AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 21, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------
HEALTHSOUTH CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------
<TABLE>
<S> <C> <C>
DELAWARE 8062 63-0860407
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
Incorporation or Organization) Classification Code Number) Number)
</TABLE>
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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:
<TABLE>
<S> <C> <C>
ROBERT E. LEE GARNER, ESQ. WILLIAM W. HORTON, ESQ. ROBERT W. WALTER, ESQ.
F. HAMPTON MCFADDEN, JR., ESQ. BEALL D. GARY, JR., ESQ. BERLINER ZISSER WALTER &
Haskell Slaughter & Young, L.L.C. HEALTHSOUTH Corporation GALLEGOS, P.C.
1200 AmSouth/Harbert Plaza One HealthSouth Parkway One Norwest Center
1901 Sixth Avenue North Birmingham, Alabama 35243 1700 Lincoln Street, Suite 4700
Birmingham, Alabama 35203 (205) 967-7116 Denver, Colorado 80201
(205) 251-1000 (303) 830-1700
</TABLE>
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=============================================================================================================================
TITLE OF EACH PROPOSED MAXIMUM PROPOSED MAXIMUM
CLASS OF SECURITIES AMOUNT OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED TO BE REGISTERED(1) PER UNIT PRICE(2) REGISTRATION FEE(3)
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per
share ......................... 1,218,307 shares Inapplicable $ 31,369,261.21 $9,254.06
=============================================================================================================================
</TABLE>
(1) The amount of common stock, par value $.01 per share (the "HEALTHSOUTH
Common Stock"), of the Registrant to be registered has been determined
based upon 4,920,183 shares of common stock, par value $.01 per share (the
"TCD Stock"), of The Company Doctor outstanding as of May 6, 1998,
3,659,444 shares of TCD Common Stock that may be issued pursuant to
outstanding options, warrants and rights that may be exercised prior to the
Effective Time of the Merger described herein and an Exchange Ratio of .142
of a share of HEALTHSOUTH Common Stock per share of TCD Common Stock, the
Exchange Ratio provided for in the Amended and Restated Plan and Agreement
of Merger among HEALTHSOUTH Corporation, Chandler Acquisition Corporation
and TCD, dated as of December 16, 1997 (the "Plan").
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f)(1) of the Securities Act of 1933, as amended (the
"Securities Act"). Pursuant to Rule 457(f)(1), the maximum aggregate
offering price is the product of (a) $3.66 , representing the average of
the high and low sales prices of TCD Common Stock as reported on May 20,
1998, and (b) 8,579,627, the maximum number of shares of TCD Common Stock
to be acquired by the Registrant in connection with the acquisition of TCD
pursuant to the Plan.
(3) Calculated pursuant to Section 6(b) and Rule 457 of the Securities Act
$4,840.46 of such fee was paid at the time of the filing of the preliminary
proxy materials for this matter.
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
THE COMPANY DOCTOR
SUITE 1800
5215 NORTH O'CONNOR BOULEVARD
IRVING, TEXAS 75039
May 21, 1998
To Our Stockholders:
You are cordially invited to attend a Special Meeting of Stockholders of
The Company Doctor ("TCD") in the Lakeside Room, Suite 2600, in the same
building as the principal offices of TCD at 5215 North O'Connor Boulevard,
Irving, Texas 75039, on June 29, 1998, at 10:00 a.m., local time (the "Special
Meeting").
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt the Amended and Restated Plan and Agreement of
Merger, dated as of December 16, 1997, (the "Plan"), providing for the merger
(the "Merger") of a wholly owned subsidiary of HEALTHSOUTH Corporation
("HEALTHSOUTH") with and into TCD. The Plan provides that, upon consummation of
the Merger, each issued and outstanding share of common stock of TCD will be
converted into the right to receive (i) if the Base Period Trading Price (as
defined below) is no lower than $24.00 and no higher than $27.875, 0.142 of a
share of HEALTHSOUTH common stock, or (ii) if the Base Period Trading Price is
greater than $27.875, a fraction of a share of HEALTHSOUTH common stock equal to
(x) $3.958 divided by (y) the Base Period Trading Price, or (iii) if the Base
Period Trading Price is less than $24.00, a fraction of a share of HEALTHSOUTH
common stock equal to (x) $3.408 divided by (y) the Base Period Trading Price
(in whichever case occurs, the "Exchange Ratio"), and TCD will become a
wholly-owned subsidiary of HEALTHSOUTH. The term "Base Period Trading Price"
means the average daily closing prices for the shares of HEALTHSOUTH Common
Stock for the 20 consecutive trading days on which such shares are actually
traded (as reported on the New York Stock Exchange Composite Transaction Tape as
reported in the Wall Street Journal, Eastern Edition, or if not reported
thereby, any other authoritative source) ending at the close of trading on the
third trading day immediately preceding the Closing Date. The Plan and the
Merger are discussed in more detail in the accompanying Prospectus-Proxy
Statement. Please review and consider the enclosed materials carefully.
For the reasons set forth in the accompanying Prospectus-Proxy Statement,
your Board of Directors believes that the Merger is fair to, and in the best
interests of, the stockholders of TCD and recommends that you vote in favor of
approval and adoption of the Plan. In making that determination, the Board of
Directors received and took into account the oral opinion rendered on November
23, 1997 by Loewenbaum & Company Incorporated, an investment banking firm
retained by TCD to act as financial advisor to it, that, as of that date, the
Exchange Ratio was fair to the stockholders of TCD from a financial point of
view. That opinion was subsequently confirmed in writing effective as of
December 16, 1997. The full text of the opinion of Loewenbaum & Company
Incorporated dated December 16, 1997 is attached to the accompanying
Prospectus-Proxy Statement as Annex B.
Regardless of whether you plan to attend the Special Meeting, please be
sure to sign, date and return the enclosed proxy or voting instruction card in
the enclosed envelope as promptly as possible so that your shares may be
represented at the Special Meeting and voted in accordance with your wishes.
Your vote is important regardless of the number of shares that you own.
Sincerely,
/s/ Dale W. Willetts
Dale W. Willetts
Chief Executive Officer
<PAGE>
THE COMPANY DOCTOR
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 29, 1998
To the Stockholders of The Company Doctor:
A Special Meeting of Stockholders (the "Special Meeting") of The Company
Doctor, a Delaware corporation ("TCD"), will be held on June 29, 1998 at 10:00
a.m., local time, in the Lakeside Room, Suite 2600, in the same building as the
principal offices of TCD at 5215 North O'Connor Boulevard, Irving, Texas 75039
for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the Amended and
Restated Plan and Agreement of Merger, dated as of December 16, 1997 (the
"Plan"), among TCD, HEALTHSOUTH Corporation ("HEALTHSOUTH") and a
wholly-owned subsidiary of HEALTHSOUTH (the "Subsidiary"). Pursuant to the
Plan, the Subsidiary would merge with and into TCD (the "Merger") and,
among other things, each issued and outstanding share of common stock, par
value $.01 per share, of TCD ("TCD Common Stock"), would be converted in
the Merger into the right to receive (i) if the Base Period Trading Price
is no lower than $24.00 and no higher than $27.875, 0.142 of a share of
HEALTHSOUTH common stock, or (ii) if the Base Period Trading Price is
greater than $27.875, a fraction of a share of HEALTHSOUTH common stock
equal to (x) $3.958 divided by (y) the Base Period Trading Price, or (iii)
if the Base Period Trading Price is less than $24.00, a fraction of a
share of HEALTHSOUTH common stock equal to (x) $3.408 divided by (y) the
Base Period Trading Price (in whichever case occurs, the "Exchange
Ratio"), all as more fully set forth in the accompanying Prospectus-Proxy
Statement and in the Plan, a copy of which is included as Annex A thereto;
and
2. To transact such other business as may properly come before the Special
Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on May 6, 1998 as
the record date for the determination of stockholders entitled to notice of, and
to vote at, the Special Meeting or any adjournment thereof. Only holders of
record of shares of TCD Common Stock at the close of business on the record date
are entitled to notice of, and to vote at, the Special Meeting. A complete list
of such stockholders will be available for examination at the offices of TCD in
Irving, Texas during normal business hours by any TCD stockholder, for any
purpose germane to the Special Meeting, for a period of 10 days prior to the
Special Meeting
STOCKHOLDERS ARE URGED, WHETHER OR NOT THEY PLAN TO ATTEND THE SPECIAL
MEETING, TO SIGN, DATE AND MAIL THE ENCLOSED PROXY OR VOTING INSTRUCTION CARD IN
THE POSTAGE-PAID ENVELOPE PROVIDED. IF A STOCKHOLDER WHO HAS RETURNED A PROXY
ATTENDS THE SPECIAL MEETING IN PERSON, SUCH STOCKHOLDER MAY REVOKE THE PROXY AND
VOTE IN PERSON ON ALL MATTERS SUBMITTED AT THE SPECIAL MEETING.
By Order of the Board of Directors
/s/ R. Kenneth Aiken
R. Kenneth Aiken
Secretary
Irving, Texas
May 21, 1998
<PAGE>
PROSPECTUS-PROXY STATEMENT
PROXY STATEMENT
OF
THE COMPANY DOCTOR
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 29, 1998
---------------
PROSPECTUS
OF
HEALTHSOUTH CORPORATION
THIS PROSPECTUS RELATES TO UP TO 1,218,307 SHARES OF THE COMMON STOCK, PAR
VALUE $.01 PER SHARE (THE "HEALTHSOUTH COMMON STOCK"), OF HEALTHSOUTH
CORPORATION (TOGETHER WITH ITS SUBSIDIARIES, AS APPLICABLE, "HEALTHSOUTH")
ISSUABLE TO THE STOCKHOLDERS, OPTION HOLDERS AND WARRANT HOLDERS OF THE COMPANY
DOCTOR (TOGETHER WITH ITS SUBSIDIARIES, AS APPLICABLE, "TCD") UPON CONSUMMATION
OF THE MERGER (AS DEFINED BELOW). SUCH NUMBER OF SHARES REPRESENTS THE MAXIMUM
NUMBER OF SHARES THAT MAY BE ISSUED TO TCD STOCKHOLDERS, OPTION HOLDERS AND
WARRANT HOLDERS. THIS PROSPECTUS ALSO SERVES AS THE PROXY STATEMENT OF TCD FOR
ITS SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 12, 1998, AND ANY
ADJOURNMENTS AND POSTPONEMENTS THEREOF (THE "SPECIAL MEETING"). SEE "THE SPECIAL
MEETING".
-------------
This Prospectus-Proxy Statement describes the terms of a proposed business
combination between HEALTHSOUTH and TCD, pursuant to which HEALTHSOUTH will
acquire TCD by means of the merger (the "Merger") of Chandler Acquisition
Corporation, a wholly-owned subsidiary of HEALTHSOUTH (the "Subsidiary"), with
and into TCD, with TCD being the surviving corporation (the "Surviving
Corporation"). After the Merger, the combined operations of HEALTHSOUTH and TCD
are expected to be conducted with TCD as a wholly-owned subsidiary of
HEALTHSOUTH and the present subsidiaries of TCD continuing as subsidiaries of
TCD and thus indirect subsidiaries of HEALTHSOUTH. The Merger will be effected
pursuant to the terms and subject to the conditions of the Amended and Restated
Plan and Agreement of Merger, dated as of December 16, 1997, among HEALTHSOUTH,
the Subsidiary and TCD (as it may be further amended, supplemented or otherwise
modified from time to time, the "Plan"). The Plan is attached to this
Prospectus-Proxy Statement as Annex A and is incorporated herein by reference.
HEALTHSOUTH and TCD are hereinafter sometimes referred to collectively as the
"Companies" and individually as a "Company".
Upon consummation of the Merger, except as described herein, each
outstanding share of Common Stock, par value $.01 per share, of TCD, other than
shares owned by TCD or any wholly-owned subsidiary of TCD (the "TCD Common
Stock" or the "TCD Shares"), will be converted into the right to receive (i) if
the Base Period Trading Price (as defined below) is no lower than $24.00 and no
higher than $27.875, 0.142 of a share of HEALTHSOUTH common stock, or (ii) if
the Base Period Trading Price is greater than $27.875, a fraction of a share of
HEALTHSOUTH common stock equal to (x) $3.958 divided by (y) the Base Period
Trading Price, or (iii) if the Base Period Trading Price is less than $24.00, a
fraction of a share of HEALTHSOUTH common stock equal to (x) $3.408 divided by
(y) the Base Period Trading Price (in whichever case occurs, the "Exchange
Ratio"). The term "Base Period Trading Price" means the average daily closing
prices for the shares of HEALTHSOUTH Common Stock for the 20 consecutive trading
days on which such shares are actually traded (as reported on the New York Stock
Exchange Composite Transaction Tape as reported in the Wall Street Journal,
Eastern Edition, or if not reported thereby, any other authoritative source)
ending at the close of trading on the third trading day immediately preceding
the Closing Date. TCD stockholders will receive cash (without interest) in lieu
of fractional shares of HEALTHSOUTH Common Stock. For a more complete
description of the terms of the Merger, see "THE MERGER".
This Prospectus-Proxy Statement and the form of Proxy are first being
mailed to stockholders of TCD on or about May 21, 1998.
SEE "RISK FACTORS" BEGINNING AT PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY TCD STOCKHOLDERS.
---------------
THE SECURITIES TO BE ISSUED HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECU-
RITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS-PROXY STATEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
THE DATE OF THIS PROSPECTUS-PROXY STATEMENT IS MAY 21, 1998.
<PAGE>
AVAILABLE INFORMATION
HEALTHSOUTH has filed a Registration Statement on Form S-4 under the
Securities Act of 1933, as amended (the "Securities Act"), with the Securities
and Exchange Commission (the "SEC") covering the shares of HEALTHSOUTH Common
Stock to be issued in connection with the Merger (including exhibits and
amendments thereto, the "Registration Statement"). As permitted by the rules and
regulations of the SEC, this Prospectus-Proxy Statement omits certain
information contained in the Registration Statement. For further information
pertaining to the securities offered hereby, reference is made to the
Registration Statement.
HEALTHSOUTH and TCD are subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (Commission
File Nos. 1-10315 and 1-14150, respectively), and in accordance therewith file
periodic reports, proxy statements and other information with the SEC relating
to their respective businesses, financial statements and other matters. The
Registration Statement, as well as such reports, proxy statements and other
information, may be inspected and copied at the public reference facilities
maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549 and at the public reference facilities maintained by the
SEC at its regional offices located at Seven World Trade Center, Suite 1300, New
York, New York, 10048; and Citicorp Center, 500 West Madison Street, Room 1400,
Chicago, Illinois 60661-2511. Copies of such material can be obtained at
prescribed rates by writing to the SEC, Public Reference Section, 450 Fifth
Street, N.W., Washington, D.C. 20549. The SEC also maintains a web site that
contains reports, proxy and information statements and other information
regarding HEALTHSOUTH, TCD and the Registration Statement. The address of that
web site is http:// www.sec.gov. The HEALTHSOUTH Common Stock is listed on the
New York Stock Exchange (the "NYSE"), and the Registration Statement and other
information with respect to HEALTHSOUTH are available for inspection at the
library of the New York Stock Exchange, Inc., 20 Broad Street, 7th Floor, New
York, New York 10005.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
THIS PROSPECTUS-PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF SUCH REPORTS, PROXY
STATEMENTS AND OTHER INFORMATION FILED BY HEALTHSOUTH, OTHER THAN EXHIBITS TO
SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED HEREIN BY
REFERENCE, ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM THE
SECRETARY OF HEALTHSOUTH CORPORATION, ONE HEALTHSOUTH PARKWAY, BIRMINGHAM,
ALABAMA 35243, TELEPHONE (205) 967-7116. COPIES OF SUCH REPORTS, PROXY
STATEMENTS AND OTHER INFORMATION FILED BY TCD, 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 TCD, SUITE 1800, 5215 NORTH O'CONNOR BOULEVARD, IRVING, TEXAS
75039, TELEPHONE (972) 401-8300. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE AT LEAST FIVE DAYS PRIOR TO THE SPECIAL
MEETING.
There are hereby incorporated by reference into this Prospectus-Proxy
Statement and made a part hereof the following documents filed by HEALTHSOUTH
(Commission File No. 1-10315):
1. HEALTHSOUTH's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.
2. HEALTHSOUTH's Quarterly Report on Form 10-Q for the quarter ended March
31, 1998.
3. HEALTHSOUTH's Proxy Statement on Schedule 14A filed April 17, 1998, in
connection with HEALTHSOUTH's 1998 Annual Meeting of Stockholders.
4. HEALTHSOUTH's Current Report on Form 8-K filed April 3, 1998.
5. HEALTHSOUTH's Current Report on Form 8-K filed January 15, 1998.
6. The description of HEALTHSOUTH's capital stock contained in
HEALTHSOUTH's Registration Statement on Form 8-A filed August 26, 1989.
There are also hereby incorporated by reference into this Prospectus-Proxy
Statement and made a part hereof the following documents filed by TCD
(Commission File No. 1-14150):
1. TCD's Annual Report on Form 10-KSB for the fiscal year ended June 30,
1997.
2
<PAGE>
2. TCD's Quarterly Reports on Form 10-QSB for the quarterly periods ended
September 30, 1997, December 31, 1997 and March 31, 1998.
3. The description of TCD's capital stock contained in TCD's Registration
Statement on Form 8-A effective February 6, 1996.
All documents filed by HEALTHSOUTH and TCD pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus-Proxy
Statement and prior to the Special Meeting or any adjournment thereof shall be
deemed to be incorporated by reference into this Prospectus-Proxy Statement and
to be made a part hereof from the date of the filing of such documents. Any
statement contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for the purpose hereof to the extent that a
statement contained herein (or in any other subsequently filed document which
also is incorporated by reference herein) modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed to constitute a part
hereof, except as so modified or superseded.
All information contained in this Prospectus-Proxy Statement or
incorporated herein by reference with respect to HEALTHSOUTH was supplied by
HEALTHSOUTH, and all information contained in this Prospectus-Proxy Statement or
incorporated herein by reference with respect to TCD was supplied by TCD.
Although neither HEALTHSOUTH nor TCD has actual knowledge that would indicate
that any statements or information (including financial statements) relating to
the other party contained or incorporated by reference herein are inaccurate or
incomplete, neither HEALTHSOUTH nor TCD warrants the accuracy or completeness of
such statements or information as they relate to the other party.
FORWARD-LOOKING INFORMATION
Statements relating to HEALTHSOUTH contained in this Prospectus-Proxy
Statement that are not historical facts are forward-looking statements. In
addition, HEALTHSOUTH, through its senior management, from time to time makes
forward-looking public statements concerning its expected future operations and
performance and other developments. Such forward-looking statements are
necessarily estimates reflecting HEALTHSOUTH's best judgment based upon current
information and involve a number of risks and uncertainties, and there can be no
assurance that other factors will not affect the accuracy of such
forward-looking statements. While it is impossible to identify all such factors,
factors which could cause actual results to differ materially from those
estimated by HEALTHSOUTH include, but are not limited to, changes in the
regulation of the healthcare industry at either or both of the federal and state
levels, changes in reimbursement for HEALTHSOUTH's services by government or
private payors, competitive pressures in the healthcare industry and
HEALTHSOUTH's response thereto, HEALTHSOUTH's ability to obtain and retain
favorable arrangements with third-party payors, unanticipated delays in
HEALTHSOUTH's implementation of its Integrated Service Model, general conditions
in the economy and capital markets, and other factors which may be identified
from time to time in HEALTHSOUTH's SEC filings and other public announcements.
Certain of the matters discussed in this Prospectus-Proxy Statement
relating to TCD are forward-looking statements, and such statements involve
risks and uncertainties. Although TCD believes that its expectations are based
upon reasonable assumptions, it can give no assurance that the anticipated
results will occur. Important factors that could cause actual results to differ
materially from those in the forward-looking statements include conditions in
the capital markets, the regulatory environment in which TCD operates and the
enactment by Congress of healthcare reform measures.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS-PROXY STATEMENT, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. NEITHER THE DELIVERY OF THIS PROSPECTUS-PROXY STATEMENT NOR ANY
DISTRIBUTION OF THE SECURITIES TO WHICH THIS PROSPECTUS-PROXY STATEMENT RELATES
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION CONCERNING HEALTHSOUTH OR TCD CONTAINED IN THIS
PROSPECTUS-PROXY STATEMENT SINCE THE DATE OF SUCH INFORMATION. THIS
PROSPECTUS-PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES OTHER THAN THE SECURITIES
TO WHICH IT RELATES, OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO
PURCHASE, THE SECURITIES OFFERED BY THIS PROSPECTUS-PROXY STATEMENT IN ANY
JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT LAWFUL.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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AVAILABLE INFORMATION ................................................... 2
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE ....................... 2
SUMMARY OF PROSPECTUS-PROXY STATEMENT ................................... 6
COMPARATIVE PER SHARE INFORMATION ....................................... 13
RISK FACTORS ............................................................ 14
THE SPECIAL MEETING ..................................................... 19
General ................................................................ 19
Date, Place and Time ................................................... 19
Record Date; Quorum .................................................... 19
Vote Required .......................................................... 20
Voting and Revocation of Proxies ....................................... 20
Solicitation of Proxies ................................................ 20
THE MERGER .............................................................. 21
Terms of the Merger .................................................... 21
Background of the Merger ............................................... 21
Reasons for the Merger; Recommendation of the Board of Directors of TCD 22
Opinion of Financial Advisor to TCD .................................... 23
Effective Time of the Merger ........................................... 27
Exchange of Certificates ............................................... 27
Representations and Warranties ......................................... 27
Conditions to the Merger ............................................... 28
Regulatory Approvals ................................................... 29
Business Pending the Merger ............................................ 30
Waiver and Amendment ................................................... 30
Termination ............................................................ 31
Break-up Fee; Third-Party Bids ......................................... 31
Interests of Certain Persons in the Merger ............................. 31
Indemnification ........................................................ 31
Accounting Treatment ................................................... 32
Certain Federal Income Tax Consequences ................................ 32
Resale of HEALTHSOUTH Common Stock by Affiliates ....................... 33
No Appraisal Rights .................................................... 33
No Solicitation of Transactions ........................................ 33
Expenses ............................................................... 34
NYSE Listing ........................................................... 34
SELECTED CONSOLIDATED FINANCIAL DATA -- HEALTHSOUTH ..................... 35
SELECTED CONSOLIDATED FINANCIAL DATA -- TCD ............................. 37
BUSINESS OF HEALTHSOUTH ................................................. 38
General ................................................................ 38
Company Strategy ....................................................... 38
Recent Developments .................................................... 39
Patient Care Services .................................................. 40
Locations .............................................................. 42
BUSINESS OF TCD ......................................................... 43
Healthcare Operations and Services ..................................... 43
Affiliations, Joint Ventures and Acquisitions .......................... 45
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
DESCRIPTION OF CAPITAL STOCK OF HEALTHSOUTH .............................. 45
Common Stock ............................................................ 45
Fair Price Provision .................................................... 45
Section 203 of the DGCL ................................................. 46
Preferred Stock ......................................................... 46
Transfer Agent .......................................................... 47
COMPARISON OF RIGHTS OF TCD AND HEALTHSOUTH STOCKHOLDERS ................. 48
Classes and Series of Capital Stock ..................................... 48
Size and Election of the Board of Directors ............................. 48
Removal of Directors .................................................... 48
Other Voting Rights ..................................................... 49
Conversion and Dissolution .............................................. 49
Business Combinations ................................................... 50
Amendment or Repeal of the Certificate of Incorporation ................. 50
Special Meeting of Stockholders ......................................... 50
Liability of Directors .................................................. 50
Indemnification of Directors and Officers ............................... 51
OPERATIONS AND MANAGEMENT OF HEALTHSOUTH AND TCD AFTER THE MERGER ........ 52
Operations .............................................................. 52
Management .............................................................. 52
EXPERTS .................................................................. 52
LEGAL MATTERS ............................................................ 53
ADDITIONAL INFORMATION ................................................... 53
ANNEXES:
A. Amended and Restated Plan and Agreement of Merger ..................... A-1
B. Opinion of Loewenbaum & Company Incorporated .......................... B-1
</TABLE>
5
<PAGE>
SUMMARY OF PROSPECTUS-PROXY STATEMENT
The following is a summary of certain information contained elsewhere in
this Prospectus-Proxy Statement. Certain capitalized terms used in this
Summary are defined elsewhere in this Prospectus-Proxy Statement. Reference
is made to, and this Summary is qualified in its entirety by, the more
detailed information contained in this Prospectus-Proxy Statement, the
Annexes hereto and the documents incorporated by reference herein.
THE COMPANIES
HEALTHSOUTH. HEALTHSOUTH is the nation's largest provider of outpatient
surgery and rehabilitative healthcare services, based upon number of staffed
rehabilitation beds, number of facilities and revenues derived from those
services. It provides these services through its national network of outpatient
and inpatient rehabilitation facilities, outpatient surgery centers, diagnostic
centers, occupational medicine centers, medical centers and other healthcare
facilities. HEALTHSOUTH believes that it provides patients, physicians and
payors with high-quality healthcare services at significantly lower costs than
traditional inpatient hospitals. Additionally, HEALTHSOUTH's national network,
reputation for quality and focus on outcomes has enabled it to secure contracts
with national and regional managed care payors. At March 31, 1998, HEALTHSOUTH
had over 1,800 patient care locations in 50 states, the United Kingdom and
Australia. See "BUSINESS OF HEALTHSOUTH".
At March 31, 1998, HEALTHSOUTH had consolidated assets of approximately
$5.791 billion and consolidated stockholders' equity of approximately $3.322
billion and employed 56,281 persons.
HEALTHSOUTH was incorporated under the laws of Delaware in 1984. Its
principal executive offices are located at One HealthSouth Parkway, Birmingham,
Alabama 35243, and its telephone number is (205) 967-7116.
TCD. TCD manages facilities that provide occupational and industrial
medical and related services exclusively to employees and prospective employees
of corporate customers located in the states of Texas, Louisiana and Arkansas.
TCD currently manages eleven occupational and industrial medicine facilities
servicing over approximately 4,000 employers and clients including local offices
of such corporations as Blockbuster Video, Excel Telecommunications, Fibrebond
Corp., Interceramic Tile, Southwest Airlines, U-Haul Corporation, Levi, the U.S.
Postal Service and Atlantic Richfield Co. At these facilities, prospective
employees of the corporate customer can be prescreened and work-related injuries
and medical conditions arising from employment can be diagnosed and treated.
Currently, TCD's operating revenues are derived primarily through a
non-exclusive Practice Management Agreement with The Physician Group, P.A. ("The
Physician Group"), a Texas professional association of physicians and other
medical professionals which is paid by the employer for services either on a
fee-for-service basis or on a prepaid "capitated" basis (a fixed monthly fee for
each employee). TCD receives a management fee for the provision of non-medical
services, including marketing, management of the practice and use of the
facilities, and provision of non-medical procedures and programs. TCD also
receives a portion of its operating revenues from management of two facilities
outside The Physician Group. See "THE MERGER -- Regulatory Approvals" and
"BUSINESS OF TCD".
At March 31, 1998, TCD had consolidated assets of approximately $17.15
million and consolidated stockholders' equity of approximately $10.02 million
and employed approximately 140 persons.
TCD was incorporated under the laws of Delaware in 1992. Its principal
executive offices are located at 5215 North O'Connor Boulevard, Irving, Texas
75039, and its telephone number is (972) 401-8300.
Chandler Acquisition Corporation. The Subsidiary is a direct, wholly-owned
subsidiary of HEALTHSOUTH and has not engaged in any business activity unrelated
to the Merger. The principal executive offices of the Subsidiary are located at
One HealthSouth Parkway, Birmingham, Alabama 35243, and its telephone number is
(205) 967-7116.
6
<PAGE>
RECENT DEVELOPMENTS
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.
