrower may make the Restricted Payments in any Fiscal
Year (on a non-cumulative basis,
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with the effect that amounts not paid in any Fiscal Year may not be carried over
for payment in a subsequent period) if immediately prior and immediately after
giving effect thereto no Default or Event of Default shall exist or occur and be
continuing.
8.10. Compliance with ERISA. With respect to any Pension Plan, Employee
Benefit Plan or Multiemployer Plan:
(a) permit the occurrence of any Termination Event which would
result in a liability on the part of the Borrower or any ERISA
Affiliate to the PBGC which liability would have a Material Adverse
Effect; or
(b) permit the present value of all benefit liabilities under
all Pension Plans to exceed the current value of the assets of such
Pension Plans allocable to such benefit liabilities; or
(c) permit any accumulated funding deficiency (as defined in
Section 302 of ERISA and Section 412 of the Code) with respect to any
Pension Plan, whether or not waived; or
(d) fail to make any contribution or payment to any
Multiemployer Plan which the Borrower or any ERISA Affiliate may be
required to make under any agreement relating to such Multiemployer
Plan, or any law pertaining thereto; or
(e) engage, or permit any Subsidiary or any ERISA Affiliate to
engage, in any prohibited transaction under Section 406 of ERISA or
Section 4975 of the Code for which a civil penalty pursuant to Section
502(I) of ERISA or a tax pursuant to Section 4975 of the Code may be
imposed; or
(f) permit the establishment of any Employee Benefit Plan
providing post-retirement welfare benefits or establish or amend any
Employee Benefit Plan which establishment or amendment could result in
liability to the Borrower or any ERISA Affiliate or increase the
obligation of the Borrower or any ERISA Affiliate to a Multiemployer
Plan which liability or increase, individually or together with all
similar liabilities and increases, is in excess of $5,000,000; or
(g) fail, or permit any Subsidiary or any ERISA Affiliate to
fail, to establish, maintain and operate each Employee Benefit Plan in
compliance in all material respects with the provisions of ERISA, the
Code, all applicable Foreign Benefit Laws and all other applicable laws
and the regulations and interpretations thereof.
8.11. Fiscal Year. Change its Fiscal Year.
8.12. Dissolution, etc. Wind up, liquidate or dissolve (voluntarily or
involuntarily) or commence or suffer any
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proceedings seeking any such winding up, liquidation or dissolution, except in
connection with a merger or consolidation permitted pursuant to Section 8.5.
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ARTICLE IX
Events of Default Acceleration
9.1 Events of Default. If any one or more of the following events
(herein called "Events of Default") shall occur for any reason whatsoever (and
whether such occurrence shall be voluntary or involuntary or come about or be
effected by operation of law or pursuant to or in compliance with any judgment,
decree or order of any court or any order, rule or regulation of any
Governmental Authority), that is to say:
(a) the Borrower shall fail to pay (i) when due any principal
payable under the terms of any Note or any Reimbursement Obligation or
(ii) not later than five Business Days of the date when due any
interest or fees payable under the terms of any Note or any other
amount payable under this Agreement or any other of the other
Obligations or any other amount owed to the Agent or any of the Lenders
under or in connection with the Loan Documents; or
(b) The Borrower or any Material Group shall default in the
performance or observance of any other provision of this Agreement
(other than the provisions of Article VII and Article VIII), except as
covered by clause (a) above, and shall not cure such default within
thirty days after the first to occur of (i) the date the Agent or any
Lender gives written or telephonic notice of such default to the
Borrower or (ii) the date the Borrower otherwise has notice thereof; or
(c) the Borrower or any Material Group shall default in the
observance or performance of any provision in Article VII or Article
VIII; or
(d) the Agent shall reasonably determine that any statement,
certification, representation or warranty contained herein, or in any
of the other Loan Documents or in any report, financial statement,
certificate or other instrument delivered to the Agent or any Lender by
or on behalf of the Borrower or any Consolidated Entity, was misleading
or untrue in any material respect at the time it was made or deemed
made; or
(e) default shall be made (i) in the payment of any
Indebtedness exceeding $5,000,000 (other than the Obligations) of the
Borrower or any Consolidated Entity when due or (ii) in the
performance, observance or fulfillment of any term or covenant
contained in any agreement or instrument under or pursuant to which any
such Indebtedness may have been issued, created, assumed, guaranteed or
secured by Borrower or any Consolidated Entity, if the effect of such
default in the performance, observance or fulfillment is to accelerate
the maturity of such Indebtedness or to permit the holder thereof
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to cause such Indebtedness to become due prior to its stated maturity,
and such default shall not be cured within 10 days after the occurrence
of such default, and the amount of the Indebtedness involved exceeds
$5,000,000; or
(f) the Borrower or any Material Group shall fail to pay or
admit in writing its inability to pay its or their debts generally as
they come due, or a receiver, trustee, liquidator or other custodian
shall be appointed for the Borrower or any Material Group or for any of
the property of the Borrower or any Material Group or a petition in
bankruptcy, or under any insolvency law, shall be filed by or against
the Borrower or any Material Group or the Borrower or any Material
Group shall apply for the benefit of, or take advantage of, any law for
relief of debtors, or enter into an arrangement or composition with, or
make an assignment for the benefit of, creditors; or
(g) final judgment for the payment of money in excess of any
aggregate of $500,000 shall be rendered against the Borrower or any
Material Group, and the same shall remain undischarged for a period of
30 days during which execution shall not be effectively stayed; or
(h) an event of default, as therein defined, shall occur under
any other Loan Document; or
(i) any of the Notes or LC Account Agreement shall be deemed
unenforceable by a court of competent jurisdiction or shall no longer
be effective; or
(j) the Borrower or any Consolidated Entity shall, other than
in the ordinary course of business (as determined by past practices),
suspend all or any part of its operations material to the conduct of
the business of the Borrower and its Consolidated Entities, taken as a
whole, for a period of more than 60 days;
(k) the Borrower or any Consolidated Entity shall breach any
of the material terms or conditions of any agreement under which any
Rate Hedging Obligations are created and such breach shall continue
beyond any grace period, if any, relating thereto pursuant to the terms
of such agreement, or the Borrower or any Consolidated Entity shall
disaffirm or seek to disaffirm any such agreement or any of its
obligations thereunder;
(l) there shall occur (i) any cancellation, revocation,
suspension or termination of any Medicare Certification, Medicare
Provider Agreement, Medicaid Certification or Medicaid Provider
Agreement affecting the Borrower, any Subsidiary or any Contract
Provider, or (ii) the loss of any other permits, licenses,
authorizations, certifications or approvals from any federal, state or
local Governmental
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Authority or termination of any contract with any such authority, in
either case which cancellation, revocation, suspension, termination or
loss (X) in the case of any suspension or temporary loss only,
continues for a period greater than 60 days and (Y) results in the
suspension or termination of operations of the Borrower or any
Subsidiary or in the failure of the Borrower or any Subsidiaries or any
Contract Provider to be eligible to participate in Medicare or Medicaid
programs or to accept assignments of rights to reimbursement under
Medicaid Regulations or Medicare Regulations, if and only if such
Person, in the ordinary course of business, participates in the
Medicare or Medicare programs or accepts assignments of rights to
reimbursement thereunder; provided that any such events described in
this Section 9.1(l) shall constitute an Event of Default only if such
event shall result either singly or in the aggregate in the
termination, cancellation, suspension or material impairment of
operations or rights to reimbursement which produce 5% or more of the
Borrower's gross revenues (on an annualized basis); or
(m) there shall occur a Change of Control;
then, and in any such event and at any time thereafter, if such Event of Default
or any other Event of Default shall then be continuing and shall have not been
waived,
(A) either or both of the following actions may be taken: (i)
the Agent, with the consent of the Required Lenders, may, and at the
direction of the Required Lenders shall, declare any obligation of the
Lenders and the Issuing Bank to make further Loans or to issue
additional Letters of Credit terminated, whereupon the obligation of
each Lender to make further Loans and of the Issuing Bank to issue
additional Letters of Credit hereunder shall terminate immediately, and
(ii) the Agent shall at the direction of the Required Lenders, at their
option, declare by notice to the Borrower any or all of the Obligations
to be immediately due and payable, and the same, including all interest
accrued thereon and all other obligations of the Borrower to the Agent
and the Lenders, shall forthwith become immediately due and payable
without presentment, demand, protest, notice or other formality of any
kind, all of which are hereby expressly waived, anything contained
herein or in any instrument evidencing the Obligations to the contrary
notwithstanding; provided, however, that notwithstanding the above, if
there shall occur an Event of Default under clause (f) above, then the
obligation of the Lenders to make Loans and of the Issuing Bank to
issue Letters of Credit hereunder shall automatically terminate and any
and all of the Obligations shall be immediately due and payable without
the necessity of any action by the Agent or the Required Lenders or
notice to the Agent or the Lenders;
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(B) the Borrower shall, upon demand of the Agent or the
Required Lenders, deposit cash with the Agent in an amount equal to the
aggregate amount remaining undrawn under all outstanding Letters of
Credit, as collateral security for the repayment of any future drawings
or payments under such Letters of Credit, and such amounts shall be
held by the Agent pursuant to the terms of the LC Account Agreement;
and
(C) the Agent and each of the Lenders shall have all of the
rights and remedies available under the Loan Documents or under any
applicable law.
9.2. Agent to Act. In case any one or more Events of Default shall
occur and be continuing and not have been waived, the Agent may, and at the
direction of the Required Lenders shall, proceed to protect and enforce their
rights or remedies either by suit in equity or by action at law, or both,
whether for the specific performance of any covenant, agreement or other
provision contained herein or in any other Loan Document, or to enforce the
payment of the Obligations or any other legal or equitable right or remedy.
9.3. Cumulative Rights. No right or remedy herein conferred upon the
Lenders or the Agent is intended to be exclusive of any other rights or remedies
contained herein or in any other Loan Document, and every such right or remedy
shall be cumulative and shall be in addition to every other such right or remedy
contained herein and therein or now or hereafter existing at law or in equity or
by statute, or otherwise.
9.4. No Waiver. No course of dealing between the Borrower and any
Lender or the Agent or any failure or delay on the part of any Lender or the
Agent in exercising any rights or remedies under any Loan Document or otherwise
available to it shall operate as a waiver of any rights or remedies and no
single or partial exercise of any rights or remedies shall operate as a waiver
or preclude the exercise of any other rights or remedies hereunder or of the
same right or remedy on a future occasion.
9.5. Allocation of Proceeds. If an Event of Default has occurred and
not been waived, and the maturity of the Notes has been accelerated pursuant to
this Article IX, all payments received by the Agent hereunder, in respect of any
principal of or interest on the Obligations or any other amounts payable by the
Borrower hereunder, shall be applied by the Agent in the following order:
(i) amounts due to the Lenders pursuant to Section 2.11 or
Section 11.6;
(ii) amounts due to the Agent and the Issuing Bank pursuant to
Section 10.11, Section 3.3 and Section 3.4;
(iii) payments of interest, to be applied pro rata based on the
proportion which the principal amount of outstanding
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Loans and Reimbursement Obligations of each Lender bears to the total
of all outstanding Loans and Reimbursement Obligations;
(iv) payments of principal, to be applied pro rata based on the
proportion which the principal amount of outstanding Loans and
Reimbursement Obligations of each Lender bears to the total of all
outstanding Loans and Reimbursement Obligations;
(v) payment of cash amounts to the Agent pursuant to Section 9.1;
(vi) payments of all other amounts due under this Agreement, if
any, to be applied in accordance with each Lender's pro rata share of
all such other amounts due to the Lenders; and
(vii) any surplus remaining after application as provided for
herein, to the Borrower or otherwise as may be required by applicable
law.
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ARTICLE X
The Agent
10.1. Appointment. Each Lender hereby irrevocably designates and
appoints NationsBank as the Agent for the Lenders under this Agreement, and each
of the Lenders hereby irrevocably authorizes NationsBank as the Agent for such
Lender, to take such action on its behalf under the provisions of this Agreement
and the other Loan Documents and to exercise such powers as are expressly
delegated to the Agent by the terms of this Agreement and such other Loan
Documents, together with such other powers as are reasonably incidental thereto.
The Agent shall not have any duties or responsibilities, except those expressly
set forth herein, or any fiduciary relationship with any of the Lenders, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Agent.
10.2. Attorneys-in-fact. The Agent may execute any of its duties under
the Loan Documents by or through agents or attorneys-in-fact and shall be
entitled to advice of counsel concerning all matters pertaining to such duties.
The Agent shall not be responsible for the negligence, gross negligence or
willful misconduct of any agents or attorneys-in-fact selected by it with
reasonable care.
10.3. Limitation on Liability. A Neither the Agent nor any of its
officers, directors, employees, agents or attorneys-in-fact shall be liable to
the Lenders for any action lawfully taken or omitted to be taken by it or them
under or in connection with the Loan Documents except for its or their own gross
negligence or willful misconduct. Neither the Agent nor any of its Affiliates
shall be responsible in any manner to any of the Lenders for any recitals,
statements, representations or warranties made by the Borrower or any officer or
representative thereof contained in any Loan Document, or in any certificate,
report, statement or other document referred to or provided for in or received
by the Agent under or in connection with any Loan Document, or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of any Loan
Document, or for any failure of the Borrower to perform its obligations under
any Loan Document, or for any recitals, statements, representations or
warranties made, or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of any collateral. The Agent shall not be under
any obligation to any of the Lenders to ascertain or to inquire as to the
observance or performance of any of the terms, covenants or conditions of any
Loan Document on the part of the Borrower or to inspect the properties, books or
records of the Borrower or its Subsidiaries.
10.4. Reliance. The Agent shall be entitled to rely, and shall be fully
protected in relying, upon any Note, writing, resolution, notice, consent
certificate, affidavit, letter,
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cablegram, telegram, telefacsimile or telex message, statement, order or other
document or conversation believed by it to be genuine and correct and to have
been signed, sent or made by the proper Person or Persons and upon advice and
statements of legal counsel (including, without limitation, counsel to the
Borrower), independent accountants and other experts selected by the Agent. The
Agent may deem and treat the payee of any Note as the owner thereof for all
purposes unless an Assignment and Acceptance shall have been filed with and
accepted by the Agent. The Agent shall be fully justified in failing or refusing
to take any action under the Loan Documents unless it shall first receive advice
or concurrence of the Lenders or the Required Lenders as provided in this
Agreement or it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, under the Loan
Documents in accordance with a request of the Required Lenders or all Lenders as
required in this Agreement, and such request and any action taken or failure to
act pursuant thereto shall be binding upon all the Lenders and all present and
future holders of the Notes.
10.5. Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default unless
the Agent has received notice from a Lender, an Authorized Representative or the
Borrower referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default". In the event that
the Agent receives such a notice, the Agent shall promptly give notice thereof
to the Lenders. The Agent shall take such action with respect to such Default or
Event of Default as shall be reasonably directed by the Required Lenders or all
Lenders as required in this Agreement; provided that, unless and until the Agent
shall have received such directions, the Agent may (but shall not be obligated
to) take such action, or refrain from taking such action, with respect to such
Event of Default as it shall deem advisable in the best interests of the
Lenders.
10.6. No Representation. Each Lender expressly acknowledges that
neither the Agent nor any of its affiliates has made any representations or
warranties to it and that no act by the Agent hereafter taken, including any
review of the affairs of the Borrower or its Consolidated Entities, shall be
deemed to constitute any representation or warranty by the Agent to any Lender.
Each Lender represents to the Agent that it has, independently and without
reliance upon the Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the financial condition, creditworthiness, affairs, status
and nature of the Borrower and each Consolidated Entity and made its own
decision to enter into this Agreement. Each Lender also represents that it will,
independently and without reliance upon the Agent or any other Lender, and based
on such documents and
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information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
the Loan Documents and to make such investigation as it deems necessary to
inform itself as to the status and affairs, financial or otherwise, of the
Borrower and its Subsidiaries. Except for notices, reports and other documents
expressly required to be furnished to the Lenders by the Agent hereunder, the
Agent shall not have any duty or responsibility to provide any Lender with any
credit or other information concerning the affairs, financial condition or
business of the Borrower and its Subsidiaries which may come into the possession
of the Agent or any of its affiliates.
10.7 Indemnification. Each of the Lenders agrees to indemnify the Agent
in its capacity as such (to the extent not reimbursed by the Borrower or any of
its Consolidated Entities and without limiting any obligations of the Borrower
or any of its Consolidated Entities to do so), ratably according to the
respective principal amount of the Notes held by them (or, if no Notes are
outstanding, ratably in accordance with their respective Applicable Commitment
Percentages as then in effect) from and against any and all liabilities,
obligations, losses (excluding any losses suffered by the Agent as a result of
the Borrower's failure to pay any fee owing to the Agent), damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may at any time (including without limitation at any
time following the payment of the Notes) be imposed on, incurred by or asserted
against the Agent in any way relating to or arising out of any Loan Document or
any other document contemplated by or referred to therein or the transactions
contemplated thereby or any action taken or omitted by the Agent under or in
connection with any of the foregoing; provided that no Lender shall be liable
for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the Agent's gross negligence or willful misconduct. The
agreements in this Section 10.7 shall survive the payment of the Facility
Termination Date.
10.8. Lender. The Agent and its Affiliates may make loans to, accept
deposits from and generally engage in any kind of business with the Borrower and
its Subsidiaries as though it were not the Agent hereunder. With respect to its
Loans made or renewed by it and any Note issued to it, the Agent shall have the
same rights and powers under this Agreement as any Lender and may exercise the
same as though it were not the Agent, and the terms "Lender" and "Lenders"
shall, unless the context otherwise indicates, include the Agent in its
individual capacity.
10.9. Resignation. If the Agent shall resign as Agent under this
Agreement, then the Required Lenders may appoint, with the consent, so long as
there shall not have occurred and be continuing a Default or Event of Default,
of the Borrower, which consent shall
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not be unreasonably withheld, a successor Agent for the Lenders, which successor
Agent shall be a commercial bank organized under the laws of the United States
or any state thereof, having a combined surplus and capital of not less than
$500,000,000, whereupon such successor Agent shall succeed to the rights, powers
and duties of the former Agent and the obligations of the former Agent shall be
terminated and canceled, without any other or further act or deed on the part of
such former Agent or any of the parties to this Agreement; provided, however,
that the former Agent's resignation shall not become effective until such
successor Agent has been appointed and has succeeded of record to all right,
title and interest in any collateral held by the Agent; provided, further, that
if the Required Lenders and, if applicable, the Borrower cannot agree as to a
successor Agent within ninety (90) days after such resignation, the Agent shall
appoint a successor Agent which satisfies the criteria set forth above in this
Section 10.9 for a successor Agent and the parties hereto agree to execute
whatever documents are necessary to effect such action under this Agreement or
any other document executed pursuant to this Agreement; provided, however that
in such event all provisions of the Loan Documents, shall remain in full force
and effect. After any retiring Agent's resignation hereunder as Agent, the
provisions of this Article X shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Agent under this Agreement.
10.10. Sharing of Payments, etc. Each Lender agrees that if it shall,
through the exercise of a right of banker's lien, set-off, counterclaim or
otherwise, obtain payment with respect to its Obligations (other than pursuant
to Section 2.14 or Article IV) which results in its receiving more than its pro
rata share of the aggregate payments with respect to all of the Obligations
(other than any payment expressly provided hereunder to be distributed on other
than a pro rata basis and payments pursuant to Article IV), then (a) such Lender
shall be deemed to have simultaneously purchased from the other Lenders a share
in their Obligations so that the amount of the Obligations held by each of the
Lenders shall be pro rata and (b) such other adjustments shall be made from time
to time as shall be equitable to insure that the Lenders share such payments
ratably; provided, however, that for purposes of this Section 10.10 the term
"pro rata" shall be determined with respect to both the Revolving Credit
Commitment and Line of Credit Commitment of each Lender and to the Total
Revolving Credit Commitment and Total Line of Credit Commitment after
subtraction in each case of amounts, if any, by which any such Lender has not
funded its share of the outstanding Loans and Obligations. If all or any portion
of any such excess payment is thereafter recovered from the Lender which
received the same, the purchase provided in this Section 10.10 shall be
rescinded to the extent of such recovery, without interest. The Borrower
expressly consents to the foregoing arrangements and agrees that each Lender so
purchasing a portion of the other Lenders' Obligations may exercise all rights
of payment (including, without limitation, all rights of set-off,
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banker's lien or counterclaim) with respect to such portion as fully as if such
Lender were the direct holder of such portion.
