AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 17, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------
HEALTHSOUTH CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------
<TABLE>
<S> <C> <C>
DELAWARE 8062 63-0860407
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
Incorporation or Organization) Classification Code Number) Number)
</TABLE>
--------------
ONE HEALTHSOUTH PARKWAY
BIRMINGHAM, ALABAMA 35243
(205) 967-7116
(Address, including Zip Code, and Telephone Number, including Area Code, of
Registrant's Principal Executive Offices)
RICHARD M. SCRUSHY
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
HEALTHSOUTH CORPORATION
ONE HEALTHSOUTH PARKWAY
BIRMINGHAM, ALABAMA 35243
(205) 967-7116
(Name, Address, including Zip Code, and Telephone Number, including Area Code,
of Agent for Service)
COPIES TO:
<TABLE>
<S> <C> <C>
ROBERT E. LEE GARNER, ESQ. WILLIAM W. HORTON, ESQ. STEVEN E. DUCOMMUN, ESQ.
F. HAMPTON MCFADDEN, JR., ESQ. BEALL D. GARY, JR., ESQ. WOON-WAH SIU, ESQ.
Haskell Slaughter & Young, L.L.C. HEALTHSOUTH Corporation BELL, BOYD & LLOYD
1200 AmSouth/Harbert Plaza One HealthSouth Parkway Three First National Plaza
1901 Sixth Avenue North Birmingham, Alabama 35243 70 West Madison Street, Suite 3300
Birmingham, Alabama 35203 (205) 967-7116 Chicago, Illinois 60602
(205) 251-1000 (312) 372-1121
</TABLE>
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===========================================================================================================================
TITLE OF EACH PROPOSED MAXIMUM PROPOSED MAXIMUM
CLASS OF SECURITIES AMOUNT OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED TO BE REGISTERED(1) PER UNIT PRICE(2) REGISTRATION FEE(3)
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per
share ......................... 23,623,673 shares N/A $ 568,320,823.75 $ 192,953.73
===========================================================================================================================
</TABLE>
(1) The amount of common stock, par value $.01 per share (the "HEALTHSOUTH
Common Stock"), of the Registrant to be registered has been determined
based upon 18,617,279 shares of common stock, par value $.01 per share (the
"NSC Common Stock"), of National Surgery Centers, Inc. outstanding as of
June 15, 1998, 1,908,981 shares of NSC Common Stock that may be issued
pursuant to outstanding options, warrants and convertible debt that may be
exercised prior to the Effective Time of the Merger described herein and an
Exchange Ratio of 1.1509 shares of HEALTHSOUTH Common Stock per share of
NSC Common Stock, the maximum Exchange Ratio provided for in the Plan and
Agreement of Merger among HEALTHSOUTH Corporation, Field Acquisition
Corporation and National Surgery Centers, Inc., dated as of May 5, 1998
(the "Plan").
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f)(1) of the Securities Act of 1933, as amended (the
"Securities Act"). Pursuant to Rule 457(f)(1), the maximum aggregate
offering price is the product of (a) $27.6875, representing the average of
the high and low sales prices of NSC Common Stock as reported on June 15,
1998, and (b) 20,526,260, the maximum number of shares of NSC Common Stock
to be acquired by the Registrant in connection with the acquisition of NSC
pursuant to the Plan.
(3) Calculated pursuant to Section 6(b) and Rule 457 of the Securities Act.
$103,556 of such fee was paid at the time of the filing of the preliminary
proxy materials for this matter.
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
NATIONAL SURGERY CENTERS, INC.
30 SOUTH WACKER DRIVE
SUITE 2302
CHICAGO, ILLINOIS 60606
June 18, 1998
To Our Stockholders:
You are cordially invited to attend a Special Meeting of Stockholders of
National Surgery Centers, Inc. ("NSC") at The Midland Hotel, 172 West Adams,
Chicago, Illinois 60603 on July 22, 1998 at 10:00 a.m., local time (the "Special
Meeting").
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt the Plan and Agreement of Merger, dated as of May
5, 1998 (the "Plan"), providing for the merger (the "Merger") of a wholly-owned
subsidiary of HEALTHSOUTH Corporation ("HEALTHSOUTH") with and into NSC. The
Plan provides that, upon consummation of the Merger, each issued and outstanding
share of Common Stock of NSC will be converted into the right to receive that
fraction of a share of HEALTHSOUTH Common Stock determined by dividing $30.50 by
the Base Period Trading Price (as defined herein), as may be adjusted as
provided below, computed to four decimal places (the "Exchange Ratio");
provided, however, that if the Base Period Trading Price shall be greater than
$35.00, the Exchange Ratio shall be .8714; and provided further, however, that
if the Base Period Trading Price shall be less than $26.50, the Exchange Ratio
shall be 1.1509. The term "Base Period Trading Price" means the average daily
closing prices for the shares of HEALTHSOUTH Common Stock for the 20 consecutive
trading days on which such shares are actually traded (as reported on the New
York Stock Exchange Composite Transaction Tape as reported in the Wall Street
Journal, Eastern Edition, or if not reported thereby, any other authoritative
source) ending at the close of trading on the second trading day immediately
preceding the Closing Date. The Plan and the Merger are discussed in more detail
in the accompanying Prospectus-Proxy Statement. Please review and consider the
enclosed materials carefully.
For the reasons set forth in the accompanying Prospectus-Proxy Statement,
your Board of Directors believes that the Merger is fair to, and in the best
interests of, the stockholders of NSC and recommends that you vote in favor of
approval and adoption of the Plan. In making that determination, the Board of
Directors has received and taken into account the opinions delivered on May 5,
1998 and June 17, 1998 by BT Alex. Brown Incorporated to the effect that, as of
the date of such opinions, the consideration to be received by the NSC
stockholders was fair, from a financial point of view, to the stockholders of
NSC. The full text of the opinion of BT Alex. Brown Incorporated dated June 17,
1998 is attached to the accompanying Prospectus-Proxy Statement as Annex B and
should be read carefully in its entirety.
Regardless of whether you plan to attend the Special Meeting, please be
sure to sign, date and return the enclosed proxy or voting instruction card in
the enclosed envelope as promptly as possible so that your shares may be
represented at the Special Meeting and voted in accordance with your wishes.
Your vote is important regardless of the number of shares that you own.
Sincerely,
/s/ E. TIMOTHY GEARY
E. Timothy Geary
Chairman of the Board, Chief Executive
Officer and President
<PAGE>
NATIONAL SURGERY CENTERS, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 22, 1998
To the Stockholders of National Surgery Centers, Inc.:
A Special Meeting of Stockholders (the "Special Meeting") of National
Surgery Centers, Inc., a Delaware corporation ("NSC"), will be held on July 22,
1998 at 10:00 a.m., local time, at The Midland Hotel, 172 West Adams, Chicago,
Illinois 60603, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the Plan and
Agreement of Merger, dated as of May 5, 1998 (the "Plan"), among NSC,
HEALTHSOUTH Corporation ("HEALTHSOUTH") and a wholly-owned subsidiary of
HEALTHSOUTH (the "Subsidiary"). Pursuant to the Plan, the Subsidiary would
merge with and into NSC (the "Merger") and, among other things, each
issued and outstanding share of common stock, par value $.01 per share, of
NSC ("NSC Common Stock"), would be converted in the Merger into the right
to receive that fraction of a share of HEALTHSOUTH Common Stock determined
by dividing $30.50 by the Base Period Trading Price (as defined herein),
as may be adjusted as provided below, computed to four decimal places (the
"Exchange Ratio"); provided, however, that if the Base Period Trading
Price shall be greater than $35.00, the Exchange Ratio shall be .8714; and
provided further, however, that if the Base Period Trading Price shall be
less than $26.50, the Exchange Ratio shall be 1.1509 (in whichever case
occurs, the "Exchange Ratio"), all as more fully set forth in the
accompanying Prospectus-Proxy Statement and in the Plan, a copy of which
is included as Annex A thereto; and
2. To transact such other business as may properly come before the Special
Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on June 15, 1998 as
the record date for the determination of stockholders entitled to notice of, and
to vote at, the Special Meeting or any adjournment thereof. Only holders of
record of shares of NSC Common Stock at the close of business on the record date
are entitled to notice of, and to vote at, the Special Meeting. A complete list
of such stockholders will be available for examination at the offices of NSC in
Chicago, Illinois during normal business hours by any NSC stockholder, for any
purpose germane to the Special Meeting, for a period of 10 days prior to the
Special Meeting.
STOCKHOLDERS ARE URGED, WHETHER OR NOT THEY PLAN TO ATTEND THE SPECIAL
MEETING, TO SIGN, DATE AND MAIL THE ENCLOSED PROXY OR VOTING INSTRUCTION CARD IN
THE POSTAGE-PAID ENVELOPE PROVIDED. IF A STOCKHOLDER WHO HAS RETURNED A PROXY
ATTENDS THE SPECIAL MEETING IN PERSON, SUCH STOCKHOLDER MAY REVOKE THE PROXY AND
VOTE IN PERSON ON ALL MATTERS SUBMITTED AT THE SPECIAL MEETING.
By Order of the Board of Directors
/s/ BRYAN S. FISHER
Secretary
Chicago, Illinois
June 18, 1998
<PAGE>
PROSPECTUS-PROXY STATEMENT
PROXY STATEMENT
OF
NATIONAL SURGERY CENTERS, INC.
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 22, 1998
---------------
PROSPECTUS
OF
HEALTHSOUTH CORPORATION
THIS PROSPECTUS RELATES TO UP TO 23,623,673 SHARES OF THE COMMON STOCK, PAR
VALUE $.01 PER SHARE (THE "HEALTHSOUTH COMMON STOCK"), OF HEALTHSOUTH
CORPORATION (TOGETHER WITH ITS SUBSIDIARIES, AS APPLICABLE, "HEALTHSOUTH")
ISSUABLE TO THE STOCKHOLDERS, OPTION HOLDERS AND WARRANT HOLDERS OF NATIONAL
SURGERY CENTERS, INC. (TOGETHER WITH ITS SUBSIDIARIES, AS APPLICABLE, "NSC")
UPON CONSUMMATION OF THE MERGER (AS DEFINED BELOW). SUCH NUMBER OF SHARES
REPRESENTS THE MAXIMUM NUMBER OF SHARES THAT MAY BE ISSUED TO NSC STOCKHOLDERS,
OPTION HOLDERS AND WARRANT HOLDERS. THIS PROSPECTUS ALSO SERVES AS THE PROXY
STATEMENT OF NSC FOR ITS SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON JULY 22,
1998, AND ANY ADJOURNMENTS AND POSTPONEMENTS THEREOF (THE "SPECIAL MEETING").
SEE "THE SPECIAL MEETING".
-------------
This Prospectus-Proxy Statement describes the terms of a proposed business
combination between HEALTHSOUTH and NSC, pursuant to which HEALTHSOUTH will
acquire NSC by means of the merger (the "Merger") of Field Acquisition
Corporation, a wholly-owned subsidiary of HEALTHSOUTH (the "Subsidiary"), with
and into NSC, with NSC being the surviving corporation (the "Surviving
Corporation"). After the Merger, the combined operations of HEALTHSOUTH and NSC
are expected to be conducted with NSC as a wholly-owned subsidiary of
HEALTHSOUTH and the present subsidiaries of NSC continuing as subsidiaries of
NSC and thus indirect subsidiaries of HEALTHSOUTH. The Merger will be effected
pursuant to the terms and subject to the conditions of the Plan and Agreement of
Merger, dated as of May 5, 1998, among HEALTHSOUTH, the Subsidiary and NSC (as
it may be further amended, supplemented or otherwise modified from time to time,
the "Plan"). The Plan is attached to this Prospectus-Proxy Statement as Annex A
and is incorporated herein by reference. HEALTHSOUTH and NSC are hereinafter
sometimes referred to collectively as the "Companies" and individually as a
"Company".
Upon consummation of the Merger, except as described herein, each outstanding
share of Common Stock, par value $.01 per share, of NSC, other than shares owned
by NSC or any wholly-owned subsidiary of NSC (the "NSC Common Stock" or the "NSC
Shares"), will be converted into the right to receive that fraction of a share
of HEALTHSOUTH Common Stock determined by dividing $30.50 by the Base Period
Trading Price (as defined herein), as may be adjusted as provided below,
computed to four decimal places (the "Exchange Ratio"); provided, however, that
if the Base Period Trading Price shall be greater than $35.00, the Exchange
Ratio shall be .8714; and provided further, however, that if the Base Period
Trading Price shall be less than $26.50, the Exchange Ratio shall be 1.1509. The
term "Base Period Trading Price" means the average daily closing prices for the
shares of HEALTHSOUTH Common Stock for the 20 consecutive trading days on which
such shares are actually traded (as reported on the New York Stock Exchange
Composite Transaction Tape as reported in the Wall Street Journal, Eastern
Edition, or if not reported thereby, any other authoritative source) ending at
the close of trading on the second trading day immediately preceding the Special
Meeting. NSC stockholders will receive cash (without interest) in lieu of
fractional shares of HEALTHSOUTH Common Stock. For a more complete description
of the terms of the Merger, see "THE MERGER".
This Prospectus-Proxy Statement and the form of Proxy are first being mailed
to stockholders of NSC on or about June 18, 1998.
SEE "RISK FACTORS" BEGINNING AT PAGE 16 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY NSC STOCKHOLDERS.
---------------
THE SECURITIES TO BE ISSUED HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECU-
RITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS-PROXY STATEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
THE DATE OF THIS PROSPECTUS-PROXY STATEMENT IS JUNE 18, 1998.
<PAGE>
AVAILABLE INFORMATION
HEALTHSOUTH has filed a Registration Statement on Form S-4 under the
Securities Act of 1933, as amended (the "Securities Act"), with the Securities
and Exchange Commission (the "SEC") covering the shares of HEALTHSOUTH Common
Stock to be issued in connection with the Merger (including exhibits and
amendments thereto, the "Registration Statement"). As permitted by the rules and
regulations of the SEC, this Prospectus-Proxy Statement omits certain
information contained in the Registration Statement. For further information
pertaining to the securities offered hereby, reference is made to the
Registration Statement.
HEALTHSOUTH and NSC are subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (Commission
File Nos. 1-10315 and 0-27162, respectively), and in accordance therewith file
periodic reports, proxy statements and other information with the SEC relating
to their respective businesses, financial statements and other matters. The
Registration Statement, as well as such reports, proxy statements and other
information, may be inspected and copied at the public reference facilities
maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549 and at the public reference facilities maintained by the
SEC at its regional offices located at Seven World Trade Center, Suite 1300, New
York, New York, 10048; and Citicorp Center, 500 West Madison Street, Room 1400,
Chicago, Illinois 60661-2511. Copies of such material can be obtained at
prescribed rates by writing to the SEC, Public Reference Section, 450 Fifth
Street, N.W., Washington, D.C. 20549. The SEC also maintains a web site that
contains reports, proxy and information statements and other information
regarding HEALTHSOUTH, NSC and the Registration Statement. The address of that
web site is http://www.sec.gov. The HEALTHSOUTH Common Stock is listed on the
New York Stock Exchange (the "NYSE"), and the Registration Statement and other
information with respect to HEALTHSOUTH are available for inspection at the
library of the New York Stock Exchange, Inc., 20 Broad Street, 7th Floor, New
York, New York 10005.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
THIS PROSPECTUS-PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF SUCH REPORTS, PROXY
STATEMENTS AND OTHER INFORMATION FILED BY HEALTHSOUTH, OTHER THAN EXHIBITS TO
SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED HEREIN BY
REFERENCE, ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM THE
SECRETARY OF HEALTHSOUTH CORPORATION, ONE HEALTHSOUTH PARKWAY, BIRMINGHAM,
ALABAMA 35243, TELEPHONE (205) 967-7116. COPIES OF SUCH REPORTS, PROXY
STATEMENTS AND OTHER INFORMATION FILED BY NSC, OTHER THAN EXHIBITS TO SUCH
DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED HEREIN BY
REFERENCE, ARE AVAILABLE, WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM THE
SECRETARY OF NATIONAL SURGERY CENTERS, INC., 30 SOUTH WACKER DRIVE, SUITE 2302,
CHICAGO, ILLINOIS, TELEPHONE (312) 655-1400. IN ORDER TO ENSURE TIMELY DELIVERY
OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE AT LEAST FIVE DAYS PRIOR TO THE
SPECIAL MEETING.
There are hereby incorporated by reference into this Prospectus-Proxy
Statement and made a part hereof the following documents filed by HEALTHSOUTH
(Commission File No. 1-10315):
1. HEALTHSOUTH's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.
2. HEALTHSOUTH's Quarterly Report on Form 10-Q for the period ended March
31, 1998.
3. HEALTHSOUTH's Proxy Statement on Schedule 14A filed April 17, 1998, in
connection with HEALTHSOUTH's 1998 Annual Meeting of Stockholders.
4. HEALTHSOUTH's Current Report on Form 8-K filed January 15, 1998.
5. HEALTHSOUTH's Current Report on Form 8-K filed April 3, 1998.
6. HEALTHSOUTH's Current Report on Form 8-K filed May 28, 1998.
7. The description of HEALTHSOUTH's capital stock contained in
HEALTHSOUTH's Registration Statement on Form 8-A filed August 26, 1989.
2
<PAGE>
There are also hereby incorporated by reference into this Prospectus-Proxy
Statement and made a part hereof the following documents or information filed
by NSC (Commission File No. 0-27162):
1. NSC's Annual Report on Form 10-K for the fiscal year ended December 31,
1997.
2. The consolidated financial statements as of and for the three years
ended December 31, 1997, and the report thereon by Ernst & Young, LLP,
independent auditors, appearing in NSC's 1997 Annual Report to Shareholders.
3. NSC's Quarterly Report on Form 10-Q for the period ended March 31, 1998.
4. The description of NSC's capital stock contained in NSC's Form 8-A
effective November 9, 1995.
All documents filed by HEALTHSOUTH and NSC pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus-Proxy
Statement and prior to the Special Meeting or any adjournment thereof shall be
deemed to be incorporated by reference into this Prospectus-Proxy Statement and
to be made a part hereof from the date of the filing of such documents. Any
statement contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for the purpose hereof to the extent that a
statement contained herein (or in any other subsequently filed document which
also is incorporated by reference herein) modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed to constitute a part
hereof, except as so modified or superseded.
All information contained in this Prospectus-Proxy Statement or
incorporated herein by reference with respect to HEALTHSOUTH was supplied by
HEALTHSOUTH, and all information contained in this Prospectus-Proxy Statement or
incorporated herein by reference with respect to NSC was supplied by NSC.
Although neither HEALTHSOUTH nor NSC has actual knowledge that would indicate
that any statements or information (including financial statements) relating to
the other party contained or incorporated by reference herein are inaccurate or
incomplete, neither HEALTHSOUTH nor NSC warrants the accuracy or completeness of
such statements or information as they relate to the other party.
FORWARD-LOOKING INFORMATION
Statements relating to HEALTHSOUTH contained in this Prospectus-Proxy
Statement that are not historical facts are forward-looking statements. In
addition, HEALTHSOUTH, through its senior management, from time to time makes
forward-looking public statements concerning its expected future operations and
performance and other developments. Such forward-looking statements are
necessarily estimates reflecting HEALTHSOUTH's best judgment based upon current
information and involve a number of risks and uncertainties, and there can be no
assurance that other factors will not affect the accuracy of such
forward-looking statements. While it is impossible to identify all such factors,
factors which could cause actual results to differ materially from those
estimated by HEALTHSOUTH include, but are not limited to, changes in the
regulation of the healthcare industry at either or both of the federal and state
levels, changes in reimbursement for HEALTHSOUTH's services by government or
private payors, competitive pressures in the healthcare industry and
HEALTHSOUTH's response thereto, HEALTHSOUTH's ability to obtain and retain
favorable arrangements with third-party payors, unanticipated delays in
HEALTHSOUTH's implementation of its Integrated Service Model, general conditions
in the economy and capital markets, and other factors which may be identified
from time to time in HEALTHSOUTH's SEC filings and other public announcements.
Certain of the matters discussed in this Prospectus-Proxy Statement
relating to NSC are forward-looking statements, and such statements involve
risks and uncertainties. Although NSC believes that its expectations are based
upon reasonable assumptions, it can give no assurance that the anticipated
results will occur. Important factors that could cause actual results to differ
materially from those in the forward-looking statements include conditions in
the capital markets, the regulatory environment in which NSC operates and the
enactment by Congress of healthcare reform measures.
3
<PAGE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS-PROXY STATEMENT, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. NEITHER THE DELIVERY OF THIS PROSPECTUS-PROXY STATEMENT NOR ANY
DISTRIBUTION OF THE SECURITIES TO WHICH THIS PROSPECTUS-PROXY STATEMENT RELATES
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION CONCERNING HEALTHSOUTH OR NSC CONTAINED IN THIS
PROSPECTUS-PROXY STATEMENT SINCE THE DATE OF SUCH INFORMATION. THIS
PROSPECTUS-PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES OTHER THAN THE SECURITIES
TO WHICH IT RELATES, OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO
PURCHASE, THE SECURITIES OFFERED BY THIS PROSPECTUS-PROXY STATEMENT IN ANY
JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT LAWFUL.
4
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
AVAILABLE INFORMATION ................................................... 2
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE ....................... 2
SUMMARY OF PROSPECTUS-PROXY STATEMENT ................................... 7
COMPARATIVE PER SHARE INFORMATION ....................................... 14
RISK FACTORS ............................................................ 16
THE SPECIAL MEETING ..................................................... 21
General ................................................................ 21
Date, Place and Time ................................................... 21
Record Date; Quorum .................................................... 21
Vote Required .......................................................... 22
Voting and Revocation of Proxies ....................................... 22
Solicitation of Proxies ................................................ 22
THE MERGER .............................................................. 23
Terms of the Merger .................................................... 23
Background of the Merger ............................................... 23
Reasons for the Merger; Recommendation of the Board of Directors of NSC 25
Opinion of BT Alex. Brown Incorporated ................................. 25
Effective Time of the Merger ........................................... 29
Exchange of Certificates ............................................... 29
Representations and Warranties ......................................... 30
Conditions to the Merger ............................................... 31
Regulatory Approvals ................................................... 32
Business Pending the Merger ............................................ 32
Waiver and Amendment ................................................... 33
Termination ............................................................ 33
Break-up Fee; Third-Party Bids ......................................... 34
Interests of Certain Persons in the Merger ............................. 34
Indemnification ........................................................ 34
Accounting Treatment ................................................... 34
Certain Federal Income Tax Consequences ................................ 35
Resale of HEALTHSOUTH Common Stock by Affiliates ....................... 36
No Appraisal Rights .................................................... 36
No Solicitation of Transactions ........................................ 36
Expenses ............................................................... 37
NYSE Listing ........................................................... 37
SELECTED CONSOLIDATED FINANCIAL DATA - HEALTHSOUTH ...................... 38
SELECTED CONSOLIDATED FINANCIAL DATA - NSC .............................. 40
BUSINESS OF HEALTHSOUTH ................................................. 41
General ................................................................ 41
Company Strategy ....................................................... 41
Recent Developments .................................................... 42
Patient Care Services .................................................. 43
Locations .............................................................. 45
BUSINESS OF NSC ......................................................... 46
General ................................................................ 46
Strategy ............................................................... 46
Operation of Surgery Centers ........................................... 47
Recent Developments .................................................... 48
DESCRIPTION OF CAPITAL STOCK OF HEALTHSOUTH ............................. 49
Common Stock ........................................................... 49
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Fair Price Provision .................................................... 49
Section 203 of the DGCL ................................................. 50
Preferred Stock ......................................................... 50
Transfer Agent .......................................................... 50
COMPARISON OF RIGHTS OF NSC AND HEALTHSOUTH STOCKHOLDERS ................. 51
Classes and Series of Capital Stock ..................................... 51
Size and Election of the Board of Directors ............................. 51
Removal of Directors .................................................... 51
Other Voting Rights ..................................................... 52
Conversion and Dissolution .............................................. 52
Business Combinations ................................................... 53
Amendment or Repeal of the Certificate of Incorporation ................. 53
Special Meeting of Stockholders ......................................... 54
Liability of Directors .................................................. 54
Indemnification of Directors and Officers ............................... 54
OPERATIONS AND MANAGEMENT OF HEALTHSOUTH AND NSC AFTER THE MERGER ........ 55
Operations .............................................................. 55
Management .............................................................. 55
EXPERTS .................................................................. 55
LEGAL MATTERS ............................................................ 56
ADDITIONAL INFORMATION ................................................... 56
ANNEXES:
A. Plan and Agreement of Merger .......................................... A-1
B. Opinion of BT Alex. Brown Incorporated ................................ B-1
</TABLE>
6
<PAGE>
SUMMARY OF PROSPECTUS-PROXY STATEMENT
The following is a summary of certain information contained elsewhere in
this Prospectus-Proxy Statement. Certain capitalized terms used in this
Summary are defined elsewhere in this Prospectus-Proxy Statement. Reference
is made to, and this Summary is qualified in its entirety by, the more
detailed information contained in this Prospectus-Proxy Statement, the
Annexes hereto and the documents incorporated by reference herein.
THE COMPANIES
HEALTHSOUTH. HEALTHSOUTH is the nation's largest provider of outpatient
surgery and rehabilitative healthcare services, based upon number of staffed
rehabilitation beds, number of facilities and revenues derived from those
services. It 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. HEALTHSOUTH believes that it provides patients, physicians and
payors with high-quality healthcare services at significantly lower costs than
traditional inpatient hospitals. Additionally, HEALTHSOUTH's national network,
reputation for quality and focus on outcomes has enabled it to secure contracts
with national and regional managed care payors. At March 31, 1998, HEALTHSOUTH
had over 1,800 patient care locations in 50 states, the United Kingdom and
Australia. See "BUSINESS OF HEALTHSOUTH".
At March 31, 1998, HEALTHSOUTH had consolidated assets of approximately
$5,791,806,000 and consolidated stockholders' equity of approximately
$3,322,296,000 and employed approximately 58,000 persons.
HEALTHSOUTH was incorporated under the laws of Delaware in 1984. Its
principal executive offices are located at One HealthSouth Parkway, Birmingham,
Alabama 35243, and its telephone number is (205) 967-7116.
NSC. NSC owns and operates freestanding ambulatory surgery centers that
provide the medical and administrative support necessary for physicians to
perform non-emergency surgical procedures. NSC believes that many physicians
prefer the efficiencies of freestanding ambulatory surgery centers because they
enhance physicians' productivity by providing them with greater scheduling
flexibility, more consistent nurse staffing and faster turnaround time between
cases, allowing physicians to perform more surgeries in a defined period of
time. In addition, new technology and advances in anesthesia and the addition of
overnight recovery have significantly expanded the number and types of surgical
procedures that are being performed in ambulatory surgery centers. As of March
31, 1998, NSC operated a network of 40 surgery centers in 14 states. NSC
provides alternate-site settings for high-quality surgical care that it believes
is more cost-effective than hospital-based surgical care and that it believes is
increasingly preferred by physicians, payors and patients. See "BUSINESS OF
NSC".
At March 31, 1998, NSC had consolidated assets of approximately
$177,264,000 and consolidated stockholders' equity of approximately $140,988,000
and employed approximately 1,450 persons.
NSC was incorporated under the laws of Illinois in 1987 under the name
"Medical Venture Development Corp.". It changed its name to "National Surgery
Centers, Inc." in 1991 and reincorporated in Delaware in 1995. Its principal
executive offices are located at 30 South Wacker Drive, Suite 2302, Chicago,
Illinois 60606, and its telephone number is (312) 655-1400.
Field Acquisition Corporation. The Subsidiary is a direct, wholly-owned
subsidiary of HEALTHSOUTH and has not engaged in any business activity unrelated
to the Merger. The principal executive offices of the Subsidiary are located at
One HealthSouth Parkway, Birmingham, Alabama 35243, and its telephone number is
(205) 967-7116.
7
<PAGE>
RECENT DEVELOPMENTS
On April 16, 1998, HEALTHSOUTH announced that it had entered into a
definitive agreement to acquire 34 ambulatory surgery centers from Columbia/HCA
Healthcare Corporation for $550 million payable in cash at closing, which is
expected to occur during the third quarter of 1998. The surgery centers are
located in Alabama, California, Iowa, Illinois, Kentucky, Louisiana, Minnesota,
Mississippi, North Carolina, Nevada, Oregon, Rhode Island and Texas. The
transaction remains subject to various regulatory approvals and other
third-party consents.
On May 22, 1998, NSC completed the acquisitions of majority interests in
ambulatory surgery centers in each of Jacksonville, Florida and St. Augustine,
Florida for cash.
THE SPECIAL MEETING
The Special Meeting of NSC's stockholders to consider and vote on a
proposal to approve the Plan will be held on July 22, 1998, at 10:00 a.m., local
time, at The Midland Hotel, 172 West Adams, Chicago, Illinois 60603. Only
holders of record of NSC Shares at the close of business on June 15, 1998 (the
"Record Date"), will be entitled to notice of and to vote at the Special
Meeting. At such date, there were outstanding and entitled to vote 18,617,279
shares of NSC Common Stock. Each issued and outstanding NSC Share is entitled to
one vote on each matter to be presented at the Special Meeting. For additional
information relating to the Special Meeting, see "THE SPECIAL MEETING".
VOTE REQUIRED
Approval of the Plan by the stockholders of NSC requires the affirmative
vote of the holders of a majority of the outstanding shares of NSC Common Stock
entitled to vote thereon. Accordingly, approval of the Plan at the Special
Meeting will require the affirmative vote of the holders of at least 9,308,640
shares of NSC Common Stock.
As of the Record Date, directors and executive officers of NSC and their
affiliates beneficially owned an aggregate of 1,433,015 shares of NSC Common
Stock (excluding shares issuable upon exercise of options), or approximately
7.7% of the NSC Shares outstanding on such date. To NSC's knowledge, each of its
directors and executive officers intends to vote in favor of the proposal to
approve the Plan.
If the Plan is not approved by NSC stockholders, the Plan may be terminated
by HEALTHSOUTH or NSC in accordance with its terms. Such approval is also a
condition to HEALTHSOUTH's and NSC's obligations to consummate the Merger. See
"THE SPECIAL MEETING - Vote Required", "THE MERGER - Conditions to the Merger"
and "- Termination".
THE MERGER
Terms of the Merger. NSC will be acquired by HEALTHSOUTH pursuant to and
subject to the terms and conditions of the Plan, which provides that, at the
effective time of the Merger (the "Effective Time"), the Subsidiary will merge
with and into NSC with NSC being the Surviving Corporation. The Certificate of
Incorporation of NSC, as amended at the Effective Time pursuant to the request
of HEALTHSOUTH, and the Bylaws of the Subsidiary in effect at the Effective Time
will be the Certificate of Incorporation and Bylaws of the Surviving Corporation
until amended or repealed in accordance with applicable law. At the Effective
Time, each outstanding NSC Share (excluding shares held by NSC and any of its
subsidiaries) will be converted into the right to receive that fraction of a
share of HEALTHSOUTH Common Stock determined by dividing $30.50 by the Base
Period Trading Price (as defined herein), as may be adjusted as provided below,
computed to four decimal places (the "Exchange Ratio"); provided, however, that
if the Base Period Trading Price shall be greater than $35.00, the Exchange
Ratio shall be .8714; and provided further, however, that if the Base Period
8
<PAGE>
Trading Price shall be less than $26.50, the Exchange Ratio shall be 1.1509. The
term "Base Period Trading Price" means the average daily closing prices for the
shares of HEALTHSOUTH Common Stock for the 20 consecutive trading days on which
such shares are actually traded (as reported on the New York Stock Exchange
Composite Transaction Tape as reported in the Wall Street Journal, Eastern
Edition, or if not reported thereby, any other authoritative source) ending at
the close of trading on the second trading day immediately preceding the Special
Meeting. Fractional shares of HEALTHSOUTH Common Stock will not be issuable in
connection with the Merger. NSC stockholders will receive cash (without
interest) in lieu of fractional shares of HEALTHSOUTH Common Stock. See "THE
MERGER" and "DESCRIPTION OF CAPITAL STOCK OF HEALTHSOUTH".
As of March 31, 1998, NSC had outstanding approximately $13,110,000 in
long-term indebtedness (including the current portion thereof), all of which
will at the Effective Time become long-term indebtedness of the Surviving
Corporation (being a subsidiary of HEALTHSOUTH) as a result of the Merger.
Recommendation of the Board of Directors. THE BOARD OF DIRECTORS OF NSC HAS
ADOPTED AND APPROVED THE PLAN AND HAS RECOMMENDED A VOTE FOR APPROVAL OF THE
PLAN. THE BOARD OF DIRECTORS BELIEVES THE PLAN IS FAIR TO AND IN THE BEST
INTERESTS OF THE STOCKHOLDERS OF NSC.
In its deliberations with respect to the Merger, the Board of Directors of
NSC consulted with management of NSC and the financial and legal advisers to
NSC. The composite mix of information available to the Board of Directors with
respect to the Merger included the information regarding the matters enumerated
under "THE MERGER - Reasons for the Merger; Recommendation of the Board of
Directors of NSC" below.
Opinion of Financial Advisor to NSC. BT Alex. Brown Incorporated ("BT Alex.
Brown") delivered to the Board of Directors of NSC on May 5, 1998, its oral
opinion (subsequently confirmed in writing by opinions dated as of May 5, 1998
and June 17, 1998), to the effect that, as of the date of the opinions and based
on and subject to the assumptions, factors and limitations set forth therein,
the consideration to be received by the stockholders of NSC pursuant to the Plan
was fair, from a financial point of view, to such stockholders of NSC. The full
text of the opinion of BT Alex. Brown dated as of June 17, 1998 which sets forth
the assumptions made, matters considered and limitations on the review
undertaken by BT Alex. Brown, and which is attached hereto as Annex B, is
directed to the NSC Board, addresses only the fairness of the consideration to
be received by the NSC stockholders from a financial point of view and does not
constitute a recommendation to any stockholder as to how such stockholder should
vote at the Special Meeting. The holders of NSC Common Stock are urged to read,
and should read, this opinion in its entirety.
Effective Time of the Merger. The Merger will become effective upon the
filing of a Certificate of Merger by the parties under the General Corporation
Law of the State of Delaware (the "DGCL"), or at such later time as may be
specified in such Certificate of Merger. The Plan requires that this filing be
made as soon as practical after the Closing Date as defined in the Plan or at
such other time as may be agreed by HEALTHSOUTH and NSC. See "THE MERGER
- - -Effective Time of the Merger".
Exchange of Certificates. As soon as reasonably practicable after the
Effective Time, transmittal materials will be mailed to each holder of record of
NSC Shares for use in exchanging such holder's stock certificates for
certificates evidencing shares of HEALTHSOUTH Common Stock and for receiving
cash in lieu of fractional shares and any dividends or other distributions to
which such holder is entitled as a result of the Merger. STOCKHOLDERS SHOULD NOT
SEND ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS. See "THE MERGER - Exchange
of Certificates".
Representations and Warranties. The Plan contains certain representations
and warranties made by each of the parties thereto that must be confirmed as of
the Closing Date. See "THE MERGER - Representations and Warranties".
Conditions to the Merger. The obligation of each of HEALTHSOUTH, the
Subsidiary and NSC to consummate the Merger is subject to certain conditions,
including approval of the Plan by the NSC stockholders, certain regulatory
approvals and confirmation by each of HEALTHSOUTH and NSC of
9
<PAGE>
its representations and warranties as of the Closing Date. See "THE MERGER
Conditions to the Merger". Certain conditions to the Merger contained in the
Plan may be waived by the parties thereto. NSC does not, however, intend to
waive satisfaction of any such condition or amend the Plan if such waiver or
amendment would be material to the NSC stockholders' consideration of and vote
upon the proposal to approve the Plan without resoliciting the vote of such
stockholders.
Regulatory Approvals. The Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), provides that certain business mergers
(including the Merger) may not be consummated until certain information has been
furnished to the Department of Justice (the "DOJ") and the Federal Trade
Commission (the "FTC") and certain waiting period requirements have been
satisfied. On May 14, 1998, HEALTHSOUTH and NSC made their respective filings
with the DOJ and the FTC with respect to the Plan. Under the HSR Act, the
filings commenced a waiting period of up to 30 days during which the Merger
cannot be consummated, which waiting period expired on June 13, 1998.
Notwithstanding the termination or expiration of the HSR Act waiting period, at
any time before or after the Effective Time, the FTC, the DOJ or others could
initiate legal action under the antitrust laws seeking to enjoin the
consummation of the Merger or seeking the divestiture by HEALTHSOUTH of any part
of its assets or all or any part of the stock or assets of NSC. There can be no
assurance that a challenge to the Merger on antitrust grounds will not be made
or, if such a challenge were made, that it would not be successful. The
operations of each Company also are subject to a substantial body of federal,
state, local and accrediting body laws, rules and regulations relating to the
conduct, licensing and development of healthcare businesses and facilities. See
"THE MERGER - Regulatory Approvals".