On April 16, 1998, HEALTHSOUTH announced that it had entered into a
definitive agreement to acquire 34 ambulatory surgery centers from Columbia/HCA
Healthcare Corporation for $550 million payable in cash at closing, which is
expected to occur during the third quarter of 1998. The surgery centers are
located in Alabama, California, Iowa, Illinois, Kentucky, Louisiana, Minnesota,
Mississippi, North Carolina, Nevada, Oregon, Rhode Island and Texas. The
transaction remains subject to various regulatory approvals, including clearance
under the Hart-Scott-Rodino Anti-Trust Improvements Act.
THE SPECIAL MEETING
The Special Meeting of TCD's stockholders to consider and vote on a
proposal to approve the Plan will be held on June 29, 1998, at 10:00 a.m., local
time, in the Lakeside Room, Suite 2600, of the same building as the principal
offices of TCD at 5215 North O'Connor Boulevard, Irving, Texas 75039. Only
holders of record of TCD Shares at the close of business on May 6, 1998 (the
"Record Date"), will be entitled to notice of and to vote at the Special
Meeting. At such date, there were outstanding and entitled to vote 4,920,183
shares of TCD Common Stock. Each issued and outstanding TCD Share is entitled to
one vote on each matter to be presented at the Special Meeting. For additional
information relating to the Special Meeting, see "THE SPECIAL MEETING".
VOTE REQUIRED
Approval of the Plan by the stockholders of TCD requires the affirmative
vote of the holders of a majority of the outstanding shares of TCD Common Stock
entitled to vote thereon. Accordingly, approval of the Plan at the Special
Meeting will require the affirmative vote of the holders of at least 2,460,092
shares of TCD Common Stock.
As of the Record Date, directors and executive officers of TCD and their
affiliates beneficially owned an aggregate of 1,588,582 shares of TCD Common
Stock (excluding shares issuable upon exercise of options), or approximately
32.3% of the TCD Shares outstanding on such date. To TCD's knowledge, each of
its directors and executive officers intends to vote in favor of the proposal to
approve the Plan.
If the Plan is not approved by TCD stockholders, the Plan may be terminated
by HEALTHSOUTH or TCD in accordance with its terms. Such approval is also a
condition to HEALTHSOUTH's and TCD's obligations to consummate the Merger. See
"THE SPECIAL MEETING -- Vote Required", "THE MERGER -- Conditions to the Merger"
and "-- Termination".
7
<PAGE>
THE MERGER
Terms of the Merger. TCD will be acquired by HEALTHSOUTH pursuant to and
subject to the terms and conditions of the Plan, which provides that, at the
effective time of the Merger (the "Effective Time"), the Subsidiary will merge
with and into TCD with TCD being the Surviving Corporation. The Certificate of
Incorporation of TCD, as amended at the Effective Time pursuant to the request
of HEALTHSOUTH, and the Bylaws of the Subsidiary in effect at the Effective Time
will be the Certificate of Incorporation and Bylaws of the Surviving Corporation
until amended or repealed in accordance with applicable law. At the Effective
Time, each outstanding TCD Share (excluding shares held by TCD and any of its
subsidiaries) will be converted into the right to receive (i) if the Base Period
Trading Price (as defined below) is no lower than $24.00 and no higher than
$27.875, 0.142 of a share of HEALTHSOUTH common stock, or (ii) if the Base
Period Trading Price is greater than $27.875, a fraction of a share of
HEALTHSOUTH common stock equal to (x) $3.958 divided by (y) the Base Period
Trading Price, or (iii) if the Base Period Trading Price is less than $24.00, a
fraction of a share of HEALTHSOUTH common stock equal to (x) $3.408 divided by
(y) the Base Period Trading Price (in whichever case occurs, the "Exchange
Ratio"), (the "Exchange Ratio") of a share of HEALTHSOUTH Common Stock (the
"Merger Consideration"). The term "Base Period Trading Price" means the average
daily closing prices for the shares of HEALTHSOUTH Common Stock for the 20
consecutive trading days on which such shares are actually traded (as reported
on the New York Stock Exchange Composite Transaction Tape as reported in the
Wall Street Journal, Eastern Edition, or if not reported thereby, any other
authoritative source) ending at the close of trading on the third trading day
immediately preceding the Closing Date. Fractional shares of HEALTHSOUTH Common
Stock will not be issuable in connection with the Merger. TCD stockholders will
receive cash (without interest) in lieu of fractional shares of HEALTHSOUTH
Common Stock. See "THE MERGER" and "DESCRIPTION OF CAPITAL STOCK OF
HEALTHSOUTH".
As of December 31, 1997, TCD had outstanding approximately $4.7 million in
long-term indebtedness (including the current portion thereof), all of which
will at the Effective Time become long-term indebtedness of the Surviving
Corporation (being a subsidiary of HEALTHSOUTH) as a result of the Merger.
Recommendation of the Board of Directors. THE BOARD OF DIRECTORS OF TCD HAS
ADOPTED AND APPROVED THE PLAN AND HAS RECOMMENDED A VOTE FOR APPROVAL OF THE
PLAN. THE BOARD OF DIRECTORS BELIEVES THE PLAN IS FAIR TO AND IN THE BEST
INTERESTS OF THE STOCKHOLDERS OF TCD.
In its deliberations with respect to the Merger, the Board of Directors of
TCD consulted with management of TCD and the financial and legal advisers to
TCD. The composite mix of information available to the Board of Directors with
respect to the Merger included the information regarding the matters enumerated
under "THE MERGER -- Reasons for the Merger; Recommendation of the Board of
Directors of TCD" below.
Opinion of Financial Advisor to TCD. Loewenbaum & Company Incorporated
("Loewenbaum") delivered to the Board of Directors of TCD on November 23, 1997,
its oral opinion (subsequently confirmed in writing by an opinion dated as of
December 16, 1997), to the effect that, as of the date of the opinion and based
on and subject to the assumptions, factors and limitations set forth therein,
the consideration proposed to be paid by HEALTHSOUTH pursuant to the Merger
Agreement was fair, from a financial point of view, to the stockholders of TCD.
For the purpose of preparing such opinion and related analyses, Loewenbaum
assumed the then current implied purchase price of $3.73 for each share of TCD
Common Stock (based on the Exchange Ratio set forth in the Plan). In connection
with preparing its opinion dated December 16, 1997, Loewenbaum confirmed the
appropriateness of its reliance on the analyses used in preparing its opinion
dated November 23, 1997 by performing procedures to update certain of such
analyses and reviewing the assumptions on which such analyses were based and the
factors considered in connection therewith, modified, where appropriate, to take
into account events occurring after November 23, 1997. Loewenbaum's opinion is
directed only to the
8
<PAGE>
consideration to be received by holders of TCD Common Stock and does not
constitute a recommendation to the holders of TCD Common Stock as to how they
should vote at the TCD Meeting of Stockholders. The full text of the opinion of
Loewenbaum dated as of December 16, 1997, which sets forth the assumptions made,
matters considered and limitations on the review undertaken by Loewenbaum, is
attached hereto as Annex B. The holders of TCD Common Stock are urged to read,
and should read, this opinion in its entirety.
Effective Time of the Merger. The Merger will become effective upon the
filing of a Certificate of Merger by TCD under the General Corporation Law of
the State of Delaware (the "DGCL"), or at such later time as may be specified in
such Certificate of Merger. The Plan requires that this filing be made no later
than two business days after satisfaction or waiver of the various conditions to
the Merger set forth in the Plan, or at such other time as may be agreed by
HEALTHSOUTH and TCD. See "THE MERGER -- Effective Time of the Merger" and "--
Conditions to the Merger".
Exchange of Certificates. As soon as reasonably practicable after the
Effective Time, transmittal materials will be mailed to each holder of record of
TCD Shares for use in exchanging such holder's stock certificates for
certificates evidencing shares of HEALTHSOUTH Common Stock and for receiving
cash in lieu of fractional shares and any dividends or other distributions to
which such holder is entitled as a result of the Merger. STOCKHOLDERS SHOULD NOT
SEND ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS. See "THE MERGER -- Exchange
of Certificates".
Representations and Warranties. The Plan contains certain representations
and warranties made by each of the parties thereto that must be confirmed as of
the Closing Date. See "THE MERGER -- Representations and Warranties".
Conditions to the Merger. The obligation of each of HEALTHSOUTH, the
Subsidiary and TCD to consummate the Merger is subject to certain conditions,
including approval of the Plan by the TCD stockholders, certain regulatory
approvals and confirmation by each of HEALTHSOUTH and TCD of its representations
and warranties as of the Closing Date. See "THE MERGER -- Conditions to the
Merger". Certain conditions to the Merger contained in the Plan may be waived by
the parties thereto. TCD does not, however, intend to waive satisfaction of any
such condition or amend the Plan if such waiver or amendment would be material
to the TCD stockholders' consideration of and vote upon the proposal to approve
the Plan without resoliciting the vote of such stockholders.
Regulatory Approvals. The Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), provides that certain business mergers
(including the Merger) may not be consummated until certain information has been
furnished to the Department of Justice (the "DOJ") and the Federal Trade
Commission (the "FTC") and certain waiting period requirements have been
satisfied. On April 15, 1998, HEALTHSOUTH and TCD made their respective filings
with the DOJ and the FTC with respect to the Plan. Under the HSR Act, the
filings commenced a waiting period of up to 30 days during which the Merger
cannot be consummated, which waiting period expired on May 15, 1998.
Notwithstanding the termination or expiration of the HSR Act waiting period, at
any time before or after the Effective Time, the FTC, the DOJ or others could
initiate legal action under the antitrust laws seeking to enjoin the
consummation of the Merger or seeking the divestiture by HEALTHSOUTH of any part
of its assets or all or any part of the stock or assets of TCD. There can be no
assurance that a challenge to the Merger on antitrust grounds will not be made
or, if such a challenge were made, that it would not be successful. The
operations of each Company also are subject to a substantial body of federal,
state, local and accrediting body laws, rules and regulations relating to the
conduct, licensing and development of healthcare businesses and facilities. See
"THE MERGER -- Regulatory Approvals".
Conduct Pending the Merger. The Plan provides that, until the Effective
Time, except as provided in the Plan, TCD will use its best efforts to preserve
intact its present business organization and to keep available to HEALTHSOUTH
and the Surviving Corporation the services of its present
9
<PAGE>
employees and to preserve the goodwill of customers, suppliers and others having
business dealings with it. In addition, TCD has agreed not to engage in certain
types of transactions pending the Effective Time. Both HEALTHSOUTH and TCD have
agreed not to engage knowingly or intentionally in any conduct that would cause
its representations and warranties to become untrue in any material respect
pending the Effective Time. See "THE MERGER -- Business Pending the Merger".
Amendment. The Plan provides that, at any time prior to the Effective Time,
the parties may, under certain circumstances, amend or otherwise change the
Plan. See "THE MERGER -- Waiver and Amendment".
Termination. The Plan may be terminated at any time prior to the Effective
Time, whether before or after approval of the Plan by the stockholders of TCD,
under certain circumstances that are set forth in the Plan. See "THE MERGER --
Termination".
No Solicitation. The Plan provides that TCD and its representatives will
not, directly or indirectly, encourage, solicit, participate in or initiate
discussions or negotiations with, or provide any information to, any entity
other than HEALTHSOUTH or a HEALTHSOUTH affiliate concerning any merger, sale of
assets, sale of or tender offer for shares of TCD common stock or similar
transaction involving TCD (an "Acquisition Transaction").
Break-up Fee; Third Party Bids. If the Plan is terminated by the Board of
Directors of TCD because, in the exercise of its fiduciary duties under
applicable law, it has (i) determined not to recommend the Merger to the holders
of TCD Common Stock, (ii) withdrawn such recommendation, (iii) approved,
recommended or endorsed any Acquisition Transaction (as defined in the Plan)
other than the Plan or (iv) resolved to take any of such actions, and within one
year after the effective date of such termination TCD is the subject of a Third
Party Acquisition Event (as defined in the Plan), then at the time of
consummation of such a Third Party Acquisition Event TCD shall pay to
HEALTHSOUTH a break-up fee of $750,000. If the Plan is terminated by HEALTHSOUTH
for a reason other than those set forth in the Plan, then at the time of such
termination HEALTHSOUTH shall pay to TCD the sum of $100,000 or shall offset
such sum against any amounts owed by TCD to HEALTHSOUTH. See "THE MERGER --
Break-up Fee; Third Party Bids".
Interests of Certain Persons in the Merger. In considering the
recommendation of the Board of Directors of TCD with respect to the Plan and the
transactions contemplated thereby, stockholders of TCD should be aware that
certain members of the management of TCD and its Board of Directors have certain
interests in the Merger in addition to the interests of stockholders generally.
In connection with the Merger, HEALTHSOUTH has entered into a Consulting
and Non-Competition Agreement with Donald F. Angle, M.D., the former Chief
Executive Officer of TCD ("Dr. Angle"), pursuant to which Dr. Angle will act as
a consultant to HEALTHSOUTH with respect to various matters, including
transition issues, industry presentations, business development and strategic
planning. Dr. Angle will receive $150,000 per year for his services pursuant to
the Consulting Agreement.
In addition, pursuant to the terms of TCD's stock option plans, certain TCD
stock options that are not fully vested prior to the Effective Time will
accelerate and vest in full as a result of the Merger at the Effective Time.
Certain directors and members of TCD management hold such options.
See "THE MERGER -- Interests of Certain Persons in the Merger".
Accounting Treatment. It is intended that the Merger will be accounted for
as a purchase. See "THE MERGER -- Accounting Treatment".
Certain Federal Income Tax Consequences. The Merger is intended to qualify
as a reorganization within the meaning of Section 368(a) of the Code. If the
Merger so qualifies, no gain or loss will be recognized by holders of TCD Shares
who hold such shares as capital assets upon their receipt of HEALTHSOUTH Common
Stock in exchange for their TCD Shares, except with respect to cash
10
<PAGE>
the Merger are conditioned upon their receipt of opinions from their respective
counsel to the effect that the Merger will qualify as a reorganization within
the meaning of Section 368(a) of the Code. Each holder of TCD Shares is urged to
consult his or her personal tax and financial advisors concerning the federal
income tax consequences of the Merger, as well as any state, local, foreign or
other tax consequences of the Merger, based upon such holder's own particular
facts and circumstances. See "THE MERGER -- Certain Federal Income Tax
Consequences".
Resale Restrictions. All shares of HEALTHSOUTH Common Stock received by TCD
stockholders in the Merger will be freely transferable, except that shares of
HEALTHSOUTH Common Stock received by persons who are deemed to be "affiliates"
(as such term is defined under the Securities Act) of TCD at the time of the
Special Meeting may be resold by them only in certain circumstances as permitted
by the rules and regulations promulgated under the Securities Act. See "THE
MERGER -- Resale of HEALTHSOUTH Common Stock by Affiliates".
Appraisal Rights. Holders of TCD Common Stock are not entitled to appraisal
rights under the DGCL with respect to the Merger. See "THE MERGER -- No
Appraisal Rights".
NYSE Listing. A listing application will be filed with the NYSE to list the
shares of HEALTHSOUTH Common Stock to be issued to the TCD stockholders in the
Merger. Although no assurance can be given that the NYSE will accept such shares
of HEALTHSOUTH Common Stock for listing, HEALTHSOUTH anticipates that these
shares will qualify for listing. It is a condition to the obligation of
HEALTHSOUTH, the Subsidiary and TCD to consummate the Merger that such shares of
HEALTHSOUTH Common Stock be approved for listing on the NYSE upon official
notice of issuance at the Effective Time. See "THE MERGER -- NYSE Listing".
MARKET AND MARKET PRICE
HEALTHSOUTH Common Stock is listed under the symbol "HRC" on the NYSE. TCD
Common Stock is listed under the symbol "CDOC" on the Nasdaq SmallCap Market
("Nasdaq"). Set forth below are the closing prices per share of HEALTHSOUTH
Common Stock and TCD Common Stock on the NYSE and Nasdaq, respectively, and the
pro forma closing price per share of TCD, on (i) December 15, 1997, the last
business day preceding public announcement of the Merger, and (ii) May 20, 1998:
<TABLE>
<CAPTION>
PRO FORMA
CLOSING PRICE CLOSING PRICE CLOSING PRICE
PER SHARE OF PER SHARE OF PER SHARE
HEALTHSOUTH TCD OF TCD
DATE COMMON STOCK COMMON STOCK COMMON STOCK(1)
- --------------------------- --------------- --------------- ----------------
<S> <C> <C> <C>
December 15, 1997 ......... $ 27.125 $ 3.50 $ 3.85
May 20, 1998 .............. $ 28.563 $ 3.81 $ 3.96
</TABLE>
- -----------
(1) TCD pro forma market price data have been calculated by multiplying the
market price per share of HEALTHSOUTH Common Stock by an assumed Exchange
Ratio of 0.142 for December 15, 1997 and an assumed Exchange Ratio of .139
for May 20, 1998, which would be the respective Exchange Ratios if the Base
Period Trading Price were equal to the market price of HEALTHSOUTH Common
Stock on those dates. See "The Merger -- Terms of the Merger".
The following table sets forth certain information as to the high and low
reported sale prices per share of HEALTHSOUTH Common Stock for the periods
indicated. The prices for HEALTHSOUTH Common Stock are as reported on the NYSE
Composite Transactions Tape. HEALTHSOUTH has never paid dividends on its capital
stock (although a company acquired by HEALTHSOUTH in a pooling-of-interests
merger has paid cash dividends in the past). All prices shown have been adjusted
for a two-for-one stock split effected in the form of a 100% stock dividend paid
on March 17, 1997.
11
<PAGE>
<TABLE>
<CAPTION>
HEALTHSOUTH
COMMON STOCK
-------------------------
HIGH LOW
---- ---
<S> <C> <C>
1996
First Quarter ................................. $ 19.07 $ 13.50
Second Quarter ................................ 19.32 16.16
Third Quarter ................................. 19.32 14.25
Fourth Quarter ................................ 19.88 17.57
1997
First Quarter ................................. $ 22.38 $ 17.94
Second Quarter ................................ 27.12 17.75
Third Quarter ................................. 28.94 23.12
Fourth Quarter ................................ 28.31 22.00
1998
First Quarter ................................. $ 30.06 $ 21.94
Second Quarter (through May 20, 1998) ......... 30.81 27.50
</TABLE>
The following table sets forth certain information as to the high and low
closing prices per share of TCD Common Stock for the periods indicated. The
prices for TCD Common Stock are as reported on Nasdaq. No dividends were paid by
TCD during the periods presented.
<TABLE>
<CAPTION>
TCD
COMMON STOCK
------------------------
HIGH LOW
---- ---
<S> <C> <C>
1996 FISCAL YEAR
Third Quarter (commencing February 7, 1996) ......... $ 10.25 $ 8.50
Fourth Quarter ...................................... 10.87 9.37
1997 FISCAL YEAR
First Quarter ....................................... $ 10.00 $ 8.87
Second Quarter ...................................... 8.87 5.87
Third Quarter ....................................... 6.50 5.50
Fourth Quarter ...................................... 6.18 3.50
1998 FISCAL YEAR
First Quarter ....................................... $ 3.94 $ 3.63
Second Quarter ...................................... 4.25 3.25
Third Quarter ....................................... 3.75 2.75
Fourth Quarter (through May 20, 1998) ............... 3.81 3.25
</TABLE>
As of March 13, 1998, there were approximately 5,977 record holders of
HEALTHSOUTH Common Stock, excluding those shares held by depository companies
for certain beneficial owners. As of the Record Date, there were approximately
88 record holders of TCD Common Stock.
HOLDERS OF TCD SHARES ARE ADVISED TO OBTAIN CURRENT MARKET QUOTATIONS FOR
HEALTHSOUTH COMMON STOCK AND TCD COMMON STOCK. No assurance can be given as to
the market price of HEALTHSOUTH Common Stock at the Effective Time or at any
other time.
OPERATIONS AND MANAGEMENT OF HEALTHSOUTH AFTER THE MERGER
Pursuant to the Plan, following the Effective Time, TCD will be a
wholly-owned subsidiary of HEALTHSOUTH, and all of TCD's subsidiaries and
affiliates will be indirect subsidiaries and affiliates of HEALTHSOUTH.
HEALTHSOUTH will continue its operations as prior to the Merger and will
continue to be managed by the same Board of Directors and executive officers.
See "OPERATIONS AND MANAGEMENT OF HEALTHSOUTH AFTER THE MERGER".
12
<PAGE>
COMPARATIVE PER SHARE INFORMATION
The following summary presents selected comparative per share information
(i) for HEALTHSOUTH on a historical basis, and (ii) for TCD on a historical
basis. Because the effect of the Merger is not material to the financial
condition or operations of HEALTHSOUTH, pro forma combined information is not
presented. This financial information should be read in conjunction with the
historical consolidated financial statements of HEALTHSOUTH and TCD and the
related notes thereto contained elsewhere herein or in documents incorporated
herein by reference. See "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE".
Neither HEALTHSOUTH nor TCD has paid cash dividends since inception
(although companies acquired by HEALTHSOUTH in pooling-of-interests mergers paid
cash dividends in the past). It is anticipated that HEALTHSOUTH will retain all
earnings for use in the expansion of the business and therefore does not
anticipate paying any cash dividends in the foreseeable future. The payment of
future dividends will be at the discretion of the Board of Directors of
HEALTHSOUTH and will depend, among other things, upon HEALTHSOUTH's earnings,
capital requirements, financial condition and debt covenants.
The following information is not necessarily indicative of the combined
results of operations or combined financial position that would have resulted
had the Merger been consummated at the beginning of the periods indicated, nor
is it necessarily indicative of the combined results of operations in future
periods or future combined financial position.
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 31, 1998
---------------- ------------------
Net income per common share:
HEALTHSOUTH(1)
Historical (basic) ...................... $ 0.95 $ 0.27
Historical (diluted) ..................... 0.91 0.27
YEAR ENDED NINE MONTHS ENDED
JUNE 30, 1997 MARCH 31, 1998
---------------- -----------------
TCD
Historical (basic and diluted) ......... $ (0.27) $ (0.27)
AT
MARCH 31,
1998
---------
Book value per common share outstanding(1):
HEALTHSOUTH -- historical ............... $ 8.31
TCD -- historical ....................... 2.04
- -----------
(1) Adjusted to reflect a two-for-one stock split effected in the form of a 100%
stock dividend paid on March 17, 1997.
13
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus-Proxy Statement,
the following should be considered carefully by holders of TCD Shares.
Statements made herein should be considered as "forward-looking information".
See "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE--Forward-Looking
Information".
REIMBURSEMENT BY THIRD-PARTY PAYORS
Substantially all of HEALTHSOUTH's revenues are derived from private and
governmental third- party payors (in 1997, approximately 36.9% from Medicare and
approximately 63.1% from commercial insurers, managed care plans, workers'
compensation payors and other private pay revenue sources). There are increasing
pressures from many payor sources to control healthcare costs and to limit
increases in reimbursement rates for medical services. There can be no
assurances that payments under governmental and third-party payor programs will
remain at levels comparable to present levels. In attempts to limit the federal
budget deficit, there have been, and HEALTHSOUTH expects that there will
continue to be, a number of proposals to limit Medicare reimbursements for
certain services. HEALTHSOUTH cannot now predict whether any of these pending
proposals will be adopted or, if adopted and implemented, what effect such
proposals would have on HEALTHSOUTH.
REGULATION
HEALTHSOUTH is subject, and the combined Companies will be subject, to
various other types of regulation at the federal and state levels, including
licensure and certification laws, Certificate of Need laws and laws relating to
financial relationships among providers of healthcare services, Medicare fraud
and abuse and physician self-referral.
The operation of HEALTHSOUTH's facilities and the provision of healthcare
services are subject to federal, state and local licensure and certification
laws. These facilities and services are subject to periodic inspection by
governmental and other authorities to assure compliance with the various
standards established for continued licensure under state law, certification
under the Medicare and Medicaid programs and participation in the Veteran's
Administration program. Additionally, in many states, Certificates of Need or
other similar approvals are required for expansion of HEALTHSOUTH's operations.
HEALTHSOUTH could be adversely affected by the failure or inability to obtain
such approvals, by changes in the standards applicable to approvals and by
possible delays and expenses associated with obtaining approvals. The failure by
HEALTHSOUTH to obtain, retain or renew any required regulatory approvals,
licenses or certificates could prevent HEALTHSOUTH from being reimbursed for, or
from, offering its services, or could adversely affect its results of
operations.
A wide array of Medicare/Medicaid fraud and abuse provisions apply to the
operations of HEALTHSOUTH. HEALTHSOUTH is subject to extensive federal and state
regulation with respect to financial relationships among healthcare providers,
physician self-referral arrangements and other fraud and abuse issues. Penalties
for violation of federal and state laws and regulations include exclusion from
participation in the Medicare/Medicaid programs, asset forfeiture, civil
penalties and criminal penalties. The Office of Inspector General of the
Department of Health and Human Services (the "OIG"), the DOJ and other federal
agencies interpret healthcare fraud and abuse provisions liberally and enforce
them aggressively. See "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE".
HEALTHCARE REFORM
In recent years, an increasing number of legislative proposals have been
introduced or proposed in Congress and in some state legislatures that would
effect major changes in the healthcare system, either nationally or at the state
level. Among the proposals which are, or recently have been, under consideration
are cost controls on hospitals, insurance market reforms to increase the
availability of group health insurance to small businesses, requirements that
all businesses offer health insurance coverage to their employees and the
creation of a single government health insurance plan that would cover all
citizens.
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The costs of certain proposals would be funded in significant part by reductions
in payments by governmental programs, including Medicare and Medicaid, to
healthcare providers. There continue to be federal and state proposals that
would, and actions that do, impose more limitations on government and private
payments to healthcare providers such as HEALTHSOUTH and proposals to increase
copayments and deductibles from program and private patients. At the federal
level, both Congress and the current Administration have continued to propose
healthcare budgets that substantially reduce payments under the Medicare and
Medicaid programs. In addition, many states are considering the enactment of
initiatives designed to reduce their Medicaid expenditures, to provide universal
coverage or additional levels of care and/or to impose additional taxes on
healthcare providers to help finance or expand the states' Medicaid systems.
There can be no assurance as to the ultimate content, timing or effect of any
healthcare reform legislation, nor is it possible at this time to estimate the
impact of potential legislation, which may be material, on HEALTHSOUTH or on the
combined Companies.
COMPUTER TECHNOLOGIES AND YEAR 2000 COMPLIANCE
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 problems 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.
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 re-
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quires 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. See "DESCRIPTION OF
CAPITAL STOCK OF HEALTHSOUTH".
RISKS RELATING TO FEDERAL INCOME TAXES
If the Merger were determined not to constitute a tax-free reorganization
under Section 368(a) of the Code, each holder of TCD Shares would recognize gain
or loss equal to the difference between the fair market value of the HEALTHSOUTH
Common Stock received (plus cash received in lieu of fractional shares) and such
holder's basis in the TCD Shares exchanged therefor. See "THE MERGER -- Certain
Federal Income Tax Consequences".
CERTAIN HORIZON/CMS LITIGATION
On October 29, 1997, HEALTHSOUTH acquired Horizon/CMS Healthcare
Corporation ("Horizon/CMS") through the merger of a wholly-owned subsidiary of
HEALTHSOUTH with and into Horizon/CMS. Horizon/CMS is currently a party, or is
subject, to certain material litigation matters and disputes, which are
described below, as well as various other litigation matters and disputes
arising in the ordinary course of its business. HEALTHSOUTH is not itself a
party to the litigation described below.
