REGISTRATION NO. 333-_____________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
HEALTHSOUTH CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 63-0860407
(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) Number)
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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:
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F. HAMPTON MCFADDEN, JR., ESQ. WILLIAM W. HORTON, ESQ. NATHANIEL M. CARTMELL III, ESQ.
Haskell Slaughter & Young, L.L.C. Senior Vice President and Corporate Counsel KAREN A. DEMPSEY, ESQ.
1200 AmSouth/Harbert Plaza HEALTHSOUTH Corporation Pillsbury Madison & Sutro LLP
1901 Sixth Avenue North One HealthSouth Parkway Post Office Box 7880
Birmingham, Alabama 35203 Birmingham, Alabama 35243 San Francisco, California 94120
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the effective date of this
Registration Statement.
If any of the securities being registered on this Form are to be offered
pursuant to dividend or interest reinvestment plans, check the following box. []
If the only securities being registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITY TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED PER SHARE PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
3.25% Convertible Subordi-
nated Debentures due 2003. $567,750,000 N/A $567,750,000 $ 167,486.25
Common Stock, par value $.01
per share ................. 15,501,707 shares $ 36.625 (1) $567,750,000 (2)
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(1) The Debentures are convertible at the option of the holder into shares of
Common Stock of the Company, at any time prior to redemption or maturity,
at a conversion price of $36.625 (equal to a conversion ratio of 27.30
shares per $1,000 principal amount of Debentures).
(2) No additional consideration will be received for the Common Stock and,
therefore, no registration fee is required pursuant to Rule 457(i).
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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SUBJECT TO COMPLETION, DATED MAY 8, 1998
PROSPECTUS
HEALTHSOUTH CORPORATION
$567,750,000
3.25% CONVERTIBLE SUBORDINATED
DEBENTURES DUE 2003
AND
15,501,707 SHARES OF COMMON STOCK
ISSUABLE UPON CONVERSION THEREOF
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THIS PROSPECTUS RELATES TO $567,750,000 AGGREGATE PRINCIPAL AMOUNT OF 3.25%
CONVERTIBLE SUBORDINATED DEBENTURES DUE 2003 (THE "DEBENTURES") OF HEALTHSOUTH
CORPORATION ("HEALTHSOUTH" OR THE "COMPANY") AND 15,501,707 SHARES OF COMMON
STOCK, PAR VALUE $.01 PER SHARE (THE "COMMON STOCK"), OF THE COMPANY ISSUABLE
UPON THE CONVERSION OF THE DEBENTURES (THE "CONVERSION SHARES"). THE DEBENTURES
AND CONVERSION SHARES MAY BE OFFERED FROM TIME TO TIME FOR THE ACCOUNTS OF THE
HOLDERS NAMED HEREIN (THE "SELLING SECURITYHOLDERS").
The Debentures are convertible at the option of the holder into shares of
Common Stock of the Company, at any time prior to redemption or maturity, at a
conversion price of $36.625 per share (equal to a conversion rate of 27.30
shares per $1,000 principal amount of Debentures and representing in the
aggregate 15,501,707 shares), subject to adjustment under certain circumstances.
Interest on the Debentures is payable semi-annually in arrears on April 1 and
October 1 of each year, commencing on October 1, 1998.
The Debentures are unsecured general obligations of the Company and are
subordinated in right of payment of all existing and future Senior Indebtedness
(as defined in the Indenture). See "Description of Debentures-Subordination".
The Debentures will mature on October 1, 2003, and may be redeemed, at the
option of the Company, in whole or in part, at any time on or after April 5,
2001, at the redemption prices set forth herein plus accrued interest. Each
holder of Debentures will have the right to cause the Company to repurchase all
of such holder's Debentures, payable in cash or, at the Company's option, in
Common Stock, in the event the Common Stock is no longer publicly traded or in
certain circumstances involving a Change of Control (as defined in the
Indenture).
The Debentures and the Conversion Shares may be offered by the Selling
Securityholders from time to time in transactions (which may include block
transactions in the case of the Conversion Shares) on any exchange or market on
which such securities are listed or quoted, as applicable, in negotiated
transactions, through a combination of such methods of sale, or otherwise, at
sale, at prices related to prevailing market prices, or at negotiated prices.
The Selling Securityholders may effect such transactions by selling the
Debentures or Conversion Shares directly to or through broker-dealers, who may
receive compensation in the form of discounts, concessions or commissions from
the Selling Securityholders and/or the purchasers of the Debentures or
Conversion Shares for whom such broker-dealers may act as agents or to whom they
may sell as principals, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions). The Company will not
receive any of the proceeds from the sale of the Debentures or Conversion Shares
by the Selling Securityholders. The Company has agreed to pay all expenses
incident to the offer and sale of the Debentures and Conversion Shares offered
by the Selling Securityholders hereby, except that the Selling Securityholders
will pay all underwriting discounts and selling commissions, if any. See "Plan
of Distribution".
The Debentures have been designated for trading on the Private Offerings,
Resales and Trading through Automated Linkages ("PORTAL") Market. Debentures
sold pursuant to this Prospectus are not expected to remain eligible for trading
on the PORTAL Market. The Common Stock is listed on the New York Stock Exchange
under the symbol HRC. On May _, 1998, the last sale price for the Common Stock,
as reported on the New York Stock Exchange, was $_____ per share.
Information contained in this preliminary prospectus supplement is subject to
completion or amendment. A registration statement relating to these securities
has been filed with the Securities and Exchange Commission. These securities may
not be sold nor may offers to buy be accepted prior to the time that a final
prospectus supplement is delivered. This preliminary prospectus supplement and
the accompanying prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
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AVAILABLE INFORMATION
HEALTHSOUTH has filed a Registration Statement on Form S-3 under the
Securities Act of 1933, as amended (the "Securities Act"), with the Securities
and Exchange Commission (the "SEC") covering the Debentures and the Shares
(including exhibits and amendments thereto, the "Registration Statement"). As
permitted by the rules and regulations of the SEC, this Prospectus omits certain
information contained in the Registration Statement. For further information
pertaining to the securities offered hereby, reference is made to the
Registration Statement.
HEALTHSOUTH is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (Commission File No.
1-10315), and in accordance therewith files periodic reports, proxy statements
and other information with the SEC relating to its business, financial
statements and other matters. The Registration Statement, as well as such
reports, proxy statements and other information, may be inspected at the public
reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549 and should be available for inspection
and copying at the regional offices of the SEC located at Seven World Trade
Center, Suite 1300, New York, New York 10048, 5670 Wilshire Boulevard, 11th
Floor, Los Angeles, California 90036-3648; and Citicorp Center, 500 West Madison
Street, Room 1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained at prescribed rates by writing to the SEC, Public Reference Section,
450 Fifth Street, N.W., Washington, D.C. 20549. The SEC also maintains a web
site that contains reports, proxy and information statements and other
information regarding HEALTHSOUTH and the Registration Statement. The address at
that web site is http://www.sec.gov. The HEALTHSOUTH Common Stock is listed on
the New York Stock Exchange, and the Registration Statement, reports, proxy
statements and certain other information filed by HEALTHSOUTH should be
available for inspection at the library of the New York Stock Exchange, Inc., 20
Broad Street, 7th Floor, New York, New York 10005.
FORWARD-LOOKING STATEMENTS
Statements relating to HEALTHSOUTH contained in this Prospectus 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.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
This Prospectus 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.
There are hereby incorporated by reference in this Prospectus, and
specifically made a part hereof, the following documents heretofore filed by
HEALTHSOUTH (Commission File No. 1-10315) with the SEC, pursuant to the Exchange
Act:
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1. HEALTHSOUTH's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.
2. HEALTHSOUTH's Current Report on Form 8-K filed January 15, 1998
(reporting the consummation of the sale of the long-term care assets of
Horizon/CMS Healthcare Corporation to Integrated Health Services, Inc.).
3. HEALTHSOUTH's Current Report on Form 8-K filed April 3, 1998 (reporting
the consummation of the sale of the Debentures to the Initial Purchasers).
4. HEALTHSOUTH's definitive proxy statement on Schedule 14A filed on April
17, 1998, in connection with HEALTHSOUTH's 1998 Annual Meeting of Stockholders.
5. The description of HEALTHSOUTH's capital stock contained in
HEALTHSOUTH's Registration Statement on Form 8-A filed August 26, 1989.
All documents filed by HEALTHSOUTH pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of any offering hereunder shall be deemed to be incorporated by
reference into this Prospectus 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.
No person is authorized to give any information or to make any
representation not contained in this Prospectus, and, if given or made, such
information or representation should not be relied upon as having been
authorized. Neither the delivery of this Prospectus nor any distribution of the
securities to which this Prospectus relates shall, under any circumstances,
create any implication that there has been no change in the information
concerning HEALTHSOUTH contained in this Prospectus since the date of such
information.
The principal executive offices of HEALTHSOUTH are located at One
HealthSouth Parkway, Birmingham, Alabama 35243 and its telephone number is (205)
967-7116.
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THE COMPANY
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 December 31, 1997, HEALTHSOUTH had over 1,750 patient care locations in 50
states, the United Kingdom and Australia.
In its outpatient 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.
RECENT DEVELOPMENTS
On April 16, 1998, the Company 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 upon 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, including clearance
under the Hart-Scott-Rodino Antitrust Improvements Act.
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On May 6, 1998 HEALTHSOUTH announced the signing of a definitive agreement
to acquire National Surgery Centers, Inc. ("NSC"). The proposed NSC transaction
would add 40 outpatient surgery centers in 14 states to HEALTHSOUTH's existing
network of outpatient surgery and rehabilitative healthcare facilities. The
value of the NSC transaction is approximately $590 million. Under the terms of
the NSC agreement, NSC stockholders will receive shares of HEALTHSOUTH Common
Stock valued at $30.50 per share of NSC Common Stock, but not less than .8714 of
a share of HEALTHSOUTH Common Stock nor more than 1.1509 shares of HEALTHSOUTH
Common Stock. The NSC agreement does not provide for termination based on a
change in the stock price of either company. The NSC transaction is expected to
be accounted for as a pooling of interests and is intended to be a tax-free
reorganization. The NSC transaction is subject to approval by the NSC
stockholders and various regulatory approvals, including Hart-Scott-Rodino
clearance, as well as the satisfaction of certain other conditions, and also
provides for the payment of a break-up fee to HEALTHSOUTH under certain
conditions.