10.11. Fees. The Borrower agrees to pay to the Agent, for its
individual account, in advance a quarterly Agent's fee in such amount as from
time to time agreed to by the Borrower and Agent in writing.
10.12. Independent Agreements. The provisions contained in Sections
10.1 through 10.8 and 10.10 (other than the last sentence thereof) constitute
independent obligations and agreements of the Agent and the Lenders and the
Borrower shall not be deemed a party thereto nor bound thereby. Borrower does
acknowledge the rights of Lenders and Agent under Sections 10.9 and 10.11 and
the last sentence of Section 10.10.
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ARTICLE XI
Miscellaneous
11.1. Assignments and Participations. (a) At any time after the Closing
Date each Lender may, with the prior consent of the Agent and (so long as no
Default or Event of Default shall have occurred and be continuing) the Borrower,
which consents shall not be unreasonably withheld, assign to one or more banks
or financial institutions all or a portion of its rights and obligations under
the Loan Documents (including, without limitation, all or a portion of any Notes
payable to its order); provided, that (i) each such assignment shall be of a
constant and not a varying percentage of all of the assigning Lender's rights
and obligations under the Revolving Credit Facility, Letter of Credit Facility
and the Line of Credit Facility, (ii) for each assignment involving the issuance
and transfer of Notes, the assigning Lender shall execute an Assignment and
Acceptance and the Borrower hereby agrees to execute replacement Notes to give
effect to such assignment, (iii) the minimum Commitment which shall be assigned
is (x) $5,000,000, in the case of an assignment by one existing Lender to
another existing Lender, and (y) $10,000,000 in all other cases, and in
multiples of $1,000,000 in excess thereof (together with which the assigning
Lender's applicable portion of Participations and the Letter of Credit
Commitment shall also be assigned), (iv) such assignee shall have an office
located in the United States, and (v) no consent of the Borrower or the Agent
shall be required in connection with any assignment by a Lender to an affiliate
of such Lender. Upon such execution, delivery, approval and acceptance, from and
after the effective date specified in each Assignment and Acceptance, (x) the
assignee thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder or under any such Notes have been assigned or negotiated
to it pursuant to such Assignment and Acceptance, have the rights and
obligations of a Lender hereunder and a holder of such Notes and (y) the
assignor thereunder shall, to the extent that rights and obligations hereunder
or under such Note have been assigned or negotiated by it pursuant to such
Assignment and Acceptance, relinquish its rights, other than those set forth in
Section 3.2(g), Article IV, Section 11.6 and Section 11.12 of this Agreement and
be released from its obligations under this Agreement. Except as otherwise
provided herein, any Lender who makes an assignment shall pay to the Agent a
one-time administrative fee of $3,000 which fee shall not be reimbursed by the
Borrower.
(b) By executing and delivering an Assignment and Acceptance, the
Lender assignor thereunder and the assignee thereunder confirm to and agree with
each other and the other parties hereto as follows: (i) the assignment made
under such Assignment and Acceptance is made under such Assignment and
Acceptance without recourse to such assignor; (ii) such assigning Lender makes
no representation or warranty and assumes no responsibility with respect to (x)
the statements, warranties or representations made
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in or in connection with this Agreement or any other Loan Document or any other
instrument or document furnished pursuant hereto, (y) the execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement or
any of the other Loan Documents or any other document or instrument furnished
pursuant hereto, or (z) the financial condition of the Borrower or its
Subsidiaries or the performance or observance by the Borrower or any Subsidiary
of any of its obligations under any Loan Document or any other instrument or
document furnished pursuant hereto; (iii) such assignee confirms that it has
received a copy of this Agreement, together with copies of the financial
statements delivered pursuant to Section 6.6(a) or Section 7.1, as the case may
be, and such other Loan Documents and other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
such Assignment and Acceptance; (iv) such assignee will, independently and
without reliance upon the Agent, such assigning Lender or any other Lender and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under any Loan Document; (v) such assignee appoints and authorizes the Agent to
take such action as Agent on its behalf and to exercise such powers under the
Loan Documents as are delegated to the Agent by the terms hereof and thereof,
together with such powers as are reasonably incidental thereto; and (vi) such
assignee agrees that it will perform in accordance with their terms all of the
obligations which by the terms of the Loan Documents are required to be
performed by it as a Lender and a holder of such Notes.
(c) The Agent shall maintain at its address referred to herein a copy
of each Assignment and Acceptance delivered to and accepted by it.
(d) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender, the Agent shall give prompt notice thereof to Borrower.
(e) Nothing herein shall prohibit any Lender from pledging or
assigning, without notice to or consent of the Borrower or the Agent and without
the payment of the administrative fee referred to in Section 13.1(a), any Note
to any Federal Reserve Bank in accordance with applicable law.
(f) Each Lender may sell participations at its expense to one or more
banks or other entities as to all or a portion of its rights and obligations
under this Agreement; provided, that (i) such Lender's obligations under this
Agreement shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) such Lender shall remain the holder of any Note issued to it for the
purpose of this Agreement, (iv) such participations shall be in a minimum amount
of $5,000,000 and, if greater, an amount which is an integral multiple of
$1,000,000 and shall include an allocable
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portion of such Lender's Participations, (v) the Borrower, the Agent and the
other Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement and
with regard to any and all payments to be made under this Agreement; provided,
that the participation agreement between a Lender and its participants may
provide that such Lender will obtain the approval of such participant prior to
such Lender's agreeing to any amendment or waiver of any provisions of any Loan
Document which would (A) extend the maturity of any Note or scheduled payment of
any Obligations, (B) reduce the interest rates, unused fees or letter of credit
facility fees hereunder or (C) increase or extend the termination date of the
Revolving Credit Commitment, Line of Credit Commitment or Letter of Credit
Commitment of the Lender granting the participation, and (vi) the sale of any
such participations which require Borrower to file a registration statement with
the United States Securities and Exchange Commission or under the securities
regulations or laws of any state shall not be permitted.
(g) The Borrower may not assign any rights, powers, duties or
obligations under this Agreement or the other Loan Documents without the prior
written consent of all the Lenders.
11.2. Notices. Any notice shall be conclusively deemed to have been
received by any party hereto and be effective (i) on the day on which delivered
(including hand delivery by commercial courier service) to such party (against
receipt therefor), (ii) on the date of receipt at such address, telefacsimile
number or telex number as may from time to time be specified by such party in
written notice to the other parties hereto or otherwise received), in the case
of notice by telegram, telefacsimile or telex, respectively (where the receipt
of such message is verified by return), or (iii) on the fifth Business Day after
the day on which mailed, if sent prepaid by certified or registered mail, return
receipt requested, in each case delivered, transmitted or mailed, as the case
may be, to the address, telex number or telefacsimile number, as appropriate,
set forth below or such other address or number as such party shall specify by
notice hereunder:
(a) if to the Borrower:
Two Perimeter Park South
Suite 224W
Birmingham, Alabama 35243
Attention: Richard M. Scrushy
with a copy to:
Chief Financial Officer
HEALTHSOUTH Corporation
Two Perimeter Park South
Suite 224W
Birmingham, Alabama 35243
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with a copy to:
Treasurer
HEALTHSOUTH Corporation
Two Perimeter Park South
Suite 224W
Birmingham, Alabama 35243
with a copy to:
William W. Horton
HEALTHSOUTH Corporation
Two Perimeter Park South
Birmingham, Alabama 35243
(b) if to the Agent at:
One Independence Center
15th Floor
101 North Tryon Street
Charlotte, North Carolina 28255
Attention: Agency Services
with a copy to:
600 Peachtree Street, N.E.
21st Floor
Atlanta, Georgia 30308-2213
Attention: Corporate Banking
(c) if to NationsBank in its capacity as issuer of the
Letters of Credit:
NationsBank, N.A.
One Independence Center, 15th Floor
101 North Tryon Street
Charlotte, North Carolina 28255
Attention: Letter of Credit Department
(d) if to the Lenders:
At the addresses set forth on the signature pages
hereof and on the signature page of each Assignment
and Acceptance.
11.3. No Waiver. No failure or delay on the part of the Agent, any
Lender or the Borrower in the exercise of any right, power or privilege
hereunder shall operate as a waiver of any such right, power or privilege nor
shall any such failure or delay preclude any other or further exercise thereof.
The rights and remedies herein provided are cumulative and not exclusive of any
rights or remedies provided by law.
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11.4. Setoff. The Borrower agrees that the Agent and each Lender shall
have a lien for all the Obligations of the Borrower upon all deposits or deposit
accounts, of any kind, or any interest in any deposits or deposit accounts
thereof, now or hereafter pledged, mortgaged, transferred or assigned to the
Agent or such Lender or otherwise in the possession or control of the Agent or
such Lender (other than for safekeeping) for any purpose for the account or
benefit of the Borrower and including any balance of any deposit account or of
any credit of the Borrower with the Agent or such Lender, whether now existing
or hereafter established, hereby authorizing the Agent and each Lender at any
time or times from and after the occurrence of a Default or an Event of Default
with or without prior notice to set off against and apply such balances or any
part thereof to such of the Obligations of the Borrower to the Lenders then past
due and in such amounts as they may elect, and whether or not the collateral or
the responsibility of other Persons primarily, secondarily or otherwise liable
may be deemed adequate. For the purposes of this paragraph, all remittances and
property shall be deemed to be in the possession of the Agent or such Lender as
soon as the same may be put in transit to it by mail or carrier or by other
bailee.
11.5. Survival. All covenants, agreements, representations and
warranties made herein shall survive the making by the Lenders of the Loans and
the issuance of the Letters of Credit and the execution and delivery to the
Lenders of this Agreement and the Notes and shall continue in full force and
effect so long as any of Obligations remain outstanding or any Lender has any
commitment hereunder or the Borrower has continuing obligations hereunder unless
otherwise provided herein. Whenever in this Agreement any of the parties hereto
is referred to, such reference shall be deemed to include the successors and
permitted assigns of such party and all covenants, provisions and agreements by
or on behalf of the Borrower which are contained in the Loan Documents shall
inure to the benefit of the successors and permitted assigns of the Lenders or
any of them.
11.6. Expenses. The Borrower agrees (a) to pay or reimburse the Agent
for all its reasonable and customary out-of-pocket costs and expenses incurred
in connection with the preparation, negotiation and execution of, and any
amendment, supplement or modification to, this Agreement or any of the other
Loan Documents, and the consummation of the transactions contemplated hereby and
thereby, including, without limitation, the reasonable and customary fees and
disbursements of counsel to the Agent, (b) to pay or reimburse the Agent and,
after an Event of Default, each Lender for all their reasonable costs and
expenses incurred in connection with the enforcement or preservation of any
rights under this Agreement, including without limitation, the reasonable fees
and disbursements of their counsel, (c) to pay, indemnify and hold harmless the
Agent and each Lender from any and all recording and filing fees and any and all
liabilities with respect to, or resulting from any failure of Borrower to pay or
delay of Borrower
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in paying, documentary, stamp, excise, withholding and other similar taxes, if
any, which may be payable or determined to be payable in connection with the
execution and delivery of, or consummation of any amendment, supplement or
modification of, or any waiver or consent under or in respect of, this
Agreement, and (d) from and after the occurrence of any Event of Default to pay,
and indemnify and hold harmless the Agent and each Lender from and against, any
and all other liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever with respect to the execution, delivery, enforcement, performance and
administration of this Agreement or in any respect relating to the transactions
contemplated hereby or thereby, (all the foregoing, collectively, the
"indemnified liabilities"); provided, however, that the Borrower shall have no
obligation hereunder with respect to indemnified liabilities arising from (i)
the willful misconduct or negligence of the party seeking indemnification, (ii)
legal proceedings commenced against the Agent or any Lender by any security
holder or creditor thereof arising out of and based upon rights afforded any
such security holder or creditor solely in its capacity as such, (iii) any taxes
imposed upon the Agent or any Lender other than the documentary, stamp, excise,
withholding and similar taxes described in clause (c) above or any tax resulting
from any change described in Section 4.1, which tax would be payable to Lenders
by Borrower pursuant to Article IV, (iv) taxes imposed as a result of a transfer
or assignment of any Note, participation or assignment of a portion of its
rights, (v) any taxes imposed upon any transferee of any Note, or (vi) by reason
of the failure of the Agent or any Lender to perform its or their obligations
under this Agreement. The agreements in this subsection shall survive the
Facility Termination Date.
11.7. Amendments. No amendment, modification or waiver of any provision
of this Agreement or any of the other Loan Documents and no consent by the
Lenders to any departure therefrom by the Borrower shall be effective unless
such amendment, modification or waiver shall be in writing and signed by the
Agent and the Borrower, but only upon having received the written consent of the
Required Lenders, and the same shall then be effective only for the period and
on the conditions and for the specific instances and purposes specified in such
writing; provided, however, that no such amendment, modification or waiver
(i) which changes, extends or waives any provision of Section
2.7, Section 2.11, Section 3.3(a), Section 5.1(a), Section 7.11,
Section 10.10, Section 11.1(g), this Section 11.7 or Section 11.15, the
amount of or the due date of any scheduled installment or other payment
of or the rate of interest or other amounts payable on or with respect
to any Obligation, which changes the definition of Required Lenders,
which increases or extends the Commitment of any Lender or which
increases or extends the Revolving Credit Termination Date (including
any extension of the expiry date of a Letter
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of Credit beyond the Revolving Credit Termination Date) or the Stated
Termination Date or which waives any condition to the making of any
Loan or the issuance of any Letter of Credit shall be effective unless
in writing and signed by each of the Lenders; provided, however, the
Required Lenders may in their sole discretion waive any Default or
Event of Default (other than any Event of Default under Section 9.1(a)
as to which only the Lender which is the payee of a Note may waive the
failure to make a payment of principal or interest due on such Note and
Section 9.1(f) as to which all Lenders must waive such Event of
Default);
(ii) which affects the rights, privileges, immunities or
indemnities of the Agent, shall be effective unless in writing and
signed by the Agent.
Notwithstanding any provision of the other Loan Documents to the contrary, as
between the Agent and the Lenders, execution by the Agent shall not be deemed
conclusive evidence that the Agent has obtained the written consent of the
Required Lenders; however, the Borrower shall be entitled to rely on the
signature of the Agent as evidence of consent. No notice to or demand on the
Borrower in any case shall entitle the Borrower to any other or further notice
or demand in similar or other circumstances, except as provided by law or as
otherwise expressly provided herein. No delay or omission on any Lender's, the
Agent's or the Borrower's part in exercising any right, remedy or option shall
operate as a waiver of such or any other right, remedy or option or of any
Default or Event of Default.
11.8. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one such fully-executed counterpart.
11.9. Waivers by Borrower. In any litigation in any court with respect
to, in connection with, or arising out of this Agreement, the Loans, any of the
Notes, any of the other Loan Documents, the Obligations, or any instrument or
document delivered pursuant to this Agreement, or the validity, protection,
interpretation, collection or enforcement thereof, or any other claim or dispute
howsoever arising between the Borrower and the Lenders or the Agent, the
Borrower and each Lender and the Agent hereby waive, to the extent permitted by
law, trial by jury in connection with any such litigation.
The Borrower, the Agent and the Lenders believe that, inasmuch as this
Agreement and the transactions contemplated hereby have been entered into and
consummated outside the State of Alabama, such transactions constitute
transactions in interstate commerce, so that neither the Agent nor any of the
Lenders is required, solely by entering into this Agreement and consummating the
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transactions contemplated hereby, to qualify to do business as a foreign
corporation within the State of Alabama. Notwithstanding the foregoing, however,
the Borrower hereby irrevocably waives all rights that it may have to raise, in
any action brought by any of the Lenders or the Agent to enforce the rights of
the Lenders and the Agent hereunder or under any of the other Loan Documents, or
the obligations of the Borrower hereunder or thereunder, any defense which is
based upon the failure of any of the Lenders or the Agent to qualify to do
business as a foreign corporation in the State of Alabama, including, but not
limited to, any defenses based upon ss. 232 of the Alabama Constitution of 1901,
ss. 10-2B-15.01 of the Code of Alabama (1975) or ss. 40-14-4 of the Code of
Alabama (1975), or any successor provision to any thereof. The foregoing waiver
is made knowingly and voluntarily and is a material inducement for the Agent and
the Lenders to enter into the transactions contemplated by this Agreement or any
of the other Loan Documents.
11.10. Termination. The termination of this Agreement shall not affect
any rights of the Borrower, the Lenders or the Agent or any obligation of the
Borrower, the Lenders or the Agent, arising prior to the effective date of such
termination, and the provisions hereof shall continue to be fully operative
until all transactions entered into or rights created or obligations incurred
prior to such termination have been fully disposed of, concluded or liquidated
and the Obligations arising prior to or after such termination have been
irrevocably paid in full. The rights granted to the Agent for the benefit of the
Lenders hereunder and under the other Loan Documents shall continue in full
force and effect, notwithstanding the termination of this Agreement, until all
of the Obligations have been paid in full after the termination hereof or the
Borrower has furnished the Lenders and the Agent with an indemnification
satisfactory to the Agent and each Lender with respect thereto. All
representations, warranties, covenants, waivers and agreements contained herein
shall survive termination hereof until payment in full of the Obligations unless
otherwise provided herein. Notwithstanding the foregoing, if after receipt of
any payment of all or any part of the Obligations, any Lender is for any reason
compelled to surrender such payment to any Person because such payment is
determined to be void or voidable as a preference, impermissible setoff, a
diversion of trust funds or for any other reason, this Agreement shall continue
in full force and the Borrower shall be liable to, and shall indemnify and hold
such Lender harmless for, the amount of such payment surrendered until such
Lender shall have been finally and irrevocably paid in full. The provisions of
the foregoing sentence shall be and remain effective notwithstanding any
contrary action which may have been taken by the Lenders in reliance upon such
payment, and any such contrary action so taken shall be without prejudice to the
Lenders' rights under this Agreement and shall be deemed to have been
conditioned upon such payment having become final and irrevocable.
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11.11. Governing Law. All documents executed pursuant to the
transactions contemplated herein, including, without limitation, this Agreement
and each of the other Loan Documents shall be deemed to be contracts made under,
and for all purposes shall be construed in accordance with, the internal laws
and judicial decisions of the State of North Carolina. The Borrower hereby
submits to the jurisdiction and venue of the state and federal courts of North
Carolina for the purposes of resolving disputes hereunder or arising out of the
transaction contemplated hereby or for the purposes of collection.
11.12. Indemnification. In consideration of the execution and delivery
of this Agreement by the Agent and each Lender and the extension of the
Commitments, and so long as the Agent and Lenders have fulfilled their
obligations hereunder, the Borrower hereby indemnifies, exonerates and holds
free and harmless the Agent and each Lender and each of their respective
officers, directors, employees, affiliates and agents (collectively, the
"Indemnified Parties") from and against any and all actions, causes of action,
claims, suits, losses, costs, liabilities and damages, and expenses incurred in
connection therewith (irrespective of whether any such Indemnified Party is a
party to the action for which indemnification hereunder is sought), including
reasonable attorneys' fees and disbursements (collectively, the "Indemnified
Liabilities"), incurred by the Indemnified Parties or any of them as a result
of, or arising out of, or relating to, any of the following:
(a) any transaction financed or to be financed in whole or in
part, directly or indirectly, with the proceeds of any Loan or
supported by any Letter of Credit;
(b) the entering into and performance of this Agreement and
any other Loan Document by any of the Indemnified Parties;
(c) provided Lenders have no ownership interest in real
property of Borrower, any investigation, litigation or proceeding
related to any environmental cleanup, audit, compliance or other matter
relating to the protection of the environment or the release by the
Borrower or any of its Subsidiaries or Controlled Partnerships of any
hazardous waste material; or
(d) provided Lenders have no ownership interest in real
property of Borrower, the presence on or under, or the escape, seepage,
leakage, spillage, discharge, emission, discharging or releases from
any real property owned or operated by the Borrower or any Subsidiary
or Controlled Partnership of any hazardous waste material (including
any losses, liabilities, damages, injuries, costs, expenses or claims
asserted or arising under any environmental laws), regardless of
whether caused by, or within the control of, the Borrower or such
Subsidiary or Controlled Partnerships,
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except for any such Indemnified Liabilities arising for the account of
a particular Indemnified Party by reason of the relevant Indemnified
Party's negligence or willful misconduct, and if and to the extent that
the foregoing undertaking may be unenforceable for any reason, the
Borrower hereby agrees to make the maximum contribution to the payment
and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law. The agreements in this Section 11.12
shall survive the Facility Termination Date.