SEC and NYSE Investigations
The Division of Enforcement of the SEC is conducting a private
investigation with respect to trading in the securities of Horizon/CMS and
Continental Medical Systems, Inc. ("CMS"), which was acquired by Horizon/CMS in
June 1995. In connection with that investigation, Horizon/CMS produced certain
documents, and Neal M. Elliott, then Chairman of the Board, President and Chief
Executive Officer of Horizon/CMS, and certain other former officers of
Horizon/CMS have given testimony to the SEC. Horizon/CMS has also been informed
that certain of its division office employees and an individual, affiliates of
whom had limited business relationships with Horizon/CMS, have responded to
subpoenas from the SEC. Mr. Elliott also produced certain documents in response
to a subpoena from the SEC. In addition, Horizon/CMS and Mr. Elliott have
responded to separate subpoenas from the SEC pertaining to trading in
Horizon/CMS's common stock and various material press releases issued in 1996 by
Horizon/CMS; Horizon/CMS's February 18, 1997 announcement that HEALTHSOUTH would
acquire Horizon/CMS; and any discussions of proposed business combinations
between Horizon/CMS and Medical Innovations and Horizon/CMS and certain other
companies. The investigation is, to the knowledge of HEALTHSOUTH and
Horizon/CMS, ongoing, and neither Horizon/CMS nor HEALTHSOUTH possesses all the
facts with respect to the matters under investigation. Although neither
Horizon/CMS nor HEALTHSOUTH has been advised by the SEC that the SEC has
concluded that any of Horizon/ CMS, Mr. Elliott or any other current or former
officer of director of Horizon/CMS has been involved in any violation of the
federal securities laws, there can be no assurance as to the outcome of the
investigation or the time of its conclusion. Both Horizon/CMS and HEALTHSOUTH
have, to the extent requested to date, cooperated fully with the SEC in
connection with the investigation.
In March 1995, the 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
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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 IHS on December 31, 1997.
On February 19, 1998, the State of Michigan filed a criminal complaint
against Horizon/CMS, four former employees of the facility and one former
Horizon/CMS regional manager, alleging various violations in 1995 and 1996 of
certain statutes relating to patient care, patient medical records and the
making of false statements with respect to the condition or operations of the
facility (State of Michigan v. Horizon/CMS Healthcare Corp., et al., Case No.
98-630-FY, State of Michigan District Court 54B). The maximum fines chargeable
against Horizon/CMS under the counts alleged in the complaint (exclusive of
charges against the individual defendants, some of which charges may result in
indemnification obligations for Horizon/CMS) aggregate $69,000. Horizon/CMS
denies the allegations made in the complaint and expects to vigorously defend
against the charges. Because such charges have only recently been filed, it is
not possible to predict at this time the outcome or effect of this litigation or
the length of time it will take to resolve this litigation.
Lawsuit by Former Shareholders of Communi-Care, Inc. and Pro Rehab, Inc.
On May 28, 1997, CMS was served with a lawsuit styled Kenneth Hubbard and
Lynn Hubbard v. Rocco Ortenzio, Robert A. Ortenzio and Continental Medical
Systems, Inc., No. 3:97 CV294MCK, filed in the United States District Court for
the Western District of North Carolina, Charlotte Division, by the former
shareholders of Communi-Care, Inc. and Pro Rehab, Inc. seeking damages arising
out of certain "earnout" provisions of the definitive purchase agreements under
which CMS purchased the outstanding stock of Communi-Care, Inc. and Pro Rehab,
Inc. from such shareholders. The plaintiffs allege that the manner in which CMS
and the other defendants operated the companies after their acquisition breached
its fiduciary duties to the plaintiffs, constituted fraud, gross negligence and
bad faith, and breached their employment agreements with the companies. As a
result of such alleged conduct, the plaintiffs assert that they are entitled to
damages in an amount in excess of $27,000,000 from CMS and the other defendants.
Horizon/CMS believes, based upon its evaluation of the legal and factual matters
relating to the plaintiffs' assertions, that it has valid defenses to the
plaintiffs' claims and, as a result, intends to vigorously contest such claims.
Because this litigation remains at an early stage, HEALTHSOUTH cannot now
predict the outcome or effect of such litigation or the length of time it will
take to resolve such litigation.
RehabOne Litigation
In March 1997, Horizon/CMS was served with a lawsuit filed in the United
States District Court for the Middle District of Pennsylvania, styled RehabOne,
Inc. v. Horizon/CMS Healthcare Corporation, Continental Medical Systems, Inc.
David Nation and Robert Ortenzio, No. CV-97-0292. In this lawsuit
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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. 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 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.,
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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 February 20, 1998, the court
reduced the jury's verdict and entered a judgment in the amount of approximately
$11,237,000. Horizon/CMS also vigorously disputes the efficacy of the jury's
verdict and has appealed the judgment.
Horizon/CMS's insurance carrier continues to defend the matter subject to a
reservation of rights. Horizon/CMS based upon an evaluation by its then-current
internal counsel, after reviewing the findings contained in the jury verdict,
the insurance policy at issue and the carrier's handling of the case, believes
that the entirety of any judgment ultimately entered is covered by and payable
from such insurance policy, less Horizon/CMS's self-insured retention of
$250,000. On November 19, 1997, the insurance carrier sent Horizon/CMS a letter
indicating its belief that certain policy exclusions might apply and requesting
additional information which might affect its coverage determination.
Horizon/CMS has retained separate counsel to analyze the coverage issues and
advise Horizon/CMS on its position, and Horizon/CMS expects to continue to
negotiate any coverage issues with its carrier. Settlement negotiations by
Horizon/CMS's insurance carrier, in conjunction with HEALTHSOUTH's retained
counsel, continue with the plaintiff. It is not possible at this time to predict
the outcome of any post-trial motions or appeals, the resolution of any coverage
issues, the outcome of any settlement negotiations or the ultimate amount of any
liability which will be borne by Horizon/CMS.
THE SPECIAL MEETING
GENERAL
This Prospectus-Proxy Statement is being furnished to holders of TCD Shares
in connection with the solicitation of proxies by the Board of Directors of TCD
for use at the Special Meeting to consider and vote upon a proposal to approve
the Plan and to transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
Each copy of this Prospectus-Proxy Statement mailed to holders of TCD
Common Stock is accompanied by a form of Proxy for use at the Special Meeting.
This Prospectus-Proxy Statement is also furnished to holders of TCD Shares
as a Prospectus in connection with the issuance to them of the shares of
HEALTHSOUTH Common Stock upon consummation of the Merger.
DATE, PLACE AND TIME
The Special Meeting will be held in the Lakeside Room, Suite 2600, in the
same building as the principal offices of TCD at 5215 North O'Connor Boulevard,
Irving, Texas 75039, on June 29, 1998 at 10:00 a.m., local time.
RECORD DATE; QUORUM
The Board of Directors of TCD has fixed the close of business on May 6,
1998, as the Record Date for the determination of holders of TCD Shares entitled
to receive notice of and to vote at the Special Meeting. The presence, in person
or by proxy, of the holders of a majority of the TCD Shares entitled to vote at
the Special Meeting will constitute a quorum at the Special Meeting.
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VOTE REQUIRED
As of the Record Date, there were outstanding and entitled to vote
4,920,183 shares of TCD Common Stock. Each of such TCD Shares is entitled to one
vote on each matter that comes before the Special Meeting. Approval of the Plan
will require the affirmative vote of the holders of a majority of the
outstanding shares of TCD Common Stock entitled to vote at the Special Meeting.
Accordingly, approval of the Plan will require the affirmative vote of the
holders of at least 2,460,092 shares of TCD Common Stock.
As of the Record Date, TCD's directors and executive officers and their
affiliates beneficially owned an aggregate of 1,588,582 shares, or approximately
32.3% of the outstanding shares, of TCD Common Stock outstanding on such date
(excluding shares issuable upon exercise of options). To TCD's knowledge, each
of its directors and executive officers intends to vote in favor of the proposal
to approve the Plan.
By the vote of the members of the TCD Board of Directors at a special
meeting held on December 12, 1997, the TCD Board of Directors determined that
the proposed Merger, and the terms and conditions of the Plan, were in the best
interests of TCD and its stockholders. The Plan and the Merger were adopted and
approved unanimously by the members of the TCD Board of Directors, who also
unanimously resolved to recommend that the stockholders of TCD vote FOR approval
of the Plan.
If the Plan is not approved by TCD stockholders, the Plan may be terminated
in accordance with its terms. See "THE MERGER -- Termination".
VOTING AND REVOCATION OF PROXIES
TCD Shares represented by a Proxy properly signed and received at or prior
to the Special Meeting, unless such Proxy is subsequently revoked, will be voted
in accordance with the instructions thereon. IF A PROXY FOR THE SPECIAL MEETING
IS PROPERLY EXECUTED AND RETURNED WITHOUT INDICATING ANY VOTING INSTRUCTIONS,
TCD SHARES REPRESENTED BY THE PROXY WILL BE VOTED FOR APPROVAL OF THE PLAN. Any
Proxy given pursuant to this solicitation may be revoked by the person giving it
at any time before the Proxy is voted by the filing of an instrument revoking it
or of a duly executed Proxy bearing a later date with the Secretary of TCD prior
to or at the Special Meeting or by voting in person at the Special Meeting.
Attendance at the Special Meeting will not in and of itself constitute a
revocation of a Proxy. Only votes cast for approval of the Plan constitute
affirmative votes. Abstentions and broker non-votes with respect to the Plan
will, therefore, have the same effect as votes against approval of the Plan.
The Board of Directors of TCD is not aware of any business to be acted upon
at the Special Meeting other than as described herein. If, however, other
matters are properly brought before the Special Meeting, or any adjournments or
postponements thereof, the persons appointed as proxies will have discretion,
subject to the DGCL and applicable rules of the SEC, to vote or act thereon
according to their best judgment.
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers and employees of
TCD, who will not be specifically compensated for such services, may solicit
proxies from the stockholders of TCD, personally or by telephone or telegram or
other forms of communication. Brokerage houses, nominees, fiduciaries and other
custodians will be requested to forward soliciting materials to beneficial
owners and will be reimbursed for their reasonable expenses incurred in doing
so.
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS. THE
PROCEDURE FOR THE EXCHANGE OF SHARES AFTER THE MERGER IS CONSUMMATED IS SET
FORTH ELSEWHERE IN THIS PROSPECTUS-PROXY STATEMENT. SEE "THE MERGER -- EXCHANGE
OF CERTIFICATES".
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THE MERGER
The description of the Merger contained in this Prospectus-Proxy Statement
summarizes the principal provisions of the Plan; it is not complete and is
qualified in its entirety by reference to the Plan, the full text of which is
attached hereto as Annex A and which is incorporated by reference herein. All
TCD stockholders are urged to read Annex A in its entirety.
TERMS OF THE MERGER
The acquisition of TCD by HEALTHSOUTH will be effected by means of the
merger of the Subsidiary with and into TCD, with TCD being the Surviving
Corporation. The Certificate of Incorporation of TCD (the "TCD Certificate"), as
amended at the Effective Time pursuant to the request of HEALTHSOUTH, will
become the Certificate of Incorporation of the Surviving Corporation from and
after the Effective Time and until thereafter amended in accordance with
applicable law. The Bylaws of the Subsidiary as in effect at the Effective Time
will become the Bylaws of the Surviving Corporation until amended or repealed in
accordance therewith and with applicable law. At the Effective Time, TCD will
continue as the Surviving Corporation under the name "The Company Doctor".
At the Effective Time, each outstanding TCD Share (excluding shares held by
TCD and any of its subsidiaries, which will automatically be cancelled and
retired) (collectively, the "Exchanging TCD Shares") will be converted into the
right to receive (i) if the Base Period Trading Price (as defined below) is no
lower than $24.00 and no higher than $27.875, 0.142 of a share of HEALTHSOUTH
common stock, or (ii) if the Base Period Trading Price is greater than $27.875,
a fraction of a share of HEALTHSOUTH common stock equal to (x) $3.958 divided by
(y) the Base Period Trading Price, or (iii) if the Base Period Trading Price is
less than $24.00, a fraction of a share of HEALTHSOUTH common stock equal to (x)
$3.408 divided by (y) the Base Period Trading Price (in whichever case occurs,
the "Exchange Ratio"). The term "Base Period Trading Price" means the average
daily closing prices for the shares of HEALTHSOUTH Common Stock for the 20
consecutive trading days on which such shares are actually traded (as reported
on the New York Stock Exchange Composite Transaction Tape as reported in the
Wall Street Journal, Eastern Edition, or if not reported thereby, any other
authoritative source) ending at the close of trading on the third trading day
immediately preceding the Closing Date. Each certificate previously evidencing
Exchanging TCD Shares outstanding immediately prior to the Effective Time
("Certificates") will thereafter be deemed, for all purposes other than the
payment of dividends or distributions, to represent that number of shares of
HEALTHSOUTH Common Stock determined pursuant to the Exchange Ratio and, if
applicable, the right to receive cash in lieu of any fractional shares.
At the Effective Time of the Merger, all then-outstanding options and
warrants to purchase TCD Common Stock, whether or not then exercisable, will, in
accordance with the Plan, be assumed by HEALTHSOUTH and will become options and
warrants to purchase HEALTHSOUTH Common Stock. The exercise period for TCD
incentive stock options assumed by HEALTHSOUTH shall not be less than two years
in the case of any incentive stock options held by an employee who is terminated
by HEALTHSOUTH. As a result of such assumption, each such option and warrant
will relate to a number of shares of HEALTHSOUTH Common Stock determined by
multiplying the number of shares of TCD Common Stock theretofore subject thereto
by the Exchange Ratio and the exercise prices thereof will be determined by
dividing the exercise price contained in such option or warrant by the Exchange
Ratio. At December 31, 1997 options and rights to acquire approximately
1,260,044 shares of TCD Common Stock and warrants to acquire approximately
2,399,400 shares of TCD Common Stock were outstanding.
Based upon the number of shares of HEALTHSOUTH Common Stock, excluding
shares obtainable upon exercise of options and convertible securities,
outstanding as of the Record Date, the holders of TCD Shares will receive in the
aggregate approximately 0.3% of the shares of HEALTHSOUTH Common Stock
anticipated to be outstanding immediately after the Effective Time.
BACKGROUND OF THE MERGER
On or about April 14, 1997, Loewenbaum was retained to assist the TCD Board
of Directors in evaluating all of TCD's strategic alternatives.
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In July 1997, Loewenbaum commenced contacts with various parties that
represented firms capable of entering into a strategic relationship with TCD.
Following submission of proposals to TCD, on or about September 30, 1997, a
meeting of the Board of Directors of TCD was held on October 4, 1997, at which
Loewenbaum was requested to obtain additional information from HEALTHSOUTH
concerning HEALTHSOUTH's expression of interest.
On October 8, 1997, the Board of Directors of TCD met and authorized Dale
W. Willetts, Chief Executive Officer of TCD, to continue the negotiations with
HEALTHSOUTH.
On October 20, 1997, certain members of HEALTHSOUTH's management traveled
to Dallas, Texas to conduct an on-site due diligence meeting with
representatives of TCD.
On or about October 20, 1997, HEALTHSOUTH counsel delivered a form of the
Plan to TCD and its legal and financial advisors.
On November 3, 1997, the Board of Directors of TCD met and Mr. Willetts
reported on the status of negotiations with HEALTHSOUTH and discussed the
proposed changes to the Plan being negotiated with HEALTHSOUTH.
On November 6, 1997, the Board of Directors of TCD met telephonically to
review with Mr. Willetts the outline of terms provided by HEALTHSOUTH and
proposed changes to the Plan.
From November 6, 1997 through November 23, 1997, legal advisors to TCD and
HEALTHSOUTH counsel met telephonically on a periodic basis to discuss and review
changes to the draft Plan.
On November 20, 1997, a member of HEALTHSOUTH's senior management met in
Dallas, Texas with representatives of the Company to conduct due diligence and
negotiate revisions to the terms of the Merger.
On November 23, 1997, the TCD Board of Directors reviewed information from
management concerning HEALTHSOUTH and its proposal, a presentation by Loewenbaum
concerning the HEALTHSOUTH proposal, the terms of the draft Plan and the
fairness opinion of Loewenbaum, which was delivered orally. Based upon that
review, the TCD Board of Directors authorized Mr. Willetts to continue
negotiations with HEALTHSOUTH.
On December 1, 1997, HEALTHSOUTH counsel forwarded a revised draft Plan to
TCD and its legal advisors.
On December 2, 1997, the Board of Directors of TCD met telephonically to
review the terms of the latest draft of the Plan.
From December 3, 1997 through December 11, 1997, HEALTHSOUTH and TCD and
their respective legal advisors negotiated the final terms of the Plan and the
forms of affiliate agreements to be entered into by TCD affiliates.
On December 11, 1997, the Board of Directors of HEALTHSOUTH approved the
Plan.
On December 12, 1997, the Board of Directors of TCD met telephonically to
authorize Mr. Willetts to execute the Plan on behalf of TCD.
On December 16, 1997, the Plan was executed by the parties.
On December 17, 1997, the proposed Merger was publicly announced.
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS OF TCD
The Board of Directors of TCD believes that the terms of the Plan are fair
to, and that the Merger is in the best interests of, TCD and its stockholders.
Accordingly, the Board of Directors of TCD has approved the Merger upon the
terms of the Plan and recommends approval thereof by the stockholders of TCD.
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In reaching its determination to approve and adopt the Plan, the TCD Board
of Directors considered a number of factors and the potential synergies that
would result from a merger with HEALTHSOUTH. Specifically, the TCD Board of
Directors considered:
(i) TCD's growth prospects on a stand alone basis as well as in
combination with HEALTHSOUTH;
(ii) the complementary business operations of TCD and HEALTHSOUTH, which
the TCD Board of Directors believes will enable TCD, on a post-Merger basis,
to (a) achieve a greater presence in its primary markets, (b) secure more
extensive relationships with third-party payors and employers, (c) achieve
certain economies of scale and operating efficiencies, and (d) expand through
cross-referrals available from other entities owned by HEALTHSOUTH;
(iii) information regarding the assets, liabilities, financial condition,
results of operations and prospects of TCD and of TCD and HEALTHSOUTH on a
combined basis;
(iv) access to capital by TCD necessary for TCD's future growth and the
access to capital enjoyed by HEALTHSOUTH;
(v) the extensive coverage of HEALTHSOUTH by recognized investment banks
and equity analysts as compared to that afforded to TCD, and the more liquid,
less volatile market for HEALTHSOUTH Common Stock;
(vi) the form of the consideration in the Merger, which permits holders
of TCD Common Stock to exchange their TCD Common Stock for registered shares
of HEALTHSOUTH on a tax-free basis;
(vii) the strength of the management team of HEALTHSOUTH; and
(viii) the terms of the Plan that permit TCD, in certain circumstances,
to terminate the Plan in the event such termination is required in order for
the TCD Board of Directors to comply with its fiduciary duties. In this
regard, the TCD Board of Directors specifically considered the applicability
and amount of the break-up fee, that was not viewed as unreasonably impeding
any interested third party from proposing a superior transaction.
The TCD Board of Directors based its conclusions, in part, on presentations
by its financial advisors and management; the strategy, business operations,
earnings and financial condition of HEALTHSOUTH on a historical and prospective
basis; its assessment, with the assistance of financial and legal counsel,
concerning the likelihood that HEALTHSOUTH would obtain all required regulatory
approvals of the Merger; and the expectation that the Merger will be a tax-free
transaction to TCD and its stockholders.
In view of the wide variety of factors considered in connection with its
evaluation of the Merger, the TCD Board of Directors did not find it practicable
to quantify or otherwise to attempt to assign relative weights to the specific
factors considered in reaching its determination and did not do so.
THE BOARD OF DIRECTORS OF TCD RECOMMENDS THAT TCD STOCKHOLDERS VOTE TO
APPROVE AND ADOPT THE PLAN.
OPINION OF FINANCIAL ADVISOR TO TCD
Loewenbaum & Company Incorporated ("Loewenbaum") was retained by TCD on or
about April 14, 1997 to assist the TCD Board of Directors in evaluating all of
TCD's strategic alternatives. Loewenbaum was selected based on their experience
and expertise in the healthcare sector and in transactions similar to the
Merger, their familiarity with TCD and firms active in the healthcare industry
and the reputation of the principals in the investment banking industry.
Loewenbaum is an investment banking firm engaged, among other things, in
the valuation of businesses and their securities in connection with mergers and
acquisitions, underwriting and secondary distributions of securities, private
placements and valuations for estate, corporate and other purposes. In
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the ordinary course of its business, Loewenbaum may actively trade TCD Common
Stock and HEALTHSOUTH Common Stock for its own account and for the accounts of
its customers and, therefore, may at any time hold a long or short position in
such securities.
As a result of discussions held between representatives of Loewenbaum and
management of TCD, various strategic alternatives were considered by TCD and the
TCD Board of Directors. Following an evaluation of these alternatives,
management of TCD requested Loewenbaum to engage in, among other things, an
auction process to determine the level of interest among parties with the
capital and other resources to undertake an acquisition of TCD. In July 1997,
Loewenbaum distributed certain descriptive information prepared by TCD to more
than 40 entities deemed qualified to acquire or merge with TCD. Prior to
submission of proposals, nine potential purchasers conducted due diligence and
engaged in discussions with TCD and Loewenbaum. In September 1997, Loewenbaum
requested potentially interested parties to present proposals. Three parties,
including HEALTHSOUTH, submitted proposals in response to this request. In
October 1997, the TCD Board of Directors, after considering the proposals
submitted, authorized Loewenbaum to negotiate exclusively with HEALTHSOUTH due
to HEALTHSOUTH's strong reputation, excellent financial resources, public status
and potential for growth. In arriving at its fairness opinion, Loewenbaum
considered the results of the auction process.
Loewenbaum delivered to the TCD Board of Directors on November 23, 1997,
its oral opinion (subsequently confirmed by written opinion dated as of December
16, 1997) to the effect that, as of the date of the opinion and based on and
subject to the assumptions, factors and limitations set forth in the opinion and
described below, the consideration proposed to be paid by HEALTHSOUTH pursuant
to the Merger Agreement was fair, from a financial point of view, to the
stockholders of TCD. That opinion, and Loewenbaum's written opinion dated
December 16, 1997, are herein collectively referred to as the "Loewenbaum
Opinion". A copy of the Loewenbaum Opinion dated December 16, 1997 is attached
to this Prospectus-Proxy Statement as Annex B and is incorporated herein by
reference. The November 23, 1997 oral opinion is substantially identical to the
Loewenbaum Opinion attached hereto.
While Loewenbaum rendered its opinion and provided certain analyses to the
TCD Board of Directors, Loewenbaum was not requested to and did not make any
recommendation to the TCD Board of Directors as to the specific form or amount
of the consideration to be received by TCD stockholders in the Merger, which was
determined through negotiations between HEALTHSOUTH and TCD. The Loewenbaum
Opinion, which was delivered for use and considered by the TCD Board of
Directors, is directed only to the fairness to TCD stockholders, from a
financial point of view, of the proposed consideration to be paid by HEALTHSOUTH
in connection with the Merger, does not address the value of a share of TCD
Common Stock, does not address TCD's underlying business decision to participate
in the Merger and does not constitute a recommendation to any TCD stockholder as
to how such stockholder should vote with respect to the Merger. However,
Loewenbaum has consented, which consent is included as an exhibit to the
Registration Statement of which this Prospectus-Proxy Statement is a part, to
the inclusion of the Loewenbaum Opinion included herein, and to the reference to
its firm. Loewenbaum does not admit that it is an expert within the meaning of
the term "expert" as used in the Securities Act and the rules and regulations
promulgated thereunder, or that its opinion constitutes a report or valuation
within the meaning of Section 11 of the Securities Act and the rules and
regulations promulgated thereunder.
Loewenbaum was not advised by TCD, HEALTHSOUTH or their respective legal
counsel concerning the probable outcome of, or estimated damages which might
arise from, any pending or threatened litigation, possible unasserted claims or
other contingent liabilities, to which TCD or HEALTHSOUTH or their affiliates
was a party or may be subject and undertook no analysis independent thereof.
Accordingly, the Loewenbaum Opinion made no assumption concerning, and therefore
did not consider, the possible assertion of claims, outcomes or damages arising
out of any such matters.
THE SUMMARY OF THE LOEWENBAUM OPINION SET FORTH BELOW IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE LOEWENBAUM OPINION DATED DECEMBER
16, 1997 AND ATTACHED HERETO AS ANNEX B. TCD STOCKHOLDERS ARE URGED TO READ THE
LOEWENBAUM OPINION IN ITS ENTIRETY FOR A COMPLETE DESCRIPTION OF THE ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITS OF THE REVIEW UNDERTAKEN.
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In arriving at the Loewenbaum Opinion, Loewenbaum reviewed, analyzed and
relied upon material bearing upon the financial and operating condition and
prospects of TCD and HEALTHSOUTH and material prepared in connection with the
Merger, and considered such financial and other factors as it deemed appropriate
under the circumstances, including, among other things, the following: (i) the
Plan; (ii) information relative to the business, financial condition and
operations of TCD furnished by management of TCD; (iii) certain internal
financial planning information of TCD furnished by management of TCD and certain
pro forma internal financial planning information for TCD furnished by
management of TCD; (iv) selected market information for TCD Common Stock and
HEALTHSOUTH Common Stock; (v) to the extent publicly available, the financial
terms of certain merger and acquisition transactions deemed relevant; (vi)
publicly available information relative to TCD and HEALTHSOUTH; and (vii)
certain financial and securities data of TCD and HEALTHSOUTH and companies
deemed reasonably similar or comparable to TCD and HEALTHSOUTH. In addition,
Loewenbaum engaged in discussion with members of management of TCD and
HEALTHSOUTH concerning the respective financial condition, current operating
results and business outlook of TCD and HEALTHSOUTH, including the prospects for
TCD and HEALTHSOUTH on a combined basis.
For purposes of the Loewenbaum Opinion, Loewenbaum relied upon and assumed
the accuracy, completeness and fairness of the financial and other information
made available to it and did not attempt to independently verify such
information. Loewenbaum relied upon the assurances of TCD management that the
information provided by TCD had a reasonable basis and, with respect to
financial planning data and other business outlook information, reflected the
best available estimates, and that they were not aware of any information or
fact that would make the information provided to Loewenbaum incomplete or
misleading. Loewenbaum relied, without independent verification, on the
assessments by management of TCD. Loewenbaum did not take into account any
nonrecurring acquisition costs or potential cost savings or synergies that may
be realizable as a result of the Merger. In arriving at the Loewenbaum Opinion,
Loewenbaum did not perform, nor was it furnished, any appraisal or valuation of
specific assets or liabilities of TCD or HEALTHSOUTH and expressed no opinion
regarding the liquidation value of any entity. No limitations were imposed by
TCD on the scope of Loewenbaum's investigation or the procedures to be followed
in rendering its opinion. Loewenbaum expressed no opinion as to the price at
which shares of TCD Common Stock or HEALTHSOUTH Common Stock may trade at any
future time. The Loewenbaum Opinion is based upon information available to
Loewenbaum, and the facts and circumstances as they existed and were subject to
evaluation on the respective dates of the Loewenbaum Opinion. Events occurring
after such dates could materially affect the assumptions used in preparing the
Loewenbaum Opinion.
Loewenbaum performed certain financial and comparative analyses, including
those summarized below, which it discussed with the TCD Board on November 23,
1997. In delivering its opinion to the TCD Board on November 23, 1997,
Loewenbaum prepared and delivered to the TCD Board certain written materials
containing various analyses and other information relevant to such opinion. At
the time and for the purpose of such preparation, the Exchange Ratio of 0.142 as
set forth in the Plan represented an implied purchase price of $3.73 for each
share of TCD Common Stock. Loewenbaum confirmed the appropriateness of its
reliance on the described analyses in connection with its opinion by performing
procedures to update certain of such analyses and reviewing the assumptions on
which such analyses were based and the factors considered in connection
therewith, modified, where appropriate, to take into account subsequent events.
The discussion below summarizes those material analyses performed by Loewenbaum
and reviewed with the TCD Board on November 23, 1997 in connection with
rendering Loewenbaum's opinion dated November 23, 1997 and its oral presentation
to the TCD Board on such date.