Conduct Pending the Merger. The Plan provides that, until the Effective
Time, except as provided in the Plan, NSC will use its best efforts to preserve
intact its present business organization and to keep available to HEALTHSOUTH
and the Surviving Corporation the services of its present employees and to
preserve the goodwill of customers, suppliers and others having business
dealings with it. In addition, NSC has agreed not to engage in certain types of
transactions pending the Effective Time. Both HEALTHSOUTH and NSC have agreed
not to engage knowingly or intentionally in any conduct that would cause its
representations and warranties to become untrue in any material respect pending
the Effective Time. See "THE MERGER - Business Pending the Merger".
Amendment. The Plan provides that, at any time prior to the Effective Time,
the parties may, under certain circumstances, amend or otherwise change the
Plan. See "THE MERGER - Waiver and Amendment".
Termination. The Plan may be terminated at any time prior to the Effective
Time, whether before or after approval of the Plan by the stockholders of NSC,
under certain circumstances that are set forth in the Plan. See "THE MERGER
Termination".
No Solicitation. The Plan provides that NSC and its representatives will
not, directly or indirectly, encourage, solicit, participate in or initiate
discussions or negotiations with, or provide any information to, any entity
other than HEALTHSOUTH or a HEALTHSOUTH affiliate concerning any merger, sale of
assets, sale of or tender offer for shares of NSC Common Stock or similar
transaction involving NSC (an "Acquisition Transaction"), except as may be
permitted to allow the Board of Directors of NSC to satisfy it fiduciary duties
under applicable law.
Break-up Fee; Third Party Bids. If the Plan is terminated by the Board of
Directors of NSC because, in the exercise of its fiduciary duties under
applicable law, it has (i) determined not to recommend the Merger to the holders
of NSC Common Stock, (ii) withdrawn such recommendation, (iii) approved,
recommended or endorsed any Acquisition Transaction (as defined in the Plan)
other than the Plan or (iv) resolved to take any of such actions, and within one
year after the effective date of such termination NSC is the subject of a Third
Party Acquisition Event (as defined in the Plan), then at the time of
consummation of such a Third Party Acquisition Event NSC shall pay to
HEALTHSOUTH a break-up fee of $15,000,000. See "THE MERGER - Break-up Fee; Third
Party Bids".
10
<PAGE>
Interests of Certain Persons in the Merger. In considering the
recommendation of the Board of Directors of NSC with respect to the Plan and the
transactions contemplated thereby, stockholders of NSC should be aware that
certain members of the management of NSC and its Board of Directors have certain
interests in the Merger in addition to the interests of stockholders generally.
In connection with the Merger, HEALTHSOUTH anticipates that it will enter
into Consulting and Noncompetition Agreements with E. Timothy Geary, Bryan S.
Fisher, Dennis D. Solheim and Dennis Zamojski, pursuant to which each will
individually act as a consultant to HEALTHSOUTH with respect to various matters,
including transition issues, industry presentations, business development and
strategic planning.
In addition, pursuant to the terms of NSC's stock option plans, certain NSC
stock options that are not fully vested prior to the Effective Time will
accelerate and vest in full as a result of the Merger at the Effective Time.
Certain directors and members of NSC management hold such options.
HEALTHSOUTH has agreed to indemnify NSC's officers, directors and employees
for any liability arising out of their status as officers, directors and
employees of NSC or related to the Plan.
See "THE MERGER - Interests of Certain Persons in the Merger".
Accounting Treatment. It is intended that the Merger will be accounted for
as a "pooling of interests". See "THE MERGER - Accounting Treatment".
Certain Federal Income Tax Consequences. The Merger is intended to qualify
as a reorganization within the meaning of Section 368(a) of the Internal Revenue
Code (the "Code"). If the Merger so qualifies, no gain or loss will be
recognized by holders of NSC Shares who hold such shares as capital assets upon
their receipt of HEALTHSOUTH Common Stock in exchange for their NSC Shares,
except with respect to cash received in lieu of fractional shares. The
obligations of NSC and HEALTHSOUTH to consummate the Merger are conditioned upon
their receipt of opinions from their respective counsel to the effect that the
Merger will qualify as a reorganization within the meaning of Section 368(a) of
the Code. Each holder of NSC Shares is urged to consult his or her personal tax
and financial advisors concerning the federal income tax consequences of the
Merger, as well as any state, local, foreign or other tax consequences of the
Merger, based upon such holder's own particular facts and circumstances. See
"THE MERGER - Certain Federal Income Tax Consequences".
Resale Restrictions. All shares of HEALTHSOUTH Common Stock received by NSC
stockholders in the Merger will be freely transferable, except that shares of
HEALTHSOUTH Common Stock received by persons who are deemed to be "affiliates"
(as such term is defined under the Securities Act) of NSC at the time of the
Special Meeting may be resold by them only in certain circumstances as permitted
by the rules and regulations promulgated under the Securities Act. See "THE
MERGER - Resale of HEALTHSOUTH Common Stock by Affiliates".
Appraisal Rights. Holders of NSC Common Stock are not entitled to
appraisal rights under the DGCL with respect to the Merger. See "THE MERGER -
No Appraisal Rights".
NYSE Listing. A listing application will be filed with the NYSE to list the
shares of HEALTHSOUTH Common Stock to be issued to the NSC stockholders in the
Merger. Although no assurance can be given that the NYSE will accept such shares
of HEALTHSOUTH Common Stock for listing, HEALTHSOUTH anticipates that these
shares will qualify for listing. It is a condition to the obligation of
HEALTHSOUTH, the Subsidiary and NSC to consummate the Merger that such shares of
HEALTHSOUTH Common Stock be approved for listing on the NYSE upon official
notice of issuance at the Effective Time. See "THE MERGER - NYSE Listing".
11
<PAGE>
MARKET AND MARKET PRICE
HEALTHSOUTH Common Stock is listed under the symbol "HRC" on the NYSE. NSC
Common Stock is listed under the symbol "NSCI" on the Nasdaq National Market
System ("Nasdaq"). Set forth below are the closing prices per share of
HEALTHSOUTH Common Stock and NSC Common Stock on the NYSE and Nasdaq,
respectively, on (i) May 5, 1998, the last business day preceding public
announcement of the Merger, and (ii) June 15, 1998:
<TABLE>
<CAPTION>
CLOSING PRICE CLOSING PRICE
PER SHARE OF PER SHARE OF
HEALTHSOUTH NSC
DATE COMMON STOCK COMMON STOCK
---- ------------ ------------
<S> <C> <C>
May 5, 1998 ........... $ 30.00 $ 28.00
June 15, 1998 ......... $ 27.44 $ 27.75
</TABLE>
The following table sets forth certain information as to the high and low
reported sale prices per share of HEALTHSOUTH Common Stock for the periods
indicated. The prices for HEALTHSOUTH Common Stock are as reported on the NYSE
Composite Transactions Tape. HEALTHSOUTH has never paid dividends on its capital
stock (although a company acquired by HEALTHSOUTH in a pooling-of-interests
merger has paid cash dividends in the past). All prices shown have been adjusted
for a two-for-one stock split effected in the form of a 100% stock dividend paid
on March 17, 1997.
<TABLE>
<CAPTION>
HEALTHSOUTH
COMMON STOCK
-------------------------
HIGH LOW
---- ---
<S> <C> <C>
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
1997
First Quarter .................................. $22.38 $17.94
Second Quarter ................................. 27.12 17.75
Third Quarter .................................. 28.94 23.12
Fourth Quarter ................................. 28.31 22.00
1998
First Quarter .................................. $30.06 $21.94
Second Quarter (through June 15, 1998) ......... 30.56 26.38
</TABLE>
12
<PAGE>
The following table sets forth certain information as to the high and low
closing prices per share of NSC Common Stock for the periods indicated. The
prices for NSC Common Stock are as reported on Nasdaq. No dividends were paid by
NSC during the periods presented.
<TABLE>
<CAPTION>
NSC
COMMON STOCK
------------------------
HIGH LOW
---- ---
<S> <C> <C>
1996
First Quarter(1)(2) ............................ $ 14.67 $ 9.58
Second Quarter(1)(2) ........................... 21.00 12.42
Third Quarter(1) ............................... 20.17 15.00
Fourth Quarter(1) .............................. 25.33 16.50
1997
First Quarter(1) ............................... $ 24.00 $ 18.33
Second Quarter(1) .............................. 25.67 17.67
Third Quarter .................................. 23.33 18.00
Fourth Quarter ................................. 26.38 21.75
1998
First Quarter .................................. 26.25 20.63
Second Quarter (through June 15, 1998) ......... 29.875 25.5
</TABLE>
- - -----------
(1) Adjusted to reflect a three-for-two stock split effected August 1997.
(2) Adjusted to reflect a three-for-two stock split effected May 1996.
As of June 15, 1998, there were approximately 6,395 record holders of
HEALTHSOUTH Common Stock, excluding those shares held by depository companies
for certain beneficial owners. As of the Record Date, there were approximately
610 record holders of NSC Common Stock.
HOLDERS OF NSC SHARES ARE ADVISED TO OBTAIN CURRENT MARKET QUOTATIONS FOR
HEALTHSOUTH COMMON STOCK AND NSC COMMON STOCK. No assurance can be given as to
the market price of HEALTHSOUTH Common Stock at the Effective Time or at any
other time.
OPERATIONS AND MANAGEMENT OF HEALTHSOUTH AFTER THE MERGER
Pursuant to the Plan, following the Effective Time, NSC will be a
wholly-owned subsidiary of HEALTHSOUTH, and all of NSC's subsidiaries and
affiliates will be indirect subsidiaries and affiliates of HEALTHSOUTH.
HEALTHSOUTH will continue its operations as prior to the Merger and will
continue to be managed by the same Board of Directors and executive officers.
See "OPERATIONS AND MANAGEMENT OF HEALTHSOUTH AFTER THE MERGER".
13
<PAGE>
COMPARATIVE PER SHARE INFORMATION
The following summary presents selected comparative per share information
(i) for HEALTHSOUTH on a historical basis, in comparison with pro forma
equivalent information giving effect to the Merger on a pooling-of-interests
basis, and (ii) for NSC on a historical basis in comparison with its pro forma
equivalent information after giving effect to the Merger, including receipt of
shares of HEALTHSOUTH Common Stock to be issued in exchange for NSC Shares in
accordance with the Exchange Ratio. This financial information should be read in
conjunction with the historical consolidated financial statements of HEALTHSOUTH
and NSC and the related notes thereto contained elsewhere herein or in documents
incorporated herein by reference. See "INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE".
Neither HEALTHSOUTH nor NSC has paid cash dividends since inception
(although certain companies acquired by HEALTHSOUTH in pooling-of-interests
mergers paid cash dividends in the past). It is anticipated that HEALTHSOUTH
will retain all earnings for use in the expansion of the business and therefore
does not anticipate paying any cash dividends in the foreseeable future. The
payment of future dividends will be at the discretion of the Board of Directors
of HEALTHSOUTH and will depend, among other things, upon HEALTHSOUTH's earnings,
capital requirements, financial condition and debt covenants.
The following information is not necessarily indicative of the combined
results of operations or combined financial position that would have resulted
had the Merger been consummated at the beginning of the periods indicated, nor
is it necessarily indicative of the combined results of operations in future
periods or future combined financial position.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Income from continuing operations per share(3):
HEALTHSOUTH(1)
Historical (basic) ......................... $ 0.37 $ 0.59 $ 0.95 $ 0.20 $ 0.27
Historical (diluted)(2) .................... 0.35 0.55 0.91 0.18 0.27
Pro forma combined (primary) ............... 0.37 0.58 0.93 0.19 0.27
Pro forma combined (diluted)(2) ............ 0.35 0.55 0.89 0.18 0.26
NSC(4)
Historical (basic) ......................... $ 0.38 $ 0.53 $ 0.70 $ 0.15 $ 0.20
Historical (diluted)(5) .................... 0.38 0.50 0.67 0.14 0.20
Pro forma equivalent (primary)(6) .......... 0.43 0.67 1.07 0.22 0.31
Pro forma equivalent (diluted)(6) .......... 0.40 0.63 1.02 0.21 0.30
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31,
1998
-------------
<S> <C>
Book value per common share outstanding:
HEALTHSOUTH - Historical ............................................................. $8.31
HEALTHSOUTH - pro forma combined ..................................................... 8.22
NSC - Historical ..................................................................... 7.59
NSC - pro forma equivalent(6) ........................................................ 9.46
</TABLE>
- - -----------
(1) Adjusted to reflect a two-for-one stock split effected in the form of a
100% stock dividend paid on March 17, 1997.
(2) Diluted earnings per share in 1995, 1996, 1997 and for the three months
ended March 31, 1997 reflect shares reserved for issuance upon exercise of
dilutive stock options and shares reserved for issuance upon conversion of
HEALTHSOUTH's 5% Convertible Subordinated Debentures Due 2001. Diluted
earnings per share for the three months ended March 31, 1998 reflect shares
reserved for issuance upon exercise of dilutive stock options and shares
reserved for issuance upon conversion of HEALTHSOUTH's 3.25% Convertible
Subordinated Debentures due 2003.
14
<PAGE>
(3) Amounts represent income from continuing operations per common share and do
not reflect the effects of an extraordinary loss of $9,056,000, net of tax,
and a loss from discontinued operations of $1,162,000, net of tax, recorded
by HEALTHSOUTH during the year ended December 31, 1995 and extraordinary
losses of $253,000, $463,000 and $138,000, net of tax, recorded by NSC
during the years ended December 31, 1995, 1996 and 1997, respectively.
(4) Adjusted to reflect three-for-two stock splits effected in the form of 100%
stock dividends paid on May 31, 1996 and August 29, 1997, respectively.
(5) Diluted earnings per share in 1995, 1996, 1997 and for the three months
ended March 31, 1997 and 1998 reflect shares reserved for issuance upon
exercise of dilutive stock options and shares reserved for issuance upon
conversion of NSC's Convertible Notes.
(6) NSC pro forma equivalent per share data have been calculated by multiplying
the pro forma HEALTHSOUTH amounts by 1.1509.
15
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus-Proxy Statement,
the following should be considered carefully by holders of NSC Shares.
Statements made herein should be considered as "forward-looking information".
See "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE - Forward-Looking
Information".
REIMBURSEMENT BY THIRD-PARTY PAYORS
Substantially all of HEALTHSOUTH's revenues are derived from private and
governmental third- party payors (in 1997, approximately 36.9% from Medicare and
approximately 63.1% from commercial insurers, managed care plans, workers'
compensation payors and other private pay revenue sources). There are increasing
pressures from many payor sources to control healthcare costs and to limit
increases in reimbursement rates for medical services. There can be no
assurances that payments under governmental and third-party payor programs will
remain at levels comparable to present levels. In attempts to limit the federal
budget deficit, there have been, and HEALTHSOUTH expects that there will
continue to be, a number of proposals to limit Medicare reimbursements for
certain services. HEALTHSOUTH cannot now predict whether any of these pending
proposals will be adopted or, if adopted and implemented, what effect such
proposals would have on HEALTHSOUTH.
REGULATION
HEALTHSOUTH is subject, and the combined Companies will be subject, to
various other types of regulation at the federal and state levels, including
licensure and certification laws, Certificate of Need laws and laws relating to
financial relationships among providers of healthcare services, Medicare fraud
and abuse and physician self-referral.
The operation of HEALTHSOUTH's facilities and the provision of healthcare
services are subject to federal, state and local licensure and certification
laws. These facilities and services are subject to periodic inspection by
governmental and other authorities to assure compliance with the various
standards established for continued licensure under state law, certification
under the Medicare and Medicaid programs and participation in the Veteran's
Administration program. Additionally, in many states, Certificates of Need or
other similar approvals are required for expansion of HEALTHSOUTH's operations.
HEALTHSOUTH could be adversely affected by the failure or inability to obtain
such approvals, by changes in the standards applicable to approvals and by
possible delays and expenses associated with obtaining approvals. The failure by
HEALTHSOUTH to obtain, retain or renew any required regulatory approvals,
licenses or certificates could prevent HEALTHSOUTH from being reimbursed for, or
from, offering its services, or could adversely affect its results of
operations.
A wide array of Medicare/Medicaid fraud and abuse provisions apply to the
operations of HEALTHSOUTH. HEALTHSOUTH is subject to extensive federal and state
regulation with respect to financial relationships among healthcare providers,
physician self-referral arrangements and other fraud and abuse issues. Penalties
for violation of federal and state laws and regulations include exclusion from
participation in the Medicare/Medicaid programs, asset forfeiture, civil
penalties and criminal penalties. The Office of Inspector General of the
Department of Health and Human Services (the "OIG"), the DOJ and other federal
agencies interpret healthcare fraud and abuse provisions liberally and enforce
them aggressively. See "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE".
HEALTHCARE REFORM
In recent years, an increasing number of legislative proposals have been
introduced or proposed in Congress and in some state legislatures that would
effect major changes in the healthcare system, either nationally or at the state
level. Among the proposals which are, or recently have been, under consideration
are cost controls on hospitals, insurance market reforms to increase the
availability of group health insurance to small businesses, requirements that
all businesses offer health insurance coverage to their employees and the
creation of a single government health insurance plan that would cover all
citizens.
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The costs of certain proposals would be funded in significant part by reductions
in payments by governmental programs, including Medicare and Medicaid, to
healthcare providers. There continue to be federal and state proposals that
would, and actions that do, impose more limitations on government and private
payments to healthcare providers such as HEALTHSOUTH and proposals to increase
copayments and deductibles from program and private patients. At the federal
level, both Congress and the current Administration have continued to propose
healthcare budgets that substantially reduce payments under the Medicare and
Medicaid programs. In addition, many states are considering the enactment of
initiatives designed to reduce their Medicaid expenditures, to provide universal
coverage or additional levels of care and/or to impose additional taxes on
healthcare providers to help finance or expand the states' Medicaid systems.
There can be no assurance as to the ultimate content, timing or effect of any
healthcare reform legislation, nor is it possible at this time to estimate the
impact of potential legislation, which may be material, on HEALTHSOUTH or on the
combined Companies.
COMPUTER TECHNOLOGIES AND YEAR 2000 COMPLIANCE
HEALTHSOUTH is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. Many existing computer
programs use only two digits to identify a year in the date field. The issue is
whether such code exists in HEALTHSOUTH mission-critical applications and if
that code will produce accurate information with relation to date-sensitive
calculations after the turn of the century.
HEALTHSOUTH has completed a thorough review of its material computer
applications and determined that such applications contain very few
date-sensitive calculations. HEALTHSOUTH's computer applications are divided
into two categories, those maintained internally by HEALTHSOUTH's Information
Technology Group and those maintained externally by the applications' vendors.
For internally maintained applications, revisions are currently being made and
are expected to be implemented by the first quarter of 1999. HEALTHSOUTH expects
that the total cost associated with these revisions will be less than
$1,000,000. These costs will be primarily incurred during 1998 and be charged to
expense as incurred. For externally maintained systems, HEALTHSOUTH has received
written confirmation from the vendors that each system is currently year 2000
compliant or will be made year 2000 compliant during 1998. The cost to be
incurred by HEALTHSOUTH related to externally maintained systems is expected to
be minimal.
HEALTHSOUTH has initiated a program to determine whether the computer
applications of its significant payors and suppliers will be upgraded in a
timely manner. HEALTHSOUTH has not completed this review; however, initial
responses indicate that no significant problems are currently expected to arise.
HEALTHSOUTH has also initiated a program to determine whether embedded
applications which control certain medical and other equipment will be affected.
The nature of HEALTHSOUTH's business is such that any failure to these type
applications is not expected to have a material adverse effect on its business.
Because of the many uncertainties associated with year 2000 compliance
issues, and because HEALTHSOUTH's assessment is necessarily based on information
from third party vendors, payors and suppliers, there can be no assurance that
HEALTHSOUTH's assessment is correct or as to the materiality or effect of any
failure of such assessment to be correct.
COMPETITION
HEALTHSOUTH operates in a highly competitive industry. HEALTHSOUTH
generally operates its facilities in communities that also are served by similar
facilities operated by others. Although HEALTHSOUTH is the largest provider of
outpatient surgery and rehabilitation healthcare services on a nationwide basis,
in any particular market it may encounter competition from local or national
entities with longer operating histories or other superior competitive
advantages. There can be no assurance that such competition, or other
competition which HEALTHSOUTH may encounter in the future, will not adversely
affect HEALTHSOUTH's results of operations.
FAIR PRICE PROVISION
HEALTHSOUTH's Restated Certificate of Incorporation (the "HEALTHSOUTH
Certificate") contains certain provisions requiring supermajority stockholder
approval to effect specified extraordinary corporate transactions unless certain
conditions are met. The HEALTHSOUTH Certificate requires the affirmative
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vote of 66 2/3% of all shares of HEALTHSOUTH entitled to vote in an election of
Directors to approve a "business combination" with any "other entity" that is
the beneficial owner, directly or indirectly, of more than 20% of the
outstanding shares of HEALTHSOUTH entitled to vote in an election of Directors.
The effect of the foregoing provisions is to make it more difficult for a
person, entity or group to effect a change in control of HEALTHSOUTH through the
acquisition of a large block of HEALTHSOUTH's voting stock, or to effect a
merger or other acquisition that is not approved by a majority of HEALTHSOUTH's
Directors serving in office prior to the acquisition by the other entity of 5%
or more of HEALTHSOUTH's stock. See "DESCRIPTION OF CAPITAL STOCK OF
HEALTHSOUTH".
RISKS RELATING TO FEDERAL INCOME TAXES
If the Merger were determined not to constitute a tax-free reorganization
under Section 368(a) of the Code, each holder of NSC Shares would recognize gain
or loss equal to the difference between the fair market value of the HEALTHSOUTH
Common Stock received (plus cash received in lieu of fractional shares) and such
holder's basis in the NSC Shares exchanged therefor. See "THE MERGER - Certain
Federal Income Tax Consequences".
CERTAIN HORIZON/CMS LITIGATION
On October 29, 1997, HEALTHSOUTH acquired Horizon/CMS Healthcare
Corporation ("Horizon/CMS") through the merger of a wholly-owned subsidiary of
HEALTHSOUTH with and into Horizon/CMS. Horizon/CMS is currently a party, or is
subject, to certain material litigation matters and disputes, which are
described below, as well as various other litigation matters and disputes
arising in the ordinary course of its business. HEALTHSOUTH is not itself a
party to the litigation described below.
SEC and NYSE Investigations
The Division of Enforcement of the SEC is conducting a private
investigation with respect to trading in the securities of Horizon/CMS and
Continental Medical Systems, Inc. ("CMS"), which was acquired by Horizon/CMS in
June 1995. In connection with that investigation, Horizon/CMS produced certain
documents, and Neal M. Elliott, then Chairman of the Board, President and Chief
Executive Officer of Horizon/CMS, and certain other former officers of
Horizon/CMS have given testimony to the SEC. Horizon/CMS has also been informed
that certain of its division office employees and an individual, affiliates of
whom had limited business relationships with Horizon/CMS, have responded to
subpoenas from the SEC. Mr. Elliott also produced certain documents in response
to a subpoena from the SEC. In addition, Horizon/CMS and Mr. Elliott have
responded to separate subpoenas from the SEC pertaining to trading in
Horizon/CMS's common stock and various material press releases issued in 1996 by
Horizon/CMS; Horizon/CMS's February 18, 1997 announcement that HEALTHSOUTH would
acquire Horizon/CMS; and any discussions of proposed business combinations
between Horizon/CMS and Medical Innovations and Horizon/CMS and certain other
companies. The investigation is, to the knowledge of HEALTHSOUTH and
Horizon/CMS, ongoing, and neither Horizon/CMS nor HEALTHSOUTH possesses all the
facts with respect to the matters under investigation. Although neither
Horizon/CMS nor HEALTHSOUTH has been advised by the SEC that the SEC has
concluded that any of Horizon/ CMS, Mr. Elliott or any other current or former
officer of director of Horizon/CMS has been involved in any violation of the
federal securities laws, there can be no assurance as to the outcome of the
investigation or the time of its conclusion. Both Horizon/CMS and HEALTHSOUTH
have, to the extent requested to date, cooperated fully with the SEC in
connection with the investigation.
In March 1995, the NYSE informed Horizon/CMS that it had initiated a review
of trading in The Hillhaven Corporation common stock prior to the announcement
of Horizon/CMS's proposed acquisition of Hillhaven. In April 1995, the NYSE
extended the review of trading to include all dealings with CMS. On April 3,
1996, the NYSE notified Horizon/CMS that it had initiated a review of trading in
its common stock preceding Horizon/CMS's March 1, 1996 press release announcing
a revision in Horizon/CMS's third quarter earnings estimate. On February 20,
1997, the NYSE notified Horizon/CMS that it was reviewing trading in
Horizon/CMS's securities prior to the February 18, 1997 announcement that
HEALTHSOUTH would acquire Horizon/CMS. Horizon/CMS has cooperated with the NYSE
in its reviews and, to Horizon/CMS's knowledge, the reviews are ongoing.
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In February 1997, HEALTHSOUTH received a subpoena from the SEC with respect
to its investigation concerning trading in Horizon/CMS common stock prior to the
February 18, 1997 announcement that HEALTHSOUTH would acquire Horizon/CMS and a
request for information from the NYSE in connection with its review of such
trading. HEALTHSOUTH responded to such subpoena and request for information and
advised both the SEC and the NYSE that it intended to cooperate fully in any
investigations or reviews relating to such trading. HEALTHSOUTH provided certain
additional information to the SEC in April 1997. Since that time, HEALTHSOUTH
has had no further inquiries from either the SEC or the NYSE with respect to
such matters, and is unaware of the current status of such investigations or
reviews.
Michigan Attorney General Investigation Into Long-Term Care Facility In
Michigan
Horizon/CMS learned in September 1996 that the Attorney General of the
State of Michigan was investigating one of its skilled nursing facilities. The
facility, in Howell, Michigan, was owned and operated by Horizon/CMS from
February 1994 until December 31, 1997. As widely reported in the press, the
Attorney General seized a number of patient, financial and accounting records
that were located at this facility. By order of a circuit judge in the county in
which the facility is located, the Attorney General was ordered to return
patient records to the facility for copying. Horizon/CMS advised the Michigan
Attorney General that it was willing to cooperate fully in the investigation.
The facility in question was sold by Horizon/CMS to Integrated Health Services,
Inc. on December 31, 1997.
On February 19, 1998, the State of Michigan filed a criminal complaint
against Horizon/CMS, four former employees of the facility and one former
Horizon/CMS regional manager, alleging various violations in 1995 and 1996 of
certain statutes relating to patient care, patient medical records and the
making of false statements with respect to the condition or operations of the
facility (State of Michigan v. Horizon/CMS Healthcare Corp., et al., Case No.
98-630-FY, State of Michigan District Court 54B). The maximum fines chargeable
against Horizon/CMS under the counts alleged in the complaint (exclusive of
charges against the individual defendants, some of which charges may result in
indemnification obligations for Horizon/CMS) aggregate $69,000. Horizon/CMS
denies the allegations made in the complaint and expects to vigorously defend
against the charges. Because such charges have only recently been filed, it is
not possible to predict at this time the outcome or effect of this litigation or
the length of time it will take to resolve this litigation.
Lawsuit by Former Shareholders of Communi-Care, Inc. and Pro Rehab, Inc.
On May 28, 1997, CMS was served with a lawsuit styled Kenneth Hubbard and
Lynn Hubbard v. Rocco Ortenzio, Robert A. Ortenzio and Continental Medical
Systems, Inc., No. 3:97 CV294MCK, filed in the United States District Court for
the Western District of North Carolina, Charlotte Division, by the former
shareholders of Communi-Care, Inc. and Pro Rehab, Inc. seeking damages arising
out of certain "earnout" provisions of the definitive purchase agreements under
which CMS purchased the outstanding stock of Communi-Care, Inc. and Pro Rehab,
Inc. from such shareholders. The plaintiffs allege that the manner in which CMS
and the other defendants operated the companies after their acquisition breached
its fiduciary duties to the plaintiffs, constituted fraud, gross negligence and
bad faith, and breached their employment agreements with the companies. As a
result of such alleged conduct, the plaintiffs assert that they are entitled to
damages in an amount in excess of $27,000,000 from CMS and the other defendants.
Horizon/CMS believes, based upon its evaluation of the legal and factual matters
relating to the plaintiffs' assertions, that it has valid defenses to the
plaintiffs' claims and, as a result, intends to vigorously contest such claims.
Because this litigation remains at an early stage, HEALTHSOUTH cannot now
predict the outcome or effect of such litigation or the length of time it will
take to resolve such litigation.
RehabOne Litigation
In March 1997, Horizon/CMS was served with a lawsuit filed in the
United States District Court for the Middle District of Pennsylvania, styled
RehabOne, Inc. v. Horizon/CMS Healthcare Corporation, Continental Medical
Systems, Inc. David Nation and Robert Ortenzio, No. CV-97-0292. In this lawsuit
the plaintiff alleges violations of federal and state securities laws, fraud
and negligent misrepresentation by Horizon/CMS and certain former officers of
CMS in connection with the issuance of a warrant to
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purchase 500,000 shares of Horizon/CMS Common Stock (the "Warrant"). The Warrant
was issued to the plaintiff in connection with the settlement of certain prior
litigation between the plaintiff and CMS. The plaintiff's complaint does not
state the amount of damages sought. Horizon/CMS disputes the factual and legal
assertions of the plaintiff in this litigation and intends to vigorously contest
the plaintiff's claims. In May 1998, the parties reached an agreement in
principle to settle this litigation by extending the exercise period of the
Warrant by two years. The parties are currently in the process of negotiating
and implementing definitive settlement documentation.
EEOC Litigation
In March 1997, the Equal Employment Opportunity Commission (the "EEOC")
filed a complaint against Horizon/CMS alleging that Horizon/CMS had engaged in
unlawful employment practices in respect of Horizon/CMS's employment policies
related to pregnancies. Specifically, the EEOC asserts that Horizon/CMS's
alleged refusal to provide pregnant employees with light-duty assignments to
accommodate their temporary disabilities caused by pregnancy violates Sections
701(k) and 703(a) of Title VII, 42 U.S.C. (section)(section) 2000e-(k) and
2000e-2(a). In this lawsuit, the EEOC seeks, among other things, to permanently
enjoin Horizon/CMS's employment practices in this regard. Horizon/CMS disputes
the factual and legal assertions of the EEOC in this litigation and intends to
vigorously contest the EEOC's claims. Because this litigation has just
commenced, HEALTHSOUTH cannot predict the length of time it will take to resolve
the litigation or the outcome or effect of the litigation.
North Louisiana Rehabilitation Hospital Medicare Billing Investigation
In August 1996, the United States Attorney for the Western District of
Louisiana, without actually initiating litigation, apprised Horizon/CMS of
alleged civil liability under the federal False Claims Act for what the
government believes were false or fraudulent Medicare and other federal program
claims submitted by Horizon/CMS's North Louisiana Rehabilitation Hospital
("NLRH") during the period from 1989 through 1992, including certain claims
submitted by a physician who was a member of the medical staff and under
contract to NLRH during the period. Specifically, the government alleges that
NLRH facilitated the submission of false claims under Part B of the Medicare
program by the physician and that NLRH itself submitted false claims under Part
A of the Medicare program for services that were not medically necessary. In
August 1996, the U.S. Attorney identified allegedly improper Part A and Part B
billings, together with penalty provisions under the False Claims Act, ranging
in the aggregate from approximately $1,700,000 to $2,200,000. The government
does not dispute that the Medicare Part A services were rendered, but only
whether they were medically necessary. Horizon/CMS has vigorously contested the
allegation that any cases of disputed medical necessity in this matter
constitute false or fraudulent claims under the civil False Claims Act.
Moreover, Horizon/CMS denies that NLRH facilitated the submission of false
claims under Medicare Part B.
In late April 1997, Horizon/CMS received administrative subpoenas relating
to the matter and has since then produced extensive materials with respect
thereto. Without conceding liability for either the Medicare Part A or Part B
claims, in May 1997, Horizon commenced preliminary settlement discussions with
the government. In preparation for settlement meetings held in late June and
mid-July 1997, Horizon/CMS and the government developed and then refined their
respective analyses of any losses the government may have incurred in this
regard. Following the July 1997 meetings, the government proposed to Horizon/CMS
that the matter be settled by Horizon/CMS's paying the government $4,900,000
with respect to alleged Medicare Part A overpayments and that Horizon/CMS and
certain individual physicians pay the government $820,000 with respect to
Medicare Part B claims for physician services. In late July 1997, Horizon/CMS
responded by offering to settle the matter for $3,700,000 for alleged Medicare
Part A overpayments and $445,000 for alleged Medicare Part B claims for which
Horizon/ CMS potentially could bear any responsibility. The government recently
advised Horizon/CMS that it has accepted the latter's settlement offer in this
regard, and the parties are currently in the process of negotiating and
implementing definitive settlement documentation.
Heritage Western Hills Litigation
Since July 1996, Horizon/CMS has been a defendant in a lawsuit styled Lexa
A. Auld, Administratrix of Martha Hary, Deceased v. Horizon/CMS Healthcare
Corporation and Charles T. Maxvill, D.O., No. 48--
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165121, 48th Judicial District Court, Tarrant County, Texas. The case involved
injuries allegedly suffered by a resident of the Heritage Western Hills nursing
facility in Fort Worth, Texas. Horizon/CMS tendered the claim to its insurance
carrier, which accepted coverage with a reservation of rights and provided a
defense through the carrier's selected counsel in Dallas, Texas. The case went
to trial on October 29, 1997, and on November 7, 1997, the jury rendered a
verdict in favor of the plaintiff in the amount of $2,370,000 in compensatory
damages and $90,000,000 in punitive damages. Counsel has advised Horizon/CMS
that, under applicable Texas law, the punitive damages award is, at worst,
limited to four times the amount of the compensatory damages (the "Punitive
Damages Cap"), and thus that the maximum amount of an enforceable judgment in
favor of the plaintiff is approximately $12,000,000. Counsel has also advised
Horizon/CMS that there are, potentially, other and further caps on both the
amount of compensatory damages available to the plaintiff and the amount of
punitive damages. Horizon/CMS filed the required motions with the court to
impose the Punitive Damages Cap. On February 20, 1998, the court reduced the
jury's verdict and entered a judgment in the amount of approximately
$11,237,000. Horizon/CMS also vigorously disputes the efficacy of the jury's
verdict and has appealed the judgment.
Horizon/CMS's insurance carrier continues to defend the matter subject to a
reservation of rights. Horizon/CMS based upon an evaluation by its then-current
internal counsel, after reviewing the findings contained in the jury verdict,
the insurance policy at issue and the carrier's handling of the case, believes
that the entirety of any judgment ultimately entered is covered by and payable
from such insurance policy, less Horizon/CMS's self-insured retention of
$250,000. On November 19, 1997, the insurance carrier sent Horizon/CMS a letter
indicating its belief that certain policy exclusions might apply and requesting
additional information which might affect its coverage determination.
Horizon/CMS has retained separate counsel to analyze the coverage issues and
advise Horizon/CMS on its position, and Horizon/CMS expects to continue to
negotiate any coverage issues with its carrier. Settlement negotiations by
Horizon/CMS's insurance carrier, in conjunction with HEALTHSOUTH's retained
counsel, continue with the plaintiff. It is not possible at this time to predict
the outcome of any post-trial motions or appeals, the resolution of any coverage
issues, the outcome of any settlement negotiations or the ultimate amount of any
liability which will be borne by Horizon/CMS.
THE SPECIAL MEETING
GENERAL
This Prospectus-Proxy Statement is being furnished to holders of NSC Shares
in connection with the solicitation of proxies by the Board of Directors of NSC
for use at the Special Meeting to consider and vote upon a proposal to approve
the Plan and to transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
Each copy of this Prospectus-Proxy Statement mailed to holders of NSC
Common Stock is accompanied by a form of Proxy for use at the Special Meeting.
This Prospectus-Proxy Statement is also furnished to holders of NSC Shares
as a Prospectus in connection with the issuance to them of the shares of
HEALTHSOUTH Common Stock upon consummation of the Merger.
DATE, PLACE AND TIME
The Special Meeting will be held at The Midland Hotel, 172 West Adams,
Chicago, Illinois 60603, on July 22, 1998 at 10:00 a.m., local time.
RECORD DATE; QUORUM
The Board of Directors of NSC has fixed the close of business on June 15,
1998, as the Record Date for the determination of holders of NSC Shares entitled
to receive notice of and to vote at the Special Meeting. The presence, in person
or by proxy, of the holders of a majority of the NSC Shares entitled to vote at
the Special Meeting will constitute a quorum at the Special Meeting.
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VOTE REQUIRED
As of the Record Date, there were outstanding and entitled to vote
18,617,279 shares of NSC Common Stock. Each of such NSC Shares is entitled to
one vote on each matter that comes before the Special Meeting. Approval of the
Plan will require the affirmative vote of the holders of a majority of the
outstanding shares of NSC Common Stock entitled to vote at the Special Meeting.