RISK FACTORS
In addition to the other information in this Prospectus, the following
should be considered carefully by potential purchasers of the Debentures or the
Shares. Statements made herein should be considered as "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 to various 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 pen-
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alties. The Office of Inspector General of the Department of Health and Human
Services, the Department of Justice and other federal agencies interpret
healthcare fraud and abuse provisions liberally and enforce them aggressively.
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 that
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. 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.
COMPUTER TECHNOLOGIES AND YEAR 2000 COMPLIANCE
The Company 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 the Company's mission-critical applications and if
that code will produce accurate information with relation to date-sensitive
calculations after the turn of the century.
The Company has completed a thorough review of its material computer
applications and determined that such applications contain very few
date-sensitive calculations. The Company's computer applications are divided
into two categories, those maintained internally by the Company'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. The Company 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, the Company 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 the Company related to externally maintained systems is expected to
be minimal.
The Company has initiated a program to determine whether the computer
applications of its significant payors and suppliers will be upgraded in a
timely manner. The Company has not completed this review; however, initial
responses indicate that no significant programs are currently expected to arise.
The Company has also initiated a program to determine whether embedded
applications which control certain medical and other equipment will be affected.
The nature of the Company'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 the Company's assessment is necessarily based on information
from third party vendors, payors and suppliers, there can be no assurance that
the Company's assessment is correct or as to the materiality or effect of any
failure to such assessment to be correct.
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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 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.
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 or director of Horizon/CMS has been involved in any violation of the
federal securities law, 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.
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In March 1995, the New York Stock Exchange (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.
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 of 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.
Stockholder Derivative Actions
Commencing in April and continuing into May 1996, Horizon/CMS was served
with nine complaints alleging a class action derivative action brought by
stockholders of Horizon/CMS for and on behalf of Horizon/CMS in the Court of
Chancery of New Castle County, Delaware, against certain then-current and former
directors of Horizon/CMS. The nine lawsuits have been consolidated into one
action styled In re Horizon/CMS Healthcare Corporation Shareholders Litigation.
The plaintiffs alleged, among other things, that Horizon/CMS's then-current and
former directors breached their fiduciary duties to Horizon/CMS and the
stockholders as a result of (i) the purported failure to supervise adequately
and the purported knowing mismanagement of the operations of Horizon/CMS, and
(ii) the purported misuse of inside information in connection with the sale of
Horizon/CMS's Common Stock by certain of the then-current and former directors
in January and February 1996. To that end, the plaintiffs sought an accounting
from the directors for profits to themselves and damages suffered by Horizon/CMS
as a
8
<PAGE>
result of the transaction complained of in the complaint and attorneys' fees and
costs. On June 21, 1996, the individual defendants filed a motion with the
Chancery Court seeking to dismiss this matter because, among other things, the
plaintiffs failed to make a demand on the board of directors prior to commencing
this litigation.
In April 1996, Horizon/CMS was served with a complaint in a stockholder's
derivative lawsuit styled Lind v. Rocco A. Ortenzio, Neal M. Elliott,
Klemett L. Belt, Jr., Robert A. Ortenzio, Russell L. Carson, Bryan C. Cressey,
Charles H. Gonzales, Michael A. Jeffries, Gerard M. Martin, frank M. McCord,
Raymond N. Noveck, Barry M. Portnoy, LeRoy S. Zimmerman and Horizon/CMS
Healthcare Corporation, No. CIV 96-0538-BB, pending in the United States
District Court for the District of New Mexico. The claims alleged by the
plaintiff, and the relief sought, were substantially identical to those in the
Delaware litigation. On February 24, 1998, the plaintiffs in the consolidated
Delaware case voluntarily dismissed their action without prejudice. The
plaintiff in the New Mexico case has likewise voluntarily dismissed his action
in April 1998.
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 of 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 National 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 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. On April 30, 1998 the court entered an order dismissing the
plaintiff's claim under Section 12(2) of the Securities Act of 1933 and denying
Horizon/LMS's motion to dismiss certain other claims of the plaintiff.
Horizon/CMS disputes the factual and legal assertions of the plaintiff in this
litigation and intends to vigorously contest the plaintiff's claims. Because
this litigation is at an early stage, HEALTHSOUTH cannot predict the length of
time it will take to resolve the litigation or the outcome or effect of the
litigation.
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
9
<PAGE>
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. 48-165121, 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
10
<PAGE>
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.
SUBORDINATION OF DEBENTURES
The Debentures are subordinate in right of payment to all current and
future Senior Indebtedness of the Company. Senior Indebtedness includes
indebtedness under the Company's bank credit facilities and all other
indebtedness of the Company that is not expressly made subordinate to, or pari
passu with, the Debentures. At December 31, 1997, the aggregate amount of the
Company's Senior Indebtedness was approximately $1,351,824,000. The Indenture
does not limit the amount of additional indebtedness, including Senior
Indebtedness, which the Company can create, incur, assume or guarantee. By
reason of such subordination of the Debentures, in the event of insolvency,
bankruptcy, liquidation, reorganization, dissolution or winding up of the
business of the Company or upon default in payment with respect to any Senior
Indebtedness of the Company or an event of default with respect to such
indebtedness resulting in the acceleration thereof, the assets of the Company
will be available to pay the amounts due on the Debentures only after all Senior
Indebtedness of the Company has been paid in full.
The majority of the Company's operations are conducted through subsidiaries
or partnerships, which are separate and distinct legal entities and have no
obligations, contingent or otherwise, to pay any amounts due pursuant to the
Debentures or make any funds available therefor, whether by dividends, loans or
other payments. The Debentures will be effectively subordinated to all
indebtedness and other liabilities and commitments (including trade payables and
lease obligations) of the Company's subsidiaries and partnerships. Any right of
the Company to receive assets of any such subsidiary or partnership upon the
liquidation or reorganization of any such subsidiary or partnership (and the
consequent right of the holders of the Debentures to participate in those
assets) will be effectively subordinated to the claims of that subsidiary's or
partnership's creditors.
LIMITATION ON ABILITY TO REPURCHASE UPON A REPURCHASE EVENT
In the event of a Repurchase Event, which includes a Change in Control and
a Termination of Trading (each as defined herein), each holder of Debentures
will have the right, at the holder's option, to require the Company to
repurchase all or a portion of such holder's Debentures at a purchase price
equal to 100% of the principal amount thereof plus accrued interest thereon to
the repurchase date. The Company's ability to repurchase the Debentures upon a
Repurchase Event may be limited by the terms of the Company's Senior
Indebtedness and the subordination provisions of the Indenture. Further, the
ability of the Company to repurchase Debentures upon a Repurchase Event will be
dependent on the availability of sufficient funds and compliance with applicable
securities laws. Accordingly, there can be no assurance that the Company will be
able to repurchase the Debentures upon a Repurchase Event. The term "Repurchase
Event" is limited to certain specified transactions and may not include other
events that might adversely affect the financial condition of the Company or
result in a downgrade of the credit rating (if any) of the Debentures nor would
the requirement that the Company offer to repur-
11
<PAGE>
chase the Debentures upon a Repurchase Event necessarily afford holders of the
Debentures protection in the event of a highly leveraged reorganization, merger
or similar transaction involving the Company. See "Description of Debentures".
POSSIBILITY VOLATILITY OF STOCK PRICE
The stock market, and in particular the healthcare industry segment, has
from time to time experienced significant price and volume fluctuations which,
in some circumstances, have been unrelated to the operating performance of
particular companies. The market price of HEALTHSOUTH Common Stock may be highly
volatile depending on various factors, including, but not limited to, the state
of the national economy, stock market conditions, industry research reports,
actions by governmental agencies, litigation involving the Company, earnings and
other announcements by the Company or its competitors and general conditions in
the outpatient surgery and rehabilitative healthcare services industries.
12
<PAGE>
USE OF PROCEEDS
All proceeds from any sales of the Debentures or the Conversion Shares by
the Selling Securityholders will inure to the benefit of the Selling
Securityholders. The Company will receive none of the proceeds from the sale of
the Debentures or the Conversion Shares offered hereby.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the Company's consolidated ratio of earnings
to fixed charges for the periods shown.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- -----------------------
ACTUAL PRO FORMA
---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges ......... 5.71x 3.31x 3.27x 4.61x 5.34x 6.03x
</TABLE>
For purposes of calculating ratio of earnings to fixed charges, (i)
earnings consist of consolidated income (loss) before income taxes and
nonrecurring changes, plus fixed charges, and (ii) fixed charges consist of
interest expense incurred and the portion of rental expense under operating
leases deemed by the Company to be representative of the interest factor. The
pro forma ratio reflects the sale of the Debentures and the application of the
net proceeds therefrom, assuming such sale and application occurred on January
1, 1997.
13
<PAGE>
SELLING SECURITYHOLDERS
The Debentures were originally issued by the Company in a private placement
and were resold by the initial purchasers thereof to qualified institutional
buyers (within the meaning of Rule 144A under the Securities Act) or other
institutional accredited investors (as defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act) in transactions exempt from registration under the
Securities Act, and in sales outside the United States to persons other than
U.S. persons in reliance upon Regulation S under the Securities Act. The
Debentures and the Conversion Shares that may be offered pursuant to this
Prospectus will be offered by the Selling Securityholders. The following table
sets forth certain information as of April , 1998, concerning the principal
amount of Debentures beneficially owned by each Selling Securityholder and the
number of Conversion Shares that may be offered from time to time pursuant to
this Prospectus.