Selected Market Information. Loewenbaum reviewed certain stock trading
characteristics of TCD Common Stock and HEALTHSOUTH Common Stock, including
stock price and volume comparisons for periods ending November 19, 1997.
Loewenbaum also analyzed the per share purchase price and aggregate transaction
value based on the Exchange Ratio and other terms set forth in the Merger
Agreement.
Discounted Cash Flow Analysis. TCD management developed a five year
forecast based on the current expected case, based upon certain assumptions,
and Loewenbaum utilized the forecast to per-
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form a discounted cash flow analysis. In this analysis, a range of discount
rates is applied to determine the present value of TCD's expected future cash
flows (adjusted for a terminal multiple applied to cash flows expected outside
the five year period), and an enterprise value is determined based on the range
of discount rates and terminal revenue or EBITDA multiples. This analysis, at
discount rates of 18.7% to 23.4%, and at terminal revenue multiples of from 1.0x
to 2.0x or terminal EBITDA multiples of from 6.0x to 14.0x, with attention
focused on 1.5x and 2.0x revenue multiples and 6.0x and 10.0x EBITDA multiples,
resulted in a range of equity values, of $12.3 million to $20.9 million. The
equity value represented by the HEALTHSOUTH Common Stock, at prices prevailing
at the date of the Loewenbaum Opinion, is at the high end of this range.
Comparable Merger and Acquisition Analysis. Loewenbaum reviewed selected
transactions involving acquired companies deemed comparable to TCD that have
been completed from August 23, 1995 to September 30, 1997 involving target
companies operating in the physician practice management sector in which the
target was 100% acquired. This analysis was based on publicly available
information obtained from Securities and Exchange Commission filings, public
company disclosures, press releases, industry and popular press reports, data
bases and other sources. This search yielded 27 transactions deemed comparable
and for which certain valuation data was available. Based on its analysis of the
comparable transactions, Loewenbaum derived the mean, median and ranges of
latest 12 months' revenue, EBITDA and the net income multiples for the
comparable transaction group and compared such multiples to TCD's comparable
multiples. The comparable transaction group's median purchase price as a
multiple of the latest 12 months' revenue, EBITDA and net income of 1.2x, 14.3x
and 28.5x were compared with TCD's latest quarter annualized purchase price
multiples of 1.8x, 23.0x and N/M; and the mean purchase price as a multiple of
the latest 12 months' revenue, EBITDA and net income of 1.4x, 15.1x and 29.9x
were compared with TCD's latest quarter annualized purchase price multiples of
1.8x, 23.0x and N/M.
Comparable Public Company Analysis. Loewenbaum reviewed information
relating to six publicly traded companies involved in physician practice
management. Share pricing for publicly traded companies in the public market
reflects the value of a minority interest and does not reflect a control
premium. Based on its review, Loewenbaum derived mean total enterprise values
for the comparable public company group as a multiple of the latest quarter
annualized revenue, EBITDA and net income of 2.5x, 11.5x and 26.8x and compared
such multiples with TCD's then current latest quarter annualized trading
multiples of 2.0x, 25.1x and N/M; and the median total enterprise values for the
comparable public company group as a multiple of the latest quarter annualized
revenue, EBITDA and net income of 2.4x, 11.8x and 27.9x were compared with TCD's
then current latest quarter annualized trading multiples of 2.0x, 25.1x and N/M.
Loewenbaum also derived mean and median expected next twelve months' net income
price/earnings multiples of 18.5x and 15.9x for the comparable public company
group, compared to N/M for TCD.
In reaching its conclusions as to the fairness to the TCD stockholders of
the consideration to be paid by HEALTHSOUTH in the Merger and in its
presentation to the TCD Board, Loewenbaum did not rely on any single analysis or
factor described above, assign relative weights to the analyses or factors
considered by it, or make any conclusions as to how the results of any given
analysis, taken alone, supported its fairness opinion. The preparation of a
fairness opinion is a complex process and not necessarily susceptible to partial
analyses or summary description. Loewenbaum believes that its analyses must be
considered as a whole and that selecting portions of its analyses and of the
factors considered by it, without considering all factors and analyses, would
create a misleading view of the process underlying the Loewenbaum Opinion. The
analyses of Loewenbaum are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than suggested by
such analyses. Analyses relating to the value of companies do not purport to be
appraisals or valuations or necessarily reflect the price at which companies may
actually be sold. No company or transaction used in any comparable analysis as a
comparison is identical to TCD, HEALTHSOUTH or the Merger. Accordingly, an
analysis of the results is not mathematical; rather it involves complex
considerations and judgments concerning, among other things, differences in
financial and operating characteristics of the comparable companies and other
factors that could affect the public trading value of such companies.
TCD has agreed to pay Loewenbaum fees for acting as financial advisor to
TCD in connection with the Merger as follows: (a) $100,000, in connection with
Loewenbaum's rendering the Loewenbaum
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Opinion and (b) 2.0% of the aggregate total Merger Consideration due upon
consummation of the Merger. TCD has also agreed to pay the reasonable
out-of-pocket expenses of Loewenbaum and to indemnify Loewenbaum against certain
liabilities incurred (including liabilities under the federal securities laws)
in connection with the engagement of Loewenbaum by TCD.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon the filing of a Certificate of Merger
by the Subsidiary and TCD under the DGCL, or at such later time as may be
specified in such Certificate of Merger. It is anticipated that such filing will
be made as soon as reasonably possible after the Special Meeting and after all
regulatory approvals have been obtained, and that the Effective Time will occur
upon such filing. There can be, however, no assurance as to whether or when the
Merger will occur. See "-- Conditions to the Merger" and "-- Regulatory
Approvals".
EXCHANGE OF CERTIFICATES
From and after the Effective Time, each holder of a Certificate will be
entitled to receive in exchange therefor, upon surrender thereof to the Exchange
Agent (as defined in the Plan), a certificate or certificates representing the
number of whole shares of HEALTHSOUTH Common Stock into which such holder's TCD
Shares have been converted, cash in lieu of fractional shares and any dividends
or other distributions to which such holder is entitled as a result of the
Merger as provided in the Plan.
As soon as reasonably practicable after the Effective Time, HEALTHSOUTH
will deliver through the Exchange Agent (as defined in the Plan) to each holder
of record of TCD Shares at the Effective Time transmittal materials for use in
exchanging the Certificates for certificates for shares of HEALTHSOUTH Common
Stock. After the Effective Time, there will be no transfers on the stock
transfer books of TCD Shares that were issued and outstanding immediately prior
to the Effective Time and converted in the Merger.
No fractional shares of HEALTHSOUTH Common Stock and no certificates or
scrip therefor, or other evidence of ownership thereof, will be issued in the
Merger; instead, HEALTHSOUTH will pay to each holder of TCD Shares who would
otherwise be entitled to a fractional share cash in an amount equal to the value
of such fractional share of HEALTHSOUTH Common Stock. See "-- Terms of the
Merger".
No certificates representing shares of HEALTHSOUTH Common Stock, no
fractional share payment and no dividends or other distributions paid on such
HEALTHSOUTH Common Stock will be delivered or paid to a holder of a Certificate
or Certificates until the Certificates are delivered to HEALTHSOUTH through the
Exchange Agent. No interest will be paid on dividends or other distributions or
on any fractional share payment which the holder of such shares will be entitled
to receive upon such delivery.
At the Effective Time, holders of TCD Shares immediately prior to the
Effective Time will cease to be, and will have no rights as, stockholders of
TCD, other than the right to receive the shares of HEALTHSOUTH Common Stock into
which such shares have been converted and any fractional share payment and any
dividends or other distributions to which they may be entitled under the Plan.
Holders of TCD Shares will be treated as stockholders of record of HEALTHSOUTH
for purposes of voting at any annual or special meeting of stockholders of
HEALTHSOUTH after the Effective Time, both before and after such time as they
exchange their Certificates for certificates of HEALTHSOUTH Common Stock as
provided in the Plan.
Neither HEALTHSOUTH nor TCD will be liable to any holder of TCD Shares for
any shares of HEALTHSOUTH Common Stock (or dividends or other distributions with
respect thereto) or cash in lieu of fractional shares delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
REPRESENTATIONS AND WARRANTIES
The Plan contains various customary representations and warranties of the
parties thereto. The representations and warranties of HEALTHSOUTH and the
Subsidiary, made jointly and severally,
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include representations as to: (i) the corporate organization of the Subsidiary,
(ii) the power and authority of the Subsidiary to execute and perform the Plan,
(iii) the absence of subsidiaries of the Subsidiary, and (iv) the absence of
contracts, liabilities and legal proceedings relating to or affecting the
Subsidiary.
The representations and warranties of HEALTHSOUTH include representations
as to: (i) the organization of HEALTHSOUTH; (ii) the power and authority of
HEALTHSOUTH to execute, deliver and perform the Plan; (iii) the capitalization
of HEALTHSOUTH; (iv) ownership of Subsidiary Common Stock by HEALTHSOUTH; (v)
the fact that HEALTHSOUTH has furnished TCD with true and complete copies of
certain reports, schedules, registration statements and proxy statements filed
by HEALTHSOUTH with the SEC since January 1, 1996, and that such documents did
not contain any untrue statements of material facts or omit to state material
facts that would be necessary to make the statements therein, under the
circumstances under which they were made, not misleading; (vi) HEALTHSOUTH's
investment intent with respect to the TCD Shares acquired; (vii) the absence of
material legal proceedings against HEALTHSOUTH; (viii) the absence of certain
material changes relating to HEALTHSOUTH since the date of the HEALTHSOUTH's
document last filed with the SEC; (ix) the filing of HEALTHSOUTH's tax returns;
(x) HEALTHSOUTH's compliance with laws in general; (xi) HEALTHSOUTH's licenses,
accreditations and regulatory approvals; and (xii) HEALTHSOUTH's insurance.
The representations and warranties of TCD include representations and
warranties as to: (i) the organization and good standing of TCD and its
subsidiaries, (ii) the capitalization of TCD, (iii) foreign qualifications, (iv)
the power and authority of TCD to execute, deliver and perform the Plan, (v) the
fact that TCD has furnished HEALTHSOUTH with true and complete copies of certain
reports, schedules, registration statements and proxy statements filed by TCD
with the SEC since June 30, 1996, and that such documents did not contain any
untrue statements of material facts or omit to state material facts that would
be necessary to make the statements therein, under the circumstances under which
they were made, not misleading, (vi) certain information provided to
HEALTHSOUTH, (vii) the absence of undisclosed material legal proceedings against
TCD, (viii) the validity of TCD's material contracts, (ix) the absence of
certain material changes relating to TCD since the date of the TCD document last
filed with the SEC, (x) the status of TCD's accounts receivable, (xi) the filing
of TCD's tax returns, (xii) commissions and fees payable by TCD, (xiii) TCD's
employee benefits, (xiv) TCD's compliance with laws in general, (xv) TCD's
licenses, accreditations and regulatory approvals, (xvi) the vote required by
holders of TCD capital stock to approve the Plan to be performed, (xvii) the
opinion of TCD's financial advisor, and (xviii) certain agreements between TCD
and Donald F. Angle, M.D. or his affiliates.
CONDITIONS TO THE MERGER
The obligation of HEALTHSOUTH and the Subsidiary to consummate the Merger
is subject to, among others, the following conditions: (i) TCD shall have
performed all of its agreements as contemplated by the Plan to be performed at
or prior to the consummation date of the Merger; (ii) except as otherwise
provided therein the representations and warranties of TCD set forth in the Plan
shall be true and correct in all material respects as of the dates specified in
the Plan; (iii) HEALTHSOUTH shall have received the opinion of its counsel that
the Merger constitutes a tax-free reorganization under the Code; and (iv)
HEALTHSOUTH shall have received an opinion of TCD's counsel substantially in the
form specified in the Plan.
The obligation of TCD to consummate the Merger is subject to, among others,
the following conditions: (i) HEALTHSOUTH and the Subsidiary shall have
performed all of their agreements as contemplated by the Plan to be performed at
or prior to the consummation of the Merger; (ii) except as otherwise provided
therein the representations and warranties of HEALTHSOUTH and the Subsidiary set
forth in the Plan shall be true and correct as of the dates specified in the
Plan; (iii) TCD shall have received the opinion of its counsel that the Merger
constitutes a tax-free reorganization under the Code; and (iv) TCD shall have
received an opinion of HEALTHSOUTH's counsel substantially in the form specified
in the Plan.
The obligation of each of HEALTHSOUTH, the Subsidiary and TCD to consummate
the Merger is subject to certain additional conditions, including the following:
(i) no order, decree or injunction by a court of competent jurisdiction
preventing the consummation of the Merger or imposing any material limitation on
the ability of HEALTHSOUTH effectively to exercise full rights of ownership of
the common stock of the
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Surviving Corporation or any material portion of the assets or business of TCD
shall be in effect; (ii) no statute, rule or regulation shall have been enacted
by the government of the United States or any state, municipality or other
political subdivision thereof that makes the consummation of the Merger or any
other transaction contemplated by the Plan illegal; (iii) the waiting period
under the HSR Act shall have expired or shall have been terminated; (iv) the
Registration Statement shall have been declared effective under the Securities
Act and shall not be subject to any stop order; (v) the Merger shall have been
approved by the requisite vote of the holders of the outstanding TCD Shares
entitled to vote thereon; (vi) the shares of HEALTHSOUTH Common Stock to be
issued in connection with the Merger shall have been approved for listing on the
NYSE upon official notice of issuance; (vii) HEALTHSOUTH and the Subsidiary
shall have obtained, or obtained the transfer of, any Licenses (as defined)
necessary to allow the Surviving Corporation to operate the TCD facilities,
unless the failure to obtain such transfer or approval would not have a material
adverse effect on the Surviving Corporation; and (viii) HEALTHSOUTH and the
Subsidiary shall have received all required consents, approvals and
authorizations of third parties with respect to all material leases and
management agreements to which TCD Subsidiaries or TCD Other Entities are
parties, except where failure to do so would not have a material effect on the
business of the Surviving Corporation.
REGULATORY APPROVALS
As conditions precedent to the consummation of the Merger, the Plan
requires, among other things: (i) that the HSR Act waiting period has expired or
been terminated and (ii) that all other governmental approvals required for the
consummation of the Merger have been obtained, except where the failure to
obtain such approvals would not have a material adverse effect on the business
of the Surviving Corporation.
HSR Act. The HSR Act prohibits consummation of the Merger until certain
information has been furnished to the Antitrust Division of the DOJ and the FTC
and certain waiting period requirements have been satisfied. On April 15, 1998,
HEALTHSOUTH and TCD made their respective filings with the DOJ and the FTC with
respect to the Plan. Under the HSR Act, the filings commenced a waiting period
during which the Merger cannot be consummated, which waiting period expired on
May 15, 1998.
Notwithstanding the termination or expiration of the HSR Act waiting
period, at any time before or after the Effective Time, the FTC or the DOJ could
initiate legal action under the antitrust laws seeking to enjoin the
consummation of the Merger or seeking the divestiture by HEALTHSOUTH of any part
of its assets or all or any part of the stock or assets of TCD. In addition,
certain other persons, such as states' attorneys general and private parties,
could challenge the Merger as violative of the antitrust laws and seek to enjoin
the consummation of the Merger and, in the case of private persons, also to
obtain treble damages. There can be no assurance that a challenge to the Merger
on antitrust grounds will not be made or, if such a challenge were made, that it
would not be successful.
HEALTHSOUTH and TCD believe that the Merger does not violate the antitrust
laws and intend to resist vigorously any assertion to the contrary by the FTC,
the DOJ or others. Any such assertion could delay consummation of the Merger,
perhaps for a considerable period. Prior to the Merger, the FTC or the DOJ could
seek to enjoin the consummation of the Merger under the federal antitrust laws
or require that HEALTHSOUTH or TCD divest assets to avoid such a proceeding. The
FTC or DOJ could also, following the Merger, take action under the federal
antitrust laws to rescind the Merger, to require divestiture of assets of either
HEALTHSOUTH or TCD, or to obtain other relief.
TCD does not intend to seek any further stockholder approval or
authorization of the Plan as a result of any action that the Companies may take
to resist or resolve any FTC, DOJ or other objections, unless required to do so
by applicable law.
Other Regulatory Approvals. The operations of each Company are subject to a
substantial body of federal, state, local and accrediting body laws, rules and
regulations relating to the development, operations and licensing of healthcare
businesses and facilities. Many regulatory agencies require that a filing be
made to obtain consent to or approval of the Merger. All filings required to be
made prior to the date of this Prospectus-Proxy Statement to obtain the consents
and approvals required from federal and state healthcare regulatory bodies and
agencies have been made. Certain filings cannot, however, be made
29
<PAGE>
under applicable laws, rules and regulations until after the Effective Time. As
a result of the Merger, certain of the arrangements between TCD and third-party
payors may be deemed to have been transferred, requiring the approval and
consent of such payors. Although no assurances to this effect can be given, it
is anticipated that the Companies will be able to obtain any required regulatory
or third-party payor consent or approval.
BUSINESS PENDING THE MERGER
The Plan provides that, during the period from the date of the Plan to the
Effective Time, except as provided in the Plan, TCD will conduct its businesses
in the usual, regular and ordinary course in substantially the same manner as
previously conducted and will use its commercially reasonable efforts to
preserve intact its present business organization, to keep available the
services of its key employees and to preserve its relationships with customers,
suppliers and others having business dealings with it.
Under the Plan, TCD has agreed that it will not (other than as required
pursuant to or contemplated by the terms of the Plan and related documents),
pending the Effective Time without first obtaining the written consent of
HEALTHSOUTH: (i) amend its Certificate of Incorporation or Bylaws; (ii) extend
credit to anyone or guarantee the obligation of any person, firm or corporation
except in the ordinary course of business consistent with prior practice; (iii)
discharge or satisfy any material lien or encumbrance, or pay or satisfy any
material obligation or liability (absolute, accrued, contingent or otherwise)
other than (a) liabilities shown or reflected on TCD's consolidated balance
sheet at June 30, 1997 (the "TCD Balance Sheet") or (b) liabilities incurred in
the ordinary course of business since the date of the TCD document last filed
with the SEC which discharge or satisfaction would have a material adverse
effect on TCD; (iv) increase or establish any reserve for taxes or any other
liability on its books or otherwise provide therefor that would have a material
adverse effect on TCD, except as relates to the consolidated results of
operations of TCD since the date of the TCD Balance Sheet; (v) sell or transfer
any of its material assets, tangible or intangible, cancel any material debts or
claims held by it or waive any of its material rights, except in the ordinary
course of business; (vi) mortgage, pledge or subject to any security interest
any of its material assets, tangible or intangible, other than as required under
the existing provisions of TCD's primary credit facility; (vii) enter into any
employment contract which is not terminable upon notice of 30 days or less, at
will, and without penalty to TCD except as provided in the Plan or grant any
general or uniform increase in the rates of pay of employees or grant any
increase in salary payable or to become payable by TCD to any officer of TCD or
by means of any bonus or pension plan, contract or other commitment, increase
the compensation of any officer of TCD or enter into any agreements providing
for compensation to any officer or employee of TCD, any TCD Subsidiary or any
TCD Other Entity based upon a change in control of TCD; (viii) make any
contribution, payment or distribution to the trustee under any TCD employee
benefit plan other than any such contribution, payment or distribution that is
in accordance with TCD's past practice, or establish or terminate any TCD
employee benefit plan; (ix) issue any capital stock or other equity securities,
other than stock options granted to officers, employees, directors or
consultants of TCD or warrants granted to third parties and shares of TCD Common
Stock issuable upon the exercise thereof, all of which options and warrants have
been disclosed to HEALTHSOUTH; or (x) except for the Plan and any other
agreement executed and delivered pursuant to the Plan, enter into any material
transaction other than in the ordinary course of business or permitted under the
Plan or enter into any contract or agreement in the ordinary course of business
(i) which cannot be performed within three months or less; or (ii) which
involves the expenditure by TCD of over $25,000.
WAIVER AND AMENDMENT
The Plan provides that, at any time prior to the Effective Time,
HEALTHSOUTH and TCD may (i) extend the time for the performance of any of the
obligations or other acts of the other party contained in the Plan; (ii) waive
any inaccuracies in the representations and warranties of the other party
contained in the Plan or in any document delivered pursuant to the Plan; and
(iii) subject to the limitations regarding amendment of the Plan described in
the following sentence, and except for certain mutual conditions to closing,
waive compliance with the agreements or conditions under the Plan. In addition,
the Plan may be amended
30
<PAGE>
at any time upon the written agreement of HEALTHSOUTH and TCD without the
approval of stockholders of either Company, except that after the Special
Meeting no amendment may be made which by law requires a further approval by the
stockholders of TCD without obtaining such further approvals.
TERMINATION
The Plan may be terminated at any time prior to the Effective Time, whether
before or after approval of the Plan by the stockholders of TCD: (i) by mutual
written consent of HEALTHSOUTH and TCD; (ii) by either HEALTHSOUTH or TCD if
there is a material breach on the part of the other party of any representation,
warranty, covenant or other agreement set forth in the Plan which is not cured
as provided in the Plan; (iii) by either HEALTHSOUTH or TCD if any governmental
entity or court of competent jurisdiction shall have issued a final, permanent
order, decree, or ruling or other action enjoining or otherwise prohibiting the
Merger and such order, decree, or ruling or other action shall have become
non-appealable; (iv) by either HEALTHSOUTH or TCD if the Merger has not been
consummated on or before June 30, 1998 (or such later date as may be determined
under the Plan), unless the failure to consummate the Merger by such time is due
to the breach of the Plan by the party seeking to terminate the Plan; (v) by
either HEALTHSOUTH or TCD if any required approval of the Plan by stockholders
of TCD has not been obtained by the required votes at a duly held meeting of
stockholders; (vi) by either HEALTHSOUTH or TCD if any of the conditions to the
obligation of such party to effect the Merger is not capable of being satisfied
prior to June 30, 1998, unless such period is extended; (vii) by TCD, if the
Board of Directors of TCD, in the exercise of its fiduciary duties under
applicable law, has (w) determined not to recommend the Merger to the holders of
TCD Common Stock, (x) withdrawn such recommendation, (y) approved, recommended
or endorsed any Acquisition Transaction other than the Plan or (z) resolved to
take any of such actions; or (viii) by HEALTHSOUTH, if the Base Period Trading
Price is less than $24.00. For the purposes of clause (vii), an "Acquisition
Transaction" means a merger, purchase of assets, purchase of or tender offer for
shares of TCD stock or any similar transaction (other than the Merger).
BREAK-UP FEE; THIRD PARTY BIDS
If the Plan is terminated by TCD for any of the reasons set forth in clause
(vii) under "-- Termination" above and within one year after the effective date
of such termination TCD is the subject of a Third Party Acquisition Event (as
defined in the Plan), then at the time of consummation of such a Third Party
Acquisition Event, TCD shall pay to HEALTHSOUTH a break-up fee of $750,000. If
the Plan is terminated by HEALTHSOUTH for a reason other than those set forth in
the Plan, then at the time of such termination HEALTHSOUTH shall pay to TCD the
sum of $100,000 or shall offset such sum against any amounts owed by TCD to
HEALTHSOUTH. TCD is current indebted to HEALTHSOUTH in the principal amount of
$1,100,000 as a result of certain cash advances made by HEALTHSOUTH to TCD
during 1998. Those advances accrue simple interest at a rate equal to the
applicable federal rate in effect from time to time, and are evidenced by
promissory notes payable on demand to HEALTHSOUTH.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the Board of Directors of TCD with
respect to the Plan and the transactions contemplated thereby, stockholders of
TCD should be aware that certain members of the management of TCD and the Board
of Directors of TCD have certain interests in the Merger that are in addition to
the interests of the stockholders generally.
In connection with the Merger, HEALTHSOUTH has entered into a Consulting
and Non-Competition Agreement with Dr. Angle, pursuant to which Dr. Angle will
act as a consultant to HEALTHSOUTH with respect to various matters, including
transition issues, industry presentations, business development and strategic
planning. Dr. Angle will receive $150,000 per year for his services pursuant to
the Consulting Agreement.
In addition, pursuant to the terms of TCD's stock option plans, certain TCD
stock options that are not fully vested prior to the Effective Time will
accelerate and vest in full as a result of the Merger at the Effective Time.
Certain directors and members of TCD management hold such options.
31
<PAGE>
INDEMNIFICATION
The Plan provides that TCD shall, and after the Effective Time HEALTHSOUTH
and the Surviving Corporation shall, indemnify, defend and hold harmless each
person who is, or has ever been at any time prior to the Effective Time, an
officer, director or employee of TCD or any of its subsidiaries (the
"Indemnified Parties") against all losses, claims, damages, costs, expenses,
liabilities or judgments, or amounts that are paid in settlement with the
approval of the indemnifying party in connection with any claim arising, in
whole or in part, out of the fact that such person is or was a director, officer
or employee of TCD and pertaining to a matter occurring or existing at or prior
to the Effective Time.
ACCOUNTING TREATMENT
HEALTHSOUTH intends to account for the Merger by the purchase method of
accounting applicable to business combinations. Under the purchase method, the
assets and liabilities of TCD will be recorded on the books of HEALTHSOUTH at
their fair value. Any cost in excess of the net asset value will be amortized
using the straight-line method over a period to be determined by HEALTHSOUTH
based upon its estimate of the useful life of the goodwill acquired.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the principal federal income tax
consequences of the Merger to the holders of TCD Shares. The discussion is based
on currently existing provisions of the Code, Treasury Regulations thereunder,
administrative rulings and court decisions. All of the foregoing are subject to
change and any such change can affect the continuing validity of this
discussion. This summary applies to holders of TCD Shares who hold their TCD
Shares as capital assets. This summary does not discuss all aspects of income
taxation that may be relevant to a particular holder of TCD Shares in light of
such holder's specific circumstances or to certain types of holders subject to
special treatment under the federal income tax laws (for example, foreign
persons, dealers in securities, banks and other financial institutions,
insurance companies, tax-exempt organizations and holders who acquired TCD
Shares pursuant to the exercise of options or otherwise as compensation or
through a tax-qualified retirement plan or holders who are subject to the
alternative minimum tax provisions of the Code), and it does not discuss any
aspect of state, local, foreign or other tax law.
TCD has received an opinion regarding all material federal income tax
consequences with respect to the Merger from its counsel, Berliner Zisser Walter
& Gallegos, P.C. ("BZW&G"), and HEALTHSOUTH has received a similar opinion from
its counsel, Haskell Slaughter & Young, L.L.C. ("Haskell Slaughter", and
together with BZW&G, "Tax Counsel"). Based on the conditions and qualifications
discussed herein, such opinions collectively state that for federal income tax
purposes the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code and that the material federal income tax consequences
of the Merger will be that: (i) no gain or loss will be recognized by
HEALTHSOUTH, the Subsidiary or TCD as a result of the Merger; (ii) no gain or
loss will be recognized by the stockholders of TCD upon the exchange of their
TCD Shares solely for shares of HEALTHSOUTH Common Stock pursuant to the Merger,
except that a TCD stockholder who receives cash proceeds in lieu of a fractional
share of HEALTHSOUTH Common Stock will recognize gain or loss equal to the
difference, if any, between such stockholder's tax basis allocated to such
fractional share (as described in clause (iii) below) and the amount of cash
received, and such gain or loss will constitute capital gain or loss if such
stockholder's TCD Shares with respect to which gain or loss is recognized are
held as a capital asset at the Effective Time and such payment in lieu of the
fractional shares is not essentially equivalent to a dividend within the meaning
of Section 302(b)(l) of the Code; (iii) the aggregate tax basis of the shares of
the HEALTHSOUTH Common Stock received solely in exchange for TCD Shares pursuant
to the Merger (including fractional shares of HEALTHSOUTH Common Stock for which
cash is received) will be the same as the aggregate tax basis of the TCD Shares
exchanged therefor; and (iv) the holding period for HEALTHSOUTH Common Stock
received in exchange for TCD Shares pursuant to the Merger will include the
holding period of the TCD Shares exchanged therefor, provided such TCD Shares
were held as a capital asset at the Effective Time.