11.13. Agreement Controls. In the event that any term of any of the
Loan Documents other than this Agreement conflicts with any term of this
Agreement, the terms and provisions of this Agreement shall control.
11.14. Integration. This Agreement and the other Loan Documents
represent the final agreement between the parties as to the subject matter
hereof or thereof and may not be contradicted by evidence of prior,
contemporaneous, or subsequent oral agreements of the parties. There are no oral
agreements between the parties.
11.15. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that the Borrower may not assign or transfer its
rights or obligations hereunder without the prior written consent of the Agent
and all Lenders. The Agent and the Lenders may assign or transfer their interest
hereunder but only as provided herein.
11.16. Severability. If any provision of this Agreement or the other
Loan Documents shall be determined to be illegal or invalid as to one or more of
the parties hereto, then such provision shall remain in effect with respect to
all parties, if any, as to whom such provision is neither illegal nor invalid,
and in any event all other provisions hereof shall remain effective and binding
on the parties hereto.
11.17. Usury Savings Clause. Notwithstanding any other provision
herein, the aggregate interest rate charged under any of the Notes, including
all charges or fees in connection therewith deemed in the nature of interest
under North Carolina law, shall not exceed the Highest Lawful Rate (as such term
is defined below). If the rate of interest (determined without regard to the
preceding sentence) under this Agreement at any time exceeds the Highest Lawful
Rate (as defined below), the outstanding amount of the Loans made hereunder
shall bear interest at the Highest Lawful Rate until the total amount of
interest due hereunder equals the amount of interest which would have been due
hereunder if the stated rates of interest set forth in this Agreement had at all
times been in effect. In addition, if when the Loans made hereunder are repaid
in full the total interest due hereunder (taking into account the increase
provided for above) is less than the total amount of interest which would have
been due hereunder if the stated rates of
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interest set forth in this Agreement had at all times been in effect, then to
the extent permitted by law, the Borrower shall pay to the Agent an amount equal
to the difference between the amount of the interest paid and the amount of
interest which would have been paid if the Highest Lawful Rate had at all times
been in effect. Notwithstanding the foregoing, it is the intention of the
Lenders and the Borrower to conform strictly to any applicable usury laws.
Accordingly, if any Lender contracts for, charges, or receives any consideration
which constitutes interest in excess of the Highest Lawful Rate, then any such
excess shall be canceled automatically and, if previously paid, shall at such
Lender's option be applied to the outstanding amount of the Loans made hereunder
or be refunded to the Borrower. As used in this paragraph, the term "Highest
Lawful Rate" means, as to any Lender, the maximum lawful interest rate, if any,
that at any time or from time to time may be contracted for, charged, or
received under the laws applicable to such Lender which are presently in effect
or, to the extent allowed by law, under such applicable laws which may hereafter
be in effect and which allow a higher maximum nonusurious interest rate than
applicable laws now allow.
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IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be made, executed and delivered by their duly authorized officers as of the day
and year first above written.
HEALTHSOUTH CORPORATION
WITNESS:
/s/ WILLIAM W. HORTON
- ----------------------------- By: /s/ MICHAEL D. MARTIN
/s/ TERRY L. SCAGGS ------------------------------
- ----------------------------- Name: Michael D. Martin
Title: Senior Vice President and
Treasurer
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NATIONSBANK N.A.,
as Agent for the Lenders
By: /s/ DOUGLAS E. COLTHARP
-------------------------------
Name: Douglas E. Coltharp
Title: Senior Vice President
COMMITMENT: NATIONSBANK, N.A.
$70,000,000
By: /s/ DOUGLAS E. COLTHARP
Name: Douglas E. Coltharp
Title: Senior Vice President
Lending Office:
100 South Tryon Street
Charlotte, North Carolina 28255
Wire Transfer Instructions:
NationsBank, N.A.
Charlotte, North Carolina
ABA #053000196
Reference: HEALTHSOUTH
Corporation
Attention: Agency Services
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COMMITMENT: THE BANK OF NOVA SCOTIA
$55,000,000
By: /s/ DANA MALONEY
------------------------------
Name: Dana Maloney
Title: Relationship Manager
Lending Office:
600 Peachtree Street, N.E.
Suite 2700
Atlanta, Georgia 30308
Wire Transfer Instructions:
The Bank of Nova Scotia
New York Agency, for further
credit to BNS-Atlanta Agency
New York, New York
ABA #026002532
Account #0606634
Attention: Houston-Atlanta Team
Reference: HEALTHSOUTH
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COMMITMENT: FIRST UNION NATIONAL BANK OF
$55,000,000 NORTH CAROLINA
By: /s/ JOSEPH H. TOWELL
---------------------------------
Name: Joseph H. Towell
Title: Senior Vice President
Lending Office:
One First Union Plaza
Charlotte, North Carolina 28288
Wire Transfer Instructions:
First Union National Bank of
North Carolina
Charlotte, North Carolina
ABA #053000219
Account #465906 0001802
Reference: HEALTHSOUTH
Attention: Sue Patterson
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COMMITMENT: TORONTO DOMINION (TEXAS), INC.
$55,000,000
By: /s/ LISA ALLISON
--------------------------
Name: Lisa Allison
Title: Vice President
Lending Office:
909 Fannin Street, 17th
Floor
Houston, Texas 77010
Wire Transfer Instructions:
The Toronto Dominion Bank
ABA #0260003243
Favor: TD Houston
Account #2159251
Reference: HEALTHSOUTH
Attention: Lisa Allison
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COMMITMENT: WACHOVIA BANK OF GEORGIA, N.A.
$55,000,000
By: /s/ LEIF MURPHY
------------------------
Name: Leif Murphy
Title: Banking Officer
Lending Office:
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
Wire Transfer Instructions:
Wachovia Bank of Georgia
Atlanta, Georgia
ABA #061000010
Account #18-800-621
Attention: Becky Creel
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COMMITMENT: AMSOUTH BANK OF ALABAMA
$55,000,000
By: /s/ WILLIAM P. BARNES
-------------------------
Name: William P. Barnes
Title: Vice President
Lending Office:
1900 5th Avenue North
Birmingham, Alabama 35203
Wire Transfer Instructions:
AmSouth Bank of Alabama
Birmingham, Alabama
ABA #062000019
Reference:Account #50214357
HEALTHSOUTH
Attention: Jane Dainas
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COMMITMENT: BANK OF TOKYO-MITSUBISHI LTD.,
$55,000,000 ATLANTA AGENCY
By: /s/ NATHANIEL W. LEA
------------------------------
Name: Nathaniel W. Lea
Title: Banking Officer
Lending Office:
Atlanta Agency
-------------------------------
Wire Transfer Instructions:
---------------------------------
---------------------------------
ABA #
---------------------
Reference:
-----------------------
Attention:
-----------------------
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COMMITMENT: DEUTSCHE BANK AG, NEW YORK AND/OR
$55,000,000 CAYMAN ISLANDS BRANCHES
By: /s/ STEPHEN A. WIEDEMANN
------------------------------
Name: Stephen A. Weidemann
Title: Vice President
By: /s/ DAPHNE K. LEE
-----------------------------
Name: Daphne K. Lee
Title: Assistant Vice President
Lending Office:
31 W. 52nd Street
New York, New York 10019
Wire Transfer Instructions:
Deutsche Bank AG
New York, New York 10019
ABA #026003780
Reference: HEALTHSOUTH
Account #0479733
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COMMITMENT: THE INDUSTRIAL BANK OF JAPAN,
$55,000,000 LIMITED
By: /s/ JUNRI ODA
-----------------------------
Name: Junri Oda
Title: Senior Vice President
and Senior Manager
Lending Office:
New York Branch
245 Park Avenue
New York, New York 10167
Wire Transfer Instructions:
Industrial Bank of Japan, Limited,
New York Branch
ABA #026008345
Reference: HEALTHSOUTH Corporation
Attention: Credit Administration
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COMMITMENT: PNC BANK, KENTUCKY, INC.
$55,000,000
By: /s/ TODD D. MUNSON
------------------------------
Name: Todd D. Munson
Title: Vice President
Lending Office:
500 West Jefferson Street
Louisville, Kentucky 40202
Wire Transfer Instructions:
PNC Bank, Kentucky, Inc.
Louisville, Kentucky
ABA #083-000-108
Account #3000990597
Reference: HEALTHSOUTH
Attention: Margie Pate
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COMMITMENT: COOPERATIEVE CENTRALE RAIFFEISEN-
$55,000,000 BOERENLEENBANK B.A.,
"RABOBANK NEDERLAND", NEW YORK BRANCH
By: /s/ TERRELL BOYLE
------------------------------
Name: Terrell Boyle
Title: Vice President
By: /s/ W. JEFFREY VOLLACK
------------------------------
Name: W. Jeffrey Vollack
Title: Vice President, Manager
Lending Office:
245 Park Avenue
New York, New York 10167
Attention: Corporate Services
Dept.
Telephone: 212-917-7800
Fax: 212-818-0233
Wire Transfer Instructions:
Bank of New York
New York, New York
ABA #021000018
For the account of RaboBank
Account #8026002533
Reference: HEALTHSOUTH
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COMMITMENT: CREDIT LYONNAIS, NEW YORK BRANCH
$55,000,000
By: /s/ FARBOUD TAVANGER
------------------------------
Name: Farboud Tavanger
Title: Vice President
Lending Office:
---------------------------------
---------------------------------
Wire Transfer Instructions:
---------------------------------
---------------------------------
ABA #
---------------------
Reference:
-----------------------
Attention:
-----------------------
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<PAGE>
COMMITMENT: MELLON BANK, N.A.
$55,000,000
By: /s/ MICHAEL R. ZAKSHESKE
------------------------------
Name: Michael R. Zaksheske
Title: Vice President
Lending Office:
2 Mellon Bank Center
Room 152-0270
Pittsburgh, Pennsylvania 15259
Wire Transfer Instructions:
Mellon Bank, N.A.
Pittsburgh, Pennsylvania 15259
ABA #0430-0026-1
Account #990873800
Attention: Christine Bissell
Reference: HEALTHSOUTH Corp.
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COMMITMENT: BANKERS TRUST COMPANY
$55,000,000
By: /s/ ROBERT R. TELESCA
------------------------------
Name: Robert P. Telesca
Title: Assistant Vice President
Lending Office:
1 Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
Wire Transfer Instructions:
Bankers Trust Company
New York, New York 10006
ABA #021-001-033
Reference: HEALTHSOUTH
Attention: Commercial Loan
Division
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COMMITMENT: LTCB TRUST COMPANY
$37,500,000
By: /s/ SATORU OTSUBO
------------------------------
Name: Satoru Otsubo
Title: Executive Vice President
Lending Office:
165 Broadway
New York, New York 10006
Wire Transfer Instructions:
Bankers Trust Company
ABA #021001033
Name of Account: LTCB Trust
Company
Account #04-203-606
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<PAGE>
COMMITMENT: NATIONAL CITY BANK, KENTUCKY
$37,500,000
By: /s/ RODERIC M. BROWN
------------------------------
Name: Roderic M. Brown
Title: Vice President
Lending Office:
101 S. Fifth Street
Louisville, Kentucky 40202
Wire Transfer Instructions:
National City Bank, Kentucky
Louisville, Kentucky
ABA #0830-0005-6
Reference: HEALTHSOUTH
Attention: Sandy Walker
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<PAGE>
COMMITMENT: ABN AMRO BANK N.V., ATLANTA AGENCY
$37,500,000
By: ABN AMRO NORTH AMERICA, INC.,
as Agent
By: /s/ W. PAT FISCHER
------------------------------
Name: W. Pat Fischer
Title: Senior Vice President
and Managing Director
By: /s/ MICHIEL VAN CRANENBURGH
------------------------------
Name: Michiel Van Cranenburgh
Title: Assistant Vice President
Lending Office:
One Ravinia Drive, Suite 1200
Atlanta, Georgia 30346
Wire Transfer Instructions:
Federal Reserve Bank
New York, New York
ABA #0260-09580
Further credit to: ABN AMRO
Bank N.V., Atlanta Branch
Account #651-0-010197-41
Reference: HEALTHSOUTH
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<PAGE>
COMMITMENT: FLEET NATIONAL BANK
$37,500,000
By: /s/ GINGER STOLZENTHALER
------------------------------
Name: Ginger Stolzenthaler
Title: Vice President
Lending Office:
75 State Street
Boston, Massachusetts 02109
Wire Transfer Instructions:
Fleet National Bank
Boston, Massachusetts
ABA #011-000-138
Account #1510351
For credit to Commercial Loan
Services
Attention: Agent Bank
Department
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<PAGE>
COMMITMENT: THE BANK OF NEW YORK
$37,500,000
By: /s/ ALAN F. LYSTER, JR.
------------------------------
Name: Alan F. Lyster, Jr.
Title: Vice President
Lending Office:
One Wall Street, 22nd Floor
New York, New York 10286
Wire Transfer Instructions:
The Bank of New York
Commercial Loan Department
New York, New York
ABA #021000018
CLA #111556
Attention: Lorna O. Alleyne
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<PAGE>
COMMITMENT: THE DAI-ICHI KANGYO BANK, LIMITED,
$37,500,000 ATLANTA AGENCY
By: /s/ TOSHIAKI KURIHARA
---------------------------------
Name: Toshiaki Kurihara
Title: Joint General Manager
Lending Office:
Marquis Two Tower, Suite 2400
285 Peachtree Center Avenue, N.E.
Atlanta, Georgia 30303
Wire Transfer Instructions:
The Dai-Ichi Kangyo Bank, Ltd.
New York, New York
ABA #0260 0430 7
For credit to DKB-Atlanta Agency
Account #H79-740-111250
Reference: HEALTHSOUTH
119
<PAGE>
COMMITMENT: UNION BANK OF CALIFORNIA, N.A.
$20,000,000
By: /s/ WILLIAM SWIONTEK
------------------------------
Name: William Swiontek
Title: Vice President
Lending Office:
550 S. Hope Street, 3rd Floor
Los Angeles, California 90071
Wire Transfer Instructions:
The Bank of California
Los Angeles, California 90071
ABA #121000015
Reference: HEALTHSOUTH
Account #001 060 235
Attention: Hisaki Sakamoto
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<PAGE>
COMMITMENT: CREDITANSTALT CORPORATE FINANCE, INC.
$20,000,000
By: /s/ JOE LONGOSZ
------------------------------
Name: Joe Longosz
Title: Vice President
By: /s/ SCOTT KRAY
------------------------------
Name: Scott Kray
Title: Senior Associate
Lending Office:
Two Ravinia Drive, Suite 1680
Atlanta, Georgia 30346
Wire Transfer Instructions:
Chemical Bank
New York, New York
ABA #021000128
Account: Creditanstalt, New York
Account #544-7-73095
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COMMITMENT: FIRST AMERICAN NATIONAL BANK
$20,000,000
By: /s/ NEDDA M. POLLACK
------------------------------
Name: Nedda M. Pollack
Title: Senior Vice President
Lending Office:
300 Union Street, 2nd Floor
Nashville, Tennessee 37237-0203
Wire Transfer Instructions:
First American National Bank
Nashville, Tennessee 37237-0203
ABA #064000017
Account #0901256
Attention: Betsy Pylkos
122
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COMMITMENT: FUJI BANK
$20,000,000
By: /s/ TOSHIHIRO MITSUI
-----------------------------------
Name: Toshihiro Mitsui
Title: Vice President and Manager
Lending Office:
Atlanta Agency
Wire Transfer Instructions:
The Fuji Bank, Limited
New York Agency
ABA #026009700
Account: The Fuji Bank, Ltd., Atlanta
Attention: ____________________
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COMMITMENT: HIBERNIA NATIONAL BANK
$20,000,000
By: /s/ COLLEEN LACY
------------------------------
Name: Colleen Lacy
Title: Vice President
Lending Office:
313 Carondelet Street
New Orleans, Louisiana 70130
Wire Transfer Instructions:
Hibernia National Bank
New Orleans, Louisiana
ABA #065000090
Account #0520-36615
National Accounts
Reference: HEALTHSOUTH
Attention: ____________________
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COMMITMENT: THE SANWA BANK LIMITED, ATLANTA
$20,000,000 AGENCY
By: /s/ WILLIAM M. PLOUGH
---------------------------------
Name: William M. Plough
Title: Vice President
Lending Office:
133 Peachtree Street, N.E.
Suite 4750
Atlanta, Georgia 30303
Wire Transfer Instructions:
The Sanwa Bank Limited
New York, New York
ABA #026009823
Account #999669
For the account of Atlanta
Reference: HEALTHSOUTH
125
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COMMITMENT: THE SUMITOMO BANK, LIMITED
$20,000,000
By: /s/ E. B. BUCHANAN, III
------------------------------
Name: E. B. Buchanan, III
Title: Vice President
Lending Office:
303 Peachtree Street, Suite 4420
Atlanta, Georgia 30308
Wire Transfer Instructions:
The Sumitomo Bank, Ltd.
Chicago, Illinois 60606
ABA #071001850
Reference: HEALTHSOUTH
Attention: Maria Martinez
126
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COMMITMENT: KREDIETBANK, N.V.
$20,000,000
By: /s/ ROBERT SHAUFFER
------------------------------
Name: Robert Shauffer
Title: Vice President
Lending Office:
1349 W. Peachtree Street
Suite 1750
Atlanta, Georgia 30309
Wire Transfer Instructions:
Bank of New York
New York, New York
ABA #021-000-018
Account #802 301 5618
Account Name: Kredietbank
New York
Reference: HEALTHSOUTH
Attention: Lynda Resuma,
Loan Administration
127
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COMMITMENT: THE SAKURA BANK, LIMITED
$20,000,000 ATLANTA AGENCY
By: /s/ HIROYASU IMANISHI
------------------------------
Name: Hiroyasu Imanishi
Title: Vice President
and Senior Manager
Lending Office:
245 Peachtree Center Ave, N.E.
Suite 2703
Atlanta, Georgia 30303
Wire Transfer Instructions:
Morgan Guaranty Trust Co.
of New York
New York, New York
ABA #021 000 238
Account Name: The Sakura Bank,
Ltd., New York
Account #631-22-624
In favor of MTKB, Atlanta,
A/C 8000100-1
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COMMITMENT: THE SUMITOMO TRUST AND BANKING CO.,
$20,000,000 LTD.
By: /s/ SURAJ P. BHATIA
------------------------------
Name: Suraj P. Bhatia
Title: Senior Vice President
Lending Office:
527 Madison Avenue
New York, New York 10022
Wire Transfer Instructions:
Chase Manhattan Bank
New York, New York
ABA #021-000-021
Account #920-1-061497
For account of Sumitomo Trust
and Banking Co., Ltd.
129
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COMMITMENT: SUNTRUST BANK, NASHVILLE, N.A.
$20,000,000
By: /s/ KAREN COLE AHERN
------------------------------
Name: Karen Cole Ahern
Title: Vice President
Lending Office:
201 4th Avenue, North
Nashville, Tennessee 37219
Wire Transfer Instructions:
SunTrust Bank, Nashville, N.A.
Nashville, Tennessee 37219
ABA #064000046
Reference: HEALTHSOUTH
Account #170730-0998
Attention: Leigh Anne Gregory
130
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COMMITMENT: THE TOKAI BANK, LTD., ATLANTA AGENCY
$20,000,000
By: /s/ ELICHI FUJIHIRA
------------------------------
Name: Elichi Fujihira
Title: General Manager
Lending Office:
285 Peachtree Center Avenue, N.E.
Marquis II Tower, Suite 2802
Atlanta, Georgia 30303
Wire Transfer Instructions:
The Tokai Bank, Ltd.