From time to time, Smith Barney Inc. or its affiliates have provided, and
may continue to provide, investment banking services to the Company, for which
they received or will receive customary fees. An affiliate of NationsBanc
Montgomery Securities LLC provides commercial banking services to the Company,
including serving as agent for and a lender under the Company's existing credit
facilities, for which such affiliate has received or will receive customary
fees. None of the other Selling Securityholders has had any position, office or
other material relationship with the Company or its affiliates within the past
three years.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT NUMBER OF
OF DEBENTURES PERCENTAGE OF CONVERSION SHARES PERCENTAGE OF
BENEFICIALLY OWNED DEBENTURES THAT COMMON STOCK
NAME THAT MAY BE SOLD OUTSTANDING MAY BE SOLD(1) OUTSTANDING(2)
- ------------------------------------------------------ -------------------- --------------- ------------------- ---------------
<S> <C> <C> <C> <C>
Aloha Airlines Inc. Non-Pilots Pension Trust ......... $ 175,000 * 4,778 *
Aloha Airlines Pilots Retirement Trust ............... $ 100,000 * 2,730 *
The Americana Fund ................................... $ 110,000 * 3,003 *
American Community Mutual Insurance Com-
pany ................................................ $ 420,000 * 11,468 *
American Investors Life Insurance Company,
Inc. ................................................ $ 1,250,000 * 34,130 *
American Pioneer Life Insurance Company of
New York ............................................ $ 30,000 * 819 *
American Progressive Life & Health Insurance
Company of New York ................................. $ 30,000 * 819 *
American Public Entity Excess Pool ................... $ 70,000 * 1,911 *
American Republic Insurance Company .................. $ 700,000 * 19,113 *
AmWest Surety Insurance Company ...................... $ 470,000 * 12,833 *
Anthracite Mutual Life Insurance Company ............. $ 10,000 * 273 *
Argent Classic Convertible Arbitrage Fund (Ber-
muda) L.P. .......................................... $12,000,000 2.11% 327,645 *
Argent Classic Convertible Arbitrage Fund L.P.. $ 2,000,000 * 54,608 *
Aristeia International Limited ....................... $ 7,609,000 1.34% 207,754 *
Aristeia Trading L.L.C. .............................. $ 2,391,000 * 65,283 *
Arkansas PERS ........................................ $ 1,460,000 * 39,863 *
Associated Electric & Gas Insurance Services
Limited ............................................. $ 300,000 * 8,191 *
Associated Physicians Insurance Company .............. $ 40,000 * 1,092 *
BCS Life Insurance Company ........................... $ 550,000 * 15,017 *
Baltimore Life Insurance Company ..................... $ 45,000 * 1,229 *
Bancroft Convertible Fund, Inc. ...................... $ 1,000,000 * 27,304 *
Bank of Montreal Ireland PLC ......................... $10,000,000 1.76% 273,038 *
Bond Fund Series - Oppenheimer Bond Fund
for Growth .......................................... $ 8,000,000 1.41% 218,430 *
Bricklayers Local No. 6 Pension Plan ................. $ 200,000 * 5,461 *
CFW-C, L.P. .......................................... $ 3,500,000 * 95,563 *
Canadian Imperial Holdings, Inc. ..................... $ 6,000,000 1.06% 163,823 *
CareAmerica Life Insurance Company ................... $ 100,000 * 2,730 *
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT NUMBER OF
OF DEBENTURES PERCENTAGE OF CONVERSION SHARES PERCENTAGE OF
BENEFICIALLY OWNED DEBENTURES THAT COMMON STOCK
NAME THAT MAY BE SOLD OUTSTANDING MAY BE SOLD(1) OUTSTANDING(2)
- ----------------------------------------------- -------------------- --------------- ------------------- ---------------
<S> <C> <C> <C> <C>
Catholic Mutual Relief Society of America ..... $ 450,000 * 12,287 *
Catholic Mutual Relief Society of America Re-
tirement Plan & Trust ........................ $ 230,000 * 6,280 *
Catholic Relief Insurance Company of America. $ 450,000 * 12,287 *
Century National Insurance Company ............ $ 670,000 * 18,294 *
Chicago Mutual Company ........................ $ 60,000 * 1,638 *
Chrysler Insurance Company .................... $ 4,500,000 * 122,867 *
Commonwealth Dealers Life Insurance Com-
pany ......................................... $ 100,000 * 2,730 *
Concord Life Insurance Company ................ $ 180,000 * 4,915 *
Condor Insurance Company ...................... $ 40,000 * 1,092 *
CSA Fraternal Life Insurance Company .......... $ 100,000 * 2,730 *
Delaware PERS ................................. $ 1,000,000 * 27,304 *
Deutsche Bank A.G. ............................ $37,850,000 6.67% 1,033,447 *
Ellsworth Convertible Growth and Income Fund,
Inc. ......................................... $ 1,000,000 * 27,304 *
Employers Reinsurance Corp. ................... $ 1,250,000 * 34,130 *
Evergreen Balanced Fund ....................... $10,000,000 1.76% 273,038 *
Evergreen Fund for Total Return ............... $ 2,000,000 * 54,608 *
Farmers Home Mutual Insurance Company ......... $ 280,000 * 7,645 *
Federated Rural Electric Insurance Corporation. $ 240,000 * 6,553 *
Financial American Life Insurance Company ..... $ 40,000 * 1,092 *
First Patriot Insurance Company ............... $ 70,000 * 1,911 *
Fort Dearborn Life Insurance Company .......... $ 240,000 * 6,553 *
Frontier Insurance Company .................... $ 1,000,000 * 27,304 *
General Motors Investment Management Corp.. $ 5,000,000 * 136,519 *
Goodville Mutual Casualty Company ............. $ 40,000 * 1,092 *
Gopher State Mutual Insurance Company ......... $ 120,000 * 3,276 *
Grain Dealers Mutual Insurance ................ $ 190,000 * 5,188 *
GreatBanc Trust Company ....................... $ 70,000 * 1,911 *
Guarantee Trust Life Insurance Company ........ $ 1,000,000 * 27,304 *
Guaranty Income Life Insurance Company ........ $ 400,000 * 10,922 *
Guardian Life Insurance Company of America..... $ 9,500,000 1.67% 259,386 *
Guardian Master Pension Plan .................. $ 500,000 * 13,652 *
Hawaiian Airlines Employees Pension Plan -
IAM .......................................... $ 75,000 * 2,048 *
Hawaiian Airlines Pension Plan for Salaried Em-
ployees ...................................... $ 20,000 * 546 *
Hawaiian Airlines Pilots' Retirement Plan ..... $ 100,000 * 2,730 *
Highbridge Capital Corporation ................ $13,500,000 2.38% 368,601 *
Holy Family Society ........................... $ 50,000 * 1,365 *
ICI American Holdings Trust ................... $ 450,000 * 12,287 *
ISBA Mutual Insurance Company ................. $ 190,000 * 5,188 *
Illinois Founders Insurance ................... $ 80,000 * 2,184 *
Illinois Health Care Insurance Company ........ $ 90,000 * 2,457 *
Indiana Lumbermens Mutual Insurance Com-
pany ......................................... $ 460,000 * 12,560 *
Iruin Small ................................... $ 85,000 * 2,321 *
Island Insurance Convertible Account .......... $ 120,000 * 3,276 *
Jacobs Twin Buick Profit Sharing Plan ......... $ 75,000 * 2,048 *
Kanawha Insurance Company ..................... $ 50,000 * 1,365 *
Kapiolani Medical Center ...................... $ 150,000 * 4,096 *
Kennilworth Partners LP ....................... $ 750,000 * 20,478 *
Key Asset Management, Inc. as Agent for the
Charitable Securities Fund ................... $ 987,000 * 26,949 *
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT NUMBER OF
OF DEBENTURES PERCENTAGE OF CONVERSION SHARES PERCENTAGE OF
BENEFICIALLY OWNED DEBENTURES THAT COMMON STOCK
NAME THAT MAY BE SOLD OUTSTANDING MAY BE SOLD(1) OUTSTANDING(2)
- ----------------------------------------------------- -------------------- --------------- ------------------- ---------------
<S> <C> <C> <C> <C>
Key Asset Management, Inc. as Agent for the
EB Convertible Securities Fund ..................... $ 1,200,000 * 32,765 *
Key Asset Management, Inc. as Agent for the
Field Foundation of Illinois ....................... $ 60,000 * 1,638 *
Key Asset Management, Inc. as Agent for the
GenCorp Foundation ................................. $ 100,000 * 2,730 *
Key Asset Management, Inc. as Agent for the
Key Trust Convertible Securities Fund .............. $ 288,000 * 7,863 *
Key Asset Management, Inc. as Investment
Manager for the Health Foundation of Greater
Cincinnati (formerly known as The Choice-
Care Foundation) ................................... $ 210,000 * 5,734 *
Key Asset Management, Inc. as Investment
Manager for the Michigan Mutual Insurance
Company ............................................ $ 530,000 * 14,471 *
Key Asset Management, Inc. as Investment
Manager for the Potlatch-First Trust Company
of St. Paul ........................................ $ 475,000 * 12,969 *
Key Asset Management, Inc. as Investment
Manager for the University of South Florida
Foundation ......................................... $ 150,000 * 4,096 *
LCMS Foundation ..................................... $ 1,000,000 * 27,304 *
Lebanon Mutual Insurance Company .................... $ 80,000 * 2,184 *
Lincoln Mutual Life Insurance Company ............... $ 50,000 * 1,365 *
Lipper Convertibles, L.P. ........................... $ 3,000,000 * 81,911 *
Lipper Offshore Convertibles, L.P. .................. $ 500,000 * 13,652 *
Lone Star Life Insurance Company .................... $ 1,100,000 * 30,034 *
MFS Series Trust I - MFS Convertible Securi-
ties Fund .......................................... $ 6,000 * 164 *
MFS Series Trust V - MFS Total Return Fund. $ 1,944,000 * 53,078 *
McMahan Securities Company, L.P. .................... $ 1,100,000 * 30,034 *
Medical Liability Mutual Insurance Company .......... $25,000,000 4.40% 682,594 *
Medico Life Insurance Company ....................... $ 720,000 * 19,659 *
Medmarc Insurance Company ........................... $ 620,000 * 16,928 *
Mid America Life Insurance Company .................. $ 90,000 * 2,457 *
Middle Cities Risk Management Trust ................. $ 170,000 * 4,642 *
Midwest Security Life ............................... $ 250,000 * 6,826 *
Midwestern National Life Insurance Company of
Ohio ............................................... $ 400,000 * 10,922 *
Millers Casualty Insurance Company of Texas ......... $ 260,000 * 7,099 *
Millers Mutual Fire Insurance Company of Texas $ 1,300,000 * 35,495 *
Motion Picture Laboratory Pension Plan .............. $ 100,000 * 2,730 *
Motors Insurance Corp. .............................. $ 750,000 * 20,478 *
Mutual Protective Insurance Company. ................ $ 950,000 * 25,939 *
NCMIC ............................................... $ 380,000 * 10,375 *
NMS Services, Inc. .................................. $10,000,000 1.76% 273,038 *
Nalco Chemical Company .............................. $ 225,000 * 6,143 *
NationsBanc Montgomery Securities LLC ............... $15,500,000 2.73% 423,208 *
New Castle Mutual Insurance Company ................. $ 30,000 * 819 *
New York Life Insurance Company ..................... $10,000,000 1.76% 273,038 *
Nomura Securities (Bermuda) Ltd. .................... $ 3,000,000 * 81,911 *
The Northwestern Mutual Life Insurance Com-
pany ............................................... $ 4,000,000 * 109,215 *
Old Guard Fire Insurance Company .................... $ 180,000 * 4,915 *
Old Guard Insurance Company ......................... $ 420,000 * 11,468 *
Oppenheimer Total Return Fund, Inc. ................. $10,000,000 1.76% 273,038 *
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT NUMBER OF
OF DEBENTURES PERCENTAGE OF CONVERSION SHARES PERCENTAGE OF