32
<PAGE>
Neither HEALTHSOUTH nor TCD has requested or will receive an advance ruling
from the Internal Revenue Service (the "Service") as to the federal income tax
consequences of the Merger. In rendering their opinions, Tax Counsel may receive
and will rely upon representations contained in certificates of HEALTHSOUTH, the
Subsidiary, TCD and others. Tax Counsel's opinions will be subject to certain
limitations and qualifications and will be based upon the truth and accuracy of
these representations and upon certain factual assumptions and represent Tax
Counsel's best legal judgment. The tax opinions are not binding on the Service
or the courts and do not preclude the Service from adopting a contrary position.
EACH HOLDER OF TCD SHARES IS URGED TO CONSULT SUCH HOLDER'S TAX ADVISOR AS
TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH HOLDER, INCLUDING THE
APPLICATION OF STATE, LOCAL, FEDERAL AND FOREIGN TAX LAWS.
RESALE OF HEALTHSOUTH COMMON STOCK BY AFFILIATES
The offering, sale and delivery of shares of HEALTHSOUTH Common Stock to be
issued to holders of TCD Shares in connection with the Merger have been
registered under the Securities Act. HEALTHSOUTH Common Stock received by the
stockholders of TCD upon consummation of the Merger will be freely transferable
under the Securities Act, except for shares issued to any person who may be
deemed an "Affiliate" of TCD or HEALTHSOUTH within the meaning of Rule 145 under
the Securities Act. "Affiliates" are generally defined as persons who control,
are controlled by, or are under common control with TCD or HEALTHSOUTH at the
time of the Special Meeting (generally, directors, certain executive officers
and major stockholders). Affiliates of TCD or HEALTHSOUTH may not sell their
shares of HEALTHSOUTH Common Stock acquired in connection with the Merger,
except pursuant to an effective registration statement under the Securities Act
covering such shares or in compliance with Rule 145 or another applicable
exemption from the registration requirements of the Securities Act. In general,
under Rule 145, for one year following the Effective Time, an Affiliate
(together with certain related persons) would be entitled to sell shares of
HEALTHSOUTH Common Stock acquired in connection with the Merger only through
unsolicited "brokers' transactions" or in transactions directly with a "market
maker," as such terms are defined in Rule 144 under the Securities Act.
Additionally, the number of shares to be sold by an Affiliate (together with
certain related persons and certain persons acting in concert) during such
one-year period within any three-month period for purposes of Rule 145 may not
exceed the greater of (i) 1% of the outstanding shares of HEALTHSOUTH Common
Stock or (ii) the average weekly trading volume of such stock during the four
calendar weeks preceding such sale. The resale provisions of Rule 145 will
remain available to Affiliates only if HEALTHSOUTH remains current with its
information filings with the SEC under the Exchange Act. One year after the
Effective Time, an Affiliate will be able to sell such HEALTHSOUTH Common Stock
without such manner of sale or volume limitations if HEALTHSOUTH is current with
its Exchange Act information filings and such Affiliate is not then an Affiliate
of HEALTHSOUTH. Two years after the Effective Time, an Affiliate will be able to
sell such shares of HEALTHSOUTH Common Stock without any restrictions so long as
such Affiliate was not an Affiliate of HEALTHSOUTH for at least three months
prior thereto.
TCD has agreed to use its reasonable, good faith efforts to cause each
holder of TCD Shares deemed to be an Affiliate of TCD to enter into an agreement
providing that such Affiliate will not sell, pledge, transfer or otherwise
dispose of shares of HEALTHSOUTH Common Stock to be received by such person in
the Merger, except in compliance with the applicable provisions of the
Securities Act and the rules and regulations thereunder.
NO APPRAISAL RIGHTS
Under the DGCL, holders of TCD Common Stock will not be entitled to
dissenters' rights of appraisal in connection with the Merger.
NO SOLICITATION OF TRANSACTIONS
Subject to the provisions described in the next paragraph, TCD has agreed
that it will not, and will not suffer any of its directors, officers, employees,
agents or representatives to, directly or indirectly, (i)
33
<PAGE>
encourage, solicit, participate in or initiate discussions or negotiations with
or (ii) provide any information to any entity concerning any merger, sale of
assets, sale of or tender offer for shares of TCD Common Stock or similar
transaction involving TCD from the date of the Plan through the Effective Time.
Notwithstanding the provisions described in the preceding paragraph, under
the Plan, TCD may (i), directly or indirectly, furnish information and access,
in response to an unsolicited request therefor, to any entity pursuant to
appropriate confidentiality agreements, and (ii) may participate in discussions
and negotiate with an entity concerning any proposal to acquire TCD upon an
Acquisition Transaction, if the Board of Directors of TCD determines in its good
faith judgment in the exercise of its fiduciary duties or the exercise of its
duties under Rule 14e-2 under the Securities Exchange Act of 1934, after
consultation with legal counsel and its financial advisors, that such action is
appropriate in furtherance of the best interest of its stockholders. TCD shall
promptly notify HEALTHSOUTH if it shall, on or after the date of the Plan, have
entered into a confidentiality agreement with any third party in response to any
unsolicited request for information and access in connection with a possible
Acquisition Transaction involving such party, such notification to include the
identity of such third party.
EXPENSES
The Plan provides that, except as described under "-- Breakup Fee; Third
Party Bids", all costs and expenses incurred in connection with the Plan and the
transactions contemplated thereby shall be paid by the party incurring such
expense, except that expenses of printing and mailing this Prospectus-Proxy
Statement shall be shared equally by HEALTHSOUTH and TCD.
NYSE LISTING
A listing application will be filed with the NYSE to list the shares of
HEALTHSOUTH Common Stock to be issued to TCD stockholders in connection with the
Merger. Although no assurance can be given that the shares of HEALTHSOUTH Common
Stock so issued will be accepted for listing, HEALTHSOUTH anticipates that these
shares will qualify for listing on the NYSE upon official notice of issuance
thereof. It is a condition to the Merger that such shares of HEALTHSOUTH Common
Stock be approved for listing on the NYSE upon official notice of issuance at
the Effective Time.
34
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA -- HEALTHSOUTH
Set forth below is a summary of selected consolidated financial data for
HEALTHSOUTH for the years indicated. All amounts have been restated to reflect
the effects of the 1994 acquisition of ReLife, Inc. ("ReLife"), the 1995
Surgical Health Corporation ("SHC") and Sutter Surgery Centers, Inc. ("SSCI")
acquisitions, the 1996 Surgical Care Affiliates, Inc. ("SCA") and Advantage
Health Corporation ("Advantage Health") acquisitions, and the 1997 Health
Images, Inc. ("HI") acquisition, each of which was accounted for as a pooling of
interests.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1993 1994 1995
------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues ......................................................... $1,055,295 $1,726,321 $2,118,681
Operating unit expenses .......................................... 715,189 1,207,707 1,441,059
Corporate general and administrative expenses .................... 43,378 67,798 65,424
Provision for doubtful accounts .................................. 22,677 35,740 42,305
Depreciation and amortization .................................... 75,425 126,148 160,901
Merger and acquisition related expenses (1) ...................... 333 6,520 19,553
Loss on impairment of assets (2) ................................. -- 10,500 53,549
Loss on abandonment of computer project .......................... -- 4,500 --
Loss on disposal of surgery centers .............................. -- 13,197 --
NME Selected Hospitals Acquisition related expense ............... 49,742 -- --
Interest expense ................................................. 25,884 74,895 105,517
Interest income .................................................. (6,179) (6,658) (8,009)
Gain on sale of partnership interest ............................. (1,400) -- --
Gain on sale of MCA Stock ........................................ -- (7,727) --
---------- ---------- ----------
925,049 1,532,620 1,880,299
---------- ---------- ----------
Income from continuing operations before income taxes,
minority interests and extraordinary item ....................... 130,246 193,701 238,382
Provision for income taxes ....................................... 40,450 68,560 86,161
---------- ---------- ----------
89,796 125,141 152,221
Minority interests ............................................... 29,549 31,665 43,753
---------- ---------- ----------
Income from continuing operations before extraordi-
nary item ....................................................... 60,247 93,476 108,468
Income from discontinued operations .............................. 3,986 (6,528) (1,162)
Extraordinary item (2) ........................................... -- -- (9,056)
---------- ---------- ----------
Net income ...................................................... $ 64,233 $ 86,948 $ 98,250
========== ========== ==========
Weighted average common shares outstanding (3)(6) ................ 265,502 273,480 289,594
========== ========== ==========
Net income per common share: (3)(6)
Continuing operations ........................................... $ 0.23 $ 0.34 $ 0.37
Discontinued operations ......................................... 0.01 (0.02) 0.00
Extraordinary item .............................................. -- -- (0.03)
---------- ---------- ----------
$ 0.24 $ 0.32 $ 0.34
========== ========== ==========
Weighted average common shares outstanding -- as-
suming dilution(3)(4)(6) ....................................... 275,366 300,758 320,018
========== ========== ==========
Net income per common share -- assuming dilution:
(3)(4)(6)
Continuing operations ........................................... $ 0.22 $ 0.32 $ 0.35
Discontinued operations ......................................... 0.01 (0.02) 0.00
Extraordinary item .............................................. -- -- (0.03)
---------- ---------- ----------
$ 0.23 $ 0.30 $ 0.32
========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------- -----------------------
1996 1997 1997 1998
------------- ------------- ----------- -----------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues ......................................................... $2,568,155 $3,017,269 $691,631 $907,663
Operating unit expenses .......................................... 1,667,248 1,888,435 438,289 561,491
Corporate general and administrative expenses .................... 79,354 82,757 17,849 26,4247
Provision for doubtful accounts .................................. 58,637 71,468 14,713 21,753
Depreciation and amortization .................................... 207,132 250,010 57,371 73,382
Merger and acquisition related expenses (1) ...................... 41,515 15,875 15,875 --
Loss on impairment of assets (2) ................................. 37,390 -- -- --
Loss on abandonment of computer project .......................... -- -- -- --
Loss on disposal of surgery centers .............................. -- -- -- --
NME Selected Hospitals Acquisition related expense ............... -- -- -- --
Interest expense ................................................. 98,751 111,504 25,673 28,336
Interest income .................................................. (6,034) (4,414) (1,038) (1,641)
Gain on sale of partnership interest ............................. -- -- -- --
Gain on sale of MCA Stock ........................................ -- -- -- --
---------- ---------- -------- --------
2,183,993 2,415,635 568,732 709,745
---------- ---------- -------- --------
Income from continuing operations before income taxes,
minority interests and extraordinary item ....................... 384,162 601,634 122,899 197,918
Provision for income taxes ....................................... 143,929 206,153 42,411 70,219
---------- ---------- -------- --------
240,233 395,481 80,488 127,699
Minority interests ............................................... 50,369 64,873 15,908 18,331
---------- ---------- -------- --------
Income from continuing operations before extraordi-
nary item ....................................................... 189,864 330,608 64,580 109,368
Income from discontinued operations .............................. -- -- -- --
Extraordinary item (2) ........................................... -- -- -- --
---------- ---------- -------- --------
Net income ...................................................... $ 189,864 $ 330,608 $ 64,580 $109,368
========== ========== ======== ========
Weighted average common shares outstanding (3)(6) ................ 321,367 346,872 327,727 398,496
========== ========== ======== ========
Net income per common share: (3)(6)
Continuing operations ........................................... $ 0.59 $ 0.95 $ 0.20 $ 0.27
Discontinued operations ......................................... -- -- -- --
Extraordinary item .............................................. -- -- -- --
---------- ---------- -------- --------
$ 0.59 $ 0.95 $ 0.20 $ 0.27
========== ========== ======== ========
Weighted average common shares outstanding -- as-
suming dilution(3)(4)(6) ....................................... 349,033 365,546 354,998 412,253
========== ========== ======== ========
Net income per common share -- assuming dilution:
(3)(4)(6)
Continuing operations ........................................... $ 0.55 $ 0.91 $ 0.18 $ 0.27
Discontinued operations ......................................... -- -- -- --
Extraordinary item .............................................. -- -- -- --
---------- ---------- -------- --------
$ 0.55 $ 0.91 $ 0.18 $ 0.27
========== ========== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
------------ ------------ ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and marketable securities ......... $ 153,011 $ 134,040 $ 159,793 $ 153,831 $ 152,399 $ 205,079
Working capital ........................ 300,876 308,770 406,601 564,529 566,751 915,553
Total assets ........................... 2,000,566 2,355,920 3,107,808 3,529,706 5,401,053 5,791,806
Long-term debt (5) ..................... 1,028,610 1,164,135 1,453,018 1,560,143 1,601,824 1,926,393
Stockholders' equity ................... 727,737 837,160 1,269,686 1,569,101 3,157,428 3,322,296
</TABLE>
- ---------
35
<PAGE>
(1) Expenses related to SHC's Ballas Merger in 1993, the ReLife and Heritage
Acquisitions in 1994, the SHC, SSCI and NovaCare Rehabilitation Hospitals
Acquisitions in 1995, the SCA, Advantage Health, PSCM and ReadiCare
Acquisitions in 1996, and the Health Images Acquisition in 1997.
(2) See "Notes to Consolidated Financial Statements".
(3) Adjusted to reflect a two-for-one stock split effected in the form of a 100%
stock dividend paid on April 17, 1995 and a two-for-one stock split effected
in the form of a 100% stock dividend paid on March 17, 1997.
(4) Diluted earnings per share in 1994, 1995, 1996 and 1997 reflect shares
reserved for issuance upon conversion of HEALTHSOUTH's 5% Convertible
Subordinated Debentures due 2001. Substantially all of such Debentures were
converted into shares of HEALTHSOUTH's Common Stock in 1997.
(5) Includes current portion of long-term debt.
(6) Earnings per share amounts prior to 1997 have been restated as required to
comply with Statement of Financial Accounting Standards No. 128, "Earnings
Per Share". For further discussion, see Note 1 of "Notes to Consolidated
Financial Statements".
36
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA -- TCD
The following consolidated income statement and balance sheet data for the
periods ended June 30, 1994 through June 30, 1997 have been derived from TCD's
consolidated financial statements, which have been audited by Ehrhardt Keefe
Steiner & Hottman PC, independent public accountants. The information set forth
below is qualified by reference to and should be read in conjunction with the
consolidated financial statements and related notes incorporated by reference
herein.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------
1994 1995 1996 1997
------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues .................................... $2,072,200 $3,006,064 $4,193,906 $ 11,034,467
Cost of services provided ................... 794,068 944,299 1,433,170 5,460,919
General and administrative expenses ......... 2,036,076 2,098,008 2,536,751 5,954,044
Marketing expenses .......................... 50,085 52,032 94,964 299,307
Development and acquisition costs ........... -- -- 202,468 313,015
---------- ---------- ---------- ------------
2,880,229 3,094,339 4,267,353 12,027,285
---------- ---------- ---------- ------------
Loss from operations ........................ (808,029) (88,275) (73,447) (992,818)
Other (expense) income ......................
Interest income ............................ -- -- 139,082 300,097
Other expenses ............................. -- -- -- --
Interest expense ........................... (59,851) (105,339) (82,665) (480,488)
---------- ---------- ---------- ------------
(59,851) (105,339) 56,417 (180,391)
---------- ---------- ---------- ------------
Net loss before income tax (expense) ben-
efit ....................................... (867,880) (193,614) (17,030) (1,173,209)
Income tax (expense) benefit ................ -- -- 100,000 (127,000)
Net (loss) income ........................... $ (867,880) $ (193,614) $ 82,970 $ (1,300,209)
========== ========== ========== ============
Basic net (loss) income per common share $ (0.39) $ (0.09) $ 0.03 $ (0.27)
========== ========== ========== ============
Diluted net (loss) income per common
share ...................................... $ (0.39) $ (0.09) $ 0.02 $ (0.27)
========== ========== ========== ============
Basic weighted average common shares
outstanding ................................ 2,201,813 2,208,443 3,286,303 4,765,004
Stock options and warrants .................. * * 805,472 *
Diluted weighted average common shares
outstanding ................................ 2,201,813 2,208,443 4,091,775 4,765,004
========== ========== ========== ============
<CAPTION>
NINE MONTHS
ENDED MARCH 31,
-----------------------------
1997 1998
------------- ---------------
(UNAUDITED)
<S> <C> <C>
INCOME STATEMENT DATA:
Revenues .................................... $8,288,724 $ 8,229,513
Cost of services provided ................... 4,098,730 4,250,427
General and administrative expenses ......... 4,260,561 4,662,658
Marketing expenses .......................... 210,357 238,361
Development and acquisition costs ........... 307,265 58,500
---------- ------------
8,876,863 9,209,946
---------- ------------
Loss from operations ........................ (588,139) (980,433)
Other (expense) income ......................
Interest income ............................ (279,898) (432,884)
Other expenses ............................. 245,303 146,539
Interest expense ........................... -- (36,513)
---------- ------------
(34,575) (322,858)
---------- ------------
Net loss before income tax (expense) ben-
efit ....................................... (622,714) (1,303,291)
Income tax (expense) benefit ................ 148,000 --
Net (loss) income ........................... $ (474,714) $ (1,303,291)
========== ============
Basic net (loss) income per common share $ (0.09) $ (0.27)
========== ============
Diluted net (loss) income per common
share ...................................... $ (0.09) $ (0.27)
========== ============
Basic weighted average common shares
outstanding ................................ 5,008,221 4,906,949
Stock options and warrants .................. * *
Diluted weighted average common shares
outstanding ................................ 5,008,221 4,906,949
========== ============
</TABLE>
- ----------
* Due to net losses, all potentially dilutive common stock is anti-dilutive.
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
------------------------------------------------------------- ---------------
1994 1995 1996 1997 1998
------------- ------------- ------------- ------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term in-
vestments .............................. $ 30,966 $ -- $ 6,886,790 $ 764,422 $ 518,913
Working capital (deficit) ............... (253,536) (463,541) 4,388,278 (499,200) (1,351,179)
Total assets ............................ 976,735 1,033,760 13,540,007 17,505,880 17,149,340
Long-term debt .......................... 436,398 372,478 79,644 2,623,171 2,557,203
Stockholders' (deficit) equity .......... (98,062) (291,676) 9,068,311 11,322,213 10,018,922
</TABLE>
37
<PAGE>
BUSINESS OF HEALTHSOUTH
GENERAL
HEALTHSOUTH is the nation's largest provider of outpatient surgery and
rehabilitative healthcare services. It provides these services through its
national network of outpatient and inpatient rehabilitation facilities,
outpatient surgery centers, diagnostic centers, occupational medicine centers,
medical centers and other healthcare facilities. HEALTHSOUTH believes that it
provides patients, physicians and payors with high-quality healthcare services
at significantly lower costs than traditional inpatient hospitals. Additionally,
HEALTHSOUTH's national network, reputation for quality and focus on outcomes has
enabled it to secure contracts with national and regional managed care payors.
At March 31, 1998, HEALTHSOUTH had over 1,800 patient care locations in 50
states, the United Kingdom and Australia.
In its outpatient and inpatient rehabilitation facilities, HEALTHSOUTH
provides interdisciplinary programs for the rehabilitation of patients
experiencing disability due to a wide variety of physical conditions, such as
stroke, head injury, orthopaedic problems, neuromuscular disease and
sports-related injuries. HEALTHSOUTH's rehabilitation services include physical
therapy, sports medicine, work hardening, neurorehabilitation, occupational
therapy, respiratory therapy, speech-language pathology and rehabilitation
nursing. Independent studies have shown that rehabilitation services like those
provided by HEALTHSOUTH can save money for payors and employers.
In addition to its rehabilitation facilities, HEALTHSOUTH operates the
largest network of freestanding outpatient surgery centers in the United States.
HEALTHSOUTH's outpatient surgery centers provide the facilities and medical
support staff necessary for physicians to perform non-emergency surgical
procedures. While outpatient surgery is widely recognized as generally less
expensive than surgery performed in a hospital, HEALTHSOUTH believes that
outpatient surgery performed at a freestanding outpatient surgery center is
generally less expensive than hospital-based outpatient surgery. Over 80% of
HEALTHSOUTH's surgery center facilities are located in markets served by its
rehabilitative service facilities, enabling the Company to pursue opportunities
for cross-referrals.
HEALTHSOUTH is also among the largest operators of outpatient diagnostic
centers and occupational medicine centers in the United States. Most of
HEALTHSOUTH's diagnostic centers and occupational medicine centers operate in
markets where HEALTHSOUTH also provides rehabilitative healthcare and outpatient
surgery services. HEALTHSOUTH believes that its ability to offer a comprehensive
range of its services in a particular geographic market makes HEALTHSOUTH more
attractive to both patients and payors in such market.
Over the last three years, HEALTHSOUTH has completed several significant
acquisitions in the rehabilitation business and has expanded into the surgery
center, diagnostic and occupational medicine businesses. HEALTHSOUTH believes
that these acquisitions complement its historical operations and enhance its
market position. HEALTHSOUTH further believes that its expansion into the
outpatient surgery, diagnostic and occupational medicine businesses provides it
with platforms for future growth. HEALTHSOUTH is continually evaluating
potential acquisitions in the outpatient and rehabilitative healthcare services
industry.
HEALTHSOUTH was organized as a Delaware corporation in February 1984.
HEALTHSOUTH's principal executive offices are located at One HealthSouth
Parkway, Birmingham, Alabama 35243, and its telephone number is (205) 967-7116.
COMPANY STRATEGY
HEALTHSOUTH's principal objective is to be the provider of choice for
patients, physicians and payors alike for outpatient surgery and rehabilitative
healthcare services throughout the United States. HEALTHSOUTH's growth strategy
is based upon four primary elements: (i) the implementation of HEALTHSOUTH's
integrated service model in appropriate markets, (ii) successful marketing to
managed care organizations and other payors, (iii) the provision of
high-quality, cost-effective healthcare services, and (iv) the expansion of its
national network.
38
<PAGE>
o Integrated Service Model. HEALTHSOUTH seeks, where appropriate, to provide
an integrated system of healthcare services, including outpatient
rehabilitation services, inpatient rehabilitation services, ambulatory
surgery services and outpatient diagnostic services. HEALTHSOUTH believes
that its integrated system offers payors the convenience of dealing with a
single provider for multiple services. Additionally, it believes that its
facilities can provide extensive cross-referral opportunities. For example,
HEALTHSOUTH estimates that approximately one-third of its outpatient
rehabilitation patients have had outpatient surgery, virtually all
inpatient rehabilitation patients will require some form of outpatient
rehabilitation, and virtually all inpatient rehabilitation patients have
had some type of diagnostic procedure. HEALTHSOUTH has implemented its
Integrated Service Model in certain of its markets, and intends to expand
the model into other appropriate markets.
o Marketing to Managed Care Organizations and Other Payors. Since the late
1980s, HEALTHSOUTH has focused on the development of contractual
relationships with managed care organizations, major insurance companies,
large regional and national employer groups and provider alliances and
networks. HEALTHSOUTH's documented outcomes and experience with several
hundred thousand patients in delivering quality healthcare services at
reasonable prices has enhanced its attractiveness to such entities and has
given HEALTHSOUTH a competitive advantage over smaller and regional
competitors. These relationships have increased patient flow to
HEALTHSOUTH's facilities and contributed to HEALTHSOUTH's same-store
growth.
o Cost-Effective Services. HEALTHSOUTH's goal is to provide high-quality
healthcare services in cost-effective settings. To that end, HEALTHSOUTH
has developed standardized clinical protocols for the treatment of its
patients. This results in "best practices" techniques being utilized at all
of HEALTHSOUTH's facilities, allowing the consistent achievement of
demonstrable, cost-effective clinical outcomes. HEALTHSOUTH's reputation
for its clinical programs is enhanced through its relationships with major
universities throughout the nation, and its support of clinical research in
its facilities. Further, independent studies estimate that, for every
dollar spent on rehabilitation, $11 to $35 is saved. Finally, surgical
procedures typically are less expensive in outpatient surgery centers than
in hospital settings. HEALTHSOUTH believes that outpatient and
rehabilitative healthcare services will assume increasing importance in the
healthcare environment as payors continue to seek to reduce overall costs
by shifting patients to more cost-effective treatment settings.
o Expansion of National Network. As the largest provider of outpatient
surgery and rehabilitative healthcare services in the United States,
HEALTHSOUTH is able to realize economies of scale and compete successfully
for national contracts with large payors and employers while retaining the
flexibility to respond to particular needs of local markets. The national
network affords HEALTHSOUTH the opportunity to offer large national and
regional employers and payors the convenience of dealing with a single
provider, to utilize greater buying power through centralized purchasing,
to achieve more efficient costs of capital and labor and to more
effectively recruit and retain clinicians. HEALTHSOUTH believes that its
recent acquisitions in the outpatient surgery, diagnostic imaging and
occupational medicine fields will further enhance its national presence by
broadening the scope of its existing services and providing new
opportunities for growth. These national benefits are realized without
sacrificing local market responsiveness. HEALTHSOUTH's objective is to
provide those outpatient and rehabilitative healthcare services needed
within each local market by tailoring its services and facilities to that
market's needs, thus bringing the benefits of nationally recognized
expertise and quality into the local setting.
RECENT DEVELOPMENTS
On May 6, 1998, HEALTHSOUTH announced the signing of a definitive agreement
to acquire National Surgery Center, 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
39
<PAGE>
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.
On April 16, 1998, HEALTHSOUTH announced that it had entered into a
definitive agreement to acquire 34 ambulatory surgery centers from Columbia/HCA
Healthcare Corporation for $550 million payable in cash at closing, which is
expected to occur during the third quarter of 1998. The surgery centers are
located in Alabama, California, Iowa, Illinois, Kentucky, Louisiana, Minnesota,
Mississippi, North Carolina, Nevada, Oregon, Rhode Island and Texas. The
transaction remains subject to various regulatory approvals, including clearance
under the HSR Act.
PATIENT CARE SERVICES
HEALTHSOUTH began its operations in 1984 with a focus on providing
comprehensive orthopaedic and musculoskeletal rehabilitation services on an
outpatient basis. Over the succeeding 14 years, HEALTHSOUTH has consistently
sought and implemented opportunities to expand its services through acquisitions
and de novo development activities that complement its historic focus on
orthopaedic, sports medicine and occupational medicine services and that provide
independent platforms for growth. HEALTHSOUTH's acquisitions and internal growth
have enabled it to become the largest provider of rehabilitative healthcare
services, both inpatient and outpatient, in the United States, as well as the
largest operator of freestanding outpatient surgery centers. In addition,
HEALTHSOUTH has added diagnostic imaging services, occupational medicine
services and other outpatient services which provide natural enhancements to its
rehabilitative healthcare locations and facilitate the implementation of its
Integrated Service Model. HEALTHSOUTH believes that these additional businesses
also provide opportunities for growth in other areas not directly related to the
rehabilitative business, and HEALTHSOUTH intends to pursue further expansion in
those businesses.
Outpatient Rehabilitation Services
HEALTHSOUTH operates the largest group of affiliated proprietary outpatient
rehabilitation facilities in the United States. HEALTHSOUTH's outpatient
rehabilitation centers offer a comprehensive range of rehabilitative healthcare
services, including physical therapy and occupational therapy, that are tailored
to the individual patient's needs, focusing predominantly on orthopaedic
injuries, sports injuries, work injuries, hand and upper extremity injuries,
back injuries, and various neurological/neuromuscular conditions. As of March
31, 1998, HEALTHSOUTH provided outpatient rehabilitative healthcare services
through approximately 1,200 outpatient locations, including freestanding
outpatient centers and their satellites, outpatient satellites of inpatient
facilities and outpatient facilities managed under contract.