Accordingly, approval of the Plan will require the affirmative vote of the
holders of at least 9,308,640 shares of NSC Common Stock.
As of the Record Date, NSC's directors and executive officers and their
affiliates beneficially owned an aggregate of 1,433,015 shares, or approximately
7.7%, of NSC Common Stock outstanding on such date (excluding shares issuable
upon exercise of options). To NSC's knowledge, each of its directors and
executive officers intends to vote in favor of the proposal to approve the Plan.
By the vote of the members of the NSC Board of Directors at a special
meeting held on May 5, 1998, the NSC Board of Directors determined that the
proposed Merger, and the terms and conditions of the Plan, were in the best
interests of NSC and its stockholders. The Plan and the Merger were adopted and
approved unanimously by the members of the NSC Board of Directors, who also
unanimously resolved to recommend that the stockholders of NSC vote FOR approval
of the Plan.
If the Plan is not approved by NSC stockholders, the Plan may be terminated
in accordance with its terms. See "THE MERGER - Termination".
VOTING AND REVOCATION OF PROXIES
NSC Shares represented by a Proxy properly signed and received at or prior
to the Special Meeting, unless such Proxy is subsequently revoked, will be voted
in accordance with the instructions thereon. IF A PROXY FOR THE SPECIAL MEETING
IS PROPERLY EXECUTED AND RETURNED WITHOUT ANY VOTING INSTRUCTIONS, NSC SHARES
REPRESENTED BY THE PROXY WILL BE VOTED FOR APPROVAL OF THE PLAN. Any Proxy given
pursuant to this solicitation may be revoked by the person giving it at any time
before the Proxy is voted by the filing of an instrument revoking it or of a
duly executed Proxy bearing a later date with the Secretary of NSC prior to or
at the Special Meeting or by voting in person at the Special Meeting. Attendance
at the Special Meeting will not in and of itself constitute a revocation of a
Proxy. Only votes cast for approval of the Plan constitute affirmative votes.
Abstentions and broker non-votes with respect to the Plan will, therefore, have
the same effect as votes against approval of the Plan.
The Board of Directors of NSC is not aware of any business to be acted upon
at the Special Meeting other than as described herein. If, however, other
matters are properly brought before the Special Meeting, or any adjournments or
postponements thereof, the persons appointed as proxies will have discretion,
subject to the DGCL and applicable rules of the SEC, to vote or act thereon
according to their best judgment.
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers and employees of
NSC, who will not be specifically compensated for such services, may solicit
proxies from the stockholders of NSC, personally or by telephone or telegram or
other forms of communication. Brokerage houses, nominees, fiduciaries and other
custodians will be requested to forward soliciting materials to beneficial
owners and will be reimbursed for their reasonable expenses incurred in doing
so.
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS. THE
PROCEDURE FOR THE EXCHANGE OF SHARES AFTER THE MERGER IS CONSUMMATED IS SET
FORTH ELSEWHERE IN THIS PROSPECTUS-PROXY STATEMENT. SEE "THE MERGER - EXCHANGE
OF CERTIFICATES".
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THE MERGER
The description of the Merger contained in this Prospectus-Proxy Statement
summarizes the principal provisions of the Plan; it is not complete and is
qualified in its entirety by reference to the Plan, the full text of which is
attached hereto as Annex A and which is incorporated by reference herein. All
NSC stockholders are urged to read Annex A in its entirety.
TERMS OF THE MERGER
The acquisition of NSC by HEALTHSOUTH will be effected by means of the
merger of the Subsidiary with and into NSC, with NSC being the Surviving
Corporation. The Certificate of Incorporation of NSC (the "NSC Certificate"),
will become the Certificate of Incorporation of the Surviving Corporation from
and after the Effective Time and until thereafter amended in accordance with
applicable law. The Bylaws of the Subsidiary as in effect at the Effective Time
will become the Bylaws of the Surviving Corporation until amended or repealed in
accordance therewith and with applicable law. At the Effective Time, NSC will
continue as the Surviving Corporation under the name "National Surgery Centers,
Inc.".
At the Effective Time, each outstanding NSC Share (excluding shares held by
NSC and any of its subsidiaries, which will automatically be cancelled and
retired) (collectively, the "Exchanging NSC Shares") will be converted into the
right to receive that fraction of a share of HEALTHSOUTH Common Stock determined
by dividing $30.50 by the Base Period Trading Price (as defined herein), as may
be adjusted as provided below, computed to four decimal places (the "Exchange
Ratio"); provided, however, that if the Base Period Trading Price shall be
greater than $35.00, the Exchange Ratio shall be .8714; and provided further,
however, that if the Base Period Trading Price shall be less than $26.50, the
Exchange Ratio shall be 1.1509. The term "Base Period Trading Price" means the
average daily closing prices for the shares of HEALTHSOUTH Common Stock for the
20 consecutive trading days on which such shares are actually traded (as
reported on the New York Stock Exchange Composite Transaction Tape as reported
in the Wall Street Journal, Eastern Edition, or if not reported thereby, any
other authoritative source) ending at the close of trading on the second trading
day immediately preceding the Special Meeting. Each certificate previously
evidencing Exchanging NSC Shares outstanding immediately prior to the Effective
Time ("Certificates") will 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 in lieu of any fractional shares.
At the Effective Time of the Merger, all then-outstanding options and
warrants to purchase NSC Common Stock, whether or not then exercisable, will, in
accordance with the Plan, be assumed by HEALTHSOUTH and will become options and
warrants to purchase HEALTHSOUTH Common Stock. As a result of such assumption,
each such option and warrant will relate to a number of shares of HEALTHSOUTH
Common Stock determined by multiplying the number of shares of NSC Common Stock
theretofore subject thereto by the Exchange Ratio and the exercise prices
thereof will be determined by dividing the exercise price contained in such
option or warrant by the Exchange Ratio. At June 15, 1998 options and rights to
acquire approximately 1,861,766 shares of NSC Common Stock and warrants to
acquire approximately 28,500 shares of NSC Common Stock were outstanding.
Based upon the number of shares of HEALTHSOUTH Common Stock, excluding
shares obtainable upon exercise of options and convertible securities,
outstanding as of the Record Date, the holders of NSC Shares will receive in the
aggregate approximately 5.89% of the shares of HEALTHSOUTH Common Stock
anticipated to be outstanding immediately after the Effective Time.
BACKGROUND OF THE MERGER
NSC historically expanded its business primarily through acquisitions of
established ambulatory surgery centers and the development of new centers in
select markets. In early 1998, the Company began considering its strategic
alternatives in order to accelerate its growth rate, enhance its ability to
contract with managed care payors and capitalize on changing industry dynamics.
As managed care
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payors often prefer contracting with an entity that can offer a broad range of
healthcare services, the Company believes that adding related services or
combining with a strategic business partner could significantly strengthen NSC's
competitive position. In conjunction with its regularly scheduled quarterly
board meeting on March 12, 1998, the Board of Directors of NSC discussed both
the possibility of (i) internal growth into a variety of related businesses to
allow integration of those businesses with the current business of NSC and (ii)
a business combination with another publicly held company that had the financial
capability and infrastructure to capitalize on opportunities in the changing
industry structure, as an alternative to continued internal growth. The Board of
Directors scheduled a follow up board meeting on April 27, 1998 to further
discuss these alternatives.
On April 8, 1998, E. Timothy Geary, Chairman of the Board and Chief
Executive Officer of NSC, had telephone conversations with Richard M. Scrushy,
Chairman of the Board and Chief Executive Officer of HEALTHSOUTH, and Michael D.
Martin, Executive Vice President, Chief Financial Officer, and Treasurer of
HEALTHSOUTH, about strategic alternatives for the two companies and agreed to
meet one week later.
On April 15, 1998, Mr. Geary and Bryan S. Fisher, Senior Vice President of
Finance, Chief Financial Officer, Secretary, and Treasurer of NSC, met with Mr.
Scrushy and Mr. Martin and had preliminary discussions about the possibility of
a transaction between the Companies and shared information about the Companies.
On April 27, 1998, prior to the NSC Board of Directors meeting scheduled to
be held later that day, Mr. Geary contacted Mr. Scrushy by telephone to obtain
an update regarding HEALTHSOUTH's continued interest in pursuing a possible
transaction with NSC. Mr. Geary then convened a telephonic meeting of the Board
of Directors of NSC to report the results of the discussions with HEALTHSOUTH.
Mr. Geary reported that HEALTHSOUTH was interested in a merger with NSC, but
that the parties had not agreed on a price of NSC Shares. The NSC Board of
Directors then discussed the circumstances under which a transaction with
HEALTHSOUTH would be beneficial to the NSC stockholders and authorized
management to continue discussions with HEALTHSOUTH and, to the extent deemed
appropriate, to retain a financial advisor to assist NSC in connection with the
proposed transaction. Following the board meeting, Mr. Geary contacted Mr.
Scrushy to indicate that the NSC Board of Directors had authorized NSC
management to continue the negotiations.
On April 28, 1998, Mr. Fisher and Mr. Martin had a telephone conversation
in which Mr. Fisher gave Mr. Martin additional, more detailed financial
information regarding NSC. On April 30, 1998, NSC retained BT Alex. Brown to act
as its financial advisor and continued the negotiations with HEALTHSOUTH. On May
1, 1998, the NSC Board of Directors held a telephonic special meeting to review
the status of the discussions with HEALTHSOUTH. The Board authorized the
continuation of discussions with HEALTHSOUTH and requested that more definitive
details of the proposed merger be discussed at the next meeting. From May 1,
1998 through May 5, 1998, the management of NSC and its legal and financial
advisors negotiated the terms of the Merger with HEALTHSOUTH and the parties
conducted due diligence investigations.
The Board of Directors of NSC held a special meeting, attended by NSC's
senior management, its legal advisors and BT Alex. Brown in New York, New York,
on the evening of May 5, 1998. At the meeting, senior management, NSC's legal
advisors and BT Alex. Brown made detailed presentations concerning material
aspects of the proposed Merger and related transactions. Copies of the proposed
definitive Plan of Merger and related documents were available and were
summarized by legal counsel. The Board discussed the potential benefits and
synergies to NSC of a business combination with HEALTHSOUTH as well as the
potential risks related to such a transaction. In addition, senior management
and representatives of BT Alex. Brown discussed valuation issues relevant to the
determination of the consideration to be received by the NSC stockholders. BT
Alex. Brown rendered its opinion to the effect that, as of the date of such
opinion and based upon and subject to certain matters stated therein, the
consideration to be received by the NSC stockholders was fair from a financial
point of view to such stockholders, and reviewed with the NSC Board the
financial analyses performed by BT Alex. Brown in connection with such opinion.
The Board of Directors of NSC unanimously approved the Merger and adopted the
Plan. Following the such approval, NSC and HEALTHSOUTH executed the definitive
Plan.
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REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS OF NSC
The Board of Directors of NSC believes that the terms of the Plan are fair
to, and that the Merger is in the best interests of, NSC and its stockholders.
Accordingly, the Board of Directors of NSC has approved the Merger upon the
terms of the Plan and recommends approval thereof by the stockholders of NSC.
In reaching its determination to approve and adopt the Plan, the NSC Board
of Directors considered a number of factors and the potential synergies that
would result from a merger with HEALTHSOUTH. Specifically, the NSC Board of
Directors considered:
(i) The value of the consideration to be received by NSC stockholders,
including the fact that the method for determining the Exchange Ratio allows
NSC stockholders to participate in gains in the price of HEALTHSOUTH Common
Stock if the Base Period Trading Price is above $35.00 while offering
downside protection if the Base Period Trading Price is between $26.50 and
$35.00.
(ii) The terms and conditions of the Merger, including the parties'
reciprocal representations, warranties and covenants, the conditions to their
respective obligations, and the circumstances and terms under which NSC may
terminate the Plan to consider an alternative offer.
(iii) That the Merger is expected to be treated as a tax-free
reorganization and be accounted for under the "pooling-of-interests" method
of accounting.
(iv) The belief that, based on current conditions in the healthcare
industry, the industry will continue to consolidate, and that the Merger will
provide NSC stockholders with continued opportunities to participate in such
consolidation.
(v) The belief that, for NSC to continue to grow, NSC would require
substantial financial and other resources. Although the Board of Directors
believed that such resources would be available to NSC, a combination with
HEALTHSOUTH would provide those resources through HEALTHSOUTH's financial
position and experience in the healthcare industry.
(vi) The complementary business operations of NSC and HEALTHSOUTH, which
the NSC Board of Directors believes will enable NSC, on a post-Merger basis,
to achieve a greater presence in its primary markets and secure more
extensive relationships with third-party payors.
(vii) The belief that the Merger would result in synergies due to, among
other things, revenue enhancements, increased economies of scale from
increased unit volumes and elimination of duplicative costs of operating two
public companies.
(viii) BT Alex. Brown's opinion delivered on May 5, 1998, that as of that
date and subject to certain assumptions, factors and limitations set forth in
such opinion, the consideration to be received by NSC stockholders in the
Merger was fair, from a financial point of view, to the NSC stockholders.
(ix) The belief that the terms and conditions of the Plan made prompt
consummation of the Merger substantially likely.
In view of the wide variety of factors considered in connection with its
evaluation of the Merger, the NSC Board of Directors did not find it practicable
to quantify or otherwise to attempt to assign relative weights to the specific
factors considered in reaching its determination and did not do so.
THE BOARD OF DIRECTORS OF NSC RECOMMENDS THAT NSC STOCKHOLDERS VOTE TO
APPROVE AND ADOPT THE PLAN.
OPINION OF BT ALEX. BROWN INCORPORATED
NSC engaged BT Alex. Brown to act as its exclusive financial advisor in
connection with the Merger based on BT Alex. Brown's long-standing relationship
with NSC and its reputation, experience and expertise in similar transactions.
On May 5, 1998, at a meeting of the NSC Board held to evaluate the proposed
Merger, BT Alex. Brown rendered to the NSC Board an oral opinion (which opinion
was
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subsequently confirmed by delivery of written opinions dated May 5, 1998 and
June 17, 1998) to the effect that, as of such date and based upon and subject to
certain matters stated in such opinions, the consideration (the "Consideration")
was fair, from a financial point of view, to the holders of NSC Common Stock. On
May 5, and June 17, 1998, BT Alex. Brown delivered to the Board of Directors of
NSC its written opinions dated as of such dates that, based on the assumptions,
matters considered and limits of review set forth therein, the Consideration to
be received by NSC stockholders was fair, from a financial point of view, to the
stockholders of NSC. The June 17, 1998 opinion is substantially similar to the
opinion dated May 5, 1998. No limitations were imposed by the NSC Board upon BT
Alex. Brown with respect to the investigations made or the procedures followed
by it in rendering its opinion.
The full text of the written opinion of BT Alex. Brown dated as of June 17,
1998, which sets forth the assumptions made, matters considered and limitations
of the review undertaken, is attached as Annex B to this Proxy
Statement-Prospectus and is incorporated herein by reference. BT ALEX. BROWN'S
OPINION IS DIRECTED TO THE NSC BOARD, ADDRESSES ONLY THE FAIRNESS OF THE
CONSIDERATION FROM A FINANCIAL POINT OF VIEW, AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE
SPECIAL MEETING. The summary of the opinion of BT Alex. Brown in this Proxy
Statement-Prospectus is qualified in its entirety by reference to the full text
of such opinion.
In connection with its opinion, BT Alex. Brown reviewed certain publicly
available financial information and other information concerning NSC and
HEALTHSOUTH and certain internal analyses and other information furnished to BT
Alex. Brown by NSC and HEALTHSOUTH. BT Alex. Brown also held discussions with
members of the senior management of NSC and HEALTHSOUTH regarding the businesses
and prospects of their respective companies and the joint prospects of a
combined company. In addition, BT Alex. Brown (i) reviewed the reported prices
and trading activity for the NSC Common Stock and the HEALTHSOUTH Common Stock,
(ii) compared certain financial and stock market information for NSC and
HEALTHSOUTH with similar information for certain other companies whose
securities are publicly traded, (iii) reviewed the financial terms of certain
recent business combinations which BT Alex. Brown deemed comparable in whole or
in part, (iv) reviewed the terms of the Plan and (v) performed such other
studies and analyses and considered such other factors as BT Alex. Brown deemed
appropriate.
As described in its opinion, BT Alex. Brown has not independently verified
the information described above and for purposes of its opinion has assumed the
accuracy and completeness thereof. With respect to the information relating to
the prospects of NSC and HEALTHSOUTH, BT Alex. Brown assumed that such
information reflects the best currently available judgments and estimates of the
managements of NSC and HEALTHSOUTH as to the likely future financial
performances of their respective companies and of the combined entity. In
addition, BT Alex. Brown has not made an independent evaluation or appraisal of
the assets of NSC or HEALTHSOUTH, nor has it been furnished with any such
evaluation or appraisal. BT Alex. Brown has assumed that the Merger will qualify
as a tax-free transaction for the holders of NSC Common Stock. BT Alex. Brown's
opinion is based on market, economic and other conditions as they exist and can
be evaluated as of the date of the opinion letter.
In arriving at its opinion, BT Alex. Brown was not authorized to solicit,
and did not solicit, interest from any party with respect to the acquisition of
NSC or any of its assets.
The following is a summary of the material analyses and factors considered
by BT Alex. Brown in connection with its opinion to the NSC Board of Directors
dated May 5, 1998:
Analysis of Selected Public Companies. BT Alex. Brown compared certain
financial and stock market information for NSC and HEALTHSOUTH with similar
information for the following selected publicly held companies in the healthcare
industry: (i) in the case of NSC: AmSurg Corp.; American Oncology Resources,
Inc.; Physician Reliance Network, Inc.; Renal Care Group, Inc.; and Total Renal
Care Holdings, Inc. (the "NSC Selected Companies") and (ii) in the case of
HEALTHSOUTH: Columbia/HCA Healthcare Corporation; Health Care & Retirement
Corporation; Health Management Associates, Inc.; Manor Care, Inc.; Quorum Health
Group, Inc.; Tenet Healthcare Corp.; and Universal Health Services, Inc. (the
"HEALTHSOUTH Selected Companies" and, together with the NSC Selected Companies,
the "Selected Companies"). BT Alex. Brown calculated share prices relative to
each
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company's earnings per share ("EPS") for the latest twelve months and calendar
years 1998 and 1999, and adjusted market values (equity market value, plus debt,
less cash and equivalents) relative to each company's latest twelve months
revenues, earnings before interest, taxes, depreciation and amortization
("EBITDA"), and earnings before interest and taxes ("EBIT"). All multiples were
based on closing stock prices on May 1, 1998. EPS estimates for HEALTHSOUTH and
the Selected Companies were based on analysts' estimates as reported by I/B/E/S,
a market research database. EPS estimates for NSC were based on NSC management
estimates. This analysis indicated multiples for the NSC Selected Companies of
latest twelve months EPS and estimated calendar 1998 and 1999 EPS of 31.4x to
59.4x (with a mean of 42.3x), 23.1x to 33.5x (with a mean of 27.6x) and 17.8x to
24.6x (with a mean of 20.8x), respectively and latest twelve months revenues,
EBITDA and EBIT of 1.6x to 5.3x (with a mean of 3.2x), 12.0x to 28.0x (with a
mean of 17.7x) and 19.0x to 36.0x (with a mean of 25.6x), respectively. This
analysis indicated multiples for the HEALTHSOUTH Selected Companies of latest
twelve months EPS and estimated calendar 1998 and 1999 EPS of 21.4x to 47.4x
(with a mean of 31.0x), 18.3x to 37.5x (with a mean of 24.3x) and 15.8x to 30.3x
(with a mean of 19.9x), respectively, and latest twelve months revenues, EBITDA
and EBIT of 1.5x to 5.9x (with a mean of 2.4x), 9.8x to 24.1x (with a mean of
13.2x), and 13.7x to 29.0x (with a mean of 18.8x), respectively. These multiples
compare with multiples of latest twelve months and estimated calendar 1998 and
1999 EPS and latest twelve months revenues, EBITDA and EBIT for HEALTHSOUTH of
32.8x, 26.6x, 21.8x, 4.8x, 15.9x and 22.0x, respectively. Based on the closing
stock price of HEALTHSOUTH Common Stock on May 1, 1998, the Consideration
equated to implied multiples for NSC of latest twelve months and estimated
calendar 1998 and 1999 EPS and latest twelve months revenues, EBITDA and EBIT of
42.0x, 32.7x, 26.7x, 5.2x, 19.8x and 26.7x, respectively.
Analysis of Selected Merger and Acquisition Transactions. BT Alex. Brown
reviewed the purchase price and implied transaction multiples paid in the
following selected merger and acquisition transactions in the ambulatory surgery
center industry, consisting of (acquiror/target): HEALTHSOUTH Corporation /
Columbia/HCA Healthcare Corporation surgery centers; HEALTHSOUTH Corporation /
Surgical Care Affiliates, Inc.; HEALTHSOUTH Corporation / Sutter Surgery
Centers, Inc.; HEALTHSOUTH Corporation / Surgical Health Corporation; and
Columbia/HCA Healthcare Corporation / Medical Care America, Inc. (collectively,
the "Selected Merger and Acquisition Transactions"). All multiples were based on
publicly available information at the time of announcement of such transaction.
This analysis indicated multiples for the Selected Merger and Acquisition
Transactions of latest twelve months and one-year forward net income and latest
twelve months revenues, EBITDA and EBIT of 20.8x to 56.8x (with a mean of
35.3x), 14.9x to 23.8x (with a mean of 19.3x), 1.3x to 4.8x (with a mean of
2.8x), 8.5x to 13.6x (with a mean of 10.3x), and 11.4x to 22.9x (with a mean of
17.9x), respectively. Based on the closing price of HEALTHSOUTH Common Stock on
May 1, 1998, the Consideration equated to implied multiples for NSC of latest
twelve months net income and one-year forward net income and latest twelve
months revenues, EBITDA and EBIT of 43.1x, 30.4x, 5.2x, 19.8x and 26.7x,
respectively.
Discounted Cash Flow Analysis. BT Alex. Brown performed a discounted cash
flow analysis of NSC to estimate the present value of the stand-alone,
unlevered, after-tax free cash flows that NSC could generate over the periods
March 31, 1998 through December 31, 2002 based on internal estimates of the
management of NSC. The discounted cash flow analysis was determined by (i)
adding (x) the present value at March 31, 1998 of NSC's projected free cash
flows over the four-year and nine-month period from March 31, 1998 through
December 31, 2002 and (y) the present value of the terminal value for NSC in
2002, and (ii) adding the net cash of NSC at March 31, 1998. The range of
estimated terminal values for NSC at the end of 2002 was calculated by applying
terminal value multiples ranging from 10.0x to 14.0x to the projected 2002
EBITDA of NSC, representing the estimated values of NSC beyond the year 2002.
The cash flows and terminal values of NSC were discounted to present value using
discount rates ranging from 12.0% to 16.0%. This analysis yielded equity
reference ranges for NSC Common Stock of approximately $20.16 to $32.64 per
share.
Historical Exchange Ratio Analysis. BT Alex. Brown reviewed the historical
trading volumes and market prices for NSC Common Stock and HEALTHSOUTH Common
Stock and the implied historical exchange ratio of NSC Common Stock and
HEALTHSOUTH Common Stock (the closing price of NSC Common Stock divided by the
closing price of HEALTHSOUTH Common Stock) based on such
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market prices as of the 20 trading days prior to and as of May 1, 1998. This
analysis indicated average exchange ratios for NSC Common Stock and HEALTHSOUTH
Common Stock as of the 20 trading days prior to and as of May 1, 1998 of
approximately 0.9272x and 0.9182x, respectively.
Contribution Analysis. BT Alex. Brown analyzed the relative contributions
of NSC and HEALTHSOUTH to the estimated revenue, EBITDA, EBIT and net income of
the pro forma combined company for the latest twelve months ended March 31, 1998
for NSC and December 31, 1997 for HEALTHSOUTH, to the estimated net income of
the pro forma combined company for calendar years 1998 and 1999 based, in the
case of NSC, on internal estimates of the management of NSC and, in the case of
HEALTHSOUTH, on analysts' estimates as reported by I/B/E/S, and to the book
value at March 31, 1998 for NSC and at December 31, 1997 for HEALTHSOUTH, and
compared such contributions to the pro forma ownership of the holders of NSC
Common Stock in the pro forma combined company. This analysis indicated that (i)
for the latest twelve months, NSC would have contributed approximately 3.6% of
the revenues, 3.1% of EBITDA, 3.2% of EBIT and 3.9% of the net income of the pro
forma combined company, (ii) in calendar year 1998, NSC would contribute
approximately 3.5% of the net income of the pro forma combined company, (iii) in
calendar year 1999, NSC would contribute approximately 3.5% of the net income of
the pro forma combined company, and (iv) as of March 31, 1998 for NSC and
December 31, 1997 for HEALTHSOUTH, NSC would have contributed 4.3% of the book
value of the pro forma combined company. Based on the Consideration at May 1,
1998, current holders of NSC Common Stock would own approximately 4.3% of the
pro forma combined company upon consummation of the Merger.
Accretion/Dilution Analysis. BT Alex. Brown analyzed the pro forma effect
of the Merger on the EPS of HEALTHSOUTH in calendar years 1998 and 1999, based,
in the case of NSC, on EPS estimates of the management of NSC and, in the case
of HEALTHSOUTH, on EPS estimates as reported by I/B/E/S, both before and after
giving effect to certain cost savings and other potential synergies anticipated
by the managements of NSC and HEALTHSOUTH to result from the Merger (excluding
non-recurring costs resulting from the Merger). This analysis indicated that the
Merger could be dilutive to HEALTHSOUTH's EPS in calendar years 1998 and 1999
without giving effect to certain cost savings and other potential synergies
anticipated by the managements of NSC and HEALTHSOUTH to result from the Merger
and accretive to HEALTHSOUTH's EPS in calendar years 1998 and 1999 assuming
certain levels of cost savings and other potential synergies were achieved
(excluding non-recurring costs resulting from the Merger). The actual operating
or financial results achieved by the pro forma combined company may vary from
projected results and variations may be material as a result of business and
market risks, the timing and amount of synergies, the cost associated with
achieving such synergies and other factors.
Historical and Pro Forma Comparison. In connection with its opinion, BT
Alex. Brown also reviewed and considered, among other things: (i) historical
financial information for NSC and HEALTHSOUTH; (ii) historical trading volumes
and market prices for NSC Common Stock and HEALTHSOUTH Common Stock, and
movements in NSC Common Stock relative to the S&P 500 Index and the common stock
of the NSC Selected Companies and in HEALTHSOUTH Common Stock relative to the
S&P 500 Index and the common stock of the HEALTHSOUTH Selected Companies; (iii)
historical analysis of HEALTHSOUTH's forward price to earnings ratio relative to
the S&P 500 forward price to earnings ratio; (iv) analysts' reports, including
growth rate estimates, with respect to NSC and HEALTHSOUTH; and (iv) the
ownership profiles of NSC and HEALTHSOUTH.
The summary set for the above does not purport to be a complete description
of the opinion of BT Alex. Brown to the NSC Board or the financial analyses
performed and factors considered by BT Alex. Brown in connection with its
opinion. The preparation of a fairness opinion is a complex analytical process
involving various determinations as to the most appropriate and relevant methods
of financial analyses and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. BT Alex. Brown believes that its analyses and the summary
set forth above must be considered as a whole and that selecting portions of its
analyses, without considering all analyses, or selecting portions of the above
summary, without considering all factors and analyses, could create a misleading
or incomplete view of the processes underlying such
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analyses and opinion. In performing its analyses, BT Alex. Brown made numerous
assumptions with respect to industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond the
control of NSC and HEALTHSOUTH. No company, transaction or business used in such
analyses as a comparison is identical to NSC, HEALTHSOUTH, or the proposed
Merger, nor is an evaluation of the results of such analyses entirely
mathematical; rather, such analyses involve complex considerations and judgments
concerning financial and operating characteristics and other factors that could
affect the acquisition, public trading or other values of the companies,
businesses or transactions being analyzed. The estimates contained in such
analyses and the ranges of valuations resulting from any particular analysis are
not necessarily indicative of actual values or future results, which may be
significantly more or less favorable than those suggested by such analyses. In
addition, analyses relating to the value of businesses or securities do not
purport to be appraisals or to reflect the prices at which businesses or
securities actually may be sold. Accordingly, such analyses and estimates are
inherently subject to substantial uncertainty. BT Alex. Brown's opinion and
financial analyses were only one of many factors considered by the NSC Board in
its evaluation of the proposed Merger and should not be viewed as determinative
of the views of the NSC Board or NSC's management with respect to the
Consideration or the Merger.
NSC selected BT Alex. Brown to serve as its exclusive financial advisor
based on BT Alex. Brown's long-standing relationship with NSC and its
reputation, experience and expertise in similar transactions. BT Alex. Brown is
an internationally recognized investment banking firm and, as a customary part
of its investment banking business, is engaged in the valuation of businesses
and their securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for estate, corporate and other
purposes. In the past, BT Alex. Brown has provided various financing services
for HEALTHSOUTH and various financing and financial advisory services for NSC,
for which services BT Alex. Brown has received customary fees. BT Alex. Brown
maintains a market in the NSC Common Stock and regularly publishes research
reports regarding the health care industry and the businesses and securities of
NSC, HEALTHSOUTH and other publicly owned companies in the health care industry.
In the ordinary course of business, BT Alex. Brown may actively trade the
securities of NSC and HEALTHSOUTH for its own account and the accounts of its
customers and, accordingly, may at any time hold a long or short position in
securities of NSC and HEALTHSOUTH.
Pursuant to a letter agreement dated May 4, 1998 between NSC and BT Alex.
Brown, NSC has agreed to pay BT Alex. Brown $1.0 million for rendering its
opinion, which amount will be credited against a transaction fee of $3.75
million payable upon consummation of the Merger. In addition, NSC has agreed to
reimburse BT Alex. Brown for its reasonable out-of-pocket expenses, including
reasonable fees and disbursements of counsel, and to indemnify BT Alex. Brown
and certain related parties against certain liabilities, including certain
liabilities under the federal securities laws, relating to, or arising out of,
its engagement.
THE SUMMARY OF THE BT ALEX. BROWN OPINION SET FORTH ABOVE IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE BT ALEX. BROWN OPINION DATED
JUNE 17, 1998 AND ATTACHED HERETO AS ANNEX B. NSC STOCKHOLDERS ARE URGED TO
READ THE BT ALEX. BROWN OPINION IN ITS ENTIRETY FOR A COMPLETE DESCRIPTION OF
THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS OF THE REVIEW UNDERTAKEN.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon the filing of a Certificate of Merger
by the Subsidiary and NSC under the DGCL, or at such later time as may be
specified in such Certificate of Merger. It is anticipated that such filing will
be made as soon as reasonably possible after the Special Meeting and after all
regulatory approvals have been obtained, and that the Effective Time will occur
upon such filing. There can be, however, no assurance as to whether or when the
Merger will occur. See "- Conditions to the Merger" and "- Regulatory
Approvals".
EXCHANGE OF CERTIFICATES
From and after the Effective Time, each holder of a Certificate will be
entitled to receive in exchange therefor, upon surrender thereof to the Exchange
Agent (as defined in the Plan), a certificate or
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certificates representing the number of whole shares of HEALTHSOUTH Common Stock
into which such holder's NSC Shares have been converted, cash in lieu of
fractional shares and any dividends or other distributions to which such holder
is entitled as a result of the Merger as provided in the Plan.
As soon as reasonably practicable after the Effective Time, HEALTHSOUTH
will deliver through the Exchange Agent (as defined in the Plan) to each holder
of record of NSC Shares at the Effective Time transmittal materials for use in
exchanging the Certificates for certificates for shares of HEALTHSOUTH Common
Stock. After the Effective Time, there will be no transfers on the stock
transfer books of NSC Shares that were issued and outstanding immediately prior
to the Effective Time and converted in the Merger.
No fractional shares of HEALTHSOUTH Common Stock and no certificates or
scrip therefor, or other evidence of ownership thereof, will be issued in the
Merger; instead, HEALTHSOUTH will pay to each holder of NSC Shares who would
otherwise be entitled to a fractional share cash in an amount equal to the value
of such fractional share of HEALTHSOUTH Common Stock. See "- Terms of the
Merger".
No certificates representing shares of HEALTHSOUTH Common Stock, no
fractional share payment and no dividends or other distributions paid on such
HEALTHSOUTH Common Stock will be delivered or paid to a holder of a Certificate
or Certificates until the Certificates are delivered to HEALTHSOUTH through the
Exchange Agent. No interest will be paid on dividends or other distributions or
on any fractional share payment which the holder of such shares will be entitled
to receive upon such delivery.
At the Effective Time, holders of NSC Shares immediately prior to the
Effective Time will cease to be, and will have no rights as, stockholders of
NSC, other than the right to receive the shares of HEALTHSOUTH Common Stock into
which such shares have been converted and any fractional share payment and any
dividends or other distributions to which they may be entitled under the Plan.
Holders of NSC Shares will be treated as stockholders of record of HEALTHSOUTH
for purposes of voting at any annual or special meeting of stockholders of
HEALTHSOUTH after the Effective Time, both before and after such time as they
exchange their Certificates for certificates of HEALTHSOUTH Common Stock as
provided in the Plan.
Neither HEALTHSOUTH nor NSC will be liable to any holder of NSC Shares for
any shares of HEALTHSOUTH Common Stock (or dividends or other distributions with
respect thereto) or cash in lieu of fractional shares delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
REPRESENTATIONS AND WARRANTIES
The Plan contains various customary representations and warranties of the
parties thereto. The representations and warranties of HEALTHSOUTH and the
Subsidiary, made jointly and severally, include representations as to: (i) the
corporate organization of the Subsidiary, (ii) the power and authority of the
Subsidiary to execute and perform the Plan, (iii) the absence of subsidiaries of
the Subsidiary, and (iv) the absence of contracts, liabilities and legal
proceedings relating to or affecting the Subsidiary.
The representations and warranties of HEALTHSOUTH include representations
as to: (i) the organization of HEALTHSOUTH; (ii) the power and authority of
HEALTHSOUTH to execute, deliver and perform the Plan; (iii) the capitalization
of HEALTHSOUTH; (iv) ownership of Subsidiary Common Stock by HEALTHSOUTH; (v)
the fact that HEALTHSOUTH has furnished NSC with true and complete copies of
certain reports, schedules, registration statements and proxy statements filed
by HEALTHSOUTH with the SEC since January 1, 1998, and that such documents did
not contain any untrue statements of material facts or omit to state material
facts that would be necessary to make the statements therein, under the
circumstances under which they were made, not misleading; (vi) HEALTHSOUTH's
investment intent with respect to the NSC Shares acquired; (vii) the absence of
material legal proceedings against HEALTHSOUTH; (viii) the absence of certain
material changes
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relating to HEALTHSOUTH since the date of the HEALTHSOUTH's document last filed
with the SEC; and (ix) the filing of HEALTHSOUTH's tax returns; (x)
HEALTHSOUTH's compliance with laws in general; and (xi) HEALTHSOUTH's licenses,
accreditations and regulatory approvals.
The representations and warranties of NSC include representations and
warranties as to: (i) the organization and good standing of NSC and its
subsidiaries, (ii) the capitalization of NSC, (iii) foreign qualifications, (iv)
the power and authority of NSC to execute, deliver and perform the Plan, (v) the
fact that NSC has furnished HEALTHSOUTH with true and complete copies of certain
reports, schedules, registration statements and proxy statements filed by NSC
with the SEC since January 1, 1998, and that such documents did not contain any
untrue statements of material facts or omit to state material facts that would
be necessary to make the statements therein, under the circumstances under which
they were made, not misleading, (vi) certain information provided to
HEALTHSOUTH, (vii) the absence of undisclosed material legal proceedings against
NSC, (viii) the validity of NSC's material contracts, and (ix) the absence of
certain material changes relating to NSC since the date of the NSC document last
filed with the SEC.
CONDITIONS TO THE MERGER
The obligation of HEALTHSOUTH and the Subsidiary to consummate the Merger
is subject to, among others, the following conditions: (i) NSC shall have
performed all of its agreements as contemplated by the Plan to be performed at
or prior to the consummation date of the Merger; (ii) except as otherwise
provided therein, the representations and warranties of NSC set forth in the
Plan shall be true and correct in all material respects as of the dates
specified in the Plan; (iii) HEALTHSOUTH shall have received the opinion of its
counsel, Haskell Slaughter & Young, L.L.C., that the Merger constitutes a
tax-free reorganization under the Code; and (iv) HEALTHSOUTH shall have received
an opinion of NSC's counsel, Bell, Boyd & Lloyd, as to certain matters.
The obligation of NSC to consummate the Merger is subject to, among others,
the following conditions: (i) HEALTHSOUTH and the Subsidiary shall have
performed all of their agreements as contemplated by the Plan to be performed at
or prior to the consummation of the Merger; (ii) except as otherwise provided
therein the representations and warranties of HEALTHSOUTH and the Subsidiary set
forth in the Plan shall be true and correct as of the dates specified in the
Plan; (iii) NSC shall have received the opinion of its counsel, Bell, Boyd &
Lloyd, that the Merger constitutes a tax-free reorganization under the Code; and
(iv) NSC shall have received an opinion of HEALTHSOUTH's counsel, Haskell
Slaughter & Young, L.L.C., as to certain matters.