BENEFICIALLY OWNED DEBENTURES THAT COMMON STOCK
NAME THAT MAY BE SOLD OUTSTANDING MAY BE SOLD(1) OUTSTANDING(2)
- ----------------------------------------------------- -------------------- --------------- ------------------- ---------------
<S> <C> <C> <C> <C>
Ozark National Life Insurance Company ............... $1,250,000 * 34,130 *
PRIM Board .......................................... $1,900,000 * 51,877 *
The Paul Revere Life Insurance Company .............. $2,500,000 * 68,259
Phico Insurance Company ............................. $ 320,000 * 8,737 *
Physicians Mutual Insurance Company ................. $ 210,000 * 5,734 *
Pioneer Insurance Company ........................... $ 80,000 * 2,184 *
Police & Firemen's Insurance Association ............ $ 90,000 * 2,457 *
Provident Life and Accident Insurance Company $2,500,000 * 68,259 *
Public Employees Retirement Association of
Colorado. .......................................... $1,000,000 * 27,304 *
Public Service Mutual Insurance Company ............. $ 800,000 * 21,843 *
Queens Healthcare Plan .............................. $ 65,000 * 1,775 *
Reassurance Company of Hanover ...................... $ 450,000 * 12,287 *
Regence Blue Cross/Blue Shield of Idaho ............. $ 120,000 * 3,276 *
Regence Blue Cross/Blue Shield of Oregon ............ $ 210,000 * 5,734 *
Regence Blue Cross/Blue Shield of Utah .............. $ 75,000 * 2,048 *
Regence Blue Cross/Blue Shield of Washington. $ 345,000 * 9,420 *
Sage Capital. ....................................... $1,500,000 * 40,956 *
Salomon Brothers Total Return Fund .................. $ 500,000 * 13,652 *
Secura Insurance, A Mutual Company .................. $ 440,000 * 12,014 *
Security Mutual Life Insurance ...................... $ 130,000 * 3,549 *
Service Life and Casualty Insurance Company ......... $ 60,000 * 1,638 *
Service Lloyds Insurance Company .................... $ 60,000 * 1,638 *
Shepherd Investments International Ltd. ............. $2,000,000 * 54,608 *
Southern Farm Bureau Life Insurance - FRIC. $ 800,000 * 21,843 *
Standard Mutual Insurance Company ................... $ 250,000 * 6,826 *
Stark International ................................. $2,000,000 * 54,608 *
Starvest- Discretionary ............................. $ 500,000 * 13,652 *
Starvest Diversified Fund- Managed .................. $ 150,000 * 4,096 *
Starvest- Investment Grade .......................... $ 375,000 * 10,239 *
State of Oregon Equity. ............................. $6,250,000 1.10% 170,648 *
State of Oregon/SAIF Corporation. ................... $5,250,000 * 143,345 *
Teachers Insurance and Annuity Association of
America ............................................ $5,000,000 * 136,519 *
Tennessee Consolidated Retirement System ............ $7,000,000 1.23% 191,126 *
Texas Builders Insurance Company .................... $ 120,000 * 3,276 *
Transguard Insurance of America Inc. ................ $ 830,000 * 22,662 *
Twin Life Insurance Company ......................... $ 55,000 * 1,502 *
United National Insurance Company. .................. $3,000,000 * 81,911 *
United Teacher Associates Insurance Company.. $1,500,000 * 40,956 *
Van Kampen American Capital Convertible Se-
curities Fund ...................................... $ 850,000 * 23,208 *
Van Kampen American Capital Harbor Fund ............. $5,150,000 * 140,614 *
Washington International Insurance Company .......... $ 300,000 * 8,191 *
Western Home Insurance Company ...................... $ 170,000 * 4,642 *
Westward Life Insurance Company ..................... $ 110,000 * 3,003 *
Wisconsin Lawyers Mutual Insurance Company. $ 140,000 * 3,823 *
Wisconsin Mutual Insurance Company .................. $ 110,000 * 3,003 *
World Insurance Company ............................. $ 520,000 * 14,198 *
Zeneca Holdings Trust ............................... $ 450,000 * 12,287 *
</TABLE>
- ----------
* Less than 1%.
(1) Assumes conversion of the full amount of Debentures held by such holder at
the initial conversion price of $36.625 per share; such conversion price is
subject to adjustment as described under "Description of the Debentures-
Conversion". Accordingly, the number of shares of Common Stock issuable
upon conversion of the Debentures may increase or decrease from time
17
<PAGE>
to time. Under the terms of the Indenture, fractional shares will not be
issued upon conversion of the Debentures; cash will be paid in lieu of
fractional shares, if any.
(2) Computed in accordance with Rule 13d-3(d)(i) promulgated under the Exchange
Act and based upon 399,952,582 shares of Common Stock outstanding as of
March 30, 1998, treating as outstanding the number of Conversion Shares
shown as being issuable upon the assumed conversion by the named holder of
the full amount of such holder's Debentures but not assuming the conversion
of the Debentures of any other holder.
The preceding table has been prepared based upon the information furnished
to the Company by The Bank of Nova Scotia Trust Company of New York, as trustee
(the "Trustee") for the Debentures, and by The Depository Trust Company ("DTC").
The Selling Securityholders identified above may have sold, transferred or
otherwise disposed of, in transactions exempt from the registration requirements
of the Securities Act, all or a portion of their Debentures since the date on
which the information in the preceding table is presented. Information
concerning the Selling Securityholders may change from time to time and any such
changed information will be set forth in supplements to this Prospectus if and
when necessary. Because the Selling Securityholders may offer all or some of the
Debentures or Conversion Shares that they hold pursuant to the offering
contemplated by this Prospectus, no estimate can be given as to the amount of
the Debentures or Conversion Shares that will be held by the Selling
Securityholders upon the termination of this offering. See "Plan of
Distribution".
18
<PAGE>
PLAN OF DISTRIBUTION
Pursuant to a Registration Rights Agreement dated as of March 17, 1998 (the
"Registration Rights Agreement"), between the Company and the initial purchasers
named therein (the "Initial Purchasers") entered into in connection with the
offering of the Debentures, the Registration Statement of which this Prospectus
forms a part was filed with the SEC covering the resale of the Debentures and
the Conversion Shares. The Company has agreed to use all reasonable efforts to
keep the Registration Statement effective until March 20, 2000 (or such earlier
date when the holders of the Conversion Shares are able to sell all such
Conversion Shares immediately without restriction pursuant to Rule 144(k) under
the Securities Act or any successor rule thereto or otherwise). The Company will
be permitted to suspend the use of this Prospectus (which is a part of the
Registration Statement) in connection with sales of Conversion Shares by holders
during certain periods of time under certain circumstances relating to pending
corporate developments and public filings with the SEC and similar events. The
specific provisions relating to the registration rights described above are
contained in the Registration Rights Agreement, and the foregoing summary is
qualified in its entirety by reference to the provisions of such agreement.
Sales of the Debentures and the Conversion Shares may be effected by or for
the account of the Selling Securityholders from time to time in transactions
(which may include block transactions in the case of the Conversion Shares) on
any exchange or market on which such securities are listed or quoted, as
applicable, in negotiated transactions, through a combination of such methods of
sale, or otherwise, at fixed prices that may be changed, at market prices
prevailing at the time of sale, at prices related to prevailing market prices,
or at negotiated prices. The Selling Securityholders may effect such
transactions by selling the Debentures or Conversion Shares directly to
purchasers, through broker-dealers acting as agents for the Selling
Securityholders, or to broker-dealers who may purchase Debentures or Conversion
Shares as principals and thereafter sell the Debentures or Conversion Shares
from time to time in transactions (which may include block transactions in the
case of the Conversion Shares) on any exchange or market on which such
securities are listed or quoted, as applicable, in negotiated transactions,
through a combination of such methods of sale, or otherwise. In effecting sales,
broker-dealers engaged by Selling Securityholders may arrange for other
broker-dealers to participate. Such broker-dealers, if any, may receive
compensation in the form of discounts, concessions or commissions from the
Selling Securityholders and/or the purchasers of the Debentures or Conversion
Shares from whom such broker-dealers may act as agents or to whom they may sell
as principals, or both (which compensation as to a particular broker-dealer
might be in excess of customary commissions).
The Selling Securityholders and any broker-dealers, agents or underwriters
that participate with the Selling Securityholders in the distribution of the
Debentures or Conversion Shares may be deemed to be "underwriters" within the
meaning of the Securities Act. Any commissions paid or any discounts or
concessions allowed to any such persons, and any profits received on the resale
of the Debentures or Conversion Shares offered hereby and purchased by them may
be deemed to be underwriting commissions or discounts under the Securities Act.
At the time a particular offering of the Debentures or the Conversion
Shares is made and to the extent required, the aggregate principal amount of
Debentures and number of Conversion Shares being offered, the name or names of
the Selling Securityholders, and the terms of the offering, including the name
or names of any underwriters, broker-dealers or agents, any discounts,
concessions or commissions and other terms constituting compensation from the
Selling Securityholders, and any discounts, concessions or commissions allowed
or reallowed or paid to broker-dealers, will be set forth in an accompanying
Prospectus Supplement.
Pursuant to the Registration Rights Agreement, the Company has agreed to
pay all expenses incident to the offer and sale of the Debentures and Conversion
Shares offered by the Selling Securityholders hereby, except that the Selling
Securityholders will pay all underwriting discounts and selling commissions, if
any. The Company has agreed to indemnify the Selling Securityholders against
certain liabilities, including liabilities under the Securities Act, and to
contribute to payments the Selling Securityholders may be required to make in
respect thereof.
19
<PAGE>
To comply with the securities laws of certain jurisdictions, if applicable,
the Debentures and the Conversion Shares offered hereby will be offered or sold
in such jurisdictions only through registered or licensed brokers or dealers.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of the Debentures or the Conversion Shares may be
limited in its ability to engage in market activities with respect to such
Debentures or Conversion Shares. In addition and without limiting the foregoing,
each Selling Securityholder will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of purchase and sales of any of the Debentures and Conversion
Shares by the Selling Securityholders. The foregoing may affect the
marketability of the Debentures and the Conversion Shares.