New York, New York
ABA #026-004-747
For account of The Tokai
Bank, Ltd., Atlanta Agency
Account #08961
131
<PAGE>
EXHIBIT A
Applicable Commitment Percentages
Lender Revolving Line of Applicable
- ------ Credit Credit Commitment
Commitment Commitment Percentage
---------- ----------------------
NationsBank, National
Association $ 50,400,000 $ 19,600,000 5.60%
The Bank of Nova Scotia 39,600,000 15,400,000 4.40
First Union National
Bank of North Carolina 39,600,000 15,400,000 4.40
Toronto Dominion (Texas),
Inc. 39,600,000 15,400,000 4.40
Wachovia Bank of Georgia,
N.A. 39,600,000 15,400,000 4.40
AmSouth Bank of Alabama 39,600,000 15,400,000 4.40
Bank of Tokyo-Mitsubishi
Ltd., Atlanta Agency 39,600,000 15,400,000 4.40
Deutsche Bank AG, New York
and/or Cayman Islands Branches 39,600,000 15,400,000 4.40
The Industrial Bank of
Japan, Limited 39,600,000 15,400,000 4.40
PNC Bank, Kentucky, 39,600,000 15,400,000 4.40
Inc.
Cooperatieve Centrale
Raiffeisen-Boerenleenbank
B.A., "Rabobank Nederland",
New York Branch 39,600,000 15,400,000 4.40
Credit Lyonnais, New
York Branch 39,600,000 15,400,000 4.40
Mellon Bank, N.A. 39,600,000 15,400,000 4.40
Bankers Trust Company 39,600,000 15,400,000 4.40
LTCB Trust Company 27,000,000 10,500,000 3.00
National City Bank,
Kentucky 27,000,000 10,500,000 3.00
A-1
<PAGE>
ABN AMRO Bank, N.V.,
Atlanta Agency 27,000,000 10,500,000 3.00
Fleet National Bank 27,000,000 10,500,000 3.00
The Bank of New York 27,000,000 10,500,000 3.00
The Dai-Ichi Kangyo
Bank, Limited Atlanta
Agency 27,000,000 10,500,000 3.00
Union Bank of California,
N.A. 14,400,000 5,600,000 1.60
Creditanstalt Corporate
Finance, Inc. 14,400,000 5,600,000 1.60
First American National
Bank 14,400,000 5,600,000 1.60
Fuji Bank 14,400,000 5,600,000 1.60
Hibernia National Bank 14,400,000 5,600,000 1.60
The Sanwa Bank Limited,
Atlanta Agency 14,400,000 5,600,000 1.60
The Sumitomo Bank,
Limited 14,400,000 5,600,000 1.60
Kredietbank, N.V. 14,400,000 5,600,000 1.60
The Sakura Bank,
Limited, Atlanta Agency 14,400,000 5,600,000 1.60
The Sumitomo Trust and
Banking Co., Ltd. 14,400,000 5,600,000 1.60
SunTrust Bank, Nashville,
N.A. 14,400,000 5,600,000 1.60
The Tokai Bank, Ltd.,
Atlanta Agency 14,400,000 5,600,000 1.60
-------------- ------------ ------
TOTALS $900,000,000 $350,000,000 100.00%
A-2
<PAGE>
EXHIBIT B
Form of Assignment and Acceptance
DATED ,
-------------- -------
Reference is made to the Third Amended and Restated Credit Agreement
dated as of April 18, 1996, as amended (the "Agreement"), among HEALTHSOUTH
Corporation, a Delaware corporation (the "Borrower"), the Lenders (as defined in
the Agreement), and NationsBank, National Association, as Agent for the Lenders
("Agent"). Unless otherwise defined herein, terms defined in the Agreement are
used herein with the same meanings.
(the "Assignor") and
------------------------------ -------------------
(the "Assignee") agree as follows:
- ----------------
1. The Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, WITHOUT RECOURSE to the
Assignor, a _______% 1 interest in and to all of the Assignor's rights and
obligations under the Agreement as of the Effective Date (as defined below),
including, without limitation, such percentage interest in the Loans owing to
the Assignor on the Effective Date, and evidenced by the Revolving Note and Line
of Credit Note held by the Assignor and in Participations and the Letter of
Credit Commitment of the Assignor.
2. The Assignor (i) represents and warrants that, as of the date
hereof, (A) the aggregate outstanding principal amounts of the Revolving Loans
owing to it (without giving effect to assignments thereof which have not yet
become effective) is $________ under a Revolving Note dated __________, 19__ in
the principal amount of $_________, (B) the aggregate principal amount of Line
of Credit Loans owing to it (without giving effect to the assignments thereof
which have not yet become effective) is $__________ under a Line of Credit Note
dated ____________, 19__ in the principal amount of $_________ and (C) the
aggregate principal amount of the Participations purchased by it in Letters of
Credit (without giving effect to the assignments thereof which have not yet
become effective) is $_________; (ii) represents and warrants that it is the
legal and beneficial owner of the interest being assigned by it hereunder and
that such interest is free and clear of any adverse claim created by it; (iii)
makes no representation or warranty and assumes no responsibility with respect
to any statements, warranties or representations made in or in connection with
the Agreement or any of the other Loan Documents or any other instrument or
document furnished pursuant thereto or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Agreement or any of the
other Loan Documents or any
- --------
1 Specify percentage in no more than 8 decimal points.
B-1
<PAGE>
other instrument or document furnished pursuant thereto; (iv) makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of the Borrower or any Subsidiary or the performance or
observance by the Borrower or any Subsidiary of any of its obligations under any
of the Loan Documents or any other instrument or document furnished pursuant
thereto and (v) attaches hereto the Revolving Note and the Line of Credit Note,
as the case may be, referred to in paragraph 1 above and requests that the Agent
exchange such Notes for replacement Notes as follows: a Revolving Note dated
_____________, 19__ in the principal amount of $________________, and a Line of
Credit Note dated __________, 19__ in the principal amount of $__________ and a
Competitive Bid Note dated ____________________, 19__ in the principal amount of
$_______________ each payable to the order of the Assignor, and a Revolving
Note, dated ______________________, 19__, in the principal amount of
$_________________ and a Line of Credit Note dated _________________________,
19___ in the principal amount of $_________________ and a Competitive Bid Note
dated _________________, 19___ in the amount of $____________, each payable to
the order of the Assignee.
3. The Assignee (i) confirms that it has received a copy of the
Agreement, together with copies of the financial statements referred to in
Section 7.1 thereof and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Assignment and Acceptance; (ii) agrees that it will, independently and without
reliance upon the Agent, the Assignor, or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under the
Agreement; (iii) appoints and authorizes the Agent to take such actions on its
behalf and to exercise such powers under the Loan Documents as are delegated to
the Agent by the terms thereof, together with such powers as are reasonably
incidental thereto; (iv) will perform all of the obligations which by the terms
of the Agreement are required to be performed by it as a Lender; and (v)
specifies as its address for notices the office set forth beneath its name on
the signature pages hereof.
4. The effective date for this Assignment and Acceptance shall be
_____________________________ (the "Effective Date"). Following the execution of
this Assignment and Acceptance, it will be delivered to the Agent for acceptance
and recording by the Agent.
5. Upon such acceptance and recording, as of the Effective Date, (i)
the Assignee shall be a party to the Agreement and, to the extent provided in
this Assignment and Acceptance, have the rights and obligations of a Lender
thereunder and under the other Loan Documents and (ii) the Assignor shall, to
the extent provided in this Assignment and Acceptance, relinquish its rights,
other than those set forth in Section 3.2(g), Article IV, Section 11.6
B-2
<PAGE>
and Section 11.12 of the Agreement and be released from its obligations under
the Agreement and the other Loan Documents.
6. Upon such acceptance and recording, from and after the Effective
Date, the Agent shall make all payments under the Agreement and Notes in respect
of the interest assigned hereby (including, without limitation, all payments of
principal, interest, commitment fees and letter of credit fees with respect
thereto) to the Assignee. The Assignor and Assignee shall make all appropriate
adjustments in payments under the Agreement and the Notes for periods prior to
the Effective Date directly between themselves.
7. This Assignment and Acceptance shall be governed by and construed in
accordance with, the laws of the State of _________.
[NAME OF ASSIGNOR]
By:_______________________________________
Name:___________________________________
Title:__________________________________
Notice Address:
---------------------------
---------------------------
---------------------------
After the Effective Date
Outstanding Revolving Loans:$_____________
Outstanding Linen of Credit
Loan: $___________
Outstanding LC
Participations: $___________
[NAME OF ASSIGNEE]
By:_______________________________________
Name:___________________________________
Title:__________________________________
Notice Address/Lending Office
---------------------------
---------------------------
---------------------------
Wire transfer Instructions:
---------------------------
---------------------------
---------------------------
After the Effective Date
Outstanding Revolving Loans:$_____________
Outstanding Line of Credit
Loans: $__________
B-3
<PAGE>
Outstanding LC
Participations: $___________
Accepted this ______ day of ________, 19__
NATIONSBANK, NATIONAL ASSOCIATION,
as Agent
By:_______________________________________
Name:___________________________________
Title:__________________________________
Consented to:
HEALTHSOUTH Corporation
By:____________________________________
Name:_______________________________
Title:______________________________
B-4
<PAGE>
EXHIBIT C
Notice of Appointment (or Revocation) of Authorized
Representative
Reference is hereby made to the Third Amended and Restated Credit
Agreement dated as of April 18, 1996, as amended (the "Agreement"), among
HEALTHSOUTH Corporation, a Delaware corporation (the "Borrower"), the Lenders
(as defined in the Agreement), and NationsBank, National Association, as Agent
for the Lenders ("Agent"). Capitalized terms used but not defined herein shall
have the respective meanings therefor set forth in the Agreement.
The Borrower hereby nominates, constitutes and appoints each individual
named below as an Authorized Representative under the Loan Documents, and hereby
represents and warrants that (i) set forth opposite each such individual's name
is a true and correct statement of such individual's office (to which such
individual has been duly elected or appointed), a genuine specimen signature of
such individual and an address for the giving of notice, and (ii) each such
individual has been duly authorized by the Borrower to act as Authorized
Representative under the Loan Documents:
Name and Address Office Specimen Signature
- ----------------- ------------------- -------------------
- -----------------
- -----------------
- ----------------- ------------------- --------------------
- -----------------
- -----------------
- ----------------- ------------------- --------------------
- -----------------
- -----------------
Borrower hereby revokes (effective upon receipt hereof by the Agent) the prior
appointment of ________________ as an Authorized Representative.
This the ___ day of __________________, 19__.
HEALTHSOUTH Corporation
By:____________________________
Name:__________________________
Title:_________________________
C-1
<PAGE>
EXHIBIT D
Form of Borrowing Notice
To: NationsBank, National Association,
as Agent
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attention: Agency Services
Telefacsimile: (704) 386-9923
Reference is hereby made to the Third Amended and Restated Credit
Agreement dated as of April 18, 1996, as amended (the "Agreement"), among
HEALTHSOUTH Corporation (the "Borrower"), the Lenders (as defined in the
Agreement), and NationsBank, National Association, as Agent for the Lenders
("Agent"). Capitalized terms used but not defined herein shall have the
respective meanings therefor set forth in the Agreement.
The Borrower through its Authorized Representative hereby gives notice
to the Agent that Loans of the Type and amount set forth below be made on the
date indicated:
Class of Loan Type Loan Interest Aggregate
(check one) (check one) Period(1) Amount(2) Date of Loan(3)
- ----------- ----------- --------- --------- ---------------
Revolving Base Rate
Loan ___ ___
Line of Eurodollar
Credit Rate ___
Loan ___
- -----------------------
(1) For any Eurodollar Rate Loan, one, two, three or six months.
(2) Must be $5,000,000 or if greater an integral multiple of $1,000,000.
(3) At least three (3) Business Days later if a Eurodollar Rate Loan;
The Borrower hereby requests that the proceeds of Loans described in
this Borrowing Notice be made available to the Borrower as follows: [insert
-------
transmittal instructions].
- ------------------------
The undersigned hereby certifies that:
1. No Default or Event of Default exists either now or after giving
effect to the borrowing described herein; and
D-1
<PAGE>
2. All the representations and warranties set forth in Article VI of
the Agreement and in the other Loan Documents (other than those expressly stated
to refer to a particular date) are true and correct as of the date hereof except
that the reference to the financial statements in Section 6.6(a) of the
Agreement are to those financial statements most recently delivered to you
pursuant to Section 7.1 of the Agreement (it being understood that any financial
statements delivered pursuant to Section 7.1(b) have not been certified by
independent public accountants).
3. All conditions contained in the Agreement to the making of any
Loan requested hereby have been met or satisfied in full .
HEALTHSOUTH CORPORATION
BY: ________________________________________
Authorized Representative
DATE: ______________________________________
D-2
<PAGE>
EXHIBIT E
Form of Competitive Bid Note
PROMISSORY NOTE
$_____________1 April 18, 1996
FOR VALUE RECEIVED, HEALTHSOUTH CORPORATION, a Delaware corporation
(the "Borrower"), hereby promises to pay to the order of
____________________________2 (the "Lender"), for account of its Applicable
Lending Office provided for by the Credit Agreement referred to below, at the
principal office of NationsBank, N.A., One Independence Center, 101 North Tryon
Street, NC1-001-15-04, Charlotte, North Carolina 28255 (or at such other place
or places as the Agent may designate in writing) at the times set forth in the
Credit Agreement (as herein defined), the aggregate unpaid principal amount of
the Competitive Bid Loans made by the Lender to the Borrower under the Credit
Agreement, in lawful money of the United States of America and in immediately
available funds, on the dates and in the principal amounts provided in the
Credit Agreement, and to pay interest on the unpaid principal amount of each
such Competitive Bid Loan, at such office, in like money and funds, for the
period commencing on the date of such Competitive Bid Loan until such
Competitive Bid Loan shall be paid in full, at the rates per annum and on the
dates provided in the Credit Agreement.
The date, amount, Type, interest rate and maturity date of each
Competitive Bid Loan made by the Lender to the Borrower, and each payment made
on account of the principal thereof, shall be recorded by the Borrower on its
books and, prior to any transfer of this Note, endorsed by the Borrower on the
schedule attached hereto or any continuation thereof, provided that the failure
of the Lender to make any such recordation or endorsement shall not affect the
obligations of the Borrower to make a payment when due of any amount owing under
the Credit Agreement or hereunder in respect of the Competitive Bid Loans made
by the Lender.
This Note is one of the Competitive Bid Notes referred to in the Third
Amended and Restated Credit Agreement dated as of April 18, 1996 (as modified
and supplemented from time to time, the "Credit Agreement") among the Borrower,
the Lenders named therein and NationsBank, N.A., as Agent, and evidences
Competitive Bid Loans made by the Lender thereunder. Terms used but not defined
in this Note have the respective meanings assigned to them in the Credit
Agreement.
- ----------
1 Insert the amount of Lender's Revolving Credit Commitment.
2 Insert name of Lender in capital letters.
E-1
<PAGE>
The Credit Agreement provides for the acceleration of the maturity of
this Note upon the occurrence of certain events and for prepayments of
Competitive Bid Loans upon the terms and conditions specified therein. In the
event this Note is not paid when due at any stated or accelerated maturity, the
Borrower agrees to pay, in addition to the principal and interest, all costs of
collection, including reasonable attorney's fees.
Except as permitted by Section 11.1 of the Credit Agreement, this Note
may not be assigned by the Lender to any other Person.
This Note shall be governed by, and construed in accordance with, the
law of the State of North Carolina.
WITNESS: HEALTHSOUTH CORPORATION
____________________________
By:________________________________
____________________________ Name:______________________________
Title:_____________________________
E-2
<PAGE>
SCHEDULE OF COMPETITIVE BID LOANS
This Note evidences Competitive Bid Loans made under the
within-described Credit Agreement to the Borrower, on the dates, in the
principal amounts, of the Types, bearing interest at the rates and maturing on
the dates set forth below, subject to the payments and prepayments of principal
set forth below:
Principal
Date Amount Type Maturity Amount Unpaid
of of of Interest Date of Paid or Principal Notation
Loan Loan Loan Rate Loan Prepaid Amount Made by
- ---- ---- ---- ---- ---- ------- ------ -------
E-3
<PAGE>
EXHIBIT F
Form of Interest Rate Selection Notice
To: NationsBank, National Association
(Carolinas), as Agent
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attention: Agency Services
Telefacsimile: (704) 386-9923
Reference is hereby made to the Third Amended and Restated Credit
Agreement dated as of April 18, 1996, as amended (the "Agreement"), among
HEALTHSOUTH Corporation (the "Borrower"), the Lenders (as defined in the
Agreement), and NationsBank, National Association, as Agent for the Lenders
("Agent"). Capitalized terms used but not defined herein shall have the
respective meanings therefor set forth in the Agreement.
The Borrower through its Authorized Representative hereby gives notice
to the Agent of the following selection of a type of Loan [or Segment] and
Interest Period:
Type of Loan Interest Aggregate Date of
(check one) Period(1) Amount(2) Conversion (3)
- ----------- --------- --------- --------------
Revolving Loan
Base Rate Loan ___
Eurodollar Rate
Loan ___
Line of Credit
Loan
Base Rate Loan ___
Eurodollar Rate
Loan ___
- -----------------------
(1) For any Eurodollar Rate Loan one, two, three or six months.
(2) Must be $5,000,000 or if greater an integral multiple of $1,000,000.
(3) At least three (3) Business Days later if a Eurodollar Rate Loan.
HEALTHSOUTH Corporation
BY: ________________________________
Authorized Representative
DATE: ______________________________
F-1
<PAGE>
EXHIBIT G
Form of Line of Credit Note
Promissory Note
(Line of Credit Loan)
$--------------
---------, --------------
April 18, 1996
FOR VALUE RECEIVED, HEALTHSOUTH Corporation, a Delaware corporation
having its principal place of business located in Birmingham, Alabama (the
"Borrower"), hereby promises to pay to the order of
_______________________________________________ (the "Lender"), in its
individual capacity, at the office of NATIONSBANK, NATIONAL ASSOCIATION, as
agent for the Lenders (the "Agent"), located at One Independence Center, 101
North Tryon Street, NC1-001-15-04, Charlotte, North Carolina 28255 (or at such
other place or places as the Agent may designate in writing) at the times set
forth in the Third Amended and Restated Credit Agreement dated as of April 18,
1996 among the Borrower, the financial institutions party thereto, as amended
(collectively, the "Lenders") and the Agent (the "Agreement" -- all capitalized
terms not otherwise defined herein shall have the respective meanings set forth
in the Agreement), in lawful money of the United States of America, in
immediately available funds, the principal amount of
________________________________________ DOLLARS ($__________) or, if
less than such principal amount, the aggregate unpaid principal amount of all
Line of Credit Loans made by the Lender to the Borrower pursuant to the
Agreement, and to pay interest from the date hereof on the unpaid principal
amount hereof, in like money, at said office, on the dates and at the rates
provided in Article II of the Agreement. All or any portion of the principal
amount of Line of Credit Loans may be prepaid as provided in the Agreement.
If any amount payable under this Note is not paid when due, the then
remaining principal amount and accrued but unpaid interest shall bear interest
which shall be payable on demand at the rates per annum set forth in the proviso
to Section 2.3(a) of the Agreement. Further, in the event of such acceleration,
this Line of Credit Note shall become immediately due and payable, without
presentment, demand, protest or notice of any kind, all of which are hereby
waived by the Borrower.
In the event this Line of Credit Note is not paid when due at any
stated or accelerated maturity, the Borrower agrees to pay, in addition to the
principal and interest, all costs of collection,
G-1
<PAGE>
including reasonable attorneys' fees, and interest due hereunder thereon at the
rates set forth above.
Interest hereunder shall be computed as provided in the Agreement.