The obligation of each of HEALTHSOUTH, the Subsidiary and NSC to consummate
the Merger is subject to certain additional conditions, including the following:
(i) no order, decree or injunction by a court of competent jurisdiction
preventing the consummation of the Merger or imposing any material limitation on
the ability of HEALTHSOUTH effectively to exercise full rights of ownership of
the common stock of the Surviving Corporation or any material portion of the
assets or business of NSC shall be in effect; (ii) no statute, rule or
regulation shall have been enacted by the government of the United States or any
state, municipality or other political subdivision thereof that makes the
consummation of the Merger or any other transaction contemplated by the Plan
illegal; (iii) the waiting period under the HSR Act shall have expired or shall
have been terminated; (iv) the Registration Statement shall have been declared
effective under the Securities Act and shall not be subject to any stop order;
(v) the Merger shall have been approved by the requisite vote of the holders of
the outstanding NSC Shares entitled to vote thereon; (vi) the shares of
HEALTHSOUTH Common Stock to be issued in connection with the Merger shall have
been approved for listing on the NYSE upon official notice of issuance; (vii)
The Merger shall have qualified for "pooling of interests" accounting treatment
and HEALTHSOUTH and NSC shall have each received letters to that effect from
Ernst & Young, dated as of the date of the mailing of the Prospectus-Proxy
Statement and the Closing Date; (viii) HEALTHSOUTH and the Subsidiary shall have
obtained, or obtained the transfer of, any Licenses (as defined) necessary to
allow the Surviving Corporation to operate the NSC facilities, unless the
failure to obtain such transfer or approval would not have a material adverse
effect on the Surviving Corporation; and (ix) HEALTHSOUTH and the Subsidiary
shall have received all required consents, approvals and authori-
31
<PAGE>
zations of third parties with respect to all material leases and management
agreements to which NSC Subsidiaries or NSC Other Entities are parties, except
where failure to do so would not have a material effect on the business of the
Surviving Corporation.
REGULATORY APPROVALS
As conditions precedent to the consummation of the Merger, the Plan
requires, among other things: (i) that the HSR Act waiting period has expired or
been terminated and (ii) that all other governmental approvals required for the
consummation of the Merger have been obtained, except where the failure to
obtain such approvals would not have a material adverse effect on the business
of the Surviving Corporation.
HSR Act. The HSR Act prohibits consummation of the Merger until certain
information has been furnished to the Antitrust Division of the DOJ and the FTC
and certain waiting period requirements have been satisfied. On May 14, 1998,
HEALTHSOUTH and NSC made their respective filings with the DOJ and the FTC with
respect to the Plan. Under the HSR Act, the filings commenced a waiting period
during which the Merger cannot be consummated, which waiting period expired on
June 13, 1998.
Notwithstanding the termination or expiration of the HSR Act waiting
period, at any time before or after the Effective Time, the FTC or the DOJ could
initiate legal action under the antitrust laws seeking to enjoin the
consummation of the Merger or seeking the divestiture by HEALTHSOUTH of any part
of its assets or all or any part of the stock or assets of NSC. In addition,
certain other persons, such as states' attorneys general and private parties,
could challenge the Merger as violative of the antitrust laws and seek to enjoin
the consummation of the Merger and, in the case of private persons, also to
obtain treble damages. There can be no assurance that a challenge to the Merger
on antitrust grounds will not be made or, if such a challenge were made, that it
would not be successful.
HEALTHSOUTH and NSC believe that the Merger does not violate the antitrust
laws and intend to resist vigorously any assertion to the contrary by the FTC,
the DOJ or others. Any such assertion could delay consummation of the Merger,
perhaps for a considerable period. Prior to the Merger, the FTC or the DOJ could
seek to enjoin the consummation of the Merger under the federal antitrust laws
or require that HEALTHSOUTH or NSC divest assets to avoid such a proceeding. The
FTC or DOJ could also, following the Merger, take action under the federal
antitrust laws to rescind the Merger, to require divestiture of assets of either
HEALTHSOUTH or NSC, or to obtain other relief.
NSC does not intend to seek any further stockholder approval or
authorization of the Plan as a result of any action that the Companies may take
to resist or resolve any FTC, DOJ or other objections, unless required to do so
by applicable law.
Other Regulatory Approvals. The operations of each Company are subject to a
substantial body of federal, state, local and accrediting body laws, rules and
regulations relating to the development, operations and licensing of healthcare
businesses and facilities. Many regulatory agencies require that a filing be
made to obtain consent to or approval of the Merger. All filings required to be
made prior to the date of this Prospectus-Proxy Statement to obtain the consents
and approvals required from federal and state healthcare regulatory bodies and
agencies have been made. Certain filings cannot, however, be made under
applicable laws, rules and regulations until after the Effective Time. As a
result of the Merger, certain of the arrangements between NSC and third-party
payors may be deemed to have been transferred, requiring the approval and
consent of such payors. Although no assurances to this effect can be given, it
is anticipated that the Companies will be able to obtain any required regulatory
or third-party payor consent or approval.
BUSINESS PENDING THE MERGER
The Plan provides that, during the period from the date of the Plan to the
Effective Time, except as provided in the Plan, NSC will conduct its businesses
in the usual, regular and ordinary course in substantially the same manner as
previously conducted and will use its best efforts to preserve intact its
present business organization, to keep available the services of its key
employees and to preserve its relationships with customers, suppliers and others
having business dealings with it.
32
<PAGE>
Under the Plan, NSC has agreed that it will not (other than as required
pursuant to or contemplated by the terms of the Plan and related documents),
pending the Effective Time without first obtaining the written consent of
HEALTHSOUTH: (i) encumber any asset or enter into any transaction or make any
contract or commitment relating to the properties, assets and business of NSC,
other than in the ordinary course of business or as otherwise disclosed in the
Plan; (ii) enter into any employment contract which is not terminable upon
notice of 30 days or less, at will, and without penalty to NSC except as
provided in the Plan; (iii) enter into any contract or agreement (a) which
cannot be performed within three months or less, or (b) which involves the
expenditure of over $100,000; (iv) issue or sell, or agree to issue or sell, any
shares of capital stock or other securities of NSC, except upon exercise of
currently outstanding stock options or warrants or pursuant to the NSC Employee
Stock Purchase Plan; (v) make any contribution, payment or distribution to the
trustee under any bonus, pension, profit-sharing or retirement plan or incur any
obligation to make any such payment or contribution which is not in accordance
with NSC's usual past practice, or establish or enter into any other plan or
contract or arrangement providing for bonuses, executive incentive compensation,
pensions, deferred compensation, retirement payments, profit-sharing or the
like, or terminate any Plan; (vi) extend credit to anyone, except in the
ordinary course of business consistent with prior practices; (vii) guarantee the
obligation of any person, firm or corporation, except in the ordinary course of
business consistent with prior practices; (viii) amend its Certificate of
Incorporation or Bylaws; (ix) discharge or satisfy any material lien or
encumbrance, or pay or satisfy any material obligation or liability (absolute,
accrued, contingent or otherwise) other than (a) liabilities shown or reflected
on NSC's consolidated balance sheet at December 31, 1997 (the "NSC Balance
Sheet") or (b) liabilities incurred in the ordinary course of business since the
date of the NSC document last filed with the SEC which discharge or satisfaction
would have a material adverse effect on NSC; (x) increase or establish any
reserve for taxes or any other liability on its books or otherwise provide
therefor that would have a material adverse effect on NSC, except as relates to
the consolidated results of operations of NSC since the date of the NSC Balance
Sheet; or (xi) grant any general or uniform increase in the rates of pay of
employees or grant any increase in salary payable or to become payable by NSC to
any officer, employee, consultant or agent of NSC (other than normal merit
increases) or by means of any bonus or pension plan, contract or other
commitment, increase the compensation of any officer, employee, consultant or
agent of NSC.
WAIVER AND AMENDMENT
The Plan provides that, at any time prior to the Effective Time,
HEALTHSOUTH and NSC may (i) extend the time for the performance of any of the
obligations or other acts of the other party contained in the Plan; (ii) waive
any inaccuracies in the representations and warranties of the other party
contained in the Plan or in any document delivered pursuant to the Plan; and
(iii) subject to the limitations regarding amendment of the Plan described in
the following sentence, and except for certain mutual conditions to closing,
waive compliance with the agreements or conditions under the Plan. In addition,
the Plan may be amended at any time upon the written agreement of HEALTHSOUTH
and NSC without the approval of stockholders of either Company, except that
after the Special Meeting no amendment may be made which by law requires a
further approval by the stockholders of NSC without obtaining such further
approvals.
TERMINATION
The Plan may be terminated at any time prior to the Effective Time, whether
before or after approval of the Plan by the stockholders of NSC: (i) by mutual
written consent of HEALTHSOUTH and NSC; (ii) by either HEALTHSOUTH or NSC if
there is a material breach on the part of the other party of any representation,
warranty, covenant or other agreement set forth in the Plan which is not cured
as provided in the Plan; (iii) by either HEALTHSOUTH or NSC if any governmental
entity or court of competent jurisdiction shall have issued a final, permanent
order, decree, or ruling or other action enjoining or otherwise prohibiting the
Merger and such order, decree, or ruling or other action shall have become
non-appealable; (iv) by either HEALTHSOUTH or NSC if the Merger has not been
consummated on or before November 30, 1998 (or such later date as may be
determined under the Plan), unless the failure to consummate the Merger by such
time is due to the breach of the Plan by the
33
<PAGE>
party seeking to terminate the Plan; (v) by either HEALTHSOUTH or NSC if any
required approval of the Plan by stockholders of NSC has not been obtained by
the required votes at a duly held meeting of stockholders; (vi) by either
HEALTHSOUTH or NSC if any of the conditions to the obligation of such party to
effect the Merger is not capable of being satisfied prior to November 30, 1998,
unless such period is extended; or (vii) by NSC, if the Board of Directors of
NSC, in the exercise of its fiduciary duties under applicable law, has (w)
determined not to recommend the Merger to the holders of NSC Common Stock, (x)
withdrawn such recommendation, (y) approved, recommended or endorsed any
Acquisition Transaction other than the Plan or (z) resolved to take any of such
actions. For the purposes of clause (vii), an "Acquisition Transaction" means a
merger, purchase of assets, purchase of or tender offer for shares of NSC stock
or any similar transaction (other than the Merger).
BREAK-UP FEE; THIRD PARTY BIDS
If the Plan is terminated by NSC for the reason set forth in clause (vii)
under "- Termination" above and within one year after the effective date of such
termination NSC is the subject of a Third Party Acquisition Event (as defined in
the Plan), then at the time of consummation of such a Third Party Acquisition
Event, NSC shall pay to HEALTHSOUTH a break-up fee of $15,000,000.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the Board of Directors of NSC with
respect to the Plan and the transactions contemplated thereby, stockholders of
NSC should be aware that certain members of the management of NSC and the Board
of Directors of NSC have certain interests in the Merger that are in addition to
the interests of the stockholders generally.
In connection with the Merger, HEALTHSOUTH anticipates that it will enter
into Consulting and Non-Competition Agreements with each of E. Timothy Geary,
Bryan S. Fisher, Dennis D. Solheim and Dennis Zamojski, pursuant to which they
will act as consultants to HEALTHSOUTH with respect to various matters,
including transition issues, industry presentations, business development and
strategic planning.
In addition, pursuant to the terms of NSC's stock option plans, certain NSC
stock options that are not fully vested prior to the Effective Time will
accelerate and vest in full as a result of the Merger at the Effective Time.
Certain directors and members of NSC management hold such options.
Further, under the Plan HEALTHSOUTH has agreed that after the Effective
Time it will indemnify the current and former officers, directors and employees
of NSC against any liabilities arising in whole or in part: (i) out of the fact
that such person was an officer, director or employee of NSC; or (ii) out of, or
pertaining to, the Plan. As part of such indemnification, HEALTHSOUTH has also
agreed that after the Effective Time it will provide to any such indemnified
party the indemnification rights that such party would have had under the NSC
Certificate of Incorporation or NSC Bylaws immediately prior to the Effective
Time, until any applicable statute of limitations shall have expired.
INDEMNIFICATION
The Plan provides that NSC shall, and after the Effective Time HEALTHSOUTH
and the Surviving Corporation shall, indemnify, defend and hold harmless each
person who is, or has ever been at any time prior to the Effective Time, an
officer, director or employee of NSC or any of its subsidiaries (the
"Indemnified Parties") against all losses, claims, damages, costs, expenses,
liabilities or judgments, or amounts that are paid in settlement with the
approval of the indemnifying party in connection with any claim arising, in
whole or in part, out of the fact that such person is or was a director, officer
or employee of NSC and pertaining to a matter occurring or existing at or prior
to the Effective Time.
ACCOUNTING TREATMENT
Consummation of the Merger is conditioned upon the receipt by HEALTHSOUTH
and NSC of a letter from Ernst & Young LLP, HEALTHSOUTH's independent auditors,
regarding that firm's concurrence with the conclusions of the managements of
HEALTHSOUTH and NSC, respectively, as to
34
<PAGE>
the appropriateness of pooling-of-interests accounting for the Merger under APB
16 if closed and consummated in accordance with the Plan. HEALTHSOUTH and NSC
have agreed not to intentionally take or cause to be taken any action that would
disqualify the Merger as a pooling of interests for accounting purposes.
Under the pooling-of-interests method of accounting, the historical basis
of the assets and liabilities of HEALTHSOUTH and NSC will be combined at the
Effective Time and carried forward at their previously recorded amounts, the
stockholders' equity accounts of HEALTHSOUTH and NSC will be combined on
HEALTHSOUTH's consolidated balance sheet and no goodwill or other intangible
assets will be created. Financial statements of HEALTHSOUTH issued after the
Merger will be restated retroactively to reflect the consolidated operations of
HEALTHSOUTH and NSC as if the Merger had taken place prior to the periods
covered by such financial statements.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the principal federal income tax
consequences of the Merger to the holders of NSC Shares. The discussion is based
on currently existing provisions of the Code, Treasury Regulations thereunder,
administrative rulings and court decisions. All of the foregoing are subject to
change and any such change can affect the continuing validity of this
discussion. This summary applies to holders of NSC Shares who hold their NSC
Shares as capital assets. This summary does not discuss all aspects of income
taxation that may be relevant to a particular holder of NSC Shares in light of
such holder's specific circumstances or to certain types of holders subject to
special treatment under the federal income tax laws (for example, foreign
persons, dealers in securities, banks and other financial institutions,
insurance companies, tax-exempt organizations and holders who acquired NSC
Shares pursuant to the exercise of options or otherwise as compensation or
through a tax-qualified retirement plan or holders who are subject to the
alternative minimum tax provisions of the Code), and it does not discuss any
aspect of state, local, foreign or other tax law.
NSC has received an opinion regarding all material federal income tax
consequences with respect to the Merger from its counsel, Bell, Boyd & Lloyd
("BB&L"), and HEALTHSOUTH has received a similar opinion from its counsel,
Haskell Slaughter & Young, L.L.C. ("Haskell Slaughter", and together with BB&L,
"Tax Counsel"). Based on the conditions and qualifications discussed herein,
such opinions collectively state that for federal income tax purposes the Merger
will constitute a reorganization within the meaning of Section 368(a) of the
Code and that the material federal income tax consequences of the Merger will be
that: (i) no gain or loss will be recognized by HEALTHSOUTH, the Subsidiary or
NSC as a result of the Merger; (ii) no gain or loss will be recognized by the
stockholders of NSC upon the exchange of their NSC Shares solely for shares of
HEALTHSOUTH Common Stock pursuant to the Merger, except that a NSC stockholder
who receives cash proceeds in lieu of a fractional share of HEALTHSOUTH Common
Stock will recognize gain or loss equal to the difference, if any, between such
stockholder's tax basis allocated to such fractional share (as described in
clause (iii) below) and the amount of cash received, and such gain or loss will
constitute capital gain or loss if such stockholder's NSC Shares with respect to
which gain or loss is recognized are held as a capital asset at the Effective
Time and such payment in lieu of the fractional shares is not essentially
equivalent to a dividend within the meaning of Section 302(b)(l) of the Code;
(iii) the aggregate tax basis of the shares of the HEALTHSOUTH Common Stock
received solely in exchange for NSC Shares pursuant to the Merger (including
fractional shares of HEALTHSOUTH Common Stock for which cash is received) will
be the same as the aggregate tax basis of the NSC Shares exchanged therefor; and
(iv) the holding period for HEALTHSOUTH Common Stock received in exchange for
NSC Shares pursuant to the Merger will include the holding period of the NSC
Shares exchanged therefor, provided such NSC Shares were held as a capital asset
at the Effective Time.
Neither HEALTHSOUTH nor NSC has requested or will receive an advance ruling
from the Internal Revenue Service (the "Service") as to the federal income tax
consequences of the Merger. In rendering their opinions, Tax Counsel has
received and relied upon representations contained in certificates of
HEALTHSOUTH, the Subsidiary, NSC and others. Tax Counsel's opinions are subject
to
35
<PAGE>
certain limitations and qualifications and are based upon the truth and accuracy
of these representations and upon certain factual assumptions and represent Tax
Counsel's best legal judgment. The tax opinions are not binding on the Service
or the courts and do not preclude the Service from adopting a contrary position.
EACH HOLDER OF NSC SHARES IS URGED TO CONSULT SUCH HOLDER'S TAX ADVISOR AS
TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH HOLDER, INCLUDING THE
APPLICATION OF STATE, LOCAL, FEDERAL AND FOREIGN TAX LAWS.
RESALE OF HEALTHSOUTH COMMON STOCK BY AFFILIATES
The offering, sale and delivery of shares of HEALTHSOUTH Common Stock to be
issued to holders of NSC Shares in connection with the Merger have been
registered under the Securities Act. HEALTHSOUTH Common Stock received by the
stockholders of NSC upon consummation of the Merger will be freely transferable
under the Securities Act, except for shares issued to any person who may be
deemed an "Affiliate" of NSC or HEALTHSOUTH within the meaning of Rule 145 under
the Securities Act. "Affiliates" are generally defined as persons who control,
are controlled by, or are under common control with NSC or HEALTHSOUTH at the
time of the Special Meeting (generally, directors, certain executive officers
and major stockholders). Affiliates of NSC or HEALTHSOUTH may not sell their
shares of HEALTHSOUTH Common Stock acquired in connection with the Merger,
except pursuant to an effective registration statement under the Securities Act
covering such shares or in compliance with Rule 145 or another applicable
exemption from the registration requirements of the Securities Act. In general,
under Rule 145, for one year following the Effective Time, an Affiliate
(together with certain related persons) would be entitled to sell shares of
HEALTHSOUTH Common Stock acquired in connection with the Merger only through
unsolicited "brokers' transactions" or in transactions directly with a "market
maker," as such terms are defined in Rule 144 under the Securities Act.
Additionally, the number of shares to be sold by an Affiliate (together with
certain related persons and certain persons acting in concert) within any
three-month period during such one-year period for purposes of Rule 145 may not
exceed the greater of (i) 1% of the outstanding shares of HEALTHSOUTH Common
Stock or (ii) the average weekly trading volume of such stock during the four
calendar weeks preceding such sale. The resale provisions of Rule 145 will
remain available to Affiliates only if HEALTHSOUTH remains current with its
information filings with the SEC under the Exchange Act. One year after the
Effective Time, an Affiliate will be able to sell such HEALTHSOUTH Common Stock
without such manner of sale or volume limitations if HEALTHSOUTH is current with
its Exchange Act information filings and such Affiliate is not then an Affiliate
of HEALTHSOUTH. Two years after the Effective Time, an Affiliate will be able to
sell such shares of HEALTHSOUTH Common Stock without any restrictions so long as
such Affiliate was not an Affiliate of HEALTHSOUTH for at least three months
prior thereto.
NSC has agreed to use its reasonable, good faith efforts to cause each
holder of NSC Shares deemed to be an Affiliate of NSC to enter into an agreement
providing that such Affiliate will not sell, pledge, transfer or otherwise
dispose of shares of HEALTHSOUTH Common Stock to be received by such person in
the Merger, except in compliance with the applicable provisions of the
Securities Act and the rules and regulations thereunder.
NO APPRAISAL RIGHTS
Under the DGCL, holders of NSC Common Stock will not be entitled to
dissenters' rights of appraisal in connection with the Merger.
NO SOLICITATION OF TRANSACTIONS
Subject to the provisions described in the next paragraph, NSC has agreed
that it will not, and will not suffer any of its directors, officers, employees,
agents or representatives to, directly or indirectly, (i) encourage, solicit,
participate in or initiate discussions or negotiations with or (ii) provide any
information to any entity concerning any merger, sale of assets, sale of or
tender offer for shares of NSC Common Stock or similar transaction involving NSC
from the date of the Plan through the Effective Time.
36
<PAGE>
Notwithstanding the provisions described in the preceding paragraph, under
the Plan, NSC may (i), directly or indirectly, furnish information and access,
in response to an unsolicited request therefor, to any entity pursuant to
appropriate confidentiality agreements, and (ii) participate in discussions and
negotiate with an entity concerning any proposal to acquire NSC upon an
Acquisition Transaction, if the Board of Directors of NSC determines in its good
faith judgment in the exercise of its fiduciary duties or the exercise of its
duties under Rule 14e-2 under the Exchange Act, after consultation with legal
counsel and its financial advisors, that such action is appropriate in
furtherance of the best interest of its stockholders. NSC shall promptly notify
HEALTHSOUTH if it shall, on or after the date of the Plan, have entered into a
confidentiality agreement with any third party in response to any unsolicited
request for information and access in connection with a possible Acquisition
Transaction involving such party, such notification to include the identity of
such third party.
EXPENSES
The Plan provides that, except as described under "- Breakup Fee; Third
Party Bids", all costs and expenses incurred in connection with the Plan and the
transactions contemplated thereby shall be paid by the party incurring such
expense, except that expenses of printing and mailing this Prospectus-Proxy
Statement shall be shared equally by HEALTHSOUTH and NSC.
NYSE LISTING
A listing application will be filed with the NYSE to list the shares of
HEALTHSOUTH Common Stock to be issued to NSC stockholders in connection with the
Merger. Although no assurance can be given that the shares of HEALTHSOUTH Common
Stock so issued will be accepted for listing, HEALTHSOUTH anticipates that these
shares will qualify for listing on the NYSE upon official notice of issuance
thereof. It is a condition to the Merger that such shares of HEALTHSOUTH Common
Stock be approved for listing on the NYSE upon official notice of issuance at
the Effective Time.
37
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA - HEALTHSOUTH
Set forth below is a summary of selected consolidated financial data for
HEALTHSOUTH for the years indicated. All amounts have been restated to reflect
the effects of the 1994 acquisition of ReLife, Inc. ("ReLife"), the 1995
Surgical Health Corporation ("SHC") and Sutter Surgery Centers, Inc. ("SSCI")
acquisitions, the 1996 Surgical Care Affiliates, Inc. ("SCA") and Advantage
Health Corporation ("Advantage Health") acquisitions and the 1997 Health
Images, Inc. ("Health Images") acquisition, each of which was accounted for as
a pooling of interests.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1993 1994 1995
------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues ......................................................... $1,055,295 $1,726,321 $2,118,681
Operating unit expenses .......................................... 715,189 1,207,707 1,441,059
Corporate general and administrative expenses .................... 43,378 67,798 65,424
Provision for doubtful accounts .................................. 22,677 35,740 42,305
Depreciation and amortization .................................... 75,425 126,148 160,901
Merger and acquisition related expenses (1) ...................... 333 6,520 19,553
Loss on impairment of assets (2) ................................. - 10,500 53,549
Loss on abandonment of computer project .......................... - 4,500 -
Loss on disposal of surgery centers .............................. - 13,197 -
NME Selected Hospitals Acquisition related expense ............... 49,742 - -
Interest expense ................................................. 25,884 74,895 105,517
Interest income .................................................. (6,179) (6,658) (8,009)
Gain on sale of partnership interest ............................. (1,400) - -
Gain on sale of MCA Stock ........................................ - (7,727) -
---------- ---------- ----------
925,049 1,532,620 1,880,299
---------- ---------- ----------
Income from continuing operations before income taxes,
minority interests and extraordinary item ....................... 130,246 193,701 238,382
Provision for income taxes ....................................... 40,450 68,560 86,161
---------- ---------- ----------
89,796 125,141 152,221
Minority interests ............................................... 29,549 31,665 43,753
---------- ---------- ----------
Income from continuing operations before extraordi-
nary item ....................................................... 60,247 93,476 108,468
Income from discontinued operations .............................. 3,986 (6,528) (1,162)
Extraordinary item (2) ........................................... - - (9,056)
---------- ---------- ----------
Net income ...................................................... $ 64,233 $ 86,948 $ 98,250
========== ========== ==========
Weighted average common shares outstanding (3)(6) ................ 265,502 273,480 289,594
========== ========== ==========
Net income per common share: (3)(6)
Continuing operations ........................................... $ 0.23 $ 0.34 $ 0.37
Discontinued operations ......................................... 0.01 (0.02) 0.00
Extraordinary item .............................................. - - (0.03)
---------- ---------- ----------
$ 0.24 $ 0.32 $ 0.34
========== ========== ==========
Weighted average common shares outstanding - as-
suming dilution(3)(4)(6) ....................................... 275,366 300,758 320,018
========== ========== ==========
Net income per common share - assuming dilution:
(3)(4)(6)
Continuing operations ........................................... $ 0.22 $ 0.32 $ 0.35
Discontinued operations ......................................... 0.01 (0.02) 0.00
Extraordinary item .............................................. - - (0.03)
---------- ---------- ----------
$ 0.23 $ 0.30 $ 0.32
========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------- --------------------
1996 1997 1997 1998
---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues ......................................................... $2,568,155 $3,017,269 $691,631 $907,663
Operating unit expenses .......................................... 1,667,248 1,888,435 438,289 561,491
Corporate general and administrative expenses .................... 79,354 82,757 17,849 26,424
Provision for doubtful accounts .................................. 58,637 71,468 14,713 21,753
Depreciation and amortization .................................... 207,132 250,010 57,371 73,382
Merger and acquisition related expenses (1) ...................... 41,515 15,875 15,875 -
Loss on impairment of assets (2) ................................. 37,390 - - -
Loss on abandonment of computer project .......................... - - - -
Loss on disposal of surgery centers .............................. - - - -
NME Selected Hospitals Acquisition related expense ............... - - - -
Interest expense ................................................. 98,751 111,504 25,673 28,336
Interest income .................................................. (6,034) (4,414) (1,038) (1,641)
Gain on sale of partnership interest ............................. - - - -
Gain on sale of MCA Stock ........................................ - - - -
---------- ---------- -------- --------
2,183,993 2,415,635 568,732 709,745
---------- ---------- -------- --------
Income from continuing operations before income taxes,
minority interests and extraordinary item ....................... 384,162 601,634 122,899 197,918
Provision for income taxes ....................................... 143,929 206,153 42,411 70,219
---------- ---------- -------- --------
240,233 395,481 80,488 127,699
Minority interests ............................................... 50,369 64,873 15,908 18,331
---------- ---------- -------- --------
Income from continuing operations before extraordi-
nary item ....................................................... 189,864 330,608 64,580 109,368
Income from discontinued operations .............................. - - - -
Extraordinary item (2) ........................................... - - - -
---------- ---------- -------- --------
Net income ...................................................... $ 189,864 $ 330,608 $ 64,580 $109,368
========== ========== ======== ========
Weighted average common shares outstanding (3)(6) ................ 321,367 346,872 327,727 398,496
========== ========== ======== ========
Net income per common share: (3)(6)
Continuing operations ........................................... $ 0.59 $ 0.95 $ 0.20 $ 0.27
Discontinued operations ......................................... - - - -
Extraordinary item .............................................. - - - -
---------- ---------- -------- --------
$ 0.59 $ 0.95 $ 0.20 $ 0.27
========== ========== ======== ========
Weighted average common shares outstanding - as-
suming dilution(3)(4)(6) ....................................... 349,033 365,546 354,998 412,253
========== ========== ======== ========
Net income per common share - assuming dilution:
(3)(4)(6)
Continuing operations ........................................... $ 0.55 $ 0.91 $ 0.18 $ 0.27
Discontinued operations ......................................... - - - -
Extraordinary item .............................................. - - - -
---------- ---------- -------- --------
$ 0.55 $ 0.91 $ 0.18 $ 0.27
========== ========== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and marketable securities ......... $ 153,011 $ 134,040 $ 159,793 $ 153,831 $ 152,399 $ 205,079
Working capital ........................ 300,876 308,770 406,601 564,529 566,751 915,553
Total assets ........................... 2,000,566 2,355,920 3,107,808 3,529,706 5,401,053 5,791,806
Long-term debt (5) ..................... 1,028,610 1,164,135 1,453,018 1,560,143 1,601,824 1,973,499
Stockholders' equity ................... 727,737 837,160 1,269,686 1,569,101 3,157,428 3,322,296
</TABLE>
38
<PAGE>
- - ---------
(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, the SCA, Advantage Health, PSCM and ReadiCare
Acquisitions in 1996, and the Health Images Acquisition in 1997.
(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) Diluted earnings per share in 1994, 1995, 1996 and 1997 reflect shares
reserved for issuance upon conversion of HEALTHSOUTH's 5% Convertible
Subordinated Debentures due 2001. Substantially all of such Debentures were
converted into shares of HEALTHSOUTH's Common Stock in 1997.
(5) Includes current portion of long-term debt.
(6) Earnings per share amounts prior to 1997 have been restated as required to
comply with Statement of Financial Accounting Standards No. 128, "Earnings
Per Share". For further discussion, see Note 1 of "Notes to Consolidated
Financial Statements".
39
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA - NSC
The following statements of operations data and balance sheet data for the
periods ended December 31, 1993 through December 31, 1997 have been derived from
NSC's audited consolidated financial statements. The information set forth below
is qualified by reference to and should be read in conjunction with the
consolidated financial statements and related notes incorporated by reference
herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1993 1994 1995 1996 1997
------------ ------------ ------------ ------------ -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:(1)
Net revenues ................................... $ 35,230 $ 41,707 $ 53,165 $ 77,359 $ 102,632
Writedown of goodwill(2) ....................... (50,871) - - - -
Operating income (loss)(2) ..................... (44,385) 7,566 10,237 17,205 26,920
Interest expense ............................... 4,016 4,186 4,139 2,616 1,025
Income (loss) before income taxes and ex-
traordinary item(2) ........................... (49,463) 2,511 5,080 11,993 20,104
Income (loss) before extraordinary item(2) ..... (43,236) 1,493 3,099 7,377 12,589
Net income (loss)(2) ........................... (43,236) 1,120 2,846 6,914 12,451
Diluted income (loss) per common share:
Income (loss) before extraordinary item(2) ..... $ (7.57) $ 0.23 $ 0.38 $ 0.50 $ 0.67
Extraordinary item ............................. - (0.06) (0.03) (0.03) (0.01)
---------- -------- -------- -------- ---------
Net income (loss)(2) ........................... $ (7.57) $ 0.17 $ 0.35 $ 0.47 $ 0.66
========== ======== ======== ======== =========
Diluted weighted average number of common
and common equivalent shares outstanding. 5,715 6,404 8,186 15,204 18,834
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-------------------------
1997 1998
------------ ------------
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:(1)
Net revenues ................................... $ 22,116 $ 31,034
Writedown of goodwill(2) ....................... - -
Operating income (loss)(2) ..................... 5,215 8,854
Interest expense ............................... 153 314
Income (loss) before income taxes and ex-
traordinary item(2) ........................... 4,161 6,123
Income (loss) before extraordinary item(2) ..... 2,611 3,766
Net income (loss)(2) ........................... 2,611 3,766
Diluted income (loss) per common share:
Income (loss) before extraordinary item(2) ..... $ .14 $ .20
Extraordinary item ............................. - -
-------- --------
Net income (loss)(2) ........................... $ .14 $ .20
======== ========
Diluted weighted average number of common
and common equivalent shares outstanding. 18,692 19,132
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------------------------------------------------- ------------
1993 1994 1995 1996 1997 1998
----------- --------- ---------- ---------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:(1)
Working capital ......................... $ 2,789 $ 6,300 $22,145 $ 59,968 $ 46,166 $ 39,013
Total assets ............................ 49,393 56,954 82,287 142,252 169,951 177,264
Long-term debt, less current installments 41,882 38,200 17,005 6,990 10,466 10,517
Shareholders' equity (deficit) .......... (3,134) 6,724 48,192 117,669 136,795 140,988
</TABLE>
- - ----------
<PAGE>
(1) NSC's financial statements for the periods presented are not strictly
comparable due to the significant effect that acquisitions have on such
statements.
(2) Operating results for the year ended December 31, 1993, include a
non-recurring charge of approximately $50.9 million ($43.8 million after tax
benefit), principally incurred in connection with the writedown of goodwill.
40
<PAGE>
BUSINESS OF HEALTHSOUTH
GENERAL
HEALTHSOUTH is the nation's largest provider of outpatient surgery and
rehabilitative healthcare services. It provides these services through its
national network of outpatient and inpatient rehabilitation facilities,
outpatient surgery centers, diagnostic centers, occupational medicine centers,
medical centers and other healthcare facilities. HEALTHSOUTH believes that it
provides patients, physicians and payors with high-quality healthcare services
at significantly lower costs than traditional inpatient hospitals. Additionally,
HEALTHSOUTH's national network, reputation for quality and focus on outcomes has
enabled it to secure contracts with national and regional managed care payors.
At March 31, 1998, HEALTHSOUTH had over 1800 patient care locations in 50
states, the United Kingdom and Australia.
In its outpatient and inpatient rehabilitation facilities, HEALTHSOUTH
provides interdisciplinary programs for the rehabilitation of patients
experiencing disability due to a wide variety of physical conditions, such as
stroke, head injury, orthopaedic problems, neuromuscular disease and
sports-related injuries. HEALTHSOUTH's rehabilitation services include physical
therapy, sports medicine, work hardening, neurorehabilitation, occupational
therapy, respiratory therapy, speech-language pathology and rehabilitation
nursing. Independent studies have shown that rehabilitation services like those
provided by HEALTHSOUTH can save money for payors and employers.
In addition to its rehabilitation facilities, HEALTHSOUTH operates the
largest network of freestanding outpatient surgery centers in the United States.
HEALTHSOUTH's outpatient surgery centers provide the facilities and medical
support staff necessary for physicians to perform non-emergency surgical
procedures. While outpatient surgery is widely recognized as generally less
expensive than surgery performed in a hospital, HEALTHSOUTH believes that
outpatient surgery performed at a freestanding outpatient surgery center is
generally less expensive than hospital-based outpatient surgery. Over 80% of
HEALTHSOUTH's surgery center facilities are located in markets served by its
rehabilitative service facilities, enabling the Company to pursue opportunities
for cross-referrals.
HEALTHSOUTH is also among the largest operators of outpatient diagnostic
centers and occupational medicine centers in the United States. Most of
HEALTHSOUTH's diagnostic centers and occupational medicine centers operate in
markets where HEALTHSOUTH also provides rehabilitative healthcare and outpatient
surgery services. HEALTHSOUTH believes that its ability to offer a comprehensive
range of its services in a particular geographic market makes HEALTHSOUTH more
attractive to both patients and payors in such market.
Over the last three years, HEALTHSOUTH has completed several significant
acquisitions in the rehabilitation business and has expanded into the surgery
center, diagnostic and occupational medicine businesses. HEALTHSOUTH believes
that these acquisitions complement its historical operations and enhance its
market position. HEALTHSOUTH further believes that its expansion into the
outpatient surgery, diagnostic and occupational medicine businesses provides it
with platforms for future growth. HEALTHSOUTH is continually evaluating
potential acquisitions in the outpatient and rehabilitative healthcare services
industry.
HEALTHSOUTH was organized as a Delaware corporation in February 1984.
HEALTHSOUTH's principal executive offices are located at One HealthSouth
Parkway, Birmingham, Alabama 35243, and its telephone number is (205) 967-7116.
COMPANY STRATEGY
HEALTHSOUTH'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. HEALTHSOUTH's growth strategy
is based upon four primary elements: (i) the implementation of HEALTHSOUTH's
integrated service model in appropriate markets, (ii) successful marketing to
managed care organizations and other payors, (iii) the provision of
high-quality, cost-effective healthcare services, and (iv) the expansion of its
national network.
41
<PAGE>
o Integrated Service Model. HEALTHSOUTH seeks, where appropriate, to provide an
integrated system of healthcare services, including outpatient rehabilitation
services, inpatient rehabilitation services, ambulatory surgery services and
outpatient diagnostic services. HEALTHSOUTH believes that its integrated
system offers payors the convenience of dealing with a single provider for
multiple services. Additionally, it believes that its facilities can provide
extensive cross-referral opportunities. For example, HEALTHSOUTH estimates
that approximately one-third of its outpatient rehabilitation patients have
had outpatient surgery, virtually all inpatient rehabilitation patients will
require some form of outpatient rehabilitation, and virtually all inpatient
rehabilitation patients have had some type of diagnostic procedure.