From time to time, Smith Barney Inc. or its affiliates have provided, and
may continue to provide, investment banking services to the Company for which
they received or will receive customary fees. See "Selling Securityholders".
DESCRIPTION OF DEBENTURES
The Debentures were issued under an indenture dated as of March 20, 1998
(the "Indenture") between the Company and the Trustee. The following summaries
of certain provisions of the Indenture do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all of the
provisions of the Indenture, including the definition therein of certain terms.
Wherever particular sections or defined terms of the Indenture are referred to,
such sections or defined terms are incorporated herein by reference. Copies of
the proposed form of Indenture are available from the Company or the Initial
Purchasers upon request.
GENERAL
The Debentures are unsecured obligations of the Company, are limited to
$575,000,000 in aggregate principal amount (including the Initial Purchasers'
over-allotment option, which expired on April 20, 1998, with $67,750,000 of such
over-allotment option having been exercised) and will mature on April 1, 2003.
The Debentures bear interest at the rate of 3.25% per annum from the date of
original issuance of Debentures pursuant to the Indenture, or from the most
recent Interest Payment Date to which interest has been paid or provided for,
payable semiannually on April 1 and October 1 of each year, commencing October
1, 1998, to the Person in whose name the Debenture (or any predecessor
Debenture) is registered at the close of business on the preceding March 15 or
September 15, as the case may be. Interest on the Debentures will be paid on the
basis of a 360-day year of twelve 30-day months.
The Debentures are issued in registered form, without coupons and in
denominations of $1,000 or any integral multiple thereof. No service charge will
be made for any transfer or exchange of the Debentures, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge and any other expenses (including the fees and expenses of the Trustee)
payable in connection therewith. The Company is not required (i) to issue,
register the transfer of or exchange any Debentures during a period beginning at
the opening of business 15 days before the day of the mailing of a notice of
redemption and ending at the close of business on the day of such mailing, or
(ii) to register the transfer of or exchange any Debenture selected for
redemption in whole or in part, except the unredeemed portion of Debentures
being redeemed in part.
The Indenture does not contain any provisions that would provide protection
to Holders of the Debentures against a sudden and dramatic decline in credit
quality of the Company resulting from any takeover, recapitalization or similar
restructuring, except as described below under "Certain Rights to Require
Repurchase of Debentures".
CONVERSION RIGHTS
The Debentures are convertible into Common Stock at any time prior to
redemption or final maturity, initially at the conversion price of $36.625 per
share (resulting in an initial conversion ratio of 27.30 shares per $1,000
principal amount). The right to convert Debentures which have been called for
redemption will terminate at the close of business on the second business day
preceding the Redemption Date. See "Optional Redemption" below.
20
<PAGE>
The conversion price is subject to adjustment upon the occurrence of any of
the following events: (i) the subdivision, combination or reclassification of
outstanding shares of Common Stock; (ii) the payment in shares of Common Stock
of a dividend or distribution on any class of capital stock of the Company;
(iii) the issuance of rights or warrants to all holders of Common Stock
entitling them to acquire shares of Common Stock at a price per share less than
the Current Market Price; (iv) the distribution to holders of Common Stock of
shares of capital stock other than Common Stock, evidences of indebtedness, cash
or assets (including securities, but excluding dividends or distributions paid
exclusively in cash and dividends, distributions, rights and warrants referred
to above); (v) a distribution consisting exclusively of cash (excluding any cash
distributions referred to in (iv) above) to all holders of Common Stock in an
aggregate amount that, together with (A) all other cash distributions (excluding
any cash distributions referred to in (iv) above) made within the 12 months
preceding such distribution and (B) any cash and the fair market value of other
consideration payable in respect of any tender offer by the Company or a
subsidiary of the Company for the Common Stock consummated within the 12 months
preceding such distribution, exceeds 12.5% of the Company's market
capitalization (determined as provided in the Indenture) on the date fixed for
determining the stockholders entitled to such distribution; and (vi) the
consummation of a tender offer made by the Company or any subsidiary of the
Company for the Common Stock which involves an aggregate consideration that,
together with (X) any cash and other consideration payable in respect of any
tender offer by the Company or a subsidiary of the Company for the Common Stock
consummated within the 12 months preceding the consummation of such tender offer
and (Y) the aggregate amount of all cash distributions (excluding any cash
distributions referred to in (iv) above) to all holders of the Common Stock
within the 12 months preceding the consummation of such tender offer, exceeds
12.5% of the Company's market capitalization at the date of consummation of such
tender offer. No adjustment of the conversion price is required to be made until
cumulative adjustments amount to at least one percent of the conversion price,
as last adjusted. Any adjustment that would otherwise be required to be made
shall be carried forward and taken into account in any subsequent adjustment.
In addition to the foregoing adjustments, the Company from time to time
may, to the extent permitted by law, reduce the conversion price of the
Debentures by any amount for any period of at least 20 days, in which case the
Company shall give at least 15 days notice of such decrease. The Company will
also be permitted to reduce the conversion price to such extent as it considers
to be advisable in order that any event treated for federal income tax purposes
as a dividend of stock or stock rights will not be taxable to the holders of the
Common Stock or, if that is not possible, to diminish any income taxes that are
otherwise payable because of such event. In the case of any consolidation or
merger of the Company with any other corporation (other than one in which no
change is made in the Common Stock), or any sale or transfer of all or
substantially all of the assets of the Company, the Holder of any Debenture then
outstanding will, with certain exceptions, have the right thereafter to convert
such Debenture only into the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, sale or transfer by a
holder of the number of shares of Common Stock into which such Debenture might
have been converted immediately prior to such consolidation, merger, sale or
transfer; and adjustments will be provided for events subsequent thereto that
are as nearly equivalent as practical to the conversion price adjustments
described above.
Fractional shares of Common Stock will not be issued upon conversion, but,
in lieu thereof, the Company will pay a cash adjustment based upon the then
Closing Price at the close of business on the day of conversion. If any
Debentures are surrendered for conversion during the period from the close of
business on any Regular Record Date through and including the next succeeding
Interest Payment Date (except any such Debentures called for redemption on a
redemption date occurring on or before such Interest Payment Date), such
Debentures when surrendered for conversion must be accompanied by payment in
next day funds of an amount equal to the interest thereon which the registered
Holder on such Regular Record Date is to receive. Except as described in the
preceding sentence, no interest will be payable by the Company on converted
Debentures with respect to any Interest Payment Date subsequent to the date of
conversion. No other payment or adjustment for interest or dividends is to be
made upon conversion.
21
<PAGE>
SUBORDINATION
No payment or distribution of any assets of the Company of any kind or
character (other than payments of amounts already deposited in accordance with
the defeasance provisions of the Indenture) will be made on account of
Subordinated Obligations or on account of the purchase, redemption or other
acquisition of the Debentures upon the occurrence of any default in the payment
of any Senior Indebtedness in excess of $5,000,000 beyond any applicable grace
period, unless and until such default is cured or waived or ceases to exist or
such Senior Indebtedness is discharged.
During the continuance of any non-payment event of default with respect to
any Designated Senior Indebtedness pursuant to which the maturity thereof may be
accelerated, no payment or distribution of any assets of the Company of any kind
or character may be made by the Company on account of Subordinated Obligations
or on account of the purchase, redemption or other acquisition of the Debentures
for the period specified below (the "Payment Blockage Period"). The Payment
Blockage Period shall commence upon the receipt of notice by the Company and the
Trustee from any representative of a holder of Designated Senior Indebtedness
and shall end on the earlier of (i) 179 days thereafter, (ii) the date on which
such event is cured or waived or ceases to exist or on which such Designated
Senior Indebtedness is discharged, (iii) the date on which the maturity of any
Indebtedness (other than Senior Indebtedness) shall have been accelerated by
virtue of such event, or (iv) the date on which such Payment Blockage Period
shall have been terminated by notice to the Company or the Trustee from the
representative of holders of the Designated Senior Indebtedness initiating such
Payment Blockage Period, after which the Company shall resume making any and all
required payments in respect of the Debentures, including any missed payments.
Only one Payment Blockage Period may be commenced during any period of 365
consecutive days. No event of default with respect to Designated Senior
Indebtedness that existed or was continuing on the date of the commencement of
any Payment Blockage Period with respect to the Designated Senior Indebtedness
initiating such Payment Blockage Period will be, or can be, made the basis for
the commencement of a second Payment Blockage Period whether or not within a
period of 365 consecutive days, unless such event of default has been cured or
waived for a period of not less than 90 consecutive days. In no event will a
Payment Blockage Period extend beyond 179 days.
The payment of the principal of and premium, if any, and interest on the
Debentures will, to the extent set forth in the Indenture, be subordinated in
right of payment to the prior payment in full of all Senior Indebtedness. If
there is a payment or distribution of assets to creditors upon any liquidation,
dissolution, winding up, reorganization, assignment for the benefit of
creditors, marshalling of assets or any bankruptcy, insolvency or similar
proceedings of the Company, the holders of all Senior Indebtedness will be
entitled to receive payment in full of all amounts due or to become due thereon
or provision for such payment in money or money's worth before the Holders of
the Debentures will be entitled to receive any payment in respect to the
principal of or premium, if any, or interest on the Debentures. In the event of
the acceleration of the maturity of the Debentures, the holders of all Senior
Indebtedness will first be entitled to receive payment in full in cash of all
amounts due thereon or provision for such payment in money or money's worth
before the Holders of the Debentures will be entitled to receive any payment for
the principal of or premium, if any, or interest on the Debentures. No payments
on account of principal of or premium, if any, or interest on the Debentures or
on account of the purchase or acquisition of Debentures may be made if there has
occurred and is continuing a default in any payment with respect to Senior
Indebtedness, any acceleration of the maturity of any Senior Indebtedness or if
any judicial proceeding is pending with respect to any such default.
Senior Indebtedness is defined in the Indenture as all indebtedness,
liabilities and other obligations of the Company, other than the Debentures,
whether existing on the date of execution of the Indenture or thereafter
created, incurred or assumed, except any such other indebtedness, liabilities or
other obligations that by their terms or by operation of law are subordinated
to, or subordinated on a parity with, the Debentures. The Debentures will rank
pari passu with the Company's 9.5% Senior Subordinated Notes due 2001 (the
"Notes") and any securities which may be issued in the future on a parity with
the Notes.