This Line of Credit Note is one of the Line of Credit Notes referred to
in the Agreement and is issued pursuant to and entitled to the benefits of the
Agreement to which reference is hereby made for a more complete statement of the
terms and conditions upon which the Line of Credit Loans evidenced hereby were
or are made and are to be repaid. This Line of Credit Note is subject to certain
restrictions on transfer or assignment as provided in the Agreement.
All Persons bound on this obligation, whether primarily or secondarily
liable as principals, sureties, guarantors, endorsers or otherwise, hereby waive
to the full extent permitted by law the benefits of all provisions of law for
stay or delay of execution or sale of property or other satisfaction of judgment
against any of them on account of liability hereon until judgment be obtained
and execution issues against any other of them and returned satisfied or until
it can be shown that the maker or any other party hereto had no property
available for the satisfaction of the debt evidenced by this instrument, or
until any other proceedings can be had against any of them, also their right, if
any, to require the holder hereof to hold as security for this Line of Credit
Note any collateral deposited by any of said Persons as security. Protest,
notice of protest, notice of dishonor, diligence, presentment or any other
formality are hereby waived by all parties bound hereon.
G-2
<PAGE>
IN WITNESS WHEREOF, the Borrower has caused this Line of Credit Note to
be made, executed and delivered by its duly authorized representative as of the
date and year first above written, all pursuant to authority duly granted.
HEALTHSOUTH Corporation
WITNESS:
______________________ By: _________________________________
______________________
Name: _______________________________
Title: ______________________________
G-3
<PAGE>
EXHIBIT H
Investments
H-1
<PAGE>
EXHIBIT I
Form of Revolving Note
Promissory Note
(Revolving Loan)
$------------- ---------, --------------
April 18, 1996
FOR VALUE RECEIVED, HEALTHSOUTH Corporation, a Delaware corporation
having its principal place of business located in Birmingham, Alabama (the
"Borrower"), hereby promises to pay to the order of
_______________________________________________ (the "Lender"), in its
individual capacity, at the office of NATIONSBANK, NATIONAL ASSOCIATION, as
agent for the Lenders (the "Agent"), located at One Independence Center, 101
North Tryon Street, NC1-001-15-04, Charlotte, North Carolina 28255 (or at such
other place or places as the Agent may designate in writing) at the times set
forth in the Third Amended and Restated Credit Agreement dated as of April 18,
1996 among the Borrower, the financial institutions party thereto, as amended
(collectively, the "Lenders") and the Agent (the "Agreement" -- all capitalized
terms not otherwise defined herein shall have the respective meanings set forth
in the Agreement), in lawful money of the United States of America, in
immediately available funds, the principal amount of
________________________________________ DOLLARS ($__________) or, if
less than such principal amount, the aggregate unpaid principal amount of all
Revolving Loans made by the Lender to the Borrower pursuant to the Agreement,
and to pay interest from the date hereof on the unpaid principal amount hereof,
in like money, at said office, on the dates and at the rates provided in Article
II of the Agreement. All or any portion of the principal amount of Revolving
Loans may be prepaid as provided in the Agreement.
If any amount payable under this Note is not paid when due, the then
remaining principal amount and accrued but unpaid interest shall bear interest
which shall be payable on demand at the rates per annum set forth in the proviso
to Section 2.3(a) of the Agreement. Further, in the event of such acceleration,
this Revolving Note shall become immediately due and payable, without
presentment, demand, protest or notice of any kind, all of which are hereby
waived by the Borrower.
In the event this Revolving Note is not paid when due at any stated or
accelerated maturity, the Borrower agrees to pay, in addition to the principal
and interest, all costs of collection, including reasonable attorneys' fees, and
interest due hereunder thereon at the rates set forth above.
I-1
<PAGE>
Interest hereunder shall be computed as provided in the Agreement.
This Revolving Note is one of the Revolving Notes referred to in the
Agreement and is issued pursuant to and entitled to the benefits of the
Agreement to which reference is hereby made for a more complete statement of the
terms and conditions upon which the Revolving Loans evidenced hereby were or are
made and are to be repaid. This Revolving Note is subject to certain
restrictions on transfer or assignment as provided in the Agreement.
All Persons bound on this obligation, whether primarily or secondarily
liable as principals, sureties, guarantors, endorsers or otherwise, hereby waive
to the full extent permitted by law the benefits of all provisions of law for
stay or delay of execution or sale of property or other satisfaction of judgment
against any of them on account of liability hereon until judgment be obtained
and execution issues against any other of them and returned satisfied or until
it can be shown that the maker or any other party hereto had no property
available for the satisfaction of the debt evidenced by this instrument, or
until any other proceedings can be had against any of them, also their right, if
any, to require the holder hereof to hold as security for this Revolving Note
any collateral deposited by any of said Persons as security. Protest, notice of
protest, notice of dishonor, diligence, presentment or any other formality are
hereby waived by all parties bound hereon.
I-2
<PAGE>
IN WITNESS WHEREOF, the Borrower has caused this Revolving Note to be
made, executed and delivered by its duly authorized representative as of the
date and year first above written, all pursuant to authority duly granted.
HEALTHSOUTH Corporation
WITNESS:
______________________ By: ________________________________
______________________
Name: ______________________________
Title: ____________________________
_
I-3
<PAGE>
EXHIBIT J
Form of Competitive Bid Quote Request
[Date]
To: NationsBank, N.A.
From: HEALTHSOUTH Corporation
Re: Competitive Bid Quote Request
Pursuant to Section 2.2 of the Third Amended and Restated Credit
Agreement dated as of April 18, 1996 (as modified and supplemented from time to
time, the "Credit Agreement") among HEALTHSOUTH Corporation, the lenders named
therein and NationsBank, N.A. as agent, we hereby give notice that we request
Competitive Bid Quotes for the following proposed Competitive Bid Borrowing(s):
Borrowing Quotation Interest
Date Date 1 Amount 2 Type 3 Period 4
---- -------- --------- -------- ----------
Terms used herein have the meanings assigned to them in the Credit
Agreement.
HEALTHSOUTH CORPORATION
By:________________________________
Title:
- --------
1 For use if an Absolute Rate in an Absolute Rate Auction is requested
to be submitted before the Borrowing Date.
2 Each amount must be $10,000,000 or a larger integral multiple of
$1,000,000.
3 Insert either "Eurodollar Margin" (in the case of Eurodollar Market
Loans) or "Absolute Rate" (in the case of Absolute Rate Loans).
4 One, two three or six months, in the case of a Eurodollar Market Loan
or, in the case of an Absolute Rate Loan, a period of up to 180 days after the
making of such Absolute Rate Loan and ending on a Business Day.
J-1
<PAGE>
EXHIBIT K
Form of Competitive Bid Quote
To: NationsBank, N.A., as Agent
Attention:
Re: Competitive Bid Quote to HEALTHSOUTH Corporation
(the "Borrower")
This Competitive Bid Quote is given in accordance with Section 2.2(c)
of the Third Amended and Restated Credit Agreement dated as of April 18, 1996
(as modified and supplemented from time to time, the "Credit Agreement") among
HEALTHSOUTH Corporation, the lenders named therein and NationsBank, N.A., as
agent. Terms defined in the Credit Agreement are used herein as defined therein.
In response to the Borrower's invitation dated __________, 199__, we
hereby make the following Competitive Bid Quote(s) on the following terms:
1. Quoting Bank:
2. Person to contact at Quoting Bank:
3. We hereby offer to make Competitive Bid Loan(s) in
the following principal amount[s], for the following Interest
Period(s) and at the following rate(s):
Borrowing Quotation Interest
K-1
<PAGE>
Date Date 1 Amount2 Type3 Period 4 Rate5
---- ---- - ------- ----- ------ - -----
We understand and agree that the offer(s) set forth above, subject to
the satisfaction of the applicable conditions set forth in the Credit Agreement,
irrevocably obligate[s] us to make the Competitive Bid Loan(s) for which any
offer(s) (is/are) accepted, in whole or in part (subject to the third sentence
of Section 2.2(e) of the Credit Agreement).
Very truly yours,
[NAME OF BANK]
By:________________________________
Authorized Officer
Dated: __________, ____
- --------
1 As specified in the related Competitive Bid Quote Request.
2 The principal amount bid for each Interest Period may not exceed the
principal amount requested. Bids must be made for at least $5,000,000 or a
larger integral multiple of $1,000,000.
3 Indicate "Eurodollar Margin" (in the case of Eurodollar Market Loans)
or "Absolute Rate" (in the case of Absolute Rate Loans).
4 One, two, three or six months, in the case of a Eurodollar Market
Loan or, in the case of an Absolute Rate Loan, a period of up to 180 days after
the making of such Absolute Rate Loan and ending on a Business Day, as specified
in the related Competitive Bid Quote Request.
5 For a Eurodollar Market Loan, specify margin over or under the
Interbank Offered Rate adjusted for the Eurodollar Reserve Percentage determined
for the applicable Interest Period. Specify percentage (rounded to the nearest
1/10,000 of 1%) and specify whether "PLUS" or "MINUS". For an Absolute Rate
Loan, specify rate of interest per annum (rounded to the nearest 1/10,000 of
1%).
K-2
<PAGE>
EXHIBIT L
Form of Opinion of Borrower's Counsel
See attached.
L-1
<PAGE>
EXHIBIT M
Compliance Certificate
NationsBank, National Association,
as Agent
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attention: Agency Services
Telefacsimile: (704) 386-9923
NationsBank, National Association,
as Agent
_____________________________________
Attention: __________________________
Telefacsimile: (___) ___-____
Reference is hereby made to the Third Amended and Restated Credit
Agreement dated as of April 18, 1996, as amended (the "Agreement"), among
HEALTHSOUTH Corporation (the "Borrower"), the Lenders (as defined in the
Agreement) and NationsBank, National Association, as Agent for the Lenders
("Agent"). Capitalized terms used but not otherwise defined herein shall have
the respective meanings therefor set forth in the Agreement. The undersigned, a
duly authorized and acting Authorized Representative, hereby certifies to you as
of __________ (the "Determination Date") as follows:
I. Calculations:
1. Consolidated Net Worth
A. Consolidated Net Worth at
Determination Date $___________
B. Consolidated Net Worth Required
a) At Closing Date $917,711,000
b) Consolidated Net Income for
successive fiscal quarters
x 50% ___________
c) Net proceeds of any sale of
Capital Stock ___________
d) Additions resulting from
"pooling of interests" ___________
e) (a) + (b) + (c) + (d) (Required) $___________
M-1
<PAGE>
2. Consolidated EBITDA to Consolidated
Interest Expense
A. Consolidated Net Income ___________
B. Consolidated Interest Expense ___________
C. Consolidated Income Tax Expense ___________
D. Consolidated Amortization Expense ___________
E. Consolidated Depreciation Expense ___________
F. Minority Interest in Consolidated
Entities ___________
G. 2A + 2B + 2C + 2D + 2E + 2F ___________
H. Ratio of 2G to 2B ____ to 1.00
Required: Not less than 2.50 to 1.00
3. Consolidated Indebtedness to Consolidated
Total Capital
A. Consolidated Indebtedness ___________
B. Consolidated Total Capital ___________
C. Ratio of 3A to 3B ____ to 1.00
Required: Not to exceed .65 to 1.00
II. No Default
A. Since __________ (the date of the last similar
certification), (a) the Borrower has not defaulted in the
keeping, observance, performance or fulfillment of its
obligations pursuant to any of the Loan Documents; and (b) no
Default or Event of Default has occurred and is continuing.
B. If a Default or Event of Default has occurred
since __________ (the date of the last similar certification),
the Borrower proposes to take the following action with
respect to such Default or Event of Default:__________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
(Note, if no Default or Event of Default has
occurred, insert "Not Applicable").
The Determination Date is the date of the last required financial
statements submitted to the Lenders in accordance with Section 9.1 of the
Agreement.
M-2
<PAGE>
IN WITNESS WHEREOF, I have executed this Certificate this _____ day of
__________, 19___.
By:________________________________
Authorized Representative
Name:______________________________
Title:_____________________________
M-3
<PAGE>
EXHIBIT N
Executive Officers
N-1
<PAGE>
Schedule 6.4
Subsidiaries
S-1
<PAGE>
Schedule 6.19
Employment Matters
S-1
<PAGE>
Schedule 8.3
Existing Subsidiary Indebtedness
S-2
EXHIBIT 11
HEALTHSOUTH Corporation and Subsidiaries
Computation of Income Per Share (Unaudited)
In Thousands, except for per share data
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1995 1996
-------------- -------------- ---------
PRIMARY:
<S> <C> <C> <C>
Weighted average common shares outstanding 263,020 279,262 310,850
Net effect of dilutive stock options 17,834 18,198 15,440
-------------- -------------- ------------
Total Common and Common Equivalent Shares 280,854 297,460 326,290
============== ============== ============
Net income $ 88,083 $ 92,521 $ 220,818
============== ============== ============
Net income per common and
common equivalent share $ 0.31 $ 0.31 $ 0.68
============== ============== ============
FULLY DILUTED:
Weighted average common shares outstanding 263,020 279,262 310,850
Net effect of dilutive stock options 17,834 18,198 15,440
-------------- -------------- ------------
280,854 297,460 326,290
Assumed conversion of 5% Convertible
Subordinated Debentures due 2001 9,444 12,226 12,226
-------------- -------------- ------------
Total Common and Common Equivalent Shares,
Fully Diluted $ 290,298 $ 309,686 $ 338,516
============== ============== ============
Net income $ 88,083 $ 92,521 $ 220,818
Elimination of interest and amortization on 5%
Convertible Subordinated Debentures due 2001, less
the related effect on the provision for income taxes 2,927 3,826 3,839
-------------- -------------- ------------
Net income, fully diluted $ 91,010 $ 96,347 $ 224,657
============== ============== ============
Net income per common and common equivalent share $ 0.31 $ 0.31 $ 0.66
============== ============== ============
</TABLE>
EXHIBIT (21)
HEALTHSOUTH Corporation
HEALTHSOUTH Corporation (DE)
(AK)(AL)(AZ)(AR)(CA)(CO)(CT)(DC)(FL)(GA)(HI)(ID)(IL)(IN)(IA)(KS)(KY)
(LA)(ME)(MD)(MA)(MI)(MN)(MO)(MS)(MT)(ND)(NE)(NV)(NH)(NJ)(NM)(NC)(OH)(OK)(OR)
(PA)(PR)(RI)(SC)(SD)(TN)(TX)(UT)(VA)(VT)(WA)(WI)(WV)(WY)
Subsidiaries
Advantage Health Corporation (DE) (CT)(MA)(ME)(PA)(VT)
Advantage Health Development Corp. (MA)
Advantage Health Harmarville Rehabilitation Corporation (PA)
Advantage Health Nursing Care, Inc. (MA)
Advantage Rehabilitation Clinics, Inc. (MA)
Advantage Beverly Corporation (MA) (51%)
Advantage Health Eastern Rehabilitation Network, Inc. (CT)
Affiliated Rehabilitation, Inc. (MA)
Rehabilitation Institute of Western Massachusetts, Inc. (MA)
Baygan Development Corp. (FL)
LH Real Estate Company, Inc. (MA) (99.5%)
New England Home Health Care, Inc. (MA) (CT) (96.8%)
Special Care Certified of Massachusetts, Inc. (MA)
Special Care Home Health Services of Connecticut, Inc. (CT)
Special Care Home Health Services of Maine, Inc. (ME)
Special Care Nursing Services, Inc. (MA) (CT)(IL)(KS)(ME)(OH)(TX)(VT)
New England Rehabilitation Center of Southern New Hampshire, Inc. (NH) (91.75%)
New England Rehabilitation Hospital, Inc. (MA)
New England Rehabilitation Hospital of Portland, Inc. (ME)
New England Rehabilitation Management Co., Inc. (NH) (CT)(MA)(ME)(NY)(PA)(VT)
New England Rehabilitation Services of Central Massachusetts, Inc. (MA)
(33-1/3%)
Winchester Gables, Inc. (MA) (51%)
Arizona Rehabilitation Hospital, Inc. (DE) (AZ)
Bakersfield Regional Rehabilitation Hospital, Inc. (DE)
Diagnostic Health Corporation (DE) (AL)(DC)(GA)(MA)(MD)(TX)(NJ)(VA)(NV)(OK)(MO)
HEALTHSOUTH Diagnostic Centers, Inc. (AK) (AL)
Disability and Impairment Evaluation Centers of America, Inc. (DE) (TX)(LA)(OK)
DIECA, Inc. (DE) (LA)
Encinitas Physical Therapy, Inc.(CA)
Flatirons Physical Therapy, Inc.(CO)
HEALTHSOUTH Aviation, Inc. (AL)
HEALTHSOUTH Community Re-Entry Center of Dallas, Inc. (DE) (TX)
HEALTHSOUTH Doctors' Hospital, Inc. (DE) (FL)
Hospital Health Systems, Inc. (FL)
Doctors' Health Service Corporation (FL)
Doctors' Scanning Associates, Inc. (FL)
<PAGE>
Doctors' Home Health, Inc. (FL)
Doctors' Medical Equipment Corp. (FL)
HEALTHSOUTH Holdings, Inc. (DE) (AL)(AR)(CT)(DC)(GA)(IL)(IA)(IN)(KY)(LA)(MA)(MD)
(ME)(MS)(MO)(NH)(NV)(NJ)(NC)(NY)(OH)(OK)(PA)(RI)(SC)(SD)(TN)(VA)(WA)(WI)
Associated Therapy Centers, Inc. (OH)
Delaware Sportscare/Physical Therapy, Inc. (DE)
Fayette Physical Therapy, Inc. (GA)
Johnson Physical Therapy, Inc.(OH)
Madison Rehabilitation Center, Inc. (CT)
Penn-Mar Rehabilitative Services, Inc. (PA)
Physical Therapy Professionals, Inc. (OK)
Professional Therapy & Rehabilitation, Inc. (OK)
HEALTHSOUTH Home Health Services, prn, Inc. (DE)
HEALTHSOUTH Home Health Services of Arkansas, prn, Inc. (DE)
HEALTHSOUTH Home Health Services of Connecticut, prn, Inc. (CT)
HEALTHSOUTH Home Health Services of Missouri, prn, Inc. (DE)
HEALTHSOUTH Home Health Services of Utah, prn, Inc. (DE)
HEALTHSOUTH International, Inc. (DE)
HEALTHSOUTH Medical Center, Inc. (AL)
HEALTHSOUTH Network Services, Inc. (DE)
(CA)(CO)(CT)(DC)(IL)(MD)(MO)(NJ)(NY)(OH)(TX)(VA)
HEALTHSOUTH Occupational Health & Injury
Management of Colorado, Inc. (DE) (CO)
HEALTHSOUTH of Altoona, Inc. (DE) (MD)(PA)(WV)
HEALTHSOUTH of Austin, Inc. (DE) (TX)
HEALTHSOUTH of Birmingham, Inc. (DE) (AL)
HEALTHSOUTH of Charleston, Inc. (DE) (SC)
HEALTHSOUTH of Columbia, Inc. (DE) (MO)
HEALTHSOUTH of Dallas, Inc. (DE) (TX)
HEALTHSOUTH of Dothan, Inc. (AL)
HEALTHSOUTH of East Tennessee, Inc. (DE) (TN)
HEALTHSOUTH of Erie, Inc. (DE) (PA)
HEALTHSOUTH of Fort Smith, Inc. (DE) (AR)(OK)
HEALTHSOUTH of Great Lakes, Inc. (DE) (PA)(OH)
HEALTHSOUTH of Houston, Inc. (DE) (TX)
HEALTHSOUTH of Louisiana, Inc. (DE) (LA)
HEALTHSOUTH of Mechanicsburg, Inc. (DE) (PA)
HEALTHSOUTH of Michigan, Inc. (DE) (MI)
HEALTHSOUTH of Middle Tennessee, Inc. (DE) (TN)
HEALTHSOUTH of Midland, Inc. (DE) (TX)
HEALTHSOUTH of Missouri, Inc. (DE) (MO)
HEALTHSOUTH of Montgomery, Inc. (AL)
HEALTHSOUTH of New Hampshire, Inc. (DE) (NH)
HEALTHSOUTH of New Mexico, Inc. (NM)
HEALTHSOUTH of Nittany Valley, Inc. (DE) (PA)
HEALTHSOUTH of Oklahoma, Inc. (DE) (OK)
HEALTHSOUTH of Ontario, Inc. (DE) (Canada) (BC)
HEALTHSOUTH of Pittsburgh, Inc. (DE) (PA)
- 2 -
<PAGE>
HEALTHSOUTH of Salem, Inc. (DE) (NH)
HEALTHSOUTH of San Antonio, Inc. (DE) (TX)
HEALTHSOUTH of South Carolina, Inc. (DE) (SC)
HEALTHSOUTH of Texarkana, Inc. (DE) (TX)(LA)
HEALTHSOUTH of Texas, Inc. (TX)
HEALTHSOUTH of Toms River, Inc. (DE) (NJ)
HEALTHSOUTH of Treasure Coast, Inc. (DE) (FL)
HEALTHSOUTH of Utah, Inc. (DE) (UT)
HEALTHSOUTH of Virginia, Inc. (DE) (VA)
HEALTHSOUTH of York, Inc. (DE) (PA)
HEALTHSOUTH Orthopedic Services, Inc. (DE) (AL)(CA)(CO)(FL)(IL)(IN)(MD)(MO)(NJ)
(NC)(OH)(PA)(SC)(TX)(WA)(WI)
Northwestern Memorial/Caremark, Inc. (IL) (50%)
HEALTHSOUTH Properties Corporation (DE) (AL)(AZ)(CA)(FL)(IN)(KY)(NM)(OH)
(TN)(TX)(WV)
HEALTHSOUTH Real Property Holding Corporation (DE) (AL)(AZ)(FL)(TX)
HEALTHSOUTH Rehabilitation Center, Inc. (SC)
HEALTHSOUTH Speciality Hospital, Inc. (TX)
HEALTHSOUTH Sub-Acute Center of Houston, Inc. (DE) (TX)
HEALTHSOUTH Sub-Acute Center of Mechanicsburg, Inc. (DE) (PA)
HEALTHSOUTH Surgery Centers-West, Inc. (DE) (AL)(AZ)(CA)(UT)
Salt Lake City Surgical Center, a division of Sutter Surgery Centers, Inc.