HEALTHSOUTH has implemented its Integrated Service Model in certain of its
markets, and intends to expand the model into other appropriate markets.
o Marketing to Managed Care Organizations and Other Payors. Since the late
1980s, HEALTHSOUTH has focused on the development of contractual
relationships with managed care organizations, major insurance companies,
large regional and national employer groups and provider alliances and
networks. HEALTHSOUTH's documented outcomes and experience with several
hundred thousand patients in delivering quality healthcare services at
reasonable prices has enhanced its attractiveness to such entities and has
given HEALTHSOUTH a competitive advantage over smaller and regional
competitors. These relationships have increased patient flow to HEALTHSOUTH's
facilities and contributed to HEALTHSOUTH's same-store growth.
o Cost-Effective Services. HEALTHSOUTH's goal is to provide high-quality
healthcare services in cost-effective settings. To that end, HEALTHSOUTH has
developed standardized clinical protocols for the treatment of its patients.
This results in "best practices" techniques being utilized at all of
HEALTHSOUTH's facilities, allowing the consistent achievement of demonstrable,
cost-effective clinical outcomes. HEALTHSOUTH's reputation for its clinical
programs is enhanced through its relationships with major universities
throughout the nation, and its support of clinical research in its facilities.
Further, independent studies estimate that, for every dollar spent on
rehabilitation, $11 to $35 is saved. Finally, surgical procedures typically
are less expensive in outpatient surgery centers than in hospital settings.
HEALTHSOUTH believes that outpatient and rehabilitative healthcare services
will assume increasing importance in the healthcare environment as payors
continue to seek to reduce overall costs by shifting patients to more
cost-effective treatment settings.
o Expansion of National Network. As the largest provider of outpatient surgery
and rehabilitative healthcare services in the United States, HEALTHSOUTH is
able to realize economies of scale and compete successfully for national
contracts with large payors and employers while retaining the flexibility to
respond to particular needs of local markets. The national network affords
HEALTHSOUTH the opportunity to offer large national and regional employers
and payors the convenience of dealing with a single provider, to utilize
greater buying power through centralized purchasing, to achieve more
efficient costs of capital and labor and to more effectively recruit and
retain clinicians. HEALTHSOUTH believes that its recent 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. HEALTHSOUTH's
objective is to provide those outpatient and rehabilitative healthcare
services needed within each local market by tailoring its services and
facilities to that market's needs, thus bringing the benefits of nationally
recognized expertise and quality into the local setting.
RECENT DEVELOPMENTS
On April 16, 1998, HEALTHSOUTH announced that it had entered into a
definitive agreement to acquire 34 ambulatory surgery centers from Columbia/HCA
Healthcare Corporation for $550,000,000 payable in cash at closing, which is
expected to occur during the third quarter of 1998. The surgery centers are
located in Alabama, California, Iowa, Illinois, Kentucky, Louisiana, Minnesota,
Mississippi, North Carolina, Nevada, Oregon, Rhode Island and Texas. The
transaction remains subject to various regulatory approvals and other
third-party consents.
42
<PAGE>
PATIENT CARE SERVICES
HEALTHSOUTH began its operations in 1984 with a focus on providing
comprehensive orthopaedic and musculoskeletal rehabilitation services on an
outpatient basis. Over the succeeding 14 years, HEALTHSOUTH has consistently
sought and implemented opportunities to expand its services through acquisitions
and de novo development activities that complement its historic focus on
orthopaedic, sports medicine and occupational medicine services and that provide
independent platforms for growth. HEALTHSOUTH's acquisitions and internal growth
have enabled it to become the largest provider of rehabilitative healthcare
services, both inpatient and outpatient, in the United States, as well as the
largest operator of freestanding outpatient surgery centers. In addition,
HEALTHSOUTH has added diagnostic imaging services, occupational medicine
services and other outpatient services which provide natural enhancements to its
rehabilitative healthcare locations and facilitate the implementation of its
Integrated Service Model. HEALTHSOUTH believes that these additional businesses
also provide opportunities for growth in other areas not directly related to the
rehabilitative business, and HEALTHSOUTH intends to pursue further expansion in
those businesses.
Outpatient Rehabilitation Services
HEALTHSOUTH operates the largest group of affiliated proprietary outpatient
rehabilitation facilities in the United States. HEALTHSOUTH's outpatient
rehabilitation centers offer a comprehensive range of rehabilitative healthcare
services, including physical therapy and occupational therapy, that are tailored
to the individual patient's needs, focusing predominantly on orthopaedic
injuries, sports injuries, work injuries, hand and upper extremity injuries,
back injuries, and various neurological/neuromuscular conditions. As of March
31, 1998, HEALTHSOUTH provided outpatient rehabilitative healthcare services
through approximately 1,200 outpatient locations, including freestanding
outpatient centers and their satellites, outpatient satellites of inpatient
facilities and outpatient facilities managed under contract.
Inpatient Services
INPATIENT REHABILITATION FACILITIES. At March 31, 1998, HEALTHSOUTH
operated 133 inpatient rehabilitation facilities with 7,777 beds in the United
States, representing the largest group of affiliated proprietary inpatient
rehabilitation facilities in the nation, as well as a 71-bed rehabilitation
hospital in Australia. HEALTHSOUTH's inpatient rehabilitation facilities provide
high-quality comprehensive services to patients who require intensive
institutional rehabilitation care. In certain markets HEALTHSOUTH's
rehabilitation hospitals may provide outpatient rehabilitation services as a
complement to their inpatient services.
MEDICAL CENTERS. At March 31, 1998, HEALTHSOUTH operated four medical
centers with licensed beds in four distinct markets. These facilities provide
general and specialty medical and surgical healthcare services, emphasizing
orthopaedics, sports medicine and rehabilitation.
Surgery Centers
HEALTHSOUTH is currently the largest operator of outpatient surgery centers
in the United States. At March 31, 1998, it operated 176 freestanding surgery
centers, including five mobile lithotripsy units, in 36 states. Over 80% of
these facilities are located in markets served by HEALTHSOUTH's outpatient and
rehabilitative service facilities, enabling HEALTHSOUTH to pursue opportunities
for cross-referrals between surgery and rehabilitative facilities as well as to
centralize administrative functions. HEALTHSOUTH's surgery centers provide the
facilities and medical support staff necessary for physicians to perform
non-emergency surgical procedures. Its typical surgery center is a freestanding
facility with three to six fully equipped operating and procedure rooms and
ancillary areas for reception, preparation, recovery and administration. Each of
HEALTHSOUTH's surgery centers is available for use only by licensed physicians,
oral surgeons and podiatrists, and the centers do not perform surgery on an
emergency basis.
43
<PAGE>
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. Most of HEALTHSOUTH'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.
Diagnostic Centers
At March 31, 1998, HEALTHSOUTH operated 113 diagnostic centers in 24 states
and the United Kingdom. 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 HEALTHSOUTH's diagnostic centers are multi-modality
centers. Because many patients at HEALTHSOUTH's rehabilitative healthcare and
outpatient surgery facilities require diagnostic procedures of the type
performed at its diagnostic centers, HEALTHSOUTH believes that its diagnostic
operations are a natural complement to its other services and enhance its
ability to market those services to patients and payors.
Occupational Medicine Services
At March 31, 1998, HEALTHSOUTH operated 108 occupational medicine centers
in 31 states. These centers provide cost-effective, outpatient primary medical
care and rehabilitation services to individuals for the treatment of
work-related medical problems.
HEALTHSOUTH's occupational medicine centers market their services to large
and small employers, workers' compensation and health insurers and managed care
organizations. The services provided at HEALTHSOUTH's occupational medicine
centers include outpatient primary medical care for work-related injuries and
illnesses, work-related physical examinations, physical therapy services and
workers' compensation medical services, as well as other services primarily
aimed at work-related injuries or illnesses. Medical services at the centers are
provided by licensed physicians who are employed by or under contract with
HEALTHSOUTH or affiliated medical practices. These centers also employ nurses,
therapists and other licensed professional staff as necessary for the services
provided. HEALTHSOUTH believes that occupational medicine primary care services
are a strategic component of its business, and that the physicians in its
occupational medicine centers can, in many cases, serve as "gatekeepers"
providing access to the other services offered by HEALTHSOUTH.
Other Patient Care Services
In certain of its markets, HEALTHSOUTH provides other patient care
services, including home healthcare, physician services and contract management
of hospital-based rehabilitative healthcare services. HEALTHSOUTH evaluates
market opportunities on a case-by-case basis in determining whether to provide
additional services of these types, which may be complementary to facility-based
services provided by HEALTHSOUTH or stand-alone businesses.
44
<PAGE>
LOCATIONS
The following table sets forth a listing of HEALTHSOUTH's patient care
services locations at March 31, 1998:
<TABLE>
<CAPTION>
OUTPATIENT INPATIENT MEDICAL
REHABILITATION REHABILITATION CENTERS SURGERY DIAGNOSTIC OTHER
STATE FACILITIES FACILITIES (BEDS)(2) (BEDS)(2) CENTERS CENTERS SERVICES
----- ---------- -------------------- --------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Alabama ...................... 26 7 (336) 1 (219) 5 6 11
Alaska ....................... 8 1 1 4
Arizona ...................... 24 4 (243) 2 1 7
Arkansas ..................... 13 5 (278) 2 5
California ................... 59 1 (60) 36 1 31
Colorado ..................... 41 1 (64) 5 8 1
Connecticut .................. 35 1 (30) 5 3
Delaware ..................... 7 1
District of Columbia ......... 1 1
Florida ...................... 83 12 (735) 1 (285) 19 7 30
Georgia ...................... 30 1 (50) 3 10 4
Hawaii ....................... 12 1
Idaho ........................ 5 1
Illinois ..................... 51 5 3 1
Indiana ...................... 19 4 (260) 5 4
Iowa ......................... 3 1
Kansas ....................... 7 4 (231) 1
Kentucky ..................... 5 2 (80) 4
Louisiana .................... 4 6 (367) 1 3 2
Maine ........................ 7 4 (155) 4
Maryland ..................... 30 2 (66) 8 8 1
Massachusetts ................ 27 14 (806) 1 2 12
Michigan ..................... 24 1 (30) 1 2
Minnesota .................... 14
Mississippi .................. 7
Missouri ..................... 51 2 (86) 10 1 9
Montana ...................... 4
Nebraska ..................... 16
Nevada ....................... 19 2 (126) 1 2
New Hampshire ................ 10 3 (99)
New Jersey ................... 73 1 (155) 1 2 1
New Mexico ................... 6 1 (61) 1 1
New York ..................... 49 1 (27) 1 1
North Carolina ............... 19 3 1
North Dakota ................. 2
Ohio ......................... 42 1 (30) 7 4
Oklahoma ..................... 17 3 (183) 1 1 1
Oregon ....................... 27 1
Pennsylvania ................. 58 15 (1,180) 9 6 6
Rhode Island ................. 3
South Carolina ............... 9 4 (235) 2 6 2
South Dakota ................. 2 4
Tennessee .................... 33 6 (362) 6 5
Texas ........................ 104 19 (1,116) 1 (96) 21 24 41
Utah ......................... 4 1 (86) 1 1 2
Vermont ...................... 1
Virginia ..................... 24 1 (40) 1 (200) 2 9
Washington ................... 85 2 1 17
West Virginia ................ 2 4 (200) 1
Wisconsin .................... 3 4
Wyoming ...................... 2
</TABLE>
- - ----------
(1) Includes freestanding outpatient centers and their satellites, outpatient
satellites of inpatient rehabilitation facilities and outpatient facilities
managed under contract.
(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.
In addition, at March 31, 1998, HEALTHSOUTH operated six diagnostic centers
in the United Kingdom and one rehabilitation hospital in Australia.
45
<PAGE>
BUSINESS OF NSC
GENERAL
NSC owns and operates freestanding ambulatory surgery centers that provide
the medical and administrative support necessary for physicians to perform
non-emergency surgical procedures. NSC also pursues opportunities to develop new
ambulatory surgery facilities with hospitals and physician groups. As of March
31, 1998, NSC operated a network of 40 surgery centers in 14 states. NSC
provides alternate-site settings for high-quality surgical care that it believes
is more cost-effective than hospital-based surgical care and that it believes is
increasingly preferred by physicians, payors and patients. NSC believes that
many physicians prefer the efficiencies of freestanding ambulatory surgery
centers because they enhance physicians' productivity by providing them with
greater scheduling flexibility, more consistent nurse staffing and faster
turnaround time between cases, allowing physicians to perform more surgeries in
a defined period of time. In addition, new technology and advances in anesthesia
and the addition of overnight recovery have significantly expanded the number
and types of surgical procedures that are being performed in ambulatory surgery
centers.
STRATEGY
NSC's objective is to establish a nationwide organization of freestanding
ambulatory surgery centers in secondary and other selected markets by acquiring
established centers and developing new centers. NSC seeks to provide a broad
range of high-quality surgical services and to collaborate with other
participants in local health care delivery systems. The key components of the
NSC's strategy are as follows: (i) Focus on secondary and other selected markets
where NSC can establish a significant local presence or play an important role
in the development of local integrated delivery systems; (ii) Acquire
established ambulatory surgery centers that are seeking affiliation with an
experienced operator having access to capital and other resources; (iii) Develop
new ambulatory surgery centers in markets where attractive acquisitions are not
available or where the opportunity exists to increase NSC's presence in its
existing markets; (iv) Develop joint ventures with hospitals and other providers
to increase patient flow through joint marketing, access to managed care
contracts and participation in a broader network of health care providers; and
(v) Expand the range of services offered to physicians and payors by offering
state-of-the-art technology, administrative conveniences, flexible pricing
alternatives and cost-effective care.
o Focus on Secondary and Other Selected Markets. NSC focuses on those markets
where, either directly or through affiliation with physicians, payors or
hospitals, it can establish a significant local presence or play an important
role in the development of local integrated delivery systems. NSC generally
views secondary markets as those metropolitan areas with fewer than 250,000
residents and one or two hospitals. NSC believes that in secondary markets
its centers can more easily achieve the scale that allows them to become a
significant local health care provider and a more attractive partner in such
delivery systems.
o Acquire Established Ambulatory Surgery Centers. The ambulatory surgery center
industry is highly fragmented and is consolidating due to the increasing
complexity of the regulatory and business aspects of health care, the growing
influence of managed care, the rising cost of technology and the need for
capital. In addition, physician operators of surgery centers are experiencing
increasing practice demands. NSC believes that a significant opportunity
exists to acquire ambulatory surgery centers that are seeking affiliation
with experienced operators having access to capital and other resources.
o Develop New Ambulatory Surgery Centers. NSC pursues new center development in
markets where attractive acquisitions are not available or where the
opportunity exists to increase NSC's presence in its existing markets. In the
future, NSC's new center development efforts will generally be undertaken in
partnership with physicians, hospitals and other local healthcare
participants, including, where the opportunity presents itself, acquisitions
of centers that are currently under development. NSC believes that such
partnerships or acquisitions minimize the time required to become an
established provider.
46
<PAGE>
o Develop Joint Ventures with Hospitals, Physicians and Other Providers. NSC
has established joint ventures, limited or general partnerships or limited
liability companies in 36 of its network of 40 centers. NSC believes that
such affiliations increase patient flow through joint marketing, access to
managed care contracts and participation in a broader network of healthcare
providers. As part of its joint venture strategy, NSC intends to manage the
surgery centers in which it and other healthcare providers have an equity
interest.
o Expand Range of Services. NSC plans to continue to increase the number and
types of surgeries performed at its centers. NSC is committed to adding
programs and services for physicians and payors by providing state-of-the-art
technology, administrative conveniences, flexible pricing alternatives and
cost-effective care. NSC is also committed to offering extended recovery
services wherever possible, enabling its centers to accommodate a wider range
of higher-acuity procedures.
OPERATION OF SURGERY CENTERS
NSC operates a network of 40 surgery centers in 14 states and is developing
three new surgery centers. NSC's surgery center network has a total of 121
operating rooms and 61 treatment rooms. NSC's surgery centers are typically
owned through limited or general partnerships in which a wholly owned subsidiary
of NSC owns a general partnership interest and is the managing general partner
of the surgery center. Local physicians and the subsidiary generally own the
limited partnership interests and, in five instances, hospitals also own limited
partnership interests. Recently, NSC has also owned surgery centers through
limited liability companies ("LLC") in which a wholly owned subsidiary of NSC
owns a portion of the LLC and is its managing member.
NSC's typical multi-specialty surgery center is a freestanding facility
with three to five fully equipped operating rooms, one or two treatment rooms
and ancillary areas for reception, pre-operative preparation, recovery and
administration. NSC's typical endoscopy center, which performs primarily
gastroenterological procedures, has two treatment rooms and ancillary areas for
reception, pre-operation preparation, recovery and administration and may also
have an operating room. NSC's surgery centers are generally located in close
proximity to physicians' offices. Each of NSC's surgery centers is available for
use only by licensed physicians who have been approved by the center's medical
credentialling committee.
NSC's multi-specialty surgery centers generally employ a staff of between
15 and 30 and its endoscopy centers generally employ a staff of between five and
fifteen, depending on the size of the facility and the volume of cases. The
staff includes a center administrator, a business manager, a clinical director,
registered nurses, operating room technicians and clerical workers. The center
administrator is responsible for general oversight of the center's operations,
including liaison with physicians and coordination of marketing efforts and
reports to a regional manager or corporate vice president. The business manager
is responsible for the center's financial records and patient billing and
collections. The clinical director is responsible for providing leadership and
coordination for the professional and support staff and ensuring efficient
scheduling and staffing for the physicians.
NSC provides services to a wide range of specialties including:
ophthalmology, orthopedic surgery, otorhinolaryngology (ear, nose and throat),
gynecology, general surgery, gastroenterology, anesthesiology, neurosurgery,
oral surgery, plastic surgery, podiatry and urology. Medicare currently approves
over 2,400 types of surgical procedures that may be performed in ambulatory
surgery centers, up from 1,500 types in 1992. Common procedures performed in the
NSC's surgery centers include knee and shoulder arthroscopy, laparoscopy, hernia
repair, tubal ligations and removal of cataracts.
Fifteen of NSC's multi-specialty surgery centers currently provide for
extended recovery stays. NSC intends to offer extended recovery services at its
multi-specialty facilities if permitted by state law. NSC's ability to develop
such recovery care facilities is dependent on state regulatory environments.
47
<PAGE>
The following table sets forth information regarding each of the centers
operated by the Company as of May 31, 1998:
<TABLE>
<CAPTION>
DATE NUMBER OF NUMBER OF EXTENDED
OPERATIONS PERCENTAGE OPERATING TREATMENT RECOVERY
LOCATION BEGAN BY NSC OWNERSHIP(1) ROOMS ROOMS SERVICE
-------- ------------ ------------ ----- ----- -------
<S> <C> <C> <C> <C> <C>
Bremerton, WA October 1991 93.0 3 1 -
Brownsville,TX November 1991 59.0 4 1
Fayetteville, NC November 1991 50.2 9 - -
Norman, OK November 1991 50.5 41 -
Greensboro, NC June 1992 100.0 11 3 -
Seattle, WA June 1992 52.5 7 - -
Provo, UT October 1992 100.0 5 - -
Elizabethtown, KY November 1992 78.5 3 1 -
Bakersfield, CA January 1993 87.0 2 1
Somerset, KY November 1993 87.5 2 1 -
Las Vegas, NV August 1994 69.2 4 3 -
Santa Monica, CA August 1994 88.9 5 3 -
Las Vegas, NV February 1995 10.0 2 1
Oxnard, CA August 1995 88.2 4 1 -
Greensboro, NC October 1995 80.3 2 -
Billings, MT January 1996 100.0 3 1
Chula Vista, CA February 1996 51.0 - 2
Ft. Worth, TX February 1996 51.0 - 2
Long Beach, CA February 1996 50.0 - 3
Newport Beach, CA February 1996 70.0 - 2
San Diego, CA February 1996 51.3 - 3
Thousand Oaks, CA February 1996 51.0 - 2
Kent, OH April 1996 83.0 2 1
Atlanta, GA May 1996 67.0 3 -
Cincinnati, OH May 1996 58.0 1 1
Houston, TX May 1996 65.8 3 1 -
Miami, FL May 1996 51.0 4 3
Sarasota, FL May 1996 54.0 1 2
Humble, TX September 1996 65.0 4 2 -
Auburn, CA November 1996 88.1 2 2
San Mateo, CA December 1996 38.5 - 2
Port St. Lucie, FL January 1997 80.0 2 1
Bakersfield, CA June 1997 80.0 2 -
South Oklahoma City, OK June 1997 60.0 4 2 -
Edmond, OK August 1997 60.0 4 1 -
Hartford, CT August 1997 100.0 2 1
Midwest City, OK November 1997 84.4 2 1
Manahawkin, NJ December 1997 49.0 2 1
Norman, OK February 1998 81.0 - 2
Lancaster, CA March 1998 78.3 4 2
Jacksonville, FL May 1998 61.7 6 3
St. Augustine, FL May 1998 55.0 3 1
</TABLE>
- - ----------
(1) Includes general partnership, limited partnership or limited liability
company units.
RECENT DEVELOPMENTS
On May 22, 1998, NSC completed the acquisitions of majority interests in
ambulatory surgery centers in each of Jacksonville, Florida and St. Augustine,
Florida, for cash.
48
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DESCRIPTION OF CAPITAL STOCK OF HEALTHSOUTH
COMMON STOCK
HEALTHSOUTH is authorized by the HEALTHSOUTH Certificate to issue up to
601,500,000 shares of capital stock, of which 600,000,000 shares are designated
Common Stock, par value $.01 per share, and 1,500,000 shares are designated
Preferred Stock, par value $.10 per share. As of June 15, 1998, there were
401,094,178 shares of HEALTHSOUTH Common Stock outstanding (including shares
reserved for issuance in connection with HEALTHSOUTH's 1995, 1996 and 1997
mergers which had not yet been claimed by holders of the stock of the acquired
companies). In addition, as of June 15, 1998, approximately (a) 15,501,707
shares of Common Stock were reserved for issuance upon conversion of HEALTHSOUTH
3.25% Convertible Subordinated Debentures due 2003, (b) 37,108,303 shares of
Common Stock were reserved for issuance under HEALTHSOUTH's Stock Option Plans,
under which options to purchase a total of 28,894,862 shares of Common Stock
were outstanding, (c) 980,542 shares were reserved for issuance pursuant to the
exercise of outstanding stock purchase warrants, and (d) 1,218,307 shares were
reserved for issuance in connection with HEALTHSOUTH's pending acquisition of
The Company Doctor, an occupational medicine provider.
Holders of HEALTHSOUTH Common Stock are entitled to participate equally in
dividends when and as declared by the Board of Directors out of funds legally
available therefor and, in the event of liquidation or distribution of assets of
HEALTHSOUTH, are entitled to share ratably in such assets remaining after
payment of liabilities. Stockholders are entitled to one vote per share. Holders
of HEALTHSOUTH Common Stock have no conversion, preemptive or other subscription
rights, and there are no redemption or sinking fund provisions with respect to
such stock. The outstanding shares of HEALTHSOUTH Common Stock are fully paid
and nonassessable.
FAIR PRICE PROVISION
The HEALTHSOUTH Certificate contains certain provisions requiring
supermajority stockholder approval to effect specified extraordinary corporate
transactions unless certain conditions are met. The HEALTHSOUTH Certificate
requires the affirmative vote of 66 2/3% of all shares of HEALTHSOUTH entitled
to vote in the election of Directors to approve a "business combination" with
any "other entity" that is the beneficial owner, directly or indirectly, of more
than 20% of the outstanding shares of HEALTHSOUTH entitled to vote in the
election of Directors. For purposes of this restriction, a "business
combination" includes: (a) the sale, exchange, lease, transfer or other
disposition by HEALTHSOUTH of all, or substantially all, of its assets or
business; (b) any merger or consolidation of HEALTHSOUTH; and (c) certain sales
of HEALTHSOUTH's Common Stock in exchange for cash, assets, securities or any
combination thereof. An "other entity" is defined to include, generally, any
corporation, person or entity, and any affiliate or associate of such
corporation, person or entity.
The foregoing supermajority vote shall not be required where, in the
business combination, (i) HEALTHSOUTH's stockholders receive consideration per
share not less than the highest per share price paid by the other entity in
acquiring any of its holdings of HEALTHSOUTH's Common Stock (subject to certain
adjustments upward) and (ii) certain other requirements, designed to prevent the
other entity from receiving disproportionate gains in connection with the
business combination, are satisfied.
The provisions of the HEALTHSOUTH Certificate described in the preceding
paragraphs, and its Bylaws, may be amended or repealed only by the affirmative
vote of 66 2/3% of the shares entitled to vote thereon.
The effect of the foregoing provisions is to make it more difficult for a
person, entity or group to effect a change in control of HEALTHSOUTH through the
acquisition of a large block of HEALTHSOUTH's voting stock, or to effect a
merger or other acquisition that is not approved by a majority of HEALTHSOUTH's
Directors serving in office prior to the acquisition by the other entity of 5%
or more of HEALTHSOUTH's stock.
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<PAGE>
SECTION 203 OF THE DGCL
HEALTHSOUTH is subject to the provisions of Section 203 of the DGCL. That
section provides, with certain exceptions, that a Delaware corporation may not
engage in any of a broad range of business combinations with a person or
affiliate or associate of such person who is an "interested stockholder" for a
period of three years from the date that such person became an interested
stockholder unless: (i) the transaction resulting in a person's becoming an
interested stockholder, or the business combination, is approved by the board of
directors of the corporation before the person becomes an interested
stockholder; (ii) the interested stockholder acquires 85% or more of the
outstanding voting stock of the corporation in the same transaction that makes
it an interested stockholder (excluding shares held by directors, officers and
certain employee stock ownership plans); or (iii) on or after the date the
person becomes an interested stockholder, the business combination is approved
by the corporation's board of directors and by the holders of at least 66 2/3%
of the corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. An "interested
stockholder" is defined to include any person, and the affiliates and associates
of such person, that (i) is the owner of 15% or more of the outstanding voting
stock of the corporation or (ii) is an affiliate or associate of the corporation
and was the owner of 15% or more of the outstanding voting stock of the
corporation at any time within the three-year period immediately prior to the
date on which it is sought to be determined whether such person is an interested
stockholder. It is anticipated that the provisions of Section 203 of the DGCL
may encourage companies or others interested in acquiring HEALTHSOUTH to
negotiate in advance with the HEALTHSOUTH Board of Directors, since the
stockholder approval requirement would be avoided if a majority of the directors
then in office approve either the business combination or the transaction which
results in the acquiror becoming an interested stockholder.
PREFERRED STOCK
The HEALTHSOUTH Certificate authorizes the issuance of up to 1,500,000
shares of Preferred Stock, par value $.10 per share (the "HEALTHSOUTH Preferred
Stock"). The Board of Directors has the authority to issue the HEALTHSOUTH
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions, including the dividend rights, dividend rate,
conversion rights, voting rights, terms of redemption, redemption price or
prices, liquidation preferences and the number of shares constituting any series
or the designations of such series, without any further vote or action by the
stockholders. Issuance of shares of HEALTHSOUTH Preferred Stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from acquiring, a majority of the
outstanding voting stock of HEALTHSOUTH. Any such issuance could also adversely
affect the voting power of the holders of the HEALTHSOUTH Common Stock. The
Board of Directors of HEALTHSOUTH has no current intention of issuing any shares
of HEALTHSOUTH Preferred Stock.
TRANSFER AGENT
The transfer agent and registrar for the HEALTHSOUTH Common Stock is
ChaseMellon Shareholder Services, New York, New York.
50
<PAGE>
COMPARISON OF RIGHTS OF NSC
AND HEALTHSOUTH STOCKHOLDERS
Both NSC and HEALTHSOUTH are incorporated in Delaware. Holders of the NSC
Shares will continue to have their rights and obligations as stockholders of
HEALTHSOUTH after the Merger governed by Delaware law. Set forth below is a
summary comparison of the rights of a HEALTHSOUTH stockholder under the
HEALTHSOUTH Certificate and HEALTHSOUTH's Bylaws (the "HEALTHSOUTH Bylaws"), on
the one hand, and the rights of a NSC stockholder under the NSC Certificate of
Incorporation, as amended (the "NSC Certificate"), and NSC's Bylaws, as amended
(the "NSC Bylaws"), on the other hand. The information set forth below is
qualified in its entirety by reference to the HEALTHSOUTH Certificate, the
HEALTHSOUTH Bylaws, the NSC Certificate and the NSC Bylaws.
CLASSES AND SERIES OF CAPITAL STOCK
NSC. NSC is authorized by the NSC Certificate to issue up to 40,000,000
shares of capital stock, of which 20,000,000 shares are designated Common Stock,
par value $.01 per share, 10,000,000 shares are designated Non-Voting Common
Stock, par value $.01 per share, and 10,000,000 shares are designated Preferred
Stock (the "NSC Preferred Stock"), par value $.01 per share. As of May 26, 1998,
18,616,716 shares of NSC Common Stock were outstanding and 33,750 warrants to
purchase shares of NSC Common Stock were outstanding. There is currently no
Non-Voting Common Stock outstanding. The Board of Directors of NSC has the
authority to issue NSC Preferred Stock in one or more series and to fix the
rights, preferences, privileges and restrictions for each such series, without
any further vote or action by NSC stockholders. No NSC Preferred Stock has ever
been issued. The Board of Directors of NSC has no present intention of issuing
shares of NSC Preferred Stock.
HEALTHSOUTH. HEALTHSOUTH is authorized by the HEALTHSOUTH Certificate to
issue up to 601,500,000 shares of capital stock, of which 600,000,000 shares are
designated Common Stock, par value $.01 per share, and 1,500,000 shares are
designated Preferred Stock, par value $.10 per share. See "DESCRIPTION OF
CAPITAL STOCK OF HEALTHSOUTH". The Board of Directors of HEALTHSOUTH has the
authority to issue the HEALTHSOUTH Preferred Stock in one or more series and to
fix the rights, preferences, privileges and restrictions for each such series,
without any further vote or action by the stockholders. As of March 31, 1998,
there were no shares of HEALTHSOUTH Preferred Stock issued and outstanding, and
the Board of Directors of HEALTHSOUTH has no present intention of issuing shares
of HEALTHSOUTH Preferred Stock.
SIZE AND ELECTION OF THE BOARD OF DIRECTORS
NSC. The NSC Certificate provides that the NSC Board of Directors shall fix
the number of directors from time to time, except that the minimum number of
directors shall be three and the maximum number of directors shall be 15. The
NSC Certificate provides that the NSC Board of Directors shall be classified
into three classes, with staggered three-year terms. Pursuant to authority set
forth in the NSC Certificate, the NSC Board of Directors has fixed the number of
directors at six. Directors are elected by a plurality of votes cast at the
annual meeting of stockholders. The NSC Certificate and the NSC Bylaws do not
provide for cumulative voting. The NSC Board of Directors is authorized to, by
the affirmative vote of a majority of the directors then in office, fill
vacancies and newly created directorships resulting from an increase in the
number of directors.
HEALTHSOUTH. The HEALTHSOUTH Bylaws provide that the HEALTHSOUTH Board of
Directors shall consist of at least one director and that the size of the
HEALTHSOUTH Board of Directors may be fixed by the directors then in office.
Directors of HEALTHSOUTH are elected by a plurality of votes cast at the annual
meeting of stockholders. The HEALTHSOUTH Certificate and the HEALTHSOUTH Bylaws
do not provide for cumulative voting. Vacancies in HEALTHSOUTH's Board of
Directors and newly created directorships resulting from any increase in the
authorized number of directors are filled by a majority of directors then in
office.
REMOVAL OF DIRECTORS
NSC. A director of NSC may resign by giving written notice to the chairman
of the NSC Board of Directors. No acceptance of the NSC Board of Directors is
required for such resignation to be effective.
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<PAGE>
HEALTHSOUTH. The HEALTHSOUTH Bylaws provide that a director may be removed
with or without cause by the vote of the holders of a majority of the shares of
capital stock entitled to vote thereon.
OTHER VOTING RIGHTS
NSC. The NSC Common Stock is not divided into classes and is the only class
of capital stock issued and outstanding. Each share of NSC Common Stock entitles
its holder of record as of the relevant record date to one vote on each matter,
including the election of directors, submitted to a stockholder vote. The vote
of the holders of a majority of the shares of NSC Common Stock present or
represented by proxy entitled to vote is required to approve any matter at a
meeting of NSC stockholders, except that (i) the affirmative vote of the holders
of at least 80% of the voting power of all of the then outstanding shares of
voting stock, voting together as a single class, shall be required to alter,
amend, repeal, or adopt certain provisions of the NSC Certificate, (ii) the
affirmative vote of at least two-thirds of the holders of voting power of all of
the then outstanding shares of capital stock entitled to vote on all matters
submitted to stockholder vote generally is required to amend certain other
provisions of the NSC Certificate, and (iii) the affirmative vote or written
consent of the holders of at least two-thirds of the then outstanding shares of
Common Stock and Non-Voting Common Stock, voting together as a single class,
shall be required for certain matters affecting the rights of the NSC Common
Stock or the Non-Voting Common Stock.
HEALTHSOUTH. The HEALTHSOUTH Common Stock is not divided into classes, and
HEALTHSOUTH has no classes or series of capital stock issued or outstanding
other than the HEALTHSOUTH Common Stock. Each HEALTHSOUTH stockholder holding
shares of HEALTHSOUTH Common Stock entitled to be voted on any matter, including
the election of directors, shall have one vote on each such matter submitted to
vote at a meeting of stockholders for each such share of HEALTHSOUTH Common
Stock held by such stockholder as of the record date for such meeting. Except as
specifically provided otherwise by law or by the HEALTHSOUTH Certificate or the
HEALTHSOUTH Bylaws, the vote of the holders of a majority of the shares of
capital stock present or represented and entitled to vote is required for the
approval of any matter at a meeting of HEALTHSOUTH stockholders. For information
concerning provisions that, with certain exceptions, require a higher percentage
of votes to approve certain business combinations with any entity that
beneficially owns 20% or more of the outstanding shares of voting stock of
HEALTHSOUTH, see "-Business Combinations".
CONVERSION AND DISSOLUTION
NSC. The NSC Common Stock has no preemptive, subscription or redemption
rights. Certain holders of NSC Common Stock are entitled to convert their NSC
Common Stock to Non-Voting Common Stock on a one-for-one basis. The outstanding
NSC Shares are fully paid and nonassessable. The rights, preferences and
privileges of holders of NSC Common Stock may become subject to those of holders
of NSC Preferred Stock, if any is issued in the future. The NSC Certificate
authorizes the NSC Board of Directors to issue up to 10,000,000 shares of NSC
Preferred Stock, par value $.01 per share, with such voting powers,
designations, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations and restrictions as the NSC Board
may fix to the full extent permitted by law. If the NSC Board of Directors were
to designate a series of NSC Preferred Stock, such NSC Preferred Stock could be
entitled to preferential payments in the event of liquidation, dissolution or
winding up of NSC.
HEALTHSOUTH. The HEALTHSOUTH Common Stock has no preemptive, subscription,
redemption or conversion features. The outstanding shares are fully paid and
nonassessable. The rights, preferences and privileges of holders of HEALTHSOUTH
Common Stock may become subject to those of holders of HEALTHSOUTH Preferred
Stock if HEALTHSOUTH should issue HEALTHSOUTH Preferred Stock in the future. The
HEALTHSOUTH Certificate authorizes 1,500,000 shares of Preferred Stock, par
value $.10 per share, and provides that such shares of HEALTHSOUTH Preferred
Stock may have such voting powers, preferences and other special rights
(including the right to convert
52
<PAGE>
the shares of such HEALTHSOUTH Preferred Stock into shares of HEALTHSOUTH Common
Stock) as shall be designated by the HEALTHSOUTH Board of Directors. If the
HEALTHSOUTH Board of Directors were to designate such a series of HEALTHSOUTH
Preferred Stock, such HEALTHSOUTH Preferred Stock could be entitled to
preferential payments in the event of liquidation, dissolution or winding up of
HEALTHSOUTH.
BUSINESS COMBINATIONS
NSC. Certain provisions in the NSC Certificate and NSC Bylaws may have the
effect of discouraging, preventing or delaying a change in control of NSC. These
provisions include a staggered board as described under "- Size and Election of
the Board of Directors", super-majority vote for amendment of certain provisions
of the NSC Certificate and NSC Bylaws as described under "Amendment or Repeal of
the Certificate of Incorporation", and the procedure for calling a special
meeting of stockholders described under "- Special Meeting of Stockholders". In
addition, under certain circumstances, Section 203 of the Delaware General
Corporation Law makes it more difficult for a person who would be an "interested
stockholder" to effect various business combinations with a corporation for a
three-year period. The provisions of Section 203 may also have the effect of
preventing changes in control of NSC. It is possible that such provisions could
make it more difficult to accomplish transactions that stockholders otherwise
deem to be in their best interests.