22
<PAGE>
Designated Senior Indebtedness is defined in the Indenture as (i) amounts
now or hereafter outstanding under the Company's existing bank credit facilities
or indebtedness incurred to extend, refund or refinance such amounts and (ii)
any Senior Indebtedness which, at the time of determination, has an aggregate
principal amount outstanding of at least $20,000,000 and is specifically
designated in the instrument evidencing such Senior Indebtedness as "Designated
Senior Indebtedness" by the Company.
The Indenture does not limit or prohibit the incurrence of Senior
Indebtedness by the Company or the Subsidiaries. After giving effect to the sale
of the Debentures and the application of the net proceeds therefrom as though it
had occurred on December 31, 1997, the amount of Senior Indebtedness on a pro
forma basis was approximately $794,010,000.
The Indenture provides that the Company shall not create, incur, assume or
suffer to exist any indebtedness that is subordinate in right of payment to any
Senior Indebtedness unless such indebtedness is subordinate in right of payment
to, or ranks pari passu with, the Debentures.
OPTIONAL REDEMPTION
The Debentures are redeemable, at the Company's option, in whole or from
time to time in part, at any time on or after April 5, 2001, upon not less than
30 nor more than 60 days' notice mailed to each Holder of Debentures to be
redeemed at its address appearing in the Security Register and prior to Maturity
at the following Redemption Prices (expressed as percentages of the principal
amount) plus accrued interest to the Redemption Date (subject to the right of
Holders of record on the relevant Regular Record Date to receive interest due on
an Interest Payment Date that is on or prior to the Redemption Date).
If redeemed during the 12-month period beginning April 1 in the year
indicated (April 5, in the case of 2001), the redemption price shall be:
YEAR REDEMPTION PRICE
--------------------------- -----------------
2001 .................... 101.30%
2002 .................... 100.65%
No sinking fund is provided for the Debentures.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Indenture provides that the Company will not consolidate with or merge
into any other Person or convey, transfer or lease its properties and assets
substantially as an entity to any Person, or permit any Person to consolidate
with or merge into the Company or convey, transfer or lease its properties
substantially as all entirely to the Company, unless (a) if applicable, the
Person formed by such consolidation or into which the Company is merged or the
Person or corporation which acquires the properties and assets of the Company
substantially as an entirely is a corporation, partnership or trust organized
and validly existing under the laws of the United States or any state thereof or
the District of Columbia and expressly assumes payment of the principal of and
premium, if any, and interest on the Debentures and performance and observance
of each obligation of the Company under the Indenture, (b) after consummating
such consolidation, merger, transfer or lease, no Default or Event of Default
will occur and be continuing, (c) such consolidation, merger or acquisition does
not adversely affect the validity or enforceability of the Debentures and (d)
the Company has delivered to the Trustee an Officer's Certificate and an Opinion
of Counsel, each stating that such consolidation, merger, conveyance, transfer
or lease complies with the provisions of the Indenture.
CERTAIN RIGHTS TO REQUIRE REPURCHASE OF DEBENTURES
In the event of any Repurchase Event (as defined below) occurring after the
date of issuance of the Debentures and on or prior to Maturity, each Holder of
Debentures will have the right, at the Holder's option, to require the Company
to repurchase all or any part of the Holder's Debentures on the date (the
"Repurchase Date") that is 30 days after the date the Company gives notice of
the Repurchase
23
<PAGE>
Event as described below at a price (the "Repurchase Price") equal to 100% of
the principal amount thereof, together with accrued and unpaid interest to the
Repurchase Date. On or prior to the Repurchase Date, the Company shall deposit
with the Trustee or a Paying Agent an amount of money sufficient to pay the
Repurchase Price of the Debentures which are to be repaid on or promptly
following the Repurchase Date.
Failure by the Company to provide timely notice of a Repurchase Event, as
provided for below, or to repurchase the Debentures when required under the
preceding paragraph will result in an Event of Default under the Indenture
whether or not such repurchase is permitted by the subordination provisions of
the Indenture.
On or before the 15th day after the occurrence of a Repurchase Event, the
Company is obligated to mail to all Holders of Debentures a notice of the
occurrence of such Repurchase Event and identifying the Repurchase Date, the
date by which the repurchase right must be exercised, the Repurchase Price for
Debentures and the procedures which the Holder must follow to exercise this
right. To exercise the repurchase right, the Holder of a Debenture must deliver,
on or before the close of business on the Repurchase Date, written notice to the
Company (or an agent designated by the Company for such purpose) and to the
Trustee of the Holder's exercise of such right, together with the certificates
evidencing the Debentures with respect to which the right is being exercised,
duly endorsed for transfer.
A "Repurchase Event" shall have occurred upon the occurrence of a Change in
Control or a Termination of Trading (each as defined below).
A "Change in Control" shall occur when: (i) all or substantially all of the
Company's assets are sold as an entirety to any person or related group of
persons; (ii) there shall be consummated any consolidation or merger of the
Company (A) in which the Company is not the continuing or surviving corporation
(other than a consolidation or merger with a wholly owned subsidiary of the
Company in which all shares of Common Stock outstanding immediately prior to the
effectiveness thereof are changed into or exchanged for the same consideration)
or (B) pursuant to which the Common Stock would be converted into cash,
securities or other property, in each case other than a consolidation or merger
of the Company in which the holders of the Common Stock immediately prior to the
consolidation or merger have, directly or indirectly, at least a majority of the
total voting power of all classes of capital stock entitled to vote generally in
the election of directors of the continuing or surviving corporation immediately
after such consolidation or merger in substantially the same proportion as their
ownership of Common Stock immediately before such transaction; (iii) any person,
or any persons acting together which would constitute a "group" for purposes of
Section 13(d) of the Exchange Act, together with any affiliates thereof, shall
beneficially own (as defined in Rule 13d-3 under the Exchange Act) at least 50%
of the total voting power of all classes of capital stock of the Company
entitled to vote generally in the election of directors of the Company; (iv) at
any time during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the stockholders of the Company was approved by
a vote of 66-2/3% of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Company then in office; or (v) the
Company is liquidated or dissolved or adopts a plan of liquidation or
dissolution.
A "Termination of Trading" shall occur if the Common Stock (or other common
stock into which the Debentures are then convertible) is neither listed for
trading on a U.S. national securities exchange nor approved for trading on an
established automated over-the-counter trading market in the United States.
The right to require the Company to repurchase Debentures as a result of
the occurrence of a Repurchase Event could create an event of default under
Senior Indebtedness as a result of which any repurchase could, absent a waiver,
be blocked by the subordination provisions of the Debentures. See
"Subordination". Contractual limitations imposed by other indebtedness may also,
absent a waiver, restrict or prohibit repurchases under certain circumstances.
24
<PAGE>
In the event a Repurchase Event occurs and the Holders exercise their
rights to require the Company to repurchase Debentures, the Company intends to
comply with applicable tender offer rules under the Exchange Act, including
Rules 13e-4 and 14e-1, as then in effect, with respect to any such purchase.
The foregoing provisions would not necessarily afford Holders of the
Debentures protection in the event of highly leveraged or other transactions
involving the Company that may adversely affect Holders. In addition, the
foregoing provisions may discourage open market purchases of the Common Stock or
a non-negotiated tender or exchange offer for such stock and, accordingly, may
limit a stockholder's ability to realize a premium over the market price of the
Common Stock in connection with any such transaction.
EVENTS OF DEFAULT
The following are Events of Default under the Indenture with respect to the
Debentures: (a) default in the payment of principal of or any premium on any
Debenture when due; (b) default in the payment of any interest on any Debenture
when due, which default continues for 30 days; (c) failure to provide timely
notice of a Repurchase Event as required by the Indenture; (d) default in the
payment of the Repurchase Price in respect of any Debenture on the Repurchase
Date therefor; (e) default in the performance of any other covenant of the
Company in the Indenture which continues for 60 days after written notice as
provided in the Indenture; (f) default under any bond, debenture, note or other
evidence of indebtedness for money borrowed by the Company or any subsidiary of
the Company or under any mortgage, indenture or instrument under which there may
be issued or by which there may be secured or evidenced any indebtedness for
money borrowed by the Company or any subsidiary of the Company, whether such
indebtedness now exists or shall hereafter be created, which default shall
constitute a failure to pay the principal of indebtedness in excess of
$25,000,000 when due and payable after the expiration of any applicable grace
period with respect thereto or shall have resulted in indebtedness in excess of
$25,000,000 becoming or being declared due and payable prior to the date on
which it would otherwise have become due and payable, without such indebtedness
having been discharged, or such acceleration having been rescinded or annulled,
within a period of 10 days after there shall have been given to the Company by
the Trustee or to the Company and the Trustee by the Holders of at least 25% in
aggregate principal amount of the Outstanding Debentures a written notice
specifying such default and requiring the Company to cause such indebtedness to
be discharged or cause such acceleration to be rescinded or annulled; and (g)
certain events of bankruptcy, insolvency or reorganization of the Company or any
Significant Subsidiary of the Company. The Events of Default described in
clauses (a), (b) and (d) of the preceding sentence are without regard to whether
the respective payments are prohibited by the subordination provisions of the
Indenture.
If an Event of Default with respect to the Debentures shall occur and be
continuing, the Trustee or the Holders of not less than 25% in aggregate
principal amount of the Outstanding Debentures may declare the principal of and
premium, if any, on all such Debentures to be due and payable immediately, but
if the Company cures all Events of Default (except the nonpayment of interest
on, premium, if any, and principal of any Debentures) and certain other
conditions are met, such declaration may be canceled and past defaults may be
waived by the holders of a majority in principal amount of Outstanding
Debentures. If an Event of Default shall occur as a result of an event of
bankruptcy, insolvency or reorganization of the Company or any Significant
Subsidiary of the Company, the aggregate principal amount of the Debentures
shall automatically become due and payable. The Company is required to furnish
to the Trustee annually a statement as to the performance by the Company of
certain of its obligations under the Indenture and as to any default in such
performance. The Indenture provides that the Trustee may withhold notice to the
Holders of the Debentures of any continuing default (except in the payment of
the principal of or premium, if any, or interest on any Debentures) if the
Trustee considers it in the interest of Holders of the Debentures to do so.