Inpatient Services
INPATIENT REHABILITATION FACILITIES. At March 31, 1998, HEALTHSOUTH
operated 133 inpatient rehabilitation facilities with 7,777 beds in the United
States, representing the largest group of affiliated proprietary inpatient
rehabilitation facilities in the nation, as well as a 71-bed rehabilitation
hospital in Australia. HEALTHSOUTH's inpatient rehabilitation facilities provide
high-quality comprehensive services to patients who require intensive
institutional rehabilitation care. In certain markets HEALTHSOUTH's
rehabilitation hospitals may provide outpatient rehabilitation services as a
complement to their inpatient services.
MEDICAL CENTERS. At March 31, 1998, HEALTHSOUTH operated four medical
centers with 800 licensed beds in four distinct markets. These facilities
provide general and specialty medical and surgical healthcare services,
emphasizing orthopaedics, sports medicine and rehabilitation.
40
<PAGE>
Surgery Centers
HEALTHSOUTH is currently the largest operator of outpatient surgery centers
in the United States. At March 31, 1998, it operated 176 freestanding surgery
centers, including five mobile lithotripsy units, in 36 states. Over 80% of
these facilities are located in markets served by HEALTHSOUTH's outpatient and
rehabilitative service facilities, enabling HEALTHSOUTH to pursue opportunities
for cross-referrals between surgery and rehabilitative facilities as well as to
centralize administrative functions. HEALTHSOUTH's surgery centers provide the
facilities and medical support staff necessary for physicians to perform
non-emergency surgical procedures. Its typical surgery center is a freestanding
facility with three to six fully equipped operating and procedure rooms and
ancillary areas for reception, preparation, recovery and administration. Each of
HEALTHSOUTH's surgery centers is available for use only by licensed physicians,
oral surgeons and podiatrists, and the centers do not perform surgery on an
emergency basis.
Outpatient surgery centers, unlike hospitals, have not historically
provided overnight accommodations, food services or other ancillary services.
Over the past several years, states have increasingly permitted the use of
extended-stay recovery facilities by outpatient surgery centers. As a result,
many outpatient surgery centers are adding extended recovery care capabilities
where permitted. Most of HEALTHSOUTH's surgery centers currently provide for
extended recovery stays. The Company's ability to develop such recovery care
facilities is dependent upon state regulatory environments in the particular
states where its centers are located.
Diagnostic Centers
At March 31, 1998, HEALTHSOUTH operated 113 diagnostic centers in 24 states
and the United Kingdom. These centers provide outpatient diagnostic imaging
services, including magnetic resonance imaging ("MRI"), computerized tomography
("CT") services, X-ray services, ultrasound services, mammography services,
nuclear medicine services and fluoroscopy. Not all services are provided at all
sites; however, most of HEALTHSOUTH's diagnostic centers are multi-modality
centers.
Because many patients at HEALTHSOUTH's rehabilitative healthcare and
outpatient surgery facilities require diagnostic procedures of the type
performed at its diagnostic centers, HEALTHSOUTH believes that its diagnostic
operations are a natural complement to its other services and enhance its
ability to market those services to patients and payors.
Occupational Medicine Services
At March 31, 1998, HEALTHSOUTH operated 108 occupational medicine centers
in 31 states. These centers provide cost-effective, outpatient primary medical
care and rehabilitation services to individuals for the treatment of
work-related medical problems.
HEALTHSOUTH's occupational medicine centers market their services to large
and small employers, workers' compensation and health insurers and managed care
organizations. The services provided at HEALTHSOUTH's occupational medicine
centers include outpatient primary medical care for work-related injuries and
illnesses, work-related physical examinations, physical therapy services and
workers' compensation medical services, as well as other services primarily
aimed at work-related injuries or illnesses. Medical services at the centers are
provided by licensed physicians who are employed by or under contract with
HEALTHSOUTH or affiliated medical practices. These centers also employ nurses,
therapists and other licensed professional staff as necessary for the services
provided. HEALTHSOUTH believes that occupational medicine primary care services
are a strategic component of its business, and that the physicians in its
occupational medicine centers can, in many cases, serve as "gatekeepers"
providing access to the other services offered by HEALTHSOUTH.
Other Patient Care Services
In certain of its markets, HEALTHSOUTH provides other patient care
services, including home healthcare, physician services and contract management
of hospital-based rehabilitative healthcare services. HEALTHSOUTH evaluates
market opportunities on a case-by-case basis in determining whether to provide
additional services of these types, which may be complementary to facility-based
services provided by HEALTHSOUTH or stand-alone businesses.
41
<PAGE>
LOCATIONS
The following table sets forth a listing of HEALTHSOUTH's patient care
services locations at March 31, 1998:
<TABLE>
<CAPTION>
OUTPATIENT INPATIENT
REHABILITATION REHABILITATION MEDICAL SURGERY DIAGNOSTIC OTHER
STATE FACILITIES FACILITIES(BEDS)(2) CENTERS(BEDS)(2) CENTERS CENTERS SERVICES
- -------------------------- ---------------- --------------------- ------------------ --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Alabama .................. 26 7 (336) 1 (219) 5 6 11
Alaska ................... 8 1 1 4
Arizona .................. 24 4 (243) 2 1 7
Arkansas ................. 13 5 (278) 2 5
California ............... 59 1 (60) 36 1 31
Colorado ................. 41 1 (64) 5 8 1
Connecticut .............. 35 1 (30) 5 3
Delaware ................. 7 1
District of Columbia ..... 1 1
Florida .................. 83 12 (735) 1 (285) 19 7 30
Georgia .................. 30 1 (50) 3 10 4
Hawaii ................... 12 1
Idaho .................... 5 1
Illinois ................. 51 5 3 1
Indiana .................. 19 4 (260) 5 4
Iowa ..................... 3 1
Kansas ................... 7 4 (231) 1
Kentucky ................. 5 2 (80) 4
Louisiana ................ 4 6 (367) 1 3 2
Maine .................... 7 4 (155) 4
Maryland ................. 30 2 (66) 8 8 1
Massachusetts ............ 27 14 (806) 1 2 12
Michigan ................. 24 1 (30) 1 2
Minnesota ................ 14
Mississippi .............. 7
Missouri ................. 51 2 (86) 10 1 9
Montana .................. 4
Nebraska ................. 16
Nevada ................... 19 2 (126) 1 2
New Hampshire ............ 10 3 (99)
New Jersey ............... 73 1 (155) 1 3 1
New Mexico ............... 6 1 (61) 1 1
New York ................. 49 1 (27) 1 1
North Carolina ........... 17 3 1
North Dakota ............. 2
Ohio ..................... 42 1 (30) 7 6
Oklahoma ................. 17 3 (183) 1 1 1
Oregon ................... 27 1
Pennsylvania ............. 58 15 (1,180) 9 6 4
Rhode Island ............. 3
South Carolina ........... 9 4 (235) 2 6 2
South Dakota ............. 2 4
Tennessee ................ 33 6 (362) 6 5
Texas .................... 104 19 (1,116) 1 (96) 21 24 41
Utah ..................... 4 1 (86) 1 1 2
Vermont .................. 1
Virginia ................. 24 1 (40) 1 (200) 2 9
Washington ............... 85 2 1 17
West Virginia ............ 2 4 (200) 1
Wisconsin ................ 3 4
Wyoming .................. 2
</TABLE>
- ----------
(1) Includes freestanding outpatient centers and their satellites, outpatient
satellites of inpatient rehabilitation facilities and outpatient facilities
managed under contract.
(2) "Beds" refers to the number of beds for which a license or certificate of
need has been granted, which may vary materially from beds available for
use.
In addition, at March 31, 1998, HEALTHSOUTH operated six diagnostic centers
in the United Kingdom and one rehabilitation hospital in Australia.
42
<PAGE>
BUSINESS OF TCD
TCD manages facilities that provide occupational and industrial medical and
related services exclusively to employees and prospective employees of corporate
customers located in the states of Texas, Louisiana and Arkansas. TCD currently
manages eleven occupational and industrial medicine facilities servicing over
approximately 4,000 employers and clients including local offices of such
corporations as Blockbuster Video, Excel Telecommunications, Fibrebond Corp.,
Interceramic Tile, Southwest Airlines, U-Haul Corporation, Levi, the U.S. Postal
Service and Atlantic Richfield Co. At these facilities, prospective employees of
the corporate customer can be pre-screened and work-related injuries and medical
conditions arising from employment can be diagnosed and treated.
Currently, TCD's operating revenues are derived primarily through a
non-exclusive Practice Management Agreement with The Physician Group, P.A. ("The
Physician Group"), a Texas professional association of physicians and other
medical professionals which is paid by the employer for services either on a
fee-for-service basis or on a prepaid "capitated" basis (a fixed monthly fee for
each employee). TCD receives a management fee for the provision of non-medical
services, including marketing, management of the practice and use of the
facilities, and provision of non-medical procedures and programs. TCD also
receives a portion of its operating revenues from management of two facilities
outside The Physician Group.
At its nine Texas facilities, TCD utilizes The Physician Group to render
the actual medical services provided to employees and prospective employees of
its clients. Because most states have enacted laws limiting the practice of
medicine to licensed individuals or professional organizations comprised of
licensed individuals, TCD is dependent on The Physician Group or other
professional associations of licensed professionals to render medical services
at the Company's facilities.
TCD believes its management techniques and cost containment strategies have
in many cases resulted in reductions in loss ratios by workers' compensation
insurers and, thereafter, in reduced insurance premiums charged to TCD's
clients. To benefit indirectly from the advantages of its own cost containment
programs, TCD implemented an arrangement with Employers General Insurance Group
("EGIG"), a subsidiary of Old Republic General Insurance Group, Inc., a company
listed on the New York Stock Exchange with an A+ rating from A.M. Best Company,
to develop and offer an insurance and occupational medicine product known as
"Comp2000" which is a fully-guaranteed fixed cost workers' compensation
insurance policy that includes The Physician Group's capitated preventive
healthcare services.
In order to benefit even more directly from the use of its cost containment
strategies utilized in its practice management activities, TCD acquired a Texas
domiciled, multi-line insurance company, now known as Risk Management Assurance
Corporation ("RMAC"), effective June 30, 1996.
HEALTHCARE OPERATIONS AND SERVICES
Seven of the eleven occupational healthcare facilities currently managed by
TCD are located in the Dallas/Fort Worth, Texas metropolitan area. The remaining
four facilities are located in Baytown, Texas (a suburb of Houston); El Paso,
Texas; Shreveport, Louisiana; and Little Rock, Arkansas. The facilities managed
by TCD range in size from approximately 3,000 square feet to 10,000 square feet
and have capacity to handle from approximately 40 to 200 patients per day. Each
facility is equipped with examination rooms, an emergency suite, an intake room,
an x-ray room, a small laboratory and areas for reception, drug testing,
collection, rehabilitation and administration. The facilities are generally open
nine to eleven hours per day.
Licensed physicians in TCD's facilities are generally trained and
experienced in occupational and industrial medicine or have emergency or general
medicine backgrounds. Each facility utilizes a staff of between five and 25
full-time persons (or their part-time equivalents), including nurses, therapists
and administrative support personnel. Each of TCD's facilities is staffed with
one or more licensed physicians.
A majority of the medical and non-medical services are offered on a walk-in
basis, although specialized services are usually scheduled in advance. Through
The Physician Group, urgent care is offered
43
<PAGE>
for employees suffering from work-related injuries, which most commonly involve
soft tissue injuries, back injuries or exposure to hazardous material. Patients
with injuries beyond the scope of the physician's expertise are referred to an
appropriate medical facility.
Fee-for-Services Plan. The following chart lists the services offered on a
"fee-for-services" basis whereby employers pay The Physician Group for each
medical service rendered and pay TCD for all non-medical services rendered as
the service is provided.
SERVICES PROVIDED APPLICATION
----------------- -----------
Prevention ............................. Cholesterol testing and management;
RiskScan computerized health risk
analysis; Personalized health risk
analysis; Health seminars; Stress
management; Flu immunizations;
Smoking cessation.
Medical Examinations ................... Examination in compliance with both
Occupational Safety and Health
Administration and Department of
Transportation stan- dards;
Computerized back examinations;
Pre-employment ex- aminations;
Comprehensive executive/annual
examinations; Asbestos and other
medical surveillance examinations.
Treatment .............................. Physical examinations by occupational
medicine specialists; Work-related
injury treatment; Physical therapy
services; X-rays; Laboratory
facilities; Pharmacy.
Medical Screening and Testing .......... Pulmonary function; HIV antibody
screening; Treadmill stress test;
Tuberculosis test; Hepatitis B
screening; Audiometric screening;
Heavy metals screening; Blood
chemistry profile (SMA-24); Chest
X-rays; Vision screening;
Proctoscopic exam- inations.
Management Services .................... Cost/benefit management reports;
Physician consultation; Safety,
health and accident prevention
services; Case control - loss
management services via computerized
injury tracking; Regulatory
compliance information; Risk
management infor- mation; Medical
billing audits; Accident work status
reports; Occupational medicine
supplies; Physician summary reports
to employers and employees.
Drug Testing ........................... Consultation and program development;
Medical review officer services;
Collection facility in compliance
with National Insti- tute of Drug
Abuse standards; Screening
examinations.
The Preferred Employee Plan. A majority of services are offered pursuant to
a "Preferred Employee Plan" or "PEP", a "capitated" plan which allows employers
to limit the costs they would otherwise pay for certain services. In return for
a prepaid monthly fee for each person employed by an employer client, ranging
from approximately $8.50 to $21 per person, TCD and The Physician Group provide
an agreed upon package of services. One portion of the capitated fee is for
medical services provided by The Physician Group and the other portion is for
non-medical services provided by TCD. Clients pay the same fee for every
employee, regardless or how many services are provided to any particular
employee in a given month. All existing PEP agreements are terminable by the
employer client, TCD or The Physician Group on 30 days' prior written notice.
The PEP is a variation on the use of in-house, captive medical departments
to control medical costs. Advantages of the PEP over the use of an in-house
medical department are that (i) small companies and major corporations have the
same opportunities for cost containment; (ii) the more sophisticated, in-depth
physical examination provided under the PEP to screen individuals for health
problems and physical fitness aid earlier discovery of health concerns; and
(iii) extensive examinations can provide a more accurate picture of the
potential productivity of an individual employee and can identify certain
significant risks of future on-the-job injuries and other serious health
conditions, thereby assisting in cost containment. These services are
specifically aimed at lowering the cost of employee benefits, improving
44
<PAGE>
employee productivity, decreasing absenteeism and enhancing employer/employee
relations through use of wellness and prevention programs.
TCD has developed and refined certain testing and evaluation procedures
that are effective in identifying conditions that indicate a significant risk of
on-the-job injuries and serious health concerns, thereby avoiding likely high
cost treatments attributable to preventable conditions. TCD intends to continue
to identify additional prevention strategies and health management programs
which will increase efficiencies without compromising quality of care.
AFFILIATIONS, JOINT VENTURES AND ACQUISITIONS
In addition to establishing new facilities, TCD is expanding geographically
in areas contiguous to existing markets in order to increase its market
penetration and market share within areas in which a patient base is currently
served through affiliations, joint ventures and acquisitions. To the extent
permitted by applicable law, TCD pursues affiliations, joint ventures and
acquisitions with physicians, hospitals and other providers which have
established occupational medicine practices or with patient bases which can be
served in an occupational medical setting. In a typical transaction, The
Physician Group acquires the medical practice of a physician or group of
physicians and TCD acquires the physical assets of the practice, including
equipment and the facility, as well as the right to manage the practice pursuant
to the Practice Management Agreement.
DESCRIPTION OF CAPITAL STOCK OF HEALTHSOUTH
COMMON STOCK
HEALTHSOUTH is authorized by the HEALTHSOUTH Certificate to issue up to
601,500,000 shares of capital stock, of which 600,000,000 shares are designated
Common Stock, par value $.01 per share, and 1,500,000 shares are designated
Preferred Stock, par value $.10 per share. As of May 11, 1998, there were
400,648,553 shares of HEALTHSOUTH Common Stock outstanding (including shares
reserved for issuance in connection with HEALTHSOUTH's 1995, 1996 and 1997
mergers which had not yet been claimed by holders of the stock of the acquired
companies). In addition, as of March 31, 1998, approximately (a) 15,480,572
shares of Common Stock were reserved for issuance upon conversion of HEALTHSOUTH
3.25% Convertible Subordinated Debentures due 2003, (b) 34,773,784 shares of
Common Stock were reserved for issuance under HEALTHSOUTH's Stock Option Plans,
under which options to purchase a total of 29,526,763 shares of Common Stock
were outstanding, and (c) 980,542 shares were reserved for issuance pursuant to
the exercise of outstanding stock purchase warrants.
Holders of HEALTHSOUTH Common Stock are entitled to participate equally in
dividends when and as declared by the Board of Directors out of funds legally
available therefor and, in the event of liquidation or distribution of assets of
HEALTHSOUTH, are entitled to share ratably in such assets remaining after
payment of liabilities. Stockholders are entitled to one vote per share. Holders
of HEALTHSOUTH Common Stock have no conversion, preemptive or other subscription
rights, and there are no redemption or sinking fund provisions with respect to
such stock. The outstanding shares of HEALTHSOUTH Common Stock are fully paid
and nonassessable.
FAIR PRICE PROVISION
The HEALTHSOUTH Certificate contains certain provisions requiring
supermajority stockholder approval to effect specified extraordinary corporate
transactions unless certain conditions are met. The HEALTHSOUTH Certificate
requires the affirmative vote of 66 2/3% of all shares of HEALTHSOUTH entitled
to vote in the election of Directors to approve a "business combination" with
any "other entity" that is the beneficial owner, directly or indirectly, of more
than 20% of the outstanding shares of HEALTHSOUTH entitled to vote in the
election of Directors. For purposes of this restriction, a "business
combination" includes: (a) the sale, exchange, lease, transfer or other
disposition by HEALTHSOUTH of all, or substantially all, of its assets or
business; (b) any merger or consolidation of
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HEALTHSOUTH; and (c) certain sales of HEALTHSOUTH's Common Stock in exchange for
cash, assets, securities or any combination thereof. An "other entity" is
defined to include, generally, any corporation, person or entity, and any
affiliate or associate of such corporation, person or entity.
The foregoing supermajority vote shall not be required where, in the
business combination, (i) HEALTHSOUTH's stockholders receive consideration per
share not less than the highest per share price paid by the other entity in
acquiring any of its holdings of HEALTHSOUTH's Common Stock (subject to certain
adjustments upward) and (ii) certain other requirements, designed to prevent the
other entity from receiving disproportionate gains in connection with the
business combination, are satisfied.
The provisions of the HEALTHSOUTH Certificate described in the preceding
paragraphs, and its Bylaws, may be amended or repealed only by the affirmative
vote of 66 2/3% of the shares entitled to vote thereon.
The effect of the foregoing provisions is to make it more difficult for a
person, entity or group to effect a change in control of HEALTHSOUTH through the
acquisition of a large block of HEALTHSOUTH's voting stock, or to effect a
merger or other acquisition that is not approved by a majority of HEALTHSOUTH's
Directors serving in office prior to the acquisition by the other entity of 5%
or more of HEALTHSOUTH's stock.
SECTION 203 OF THE DGCL
HEALTHSOUTH is subject to the provisions of Section 203 of the DGCL. That
section provides, with certain exceptions, that a Delaware corporation may not
engage in any of a broad range of business combinations with a person or
affiliate or associate of such person who is an "interested stockholder" for a
period of three years from the date that such person became an interested
stockholder unless: (i) the transaction resulting in a person's becoming an
interested stockholder, or the business combination, is approved by the board of
directors of the corporation before the person becomes an interested
stockholder; (ii) the interested stockholder acquires 85% or more of the
outstanding voting stock of the corporation in the same transaction that makes
it an interested stockholder (excluding shares held by directors, officers and
certain employee stock ownership plans); or (iii) on or after the date the
person becomes an interested stockholder, the business combination is approved
by the corporation's board of directors and by the holders of at least 66 2/3%
of the corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. An "interested
stockholder" is defined to include any person, and the affiliates and associates
of such person, that (i) is the owner of 15% or more of the outstanding voting
stock of the corporation or (ii) is an affiliate or associate of the corporation
and was the owner of 15% or more of the outstanding voting stock of the
corporation at any time within the three-year period immediately prior to the
date on which it is sought to be determined whether such person is an interested
stockholder. It is anticipated that the provisions of Section 203 of the DGCL
may encourage companies or others interested in acquiring HEALTHSOUTH to
negotiate in advance with the HEALTHSOUTH Board of Directors, since the
stockholder approval requirement would be avoided if a majority of the directors
then in office approve either the business combination or the transaction which
results in the acquiror becoming an interested stockholder.
PREFERRED STOCK
The HEALTHSOUTH Certificate authorizes the issuance of up to 1,500,000
shares of Preferred Stock, par value $.10 per share (the "HEALTHSOUTH Preferred
Stock"). The Board of Directors has the authority to issue the HEALTHSOUTH
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions, including the dividend rights, dividend rate,
conversion rights, voting rights, terms of redemption, redemption price or
prices, liquidation preferences and the number of shares constituting any series
or the designations of such series, without any further vote or action by the
stockholders. Issuance of shares of HEALTHSOUTH Preferred Stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from acquiring, a majority of
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the outstanding voting stock of HEALTHSOUTH. Any such issuance could also
adversely affect the voting power of the holders of the HEALTHSOUTH Common
Stock. The Board of Directors of HEALTHSOUTH has no current intention of issuing
any shares of HEALTHSOUTH Preferred Stock.
TRANSFER AGENT
The transfer agent and registrar for the HEALTHSOUTH Common Stock is
ChaseMellon Shareholder Services, New York, New York.
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COMPARISON OF RIGHTS OF TCD
AND HEALTHSOUTH STOCKHOLDERS
Both TCD and HEALTHSOUTH are incorporated in Delaware. Holders of the TCD
Shares will continue to have their rights and obligations as stockholders of
HEALTHSOUTH after the Merger governed by Delaware law. Set forth below is a
summary comparison of the rights of a HEALTHSOUTH stockholder under the
HEALTHSOUTH Certificate and HEALTHSOUTH's Bylaws (the "HEALTHSOUTH Bylaws"), on
the one hand, and the rights of a TCD stockholder under the TCD Certificate of
Incorporation, as amended (the "TCD Certificate"), and TCD's Bylaws, as amended
(the "TCD Bylaws"), on the other hand. The information set forth below is
qualified in its entirety by reference to the HEALTHSOUTH Certificate, the
HEALTHSOUTH Bylaws, the TCD Certificate and the TCD Bylaws.
CLASSES AND SERIES OF CAPITAL STOCK
TCD. TCD is authorized by the TCD Certificate to issue up to 30,000,000
shares of capital stock, of which 25,000,000 shares are designated Common Stock,
par value $.01 per share, and 5,000,000 shares are designated Preferred Stock,
par value $.01 per share. The Board of Directors of TCD has the authority to
issue the TCD Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions for each such series, without any
further vote or action by the stockholders. As of March 31, 1998, there were no
shares of TCD Preferred Stock issued and outstanding, and the Board of Directors
of TCD has no present intention of issuing shares of TCD Preferred Stock.
HEALTHSOUTH. HEALTHSOUTH is authorized by the HEALTHSOUTH Certificate to
issue up to 601,500,000 shares of capital stock, of which 600,000,000 shares are
designated Common Stock, par value $.01 per share, and 1,500,000 shares are
designated Preferred Stock, par value $.10 per share. See "DESCRIPTION OF
CAPITAL STOCK OF HEALTHSOUTH". The Board of Directors of HEALTHSOUTH has the
authority to issue the HEALTHSOUTH Preferred Stock in one or more series and to
fix the rights, preferences, privileges and restrictions for each such series,
without any further vote or action by the stockholders. As of March 31, 1998,
there were no shares of HEALTHSOUTH Preferred Stock issued and outstanding, and
the Board of Directors of HEALTHSOUTH has no present intention of issuing shares
of HEALTHSOUTH Preferred Stock.
SIZE AND ELECTION OF THE BOARD OF DIRECTORS
TCD. The TCD Bylaws provide that the TCD Board of Directors shall consist
of at least one director but not more than 12 directors, and that the size of
the TCD Board of Directors may be fixed by the directors then in office or by
the stockholders at the annual meeting. Directors of TCD are elected by a
plurality of votes cast at the annual meeting of stockholders. The TCD
Certificate and the TCD Bylaws do not provide for cumulative voting. Vacancies
in TCD's Board of Directors and newly created directorships resulting from any
increase in the authorized number of directors are filled by a majority of
directors then in office.
HEALTHSOUTH. The HEALTHSOUTH Bylaws provide that the HEALTHSOUTH Board of
Directors shall consist of at least one director and that the size of the
HEALTHSOUTH Board of Directors may be fixed by the directors then in office.
Directors of HEALTHSOUTH are elected by a plurality of votes cast at the annual
meeting of stockholders. The HEALTHSOUTH Certificate and the HEALTHSOUTH Bylaws
do not provide for cumulative voting. Vacancies in HEALTHSOUTH's Board of
Directors and newly created directorships resulting from any increase in the
authorized number of directors are filled by a majority of directors then in
office.
REMOVAL OF DIRECTORS
TCD. The TCD Bylaws provide that a director may be removed with or without
cause by the vote of the holders of a majority of the shares of capital stock
entitled to vote thereon.
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HEALTHSOUTH. The HEALTHSOUTH Bylaws provide that a director may be removed
with or without cause by the vote of the holders of a majority of the shares of
capital stock entitled to vote thereon.
OTHER VOTING RIGHTS
TCD. The TCD Common Stock is not divided into classes, and TCD currently
has no classes or series of capital stock issued or outstanding other than the
TCD Common Stock. Each TCD stockholder holding shares of TCD Common Stock
entitled to be voted on any matter, including the election of directors, shall
have one vote on each such matter submitted to vote at a meeting of stockholders
for each such share of TCD Common Stock held by such stockholder as of the
record date for such meeting. Except as specifically provided otherwise by law
or by the TCD Certificate or the TCD Bylaws, the vote of the holders of a
majority of the shares of capital stock present or represented and entitled to
vote is required for the approval of any matter at a meeting of TCD
stockholders.
HEALTHSOUTH. The HEALTHSOUTH Common Stock is not divided into classes, and
HEALTHSOUTH has no classes or series of capital stock issued or outstanding
other than the HEALTHSOUTH Common Stock. Each HEALTHSOUTH stockholder holding
shares of HEALTHSOUTH Common Stock entitled to be voted on any matter, including
the election of directors, shall have one vote on each such matter submitted to
vote at a meeting of stockholders for each such share of HEALTHSOUTH Common
Stock held by such stockholder as of the record date for such meeting. Except as
specifically provided otherwise by law or by the HEALTHSOUTH Certificate or the
HEALTHSOUTH Bylaws, the vote of the holders of a majority of the shares of
capital stock present or represented and entitled to vote is required for the
approval of any matter at a meeting of HEALTHSOUTH stockholders. For information
concerning provisions that, with certain exceptions, require a higher percentage
of votes to approve certain business combinations with any entity that
beneficially owns 20% or more of the outstanding shares of voting stock of
HEALTHSOUTH, see "--Business Combinations".
CONVERSION AND DISSOLUTION
TCD. The TCD Common Stock has no preemptive, subscription, redemption or
conversion features. The outstanding shares are fully paid and nonassessable.
The rights, preferences and privileges of holders of TCD Common Stock may become
subject to those of holders of TCD Preferred Stock if TCD should issue TCD
Preferred Stock in the future. The TCD Certificate authorizes 5,000,000 shares
of Preferred Stock, par value $.01 per share, and provides that such shares of
TCD Preferred Stock may have such voting powers, preferences and other special
rights (including the right to convert the shares of such TCD Preferred Stock
into shares of TCD Common Stock) as shall be designated by the TCD Board of
Directors. The Board of Directors of TCD previously designated a class of
400,000 shares of Series A Convertible Preferred Stock, all of which were
converted to TCD Common Stock in February 1996. If the TCD Board of Directors
were to designate any additional series of TCD Preferred Stock, such TCD
Preferred Stock could be entitled to preferential payments in the event of
liquidation, dissolution or winding up of TCD.