HEALTHSOUTH Surgical Center of Tuscaloosa, Inc. (AL)
HEALTHSOUTH IMC Healthcare Centers (CA)
The Hitchcock Groups, Inc. (IN)
MCA Sports of Amarillo, Inc. (TX)
NovaCare SMC, Inc. (MD)
Physical Therapeutix, Inc. (MI)
Physician Practice Management Corporation (DE) (AL)(FL)(VA)
Professional Sports Care Management, Inc. (DE) (CT)(NJ)(NY)
Ortho Network Services, Inc. (NY)
Professional Therapy Systems, Inc. (TN)
ReadiCare, Inc. (DE) (CA)
American Orthopedics & Rehabilitation Centers, Inc. (DE) (CA)
CHEC Medical Centers, Inc. (WA)
Rebound, Inc. (DE) (AL)(FL)(GA)(LA)(MO)(OH)(SC)(TN)(TX)(WV)
Health Providers, Inc. (FL) (Multi-state)
Lakeshore System Services of Florida, Inc. (FL)
Rehabilitation Hospital Corporation of America, Inc. (DE) (IN)(MD)(PA)(VA)(WV)
Surgical Care Affiliates, Inc. (DE) (TN)(PA)
Alaska Surgery Center, Inc. (AK)
All-Care Surgi Center, Inc. (MD)
Aurora-SC, Inc. (CO)
Bakersfield-SC, Inc. (TN) (CA)
Camp Hill-SCA Centers, Inc. (PA)
The Center for Day Surgery, Inc. (AR)
Charlotte-SC, Inc. (NC)
Chattanooga-SC, Inc. (TN)
- 3 -
<PAGE>
Coral Springs-SC, Inc. (TN) (FL)
El Paso-SC, Inc. (TX)
Fort Worth-SC, Inc. (TX)
Glenwood-SC, Inc. (TN) (CA)
Golden-SCA, Inc. (CO)
Greenpark Surgery Center, Inc. (TX)
Greenville Surgery Center, Inc. (TX)
HEALTHSOUTH-Montgomery, Inc. (TN) (OH)
HEALTHSOUTH of Easton, Inc. (DE) (MD)
HEALTHSOUTH of Whitehall, Inc. (TN) (OH)
HEALTHSOUTH Surgery Center of Clearwater, Inc. (DE) (FL)
HEALTHSOUTH Surgery Center of Crestview, Inc. (DE) (FL)
HEALTHSOUTH Surgery Center of Dayton, Inc. (DE) (OH)
HEALTHSOUTH Surgery Center of Fairfield, Inc. (DE) (OH)
HEALTHSOUTH Surgery Center of Kenosha, Inc. (DE) (WI)
HEALTHSOUTH Surgery Center of Loveland, Inc. (DE) (CO)
HEALTHSOUTH Surgery Center of Pecan Valley, Inc. (DE) (TX)
HEALTHSOUTH Surgery Center of Pinellas Park, Inc. (DE) (FL)
HEALTHSOUTH Surgery Center of Reading, Inc. (DE) (PA)
HEALTHSOUTH Surgery Center of San Buenaventura, Inc.(DE) (CA)
HEALTHSOUTH Surgery Center of Spokane, Inc. (DE) (WA)
HEALTHSOUTH Surgery Center of Springfield, Inc. (DE) (OH)
HEALTHSOUTH Surgery Center of Summerlin, Inc. (DE) (NV)
HEALTHSOUTH Surgery Center of West Columbus, Inc. (DE)
HEALTHSOUTH Surgery Center of Westerville, Inc. (DE)
HEALTHSOUTH Surgery Center of Westlake, Inc. (DE) (OH)
HEALTHSOUTH Surgery Center of Wilmington, Inc. (DE)
Knoxville-SCA Surgery Center, Inc. (TN)
Lancaster Medical Centre, Inc. (PA)
Lancaster Surgical Center, Inc. (PA)
Lexington-SC, Inc. d/b/a Lexington-SC Partners, Ltd. (KY)
Lexington-SC Properties, Inc. (KY)
Little Rock-SC, Inc. (AR)
Louisville-SC Properties, Inc. (KY)
Maryland-SCA Centers, Inc. (MD)
Nashville-SCA Surgery Centers, Inc. (TN)
Oshkosh-SCA Surgery Center, Inc. (WI)
Pueblo-SCA Surgery Center, Inc. (CO)
Redlands-SCA Surgery Centers, Inc. (CA)
San Antonio Surgery Center, Inc. (TX)
San Luis Obispo-SC, Inc. (TN)
SC-Wilson, Inc. (NC)
SCA-Albuquerque, Inc. (NM)
SCA-Albuquerque Surgery Properties, Inc. (NM)
SCA-Arlington Surgery, Inc. (TX)
SCA-Blue Ridge, Inc. (TN) (NC)
SCA Cabell Development Corporation (WV)
SCA Cabell, Inc. (WV)
- 4 -
<PAGE>
SCA-Charleston, Inc. (SC)
SCA-Citrus, Inc. (TN) (FL)
SCA-Colorado Springs, Inc. (CO)
SCA-Conroe, Inc. (TN) (TX)
SCA-Dalton, Inc. (TN)
SCA-Development, Inc. (TN)
SCA-Dothan, Inc. (TN) (AL)
SCA-Dover, Inc. (DE)
SCA-Eugene, Inc. (TN) (OR)
SCA-Evansville, Inc. (IN)
SCA-Florence, Inc. (TN) (AL)
SCA-Fort Collins, Inc. (CO)
SCA-Fort Walton, Inc. (TN) (FL)
SCA-Ft. Myers, Inc. (FL)
SCA-Gadsden, Inc. (AL)
Gadsden Surgery Center, Inc. (AL)
SCA-Gainesville, Inc. (TN) (GA)
SCA-Green River, Inc. (TN) (WA)
SCA-Hamilton Development Corp. (TN)
SCA-HHI, Inc. (TN)
Health Horizons of San Francisco, Inc. (TN) (CA)
SCA-Greenville East, Inc. (TN) (SC)
SCA-Honolulu, Inc. (TN) (HI)
SCA-Indianapolis, Inc.(IN)
SCA Investment Company (NV)
SCA-JV, Inc. (IL) WI)
SCA-Knoxville/St. Mary's, Inc. (TN)
SCA-Lake Forest, Inc. (TN) (LA)
SCA-Little Rock Development Corp. (AR)
SCA-Management Company (TN) (AK)(OH)(WA)(DE)
SCA-Marquette, Inc. (TN) (MI)
SCA-Mecklenberg Development Corp. (NC)
SCA-Mobile, Inc. (AL)
SCA-Mobile Properties, Inc. (AL)
SCA-Mt. Pleasant, Inc. (TN) (PA)
SCA-North Indianapolis, Inc.(IN)
SCA-Ohio Valley, Inc. (TN)
SCA-Paoli, Inc. (TN) (PA)
SCA-Plano, Inc.(TX)
SCA-Roseland, Inc. (NJ)
SCA-San Jose, Inc. (CA)
SCA-San Luis Obispo, Inc. (CA)
SCA-Santa Rosa, Inc. (TN) (CA)
SCA-Sarasota, Inc. (FL)
SCA-Shelby Development Corp. (TN)
SCA-South Jersey, Inc. (NJ)
SCA-St. Joseph Missouri, Inc. (TN) (MO)
SCA-St. Petersburg, Inc. (FL)
- 5 -
<PAGE>
SCA-Tampa, Inc. (FL)
SCA-Ukiah, Inc. (TN) (CA)
SCA-Wausau, Inc. (TN) (WI)
SCA-Winter Park, Inc. (TN) (FL)
SCA-Yuma, Inc. (TN) (AZ)
Scranton-SC, Inc. (PA)
Shelby Surgery Properties, Inc. (TN)
Springfield-SC, Inc. (MA)
Surgery Center of Louisville, Inc. (KY)
Surgical Services of Sarasota, Inc. (FL)
Wauwatosa Outpatient Surgery Center, Inc. (WI)
Surgical Health Corporation (DE) (AL)(ID)
Healthcare Real Estate Holdings II, Inc. (GA) (MO)
Heritage Medical Services of Maryland, Inc. (TN) (MD)
Heritage Medical Services of Texas, Inc. (TX)
Heritage Surgical Associates of Chula Vista, Inc. (CA)
HSC of Beaumont, Inc. (TN) (TX)
HSC of Boca Raton, Inc. (FL)
HSC of Bradenton, Inc. (TN) (FL)
HSC of Chesapeake, Inc. (TN)
HSC of Cincinnati, Inc. (TN) (OH)
HSC of Clarksville, Inc. (TN)
HSC of Ft. Pierce, Inc. (GA) (FL)
HSC of Gulf Coast, Inc. (TN)
HSC of Houston, Inc. (TN) (TX)
HSC of Nashville, Inc. (TN)
HSC of Southwest Houston, Inc. (TN) (TX)
HSC of Vero Beach, Inc. (TN) (FL)
HVPG of California, Inc. (CA)
La Jolla Health Systems, Inc. (CA)
Midwest Anesthesia, Inc. (MO)
Newport Beach Health Systems, Inc. (CA)
North County Outpatient Management, Inc. (GA)
Outpatient Surgery Center, Inc. (MO)
SHC Amarillo, Inc. (GA)
SHC Atlanta, Inc. (GA)
SHC Austin, Inc. (GA)
SHC Boca Raton Laser, Inc. (GA) (FL)
SHC Central Florida, Inc. (GA) (FL)
SHC Chattanooga, Inc. (GA) (TN)
SHC Gwinnett, Inc. (GA)
SHC Hawthorn, Inc. (GA) (IL)
SHC Management Corporation (GA) (AZ)(FL)(IL)(MO)(OK)(TX)
SHC Melbourne, Inc. (GA) (FL)
SHC Midwest City, Inc. (GA) (OK)
SHC Naples, Inc. (FL)
SHC North Dade, Inc. (GA) (FL)
SHC North Shore, Inc. (GA) (IL)
- 6 -
<PAGE>
SHC Northlake, Inc. (GA)
SHC Oakwater, Inc. (GA) (FL)
SHC Oklahoma City, Inc. (GA) (OK)
SHC Palms Wellington, Inc. (GA) (FL)
SHC Phoenix, Inc. (GA) (AZ)
SHC San Diego, Inc. (GA) (CA)
SHC Tri-County, Inc. (GA)(MO)
SHC West County, Inc. (GA)
South County Outpatient Management, Inc. (MO)
Surgical Health of Orlando, Inc. (FL)
SurgiCenter of San Antonio, Inc. (TX)
Tesson Ferry Anesthesia, Inc. (MO)
Tesson Ferry Recovery, Inc. (MO)
The Woodlands Surgery Systems, Inc. (DE) (TX)
Tuckahoe Surgery Center, Inc. (VA)
West Virginia Rehabilitation Hospital, Inc. (WV)
Limited Liability Corporations
Caremark Center for Physical Therapy - Forest Grove, L.L.C. (DE) (IL)
Caremark Center for Physical Therapy - Willowbrook, L.L.C. (DE) (IL)
Caremark Southwest Sports Rehabilitation Center/Therapy Dynamics, L.L.C. (DE)
(TX)
DHC of Washington, L.L.C. (AL) (DC)(MD)(VA)
HEALTHSOUTH/Kerlan-Jobe Surgery Center L.L.C. (CA)
(Member: HEALTHSOUTH Surger Centers-West, Inc., and The Kerlan-Jobe
Orthopaedic Clinic, a Medical Group, Inc., which is not a HEALTHSOUTH
company)
HEALTHSOUTH Springfield, LLC (TN)(OH)
(Member: HEALTHSOUTH Surgery Center of Springfield, Inc.)
HEALTHSOUTH/UAB Gamma Knife L.L.C. (AL)
(Member: HEALTHSOUTH Medical Center, Inc.)
HEALTHSOUTH U.S. Health West Columbus, LLC (TN) (OH)
(Member: HEALTHSOUTH Surgery Center of West Columbus, Inc.)
HEALTHSOUTH U.S. Health Westerville, LLC (TN) (OH)
(Member: HEALTHSOUTH Surgery Center of Westerville, Inc.)
HEALTHSOUTH U.S. Health Whitehall, LLC (TN) (OH)
(Member: HEALTHSOUTH of Whitehall, Inc.)
HEALTHSOUTH Valley Hospital, LLC (WA)
(Member: HEALTHSOUTH Surgery Center of Spokane, Inc.)
Memphis-SP, LLC (TN)
(Member: Shelby Surgery Properties, Inc.)
Memphis-SC, LLC (TN)
(Member: SCA-Shelby Development Corp.)
Mercy Ambulatory Surgery Center, Ltd. (OH)
(Member: Mercy HEALTHSOUTH, Ltd.)
(joint venture)
- 7 -
<PAGE>
Mercy HEALTHSOUTH, Ltd. (OH)
(Member: HEALTHSOUTH Surgery Center of Fairfield, Inc.)
(joint venture)
Ohio Valley Joint Venture, LLC (TN) (PA)
(Member: SCA-Ohio Valley, Inc.)
North Indianapolis, LLC (TN)
(Member: SCA-Ohio Valley, Inc.)
OrthoNet LLC (NY)
(Member: Ortho Network Services, Inc.)
Professional Work Care, L.L.C. (NY)
(Member: Professional Sports Care Management, Inc.)
Pro Fitness, L.L.C. (NY)
(Member: Professional Sports Care Management, Inc.)
Rusk Rehabilitation Center, L.L.C. (MO)
(Member: HEALTHSOUTH Corporation)
SCA-Dalton Joint Venture, LLC (TN) (GA)
(Member: SCA-Dalton, Inc.)
SCA/Deaconess Joint Venture, LLC (IN)
(Member: SCA-Evansville, Inc.)
SCA/Ft. Myers, LLC (FL)
(Member: SCA-Ft. Myers, Inc.)
SCA-Knoxville Joint Venture, LLC (TN)
(Member: SCA-Knoxville/St. Mary's, Inc.)
SCA/McKenzie Joint Venture, LLC (OR)
(Member: SCA-Eugene, Inc.)
SCA-MH, LLC (TN) (PA)
(Member: Scranton-SC, Inc.)
SCA-Northeast Georgia Health, LLC (TN) (GA)
(Member: SCA-Gainesville, Inc.)
SCA-Santa Rosa Joint Venture, LLC (TN)
(Member: SCA-Santa Rosa, Inc.)
SCA-Ukiah Joint Venture, LLC (TN)
(Member: SCA-Ukiah, Inc.)
Winter Park, LLC (TN) (FL)
(Member: SCA-Winter Park, Inc.)
Limited Partnerships
(HEALTHSOUTH Corporation is GP unless noted)
Alaska Surgery Center, Ltd. (AK)
(GP - Alaska Surgery Center, Inc.)
Amarillo Surgery Center, L.P. (GA) (TX)
(GP - SHC Amarillo, Inc. and Amarillo SurgiCenter, Inc.)
Arlington Surgery Center Associates, Ltd. (TX)
(GP - SCA-Arlington Surgery, Inc.)
Arthroscopic & Laser Surgery Center of San Diego, L.P. (GA) (CA) (GP - SHC San
Diego, Inc.)
- 8 -
<PAGE>
Aurora Surgery Center Limited Partnership (CO) (GP - Aurora-SC, Inc.)
Austin Center for Outpatient Surgery, L.P. (GA) (TX)
(GP - SHC Austin, Inc.)
Bakersfield Physicians Plaza Surgical Center, L.P. (TN) (CA)
(GP - Bakersfield-SC, Inc.)
Bayshore Heights Associates Limited Partnership (FL)
14.7% Advantage Health Corporation)
Blue Ridge Day Surgery Center, L.P. (TN) (NC)
(GP - SCA-Blue Ridge, Inc.)
Boca Raton Excimer Laser, L.P. (GA) (FL)
(GP - SHC Boca Raton Laser, Inc.)
Caremark-Hoeck Limited Partnership (CA) (GP - HEALTHSOUTH Orthopedic Services,
Inc.)
Center for Surgery of North Coast L.P., a California Limited Partnership (CA)
(GP - HVPG of California, Inc.)
Central Florida Outpatient Surgery Center, L.P. (GA) (FL)
(GP - SHC Central Florida, Inc.)
Charleston Surgery Center Limited Partnership (SC) (GP - SCA-Charleston, Inc.)
Charlotte Surgery Center, Limited Partnership (NC) (GP - Charlotte-SC, Inc.)
Charlotte Surgery Properties, Ltd. (NC)
(GP - SCA-Mecklenberg Development Corp.)
Chattanooga Surgery Center, Ltd., L.P., (TN) (GP - Chattanooga-SC, Inc.)
Chattanooga Surgery Properties, Ltd., L.P.(TN) (GP - SCA-Hamilton Development
Corp.)
Chattanooga Center for Outpatient Surgery, L.P. (GA) (TN)
(GP - SHC Chattanooga, Inc.)
Chesapeake Lithotripsy Associates, Limited Partnership (MD) (GP - Heritage
Medical Services of Maryland, Inc.)
Chesapeake Lithotripsy Partners, Limited Partnership (MD)
(GP - Chesapeake Lithotripsy Associates, Limited Partnership)
Chesapeake Lithotripsy Enterprises, Limited Partnership (MD) (GP - Heritage
Medical Services of Maryland, Inc.)
Citrus Regional Surgery Center, L.P. (TN) (FL)
(GP - SCA-Citrus, Inc.)
Collier Outpatient Surgery Center, L.P. (GA) (FL)
(GP - SHC Naples, Inc.)
Colorado Springs Surgery Center, Ltd. (CO)
(GP - SCA-Colorado Springs, Inc.)
Conroe Surgery Center, L.P. (TN) (TX)
(GP - SCA-Conroe, Inc.)
Coral Springs Surgery Center Limited Partnership (TN) (FL) (GP - Coral
Springs-SC, Inc.)
Country Club Heights Associates (MA)
(3.25% Advantage Health Corporation)
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<PAGE>
Dalton Surgery Center, L.P. (TN) (GA)
(GP - SCA-Dalton Joint Venture, LLC)
Doctors' Hospital of South Miami, Ltd. (FL)
(GP - Hospital Health Systems, Inc.)