MODIFICATION, AMENDMENTS AND WAIVERS
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the holders of not less than a majority of the aggregate
principal amount of the Outstanding Debentures, to execute a supplemental
indenture to add provisions to, or change in any manner or eliminate any
25
<PAGE>
provisions of, the Indenture or modify in any manner the rights of Holders of
the Debentures, provided that without the consent of each holder of Outstanding
Debentures, no supplemental indenture may (i) change the stated maturity of the
principal of, or any installment of interest on, any Debenture, or reduce the
principal amount thereof or the rate of interest thereon or any premium payable
upon the redemption thereof, or change the place of payment where, or the coin
or currency in which, any Debenture or any premium or interest thereon is
payable, or impair the right to institute suit for enforcement of any such
payment on or after the stated maturity thereof (or, in the case of redemption,
on or after the redemption date) or modify the provisions of the Indenture with
respect to the subordination of the Debentures in a manner adverse to the
Holders, (ii) adversely affect the right to convert the Debentures as provided
in the Indenture, (iii) impair the right of Holders of Debentures to require the
Company to repurchase Debentures upon the occurrence of a Repurchase Event or
(iv) reduce the percentage in principal amount of Outstanding Debentures, the
consent of whose Holders is required for any waiver of compliance with certain
provisions of the Indenture or certain defaults thereunder.
Modifications and amendments of the Indenture may be made by the Company
and the Trustee without the consent of the Holders to: (a) cause the Indenture
to be qualified under the Trust Indenture Act; (b) evidence the succession of
another Person to the Company and the assumption by any such successor of the
covenants of the Company herein and in the Debentures; (c) add to the covenants
of the Company for the benefit of the Holders or an additional Event of Default,
or surrender any right or power conferred upon the Company; (d) secure the
Debentures; (e) make provision with respect to the conversion rights of Holders
in the event of a consolidation, merger or sale of assets involving the Company,
as required by the Indenture; (f) evidence and provide for the acceptance of
appointment by a successor Trustee with respect to the Debentures; or (g) cure
any ambiguity, correct or supplement any provision which may be defective or
inconsistent with any other provision, or make any other provisions with respect
to matters or questions arising under the Indenture which shall not be
inconsistent with the provisions of the Indenture; provided, however, that no
such modifications or amendment may adversely affect the interest of Holders in
any material respect.
SATISFACTION AND DISCHARGE
The Company may discharge its obligations under the Indenture while
Debentures remain Outstanding if (a) all Outstanding Debentures will become due
and payable at their scheduled maturity within one year or (b) all Outstanding
Debentures are scheduled for redemption within one year, and in either case the
Company has deposited with the Trustee an amount sufficient to pay and discharge
all Outstanding Debentures on the date of their scheduled maturity or the
scheduled date of redemption.
FORM, DENOMINATION AND REGISTRATION
The Debentures are issued in fully registered form, without coupons, in
denominations of $1,000 in principal amount and integral multiples thereof.
Global Debentures; Book-Entry Form. Debentures offered in reliance on Rule
144A are evidenced by a global debenture (hereinafter referred to as the "Rule
144A Global Debenture") and Debentures offered in reliance on Regulation S are
evidenced by a global debenture (hereinafter referred to as the "Regulation S
Global Debenture", and together with the Rule 144A Global Debenture, the "Global
Debentures"). The Global Debentures are deposited with, or on behalf of, the DTC
and registered in the name of Cede & Co. ("Cede") as DTC's nominee. Beneficial
interests in the Regulation S Global Debenture may only be held through the
Euroclear System or Cede. Except as set forth below, the Global Debentures may
be transferred, in whole or in part, only to another nominee of DTC or to a
successor of DTC or its nominee. The Rule 144A Global Debenture will be (i)
reduced in principal amount to reflect the subsequent transfer by owners of
beneficial interests in the Rule 144A Global Debenture to persons other than
Qualified Institutional Buyers pursuant to Rule 144A under the Securities Act
and (ii) increased in principal amount to reflect the subsequent transfer of
Debentures to Qualified Institutional Buyers pursuant to Rule 144A. The
Regulation S Global Debenture will be (i) reduced in principal amount to reflect
the subsequent transfer by owners of beneficial interests in the
26
<PAGE>
Regulation S Global Debenture to persons other than persons acquiring such
Debentures in compliance with Regulation S under the Securities Act and (ii)
increased in principal amount to reflect the subsequent transfer of Debentures
to persons acquiring such Debentures in compliance with Regulation S under the
Securities Act.
The Holders of Debentures may hold their interests in the Global Debentures
directly through DTC if such Holder is a participant in DTC, or indirectly
through organizations which are participants in DTC (the "Participants").
Transfers between Participants will be effected in the ordinary way in
accordance with DTC rules and will be settled in same day funds. The laws of
some states require that certain persons take physical delivery of securities in
definitive form. Consequently, the ability to transfer beneficial interests in
the Global Debentures to such persons may be limited.
The Holders of Debentures who are not Participants may beneficially own
interests in the Global Debentures held by DTC only through Participants or
certain banks, brokers, dealers, trust companies and other parties that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly ("Indirect Participants"). So long as Cede, as the nominee of DTC,
is the registered owner of the Global Debentures, Cede for all purposes will be
considered the sole holder of the Global Debentures.
Payment of interest on and the redemption price (upon redemption at the
option of the Company or at the option of the Holder upon a Repurchase Event) of
the Global Debentures will be made to Cede, the nominee for DTC, as the
registered owner of the Global Debentures, by wire transfer of immediately
available funds. Neither the Company, the Trustee nor any paying agent will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global
Debentures or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
With respect to any payment of interest on and the redemption price (upon
redemption at the option of the Company or at the option of the Holder upon a
Repurchase Event) of the Global Debentures, DTC's practice is to credit
Participants' accounts on the payment date therefor with payments in amounts
proportionate to their respective beneficial interests in the Debentures
represented by the Global Debentures as shown on the records of DTC, unless DTC
has reason to believe that it will not receive payment on such payment date.
Payments by Participants to owners of beneficial interests in Debentures
represented by the Global Debentures held through such Participants will be the
responsibility of such Participants, as is now the case with securities held for
the accounts of customers registered in "street name".
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a person
having a beneficial interest in Debentures represented by the Global Debentures
to pledge such interest to persons or entities that do not participate in the
DTC system, or otherwise take actions in respect of such interest, may be
affected by the lack of a physical certificate evidencing such interest.
Neither the Company nor the Trustee (or any registrar, paying agent or
conversion agent under the Indenture) has any responsibility for the performance
by DTC or its Participants or Indirect Participants of their respective
obligations under the rules and procedures governing their operations. DTC has
advised the Company that it will take any action permitted to be taken by a
holder of Debentures only at the direction of one or more Participants whose
accounts are credited with DTC interests in a Global Debenture.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a "banking
organization" within the meaning of the New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and to facilitate the clearance and settlement
of securities transactions, such as transfers and pledges, among Participants in
deposited securities through electronic book-entry changes to accounts of its
Participants,
27
<PAGE>
thereby eliminating the need for physical movement of securities certificates.
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. Certain of such
Participants (or their representatives), together with other entities, own DTC.
The rules applicable to DTC and its Participants are on file with the SEC.
Purchases of Debentures under the DTC system must be made by or through
Participants which will receive a credit for the Debentures on DTC's records.
The ownership interest of each actual purchaser of each Debenture (a "Beneficial
Owner") is in turn to be recorded on the Participants' and Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchase, but Beneficial Owners are expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Participant or Indirect Participant
through which the Beneficial Owner entered into the transaction. Transfers of
ownership interests in the Debentures are to be accomplished by entries made on
the books of Participants acting on behalf of Beneficial Owners. Beneficial
Owners will not receive certificates representing their ownership interests in
Debentures, except in the event that use of the book-entry system for the
Debentures is discontinued.
The deposit of Debentures with DTC and their registration in the name of
Cede effect no change in beneficial ownership. DTC has no knowledge of the
actual Beneficial Owners of the Debentures; DTC's records reflect only the
identity of the Participants to whose accounts such Debentures are credited,
which may or may not be the Beneficial Owners. The Participants will remain
responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Participants, by
Participants to Indirect Participants and by Participants and Indirect
Participants to Beneficial Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements that may be in effect from
time to time. Redemption notices shall be sent to Cede. If less than all of the
Debentures due are being redeemed, DTC's practice is to determine by lot the
interest of each Participant in such Debentures due to be redeemed.
DTC may discontinue providing its services as securities depositary with
respect to the Debentures at any time by giving reasonable notice to the
Company. In the event that DTC notifies the Company that it is unwilling or
unable to continue as depositary for any Global Debenture or if at any time DTC
ceases to be a clearing agency registered as such under the Exchange Act when
DTC is required to be so registered to act as such depositary and no successor
depositary shall have been appointed within 90 days of such notification or of
the Company becoming aware of DTC's ceasing to be so registered, as the case may
be, certificates for the Debentures will be printed and delivered in exchange
for interests in such Global Debenture. Any Global Debenture that is
exchangeable pursuant to the preceding sentence shall be exchangeable for
Debentures registered in such names as DTC shall direct. It is expected that
such instructions will be based upon directions received by DTC from its
Participants with respect to ownership of beneficial interests in such Global
Debenture.
The Company may decide to discontinue use of the system of book-entry
transfers thorough DTC (or a successor securities depository). In that event,
certificates representing the Debentures will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company believes to be reliable, but the
Company does not take responsibility for the accuracy thereof.
Certificated Debentures. Debentures sold to investors that are neither
Qualified Institutional Buyers nor persons acquiring such Debentures in
compliance with Regulation S under the Securities Act will be issued in
definitive registered form and may not be evidenced by a Global Debenture.
Qualified Institutional Buyers may request that their Debentures be issued in
definitive registered form. In addition, certificated Debentures may be issued
in exchange for Debentures represented by the Global Debentures if no successor
depositary is appointed by the Company as set forth above under the paragraph
entitled "Global Debentures; Book-Entry Form".
Restrictions on Transfer; Legends. The Debentures, and the Common Stock
into which they may be converted, will be subject to certain transfer
restrictions as described below under the caption "Notice to Investors", and
certificates evidencing the Debentures will bear a legend to such effect.
28
<PAGE>
PAYMENTS OF PRINCIPAL AND INTEREST; TRANSFER, EXCHANGE OR CONVERSION
The Indenture will require that payments in respect of the Debentures
(including principal, premium, if any, and interest) held of record by DTC
(including Debentures evidenced by the Rule 144A Global Debenture) be made in
same day funds. Payments in respect of the Debentures held of record by holders
other than DTC may, at the option of the Company, be made by check and mailed to
such holders of record as shown on the register for the Debentures. The
Debentures may be surrendered for transfer, exchange or conversion at the office
of the Trustee in New York, New York.