HEALTHSOUTH. The HEALTHSOUTH Certificate provides that the vote of the
holders of 66 2/3% of all shares of HEALTHSOUTH entitled to vote in the election
of directors is required for the approval and adoption of a business combination
(as defined in the HEALTHSOUTH Certificate) with any entity (as defined in the
HEALTHSOUTH Certificate) if, on the record date for the determination of
stockholders entitled to vote thereon, the other entity is the beneficial owner,
directly or indirectly, of more than 20% of the outstanding shares of
HEALTHSOUTH entitled to vote in the election of directors. The voting
requirements of the "fair price" provision are not applicable to a business
combination involving a holder of 20% or more of HEALTHSOUTH's voting stock in
the business combination, if: (i) HEALTHSOUTH's stockholders receive
consideration per share not less than the highest per share price paid by the
other entity in acquiring any of its holdings of the HEALTHSOUTH Common Stock
(subject to certain upward adjustments); and (ii) certain other requirements,
designed to prevent the other entity from receiving disproportionate gains in
connection with the business combination, are satisfied. See "DESCRIPTION OF
CAPITAL STOCK OF HEALTHSOUTH - Fair Price Provision".
AMENDMENT OR REPEAL OF THE CERTIFICATE OF INCORPORATION
Under Delaware law, unless its certificate of incorporation or by-laws
otherwise provide, amendments of a corporation's certificate of incorporation
generally require the approval of the holders of a majority of the outstanding
stock entitled to vote thereon, and if such amendment would increase or decrease
the number of authorized shares of any class or series or the par value of such
shares or would adversely affect the shares of such class or series, the
approval of a majority of the outstanding stock of such class or series.
NSC. Super-majority vote is required for certain amendments to the NSC
Certificate. The affirmative vote of at least two-thirds of the holders of
voting power of all of the then outstanding shares of capital stock entitled to
vote on all matters submitted to stockholder vote generally is required to amend
Article FIFTH of the NSC Certificate, which relates to stockholder meetings and
business that can be conducted at such meetings. In addition, affirmative vote
of the holders of at least 80% of the voting power of all of the then
outstanding shares of voting stock, voting together as a single class, shall be
required to alter, amend, repeal, or adopt any provision inconsistent with
Article EIGHT of the NSC Certificate, which relates to the size, nomination,
election and certain authority of the NSC Board of Directors.
The NSC Certificate provides that a majority of the NSC Board of Directors
may make, alter or repeal the NSC By-laws. The NSC By-laws provide that such
By-laws may also be altered, amended or repealed by the NSC stockholders.
53
<PAGE>
HEALTHSOUTH. The HEALTHSOUTH Certificate requires approval by holders of at
least 66 2/3% of the outstanding shares entitled to vote thereon to repeal or
amend Article SIXTH of the HEALTHSOUTH Certificate (regarding the calling of
special meetings by the stockholders), Article SEVENTH of the HEALTHSOUTH
Certificate (regarding the "fair price" provision) and Article EIGHTH of the
HEALTHSOUTH Certificate (regarding the amendment of the HEALTHSOUTH
Certificate). The HEALTHSOUTH Certificate also provides that a majority of the
HEALTHSOUTH Board of Directors may make, alter or repeal the HEALTHSOUTH Bylaws.
SPECIAL MEETING OF STOCKHOLDERS
NSC. The NSC Certificate provides that special meetings of stockholders of
NSC may be called only by the chairman of the NSC Board of Directors pursuant to
a resolution adopted by the affirmative vote of a majority of the entire Board
of Directors.
HEALTHSOUTH. The HEALTHSOUTH Bylaws provide that a special meeting of the
HEALTHSOUTH stockholders may be called by a majority of the Board of Directors
or by the holders of at least 20% of the outstanding shares of capital stock of
HEALTHSOUTH entitled to vote in the election of directors.
LIABILITY OF DIRECTORS
The DGCL permits a corporation to include a provision in its certificate of
incorporation eliminating or limiting the personal liability of a director or
officer to the corporation or its stockholders for monetary damages for breach
of the director's fiduciary duty, subject to certain limitations. Each of the
HEALTHSOUTH Certificate and the NSC Certificate includes such a provision, to
the maximum extent permitted by law.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provision shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (relating to
liability for unauthorized acquisitions or redemptions of, or dividends on,
capital stock) or (iv) for any transaction from which the director derived an
improper personal benefit. Both the HEALTHSOUTH Certificate and NSC Certificate
contain such a provision.
While these provisions provide directors with protection from awards of
monetary damages for breaches of their duty of care, they do not eliminate such
duty. Accordingly, these provisions will have no effect on the availability of
equitable remedies such as an injunction or rescission based on a director's
breach of his or her duty of care. The provisions described above apply to an
officer of the corporation only if he or she is a director of the corporation
and is acting in his or her capacity as director, and do not apply to officers
of the corporation who are not directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The DGCL permits a corporation to indemnify officers, directors, employees
and agents for actions taken in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interests of the corporation and,
with respect to any criminal action, which they had no reasonable cause to
believe was unlawful. The DGCL provides that a corporation may advance expenses
of defense (upon receipt of a written undertaking to reimburse the corporation
if indemnification is not appropriate) and must reimburse a successful defendant
for expenses, including attorneys' fees, actually and reasonably incurred, and
permits a corporation to purchase and maintain liability insurance for its
directors and officers. The DGCL provides that indemnification may not be made
for any claim, issue or matter as to which a person has been adjudged by a court
of competent jurisdiction, after exhaustion of all appeals therefrom, to be
liable to the corporation, unless and only to the extent a court determines that
the person is entitled to indemnity for such expenses as the court deems proper.
54
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The HEALTHSOUTH Bylaws provide that each person who is involved in any
actual or threatened action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is or was
a director, officer, employee or agent of HEALTHSOUTH, or is or was serving at
the request of HEALTHSOUTH as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan, will be indemnified
by HEALTHSOUTH to the full extent permitted by the DGCL, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits HEALTHSOUTH to provide broader
indemnification rights than said law permitted prior to such amendment) or by
other applicable laws then in effect.
The NSC Bylaws provide that officers, directors, employees and agents of
NSC will be indemnified to the maximum extent permitted by the DGCL.
The Plan provides that all rights to indemnification for acts or omissions
occurring prior to the Effective Time of the Merger existing in favor of the
current or former directors or officers of NSC as provided in the NSC
Certificate or the NSC Bylaws shall survive the Merger and shall continue in
full force and effect in accordance with their terms.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling HEALTHSOUTH or
NSC pursuant to the foregoing provisions, HEALTHSOUTH and NSC have been informed
that in the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
OPERATIONS AND MANAGEMENT OF HEALTHSOUTH AND NSC AFTER THE MERGER
OPERATIONS
After the consummation of the Merger, NSC will be a wholly-owned subsidiary
of HEALTHSOUTH, and all of NSC's subsidiaries will be indirect wholly-owned
subsidiaries of HEALTHSOUTH. HEALTHSOUTH will continue to engage in the business
of providing outpatient surgery and rehabilitative healthcare services as prior
to the Merger, working with the management of NSC to operate and, as
appropriate, continue to expand NSC's business in ways complementary to the
overall strategy of the combined Companies. See the information set forth herein
and in the documents incorporated herein by reference as set forth under
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE", "BUSINESS OF HEALTHSOUTH"
and "BUSINESS OF NSC".
MANAGEMENT
After the consummation of the Merger, HEALTHSOUTH will be managed by the
same Board of Directors and executive officers as existed prior to the Merger.
EXPERTS
The consolidated financial statements and schedule of HEALTHSOUTH at
December 31, 1997 and 1996, and for each of the three years in the period ended
December 31, 1997, appearing in HEALTHSOUTH's Annual Report on Form 10-K for the
year ended December 31, 1997 have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon incorporated herein by reference.
Such consolidated financial statements and schedule have been incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
The consolidated financial statements of National Surgery Centers, Inc.
incorporated by reference in National Surgery Center, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1997, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon
incorporated by reference therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
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LEGAL MATTERS
The validity of the shares of HEALTHSOUTH Common Stock to be issued to the
stockholders of NSC pursuant to the Merger will be passed upon by Haskell
Slaughter & Young, L.L.C.
ADDITIONAL INFORMATION
The Board of Directors of NSC does not know of any matter to be brought
before its Special Meeting other than as described in the Notice of Special
Meeting accompanying this Prospectus-Proxy Statement. If any other matter comes
before the Special Meeting, it is the intention of the persons named in the
accompanying proxy to vote the proxy in accordance with their best judgment with
respect to such other matter.
If the Merger is not consummated because the Plan is not approved by the
NSC stockholders at the Special Meeting or any adjournments or postponements
thereof or for any other reason, NSC intends to hold its next Annual Meeting of
Stockholders on or about September 30, 1998. Any stockholder of NSC who desires
to submit a proposal for inclusion in the proxy material for presentation at
such annual meeting must submit such proposal to the Secretary of NSC on or
before .
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ANNEX A
PLAN AND AGREEMENT OF MERGER
PLAN AND AGREEMENT OF MERGER (the "Plan of Merger"), made and entered into
as of the 5th day of May, 1998, by and among HEALTHSOUTH CORPORATION, a Delaware
corporation ("HEALTHSOUTH"), FIELD ACQUISITION CORPORATION, a Delaware
corporation (the "Subsidiary"), and NATIONAL SURGERY CENTERS, INC., a Delaware
corporation ("NSC") (the Subsidiary and NSC 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 NSC have approved the merger of the Subsidiary with and into NSC (the
"Merger"), upon the terms and conditions set forth in this Plan of Merger,
whereby all shares of Common Stock, par value $.01 per share, of NSC (the "NSC
Common Stock"), not owned directly or indirectly by NSC, will be converted into
the right to receive the Merger Consideration (as hereinafter defined);
WHEREAS, each of HEALTHSOUTH, the Subsidiary and NSC desires to make
certain representations, warranties, covenants and agreements in connection with
the Merger and also to prescribe various conditions to the Merger;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization under the provisions of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a "pooling of interests".
NOW, THEREFORE, in consideration of the premises, and the mutual covenants
and agreements contained herein, the parties hereto do hereby agree as follows:
Section 1. THE MERGER.
1.1 The Merger. Upon the terms and conditions set forth in this Plan of
Merger, and in accordance with the Delaware General Corporation Law (the
"DGCL"), the Subsidiary shall be merged with and into NSC at the Effective Time
(as defined in Section 1.3). Following the Effective Time, the separate
corporate existence of the Subsidiary shall cease and NSC shall continue as the
surviving corporation (the "Surviving Corporation") under the name "NSC, Inc."
and shall succeed to and assume all the rights and obligations of the Subsidiary
and NSC in accordance with the DGCL.
1.2 The Closing. The closing of the Merger (the "Closing") will take place
at 10:00 a.m. Central Time on a date to be specified by the parties (the
"Closing Date"), which (subject to satisfaction or waiver of the conditions set
forth in Sections 9.2 and 9.3) shall be no later than the second business day
after satisfaction or waiver of the conditions set forth in Section 9.1 (other
than Section 9.1(a), which shall be satisfied at the Closing Date), at the
offices of Haskell Slaughter & Young, L.L.C., Birmingham, Alabama, unless
another date or place is agreed to in writing by the parties hereto.
1.3 Effective Time. Subject to the provisions of this Plan of Merger, the
parties shall file a certificate of merger (the "Certificate of Merger")
executed in accordance with the relevant provisions of the DGCL and shall make
all other filings or recordings required under the DGCL as soon as practicable
on or after the Closing Date. The Merger shall become effective at such time as
the Certificate of Merger is duly filed with the Delaware Secretary of State, or
at such other time as the Subsidiary and NSC shall agree should be specified in
the Certificate of Merger (the "Effective Time").
1.4 Effect of the Merger. The Merger shall have the effects set forth in
Section 259 of the DGCL.
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Section 2. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES.
2.1 Effect on Capital Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of any holder of shares of NSC 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 NSC Common Stock that is
owned by NSC or by any subsidiary of NSC shall automatically be canceled and
retired and shall cease to exist, and none of the Common Stock, par value $.01
per share, of HEALTHSOUTH ("HEALTHSOUTH Common Stock"), cash or other
consideration shall be delivered in exchange therefor.
(c) Conversion of NSC Shares. Subject to Section 2.2(e), each issued and
outstanding share of NSC Common Stock (other than shares to be canceled in
accordance with Section 2.1(b)) (collectively, the "Exchanging NSC Shares")
shall be converted into the right to receive that fraction of a share of
HEALTHSOUTH Common Stock determined by dividing $30.50 by the Base Period
Trading Price (as defined below), as may be adjusted as provided below, computed
to four decimal places (the "Exchange Ratio"); provided, however, that if the
Base Period Trading Price shall be greater than $35.00, the Exchange Ratio shall
be .8714; and provided further, however, that if the Base Period Trading Price
shall be less than $26.50, the Exchange Ratio shall be 1.1509. The number of
shares of HEALTHSOUTH Common Stock issuable with respect to each Exchanging NSC
Share, as determined as set forth herein, is herein called the "Merger
Consideration". For purposes of this Plan of Merger, the term "Base Period
Trading Price" shall mean the average of the daily closing prices per share for
the shares of HEALTHSOUTH Common Stock for the 20 consecutive trading days on
which such shares are actually traded (as reported on the New York Stock
Exchange Composite Transactions Tape as reported in The Wall Street Journal,
Eastern Edition, or if not reported thereby, any other authoritative source)
ending at the close of trading on the second New York Stock Exchange trading day
immediately preceding the day of the Special Meeting (as defined in Section 7.3)
(such period being herein called the "Base Period"). Promptly after the close of
trading on such day, the parties shall issue joint press release publicly
announcing the Exchange Ratio. As of the Effective Time, all such Exchanging NSC
Shares shall no longer be outstanding and shall automatically be canceled and
retired and shall cease to exist, and each holder of a certificate representing
any Exchanging NSC Shares shall cease to have any rights with respect thereto,
except the right to receive the Merger Consideration and any cash in lieu of
fractional shares of HEALTHSOUTH Common Stock to be issued or paid in
consideration therefor upon surrender of such certificate in accordance with
Section 2.2, without interest.
(d) Stock Options, Warrants and Convertible Securities. At the Effective
Time, all rights with respect to NSC Common Stock pursuant to any NSC stock
options, stock purchase warrants and convertible securities which are
outstanding at the Effective Time, whether or not then exercisable, shall be
converted into and become rights with respect to HEALTHSOUTH Common Stock, and
HEALTHSOUTH shall assume each NSC stock option, stock purchase warrant or
convertible securities, in accordance with the terms of any stock option plan
under which it was issued and any stock option agreement, warrant agreement,
indenture or other instrument 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 NSC 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 NSC shares subject thereto multiplied by the Exchange Ratio, and shall
have an exercise price or conversion price per share equal to the NSC exercise
price or conversion price divided by the Exchange Ratio.
(e) Anti-Dilution Provisions. If after the date hereof and prior to the
Effective Time HEALTHSOUTH shall have declared a stock split (including a
reverse split) of HEALTHSOUTH Common Stock or a dividend payable in HEALTHSOUTH
Common Stock, or any other distribution of securities
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or dividend (in cash or otherwise) to holders of HEALTHSOUTH Common Stock with
respect to their HEALTHSOUTH Common Stock (including without limitation such a
distribution or dividend made in connection with a recapitalization,
reclassification, merger, consolidation, reorganization or similar transaction)
then (i) the amounts $30.50, $35.00 and $26.50 referred to in Section 2.1(c),
and the Exchange Ratio, shall be appropriately adjusted to reflect such stock
split or dividend or other distribution of securities and (ii) if such stock
split, dividend or distribution has a record date prior to the Effective Time,
then the number of shares of HEALTHSOUTH Common Stock to be issued upon
conversion of a share of NSC 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 HEALTHSOUTH shall deposit with the Exchange Agent as of the Effective Time,
for the benefit of the holders of Exchanging NSC Shares, for exchange in
accordance with this Section 2, through the Exchange Agent, certificates
representing the shares of HEALTHSOUTH Common Stock (such shares of HEALTHSOUTH
Common Stock, together with any dividends or distributions with respect thereto
with a record date after the Effective Time, being hereinafter referred to as
the "Exchange Fund") issuable pursuant to Section 2.1 in exchange for
outstanding shares of NSC Common Stock.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Surviving Corporation shall cause the Exchange Agent to mail
to each holder of record of a certificate or certificates which immediately
prior to the Effective Time represented outstanding shares of NSC Common Stock
(the "Certificates") whose shares were converted into the right to receive the
Merger Consideration pursuant to Section 2.1, (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in such form and have such other provisions as HEALTHSOUTH
may reasonably specify) and (ii) instructions for use in effecting the surrender
of the Certificates in exchange for certificates representing shares of
HEALTHSOUTH Common Stock. Upon surrender of a Certificate for cancellation to
the Exchange Agent or to such other agent or agents as may be appointed by
HEALTHSOUTH, together with such letter of transmittal, duly executed, and such
other documents as may reasonably be required by the Exchange Agent, the holder
of such Certificate shall be entitled to receive in exchange therefor a
certificate representing that number of whole shares of HEALTHSOUTH Common Stock
which such holder has the right to receive pursuant to the provisions of this
Section 2, and the Certificate so surrendered shall forthwith be canceled. In
the event of a transfer of ownership of shares of NSC Common Stock which is not
registered in the transfer records of NSC, 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 issuance shall pay any transfer or other
taxes required by reason of the issuance of shares of HEALTHSOUTH Common Stock
to a person other than the registered holder of such Certificate or establish to
the satisfaction of HEALTHSOUTH that such tax has been paid or is not
applicable. Until surrendered as contemplated by this Section 2.2, each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the certificate representing
shares of HEALTHSOUTH Common Stock and cash in lieu of any fractional shares of
HEALTHSOUTH Common Stock as contemplated by this Section 2.2. No interest will
be paid or will accrue on any cash payable in lieu of any fractional shares of
HEALTHSOUTH Common Stock. To the extent permitted by law, former stockholders of
record of NSC shall be entitled to vote after the Effective Time at any meeting
of HEALTHSOUTH stockholders the number of whole shares of HEALTHSOUTH Common
Stock into which their respective shares of NSC Common Stock are converted,
regardless of whether such holders have exchanged their Certificates for
certificates representing HEALTHSOUTH Common Stock in accordance with this
Section 2.2.
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions with respect to HEALTHSOUTH Common Stock with a record date after
the Effective Time of the Merger shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of
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HEALTHSOUTH Common Stock represented thereby and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to Section 2.2(e)
until the surrender of such Certificate in accordance with this Section 2.
Subject to the effect of applicable laws, following surrender of any such
Certificate, there shall be paid to the holder of the certificate representing
whole shares of HEALTHSOUTH Common Stock issued in exchange therefor, without
interest, (i) at the time of such surrender, the amount of any cash payable in
lieu of a fractional share of HEALTHSOUTH Common Stock to which such holder is
entitled pursuant to Section 2.2(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 NSC Shares. All shares of
HEALTHSOUTH Common Stock issued upon the surrender for exchange of Certificates
in accordance with the terms of this Section 2 (including any cash paid pursuant
to Section 2.2(c) or 2.2(e)) shall be deemed to have been issued (and paid) in
full satisfaction of all rights pertaining to the Exchanging NSC Shares
theretofore represented by such Certificates. If, after the Effective Time,
Certificates are presented to the Surviving Corporation or the Exchange Agent
for any reason, they shall be canceled and exchanged as provided in this Section
2, except as otherwise provided by law.
(e) No Fractional Shares. No certificates or scrip representing fractional
shares of 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 NSC Shares exchanged pursuant to the Merger who would otherwise have
been entitled to receive a fraction of a share of HEALTHSOUTH Common Stock
(after taking into account all Certificates delivered by such holder) shall
receive, in lieu thereof, cash (without interest) in an amount equal to such
fractional part of a share of HEALTHSOUTH Common Stock multiplied by the closing
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.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of the Certificates 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, NSC or the Exchange
Agent shall be liable to any person in respect of any shares of HEALTHSOUTH
Common Stock (or dividends or distributions with respect thereto) or cash from
the Exchange Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. If any Certificates shall not have
been surrendered prior to seven years after the Effective Time (or immediately
prior to such earlier date on which any shares of HEALTHSOUTH Common Stock, any
cash in lieu of fractional shares of HEALTHSOUTH Common Stock or any dividends
or distributions with respect to HEALTHSOUTH Common Stock in respect of such
Certificates would otherwise escheat to or become the property of any
governmental entity), any such shares, cash, dividends or distributions in
respect of such Certificates shall, to the extent permitted by applicable law,
become the property of the Surviving Corporation, free and clear of all claims
or interest of any person previously entitled thereto.
(h) Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund in deposit accounts or short-term money market
instruments, as directed by HEALTHSOUTH, on a daily basis. Any interest and
other income resulting from such investments shall be paid to HEALTHSOUTH.
2.3 Certificate of Incorporation of Surviving Corporation. The Certificate
of Incorporation of NSC shall be amended and restated, effective at the
Effective Time, in a manner satisfactory to
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HEALTHSOUTH. The Certificate of Incorporation of NSC, 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 NSC and the said Bylaws.
2.5 Directors and Officers of the Surviving Corporation. The Directors and
officers of the Subsidiary immediately prior to the Effective Time shall be the
Directors and officers of the Surviving Corporation, each to hold office in
accordance with the Certificate of Incorporation and Bylaws of the Surviving
Corporation.
2.6 Assets, Liabilities, Reserves and Accounts. At the Effective Time, the
assets, liabilities, reserves and accounts of each of the Subsidiary and NSC
shall be taken up on the books of the Surviving Corporation at the amounts at
which they respectively shall be carried on the books of said corporations
immediately prior to the Effective Time, except as otherwise set forth in this
Plan of Merger and subject to such adjustments, or elimination of intercompany
items, as may be appropriate in giving effect to the Merger in accordance with
generally accepted accounting principles.
2.7 Corporate Acts of the Subsidiary. All corporate acts, plans, policies,
approvals and authorizations of the Subsidiary, its sole stockholder, its Board
of Directors, committees elected or appointed by the Board of Directors, and all
officers and agents, valid immediately prior to the Effective Time, shall be
those of the Surviving Corporation and shall be as effective and binding thereon
as they were with respect to the Subsidiary. The employees and agents of the
Subsidiary shall become the employees and agents of the Surviving Corporation
and continue to be entitled to the same rights and benefits which they enjoyed
as employees and agents of the Subsidiary.
Section 3. REPRESENTATIONS AND WARRANTIES OF NSC.
NSC hereby represents and warrants to HEALTHSOUTH and the Subsidiary as
follows:
3.1 Organization, Existence and Good Standing. NSC is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. NSC has all necessary corporate power to own its properties and assets
and to carry on its business as presently conducted. NSC is not, and has not
been within the two years immediately preceding the date of this Plan of Merger,
a subsidiary or division of another corporation, nor has NSC within such time
owned, directly or indirectly, any shares of HEALTHSOUTH Common Stock or
Subsidiary Common Stock.
3.2 NSC Capital Stock. NSC's authorized capital consists of 40,000,000
shares of NSC Common Stock, of which 18,572,111 shares were issued and
outstanding as of April 3, 1998, and no shares of which were issued and held as
treasury shares, 10,000,000 shares of Non-Voting Common Stock, par value $.01
per share, none of which shares are issued and outstanding or held as treasury
stock, and 10,000,000 shares of Preferred Stock, par value $.01 per share, none
of which shares are issued and outstanding or held as treasury stock. All of the
issued and outstanding shares of NSC 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 NSC to HEALTHSOUTH simultaneously with the
execution and delivery hereof (the "Disclosure Schedule") or otherwise disclosed
in the NSC Annual Report on Form 10-K for the fiscal year ended December 31,
1997 (the "NSC 10-K"), there are no options, warrants, convertible securities or
similar rights granted by NSC or any other agreements to which NSC 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 NSC Common Stock. NSC has not made any distributions to any holders of NSC
Common Stock or participated in or effected any issuance, exchange or retirement
of shares of NSC Common Stock, or otherwise changed the equity interests of
holders of NSC Common Stock, in contemplation of effecting the Merger within the
two years immediately preceding the date of this Plan of Merger. Any shares of
NSC Common Stock that NSC has re-acquired during the two years immediately
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preceding the date of this Plan of Merger have been so re-acquired only for
purposes other than "business combinations", as such term is defined in
Accounting Principles Board Opinion No. 16, as amended ("Business
Combinations").
3.3 Subsidiaries and Affiliated Partnerships. (a) Attached to the
Disclosure Schedule as Exhibit 3.3 is a list of all corporate subsidiaries of
NSC (individually, a "NSC Subsidiary", and collectively, the "NSC Subsidiaries")
and their states of incorporation. Except as set forth on Exhibit 3.3, NSC does
not own stock in and does not control, directly or indirectly, any other
corporation, association or business organization other than the NSC Other
Entities (as defined below).
(b) Also disclosed on Exhibit 3.3 is a list of all general or limited
partnerships in which a general partner is NSC, a NSC Subsidiary or another NSC
Partnership (individually, a "NSC Partnership" and collectively, the "NSC
Partnerships"), and all limited liability companies in which NSC, a NSC
Subsidiary or a NSC Partnership is a member (individually, a "NSC LLC" and
collectively, the "NSC LLCs") (the NSC Partnerships and the NSC LLCs being
collectively called the "NSC Other Entities"), and their states of organization.
Except as set forth on Exhibit 3.3, neither NSC nor any NSC 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 NSC Subsidiaries and NSC
Other Entities. (a) Each NSC Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of its respective state of
incorporation, except where the failure to be in good standing would not have a
material adverse effect on NSC. Each NSC Subsidiary has all necessary corporate
power to own its properties and assets and to carry on its business as presently
conducted.
(b) Each NSC Partnership that is a limited partnership is validly formed,
each NSC Partnership that is a general partnership has been duly organized, and
each NSC Partnership is in good standing under the laws of its respective state
of organization, except where the failure to be in good standing would not have
a material adverse effect on NSC. Each NSC Partnership has all necessary power
to own its property and assets and to carry on its business as presently
conducted.
(c) Each NSC LLC is a limited liability company validly formed and in good
standing under the laws of its respective state of organization, except where
the failure to be in good standing would not have a material adverse effect on
NSC. Each NSC LLC has all necessary power to own its property and assets to
carry on its business as presently conducted.
3.5 Foreign Qualifications. NSC, each NSC Subsidiary and each NSC Other
Entity that is not a general partnership is qualified to do business as a
foreign corporation, foreign limited partnership or foreign limited liability
company, as the case may be, and is in good standing in each jurisdiction where
the nature or character of the property owned, leased or operated by it or the
nature of the business transacted by it makes such qualification necessary,
except where the failure to so qualify or be in good standing would not have a
material adverse effect on NSC.
3.6 Power and Authority. Subject to the satisfaction of the conditions
precedent set forth herein, NSC 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. Except as set forth on Exhibit 3.6 to the
Disclosure Schedule, 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 the Certificate of Incorporation of
NSC or any provisions of, or result in the acceleration of any obligation under,
any material mortgage, lien, lease, agreement, instrument, order, arbitration
award, judgment or decree, to which NSC or any NSC Subsidiary or NSC 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 NSC. The execution and delivery of this Plan of
Merger has been approved
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by the Board of Directors of NSC. This Plan of Merger has been duly executed and
delivered by NSC and, assuming this Plan of Merger constitutes a valid and
binding obligation of HEALTHSOUTH and the Subsidiary, as the case may be,
constitutes a valid and binding obligation of NSC, enforceable against NSC in
accordance with its terms.
3.7 NSC Public Information. NSC 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 "NSC Documents") since January 1, 1998, which
are all the documents (other than preliminary material) that it was required to
file with the SEC from such date through the date of this Plan of Merger. As of
their respective dates, the NSC 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 NSC
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 NSC 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 NSC
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 NSC at said dates and the consolidated results of operations and
cash flows of NSC for the periods then ended. The consolidated balance sheet of
NSC at December 31, 1997 included in the NSC Documents is herein sometimes
referred to as the "NSC Balance Sheet".
3.8 Legal Proceedings. Except as disclosed in the NSC Documents or on
Exhibit 3.9 to the Disclosure Schedule, so far as is known to NSC there is no
litigation, governmental investigation or other proceeding pending or threatened
against or relating to NSC, its properties or business, or the transaction
contemplated by this Plan of Merger other than litigation, governmental
investigations or other proceedings which would not individually or in the
aggregate, have a material adverse effect on NSC, and, so far as is known to
NSC, no basis for any such action exists which action would, individually or in
the aggregate, have a material adverse effect on NSC.
3.9 Contracts, etc. (a) All material contracts, leases, agreements and
arrangements to which NSC or any of the NSC Subsidiaries or NSC Other Entities
is a party are legally valid and binding in accordance with their terms and in
full force and effect (assuming such contracts, leases and arrangements are
enforceable against the other parties to such contracts, leases, agreements and
arrangements), and to the knowledge of NSC, no party is in default thereunder,
and no event has occurred which, but for the passage of time or the giving of
notice or both, would constitute a default thereunder, except, in each case,
where the invalidity of the lease, contract, agreement or arrangement or the
default or breach thereunder or thereof would not, individually or in the
aggregate, have a material adverse effect on NSC.
(b) Except as set forth on Exhibit 3.9(b) to the Disclosure Schedule, no
contract or agreement to which NSC or any NSC Subsidiary or NSC Other Entity is
a party will, by its terms, terminate as a result of the transactions
contemplated hereby or require any consent from any obligor thereto in order to
remain in full force and effect immediately after the Effective Time, except for
contracts or agreements which, if terminated, would not have a material adverse
effect on NSC.
(c) Except as set forth on Exhibit 3.9(c) to the Disclosure Schedule, none
of NSC, any NSC Subsidiary or any NSC 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 its ability to engage in any business
in any location.
3.10 Subsequent Events. Except as set forth on Exhibit 3.10 to the
Disclosure Schedule or disclosed in the NSC Documents, NSC has not, since the
date of the NSC 10-K:
(a) Incurred any material adverse change.
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(b) Discharged or satisfied any material lien or encumbrance, or paid or
satisfied any material obligation or liability (absolute, accrued,
contingent or otherwise) other than (i) liabilities shown or reflected on
the NSC Balance Sheet or (ii) liabilities incurred since the date of the
last-filed NSC Document in the ordinary course of business, which discharge
or satisfaction would have a material adverse effect on NSC.
(c) Increased or established any reserve for taxes or any other liability
on its books or otherwise provided therefor which would have a material
adverse effect on NSC, except as may have been required due to consolidated
income or operations of NSC since the date of the NSC 10-K.
(d) Mortgaged, pledged or subjected to any lien, charge or other
encumbrance any of the assets, tangible or intangible, which assets are
material to the consolidated business or financial condition of NSC.
(e) Sold or transferred any of the assets material to the consolidated
business of NSC, canceled any material debts or claims or waived any
material rights, except in the ordinary course of business.
(f) Granted any general or uniform increase in the rates of pay of
employees or any material increase in salary payable or to become payable by
NSC to any officer or employee, consultant or agent (other than normal merit
increases), or by means of any bonus or pension plan, contract or other
commitment, increased in a material respect the compensation of any officer,
employee, consultant or agent.
(g) Except for this Plan of Merger and any other agreement executed and
delivered pursuant to this Plan of Merger, entered into any material
transaction other than in the ordinary course of business or permitted under
other Sections hereof.
(h) Issued any stock, bonds or other securities, other than stock options
granted to employees, directors or consultants of NSC or warrants granted to
third parties, all of which are disclosed on Exhibit 3.2 to the Disclosure
Schedule or reflected in the NSC Documents.
3.11 Accounts Receivable. (a) Since the date of the NSC 10-K, NSC 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. NSC (including the NSC
Subsidiaries and NSC 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 NSC.
(b) Without limiting the generality of the foregoing, each of NSC and the
NSC Subsidiaries and the NSC 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 NSC.
3.12 Tax Returns. NSC 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 NSC. NSC has
made all payments shown as due on such returns, except to the extent that the
failure to make such payments would not have material adverse effect on NSC.
Except as set forth on Exhibit 3.12 to the Disclosure Schedule, NSC has not been
notified that any tax returns of NSC are currently under audit by the Internal
Revenue Service or any state or local tax agency, except for local tax audits
that in the aggregate are not material. No agreements have been made by NSC 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.
3.13 Commissions and Fees. Except as set forth in Exhibit 3.13 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 NSC or its stockholders, officers or
Directors, or any of them.
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3.14 Employee Benefit Plans; Employment Matters. (a) Except as described in
the NSC Documents or set forth on Exhibit 3.14(a) to the Disclosure Schedule,
NSC has neither established nor maintains nor is obligated to make contributions
to or under or otherwise participate in (a) any bonus or other type of incentive
compensation plan, program, agreement, policy, commitment, contract or
arrangement (whether or not set forth in a written document), (b) any pension,
profit-sharing, retirement or other plan, program or arrangement, or (c) any
other employee benefit plan, fund or program, including, but not limited to,
those described in Section 3(3) of ERISA. All such plans (individually, a "Plan"
and collectively, the "Plans") have been operated and administered in all
material respects in accordance with, as applicable, ERISA, the Internal Revenue
Code of 1986, as amended, Title VII of the Civil Rights Act of 1964, as amended,
the Equal Pay Act of 1967, as amended, the Age Discrimination in Employment Act
of 1967, as amended, and the related rules and regulations adopted by those
federal agencies responsible for the administration of such laws. No act or
failure to act by NSC has resulted in a "prohibited transaction" (as defined in
ERISA) with respect to the Plans that is not subject to a statutory or
regulatory exception. No "reportable event" (as defined in ERISA) has occurred
with respect to any of the Plans which is subject to Title IV of ERISA. NSC 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 NSC Documents or set forth on Exhibit
3.14(b) to the Disclosure Schedule, NSC is not a party to any oral or written
(i) union, guild or collective bargaining agreement which agreement covers
employees in the United States (nor is it aware of any union organizing activity
currently being conducted in respect to any of its employees), (ii) agreement
with any executive officer or other key employee the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence of
a transaction of the nature contemplated by this Plan of Merger and which
provides for the payment of in excess of $50,000, or (iii) agreement or plan,
including any stock option plan, stock appreciation rights plan, restricted
stock plan or stock purchase plan, any of the benefits of which will be
increased, or the vesting of 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.
3.15 Compliance with Laws in General. Except as set forth on Exhibit 3.15
to the Disclosure Schedule or disclosed in the NSC Documents, NSC has not
received any notices of material violations of any federal, state and local
laws, regulations and ordinances relating to its business and operations,
including, without limitation, the Federal Environmental Protection Act, the
Occupational Safety and Health Act, the Americans with Disabilities Act, the
Medicare or applicable Medicaid statutes and regulations and any Environmental
Laws, and no notice of any pending inspection or violation of any such law,
regulation or ordinance has been received by NSC which, if it were determined
that a violation had occurred, would have a material effect on NSC.
3.16 Licenses, Accreditation and Regulatory Approvals. Except as disclosed
in the NSC Documents or set forth on Exhibit 3.16 to the Disclosure Schedule,
NSC and the NSC Subsidiaries and NSC Other Entities hold all licenses, permits,
certificates of need and other regulatory approvals which are needed or required
by law with respect to their businesses, operations and facilities as they are
currently or presently conducted (collectively, the "Licenses"), except where
the failure to possess such Licenses does not have a material adverse effect on
NSC. All such Licenses are in full force and effect, and NSC is in compliance
with all conditions and requirements of the Licenses and with all rules and
regulations relating thereto, except for such noncompliance as does not have a
material adverse effect on NSC. NSC, the NSC Subsidiaries and the NSC Other
Entities are, to the extent applicable to their operations, (i) eligible to
receive payment under Titles XVIII and XIX of the Social Security Act, (ii)
providers under existing provider agreements with the Medicare program through
the applicable intermediaries and (iii) in compliance with the conditions of
participation in the Medicare program except where such inability in the case of
either items (i) or (ii) or noncompliance in item (iii) does not have a material
adverse effect on NSC. Except to the extent that the failure to make or to
timely make such filings would not have a material adverse effect on NSC, NSC,
the NSC Subsidiaries and the NSC 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
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of which were, when filed, complete and correct except to the extent that such
failure to be complete and correct would not have a material adverse effect on
NSC. There are no current claims, actions or appeals pending, and neither NSC
nor the NSC Subsidiaries nor the NSC 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 in any such case
would have a material adverse effect on NSC. The amounts established as
provisions for adjustments by Medicare, Medicaid and other third-party payors on
the financial statements set forth in the last-filed NSC Document are sufficient
to pay any material amounts for which NSC believes it will be liable. To the
knowledge of NSC, neither NSC nor the NSC Subsidiaries nor the NSC Other
Entities nor their respective employees have committed a violation of the
Medicare and Medicaid fraud and abuse provisions of the Social Security Act,
which violation would have a material adverse effect on NSC. Any and all past
litigation concerning such Licenses and all claims and causes of action raised
therein, has been finally adjudicated. No such License has been revoked,
conditioned (except as may be customary) or restricted, and no action
(equitable, legal or administrative), arbitration or other process is pending,
or to the knowledge of NSC, threatened, which in any way challenges the validity
of, or seeks to revoke, condition or restrict any such License where such
invalidity, revocation, condition or restriction would have a material adverse
effect on NSC. 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 NSC or
any of the NSC Subsidiaries or NSC Other Entities, the consummation of the
Merger will not violate any law or regulation to which NSC is subject which, if
violated, would have a material adverse effect on NSC.