Doctors Surgery Center of Whittier, L.P. (CA)
(GP - HEALTHSOUTH Surgery Centers-West, Inc.)
Dothan Surgery Center, L.P. (TN) (AL)
(GP - SCA-Dothan, Inc.)
Eau Claire Surgery Center, Limited Partnership (WI)
(GP - Ambulatory Health Services Associates)
(Partner: SCA-JV, Inc.)
E.B.S.C., L.P. (CA)
(GP - HEALTHSOUTH Surgery Centers-West, Inc.)
El Paso Surgery Center Limited Partnership (TX)
(GP - El Paso-SC, Inc.)
Emerald Coast Surgery Center, L.P. (TN) (FL)
(GP - SCA-Fort Walton, Inc.)
Evansville Surgery Center Associates, L.P. (IN)
(GP - SCA/Deaconess Joint Venture, LLC)
Exeter Surgery Center, Ltd. (PA)
(GP - HEALTHSOUTH Surgery Center of Reading, Inc.
d/b/a Reading Surgery Center Associates)
(joint venture)
Florence Surgery Center, L.P. (TN) (AL)
(GP - SCA-Florence, Inc.)
Forest Ambulatory Surgical Associates, L.P. (CA)
(GP - SCA-San Jose, Inc.)
Fort Smith Outpatient Surgery Center, L.P. (TN) (AR)
(GP - The Center for Day Surgery, Inc.)
Fort Sutter Surgery Center, a California Limited Partnership (CA)
(GP - HEALTHSOUTH Surgery Centers-West, Inc.)
Gables at Brighton Associates Limited Partnership (NY) (CT)
(44.5% Advantage Health Corporation)
Gadsden Surgery Center, Ltd. (AL)
(GP - Gadsden Surgery Center, Inc.)
Gainesville Surgery Center, L.P. (TN) (GA)
(GP - SCA-Northeast Georgia Health, LLC)
Glenwood Surgical Center, L.P. (CA)
(GP - Glenwood, SC, Inc.)
Golden Surgery Center, L.P. (CO)
(GP - Golden-SCA, Inc.)
Golden Triangle SurgiCenter, L.P. (CA)
(GP - HEALTHSOUTH Surgery Centers-West, Inc.)
Grandview Surgery Center, Ltd. (PA)
(GP - Camp Hill Ambulatory Centers)
(Partner: Camp Hill-SCA Centers, Inc.)
Green River Surgery Center, L.P. (TN) (WA)
(GP - SCA-Green River, Inc.)
- 10 -
<PAGE>
Greenpark Surgery Center Associates, Ltd. (TX)
(GP - Greenpark Surgery Center, Inc.)
Greenville Surgery Center Limited Partnership (SC) (GP - SCA-Greenville East,
Inc.)
Greenville Surgery Center, Ltd. (TX)
(GP - Greenville Surgery Center, Inc.)
Gulf Coast Lithotripsy Associates, L.P. (TX)
(GP - Heritage Medical Services of Texas, Inc.)
Gwinnett Center for Outpatient Surgery, L.P. (GA)
(GP - SHC Gwinnett, Inc.)
Hawthorn Place Outpatient Surgery Center, L.P. (GA) (IL)
(GP - SHC Hawthorn, Inc.)
HEALTHSOUTH Bakersfield Rehabilitation Hospital Limited Partnership (AL) (CA)
(GP - HEALTHSOUTH Properties Corporation)
HEALTHSOUTH Ballas Outpatient Surgery Center, L.P. (GA) (MO)
(GP - Outpatient Surgery Center, Inc.)
HEALTHSOUTH/Baptist Rehabilitation Hospital of East Tennessee
Limited Partnership (AL) (TN)
HEALTHSOUTH Community Surgery Center of Springfield, LP (TN)(OH) (GP -
HEALTHSOUTH Surgery Center of Springfield, Inc.)
HEALTHSOUTH Diagnostic Center of Anchorage Limited Partnership (AL) (AK) (GP -
HEALTHSOUTH Diagnostic Centers, Inc.)
HEALTHSOUTH Diagnostic Centers of Tennessee Limited Partnership (AL) (TN) (GP -
HEALTHSOUTH Properties Corporation)
HEALTHSOUTH Diagnostic Centers of Texas Limited Partnership (AL) (TX) (GP -
HEALTHSOUTH Properties Corporation)
HEALTHSOUTH Health by Design Limited Partnership (AL) (TX)
HEALTHSOUTH Home Health of St. Louis Limited Partnership (AL) (MO)
HEALTHSOUTH Limited Partnership for Better Living (DE) (IL)
(GP - HEALTHSOUTH Orthopedic Services, Inc.)
HEALTHSOUTH Meridian Point Rehabilitation Hospital Limited Partnership (AL) (AZ)
(GP - HEALTHSOUTH Properties Corporation)
HEALTHSOUTH/Methodist Rehabilitation Hospital Limited Partnership (TN)
HEALTHSOUTH-Montgomery Surgery Center, L.P. (TN) (OH)
(GP - HEALTHSOUTH-Montgomery, Inc.)
HEALTHSOUTH Northern Kentucky Rehabilitation Hospital Limited Partnership (AL)
(KY)
(GP - HEALTHSOUTH Properties Corporation)
HEALTHSOUTH Occupational Medicine Center of San Diego Limited Partnership (AL)
(CA)
HEALTHSOUTH Occupational Medicine & Rehabilitation Center of Gadsden
Limited Partnership (AL)
HEALTHSOUTH Occupational and Preventive Diagnostics Limited Partnership (AL)(NJ)
HEALTHSOUTH of Ft. Lauderdale Limited Partnership (AL) (FL)
(GP - HEALTHSOUTH Real Property Holding Corporation)
HEALTHSOUTH of Largo Limited Partnership (AL) (FL)
(GP - HEALTHSOUTH Real Property Holding Corporation)
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<PAGE>
HEALTHSOUTH of Ohio Limited Partnership (AL) (OH)
(GP - HEALTHSOUTH Properties Corporation)
HEALTHSOUTH of Sarasota Limited Partnership (AL) (FL) (GP - HEALTHSOUTH Real
Property Holding Corporation)
HEALTHSOUTH of Sea Pines Limited Partnership (AL) (FL)
(GP - HEALTHSOUTH Real Property Holding Corporation)
HEALTHSOUTH of Tallahassee Limited Partnership (AL) (FL) (GP - HEALTHSOUTH Real
Property Holding Corporation)
HEALTHSOUTH Orthopedic & Rehabilitation Center of Pittsburgh,
Limited Partnership (AL) (PA)
HEALTHSOUTH Progressive Rehabilitation Center of Fort Worth
Limited Partnership (AL) (TX)
HEALTHSOUTH Real Property Limited Partnership (AL) (FL)
HEALTHSOUTH Regional Rehabilitation Center, Ltd. (AL) (FL)
HEALTHSOUTH Rehabilitation and Spine Center of Woodside Limited Partnership (AL)
(CA) HEALTHSOUTH Rehabilitation Center of Albuquerque, Ltd. (AL) (NM)
HEALTHSOUTH Rehabilitation Center of Alexandria Limited Partnership (AL) (VA)
HEALTHSOUTH Rehabilitation Center of Arlington Limited Partnership (AL) (VA)
HEALTHSOUTH Rehabilitation Center of Asheville Limited Partnership (AL) (NC)
HEALTHSOUTH Rehabilitation Center of Austin, Ltd. (AL) (TX) HEALTHSOUTH
Rehabilitation Center of Baltimore Limited Partnership (AL) (MD) HEALTHSOUTH
Rehabilitation Center of Bedford Limited Partnership (AL) (NH) HEALTHSOUTH
Rehabilitation Center of Birmingham, Ltd. (AL) HEALTHSOUTH Rehabilitation Center
of Boca Raton, Ltd. (AL) (FL) HEALTHSOUTH Rehabilitation Center of Cape
Girardeau
Limited Partnership (AL) (IL)(MO)
HEALTHSOUTH Rehabilitation Center of Cave Springs Limited Partnership (AL) (MO)
(GP - HEALTHSOUTH Holdings, Inc.)
HEALTHSOUTH Rehabilitation Center of Charlotte Limited Partnership (AL) (NC)
HEALTHSOUTH Rehabilitation Center of Chattanooga Limited Partnership (AL) (TN)
HEALTHSOUTH Rehabilitation Center of Chevy Chase Limited Partnership (AL) (MD)
HEALTHSOUTH Rehabilitation Center of Columbia Limited Partnership (AL) (MO)
HEALTHSOUTH Rehabilitation Center of Colorado Springs Limited Partnership (AL)
(CO) HEALTHSOUTH Rehabilitation Center of Connecticut Limited Partnership (AL)
(CT) HEALTHSOUTH Rehabilitation Center of Cumming Limited Partnership (AL) (GA)
HEALTHSOUTH Rehabilitation Center of Dallas Limited Partnership (AL) (TX)
HEALTHSOUTH Rehabilitation Center of Dayton Limited Partnership (AL) (OH)
HEALTHSOUTH Rehabilitation Center of Denver, Ltd. (AL) (CO) HEALTHSOUTH
Rehabilitation Center of Des Moines Limited Partnership (AL) (IA) HEALTHSOUTH
Rehabilitation Center of Dyersburg Limited Partnership (AL) (VA) HEALTHSOUTH
Rehabilitation Center of Edison Limited Partnership (AL) (NJ) HEALTHSOUTH
Rehabilitation Center of Emerson Limited Partnership (AL) (NJ) HEALTHSOUTH
Rehabilitation Center of Englewood Limited Partnership (AL) (CO) HEALTHSOUTH
Rehabilitation Center of Ft. Collins Limited Partnership (AL) (CO) HEALTHSOUTH
Rehabilitation Center of Ft. Lauderdale, Ltd. (AL) (FL) HEALTHSOUTH
Rehabilitation Center of Ft. Worth, Ltd. (AL) (TX) HEALTHSOUTH Rehabilitation
Center of Fresno Limited Partnership (AL) (CA)
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<PAGE>
HEALTHSOUTH Rehabilitation Center of Greater Washington
Limited Partnership (AL) (MD)
HEALTHSOUTH Rehabilitation Center of Green Bay Limited Partnership (AL) (WI)
HEALTHSOUTH Rehabilitation Center of Houston Limited Partnership (AL) (TX)
HEALTHSOUTH Rehabilitation Center of Huntington Beach Limited Partnership (AL)
(CA) HEALTHSOUTH Rehabilitation Center of Huntsville Limited Partnership (AL)
HEALTHSOUTH Rehabilitation Center of Illinois Limited Partnership (AL) (IL)
HEALTHSOUTH Rehabilitation Center of Jackson, Ltd. (AL) (MS) HEALTHSOUTH
Rehabilitation Center of Kansas City Limited Partnership (AL) (MO)(KS)
HEALTHSOUTH Rehabilitation Center of Kendall, Ltd. (AL) (FL) HEALTHSOUTH
Rehabilitation Center of Knoxville Limited Partnership (AL) (TN) HEALTHSOUTH
Rehabilitation Center of Las Vegas Limited Partnership (AL) (NV) HEALTHSOUTH
Rehabilitation Center of Linden Limited Partnership (AL) (NJ) HEALTHSOUTH
Rehabilitation Center of Little Rock Limited Partnership (AL) (AR) HEALTHSOUTH
Rehabilitation Center of Lorain Limited Partnership (AL) (OH) HEALTHSOUTH
Rehabilitation Center of Louisville, Ltd. (AL) (KY) HEALTHSOUTH Rehabilitation
Center of Madison Limited Partnership (AL) (NJ) HEALTHSOUTH Rehabilitation
Center of Manchester Limited Partnership (AL) (NH) HEALTHSOUTH Rehabilitation
Center of Memphis, Ltd. (AL) (TN) HEALTHSOUTH Rehabilitation Center of Merritt
Island, Ltd. (AL) (FL) HEALTHSOUTH Rehabilitation Center of Metairie, Ltd. (AL)
(LA) HEALTHSOUTH Rehabilitation Center of Mobile, Ltd. (AL) HEALTHSOUTH
Rehabilitation Center of Montgomery, Ltd. (AL) HEALTHSOUTH Rehabilitation Center
of Nashville, Ltd. (AL) (TN) HEALTHSOUTH Rehabilitation Center of New Brunswick
Limited Partnership (AL) (NJ) HEALTHSOUTH Rehabilitation Center of New
Hampshire, Ltd. (AL) (NH) HEALTHSOUTH Rehabilitation Center of New Orleans, Ltd.
(AL) (LA) HEALTHSOUTH Rehabilitation Center of North Atlanta, Ltd. (AL) (GA)
HEALTHSOUTH Rehabilitation Center of Owings Mills Limited Partnership (AL) (MD)
HEALTHSOUTH Rehabilitation Center of Palm Bay, Ltd. (AL) (FL) HEALTHSOUTH
Rehabilitation Center of Palm Beach, Ltd. (AL) (FL) HEALTHSOUTH Rehabilitation
Center of Panama City Limited Partnership (AL) (FL) HEALTHSOUTH Rehabilitation
Center of Paramus Limited Partnership (AL) (NJ) HEALTHSOUTH Rehabilitation
Center of Phoenix Limited Partnership (AL) (AZ) HEALTHSOUTH Rehabilitation
Center of Pittsburgh Limited Partnership (AL) (PA) HEALTHSOUTH Rehabilitation
Center of Port Colden Limited Partnership (AL) (NJ) HEALTHSOUTH Rehabilitation
Center of Portola Valley Limited Partnership (AL) (CA) HEALTHSOUTH
Rehabilitation Center of Pottstown Limited Partnership (AL) (PA) HEALTHSOUTH
Rehabilitation Center of Redding Limited Partnership (AL) (CA) HEALTHSOUTH
Rehabilitation Center of Richmond Limited Partnership (AL) (VA) HEALTHSOUTH
Rehabilitation Center of Roanoke Limited Partnership (AL) (VA) HEALTHSOUTH
Rehabilitation Center of Rockville Limited Partnership (AL) (MD) HEALTHSOUTH
Rehabilitation Center of San Antonio, Ltd. (AL) (TX) HEALTHSOUTH Rehabilitation
Center of San Francisco Limited Partnership (AL) (CA) HEALTHSOUTH Rehabilitation
Center of Santa Rosa Limited Partnership (AL) (CA) HEALTHSOUTH Rehabilitation
Center of Scottsdale Limited Partnership (AL) (AZ) HEALTHSOUTH Rehabilitation
Center of Somerset Limited Partnership (AL) (NJ) HEALTHSOUTH Rehabilitation
Center of Sparta Limited Partnership (AL) (NJ)
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<PAGE>
HEALTHSOUTH Rehabilitation Center of Springfield Limited Partnership (AL) (MO)
(GP - HEALTHSOUTH Holdings, Inc.)
HEALTHSOUTH Rehabilitation Center of St. Louis Limited Partnership (AL) (MO)
HEALTHSOUTH Rehabilitation Center of Sugarland Limited Partnership (AL) (TX)
HEALTHSOUTH Rehabilitation Center of Syracuse Limited Partnership (AL) (NY)
HEALTHSOUTH Rehabilitation Center of Tampa, Ltd. (AL) (FL) HEALTHSOUTH
Rehabilitation Center of Tinton Falls Limited Partnership (AL) (NJ) HEALTHSOUTH
Rehabilitation Center of Tucson Limited Partnership (AL) (AZ) HEALTHSOUTH
Rehabilitation Center of Van Nuys Limited Partnership (AL) (CA) HEALTHSOUTH
Rehabilitation Center of Virginia Beach Limited Partnership (AL) (VA)
HEALTHSOUTH Rehabilitation Center of Warrenton Limited Partnership (AL) (VA)
HEALTHSOUTH Rehabilitation Center of Washington, D.C. Limited Partnership (AL)
(DC) HEALTHSOUTH Rehabilitation Center of Weatherford Limited Partnership (AL)
(OK)
(GP - HEALTHSOUTH Holdings, Inc.)
HEALTHSOUTH Rehabilitation Center of West Denver Limited Partnership (AL) (CO)
HEALTHSOUTH Rehabilitation Center of Westfield Limited Partnership (AL) (NJ)
HEALTHSOUTH Rehabilitation Center of West Orange Limited Partnership (AL) (FL)
HEALTHSOUTH Rehabilitation Center of Wilmington Limited Partnership (AL) (DE)
(GP - HEALTHSOUTH Holdings, Inc.)
HEALTHSOUTH Rehabilitation Center of Woodward Limited Partnership (AL) (OK) (GP
- HEALTHSOUTH Holdings, Inc.)
HEALTHSOUTH Rehabilitation Hospital of Arlington Limited Partnership (AL) (TX)
(GP - HEALTHSOUTH Properties Corporation)
HEALTHSOUTH Rehabilitation Hospital of New Mexico, Ltd. (AL) (NM)
HEALTHSOUTH Rehabilitation Institute of Tucson Limited Partnership (AL) (AZ)
(GP - HEALTHSOUTH Properties Corporation)
HEALTHSOUTH Rehabilitation Systems of Texas Limited Partnership (AL) (TX) (GP -
HEALTHSOUTH Properties Corporation)
HEALTHSOUTH/San Antonio Clinics Limited Partnership (AL) (TX) (GP - HEALTHSOUTH
of Texas, Inc.)
HEALTHSOUTH Spine Center of Baltimore Limited Partnership (AL) (MD)
HEALTHSOUTH Spine & Rehabilitation Center of Chattanooga
Limited Partnership (AL) (TN)
HEALTHSOUTH Spine & Rehabilitation Center of Dallas Limited Partnership (AL)
(TX) HEALTHSOUTH Spine & Rehabilitation Center of Memphis Limited Partnership
(AL) (TN) HEALTHSOUTH Sports and Rehabilitation Center of La Jolla Limited
Partnership (AL) (CA) HEALTHSOUTH Sports Medicine and Rehabilitation Center of
Atlanta Limited
Partnership (AL) (GA)
HEALTHSOUTH Sports Medicine & Rehabilitation Center of Baton Rouge Limited
Partnership (AL) (LA)
(GP - HEALTHSOUTH Holdings, Inc.)
HEALTHSOUTH Sports Medicine and Rehabilitation Center of Blue Springs
Limited Partnership (AL) (KS)(MO)
HEALTHSOUTH Sports Medicine & Rehabilitation Center of Chicago
Limited Partnership (AL) (IL)
HEALTHSOUTH Sports Medicine & Rehabilitation Center of Clearwater
Limited Partnership (AL) (FL)
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<PAGE>
HEALTHSOUTH Sports Medicine & Rehabilitation Center of Jacksonville
Limited Partnership (AL) (FL)
HEALTHSOUTH Sports Medicine & Rehabilitation Center of Johnson City
Limited Partnership (AL) (TN)
HEALTHSOUTH Sports Medicine and Rehabilitation Center of Lake Ozark
Limited Partnership (AL) (MO)
HEALTHSOUTH Sports Medicine & Rehabilitation Center of Lake Worth Limited
Partnership (AL) (FL)
HEALTHSOUTH Sports Medicine & Rehabilitation Center of Manahawkin Limited
Partnership (AL) (NJ)
HEALTHSOUTH Sports Medicine & Rehabilitation Center of Marina Del Rey
Limited Partnership (AL) (CA)
HEALTHSOUTH Sports Medicine & Rehabilitation Center of Nashville
Limited Partnership (AL) (TN)
HEALTHSOUTH Sports Medicine & Rehabilitation Center of North Alabama
Limited Partnership (AL)
HEALTHSOUTH Sports Medicine and Rehabilitation Center of North Jersey
Limited Partnership (AL) (NJ)
HEALTHSOUTH Sports Medicine and Rehabilitation Center of Ocala Limited
Partnership (AL) (FL)
HEALTHSOUTH Sports Medicine & Rehabilitation Center of Oklahoma City
Limited Partnership (AL) (OK)
HEALTHSOUTH Sports Medicine & Rehabilitation Center of Omaha Limited
Partnership (AL) (NE)
HEALTHSOUTH Sports Medicine and Rehabilitation Center of Orlando, Ltd. (AL) (FL)
HEALTHSOUTH Sports Medicine & Rehabilitation Center of Pascagoula
Limited Partnership (AL) (MS) (GP - HEALTHSOUTH Holdings, Inc.)