GOVERNING LAW
The Indenture and Debentures will be governed by and construed in
accordance with the laws of the State of New York, without giving effect to such
State's conflicts of laws principles.
INFORMATION CONCERNING THE TRUSTEE
The Company and its subsidiaries may maintain deposit accounts and conduct
other banking transactions with the Trustee in the ordinary course of business.
EXPERTS
The consolidated financial statements and schedules 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 (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 are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of
HEALTHSOUTH Common Stock offered hereby will be passed upon by Haskell Slaughter
& Young, L.L.C.
29
<PAGE>
====================================== ======================================
No dealer, salesperson or other
person has been authorized to give any
information or to make any $567,750,000
representations other than as
contained herein, and if given or 3.25% CONVERTIBLE SUBORDINATED
made, such information or DEBENTURES DUE 2003
representations must not be relied
upon as having been authorized by the
Company. This Prospectus does not
constitute an offer to sell or a
solicitation of an offer to purchase 15,501,707 SHARES
any securities other than those to
which it relates or an offer to, or
solicitation of, any person in any COMMON STOCK
jurisdiction where such an offer or
solicitation would be unlawful.
Neither the delivery of this
Prospectus nor any sale hereunder
shall under any circumstances create
any implication that there has been no
change in the affairs of the Company
or that information provided herein is HEALTHSOUTH CORPORATION
correct at any time subsequent to its
date.
-----------------------------------
TABLE OF CONTENTS
PAGE
-----
Available Information ............ 2 -----------------------------------
Forward-Looking Statements ....... 2 P R O S P E C T U S
Incorporation of Certain Informa-
tion by Reference ............. 2
The Company ...................... 4 MAY ___, 1998
Recent Developments .............. 4
Risk Factors ..................... 5
Use of Proceeds .................. 13
Ratio of Earnings to Fixed Charges 13
Selling Securityholders .......... 14
Plan of Distribution ............. 19
Description of Debentures ........ 20
Experts .......................... 29
Legal Matters .................... 29
====================================== ======================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be incurred in
connection with the distribution of the securities registered hereby. All such
expenses shall be borne by the Company.
Registration fee under the Securities Act of 1933. $ 167,486.25
Printing expenses ................................
Legal fees and expenses ..........................
Accounting services ..............................
Miscellaneous ....................................
------------
Total ............................................ $
============
ITEM 15. 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 Restated Certificate of Incorporation
filed in the Office of the Secretary of the State of Delaware on March 13, 1997
(the "HEALTHSOUTH Certificate"), 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 of a Director to the fullest extent allowable under applicable
law.
II-1
<PAGE>
ITEM 16. EXHIBITS.
Exhibits:
EXHIBIT
NO. DESCRIPTION
- ------------- ----------------------------------------------------------------
(1)+ Purchase Agreement, dated March 17, 1998, among HEALTHSOUTH
Corporation and Smith Barney Inc., Bear, Stearns & Co. Inc.,
Cowen & Company, Credit Suisse First Boston Corporation, J.P.
Morgan Securities Inc., Morgan Stanley & Co. Incorporated,
NationsBanc Montgomery Securities LLC and PaineWebber
Incorporated relating to the Company's 3.25% Convertible
Subordinated Debentures due 2003.
(3)-1 Restated Certificate of Incorporation of HEALTHSOUTH
Corporation, as filed in the office of the Secretary of State of
the State of Delaware on March 13, 1997, filed as Exhibit (3)-1
to the Company's Annual Report on Form 10-K for the Fiscal Year
ended December 31, 1996, is hereby incorporated by reference.
(4)-2 Subordinated Indenture, dated March 20, 1998, between
HEALTHSOUTH Corporation and The Bank of Nova Scotia Trust
Company of New York, as Trustee, filed as Exhibit (4)-2 to the
Company's Annual Report on Form 10-K for the Fiscal Year ended
December 31, 1997, is hereby incorporated by reference.
(4)-3 Officer's Certificate pursuant to Sections 2.3 and 11.5 of the
Subordinated Indenture, dated March 20, 1998, between
HEALTHSOUTH and The Bank of Nova Scotia Trust Company of New
York, as Trustee, relating to the Company's 3.25% Convertible
Subordinated Debentures due 2003, filed as Exhibit (4)-3 to the
Company's Annual Report on Form 10-K for the Fiscal Year ended
December 31, 1997, is hereby incorporated by reference.
(4)-4 Registration Rights Agreement, dated March 17, 1998, among
HEALTHSOUTH Corporation and Smith Barney Inc., Bear Stearns &
Co. Inc., Cowen & Company, Credit Suisse First Boston
Corporation, J.P. Morgan Securities Inc., Morgan Stanley & Co.
Incorporated, relating to the Company's 3.25% Convertible
Subordinated Debentures due 2003, filed as Exhibit (4)-4 to the
Company's Annual Report on Form 10-K for the Fiscal Year ended
Decem- ber 31, 1997, is hereby incorporated by reference.
(5)+ Opinion of Haskell Slaughter & Young, L.L.C., as to the legality
of the shares of HEALTHSOUTH Common Stock issued in connection
herewith.
(11) Statement re Computation of Per Share Earnings.
(12) Statements re Computation of Ratios.
(23)-1 Consent of Ernst & Young LLP.
(23)-2 Consent of Haskell Slaughter & Young, L.L.C. (included in the
opinion filed as Exhibit (5)).
(24) Powers of Attorney.
(25)-1+ Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of a Corpo- ration Designated to Act as
Trustee on Form T-1.
- ----------
+ To be filed by amendment
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(a) To include any prospectus required by Section 10(a)(3) of
this Act;
(b) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the most
recent post-effective amendment thereof) which, individ-
II-2
<PAGE>
ually or in aggregate, represent a fundamental change in the information
set forth in this Registration Statement; and
(c) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or
any material change to such information in this Registration Statement.
(2) That, for the purpose 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for the purpose 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 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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and 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 May 8, 1998.
HEALTHSOUTH CORPORATION
By
----------------------------------------
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.
SIGNATURE TITLE DATE
- ---------------------------- --------------------------------- ------------
/s/ Richard M. Scrushy
- ------------------------- Chairman of the Board and Chief May 8, 1998
Richard M. Scrushy Executive Officer and Director
/s/ Michael D. Martin
- ------------------------- Executive Vice President, Chief May 8, 1998
Michael D. Martin Financial Officer and Treasurer
and Director
/s/ William T. Owens
- ------------------------- Group Senior Vice President and May 8, 1998
William T. Owens Controller (Principal Accounting
Officer)
/s/ C. Sage Givens
- ------------------------- Director May 8, 1998
C. Sage Givens
/s/Charles W. Newhall III
- ------------------------- Director May 8, 1998
Charles W. Newhall III
/s/ George H. Strong
- ------------------------- Director May 8, 1998
George H. Strong
/s/Phillip C. Watkins, M.D.
- ------------------------- Director May 8, 1998
Phillip C. Watkins, M.D.
/s/ John S. Chamberlin
- ------------------------- Director May 8, 1998
John S. Chamberlin
/s/ Anthony J. Tanner
- ------------------------- Director May 8, 1998
Anthony J. Tanner
II-4
<PAGE>
SIGNATURE TITLE DATE
- --------------------------- ---------- ------------
/s/ James P. Bennett
- ------------------------- Director May 8, 1998
James P. Bennett
/s/ P. Daryl Brown
- ------------------------- Director May 8, 1998
P. Daryl Brown
/s/ Joel C. Gordon
- ------------------------- Director May 8, 1998
Joel C. Gordon
II-5
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------------- ----------------------------------------------------------------
(1)+ Purchase Agreement, dated March 17, 1998, among HEALTHSOUTH
Corporation and Smith Barney Inc., Bear, Stearns & Co. Inc.,
Cowen & Company, Credit Suisse First Boston Corporation, J.P.
Morgan Securities Inc., Morgan Stanley & Co. Incorporated,
NationsBanc Montgomery Securities LLC and PaineWebber
Incorporated relating to the Company's 3.25% Convertible
Subordinated Debentures due 2003.
(3)-1 Restated Certificate of Incorporation of HEALTHSOUTH
Corporation, as filed in the office of the Secretary of State of
the State of Delaware on March 13, 1997, filed as Exhibit (3)-1
to the Company's Annual Report on Form 10-K for the Fiscal Year
ended December 31, 1996, is hereby incorporated by reference.
(4)-2 Subordinated Indenture, dated March 20, 1998, between
HEALTHSOUTH Corporation and The Bank of Nova Scotia Trust
Company of New York, as Trustee, filed as Exhibit (4)-2 to the
Company's Annual Report on Form 10-K for the Fiscal Year ended
December 31, 1997, is hereby incorporated by reference.
(4)-3 Officer's Certificate pursuant to Sections 2.3 and 11.5 of the
Subordinated Indenture, dated March 20, 1998, between
HEALTHSOUTH and The Bank of Nova Scotia Trust Company of New
York, as Trustee, relating to the Company's 3.25% Convertible
Subordinated Debentures due 2003, filed as Exhibit (4)-3 to the
Company's Annual Report on Form 10-K for the Fiscal Year ended
December 31, 1997, is hereby incorporated by reference.
(4)-4 Registration Rights Agreement, dated March 17, 1998, among
HEALTHSOUTH Corporation and Smith Barney Inc., Bear Stearns &
Co. Inc., Cowen & Company, Credit Suisse First Boston
Corporation, J.P. Morgan Securities Inc., Morgan Stanley & Co.
Incorporated, relating to the Company's 3.25% Convertible
Subordinated Debentures due 2003, filed as Exhibit (4)-4 to the
Company's Annual Report on Form 10-K for the Fiscal Year ended
Decem- ber 31, 1997, is hereby incorporated by reference.
(5)+ Opinion of Haskell Slaughter & Young, L.L.C., as to the legality
of the shares of HEALTHSOUTH Common Stock issued in connection
herewith.
(11) Statement re Computation of Per Share Earnings.
(12) Statements re Computation of Ratios.
(23)-1 Consent of Ernst & Young LLP.
(23)-2 Consent of Haskell Slaughter & Young, L.L.C. (included in the
opinion filed as Exhibit (5)).
(24) Powers of Attorney.
(25)-1+ Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of a Corpo- ration Designated to Act as
Trustee on Form T-1.
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+ To be filed by amendment
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-3, No. 333-_____) and related Prospectus of
HEALTHSOUTH Corporation for the registration of 15,501,707 shares of its common
stock 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.
ERNST & YOUNG LLP
Birmingham, Alabama
May 1, 1998