HEALTHSOUTH. The HEALTHSOUTH Common Stock has no preemptive, subscription,
redemption or conversion features. The outstanding shares are fully paid and
nonassessable. The rights, preferences and privileges of holders of HEALTHSOUTH
Common Stock may become subject to those of holders of HEALTHSOUTH Preferred
Stock if HEALTHSOUTH should issue HEALTHSOUTH Preferred Stock in the future. The
HEALTHSOUTH Certificate authorizes 1,500,000 shares of Preferred Stock, par
value $.10 per share, and provides that such shares of HEALTHSOUTH Preferred
Stock may have such voting powers, preferences and other special rights
(including the right to convert the shares of such HEALTHSOUTH Preferred Stock
into shares of HEALTHSOUTH Common Stock) as shall be designated by the
HEALTHSOUTH Board of Directors. If the HEALTHSOUTH Board of Directors were to
designate such a series of HEALTHSOUTH Preferred Stock, such HEALTHSOUTH
Preferred Stock could be entitled to preferential payments in the event of
liquidation, dissolution or winding up of HEALTHSOUTH.
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BUSINESS COMBINATIONS
TCD. Neither the TCD Certificate nor the TCD By-laws contains provisions
imposing conditions upon, or restrictions related to, a business combination. As
a Delaware corporation, TCD is subject to the provisions of Section 203 of the
DGCL. For information regarding Section 203, see "DESCRIPTION OF CAPITAL STOCK
OF HEALTHSOUTH -- Section 203 of the DGCL".
HEALTHSOUTH. The HEALTHSOUTH Certificate provides that the vote of the
holders of 66 2/3% of all shares of HEALTHSOUTH entitled to vote in the election
of directors is required for the approval and adoption of a business combination
(as defined in the HEALTHSOUTH Certificate) with any entity (as defined in the
HEALTHSOUTH Certificate) if, on the record date for the determination of
stockholders entitled to vote thereon, the other entity is the beneficial owner,
directly or indirectly, of more than 20% of the outstanding shares of
HEALTHSOUTH entitled to vote in the election of directors. The voting
requirements of the "fair price" provision are not applicable to a business
combination involving a holder of 20% or more of HEALTHSOUTH's voting stock in
the business combination, if: (i) HEALTHSOUTH's stockholders receive
consideration per share not less than the highest per share price paid by the
other entity in acquiring any of its holdings of the HEALTHSOUTH Common Stock
(subject to certain upward adjustments); and (ii) certain other requirements,
designed to prevent the other entity from receiving disproportionate gains in
connection with the business combination, are satisfied. See "DESCRIPTION OF
CAPITAL STOCK OF HEALTHSOUTH -- Fair Price Provision".
AMENDMENT OR REPEAL OF THE CERTIFICATE OF INCORPORATION
Under Delaware law, unless its certificate of incorporation or by-laws
otherwise provide, amendments of a corporation's certificate of incorporation
generally require the approval of the holders of a majority of the outstanding
stock entitled to vote thereon, and if such amendment would increase or decrease
the number of authorized shares of any class or series or the par value of such
shares or would adversely affect the shares of such class or series, the
approval of a majority of the outstanding stock of such class or series.
TCD. The TCD Certificate provides that a majority of the TCD Board of
Directors may make, alter or repeal the TCD By-laws. The TCD By-laws provide
that such By-laws may also be altered, amended or repealed by the TCD
stockholders.
HEALTHSOUTH. The HEALTHSOUTH Certificate requires approval by holders of at
least 66 2/3% of the outstanding shares entitled to vote thereon to repeal or
amend Article SIXTH of the HEALTHSOUTH Certificate (regarding the calling of
special meetings by the stockholders), Article SEVENTH of the HEALTHSOUTH
Certificate (regarding the "fair price" provision) and Article EIGHTH of the
HEALTHSOUTH Certificate (regarding the amendment of the HEALTHSOUTH
Certificate). The HEALTHSOUTH Certificate also provides that a majority of the
HEALTHSOUTH Board of Directors may make, alter or repeal the HEALTHSOUTH Bylaws.
SPECIAL MEETING OF STOCKHOLDERS
TCD. The TCD Bylaws provide that a special meeting of the TCD stockholders
may be called by the President of TCD, a majority of the Board of Directors or
by the holders of a majority of the outstanding shares of capital stock of TCD
entitled to vote in the election of directors.
HEALTHSOUTH. The HEALTHSOUTH Bylaws provide that a special meeting of the
HEALTHSOUTH stockholders may be called by a majority of the Board of Directors
or by the holders of at least 20% of the outstanding shares of capital stock of
HEALTHSOUTH entitled to vote in the election of directors.
LIABILITY OF DIRECTORS
The DGCL permits a corporation to include a provision in its certificate of
incorporation eliminating or limiting the personal liability of a director or
officer to the corporation or its stockholders for monetary damages for breach
of the director's fiduciary duty, subject to certain limitations. Each of the
HEALTHSOUTH Certificate and the TCD Certificate includes such a provision, to
the maximum extent permitted by law.
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The HEALTHSOUTH Certificate provides that a director will not be personally
liable to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL, which concerns
unlawful payments of dividends, stock purchases or redemptions or (iv) for any
transaction from which the director derived an improper personal benefit.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provision shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (relating to
liability for unauthorized acquisitions or redemptions of, or dividends on,
capital stock) or (iv) for any transaction from which the director derived an
improper personal benefit. The TCD Certificate contains such a provision.
While these provisions provide directors with protection from awards of
monetary damages for breaches of their duty of care, they do not eliminate such
duty. Accordingly, these provisions will have no effect on the availability of
equitable remedies such as an injunction or rescission based on a director's
breach of his or her duty of care. The provisions described above apply to an
officer of the corporation only if he or she is a director of the corporation
and is acting in his or her capacity as director, and do not apply to officers
of the corporation who are not directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The DGCL permits a corporation to indemnify officers, directors, employees
and agents for actions taken in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interests of the corporation and,
with respect to any criminal action, which they had no reasonable cause to
believe was unlawful. The DGCL provides that a corporation may advance expenses
of defense (upon receipt of a written undertaking to reimburse the corporation
if indemnification is not appropriate) and must reimburse a successful defendant
for expenses, including attorneys' fees, actually and reasonably incurred, and
permits a corporation to purchase and maintain liability insurance for its
directors and officers. The DGCL provides that indemnification may not be made
for any claim, issue or matter as to which a person has been adjudged by a court
of competent jurisdiction, after exhaustion of all appeals therefrom, to be
liable to the corporation, unless and only to the extent a court determines that
the person is entitled to indemnity for such expenses as the court deems proper.
The HEALTHSOUTH Bylaws provide that each person who is involved in any
actual or threatened action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is or was
a director, officer, employee or agent of HEALTHSOUTH, or is or was serving at
the request of HEALTHSOUTH as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan, will be indemnified
by HEALTHSOUTH to the full extent permitted by the DGCL, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits HEALTHSOUTH to provide broader
indemnification rights than said law permitted prior to such amendment) or by
other applicable laws then in effect.
The TCD Bylaws provide that officers, directors, employees and agents of
TCD will be indemnified to the maximum extent permitted by the DGCL.
The Plan provides that all rights to indemnification for acts or omissions
occurring prior to the Effective Time of the Merger existing in favor of the
current or former directors or officers of TCD as provided in the TCD
Certificate or the TCD Bylaws shall survive the Merger and shall continue in
full force and effect in accordance with their terms.
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Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling HEALTHSOUTH or
TCD pursuant to the foregoing provisions, HEALTHSOUTH and TCD have been informed
that in the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
OPERATIONS AND MANAGEMENT OF HEALTHSOUTH AND TCD AFTER THE MERGER
OPERATIONS
After the consummation of the Merger, TCD will be a wholly-owned subsidiary
of HEALTHSOUTH, and all of TCD's subsidiaries will be indirect wholly-owned
subsidiaries of HEALTHSOUTH. HEALTHSOUTH will continue to engage in the business
of providing outpatient surgery and rehabilitative healthcare services as prior
to the Merger, working with the management of TCD to operate and, as
appropriate, continue to expand TCD's business in ways complementary to the
overall strategy of the combined Companies. See the information set forth herein
and in the documents incorporated herein by reference as set forth under
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE", "BUSINESS OF HEALTHSOUTH"
and "BUSINESS OF TCD".
MANAGEMENT
After the consummation of the Merger, HEALTHSOUTH will be managed by the
same Board of Directors and executive officers as existed prior to the Merger.
EXPERTS
The consolidated financial statements and schedule of HEALTHSOUTH at
December 31, 1997 and 1996, and for each of the three years in the period ended
December 31, 1997, appearing in HEALTHSOUTH's Annual Report on Form 10-K for the
year ended December 31, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon incorporated herein by reference.
Such consolidated financial statements and schedule have been incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
The consolidated financial statements of The Company Doctor and
Subsidiaries at June 30, 1997, 1996 and 1995 and for each of the three years in
the period ended June 30, 1997, appearing in the Forms 10-KSB for the years
ended June 30, 1997 and 1996 and the Registration Statement on Form SB-2, as
amended (S.E.C. File No. 333-99530-D) (the "IPO Registration Statement") filed
with the Commission on November 16, 1995, have been audited by Ehrhardt Keefe
Steiner & Hottman PC, independent auditors, as set forth in their reports
thereon incorporated by reference therein, and have been incorporated herein by
reference in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing. With respect to the unaudited interim
consolidated financial information in The Company Doctor's quarterly report for
the periods ended March 31, 1998 and 1997, filed on Form 10-QSB, the independent
certified public accountants have not audited or reviewed such consolidated
financial information and have not expressed an opinion or any other form of
assurance with respect to such consolidated financial information.
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LEGAL MATTERS
The validity of the shares of HEALTHSOUTH Common Stock to be issued to the
stockholders of TCD pursuant to the Merger will be passed upon by Haskell
Slaughter & Young, L.L.C.
ADDITIONAL INFORMATION
The Board of Directors of TCD does not know of any matter to be brought
before its Special Meeting other than as described in the Notice of Special
Meeting accompanying this Prospectus-Proxy Statement. If any other matter comes
before the Special Meeting, it is the intention of the persons named in the
accompanying proxy to vote the proxy in accordance with their best judgment with
respect to such other matter.
If the Merger is not consummated because the Plan is not approved by the
TCD stockholders at the Special Meeting or any adjournments or postponements
thereof or for any other reason, TCD intends to hold its next Annual Meeting of
Stockholders on or about March 1, 1999. Any stockholder of TCD who desires to
submit a proposal for inclusion in the proxy material for presentation at such
annual meeting must submit such proposal to the Secretary of TCD on or before
October 1, 1998.
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ANNEX A
AMENDED AND RESTATED PLAN AND AGREEMENT OF MERGER
AMENDED AND RESTATED PLAN AND AGREEMENT OF MERGER (the "Plan of Merger"),
made and entered into as of the 16th day of December, 1997, by and among
HEALTHSOUTH CORPORATION, a Delaware corporation ("HEALTHSOUTH"), CHANDLER
ACQUISITION CORPORATION, a Delaware corporation (the "Subsidiary"), and THE
COMPANY DOCTOR, a Delaware corporation ("TCD") (the Subsidiary and TCD being
sometimes collectively referred to herein as the "Constituent Corporations").
W I T N E S S E T H:
WHEREAS, the parties to this Plan of Merger are parties to a Plan of Merger
dated as of December 16, 1997, which they desire to amend and restate in its
entirety as herein set forth;
WHEREAS, the respective Boards of Directors of HEALTHSOUTH, the Subsidiary
and TCD have approved the merger of the Subsidiary with and into TCD (the
"Merger"), upon the terms and conditions set forth in this Plan of Merger,
whereby all shares of Common Stock, without par value, of TCD (the "TCD Common
Stock"), not owned directly or indirectly by TCD, will be converted into the
right to receive the Merger Consideration (as hereinafter defined);
WHEREAS, each of HEALTHSOUTH, the Subsidiary and TCD desires to make
certain representations, warranties, covenants and agreements in connection with
the Merger and also to prescribe various conditions to the Merger; and
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization under the provisions of Section 368 of the
Internal Revenue Code of 1986, as amended; and
NOW, THEREFORE, in consideration of the premises, and the mutual covenants
and agreements contained herein, the parties hereto do hereby agree as follows:
Section 1. THE MERGER.
1.1 The Merger. Upon the terms and conditions set forth in this Plan of
Merger, and in accordance with the Delaware General Corporation Law (the
"DGCL"), the Subsidiary shall be merged with and into TCD at the Effective Time
(as defined in Section 1.3). Following the Effective Time, the separate
corporate existence of the Subsidiary shall cease and TCD shall continue as the
surviving corporation (the "Surviving Corporation") under the name "The Company
Doctor" and shall succeed to and assume all the rights and obligations of the
Subsidiary and TCD in accordance with the DGCL.
1.2 The Closing. The closing of the Merger (the "Closing") will take place
at 10:00 a.m. Central Time on a date to be specified by the parties (the
"Closing Date"), which (subject to satisfaction or waiver of the conditions set
forth in Sections 9.2 and 9.3) shall be no later than the second business day
after satisfaction or waiver of the conditions set forth in Section 9.1 (other
than Section 9.1(a)), at the offices of HEALTHSOUTH in Birmingham, Alabama,
unless another date or place is agreed to in writing by the parties hereto.
1.3 Effective Time. Subject to the provisions of this Plan of Merger, the
parties shall file a certificate of merger (the "Certificate of Merger")
executed in accordance with the relevant provisions of the DGCL and shall make
all other filings or recordings required under the DGCL as soon as practicable
on or after the Closing Date. The Merger shall become effective at such time as
the Certificate of Merger is duly filed with the Delaware Secretary of State, or
at such other time as the Subsidiary and TCD shall agree should be specified in
the Certificate of Merger (the "Effective Time").
1.4 Effect of the Merger. The Merger shall have the effects set forth in
Section 259 of the DGCL.
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Section 2. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES.
2.1 Effect on Capital Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of any holder of shares of TCD Common
Stock or any shares of capital stock of the Subsidiary:
(a) Subsidiary Common Stock. Each share of capital stock of the
Subsidiary issued and outstanding immediately prior to the Effective Time
shall be converted into one fully paid and nonassessable share of common
stock of the Surviving Corporation.
(b) Cancellation of Treasury Stock. Each share of TCD Common Stock that
is owned by TCD or by any subsidiary of TCD shall automatically be canceled
and retired and shall cease to exist, and none of the Common Stock, par
value $.01 per share, of HEALTHSOUTH ("HEALTHSOUTH Common Stock"), cash or
other consideration shall be delivered in exchange therefor.
(c) Conversion of TCD Shares. Subject to Section 2.2(e), each issued and
outstanding share of TCD Common Stock (other than shares to be canceled in
accordance with Section 2.1(b)) (collectively, the "Exchanging TCD Shares")
shall be converted into the right to receive (i) if the Base Period Trading
Price (as defined below) is no lower than $24.00 and no higher than $27.875
or less, .142 of a share of HEALTHSOUTH Common Stock, or (ii) if the Base
Period Trading Price is greater than $27.875, a fraction of a share of
HEALTHSOUTH Common Stock equal to (x) $3.958 divided by (y) the Base Period
Trading Price, or (iii) if the Base Period Trading Price is less than
$24.00, a fraction of a share of HEALTHSOUTH Common Stock equal to (x)
$3.408 divided by (y) the Base Period Trading Price (in whichever case
occurs, the "Exchange Ratio"), as may be adjusted as provided in Section
2.1(e) below (the "Merger Consideration"). For purposes of this Plan of
Merger, the term "Base Period Trading Price" shall mean the average daily
closing prices for the shares of HEALTHSOUTH Common Stock for the 20
consecutive trading days on which such shares are actually traded (as
reported on the New York Stock Exchange Composite Transaction Tape as
reported in The Wall Street Journal, Eastern Edition, or if not reported
thereby, any other authoritative source) ending at the close of trading on
the third trading day immediately preceding the Closing Date. As of the
Effective Time, all such Exchanging TCD Shares shall no longer be
outstanding and shall automatically be canceled and retired and shall cease
to exist, and each holder of a certificate representing any Exchanging TCD
Shares shall cease to have any rights with respect thereto, except the right
to receive the Merger Consideration and any cash in lieu of fractional
shares of HEALTHSOUTH Common Stock to be issued or paid in consideration
therefor upon surrender of such certificate in accordance with Section 2.2,
without interest.
(d) Stock Options and Warrants. At the Effective Time, all rights with
respect to TCD Common Stock pursuant to any TCD stock options or stock
purchase warrants which are outstanding at the Effective Time, whether or
not then exercisable, shall be converted into and become rights with respect
to HEALTHSOUTH Common Stock, and HEALTHSOUTH shall assume each TCD stock
option and stock purchase warrant, in accordance with the terms of any stock
option plan under which it was issued and any stock option agreement or
warrant agreement by which it is evidenced; provided, however, that the
exercise period for incentive stock options assumed by HEALTHSOUTH shall not
be less than two years in the care of incentive stock options held by an
employee whose employment is terminated by HEALTHSOUTH. It is intended that,
unless otherwise agreed between HEALTHSOUTH and a particular optionee, the
foregoing provisions shall be undertaken in a manner that will not
constitute a "modification" as defined in Section 424 of the Code, as to any
stock option which is an "incentive stock option". Each TCD stock option or
stock purchase warrant so assumed shall be exercisable for that number of
shares of HEALTHSOUTH Common Stock equal to the number of TCD shares subject
thereto multiplied by the Exchange Ratio, and shall have an exercise price
per share equal to the TCD exercise price divided by the Exchange Ratio.
(e) Anti-Dilution Provisions. If after the date hereof and prior to the
Effective Time HEALTHSOUTH shall have declared a stock split (including a
reverse split) of HEALTHSOUTH Common Stock or a dividend payable in
HEALTHSOUTH Common Stock, or any other distribu-
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tion of securities or dividend (in cash or otherwise) to holders of
HEALTHSOUTH Common Stock with respect to their HEALTHSOUTH Common Stock
(including without limitation such a distribution or dividend made in
connection with a recapitalization, reclassification, merger, consolidation,
reorganization or similar transaction) then (i) the Exchange Ratio shall be
appropriately adjusted to reflect such stock split or dividend or other
distribution of securities and (ii) if such stock split, dividend or
distribution has a record date prior to the Effective Time, then the number
of shares of HEALTHSOUTH Common Stock to be issued upon conversion of a
share of TCD Common Stock pursuant to Section 2.1(c) shall be appropriately
adjusted to reflect such stock split, dividend or other distribution of
securities.
2.2 Exchange of Certificates. (a) Exchange Agent. Prior to the Effective
Time, HEALTHSOUTH shall enter into an agreement with such bank or trust company
as may be designated by HEALTHSOUTH (the "Exchange Agent") which shall provide
that HEALTHSOUTH shall deposit with the Exchange Agent as of the Effective Time,
for the benefit of the holders of Exchanging TCD Shares, for exchange in
accordance with this Section 2, through the Exchange Agent, certificates
representing the shares of HEALTHSOUTH Common Stock (such shares of HEALTHSOUTH
Common Stock, together with any dividends or distributions with respect thereto
with a record date after the Effective Time, being hereinafter referred to as
the "Exchange Fund") issuable pursuant to Section 2.1 in exchange for
outstanding shares of TCD Common Stock.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, but in any event within five business days following the
Effective Time, the Surviving Corporation shall cause the Exchange Agent to
mail to each holder of record of a certificate or certificates which
immediately prior to the Effective Time represented outstanding shares of
TCD Common Stock (the "Certificates") whose shares were converted into the
right to receive the Merger Consideration pursuant to Section 2.1, (i) a
letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Exchange Agent and shall be in such form
and have such other provisions as HEALTHSOUTH may reasonably specify) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of HEALTHSOUTH Common Stock.
Upon surrender of a Certificate for cancellation to the Exchange Agent or to
such other agent or agents as may be appointed by HEALTHSOUTH, together with
such letter of transmittal, duly executed, and such other documents as may
reasonably be required by the Exchange Agent, the holder of such Certificate
shall be entitled to receive in exchange therefor a certificate representing
that number of whole shares of HEALTHSOUTH Common Stock which such holder
has the right to receive pursuant to the provisions of this Section 2, and
the Certificate so surrendered shall forthwith be canceled. In the event of
a transfer of ownership of shares of TCD Common Stock which is not
registered in the transfer records of TCD, a certificate representing the
proper number of shares of HEALTHSOUTH Common Stock may be issued to a
person other than the person in whose name the Certificate so surrendered is
registered, if such Certificate shall be properly endorsed or otherwise be
in proper form for transfer and the person requesting such payment shall pay
any transfer or other taxes required by reason of the issuance of shares of
HEALTHSOUTH Common Stock to a person other than the registered holder of
such Certificate or establish to the satisfaction of HEALTHSOUTH that such
tax has been paid or is not applicable. Until surrendered as contemplated by
this Section 2.2, each Certificate shall be deemed at any time after the
Effective Time to represent only the right to receive upon such surrender
the certificate representing shares of HEALTHSOUTH Common Stock and cash in
lieu of any fractional shares of HEALTHSOUTH Common Stock as contemplated by
this Section 2.2. No interest will be paid or will accrue on any cash
payable in lieu of any fractional shares of HEALTHSOUTH Common Stock. To the
extent permitted by law, former stockholders of record of TCD shall be
entitled to vote after the Effective Time at any meeting of HEALTHSOUTH
stockholders the number of whole shares of HEALTHSOUTH Common Stock into
which their respective shares of TCD Common Stock are converted, regardless
of whether such holders have exchanged their Certificates for certificates
representing HEALTHSOUTH Common Stock in accordance with this Section 2.2.
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(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions with respect to HEALTHSOUTH Common Stock with a record
date after the Effective Time of the Merger shall be paid to the holder of
any unsurrendered Certificate with respect to the shares of HEALTHSOUTH
Common Stock represented thereby and no cash payment in lieu of fractional
shares shall be paid to any such holder pursuant to Section 2.2(e) until the
surrender of such Certificate in accordance with this Section 2. Subject to
the effect of applicable laws, following surrender of any such Certificate,
there shall be paid to the holder of the certificate representing whole
shares of HEALTHSOUTH Common Stock issued in exchange therefor, without
interest, (i) at the time of such surrender, the amount of any cash payable
in lieu of a fractional share of HEALTHSOUTH Common Stock to which such
holder is entitled pursuant to Section 2.2(e) and the amount of dividends or
other distributions with a record date after the Effective Time theretofore
paid with respect to such whole shares of HEALTHSOUTH Common Stock, and (ii)
at the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but prior to such
surrender and with a payment date subsequent to such surrender payable with
respect to such whole shares of HEALTHSOUTH Common Stock.
(d) No Further Ownership Rights in Exchanging TCD Shares. All shares of
HEALTHSOUTH Common Stock issued upon the surrender for exchange of
Certificates in accordance with the terms of this Section 2 (including any
cash paid pursuant to Section 2.2(c) or 2.2(e)) shall be deemed to have been
issued (and paid) in full satisfaction of all rights pertaining to the
Exchanging TCD Shares theretofore represented by such Certificates. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation or the Exchange Agent for any reason, they shall be canceled and
exchanged as provided in this Section 2, except as otherwise provided by
law.
(e) No Fractional Shares. No certificates or scrip representing
fractional shares of HEALTHSOUTH Common Stock shall be issued upon the
surrender for exchange of Certificates, and such fractional share interests
will not entitle the owner thereof to vote or to any rights of a stockholder
of HEALTHSOUTH. Notwithstanding any other provision of this Plan of Merger,
each holder of Exchanging TCD Shares exchanged pursuant to the Merger who
would otherwise have been entitled to receive a fraction of a share of
HEALTHSOUTH Common Stock (after taking into account all Certificates
delivered by such holder) shall receive, in lieu thereof, cash (without
interest) in an amount equal to such fractional part of a share of
HEALTHSOUTH Common Stock multiplied by the Base Period Trading Price.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of the Certificates for six months
after the Effective Time shall be delivered to HEALTHSOUTH, upon demand, and
any holders of the Certificates who have not theretofore complied with this
Section 2 shall thereafter look only to HEALTHSOUTH for payment of
HEALTHSOUTH Common Stock, any cash in lieu of fractional shares of
HEALTHSOUTH Common Stock and any dividends or distributions with respect to
HEALTHSOUTH Common Stock.
(g) No Liability. None of HEALTHSOUTH, the Subsidiary, TCD or the
Exchange Agent shall be liable to any person in respect of any shares of
HEALTHSOUTH Common Stock (or dividends or distributions with respect
thereto) or cash from the Exchange Fund delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law. If
any Certificates shall not have been surrendered prior to seven years after
the Effective Time (or immediately prior to such earlier date on which any
shares of HEALTHSOUTH Common Stock, any cash in lieu of fractional shares of
HEALTHSOUTH Common Stock or any dividends or distributions with respect to
HEALTHSOUTH Common Stock in respect of such Certificates would otherwise
escheat to or become the property of any governmental entity), any such
shares, cash, dividends or distributions in respect of such Certificates
shall, to the extent permitted by applicable law, become the property of the
Surviving Corporation, free and clear of all claims or interest of any
person previously entitled thereto.
(h) Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund in deposit accounts or short-term money market
instruments, as directed by HEALTHSOUTH, on a daily basis. Any interest and
other income resulting from such investments shall be paid to HEALTHSOUTH.
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2.3 Certificate of Incorporation of Surviving Corporation. The Certificate
of Incorporation of TCD shall be amended and restated, after the Effective Time,
in a manner satisfactory to HEALTHSOUTH. The Certificate of Incorporation of
TCD, as so amended and restated, shall become the Certificate of Incorporation
of the Surviving Corporation from and after the Effective Time and until
thereafter amended as provided by law.
2.4 Bylaws of the Surviving Corporation. The Bylaws of the Subsidiary shall
be the Bylaws of the Surviving Corporation from and after the Effective Time and
until thereafter altered, amended or repealed in accordance with the laws of the
State of Delaware, the Certificate of Incorporation of TCD and the said Bylaws.
2.5 Directors and Officers of the Surviving Corporation. The Directors and
officers of the Subsidiary immediately prior to the Effective Time shall be the
Directors and officers of the Surviving Corporation, each to hold office in
accordance with the Certificate of Incorporation and Bylaws of the Surviving
Corporation.
2.6 Assets, Liabilities, Reserves and Accounts. At the Effective Time, the
assets, liabilities, reserves and accounts of each of the Subsidiary and TCD
shall be taken up on the books of the Surviving Corporation at the amounts at
which they respectively shall be carried on the books of said corporations
immediately prior to the Effective Time, except as otherwise set forth in the
Plan of Merger and subject to such adjustments, or elimination of intercompany
items, as may be appropriate in giving effect to the Merger in accordance with
generally accepted accounting principles.
2.7 Corporate Acts of the Subsidiary. All corporate acts, plans, policies,
approvals and authorizations of the Subsidiary, its sole stockholder, its Board
of Directors, committees elected or appointed by the Board of Directors, and all
officers and agents, valid immediately prior to the Effective Time, shall be
those of the Surviving Corporation and shall be as effective and binding thereon
as they were with respect to the Subsidiary. The employees and agents of the
Subsidiary shall become the employees and agents of the Surviving Corporation
and continue to be entitled to the same rights and benefits which they enjoyed
as employees and agents of the Subsidiary.
Section 3. REPRESENTATIONS AND WARRANTIES OF TCD.