3.17 Retirement or Re-Acquisition of HEALTHSOUTH Common Stock. NSC is not a
party to any agreement the effect of which would be to require HEALTHSOUTH
directly or indirectly to retire or re-acquire all or part of the shares of
HEALTHSOUTH Common Stock issued pursuant to Section 2.1 hereof.
3.18 Disposition of Assets of Surviving Corporation. NSC is not a party to
any plan to dispose of a significant part of the assets of the Surviving
Corporation within two years after the Closing Date, other than dispositions in
the ordinary course of business of the Surviving Corporation and dispositions
intended to eliminate duplicate facilities or excess capacity.
3.19 Vote Required. The affirmative vote of the holders of a majority of
the outstanding shares of the NSC Common Stock entitled to vote thereon is the
only vote of the holders of any class or series of NSC capital stock necessary
to approve this Plan of Merger, the Merger and the transactions contemplated
hereby.
3.20 Opinion of Financial Advisor. The Board of Directors of NSC has
received the oral opinion of BT Alex. Brown Incorporated to the effect that, as
of the date of this Plan of Merger, the consideration to be received by the
holders of NSC Common Stock is fair to such holders from a financial point of
view, a written copy of which opinion will be delivered by NSC 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 NSC 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
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shares of NSC Common Stock. The Subsidiary has (i) not engaged directly or
indirectly in any business or activities of any type or kind whatsoever nor
entered into any agreements or arrangements with any person or entity, or become
subject to or bound by any obligation or undertaking which is not contemplated
by this Agreement and (ii) not created, granted or suffered to exist any lien
upon its properties or assets which would attach to any properties or assets of
HEALTHSOUTH or the Surviving Corporation after the Effective Time.
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 the Certificate of Incorporation or Bylaws of the Subsidiary,
or any agreement, instrument, order, judgment or decree to which the Subsidiary
is a party or by which it is bound, violate any restrictions of any kind to
which the Subsidiary is subject, or result in the creation of any lien, charge
or encumbrance upon any of the property or assets of the Subsidiary.
4.3 No Subsidiaries. The Subsidiary does not own stock in, and does not
control directly or indirectly, any other corporation, association or business
organization. The Subsidiary is not a party to any joint venture or partnership.
4.4 Legal Proceedings. There are no actions, suits or proceedings pending
or threatened against the Subsidiary, at law or in equity, relating to or
affecting the Subsidiary, including the Merger. The Subsidiary does not know or
have any reasonable grounds to know of any justification for any such action,
suit or proceeding.
4.5 No Contracts or Liabilities. Other than the obligations created under
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 NSC as follows:
5.1 Organization, Existence and Good Standing. HEALTHSOUTH is a corporation
duly organized and validly existing and is in good standing under the laws of
the State of Delaware. HEALTHSOUTH has all necessary corporate power to own its
properties and assets and to carry on its business as presently conducted.
HEALTHSOUTH is duly qualified to do business and is in good standing in all
jurisdictions in which the character of the property owned, leased or operated
or the nature of the business transacted by it makes qualification necessary.
HEALTHSOUTH is not, and has not been within the two years immediately preceding
the date of this Plan of Merger, a subsidiary or division of another
corporation, nor has HEALTHSOUTH within such time owned, directly or indirectly,
any shares of NSC Common Stock.
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 regulatory
approvals and any other required third-party consents or approvals, the
consummation of the Merger contemplated hereby will not, violate any provisions
of the Certificate of Incorporation or Bylaws of HEALTHSOUTH, or any provision
of, or result in the acceleration of any obligation under, any mortgage, lien,
lease, agreement, instrument, order, arbitration award, judgment or decree to
which HEALTHSOUTH is a party or by which it is bound, or violate any
restrictions of any kind to
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which HEALTHSOUTH is subject. The execution and delivery of this Plan of Merger
has been approved by the Board of Directors of HEALTHSOUTH. 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 NSC,
constitutes a valid and binding obligation of HEALTHSOUTH and the Subsidiary,
enforceable against HEALTHSOUTH and the Subsidiary in accordance with its terms.
No vote of the holders of any class or series of HEALTHSOUTH capital stock is
necessary to approve this Plan of Merger, the Merger and the transactions
contemplated hereby.
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 NSC 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 New York Stock Exchange, Inc.
(the "Exchange") upon official notice of issuance.
5.4 Capitalization. HEALTHSOUTH's authorized capital stock consists of
1,500,000 shares of Preferred Stock, par value $.10 per share, of which no
shares are issued and outstanding, and no shares are held in treasury, and
500,000,000 shares of Common Stock, par value $.01 per share, of which
399,952,852 shares were issued and outstanding as of March 30, 1998, and 186,000
shares are held in treasury. All of the issued and outstanding shares of
HEALTHSOUTH Common Stock have been duly and validly issued and are fully paid
and non-assessable. Except as disclosed in the HEALTHSOUTH Annual Report on Form
10-K for the fiscal year ended December 31, 1997, as amended (the "HEALTHSOUTH
10-K"), there are no options, warrants, convertible debentures or similar rights
granted by HEALTHSOUTH or any other agreements to which HEALTHSOUTH is a party
providing for the issuance or sale by it of any additional securities, other
than stock options granted in the ordinary course since such date, up to
8,579,627 shares of HEALTHSOUTH Common Stock to be issued pursuant to a Plan and
Agreement of Merger, as amended, between HEALTHSOUTH, Chandler Acquisition
Corporation and The Company Doctor, and HEALTHSOUTH's $567,750,000 principal
amount of 3.25% Convertible Subordinated Debentures due 2003. There is no
liability for dividends declared or accumulated but unpaid with respect to any
shares of HEALTHSOUTH Common Stock. HEALTHSOUTH has not made any distributions
to any holder of HEALTHSOUTH Common Stock or participated in or effected any
issuance, exchange or retirement of HEALTHSOUTH Common Stock, or otherwise
changed the equity interests of holders of HEALTHSOUTH Common Stock, in
contemplation of effecting the Merger within the two years immediately preceding
the date of this Plan of Merger. Any shares of HEALTHSOUTH Common Stock that
HEALTHSOUTH has re-acquired during the two years immediately preceding the date
of this Plan of Merger have been so re-acquired only for purposes other than
Business Combinations.
5.5 Subsidiary Common Stock. HEALTHSOUTH owns, beneficially and of record,
all of the issued and outstanding shares of Subsidiary Common Stock, which are
validly issued and outstanding, fully paid and nonassessable, free and clear of
all liens and encumbrances. HEALTHSOUTH has the corporate power to endorse and
surrender such Subsidiary Shares for cancellation pursuant to 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. HEALTHSOUTH has heretofore furnished NSC 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, 1998, which are all the documents (other than
preliminary material) that it was required to file with the SEC since such date.
As of their respective dates, the HEALTHSOUTH Documents did not contain any
untrue statements of material facts or omit to state material facts required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. As of their respective
dates, the HEALTHSOUTH Documents complied in all material respects with the
applicable requirements of the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, and the rules
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and regulations promulgated under such statutes. The financial statements
contained in the HEALTHSOUTH Documents, together with the notes thereto, have
been prepared in accordance with generally accepted accounting principles
consistently followed throughout the periods indicated (except as may be
indicated in the notes thereto, or, in the case of the unaudited financial
statements, as permitted by Form 10-Q), reflect all known liabilities of
HEALTHSOUTH required to be stated therein, including all known contingent
liabilities as of the end of each period reflected therein, and present fairly
the financial condition of HEALTHSOUTH at said dates and the consolidated
results of operations and cash flows of HEALTHSOUTH for the periods then ended.
5.7 Investment Intent. HEALTHSOUTH is acquiring the shares of NSC 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 NSC Common Stock to any other person, firm or corporation.
5.8 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, its properties or business, or the transaction contemplated by this
Plan of Merger and, so far as is known to HEALTHSOUTH, no basis for any such
action exists.
5.9 Compliance with Laws in General. Except as disclosed in the HEALTHSOUTH
Documents, HEALTHSOUTH has not received any notices of material violations of
any federal, state and local laws, regulations and ordinances relating to its
business and operations, including, without limitation, the Federal
Environmental Protection Act, the Occupational Safety and Health Act, the
Americans with Disabilities Act, the Medicare or applicable Medicaid statutes
and regulations and any Environmental Laws, and no notice of any pending
inspection or violation of any such law, regulation or ordinance has been
received by HEALTHSOUTH which, if it were determined that a violation had
occurred, would have a material effect on HEALTHSOUTH.
5.10 Licenses, Accreditation and Regulatory Approvals. Except as disclosed
in the HEALTHSOUTH Documents, HEALTHSOUTH and its subsidiaries (the "HEALTHSOUTH
Subsidiaries") and controlled general or limited partnerships and limited
liability companies (the "HEALTHSOUTH Other Entities") hold all Licenses which
are needed or required by law with respect to their businesses, operations and
facilities as they are currently or presently conducted, except where the
failure to possess such Licenses does not have a material adverse effect on
HEALTHSOUTH. All such Licenses are in full force and effect, and HEALTHSOUTH is
in compliance with all conditions and requirements of the Licenses and with all
rules and regulations relating thereto, except for such noncompliance as does
not have a material adverse effect on HEALTHSOUTH. 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
compliance with the conditions of participation in the Medicare program except
where such inability in the case of either items (i) or (ii) or noncompliance in
item (iii) does not have a material adverse effect on HEALTHSOUTH. Except to the
extent that the failure to make or 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 except to the extent
that such failure to be complete and correct would not have a material adverse
effect on HEALTHSOUTH. 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 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 in any such case would have a material adverse effect on
HEALTHSOUTH. The amounts established as provisions
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for adjustments by Medicare, Medicaid and other third-party payors on the
financial statements set forth in the HEALTHSOUTH 10-K are sufficient to pay any
material 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, which violation would have a material adverse effect on
HEALTHSOUTH. Any and all past litigation concerning such Licenses and all claims
and causes of action raised therein, has been finally adjudicated. No such
License has been revoked, conditioned (except as may be customary) or
restricted, and 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 where such invalidity, revocation, condition or restriction
would have a material adverse effect on HEALTHSOUTH. 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 NSC or any of the NSC Subsidiaries or NSC 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.
5.11 Subsequent Events. Except as disclosed in the HEALTHSOUTH 10-K,
HEALTHSOUTH has not, since the date of the HEALTHSOUTH 10-K:
(a) Incurred any material adverse change.
(b) Discharged or satisfied any material lien or encumbrance, or paid or
satisfied any material obligation or liability (absolute, accrued,
contingent or otherwise) other than (i) liabilities shown or reflected on
the December 31, 1997 Balance Sheet contained in the HEALTHSOUTH 10-K or
(ii) liabilities incurred since the date of the HEALTHSOUTH 10-K in the
ordinary course of business, which discharge or satisfaction would have a
material adverse effect on HEALTHSOUTH.
(c) Increased or established any reserve for taxes or any other liability
on its books or otherwise provided therefor which would have a material
adverse effect on HEALTHSOUTH, except as may have been required due to
income or operations of HEALTHSOUTH since December 31, 1997.
(d) Mortgaged, pledged or subjected to any lien, charge or other
encumbrance any of the assets, tangible or intangible, which assets are
material to the consolidated business or financial condition of HEALTHSOUTH.
(e) Sold or transferred any of the assets material to the consolidated
business of HEALTHSOUTH, canceled any material debts or claims or waived any
material rights, except in the ordinary course of business.
(f) Granted any general or uniform increase in the rates of pay of
employees or any material increase in salary payable or to become payable by
HEALTHSOUTH to any officer or employee, consultant or agent (other than
normal merit increases), or by means of any bonus or pension plan, contract
or other commitment, increased in a material respect the compensation of any
officer, employee, consultant or agent.
(g) Except for this Plan of Merger and any other agreement executed and
delivered pursuant to this Plan of Merger, entered into any material
transaction other than in the ordinary course of business or permitted under
other Sections hereof.
(h) Issued any stock, bonds or other securities, other than stock options
granted to employees or consultants of HEALTHSOUTH or warrants granted to
third parties, all of which are described in the HEALTHSOUTH Documents.
5.12 Retirement or Re-Acquisition of HEALTHSOUTH Common Stock. HEALTHSOUTH
has not agreed directly or indirectly to retire or re-acquire all or part of the
shares of HEALTHSOUTH Common Stock issued pursuant to Section 2.1 hereof.
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5.13 Disposition of Assets of Surviving Corporation. HEALTHSOUTH does not
intend or plan to dispose of, or to cause the Surviving Corporation to dispose
of, a significant part of the assets of the Surviving Corporation within two
years after the Effective Time, other than dispositions in the ordinary course
of business of the Surviving Corporation and dispositions intended to eliminate
duplicate facilities or excess capacity.
Section 6. ACCESS TO INFORMATION AND DOCUMENTS.
6.1 Access to Information. Between the date hereof and the Closing Date,
each of NSC and HEALTHSOUTH will give to the other party and its counsel,
accountants and other representatives full access to all the properties,
documents, contracts, personnel files and other records of such party and shall
furnish the other party with copies of such documents and with such information
with respect to the affairs of such party as the other party may from time to
time reasonably request. Each party will disclose and make available to the
other party and its representatives all books, contracts, accounts, personnel
records, letters of intent, papers, records, communications with regulatory
authorities and other documents relating to the business and operations of such
party. In addition, NSC shall make available to HEALTHSOUTH all such banking,
investment and financial information as shall be necessary to allow for the
efficient integration of NSC banking, investment and financial arrangements with
those of HEALTHSOUTH at the Effective Time.
6.2 Return of Records. If the transactions contemplated hereby are not
consummated and this Plan of Merger terminates, each party agrees to promptly
return all documents, contracts, records or properties of the other party and
all copies thereof furnished pursuant to this Section 6 or otherwise. All
information disclosed by any party or any affiliate or representative of any
party shall be deemed to be "Evaluation Material" under the terms of the
Confidentiality Agreements dated April 30, 1998, between NSC and HEALTHSOUTH and
May 1, 1998, between HEALTHSOUTH and NSC (the "Confidentiality Agreements").
6.3 Effect of Access. (a) Nothing contained in this Section 6 shall be
deemed to create any duty or responsibility on the part of either party to
investigate or evaluate the value, validity or enforceability of any contract,
lease or other asset included in the assets of the other party.
(b) With respect to matters as to which any party has made express
representations or warranties herein, the parties shall be entitled to rely upon
such express representations and warranties irrespective of any investigations
made by such parties, except to the extent that such investigations result in
actual knowledge of the inaccuracy or falsehood of particular representations
and warranties.
Section 7. COVENANTS.
7.1 Preservation of Business. Prior to the Effective Time, NSC will use its
best efforts to preserve the business organization of NSC intact, to keep
available to HEALTHSOUTH and the Surviving Corporation the services of the
present employees of NSC, and to preserve for HEALTHSOUTH and the Surviving
Corporation the goodwill of the suppliers, customers and others having business
relations with NSC.
7.2 Material Transactions. Prior to the Effective Time, NSC 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 transactions for which binding
commitments have been entered into prior to the date hereof which are described
on Exhibit 7.2 to the Disclosure Schedule), without first obtaining the written
consent of HEALTHSOUTH:
(a) Encumber any asset or enter into any transaction or make any contract
or commitment relating to the properties, assets and business of NSC, other
than in the ordinary course of business or as otherwise disclosed herein.
(b) Enter into any employment contract which is not terminable upon
notice of 30 days or less, at will, and without penalty to NSC except as
provided herein.
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(c) Enter into any contract or agreement (i) which cannot be performed
within three months or less, or (ii) which involves the expenditure of over
$100,000.
(d) Issue or sell, or agree to issue or sell, any shares of capital stock
or other securities of NSC, except upon exercise of currently outstanding
stock options or warrants or pursuant to the NSC Employee Stock Purchase
Plan.
(e) Make any contribution, payment or distribution to the trustee under
any bonus, pension, profit-sharing or retirement plan or incur any
obligation to make any such payment or contribution which is not in
accordance with NSC's usual past practice, or establish or enter into any
other plan or contract or arrangement providing for bonuses, executive
incentive compensation, pensions, deferred compensation, retirement
payments, profit-sharing or the like, or terminate any Plan.
(f) Extend credit to anyone, except in the ordinary course of business
consistent with prior practices.
(g) Guarantee the obligation of any person, firm or corporation, except
in the ordinary course of business consistent with prior practices.
(h) Amend its Certificate of Incorporation or Bylaws.
(i) Take any action of a character described in Section 3.10(b) to
3.10(h), inclusive.
7.3 Meeting of NSC Stockholders. (a) NSC 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 approving this Plan of Merger
and for such other purposes as may be necessary. Unless this Plan of Merger
shall have been validly terminated as provided herein, the Board of Directors of
NSC (subject to the exercise of its fiduciary duties under applicable law) will
(i) recommend to NSC 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 NSC's stockholders of
this Plan of Merger and the transactions contemplated hereby.
(b) Nothing contained herein shall affect the right of NSC to take action
by written consent in lieu of meeting to the extent permitted by applicable law
and its Certificate of Incorporation and Bylaws.
7.4 Registration Statement. (a) HEALTHSOUTH shall prepare and file with the
SEC and any other applicable regulatory bodies, as soon as reasonably
practicable, a Registration Statement on Form S-4 with respect to the shares of
HEALTHSOUTH Common Stock to be issued in the Merger (the "Registration
Statement"), and will otherwise proceed promptly to satisfy the requirements of
the Securities Act of 1933, as amended (the "Securities Act"), including Rule
145 thereunder. Such Registration Statement shall contain a proxy statement of
NSC (the "Proxy Statement") containing the information required by the
Securities Exchange Act of 1934, as amended (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. HEALTHSOUTH shall use its reasonable, good faith
efforts to have the Registration Statement declared effective by the SEC under
the provisions of the Securities Act and the Exchange Act. HEALTHSOUTH shall
provide NSC with copies of all filings made pursuant to this Section 7.4 and
shall consult with NSC on responses to any comments made by the Staff of the SEC
with respect thereto.
(b) The information specifically designated as being supplied by NSC for
inclusion in the Registration Statement shall not, at the time the Registration
Statement is declared effective and at the time the Proxy Statement is first
mailed to holders of NSC 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
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make the statements therein not misleading. The information specifically
designated as being supplied by NSC 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 NSC 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 NSC, or
its officers or directors, should be discovered by NSC which should be set forth
in an amendment to the Registration Statement or a supplement to the Proxy
Statement, NSC shall promptly inform HEALTHSOUTH. All documents, if any, that
NSC 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 and at the time the Proxy
Statement is first mailed to holders of NSC 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 not
misleading. The information specifically designated as being supplied by
HEALTHSOUTH for inclusion in the Proxy Statement to be sent to the holders of
NSC 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 NSC 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 which should be set
forth in an amendment to the Registration Statement or a supplement to the Proxy
Statement, HEALTHSOUTH shall promptly inform NSC 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) NSC shall furnish all information to HEALTHSOUTH with respect to NSC
and the NSC Subsidiaries and NSC 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; NSC Rights. NSC 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 NSC's
Board of Directors or otherwise, and (b) to redeem the outstanding preferred
share purchase rights (the "Rights") of NSC 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 NSC Common Stock or preferred stock
in exchange for the Rights).
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7.6 HSR Act Compliance. HEALTHSOUTH and NSC 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
NSC 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 NSC will consult with each other
before issuing any press release or otherwise making any public statement with
respect to the transactions contemplated by this Plan of Merger, and shall not
issue any such press release or make any such public statement prior to such
consultation except as may be required by applicable law or requirements of the
Exchange or Nasdaq, as applicable. The parties shall issue a joint press
release, mutually acceptable to HEALTHSOUTH and NSC, promptly upon execution and
delivery of this Plan of Merger.
7.8 Resignation of NSC Directors. On or prior to the Closing Date, NSC
shall deliver to HEALTHSOUTH evidence satisfactory to HEALTHSOUTH of the
resignation of the Directors of NSC, such resignations to be effective on the
Closing Date.
7.9 Notice of Subsequent Events. Each party hereto shall notify the other
parties of any changes, additions or events which would cause any material
change in or material addition to any Exhibit to the Disclosure Schedule
delivered by the notifying party under this Plan of Merger, promptly after the
occurrence of the same. If the effect of such change or addition would,
individually or in the aggregate with the effect of changes or additions
previously disclosed pursuant to this Section 7.9, constitute a material adverse
effect on the notifying party, the non-notifying party may, within ten days
after receipt of such notice, elect to terminate this Plan of Merger. If the
non-notifying party does not give written notice of such termination within such
10-day period, the non-notifying party shall be deemed to have consented to such
change or addition and shall not be entitled to terminate this Plan of Merger by
reason thereof.
7.10 No Solicitations. (a) Subject to the provisions of Section 7.10(b)
below, NSC shall not, and shall not suffer any of the NSC Subsidiaries or the
NSC 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 NSC or the acquisition of
all or any significant part, including by way of merger, acquisition or other
business combination, of the assets or capital stock or other equity interests
of NSC or of any NSC Subsidiaries or NSC Other Entities which, individually or
in the aggregate constitute a significant part of the consolidated assets of NSC
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 NSC to
abandon, terminate or fail to consummate the Merger or any other transaction
contemplated by this Plan of Merger. Except as may be required by the fiduciary
duties of NSC's Board of Directors under applicable law, NSC agrees that, as of
the date hereof, NSC and the NSC Subsidiaries and the NSC 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, NSC may (i),
directly or indirectly, furnish information and access, in response to an
unsolicited written proposal for an Acquisition Transaction, to the same extent
permitted by Section 6.1, to any 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 an Acquisition Transaction, if the Board of Directors of NSC
determines in its good faith judgment in the exercise of its fiduciary duties,
after consultation with legal
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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. NSC 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, NSC or any of the
NSC Subsidiaries or the NSC 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 NSC'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.
7.11 Other Actions. Subject to the provisions of Sections 7.3 and 7.10
hereof, none of NSC, 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 NSC 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 NSC 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 NSC 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 any such parties' independent accountants.
7.13 Pooling and Tax-Free Reorganization Treatment. Neither HEALTHSOUTH nor
NSC shall intentionally take or cause to be taken any action, whether on or
before the Effective Time, which would disqualify the Merger as a "pooling of
interests" for accounting purposes or as a "reorganization" within the meaning
of Section 368(a) of the Code.
7.14 Affiliate and Pooling Agreements. NSC 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) 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 NSC 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 NSC shall together, or pursuant to an
allocation of responsibility agreed to between them, (i) cooperate with one
another in determining whether any filings are required to be made or consents
are required to be obtained in any jurisdiction prior to the Effective Time in
connection with the consummation of the transactions contemplated hereby and
cooperate in making any such filings promptly and in seeking to obtain timely
any such consents, (ii) use their respective best efforts to cause to be lifted
any injunction prohibiting the Merger, or any part thereof, or the other
transactions contemplated hereby, and (iii) furnish to one another and to one
another's counsel all such information as may be required to effect the
foregoing actions.
(b) Subject to the terms and conditions herein provided, and unless this
Plan of Merger shall have been validly terminated as provided herein, each of
HEALTHSOUTH and NSC shall use all reasonable efforts (i) to take, or cause to be
taken, all actions necessary to comply promptly with all legal requirements
which may be imposed on such party (or any subsidiaries or affiliates of such
party) with respect to this Plan of Merger and to consummate the transactions
contemplated hereby, subject to the vote of NSC's stockholders described above,
and (ii) to obtain (and to cooperate with the other party to obtain) any
consent, authorization, order or approval of, or any exemption by, any
governmental entity and/or any other public or private third party which is
required to be obtained or made by such party or any of
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its subsidiaries or affiliates in connection with this Plan of Merger and the
transactions contemplated hereby. Each of HEALTHSOUTH and NSC 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 NSC Stock Options and Warrants. (a) As soon as reasonably practicable
after the Effective Time of the Merger, HEALTHSOUTH shall deliver to the holders
of NSC stock options and warrants appropriate notices setting forth such
holders' rights pursuant to any stock option plans under which such NSC stock
options were issued and any stock option agreements or warrant agreements
evidencing such options or warrants, which shall continue in full force and
effect on the same terms and conditions (subject to the adjustments required by
Section 2.1(d) or this Section 7.16 after giving effect to the Merger and the
assumption of such options and warrants by HEALTHSOUTH as set forth herein) as
in effect immediately prior to the Effective Time. HEALTHSOUTH shall comply with
the terms of the stock option plans, the stock option agreements and the warrant
agreements as so adjusted, and shall use its reasonable, good faith efforts to
ensure, to the extent required by, and subject to the provisions of, such plans
or agreements, that the NSC 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 NSC stock options and warrants assumed by HEALTHSOUTH in
accordance with Section 2.1(d). As soon as practicable after the Effective Time,
HEALTHSOUTH shall file with the SEC a registration statement on Form S-8 with
respect to shares of HEALTHSOUTH Common Stock subject to such NSC stock options
and shall use its best efforts to maintain the effectiveness of such
registration statement (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as such NSC stock options remain
outstanding. HEALTHSOUTH shall administer the plans assumed pursuant to Section
2.1(d) hereof in a manner that complies with Rule 16b-3 promulgated under the
Exchange Act to the extent the applicable plan complied with such rule prior to
the Merger.
(c) Except to the extent otherwise agreed to by the parties, all
restrictions or limitations on transfer with respect to the NSC stock options
awarded under any plan, program, or arrangement of NSC or any of its
subsidiaries, to the extent that such restrictions or limitations shall not have
already lapsed, shall remain in full force and effect with respect to such
options after giving effect to the Merger and the assumption by HEALTHSOUTH as
set forth above.
7.17 Publication of Combined Results. HEALTHSOUTH agrees that within 25
days after the end of the first calendar month following at least 30 days after
the Effective Time, HEALTHSOUTH shall cause publication of the combined results
of operations of HEALTHSOUTH and NSC. For purposes of this Section 7.17, the
term "publication" shall have the meaning provided in SEC Accounting Series
Release No. 135.
7.18 NSC Employees. HEALTHSOUTH shall retain all employees of NSC who are
employed at the Effective Time as employees-at-will (except to the extent that
such employees are parties to contracts providing for other employment terms, in
which case such employees shall be retained in accordance with the terms of such
contracts) and shall provide such employees with the same customary employee
benefits as HEALTHSOUTH provides its existing employees. HEALTHSOUTH shall give
employees of NSC credit for their respective periods of employment with NSC
prior to the Effective Time for purposes of determining their eligibility for
and level of participation in any employee benefit program, plan or arrangement
which the Surviving Corporation adopts, maintains or contributes to following
the Effective Time. In addition, HEALTHSOUTH agrees that it will execute and
deliver on the Closing Date agreements with the employees designated on Exhibit
7.18 to the Disclosure Schedule providing the benefits set forth on such Exhibit
7.18 to those employees.
7.19 Certain Information. For as long as any affiliate (as defined for
purposes of Rule 145 under the Securities Act) of NSC 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
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shall file with the SEC 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 Tax Treatment. HEALTHSOUTH and NSC agree to treat the Merger as a
reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of
the Code. During the period from the date of this Agreement through the
Effective Time, unless the parties shall otherwise agree in writing, none of
HEALTHSOUTH, NSC or any of their respective Subsidiaries shall knowingly take or
fail to take any action which action or failure to act would jeopardize
qualification of the Merger as a reorganization under such provisions of the
Code.
7.21 Conduct of Business of the Subsidiary Pending the Merger. Prior to the
Effective Time and subject to any applicable regulatory approvals, HEALTHSOUTH
shall cause the Subsidiary to (i) perform its obligations under this Agreement
in accordance with the terms hereof and take all other actions necessary or
appropriate for the consummation of the transactions contemplated hereby, (ii)
not incur, directly or indirectly, any liabilities or obligations except those
incurred in connection with the performance of its obligations under this
Agreement and the consummation of the transactions contemplated hereby, (iii)
not engage directly or indirectly in any business or activities of any type or
kind whatsoever and not enter into any agreements or arrangements with any
person or entity, or be subject to or be bound by any obligation or undertaking
which is not contemplated by this Agreement, and (iv) not create, grant or
suffer to exist any lien upon its properties or assets which would attach to any
properties or assets of HEALTHSOUTH or the Surviving Corporation after the
Effective Time.
7.22 Consulting and Noncompetition Agreements. HEALTHSOUTH and each of E.
Timothy Geary, Bryan S. Fisher, Dennis D. Solheim and Dennis Zamojski will
execute and deliver prior to the Closing Date Consulting and Noncompetition
Agreements in the respective forms set forth on Exhibit 7.22 to the Disclosure
Schedule.
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 NSC Common Stock:
(a) by mutual written consent of HEALTHSOUTH and NSC;
(b) by either HEALTHSOUTH or NSC:
(i) if, upon a vote at a duly held meeting of stockholders or any
adjournment thereof, any required approval of the holders of shares of
NSC Common Stock shall not have been obtained;
(ii) if the Merger shall not have been consummated on or before
November 30, 1998, unless the failure to consummate the Merger is the
result of a willful and material breach of this Plan of Merger by the
party seeking to terminate this Plan of Merger; provided, however, that
the passage of such period shall be tolled for any part thereof (but not
exceeding 60 days in the aggregate) during which any party shall be
subject to a nonfinal order, decree, ruling or action restraining,
enjoining or otherwise prohibiting the consummation of the Merger or the
calling or holding of a meeting of stockholders;
(iii) if any court of competent jurisdiction or other governmental
entity shall have issued an order, decree or ruling or taken any other
action permanently enjoining, restraining or otherwise prohibited the
Merger and such order, decree, ruling or other action shall have become
final and nonappealable;
(iv) in the event of a breach by the other party of any
representation, warranty, covenant or other agreement contained in this
Plan of Merger which (A) would give rise to the failure of a condition
set forth in Section 9.2(a) or (b) or Section 9.3(a) or (b), as
applicable, and (B) cannot be or has not been cured within 30 days after
the giving of written notice to the breach-
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ing 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 NSC gives notice of termination as a
non-notifying party pursuant to Section 7.9;
(c) By either HEALTHSOUTH or NSC in the event that (i) all of the
conditions to the obligation of such party to effect the Merger set forth in
Section 9.1 shall have been satisfied and (ii) any condition to the
obligation of such party to effect the Merger set forth in Section 9.2 (in
the case of HEALTHSOUTH) or Section 9.3 (in the case of NSC) is not capable
of being satisfied prior to the end of the period referred to in Section
8.1(b)(ii); or
(d) By NSC, if NSC'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 NSC Common Stock or shall have withdrawn such
recommendation or (ii) approved, recommended or endorsed any Acquisition
Transaction (as defined in Section 7.10) other than this Plan of Merger or
(iii) resolved to do any of the foregoing.
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 NSC Common Stock; provided, however,
that after any such approval, there shall be made no amendment that pursuant to
Section 251(d) of the DGCL requires further approval by such stockholders
without the further approval of such stockholders. This Plan of Merger may not
be amended except by an instrument in writing signed on behalf of each of the
parties.
8.4 Extension; Waiver. At any time prior to the Effective Time of the
Merger, the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties contained in this Plan of Merger or in any
document delivered pursuant to this Plan of Merger or (c) subject to the proviso
of Section 8.3, waive compliance with any of the agreements or conditions
contained in this Plan of Merger. Any agreement on the part of a party to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party to this Plan of
Merger to assert any of its rights under this Plan of Merger or otherwise shall
not constitute a waiver of such rights, except as otherwise provided in Section
7.9.
8.5 Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Plan of Merger pursuant to Section 8.1, an amendment of this
Plan of Merger pursuant to Section 8.3, or an extension or waiver pursuant to
Section 8.4 shall, in order to be effective, require in the case of HEALTHSOUTH,
the Subsidiary or NSC, 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 incurred
in connection with printing and mailing the Proxy Statement and the Registration
Statement shall be shared equally by NSC and HEALTHSOUTH.
(b) (i) If this Plan of Merger is terminated by NSC pursuant to Section
8.1(d), and within one year after the effective date of such termination NSC is
the subject of a Third Party Acquisition Event with any Person (as defined in
Sections 3(a)(9) and 13(d)(3) of the Exchange Act) (other than a party hereto),
then at the time of consummation of such a Third Party Acquisition Event, NSC
shall pay to HEALTHSOUTH a break-up fee of $15,000,000 in immediately available
funds, which fee represents
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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. Such break-up fee shall be due and payable
on the earliest of (i) the date on which NSC enters into any definitive
agreement for an Acquisition Transaction, (ii) the date on which an Acquisition
Transaction is consummated, or (iii) the earliest date on which NSC has notice
of an event described in Section 8.6(b)(ii)(B). NSC shall not enter into any
agreement with respect to any Third Party Acquisition Event which does not, as a
condition precedent to the effectiveness of such agreement, require such
break-up fee to be paid to HEALTHSOUTH upon the execution of such agreement.
(ii) As used herein, the term "Third Party Acquisition Event" shall mean
the occurrence of either of the following within the one-year period
specified in Section 8.6(b)(i):
(A) NSC shall enter into any definitive agreement for any Acquisition
Transaction (regardless of whether such Acquisition Transaction is
consummated), or shall otherwise be the subject of an Acquisition
Transaction 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 HEALTHSOUTH 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 NSC
Common Stock.
(c) NSC acknowledges that the provisions for the payment of break-up fees
and allocation of expenses contained in this Section 8.6 are an integral part of
the transactions contemplated by this Plan of Merger and that, without these
provisions, HEALTHSOUTH would not have entered into this Plan of Merger.
Accordingly, if a break-up fee shall become due and payable by NSC, and NSC
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
NSC therefor, NSC shall pay HEALTHSOUTH's reasonable costs and expenses
(including reasonable attorneys' fees) incurred 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). The obligations of NSC 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 NSC):
(a) None of HEALTHSOUTH, the Subsidiary or NSC nor any of their
respective subsidiaries shall be subject to any order, decree or injunction
by a court of competent jurisdiction which (i) prevents or materially delays
the consummation of the Merger or (ii) would impose any material limitation
on the ability of HEALTHSOUTH effectively to exercise full rights of
ownership of the Common Stock of the Surviving Corporation or any material
portion of the assets or business of NSC, the NSC Subsidiaries and the NSC
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.
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(e) The holders of NSC 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) The Merger shall qualify for "pooling of interests" accounting
treatment, and HEALTHSOUTH and NSC shall each have received letters to that
effect from Ernst & Young, LLP, independent accountants for HEALTHSOUTH,
dated (i) the date of the mailing of the Proxy Statement and (ii) the
Closing Date.
(h) HEALTHSOUTH and the Subsidiary shall have obtained, or obtained the
transfer of, any licenses, certificates of need and other regulatory
approvals necessary to allow the Surviving Corporation to operate the NSC
facilities, unless the failure to obtain such transfer or approval would not
have a material adverse effect on the Surviving Corporation.
(i) HEALTHSOUTH and the Subsidiary shall have received all consents,
approvals and authorizations of third parties with respect to all material
leases and management agreements to which the NSC Subsidiaries and the NSC
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 adverse 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 NSC to be performed at or prior to the
Closing Date pursuant to the terms hereof shall have been duly performed in
all material respects, and NSC shall have performed, in all material
respects, all of the acts required to be performed by it at or prior to the
Closing Date by the terms hereof.
(b) The representations and warranties of NSC set forth in Section
3.10(a) shall be true and correct as of the date of this Plan of Merger and
as of the Closing Date. The representations and warranties of NSC set forth
in this Plan of Merger that are qualified as to materiality shall be true
and correct, and those that are not so qualified shall be true and correct
in all material respects, as of the date of this Plan of Merger and as of
the Closing as though made at and as of such time, except to the extent such
representations and warranties expressly relate to an earlier date (in which
case such representations and warranties that are qualified as to
materiality shall be true and correct, and those that are not so qualified
shall be true and correct in all material respects, as of such earlier
date); provided, however, that NSC shall not be deemed to be in breach of
any such representations or warranties by taking any action permitted (or
approved by HEALTHSOUTH) under Section 7.2. HEALTHSOUTH and the Subsidiary
shall have been furnished with a certificate, executed by a duly authorized
officer of NSC, 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 Code, which
opinion may be based upon reasonable representations of fact provided by
officers of HEALTHSOUTH, NSC and the Subsidiary.
(d) HEALTHSOUTH shall have received an opinion from Bell, Boyd & Lloyd
substantially to the effect set forth in Exhibit 9.2(d) hereto.