HEALTHSOUTH Sports Medicine and Rehabilitation Center of Port St. Lucie Limited
Partnership (AL) (FL)
HEALTHSOUTH Sports Medicine and Rehabilitation Center of San Carlos Limited
Partnership (AL) (CA)
HEALTHSOUTH Sports Medicine and Rehabilitation Center of San Diego Limited
Partnership (AL) (CA)
HEALTHSOUTH Sports Medicine & Rehabilitation Center of Waco
Limited Partnership (AL) (TX)
HEALTHSOUTH Sports Medicine & Rehabilitation Center of Woodland Hills
Limited Partnership (AL) (CA)
HEALTHSOUTH Surgery Center of Crestview, L.P. (TN)(FL) (GP - HEALTHSOUTH Surgery
Center of Crestview, Inc.)
HEALTHSOUTH Surgery Center of Clearwater, L.P. (TN)(FL) (GP - HEALTHSOUTH
Surgery Center of Clearwater, Inc.)
HEALTHSOUTH Surgery Center of Dayton, L.P. (TN)(OH) (GP - HEALTHSOUTH Surgery
Center of Dayton, Inc.)
HEALTHSOUTH Surgery Center of Easton, L.P. (TN) (MD) (GP - HEALTHSOUTH of
Easton, Inc.)
HEALTHSOUTH Surgery Center of Kenosha, L.P. (TN) (WI) (GP - HEALTHSOUTH Surgery
Center of Kenosha, Inc.)
- 15 -
<PAGE>
HEALTHSOUTH Surgery Center of Loveland, L.P. (TN) (CO) (GP - HEALTHSOUTH Surgery
Center of Loveland, Inc.)
HEALTHSOUTH Surgery Center of Pecan Valley, L.P. (TN) (TX) (GP - HEALTHSOUTH
Surgery Center of Pecan Valley, Inc.)
HEALTHSOUTH Surgery Center of Pinellas Park, L.P. (TN) (FL) (GP - HEALTHSOUTH
Surgery Center of Pinellas Park, Inc.)
HEALTHSOUTH Surgery Center of San Buenaventura, L.P.(CA) (GP - HEALTHSOUTH
Surgery Center of San Buenaventura, Inc.)
HEALTHSOUTH Surgery Center of Summerlin, L.P. (TN) (NV) (GP - HEALTHSOUTH
Surgery Center of Summerlin, Inc.)
HEALTHSOUTH Surgery Center of West Columbus, L.P. (TN) (OH)
(GP - HEALTHSOUTH U.S. Health West Columbus, LLC)
HEALTHSOUTH Surgery Center of Westerville, L.P. (TN) (OH)
(GP - HEALTHSOUTH U.S. Health Westerville, LLC)
HEALTHSOUTH Surgery Center of Westlake, L.P. (TN) (OH) (GP - HEALTHSOUTH Surgery
Center of Westlake, Inc.)
HEALTHSOUTH Surgery Center of Whitehall, L.P. (TN) (OH)
(GP - HEALTHSOUTH U.S. Health Whitehall, LLC)
HEALTHSOUTH Surgery Centers of Chattanooga, L.P. (TN)
(GP - HEALTHSOUTH *)
HEALTHSOUTH Surgical Center of Tuscaloosa Limited Partnership (AL) (GP -
HEALTHSOUTH Surgical Center of Tuscaloosa, Inc.)
HEALTHSOUTH Texas Limited Partnership (AL) (TX)
(GP - HEALTHSOUTH Properties Corporation; LP - HEALTHSOUTH Holdings, Inc.)
HEALTHSOUTH Tri-State Regional Rehabilitation Hospital Limited Partnership (AL)
(TN)
(GP - HEALTHSOUTH Properties Corporation)
HEALTHSOUTH Valley of the Sun Rehabilitation Hospital Limited Partnership (AL)
(AZ) (GP - HEALTHSOUTH Properties Corporation)
Heritage Surgical Associates of Chula Vista, L.P. (CA)
(GP - Heritage Surgical Associates of Chula Vista, Inc.)
Honolulu Surgery Center, L.P. (TN) (HI)
(GP - SCA-Honolulu, L.P.)
HSC Boca Raton Outpatient Surgery Center, Ltd. (FL)
(GP - HSC of Boca Raton, Inc.)
HSC Surgical Associates of Beaumont, L.P. (TX) (GP - HSC of Beaumont, Inc.)
HSC Surgical Associates of Bradenton, L.P. (TN) (FL) (GP - HSC of
Bradenton, Inc.)
HSC Surgical Associates of Clarksville, L.P. (TN) (GP - HSC of Clarksville,
Inc.)
HSC Surgical Associates of Ft. Pierce, L.P. (GA) (FL)
(GP - HSC of Ft. Pierce, Inc.)
HSC Surgical Associates of Houston, L.P. (TX) (GP - HSC of Houston, Inc.)
HSC Surgical Associates of Southwest Houston, L.P. (TX)
(GP - HSC of Southwest Houston, Inc.)
Huntington Surgery Center, Limited Partnership (WV) (GP - SCA Cabell, Inc.)
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<PAGE>
Huntington Surgery Properties, Limited Partnership (WV)
(GP - SCA Cabell Development Corporation)
Indian River Surgery Center, Ltd. (FL)
(GP - Indian River Physician Associates, Inc., and HSC of Vero Beach, Inc.)
Indianapolis Surgery Center Limited Partnership (IN)
(GP - SCA-Indianapolis, Inc.)
Inland Surgery Center, L.P. (CA)
(GP - Redlands Ambulatory Surgery Center)
Partner: Redlands-SCA Surgery Centers, Inc.)
Knoxville Ambulatory Surgery Center, L.P. (TN)
(GP - Knoxville-SCA Surgery Center, Inc.)
Lake Howard Heights Associates, Ltd. (FL)
(47.6% Advantage Health Corporation)
(40.491% LH Real Estate Company, Inc.)
LancasterSurgery Center, Limited Partnership (PA) (GP - Lancaster Surgical
Center, Inc.)
Lancaster Surgery Properties, Ltd. (PA)
(GP - Lancaster Medical Centre, Inc.)
Lexington Surgery Center, Ltd. (KY)
(GP - Lexington-SC, Inc.)
Lex-Surg Associates (KY)
(GP - Lexington-SC Properties, Inc.)
Little Rock Surgery Center, Limited Partnership (AR)
(GP - Little Rock-SC, Inc.)
Little Rock Surgery Properties, Limited Partnership (AR)
(GP - SCA-Little Rock Development Corp.)
Louisville S.C., Ltd. (KY)
(GP - Surgery Center of Louisville, Inc.)
LPSC, Ltd. (KY)
(GP - Louisville-SC Properties, Inc.)
Maple Surgery Center, Limited Partnership (MA)
(GP - Springfield-SC, Inc.)
Marquette Surgery Center, L.P. (TN) (MI)
(GP - SCA-Marquette, Inc.)
MeKenzie Surgery Center, L.P. (TN) (OR)
(GP - SCA/McKenzie Joint Venture, LLC)
Melbourne Surgery Center, L.P. (GA) (FL)
(GP - SHC Melbourne, Inc.)
Memphis Surgery Center, Ltd. (TN)
(GP - Memphis-SC, LLC)
Memphis Surgery Properties, Ltd., L.P. (TN)
(GP - Memphis-SP, LLC)
Miami Rehabilitation Institute, Ltd. (AL) (FL)
Mid-County Surgical Associates, L.P., a California Limited Partnership (CA) (GP
- La Jolla Health Systems, Inc.)
Mobile-SC, Ltd. (AL)
(GP - SCA-Mobile, Inc.)
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<PAGE>
Mobile-SC Properties, Ltd. (AL)
(GP - SCA-Mobile Properties, Inc.)
Montgomery Surgery Center Limited Partnership (MD)
(GP - Maryland Ambulatory Centers)
(Partner: Maryland-SCA Centers, Inc.)
MRI of Miami, Ltd. (FL)
(GP - Doctor's Health Services Corporation)
Mt. Pleasant Surgery Center, L.P. (TN) (PA)
(GP - SCA-Mt. Pleasant, Inc.)
Nashville Surgery Center, L.P. (TN)
(GP - Nashville-SCA Surgery Centers, Inc.)
New Mexico Surgery Properties Limited Partnership (NM)
(GP - SCA-Albuquerque Surgery Properties, Inc.)
New Mexico Surgicenter Limited Partnership (NM)
(GP - SCA-Albuquerque, Inc.)
New Orleans East Outpatient Surgery Center, L.P. (CA) (LA)
(GP - SCA-Lake Forest, Inc.)
Newport Beach Surgery Center, a California Limited Partnership (CA) (GP -
Newport Beach Health Systems, Inc.)
North County Surgery Center, L.P. (GA) (MO)
(GP - North County Outpatient Management, Inc.)
North Shore Outpatient Surgicenter, L.P. (GA) (IL)
(GP - SHC North Shore, Inc.)
Northern Solano Surgery Center, L.P. (CA)
(GP - HEALTHSOUTH Surgery Centers-West, Inc.)
Oakwater Outpatient Surgery Center, L.P. (GA) (FL)
(GP - SHC Oakwater, Inc.)
Ohio Valley Surgery Center, L.P. (TN) (PA)
(GP - Ohio Valley Joint Venture, LLC)
Oklahoma Ambulatory Surgery Center I, L.P. (GA) (OK)
(GP - SHC Midwest City, Inc.)
Old Farms Forest Associates Limited Partnership (CT)
(15.68% Advantage Health Corporation)
Orlando Center for Outpatient Surgery, L.P. (GA) (FL)
(GP - Surgical Health of Orlando, Inc.; MOC Surgical Corporation)
Oshkosh Surgery Center, L.P. (TN) (WI)
(GP - Oshkosh-SCA Surgery Center, Inc.)
Outpatient Surgery Center of The Woodlands, Ltd. (TX)
(Managing GP - The Woodlands Surgery Systems, Inc.
and Non-Managing GP - HNPG, Inc.)
Palms Wellington Surgical Partners Limited (FL) (GP - SHC Palms Wellington,
Inc.)
Paoli Surgery Center, L.P. (TN) (PA)
(GP - Paoli Ambulatory Surgery Center)
(Partner: SCA-Paoli, Inc.)
Perimeter Center for Outpatient Surgery, L.P. (GA)
(GP - SHC Atlanta, Inc.)
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<PAGE>
Philbrook Hotel Associates (ME)
(20% capital transactions)
(1% operations)
Phoenix Center for Outpatient Surgery, L.P. (GA) (AZ)
(GP - SHC Phoenix, Inc.)
Physicians Surgery Center, Ltd. (FL)
(GP - SCA/Ft. Myers, LLC)
Plano Surgery Center, L.P.(TX) (GP - SCA-Plano, Inc.)
Professional Sports Care New Brunswick, L.P. (NJ)
(GP - Professional Sports Care Management, Inc.)
Professional Sports Care Somers, L.P. (NY)
(GP - Professional Sports Care Management, Inc.)
Professional Sports Care Midtown, L.P. (NY)
(GP - Professional Sports Care Management, Inc.)
Professional Sports Care Huntington, L.P. (NY)
(GP - Professional Sports Care Management, Inc.)
Professional Sports Care Queens, L.P. (NY)
(GP - Professional Sports Care Management, Inc.)
Pueblo Ambulatory Surgery Center Limited Partnership (CO) (GP - Pueblo-SCA
Surgery Center, Inc.)
Rehabilitation Centers of Maryland Limited Partnership (AL) (MD)
San Antonio Surgery Center, Ltd. (TX)
(GP - San Antonio Surgery Center, Inc.)
San Francisco SurgiCenter, Medical Clinic, a California Limited Partnership (CA)
(GP - Sutter Ambulatory Care Corporation)
San Luis Obispo Surgery Center, a California Limited Partnership (CA) (GP -
SCA-San Luis Obispo, Inc.)
Santa Rosa Surgery Center, L.P. (TN) (CA)
(GP - SCA-Santa Rosa, Inc.)
Sarasota Surgery Center, Ltd. (FL)
(GP - SCA-Sarasota, Inc.)
Sarasota Surgery Properties, Ltd. (FL)
(GP - Surgical Services of Sarasota, Inc.)
SCA-FCSC, L.P. (CO) (GP - SCA-Fort Collins, Inc.)
Scranton Surgery Center, Limited Partnership (PA)
(GP - SCA-MH, LLC)
South County Outpatient Surgery Center, L.P. (MO)
(GP - South County Outpatient Management, Inc.)
Sports Real Estate Association (MA)
(14.35% Advantage Health Corporation)
St. Joseph Surgery Center, L.P. (TN) (MO)
(GP - St. Joseph Ambulatory Surgery Center)
(Partner: SCA-St. Joseph Missouri, Inc.)
St. Petersburg Surgery Center, Ltd. (FL)
(GP - SCA-St. Petersburg, Inc.)
- 19 -
<PAGE>
Surgecenter of Wilson, Limited Partnership (NC) (GP - SC-Wilson, Inc.)
Surgery Center of Oklahoma, L.P. (GA) (OK)
(GP - SHC Oklahoma City, Inc.)
Surgery Center of Santa Rosa, L.P. (TN)
(GP - SCA-Santa Rosa, Inc.)
Surgery Property Associates, Ltd. (KY)
(GP - Lexington-SC Properties, Inc.)
Surgical Center of South Jersey, Limited Partnership (NJ) (GP - SCA-South
Jersey, Inc.)
Surgicenter of San Antonio, L.P. (GA) (TX)
(GP - SurgiCenter of San Antonio, Inc.)
Sutter Surgery Center, L.P. (CA)
(GP - Sutter Surgery Centers, Inc.)
Tambay Associates, Ltd. (FL)
(48.66% Advantage Health Corporation)
Tampa IVF/Gift Center, L.P. (TN) (FL)
(GP - Tampa Outpatient Surgery Joint Venture, Ltd.)
Tampa Outpatient Surgery Joint Venture, Ltd. (FL)
(GP - SCA-Tampa, Inc.)
d/b/a Tampa Outpatient Surgical Facility
Tampa Pain Management Center, L.P. (TN) (FL)
(GP - Tampa Outpatient Surgery Joint Venture, Ltd.)
Tara Imaging Center, Ltd. (L.P.) (AL) (GA)
(GP - Diagnostic Health Corporation)
Tesson Ferry Medical Equities, L.P. (MO)
(GP - Tesson Ferry Medical Management, Inc. - 50%)
Treasure Valley Hospital Limited Partnership (ID)
(GP - Surgical Health Corporation)
Tri-County Surgery Center, L.P. (GA) (MO)
(GP - SHC Tri-County, Inc.)
Ukiah Surgery Center, L.P. (TN) (CA)
(GP - SCA-Ukiah, Inc.)
Valley Outpatient Surgery Center, L.P. d/b/a Valley Outpatient Surgery Center
(WA)
(GP - HEALTHSOUTH Surgery Center of Spokane, Inc.)
Vanderbilt Stallworth Rehabilitation Hospital Limited Partnership (TN)
Wausau Surgery Center, L.P. (TN) (WI)
(GP - SCA-Wausau, Inc.)
Wauwatosa Surgery Center, Limited Partnership (WI)
(GP - Wauwatosa Outpatient Surgery Center, Inc.)
West County Surgery Center, L.P. (GA) (MO)
(GP - SHC West County, Inc.)
Wilson Surgery Center, Limited Partnership (NC)
(GP - SCA-Wilson, Inc.)
Winter Park Surgery Center, L.P. (TN) (FL)
(GP - Winter Park, LLC)
Yuma Outpatient Surgery Center, Limited Partnership (TN) (AZ) (GP -
SCA-Yuma, Inc.)
- 20 -
<PAGE>
2001 Associates Limited Partnership (NY)
(89% Advantage Health Corporation)
General Partnerships
A.B.L. Visiting Nurses (MA) (53%)
A.B.L. Visiting Nurses Certified (MA) (99%) (0.53% owned by
Special Home Care, Inc.)
A.B.L. Visiting Nurses, p.r.n. (MA) (99%) (0.53%) owned by
Special Home Care, Inc.)
Caremark Center for Physical Therapy - Deerfield (IL) (80%) Caremark Center for
Physical Therapy - Gurnee (IL) (80%) Caremark Physical Therapy Center/Woodstock
(IL) (50%) Caremark/UC Center for Sports Medicine (IL) (50%) Central Delaware
Ambulatory Surgery Center (TN) (DE)
(Partner - SCA-Dover, Inc.)
Central Florida Medical Management Services Organization (FL) (A general
partnership) (Partners are PHC Orlando, Inc., PCS Orlando, Inc., and
IMS Orlando, Inc.)
The Eastern Rehabilitation Network (CT)
(51% Advantage Health Eastern Rehabilitation Network, Inc.
49% Hartford Hospital)
Faunce Corner Wellness Associates (MA)
(50% Advantage Health Development Corp.)
50% Charlton Memorial Hospital)
Fort Worth Surgery Center Associates (DE) (TX) (Partner - Fort Worth-SC,
Inc.)
HEALTHSOUTH Real Property of Melbourne G.P. (FL)
(GP - HEALTHSOUTH Real Property Holding Corporation)
HSC Surgical Associates of Cincinnati (OH) (A general partnership) (OH
d/b/a Tri-State Endoscopy Center) (GP - HSC of Cincinnati, Inc. and
Tri-State Endoscopy Center, Inc.)
Lahey/Advantage General Partnership (MA)
(50% Advantage Health Comprehensive Care Corp.)
The Medical Center of Symmes, a Lahey/Advantage Health Partnership (MA)
(60% Advantage Health Arlington Corp.)
OrthoSport, a Texas General Partnership (TX)
The Physical Rehabilitation Institute (AL)
(GP - HEALTHSOUTH of Birmingham, Inc.)
Surgical Support Services (MO) (A general partnership)
(Missouri Secretary of State says this is a fictitious name registered
by Central Radiology Group and Outpatient Surgery Center) (SHC was not
a managing partner and only receives Form K's on this entity)
- 21 -
Exhibit (23)--CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-13489) pertaining to the 1984 Incentive Stock Option Plan, in the
Registration Statement (Form S-8 No. 33-23642) pertaining to the 1988
Non-Qualified Stock Option Plan, in the Registration Statement (Form S-8 No.
33-34908) pertaining to the 1989 Stock Option Plan, in the Registration
Statement (Form S-8 No. 33-40798) pertaining to the 1990 Stock Option Plan, in
the Registration Statement (Form S-8 No. 33-50440) pertaining to the 1991 Stock
Option Plan, in the Registration Statement (Form S-8 No. 33-64308) pertaining to
the 1992 Stock Option Plan, in the Registration Statement (Form S-8 No.
33-64316) pertaining to the 1993 Consultants' Stock Option Plan, in the
Registration Statement (Form S-8 No. 33-55303) pertaining to the 1993 Stock
Option Plan, in the Registration Statement (Form S-8 No. 333-02221) pertaining
to the 1995 Stock Option Plan in the Registration Statement (Form S-8 No.
33-60231) pertaining to the Surgical Health Corporation and Heritage Surgical
Corporation Stock Option Plans, in the Registration Statement (Form S-8 No.
33-64615) pertaining to the Sutter Surgery Centers, Inc. Stock Option Plans, in
the Registration Statement (Form S-8 No. 333-00565) pertaining to the Surgical
Care Affiliates Stock Option Plans, in the Registration Statement (Form S-8 No.
333-12111) pertaining to the Professional Sports Care Management, Inc. Stock
Option Plans and in the Registration Statement (Form S-8 No. 333-18035)
pertaining to the ReadiCare Stock Option Plans of our report, dated February 24,
1997, except for the first paragraph of Note 15, as to which the date is March
12, 1997, with respect to the consolidated financial statements and financial
statement schedule of HEALTHSOUTH Corporation and Subsidiaries included in this
Annual Report (Form 10-K) for the year ended December 31, 1996.
ERNST & YOUNG LLP
Birmingham, Alabama
March 21, 1997