9.3 Conditions to Obligations of NSC. The obligations of NSC 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 NSC):
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(a) Each of the agreements of HEALTHSOUTH and the Subsidiary to be
performed at or prior to the Closing Date pursuant to the terms hereof shall
have been duly performed, in all material respects, and HEALTHSOUTH and the
Subsidiary shall have performed, in all material respects, all of the acts
required to be performed by them at or prior to the Closing Date by the
terms hereof.
(b) The representations and warranties of HEALTHSOUTH set forth in
Section 5.11(a) shall be true and correct as of the date of this Plan of
Merger and as of the Closing Date. The representations and warranties of
HEALTHSOUTH set forth in this Plan of Merger that are qualified as to
materiality shall be true and correct, and those that are not so qualified
shall be true and correct in all material respects, as of the date of this
Plan of Merger and as of the Closing as though made at and as of such time,
except to the extent such representations and warranties expressly relate to
an earlier date (in which case such representations and warranties that are
qualified as to materiality shall be true and correct, and those that are
not so qualified shall be true and correct in all material respects, as of
such earlier date). NSC shall have been furnished with a certificate,
executed by duly authorized officers of HEALTHSOUTH and the Subsidiary,
dated the Closing Date, certifying in such detail as NSC may reasonably
request as to the fulfillment of the foregoing conditions.
(c) NSC shall have received an opinion from Bell, Boyd & Lloyd to the
effect that the Merger will constitute a reorganization with the meaning of
Section 368(a) of the Code, which opinion may be based upon reasonable
representations of fact provided by officers of HEALTHSOUTH, NSC and the
Subsidiary.
(d) NSC shall have received an opinion from Haskell Slaughter & Young,
L.L.C., substantially to the effect set forth in Exhibit 9.3(d) hereto.
Section 10. MISCELLANEOUS.
10.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Plan of Merger or in any instrument
delivered pursuant to this Plan of Merger shall survive the Effective Time.
10.2 Notices. Any communications required or desired to be given hereunder
shall be deemed to have been properly given if sent by hand delivery or by
facsimile and overnight courier to the parties hereto at the following
addresses, or at such other address as either party may advise the other in
writing from time to time:
If to HEALTHSOUTH:
HEALTHSOUTH Corporation
One Healthsouth Parkway
Birmingham, Alabama 35243
Attention: Michael D. Martin
Facsimile: (205) 969-4620
with a copy to:
William W. Horton, Esq.
HEALTHSOUTH Corporation
One HealthSouth Parkway
Birmingham, Alabama 35243
Facsimile: (205) 969-4730
If to NSC:
National Surgery Centers, Inc.
30 South Wacker Drive
Suite 2302
Chicago, Illinois 60606
Attention: E. Timothy Geary
Facsimile:
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with a copy to:
Steven E. Ducommun, Esq.
Bell, Boyd & Lloyd
Three First National Plaza
70 West Madison Street, Suite 3300
Chicago, Illinois 60602-4207
Facsimile: (312) 372-2098
All such communications shall be deemed to have been delivered on the date of
hand delivery or on the next business day following the deposit of such
communications with the overnight courier.
10.3 Further Assurances. Each party hereby agrees to perform any further
acts and to execute and deliver any documents which may be reasonably necessary
to carry out the provisions of this Plan of Merger.
10.4 Indemnification. (a) NSC 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 NSC 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 NSC or any of its
subsidiaries, or is or was serving at the request of NSC as a director, officer
employee or agent of any other corporation, partnership, joint venture or other
enterprise, 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 NSC (or them and
HEALTHSOUTH and the Surviving Corporation after the Effective Time), (ii) NSC
(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) NSC (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 NSC, 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 NSC,
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 NSC (or after the Effective Time, HEALTHSOUTH and
the Surviving Corporation) the undertaking contemplated by Section 145(e) of the
DGCL. The Indemnified Parties as a group may retain only one law firm to
represent them with respect to such matter unless there is, under applicable
standards of professional conduct, a conflict on any significant issue between
the positions of any two or more Indemnified Parties.
(b) Until such time as the applicable statute of limitations shall have
expired, HEALTHSOUTH shall, and shall cause the Surviving Corporation to,
provide with respect to each of the Indemnified Parties the indemnification
rights which such Indemnified Party had, whether from NSC or any NSC
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Subsidiary, immediately prior to the Effective Time, whether under the
Certificate or Articles of Incorporation or Bylaws of NSC or such NSC
Subsidiary or otherwise, except as otherwise provided in Section 10.4(a).
(c) Immediately following the Effective Time, HEALTHSOUTH shall cause to
be in effect the current policies of directors' and officers' liability
insurance maintained by NSC or any NSC Subsidiary (provided that HEALTHSOUTH
may substitute therefor policies of at least the same coverage and limits
containing terms and conditions that are substantially as advantageous) with
respect to claims arising from facts or events which occurred at or before
the Effective Time, and HEALTHSOUTH shall maintain such coverage for a
period of six years after the Effective Time; provided, however, that in no
event shall HEALTHSOUTH or the Surviving Corporation be required to expend
more than 200% of the current annual premiums paid by NSC for such
insurance.
(d) This Section 10.4 shall survive the Closing and is intended to
benefit NSC, the Surviving Corporation and each of the Indemnified Parties
and his or her heirs and representatives (each of whom shall be entitled to
enforce this Section 10.4 against HEALTHSOUTH and the Surviving Corporation,
as the case may be) and shall be binding upon all successor and assigns of
HEALTHSOUTH and the Surviving Corporation.
10.5 Governing Law. This Plan of Merger shall be interpreted, construed and
enforced in accordance with the laws of the State of Delaware, applied without
giving effect to any conflicts-of-law principles.
10.6 "Including". The word "including", when following any general
statement, term or matter, shall not be construed to limit such statement, term
or matter to the specific terms or matters as provided immediately following the
word "including" or to similar items or matters, whether or not non-limiting
language (such as "without limitation", "but not limited to", or words of
similar import) is used with reference to the word "including" or the similar
items or matters, but rather shall be deemed to refer to all other items or
matters that could reasonably fall within the broadest possible scope of the
general statement, term or matter.
10.7 "Knowledge". "To the knowledge", "to the best knowledge, information
and belief", or any similar phrase shall be deemed to refer to the knowledge of
the Chairman of the Board, Chief Executive Officer, Chief Operating Officer or
Chief Financial Officer of a party (or persons performing comparable functions
for such party, irrespective of title) and to include the assurance that such
knowledge is based upon a reasonable investigation, unless otherwise expressly
provided.
10.8 "Material adverse change" or "material adverse effect". "Material
adverse change" or "material adverse effect" means, when used in connection with
NSC or HEALTHSOUTH, any change, effect, event or occurrence that has, or is
reasonably likely to have, individually or in the aggregate, a material adverse
impact on the business or financial position of such party and its subsidiaries
and other consolidated entities taken as a whole; provided, however, that
"material adverse change" and "material adverse effect" shall be deemed to
exclude the impact of (i) changes in generally accepted accounting principles
and (ii) the public announcement of the Merger and compliance with the
provisions of this Plan of Merger, (iii) any changes resulting from any
restructuring or other similar charges or write-offs taken by NSC with the
consent of HEALTHSOUTH, provided, however, that no such charges or write-offs
will be taken if such would adversely affect pooling-of-interests accounting
treatment for the Merger, (iv) the termination or failure to be consummated or
completed of any acquisition, joint venture, development project or other
transaction which was not consummated or completed prior to the execution and
delivery of this Plan of Merger, (v) any change in the Social Security Act,
Medicare, Medicaid or other similar laws, rules or regulations of generally
applicability or interpretations thereof by courts or governmental authorities,
and (vi) any change in general economic conditions, in interest rates or in
conditions affecting the healthcare or ambulatory surgery industries generally.
10.9 "Hazardous Materials". The term "Hazardous Materials" means any
material which has been determined by any applicable governmental authority to
be harmful to the health or safety of human or animal life or vegetation,
regardless of whether such material is found on or below the surface of the
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ground, in any surface or underground water, airborne in ambient air or in the
air inside any structure built or located upon or below the surface of the
ground or in building materials or in improvements of any structures, or in any
personal property located or used in any such structure, including, but not
limited to, all hazardous substances, imminently hazardous substances, hazardous
wastes, toxic substances, infectious wastes, pollutants and contaminants from
time to time defined, listed, identified, designated or classified as such under
any Environmental Laws (as defined in Section 10.10) regardless of the quantity
of any such material.
10.10 Environmental Laws. The term "Environmental Laws" means any federal,
state or local statute, regulation, rule or ordinance, and any judicial or
administrative interpretation thereof, regulating the use, generation, handling,
storage, transportation, discharge, emission, spillage or other release of
Hazardous Materials or relating to the protection of the environment.
10.11 Taxes. For purposes of this Agreement, the term "tax" or "taxes"
shall mean all taxes, charges, fees, levies, penalties or other assessment
imposed by any United States federal, state, local or foreign taxing authority,
including, but not limited to, income, excise, property, sales, transfer,
franchise, payroll, withholding, Social Security or other taxes, including any
interest, penalties or additions attributable thereto. For purposes of this Plan
of Merger, the term "tax return" shall mean any return, report, information
return or other document (including any related or supporting information) with
respect to taxes.
10.12 Captions. The captions or headings in this Plan of Merger are made
for convenience and general reference only and shall not be construed to
describe, define or limit the scope or intent of the provisions of this Plan of
Merger.
10.13 Integration of Exhibits. All Exhibits attached to this Plan of Merger
are integral parts of this Plan of Merger as if fully set forth herein, and all
statements appearing therein shall be deemed disclosed for all purposes and not
only in connection with the specific representation in which they are explicitly
referenced.
10.14 Entire Agreement. This instrument, including all Exhibits attached
hereto, together with the Confidentiality Agreements, 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 2, 7.16, 7.18 and 10.4, no other
person shall acquire or have any right under or by virtue of this Plan of
Merger. No party may assign any right or obligation hereunder without the prior
written consent of the other parties.
10.17 No Rule of Construction. The parties acknowledge that this Plan of
Merger was initially prepared by HEALTHSOUTH, and that all parties have read and
negotiated the language used in this Plan of Merger. The parties agree that,
because all parties participated in negotiating and drafting this Plan of
Merger, no rule of construction shall apply to this Plan of Merger which
construes ambiguous language in favor of or against any party by reason of that
party's role in drafting this Plan of Merger.
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IN WITNESS WHEREOF, HEALTHSOUTH, the Subsidiary and NSC 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.
NATIONAL SURGERY CENTERS, INC.
By /s/ E. Timothy Geary
--------------------------------------------
E. Timothy Geary
Chairman of the Board, Chief Executive Officer
and President
ATTEST:
/s/ Bryan S. Fisher
- - -----------------------------
Bryan S. Fisher
Secretary
[CORPORATE SEAL]
HEALTHSOUTH CORPORATION
By /s/ Michael D. Martin
---------------------------------------------
Michael D. Martin
Executive Vice President,
Chief Financial Officer and Treasurer
ATTEST:
/s/ William W. Horton
- - ----------------------------
William W. Horton
Assistant Secretary
[CORPORATE SEAL]
FIELD ACQUISITION CORPORATION
By /s/ Michael D. Martin
---------------------------------------------
Vice President
ATTEST:
/s/ William W. Horton
- - -----------------------------
William W. Horton
Assistant Secretary
[CORPORATE SEAL]
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<PAGE>
ANNEX B
[BT Alex. Brown Logo]
[BANKERS TRUST LOGO]
June 17, 1998
Board of Directors
National Surgery Centers, Inc.
30 South Wacker Drive
Suite 2302
Chicago, IL 60606
Dear Sirs:
National Surgery Centers, Inc. ("NSC"), HEALTHSOUTH Corporation
("HEALTHSOUTH") and Field Acquisition Corporation, a wholly-owned subsidiary of
HEALTHSOUTH ("Subsidiary"), have entered into an Agreement and Plan of Merger
dated as of May 5, 1998 (the "Agreement"). Pursuant to the Agreement, the
consummation of which is subject to several conditions, including approval by
the stockholders of NSC, Subsidiary shall be merged with and into NSC (the
"Merger") and each share of the common stock, par value $.01 per share of NSC
("NSC Common Stock") issued and outstanding immediately prior to the effective
time of the Merger will be converted into the right to receive shares of common
stock, par value $.01 per share, of HEALTHSOUTH ("HEALTHSOUTH Common Stock"). As
set forth more fully in the Agreement, each issued and outstanding share of NSC
Common Stock shall be converted into the right to receive that number of shares
of HEALTHSOUTH Common Stock obtained by dividing $30.50 by the Base Period
Trading Price (as defined below), computed to four decimal places (the "Exchange
Ratio"); provided, however, that if the Base Period Trading Price shall be
greater than $35.00, the Exchange Ratio shall be .8714; and provided, further,
however, that if the Base Period Trading Price shall be less than $26.50, the
Exchange Ratio shall be 1.1509. The term "Base Period Trading Price" shall mean
the average of the daily closing price per share for the shares of HEALTHSOUTH
Common Stock for the 20 consecutive trading days on which such shares are
actually traded ending at the close of trading on the second trading day
immediately preceding the day of the NSC stockholders' meeting. You have
requested our opinion regarding the fairness, from a financial point of view, of
the consideration to be received by the holders of NSC Common Stock pursuant to
the Agreement.
BT Alex. Brown Incorporated ("BT Alex. Brown"), as a customary part of its
investment banking business, is engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for estate, corporate and other
purposes. We have acted as financial advisor to the Board of Directors of NSC in
connection with the transaction described above and will receive a fee for our
services, a portion of which is contingent upon the consummation of the Merger.
In the past, we have provided financing and advisory services to NSC and
financing services to HEALTHSOUTH. BT Alex. Brown maintains a market in the NSC
Common Stock and regularly publishes research reports regarding the health care
industry and the businesses and securities of NSC, HEALTHSOUTH and other
publicly traded companies in the health care industry. In the ordinary course of
business, BT Alex. Brown may actively trade the securities of NSC and
HEALTHSOUTH for our own account and the account of our customers and,
accordingly, may at any time hold a long or short position in securities of NSC
and HEALTHSOUTH.
In connection with this opinion, we have reviewed certain publicly
available financial information and other information concerning NSC and
HEALTHSOUTH and certain internal analyses and other information furnished to us
by NSC and HEALTHSOUTH. We have also held discussions with the
B-1
<PAGE>
members of the senior management of NSC and HEALTHSOUTH regarding the business
and prospects of their respective companies and the joint prospects of a
combined company. In addition, we have (i) reviewed the reported prices and
trading activity for the NSC Common Stock and the HEALTHSOUTH Common Stock, (ii)
compared certain financial and stock market information for NSC and HEALTHSOUTH
with similar information for certain other companies whose securities are
publicly traded, (iii) reviewed the financial terms of certain recent business
combinations which we deemed comparable in whole or in part, (iv) reviewed the
terms of the Agreement, and (v) performed such other studies and analyses and
considered such other factors as we deemed appropriate.
We have not independently verified the information described above and for
purposes of this opinion have assumed the accuracy and completeness thereof.
With respect to the information relating to the prospects of NSC and
HEALTHSOUTH, we have assumed that such information reflects the best currently
available judgments and estimates of the management of NSC and HEALTHSOUTH as to
the likely future financial performance of their respective companies and of the
combined entity. In addition, we have not made an independent evaluation or
appraisal of the assets of NSC or HEALTHSOUTH, nor have we been furnished with
any such evaluation or appraisal. We have assumed that the Merger will qualify
as a tax-free transaction for the holders of NSC Common Stock. Our opinion is
based on market, economic and other conditions as they exist and can be
evaluated as of the date of this letter.
In connection with our engagement, we were not authorized to solicit, and
did not solicit, interest from any party with respect to the acquisition of NSC
or any of its assets.
Our advisory services and the opinion expressed herein were prepared for
the use of the Board of Directors of NSC and do not constitute a recommendation
to the stockholders of NSC as to how they should vote at any stockholders'
meeting held in connection with the Merger.
Board of Directors
Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter, the consideration to be received by the holders of NSC
Common Stock pursuant to the Agreement is fair from a financial point of view to
such stockholders.
Very truly yours,
BT Alex. Brown Incorporated
/s/ Harris Hyman IV
----------------------------------------
Harris Hyman IV
Managing Director
B-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102(b)(7) of the Delaware General Corporation Law ("DGCL") grants
corporations the right to limit or eliminate the personal liability of their
directors in certain circumstances in accordance with provisions therein set
forth. Article Nine of the HEALTHSOUTH Certificate filed in the Office of the
Secretary of the State of Delaware on June 13, 1995, contains a provision
eliminating or limiting director liability to HEALTHSOUTH and its stockholders
for monetary damages arising from acts or omissions in the director's capacity
as a director. The provision does not, however, eliminate or limit the personal
liability of a director (i) for any breach of such director's duty of loyalty to
HEALTHSOUTH or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
the Delaware statutory provision making directors personally liable, under a
negligence standard, for unlawful dividends or unlawful stock purchases or
redemptions, or (iv) for any transaction from which the director derived an
improper personal benefit. This provision offers persons who serve on the Board
of Directors of HEALTHSOUTH protection against awards of monetary damages
resulting from breaches of their duty of care (except as indicated above). As a
result of this provision, the ability of HEALTHSOUTH or a stockholder thereof to
successfully prosecute an action against a director for a breach of his duty of
care is limited. However, the provision does not affect the availability of
equitable remedies such as an injunction or rescission based upon a director's
breach of his duty of care. The SEC has taken the position that the provision
will have no effect on claims arising under the Federal securities laws.
Section 145 of the DGCL grants corporations the right to indemnify their
directors, officers, employees and agents in accordance with the provisions
therein set forth. Article Nine of the HEALTHSOUTH Certificate and Article IX of
the HEALTHSOUTH Bylaws provide for mandatory indemnification rights, subject to
limited exceptions, to any director, officer, employee, or agent of HEALTHSOUTH
who, by reason of the fact that he or she is a director, officer, employee, or
agent of HEALTHSOUTH, is involved in a legal proceeding of any nature. Such
indemnification rights include reimbursement for expenses incurred by such
director, officer, employee, or agent in advance of the final disposition of
such proceeding in accordance with the applicable provisions of the DGCL.
HEALTHSOUTH has entered into agreements with all of its directors and its
executive officers pursuant to which HEALTHSOUTH has agreed to indemnify such
directors and executive officers against liability incurred by them by reason of
their services as a director or executive officer to the fullest extent
allowable under applicable law.
See Item 22 of this Registration Statement on Form S-4.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibits:
EXHIBIT
NO. DESCRIPTION
--- -----------
(2) Plan and Agreement of Merger, dated May 5, 1998, among HEALTHSOUTH
Corporation, Field Acquisition Corporation and National Surgery
Centers, Inc. attached to the Prospectus- Proxy Statement as a
part of Annex A, is hereby incorporated herein by reference.
(5) Opinion of Haskell Slaughter & Young, L.L.C. as to the legality of
the shares of HEALTHSOUTH Common Stock being registered.
(8)-1 Opinion of Haskell Slaughter & Young, L.L.C. as to the description
in the Prospectus-Proxy Statement of certain federal income tax
consequences of the Merger.
(8)-2 Opinion of Bell, Boyd & Lloyd as to the description in the
Prospectus-Proxy Statement of certain federal income tax
consequences of the Merger.
(23)-1 Consent of Ernst & Young LLP.
(23)-2 Consent of Ernst & Young LLP.
(23)-3 Consents of Haskell Slaughter & Young, L.L.C. (included in the
opinions filed as Exhibits (5) and (8)-1).
(23)-4 Consent of Bell, Boyd & Lloyd (included in the opinion filed as
Exhibit (8)-2).
(23)-5 Consent of BT Alex. Brown Incorporated.
(24) Powers of Attorney (See the signature pages to this Registration
Statement).
(99) NSC Proxy.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to section 13(a) or section 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(b) The undersigned Registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use
of a prospectus which is part of this registration statement, by any person
or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain
the information called for by the applicable registration form with respect
to reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(c) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (c) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange
II-2
<PAGE>
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(e) The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day
of receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
(f) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not subject of and
included in the Registration Statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Birmingham, State of
Alabama, on June 17, 1998.
HEALTHSOUTH CORPORATION
By /s/ RICHARD M. SCRUSHY
------------------------------------
Richard M. Scrushy
Chairman of the Board and
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard M. Scrushy and Michael D. Martin, and
each of them, his attorney-in-fact with powers of substitution for him in any
and all capacities, to sign any amendments, supplements, subsequent registration
statements relating to the offering to which this Registration Statement
relates, or other instruments he deems necessary or appropriate, and to file the
same, with exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact or his substitute may do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ RICHARD M. SCRUSHY Chairman of the Board June 17, 1998
----------------------------- and Chief Executive Officer
Richard M. Scrushy and Director
/s/ MICHAEL D. MARTIN Executive Vice President, June 17, 1998
----------------------------- Chief Financial Officer,
Michael D. Martin Treasurer and Director
/s/ WILLIAM T. OWENS Group Senior Vice President-Finance June 17, 1998
----------------------------- and Controller (Principal
William T. Owens Accounting Officer)
/s/ JAMES P. BENNET Director June 17, 1998
-----------------------------
James P. Bennett
/s/ ANTHONY J. TANNER Director June 17, 1998
-----------------------------
Anthony J. Tanner
/s/ P. DARYL BROWN Director June 17, 1998
-----------------------------
P. Daryl Brown
/s/ PHILLIP C. WATKINS, M.D. Director June 17, 1998
-----------------------------
Phillip C. Watkins, M.D.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GEORGE H. STRONG Director June 17, 1998
-----------------------------
George H. Strong
/s/ C. SAGE GIVENS Director June 17, 1998
-----------------------------
C. Sage Givens
/s/ CHARLES W. NEWHALL III Director June 17, 1998
-----------------------------
Charles W. Newhall III
/s/ JOHN S. CHAMBERLIN Director June 17, 1998
-----------------------------
John S. Chamberlin
/s/ JOEL C. GORDON Director June 17, 1998
-----------------------------
Joel C. Gordon
/s/ EDWIN M. CRAWFORD Director June 17, 1998
-----------------------------
Edwin M. Crawford
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
--- -----------
(2) Plan and Agreement of Merger, dated May 5, 1998, among HEALTHSOUTH
Corporation, Field Acquisition Corporation and National Surgery
Centers, Inc. attached to the Prospectus- Proxy Statement as a
part of Annex A, is hereby incorporated herein by reference.
(5) Opinion of Haskell Slaughter & Young, L.L.C. as to the legality of
the shares of HEALTHSOUTH Common Stock being registered.
(8)-1 Opinion of Haskell Slaughter & Young, L.L.C. as to the description
in the Prospectus-Proxy Statement of certain federal income tax
consequences of the Merger.
(8)-2 Opinion of Bell, Boyd & Lloyd as to the description in the
Prospectus-Proxy Statement of certain federal income tax
consequences of the Merger.
(23)-1 Consent of Ernst & Young LLP.
(23)-2 Consent of Ernst & Young LLP.
(23)-3 Consents of Haskell Slaughter & Young, L.L.C. (included in the
opinions filed as Exhibits (5) and (8)-1).
(23)-4 Consent of Bell, Boyd & Lloyd (included in the opinion filed as
Exhibit (8)-2).
(23)-5 Consent of BT Alex. Brown Incorporated.
(24) Powers of Attorney (See the signature pages to this Registration
Statement).
(99) NSC Proxy.
EXHIBIT 5
June 17, 1998
HEALTHSOUTH Corporation
One Healthsouth Parkway
Birmingham, Alabama 35243
RE: REGISTRATION STATEMENT ON FORM S-4 -
HEALTHSOUTH CORPORATION / NATIONAL SURGERY CENTERS, INC.
OUR FILE NO. 29075-417
Gentlemen:
We have served as counsel for HEALTHSOUTH Corporation, a corporation
organized and existing under the laws of the State of Delaware ("HEALTHSOUTH"),
in connection with the registration under the Securities Act of 1933, as
amended, pursuant to HEALTHSOUTH's Registration Statement on Form S-4
(Commission File No. 333- ) (the "Registration Statement") of up to 23,623,673
shares of Common Stock, par value $.01 per share, of HEALTHSOUTH (the "Shares")
to be issued pursuant to that certain Plan and Agreement of Merger, dated as of
May 5, 1998, by and among HEALTHSOUTH, Field Acquisition Corporation, a
wholly-owned subsidiary of HEALTHSOUTH and National Surgery Centers, Inc., a
Delaware corporation. This opinion is furnished to you pursuant to the
requirements of the Registration Statement.
In connection with this opinion, we have examined and are familiar with
originals or copies (certified or otherwise identified to our satisfaction) of
such documents, corporate records and other instruments relating to the
incorporation of HEALTHSOUTH and to the authorization and issuance of the Shares
and the authorization and adoption of the Agreement as we have deemed necessary
and appropriate.
Based upon the foregoing, and having regard for such legal considerations
as we have deemed relevant, it is our opinion that:
1. The Shares have been duly authorized.
2. Upon issuance, sale and delivery of the Shares as contemplated in the
Registration Statement and the Agreement, the Shares will be legally issued,
fully paid and nonassessable.
We do hereby consent to the reference to our firm under the heading "Legal
Matters" in the Registration Statement and to the filing of this Opinion as an
Exhibit thereto.
Very truly yours,
HASKELL SLAUGHTER & YOUNG, L.L.C.
By /s/ Robert E. Lee Garner
------------------------------------
Robert E. Lee Garner
EXHIBIT 8.1
June 17, 1998
HEALTHSOUTH Corporation
One HEALTHSOUTH Parkway
Birmingham, Alabama 35243
RE: PLAN AND AGREEMENT OF MERGER AMONG HEALTHSOUTH CORPORATION, FIELD
ACQUISITION CORPORATION AND NATIONAL SURGERY CENTERS, INC.
Gentlemen:
We have acted as counsel to HEALTHSOUTH CORPORATION, a Delaware corporation
("HEALTHSOUTH"), in connection with the proposed merger (the "Merger") of Field
Acquisition Corporation, a Delaware corporation ("Subsidiary") and wholly-owned
subsidiary of HEALTHSOUTH, with and into National Surgery Centers, Inc., a
Delaware corporation ("NSC"), pursuant to the terms of the Plan and Agreement of
Merger, dated as of May 5, 1998 (the "Plan of Merger"), by and among
HEALTHSOUTH, Subsidiary and NSC, as described in more detail in the Plan of
Merger and in the Registration Statement on Form S-4 (Commission File No.
333-___) to be filed by HEALTHSOUTH with the Securities and Exchange Commission,
as amended (the "Registration Statement"). This opinion is being provided in
satisfaction of the conditions set forth in Section 9.2(c) of the Plan of
Merger. All capitalized terms, unless otherwise specified, have the meaning
assigned to them in the Registration Statement.
In connection with this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
(i) the Plan of Merger, (ii) the Registration Statement, and (iii) such other
documents as we have deemed necessary or appropriate in order to enable us to
render the opinion below. In our examination, we have assumed the genuineness of
all signatures, the legal capacity of all natural persons, the authenticity of
all documents submitted to us as originals, the conformity to original documents
of all documents submitted to us as certified, conformed or photostatic copies
and the authenticity of the originals of such copies. In rendering the opinion
set forth below, we have relied upon certain written representations and
covenants of HEALTHSOUTH, Subsidiary, and NSC which are annexed hereto (the
"Representations and Warranties").
In rendering our opinion, we have considered the applicable provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations, pertinent judicial authorities, interpretive rulings of the
Internal Revenue Service and such other authorities as we have considered
relevant.
Based upon and subject to the foregoing and assuming that, as of the
Effective Time of the Merger and following the Merger there will be no acts or
omissions which will violate or be inconsistent with any of the Representations
and Warranties, we are of the opinion that:
(i) Provided the Merger qualifies as a statutory merger under the
Delaware General Corporation Law, the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code, and
HEALTHSOUTH, Subsidiary and NSC will each be a "party to the reorganization"
within the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by HEALTHSOUTH, Subsidiary or NSC
as a result of the Merger;
(iii) No gain or loss will be recognized by an NSC stockholder who
receives solely shares of HEALTHSOUTH Common Stock in exchange for NSC
Common Stock;
(iv) The receipt of cash by an NSC stockholder in lieu of fractional
shares of HEALTHSOUTH Common Stock will be treated as if the fractional
shares were distributed as part of the exchange and then were redeemed by
HEALTHSOUTH. These payments will be treated as having been received as
distributions in full payment in exchange for the stock redeemed as
provided in Section 302(a) of the Code, provided the redemption is not
essentially equivalent to a dividend;
<PAGE>
(v) The aggregate tax basis of the shares of HEALTHSOUTH Common Stock
received by an NSC stockholder will be equal to the aggregate tax basis of
the NSC Common Stock exchanged therefor, excluding any basis allocable to a
fractional share of Common Stock for which cash is received; and
(vi) The holding period of the shares of HEALTHSOUTH Common Stock
received by an NSC stockholder will include the holding period or periods
of the NSC Common Stock exchanged therefor, provided that the NSC Common
Stock is held as a capital asset within the meaning of Section 1221 of the
Code at the Effective Time of the Merger.
Except as set forth above, we express no opinion as to the tax
consequences, whether federal, state, local or foreign, to any party to the
Merger or of any transactions related to the Merger or contemplated by the Plan
of Merger.
We hereby consent to the reference to our Firm under the heading "Legal
Matters" in the Prospectuses which form a part of the Registration Statement,
and to the filing of this opinion as an Exhibit thereto.
Very truly yours,
/s/ Robert D. Shattuck, Jr.
---------------------------
Robert D. Shattuck, Jr.
EXHIBIT 8.2
June 17, 1998
National Surgery Centers, Inc.
30 South Wacker Drive
Suite 2302
Chicago, Illinois 60606
RE: PLAN AND AGREEMENT OF MERGER BY AND AMONG HEALTHSOUTH CORPORATION,
FIELD ACQUISITION CORPORATION AND NATIONAL SURGERY CENTERS, INC.
Ladies and Gentlemen:
We have acted as counsel to National Surgery Centers, Inc., a Delaware
corporation ("NSC"), in connection with the proposed merger ("Merger") of Field
Acquisition Corporation, a Delaware corporation (the "Subsidiary") and
wholly-owned subsidiary of HEALTHSOUTH Corporation, a Delaware corporation
("HEALTHSOUTH"), with and into NSC, pursuant to the terms of the Plan and
Agreement of Merger, dated as of May 5, 1998 (the "Plan of Merger"), by and
among HEALTHSOUTH, the Subsidiary, and NSC, as described in more detail in the
Plan of Merger and in the Registration Statement on Form S-4 (Commission File
No. 333-_____) to be filed by HEALTHSOUTH with the Securities and Exchange
Commission (the "Registration Statement"). This opinion is being provided in
satisfaction of the conditions set forth in Section 9.3(c) of the Plan of
Merger. All capitalized terms, unless otherwise specified, have the meanings
assigned to them in the Registration Statement.
In connection with this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
(i) the Plan of Merger, (ii) the Registration Statement, and (iii) such other
documents as we have deemed necessary or appropriate in order to enable us to
render the opinion below. In our examination, we have assumed the genuineness of
all signatures, the legal capacity of all natural persons, the authenticity of
all documents submitted to us as originals, the conformity to original documents
of all documents submitted to us as certified, conformed or photostatic copies
and the authenticity of the originals of such copies. In rendering the opinion
set forth below, we have relied upon certain written representations and
covenants of HEALTHSOUTH, the Subsidiary, and NSC which are annexed hereto (the
"Representations and Warranties").
In rendering our opinion, we have considered the applicable provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations, pertinent judicial authorities, interpretative rulings of the
Internal Revenue Service and such other authorities as we have considered
relevant.
Based upon and subject to the foregoing and assuming that, as of the
Effective Time of the Merger and following the Merger there will be no acts or
omissions which will violate or be inconsistent with any of the Representations
and Warranties, we are of the opinion that:
(i) Provided the Merger qualifies as a statutory merger under the
Delaware General Corporation Law, the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code and
HEALTHSOUTH, the Subsidiary, and NSC will each be a "party to the
reorganization" within the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by HEALTHSOUTH, the Subsidiary,
or NSC as a result of the Merger;
(iii) No gain or loss will be recognized by an NSC stockholder who
receives solely shares of HEALTHSOUTH Common Stock in exchange for NSC
Common Stock;
(iv) The receipt of cash by an NSC stockholder in lieu of fractional
shares of HEALTHSOUTH Common Stock will be treated as if the fractional
shares were distributed as part of the exchange and then were redeemed by
HEALTHSOUTH. These payments will be treated as having been received as
distributions in full payment in exchange for the stock redeemed as
provided in Section 302(a) of the Code, provided the redemption is not
essentially equivalent to a dividend;
<PAGE>
(v) The aggregate tax basis of the shares of HEALTHSOUTH Common Stock
received by an NSC stockholder will be equal to the aggregate tax basis of
the NSC Common Stock exchanged therefor, excluding any basis allocable to a
fractional share of HEALTHSOUTH Common Stock for which cash is received; and
(vi) The holding period of the shares of HEALTHSOUTH Common Stock
received by an NSC stockholder will include the holing period or periods of
the NSC Common Stock exchanged therefor, provided that the NSC Common Stock
is held as a capital asset within the meaning of Section 1221 of the Code
at the Effective Time of the Merger.
Except as set forth above, we express no opinion as to the tax
consequences, whether federal, state, local or foreign, to any party to the
Merger or of any transactions related to the Merger or contemplated by the Plan
of Merger.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement.
Very truly yours,
/s/ Bell, Boyd & LLoyd
----------------------
Bell, Boyd & LLoyd
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4, No. 333- ) and related Prospectus-Proxy
Statement of HEALTHSOUTH Corporation and National Surgery Centers, Inc. and to
the incorporation by reference therein of our report dated February 25, 1998,
except for Note 14, as to which the date is March 20, 1998, with respect to the
consolidated financial statements and schedule of HEALTHSOUTH Corporation
included in its Annual Report (Form 10-K) for the year ended December 31, 1997,
filed with the Securities and Exchange Commission.
Birmingham, Alabama
June 16, 1998
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4, No. 333- ) and related Prospectus-Proxy
Statement of HEALTHSOUTH Corporation and National Surgery Centers, Inc. and to
the incorporation by reference therein of our report dated February 6, 1998,
with respect to the consolidated financial statements of National Surgery
Centers, Inc. incorporated by reference in its Annual Report on Form 10-K for
the year ended December 31, 1997 and the related financial statement schedule
included therein, filed with the Securities and Exchange Commission.
June 17, 1998
Chicago, Illinois
EXHIBIT 23.5
CONSENT OF
BT ALEX. BROWN INCORPORATED
We hereby consent to the use of our opinion letter dated the date June 17,
1998 relating to the proposed merger of Field Acquisition Corporation, a
wholly-owned subsidiary of HEALTHSOUTH Corporation, with and into National
Surgery Centers, Inc. to the Board of Directors of National Surgery Centers,
Inc. included as Annex B to the Prospectus-Proxy Statement, and to the
references to such opinion in the Prospectus-Proxy Statement that forms a part
of the Registration Statement for such transaction. In giving such consent, we
do not admit that we come within the category of persons the consent of whom is
required under Section 7 of the Securities Act of 1933, as amended, or the rules
and regulations of the Securities and Exchange Commission promulgated
thereunder, nor do we thereby admit that we are experts with respect to any part
of such Registration Statement within the meaning of the term "experts" as used
in the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
BT ALEX. BROWN INCORPORATED
By: /s/ Daniel E. McIntyre
-----------------------------------
Daniel E. McIntyre
Managing Director
17 June 1998
EXHIBIT 99
- - --------------------------------------------------------------------------------
PROXY
NATIONAL SURGERY CENTERS, INC.
SPECIAL MEETING OF STOCKHOLDERS - JULY 22, 1998
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS
The undersigned hereby appoints E. Timothy Geary and Bryan S. Fisher, and
each of them, with several powers of substitution, proxies to vote the shares of
Common Stock, par value $0.01 per share, of National Surgery Centers, Inc.
("NSC") which the undersigned could vote if personally present at the Special
Meeting of Stockholders of NSC to be held at The Midland Hotel, 172 West Adams,
Chicago, Illinois, 60603, on July 22, 1998, at 10:00 a.m., local time, and any
adjournment thereof:
(Continued and to be signed on other side)
- - --------------------------------------------------------------------------------
------------
Common
1. Approval and adoption of the Plan and Agreement of Merger, dated as of
May 5, 1998, attached as Annex A to the Prospectus-Proxy Statement that has been
transmitted in connection with the Special Meeting, pursuant to which Field
Acquisition Corporation, a wholly-owned subsidiary of HEALTHSOUTH Corporation,
will merge with and into NSC, all as described in said Prospectus-Proxy
Statement.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. In their discretion to act upon any matters incidental to the foregoing
and such other business as may properly come before the Special Meeting or any
adjournment thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR ITEM 1.
Dated:
----------------------------
--------------------------------
Signature(s)
--------------------------------
(Please sign exactly and as fully
as your name appears on your
stock certificate. If shares are
held jointly, each stockholder
should sign.)
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