TCD hereby represents and warrants to HEALTHSOUTH and the Subsidiary as
follows:
3.1 Organization, Existence and Good Standing. TCD is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. TCD has all necessary corporate power to own its properties and assets
and to carry on its business as presently conducted. TCD is not, and has not
been within the two years immediately preceding the date of this Plan of Merger,
a subsidiary or division of another corporation, nor has TCD within such time
owned, directly or indirectly, any shares of HEALTHSOUTH Common Stock or
Subsidiary Common Stock.
3.2 TCD Capital Stock. TCD's authorized capital consists of 25,000,000
shares of TCD Common Stock, without par value, of which 4,906,949 shares were
issued and outstanding as of September 30, 1997, and no shares of which were
issued and held as treasury shares, and 5,000,000 shares of Preferred Stock, par
value $.01 per share, none of which shares are issued and outstanding or held as
treasury stock. All of the issued and outstanding shares of TCD Common Stock are
duly and validly issued, fully paid and nonassessable. Except as set forth on
Exhibit 3.2 to the Disclosure Schedule delivered by TCD to HEALTHSOUTH
simultaneously with the execution and delivery hereof (the "Disclosure
Schedule") or otherwise disclosed in the TCD Annual Report on Form 10-KSB for
the fiscal year ended June 30, 1997 (the "TCD 10-KSB"), there are no options,
warrants, or similar rights granted by TCD or any other agreements to which TCD
is a party providing for the issuance or sale by it of any additional securities
which would remain in effect after the Effective Time. There is no liability for
dividends declared or accumulated but unpaid with respect to any of the shares
of TCD Common Stock.
3.3 Subsidiaries and Affiliated Partnerships. Attached to the Disclosure
Schedule as Exhibit 3.3 is a list of all subsidiaries of TCD (individually, a
"TCD Subsidiary", and collectively, the "TCD Subsidiaries") and their states of
incorporation. Except as set forth on Exhibit 3.3, TCD does not own stock in and
does not control, directly or indirectly, any other corporation, association or
business organization other than the TCD Other Entities (as defined below).
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(b) Also disclosed on Exhibit 3.3 is a list of all general or limited
partnerships in which a general partner is TCD, a TCD Subsidiary or another
TCD Partnership (individually, a "TCD Partnership" and collectively, the
"TCD Partnerships"), and all limited liability companies in which TCD, a TCD
Subsidiary or a TCD Partnership is a member (individually, a "TCD LLC" and
collectively, the "TCD LLCs") (the TCD Partnerships and the TCD LLCs being
collectively called the "TCD Other Entities"), and their states of
organization. Except as set forth on Exhibit 3.3, neither TCD nor any TCD
Subsidiary owns an equity interest in, nor does such entity control,
directly or indirectly, any other joint venture, limited liability company
or partnership.
(c) Also disclosed on Exhibit 3.3 is a list of all professional
corporations or professional associations affiliated with TCD by reason of
management agreements or similar arrangements (the "TCD Affiliated
Practices") and their states of organization.
3.4 Organization, Existence and Good Standing of TCD Subsidiaries, TCD
Other Entities and TCD Affiliated Practices. (a) Each TCD Subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of its respective state of incorporation. Except as set forth on Exhibit 3.4,
each TCD Subsidiary has all necessary corporate power to own its properties and
assets and to carry on its business as presently conducted. At the Effective
Time, each TCD Subsidiary will have all necessary corporate power to own its
properties and assets and to carry on its business as presently conducted.
(b) Each TCD Partnership that is a limited partnership is validly formed,
each TCD Partnership that is a general partnership has been duly organized,
and each TCD Partnership is in good standing under the laws of its
respective state of organization. Each TCD Partnership has all necessary
power to own its property and assets and to carry on its business as
presently conducted.
(c) Each TCD LLC is a limited liability company validly formed and in
good standing under the laws of its respective state of organization. Each
TCD LLC has all necessary power to own its property and assets to carry on
its business as presently conducted.
(d) Each TCD Affiliated Practice is a professional association or a
professional corporation duly organized, validly existing and in good
standing under the laws of its respective state of incorporation. Each TCD
Affiliated Practice has all necessary corporate power to own its properties
and assets and to carry on its business as presently conducted.
3.5 Foreign Qualifications. TCD, each TCD Subsidiary and each TCD Other
Entity that is not a general partnership is qualified to do business as a
foreign corporation, foreign limited partnership or foreign limited liability
company, as the case may be, and is in good standing in each jurisdiction where
the nature or character of the property owned, leased or operated by it or the
nature of the business transacted by it makes such qualification necessary,
except where the failure to so qualify would not have a material adverse effect
on TCD, the TCD Subsidiaries and the TCD Other Entities, taken as a whole.
3.6 Power and Authority. Subject to the satisfaction of the conditions
precedent set forth herein, TCD has the corporate power to execute, deliver and
perform the Plan of Merger and all agreements and other documents executed and
delivered or to be executed and delivered by it pursuant to the Plan of Merger,
and, subject to the satisfaction of the conditions precedent set forth herein,
has taken all action required by its Certificate of Incorporation, Bylaws or
otherwise, to authorize the execution, delivery and performance of the Plan of
Merger and such related documents. Except as set forth on Exhibit 3.6 to the
Disclosure Schedule, the execution and delivery of the Plan of Merger does not
and, subject to the receipt of required stockholder and regulatory approvals and
any other required third-party consents or approvals, the consummation of the
Merger will not, violate any provisions of the Certificate of Incorporation of
TCD or any provisions of, or result in the acceleration of any obligation under,
any material mortgage, lien, lease, agreement, instrument, order, arbitration
award, judgment or decree, to which TCD or any TCD Subsidiary or TCD Other
Entity is a party, or by which it is bound, or violate any restrictions of any
kind to which it is subject which, if violated or accelerated, would have a
material adverse effect on TCD, the TCD Subsidiaries and the TCD Other Entities,
taken as a whole.
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The execution and delivery of this Plan of Merger has been approved by the Board
of Directors of TCD. This Plan of Merger has been duly executed and delivered by
TCD and, assuming this Plan of Merger constitutes a valid and binding obligation
of HEALTHSOUTH and the Subsidiary, as the case may be, constitutes a valid and
binding obligation of TCD, enforceable against TCD in accordance with its terms.
3.7 TCD Public Information. TCD has heretofore furnished HEALTHSOUTH with a
true and complete copy of each report, schedule, registration statement and
definitive proxy statement filed by it with the Securities and Exchange
Commission (the "SEC") (as any such documents have since the time of their
original filing been amended, the "TCD Documents") since June 30, 1996, which
are all the documents (other than preliminary material) that it was required to
file with the SEC from such date through the date of this Plan of Merger. As of
their respective dates, the TCD Documents did not contain any untrue statements
of material facts or omit to state material facts required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. As of their respective dates, the TCD
Documents complied in all material respects with the applicable requirements of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated under such statutes. The
financial statements contained in the TCD Documents, together with the notes
thereto, have been prepared in accordance with generally accepted accounting
principles consistently followed throughout the periods indicated (except as may
be indicated in the notes thereto, or, in the case of the unaudited financial
statements, as permitted by Form 10-QSB), reflect all known liabilities of TCD
required to be stated therein, including all such known contingent liabilities
as of the end of each period reflected therein, and present fairly the financial
condition of TCD at said dates and the consolidated results of operations and
cash flows of TCD for the periods then ended. The consolidated balance sheet of
TCD at June 30, 1997 included in the TCD Documents is herein sometimes referred
to as the "TCD Balance Sheet".
3.8 Revenue Analysis. Exhibit 3.8 to the Disclosure Schedule sets forth an
analysis of net patient revenues by facility for each facility operated by TCD,
any TCD Subsidiary or any TCD Other Entity describing net patient revenues for
the month and nine months ended October 31, 1997. Such revenue analysis is true
and correct in all material respects.
3.9 Legal Proceedings. Except as disclosed in the TCD Documents or on
Exhibit 3.9 to the Disclosure Schedule, there is no material litigation,
governmental investigation or other proceeding pending or, so far as is known to
TCD, threatened against or relating to TCD, its properties or business, or the
transaction contemplated by the Plan of Merger and, so far as is known to TCD,
no basis for any such action exists.
3.10 Contracts, etc. (a) All material contracts, leases, agreements and
arrangements to which TCD or any of the TCD Subsidiaries or TCD Other Entities
is a party are legally valid and binding in accordance with their terms and in
full force and effect, and to the knowledge of TCD, no party is in default
thereunder, and no event has occurred which, but for the passage of time or the
giving of notice or both, would constitute a default thereunder, except as set
forth on Exhibit 3.10 to the Disclosure Schedule or, in each case, where the
invalidity of the lease, contract, agreement or arrangement or the default or
breach thereunder or thereof would not, individually or in the aggregate, have a
material adverse effect on TCD, the TCD Subsidiaries and the TCD Other Entities,
taken as a whole.
(b) Except as set forth on Exhibit 3.10 to the Disclosure Schedule, no
contract or agreement to which TCD or any TCD Subsidiary or TCD Other Entity
is a party will, by its terms, terminate as a result of the transactions
contemplated hereby or require any consent from any obligor thereto in order
to remain in full force and effect immediately after the Effective Time,
except for contracts or agreements which, if terminated, would not have a
material adverse effect on TCD, the TCD Subsidiaries and the TCD Other
Entities, taken as a whole.
(c) Except as set forth on Exhibit 3.10 to the Disclosure Schedule, none
of TCD, any TCD Subsidiary or any TCD Other Entity has granted any right of
first refusal or similar right in favor of any third party with respect to
any material portion of its properties or assets or entered into any
non-competition agreement or similar agreement restricting its ability to
engage in any business in any location.
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3.11 Subsequent Events. Except as set forth on Exhibit 3.11 to the
Disclosure Schedule or disclosed in the TCD Documents, TCD has not, since the
date of the last-filed TCD Document:
(a) Incurred any material adverse change, including, but not limited to,
any material adverse change in net patient revenues by facility from those
reflected on Exhibit 3.8.
(b) Discharged or satisfied any material lien or encumbrance, or paid or
satisfied any material obligation or liability (absolute, accrued,
contingent or otherwise) other than (i) liabilities shown or reflected on
the TCD Balance Sheet or (ii) liabilities incurred since the date of the
last-filed TCD Document in the ordinary course of business, which discharge
or satisfaction would have a material adverse effect on TCD, the TCD
Subsidiaries and the TCD Other Entities, taken as a whole.
(c) Increased or established any reserve for taxes or any other liability
on its books or otherwise provided therefor which would have a material
adverse effect on TCD, the TCD Subsidiaries and the TCD Other Entities,
taken as a whole, except as may have been required due to consolidated
income or operations of TCD since the date of the last-filed TCD Document.
(d) Mortgaged, pledged or subjected to any lien, charge or other
encumbrance any of the assets, tangible or intangible, which assets are
material to the consolidated business or financial condition of TCD.
(e) Sold or transferred any of the assets material to the consolidated
business of TCD, canceled any material debts or claims or waived any
material rights, except in the ordinary course of business.
(f) Granted any general or uniform increase in the rates of pay of
employees or any material increase in salary payable or to become payable by
TCD to any officer or employee, consultant or agent (other than normal merit
increases), or by means of any bonus or pension plan, contract or other
commitment, increased in a material respect the compensation of any officer,
employee, consultant or agent.
(g) Except for this Plan of Merger and any other agreement executed and
delivered pursuant to this Plan of Merger, entered into any material
transaction other than in the ordinary course of business or permitted under
other Sections hereof.
(h) Issued any stock, bonds or other securities, other than stock options
granted to employees, directors or consultants of TCD or warrants granted to
third parties, all of which are disclosed on Exhibit 3.2 to the Disclosure
Schedule or reflected in the TCD Documents.
3.12 Accounts Receivable. (a) Since the date of the TCD 10-KSB, TCD has not
changed any material principle or practice with respect to the recordation of
accounts receivable or the calculation of reserves therefor, or any material
collection, discount or write-off policy or procedure. TCD (including the TCD
Subsidiaries, TCD Other Entities and TCD Affiliated Practices) is in compliance
with the terms and conditions of all third-party payor arrangements relating to
its accounts receivable, except to the extent that such noncompliance would not
have a material adverse effect on TCD, the TCD Subsidiaries and the TCD Other
Entities, taken as a whole.
(b) None of TCD, the TCD Subsidiaries, the TCD Other Entities or the TCD
Affiliated Practices is a party to any Medicare, Medicaid or other
governmental provider agreement.
3.13 Tax Returns. TCD has filed all tax returns required to be filed by it
or requests for extensions to file such returns or reports have been timely
filed and granted and have not expired, except to the extent that such failures
to file, taken together, do not have a material adverse effect on TCD. TCD has
made all payments shown as due on such returns. TCD has not been notified that
any tax returns of TCD are currently under audit by the Internal Revenue Service
or any state or local tax agency, except for local tax audits that in the
aggregate are not material. No agreements have been made by TCD for the
extension of time or the waiver of the statute of limitations for the assessment
or payment of any federal, state or local taxes.
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3.14 Commissions and Fees. Except as set forth in Exhibit 3.14 to the
Disclosure Schedule, there are no valid claims for brokerage commissions or
finder's or similar fees in connection with the transactions contemplated by
this Plan of Merger which may be now or hereafter asserted against HEALTHSOUTH
resulting from any action taken by TCD or its stockholders, officers or
directors, or any of them.
3.15 Employee Benefit Plans; Employment Matters. (a) Except as described in
the TCD Documents or set forth on Exhibit 3.15(a) to the Disclosure Schedule,
TCD has neither established nor maintains nor is obligated to make contributions
to or under or otherwise participate in (a) any bonus or other type of incentive
compensation plan, program, agreement, policy, commitment, contract or
arrangement (whether or not set forth in a written document), (b) any pension,
profit-sharing, retirement or other plan, program or arrangement, or (c) any
other employee benefit plan, fund or program, including, but not limited to,
those described in Section 3(3) of ERISA. All such plans (individually, a "Plan"
and collectively, the "Plans") have been operated and administered in all
material respects in accordance with, as applicable, ERISA, the Internal Revenue
Code of 1986, as amended, Title VII of the Civil Rights Act of 1964, as amended,
the Equal Pay Act of 1967, as amended, the Age Discrimination in Employment Act
of 1967, as amended, and the related rules and regulations adopted by those
federal agencies responsible for the administration of such laws. No act or
failure to act by TCD has resulted in a "prohibited transaction" (as defined in
ERISA) with respect to the Plans that is not subject to a statutory or
regulatory exception. No "reportable event" (as defined in ERISA) has occurred
with respect to any of the Plans which is subject to Title IV of ERISA. TCD has
not previously made, is not currently making, and is not obligated in any way to
make, any contributions to any multi-employer plan within the meaning of the
Multi-Employer Pension Plan Amendments Act of 1980.
(b) Except as described in the TCD Documents or set forth on Exhibit
3.15(b) to the Disclosure Schedule, TCD is not a party to any oral or
written (i) union, guild or collective bargaining agreement which agreement
covers employees in the United States (nor is it aware of any union
organizing activity currently being conducted in respect to any of its
employees), (ii) agreement with any executive officer or other key employee
the benefits of which are contingent, or the terms of which are materially
altered, upon the occurrence of a transaction of the nature contemplated by
this Plan of Merger and which provides for the payment of in excess of
$25,000, or (iii) agreement or plan, including any stock option plan, stock
appreciation rights plan, restricted stock plan or stock purchase plan, any
of the benefits of which will be increased, or the vesting the benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Plan of Merger or the value of any of the benefits of
which will be calculated on the basis of any of the transactions
contemplated by this Plan of Merger.
3.16 Compliance with Laws in General. Except as set forth on Exhibit 3.16
to the Disclosure Schedule or disclosed in the TCD Documents, TCD has not
received any notices of material violations of any federal, state and local
laws, regulations and ordinances relating to its business and operations,
including, without limitation, the Federal Environmental Protection Act, the
Occupational Safety and Health Act, the Americans with Disabilities Act, the
Medicare or applicable Medicaid statutes and regulations, the Texas Medical
Practice Act, the Foreign Corrupt Practices Act of 1977, as amended, any
statutes or regulations relating to political contributions, any statutes or
regulations relating to the provision of workers' compensation healthcare
services, any statutes regulating the provision of insurance services, health
maintenance organization services or similar services, and any Environmental
Laws, and no notice of any pending inspection or violation of any such law,
regulation or ordinance has been received by TCD which, if it were determined
that a violation had occurred, would have a material effect on TCD, the TCD
Subsidiaries and the TCD Other Entities, taken as a whole.
3.17 Licenses, Accreditation and Regulatory Approvals. Except as disclosed
in the TCD Documents or set forth on Exhibit 3.17 to the Disclosure Schedule,
TCD and the TCD Subsidiaries and TCD Other Entities hold all licenses, permits,
certificates of need and other regulatory approvals which are needed or required
by law with respect to their businesses, operations and facilities as they are
currently or presently conducted (collectively, the "Licenses"), except where
the failure to possess such Licenses does not have a material adverse effect on
TCD, the TCD Subsidiaries and the TCD Other Entities,
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taken as a whole. All such Licenses are in full force and effect, and TCD is in
compliance in all material respects with all conditions and requirements of the
Licenses and with all rules and regulations relating thereto. The amounts
established as provisions for adjustments by third-party payors on the financial
statements set forth in the last-filed TCD Document are sufficient to pay any
amounts for which TCD believes it will be liable. To the knowledge of TCD,
neither TCD nor the TCD Subsidiaries nor the TCD Other Entities nor their
respective employees have committed a violation of the Medicare and Medicaid
fraud and abuse provisions of the Social Security Act. Any and all past
litigation concerning such Licenses, and all claims and causes of action raised
therein, has been finally adjudicated. No such License has been revoked,
conditioned (except as may be customary) or restricted, and no action
(equitable, legal or administrative), arbitration or other process is pending,
or to the knowledge of TCD, threatened, which in any way challenges the validity
of, or seeks to revoke, condition or restrict any such License or regulatory
approval. Subject to compliance with applicable securities laws, the Hart
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and
state or local statutes, rules or regulations requiring notice, approval, or
other action upon the occurrence of a change in control of TCD or any of the TCD
Subsidiaries or TCD Other Entities, and the consummation of the Merger will not
violate any law or regulation to which TCD is subject which, if violated, would
have a material adverse effect on TCD, the TCD Subsidiaries and the TCD Other
Entities, taken as a whole.
3.18 Vote Required. The affirmative vote of the holders of a majority of
the outstanding shares of the TCD Common Stock entitled to vote thereon is the
only vote of the holders of any class or series of TCD capital stock necessary
to approve this Plan of Merger, the Merger and the transactions contemplated
hereby.
3.19 Opinion of Financial Advisor. The Board of Directors of TCD has
received the oral opinion of Southcoast Capital Corporation, or its successor in
interest, to the effect that, as of the date of this Plan of Merger, the
Exchange Ratio is fair to the holders of TCD Common Stock from a financial point
of view, a written copy of which opinion will be delivered by TCD to HEALTHSOUTH
prior to the date on which the definitive proxy materials for the Proxy
Statement (as defined in Section 7.4(a)) are filed with the SEC.
3.20 Agreements with Donald F. Angle, M.D. Except for that certain
Employment Agreement between TCD and Donald F. Angle, M.D. and that certain
agreement between TCD and The Physician Group, P.A. (collectively, the "Angle
Agreements"), a Texas professional association of which Donald F. Angle, M.D. is
the sole stockholder, there are no agreements between TCD and Donald F. Angle,
M.D. or his affiliates. At the Effective Time, the Angle Agreements are to be
revised or terminated as set forth in that certain letter dated December 12,
1992 from Michael D. Martin to Dale Willets (the "Willets Letter").
3.21 No Untrue Representations. No representation or warranty by TCD in
this Plan of Merger, and no Exhibit or certificate issued by TCD and furnished
or to be furnished to HEALTHSOUTH pursuant hereto, or in connection with the
transactions contemplated hereby, contains or will contain any untrue statement
of a material fact in response to the disclosure requested, or omits or will
omit to state a material fact necessary to make the statements or facts
contained therein in response to the disclosure requested not misleading in
light of all of the circumstances then prevailing.
Section 4. REPRESENTATIONS AND WARRANTIES OF THE SUBSIDIARY AND HEALTHSOUTH.
The Subsidiary and HEALTHSOUTH, jointly and severally, hereby represent and
warrant to TCD as follows:
4.1 Organization, Existence and Capital Stock. The Subsidiary is a
corporation duly organized and validly existing and is in good standing under
the laws of the State of Delaware. The Subsidiary's authorized capital consists
of 1,000 shares of Common Stock, par value $.01 per share, all of which shares
are issued and registered in the name of HEALTHSOUTH. The Subsidiary has not,
within the two years immediately preceding the date of this Plan of Merger,
owned, directly or indirectly, any shares of TCD Common Stock.
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4.2 Power and Authority. The Subsidiary has corporate power to execute,
deliver and perform the Plan of Merger and all agreements and other documents
executed and delivered, or to be executed and delivered, by it pursuant to the
Plan of Merger, and, subject to the satisfaction of the conditions precedent set
forth herein, has taken all actions required by law, its Certificate of
Incorporation, its Bylaws or otherwise, to authorize the execution and delivery
of the Plan of Merger and such related documents. The execution and delivery of
the Plan of Merger does not and, subject to the receipt of required stockholder
and regulatory approvals and any other required third-party consents or
approvals, the consummation of the Merger contemplated hereby will not, violate
any provisions of the Certificate of Incorporation or Bylaws of the Subsidiary,
or any agreement, instrument, order, judgment or decree to which the Subsidiary
is a party or by which it is bound, violate any restrictions of any kind to
which the Subsidiary is subject, or result in the creation of any lien, charge
or encumbrance upon any of the property or assets of the Subsidiary.
4.3 No Subsidiaries. The Subsidiary does not own stock in, and does not
control directly or indirectly, any other corporation, association or business
organization. The Subsidiary is not a party to any joint venture or partnership.
4.4 Legal Proceedings. There are no actions, suits or proceedings pending
or threatened against the Subsidiary, at law or in equity, relating to or
affecting the Subsidiary, including the Merger. The Subsidiary does not know or
have any reasonable grounds to know of any justification for any such action,
suit or proceeding.
4.5 No Contracts or Liabilities. Other than the obligations created under
the Plan of Merger, the Subsidiary is not obligated under any contracts, claims,
leases, liabilities (contingent or otherwise), loans or otherwise.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF HEALTHSOUTH.
HEALTHSOUTH hereby represents and warrants to TCD as follows:
5.1 Organization, Existence and Good Standing. HEALTHSOUTH is a corporation
duly organized and validly existing and is in good standing under the laws of
the State of Delaware. HEALTHSOUTH has all necessary corporate power to own its
properties and assets and to carry on its business as presently conducted.
HEALTHSOUTH is duly qualified to do business and is in good standing in all
jurisdictions in which the character of the property owned, leased or operated
or the nature of the business transacted by it makes qualification necessary.
5.2 Power and Authority. HEALTHSOUTH has corporate power to execute,
deliver and perform the Plan of Merger and all agreements and other documents
executed and delivered, or to be executed and delivered, by it pursuant to the
Plan of Merger, and, subject to the satisfaction of the conditions precedent set
forth herein has taken all actions required by law, its Certificate of
Incorporation, its Bylaws or otherwise, to authorize the execution and delivery
of the Plan of Merger and such related documents. The execution and delivery of
the Plan of Merger does not and, subject to the receipt of required stockholder
and regulatory approvals and any other required third-party consents or
approvals, the consummation of the Merger contemplated hereby will not, violate
any provisions of the Certificate of Incorporation or Bylaws of HEALTHSOUTH, or
any provision of, or result in the acceleration of any obligation under, any
mortgage, lien, lease, agreement, instrument, order, arbitration award, judgment
or decree to which HEALTHSOUTH is a party or by which it is bound, or violate
any restrictions of any kind to which HEALTHSOUTH is subject. The execution and
delivery of this Plan of Merger has been approved by the Board of Directors of
HEALTHSOUTH. This Plan of Merger has been duly executed and delivered by
HEALTHSOUTH and the Subsidiary and, assuming this Plan of Merger constitutes a
valid and binding obligation of TCD, constitutes a valid and binding obligation
of HEALTHSOUTH and the Subsidiary, enforceable against HEALTHSOUTH and the
Subsidiary in accordance with its terms.
5.3 HEALTHSOUTH Common Stock. On the Closing Date, HEALTHSOUTH will have a
sufficient number of authorized but unissued and/or treasury shares of its
Common Stock available for issuance to the holders of TCD Common Stock in
accordance with the provisions of the Plan of Merger.
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The HEALTHSOUTH Common Stock to be issued pursuant to the Plan of Merger will,
when so delivered, be duly and validly issued, fully paid and nonassessable,
(ii) issued pursuant to an effective registration statement under the Securities
Act of 1933, as amended, and (iii) authorized for listing on the New York Stock
Exchange, Inc. (the "Exchange") upon official notice of issuance.
5.4 Capitalization. HEALTHSOUTH's authorized capital stock consists of
1,500,000 shares of Preferred Stock, par value $.10 per share, of which no
shares are issued and outstanding, and no shares are held in treasury, and
500,000,000 shares of Common Stock, par value $.01 per share, of which
393,640,782 shares are issued and outstanding, and 186,000 shares are held in
treasury. All of the issued and outstanding shares of HEALTHSOUTH Common Stock
have been duly and validly issued and are fully paid and non-assessable. Except
as disclosed in the HEALTHSOUTH Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, as amended (the "HEALTHSOUTH 10-K"), or in the
Prospectus - Proxy Statement, dated September 26, 1997, relating to
HEALTHSOUTH's acquisition of Horizon/CMS Healthcare Corporation (the "Horizon
Proxy Statement"), there are no options, warrants, convertible debentures or
similar rights granted by HEALTHSOUTH or any other agreements to which
HEALTHSOUTH is a party providing for the issuance or sale by it of any
additional securities, other than stock options granted in the ordinary course
since such date. There is no liability for dividends declared or accumulated but
unpaid with respect to any shares of HEALTHSOUTH Common Stock.
5.5 Subsidiary Common Stock. HEALTHSOUTH owns, beneficially and of record,
all of the issued and outstanding shares of Subsidiary Common Stock, which are
validly issued and outstanding, fully paid and nonassessable, free and clear of
all liens and encumbrances. HEALTHSOUTH has the corporate power to endorse and
surrender such Subsidiary Shares for cancellation pursuant to the Plan of
Merger. HEALTHSOUTH has taken all such actions as may be required in its
capacity as the sole stockholder of the Subsidiary to approve the Merger.
5.6 HEALTHSOUTH Documents. HEALTHSOUTH has heretofore furnished TCD with a
true and complete copy of each report, schedule, registration statement and
definitive proxy statement filed by it with the SEC (as any such documents have
since the time of their original filing been amended, the "HEALTHSOUTH
Documents") since January 1, 1996, which are all the documents (other than
preliminary material) that it was required to file with the SEC since such date.
As of their respective dates, the HEALTHSOUTH Documents did not contain any
untrue statements of material facts or omit to state material facts required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. As of their respective
dates, the HEALTHSOUTH Documents complied in all material respects with the
applicable requirements of the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated under such statutes. The financial statements contained in the
HEALTHSOUTH Documents, together with the notes thereto, have been prepared in
accordance with generally accepted accounting principles consistently followed
throughout the periods indicated (except as may be indicated in the notes
thereto, or, in the case of the unaudited financial statements, as permitted by
Form 10-Q), reflect all known liabilities of HEALTHSOUTH required to be stated
therein, including all known contingent liabilities as of the end of each period
reflected therein, and present fairly the financial condition of HEALTHSOUTH at
said dates and the consolidated results of operations and cash flows of
HEALTHSOUTH for the periods then ended.
5.7 Investment Intent. HEALTHSOUTH is acquiring the shares of TCD Common
Stock hereunder for its own account and not with a view to the distribution or
sale thereof, and HEALTHSOUTH has no understanding, agreement or arrangement to
sell, distribute, partition or otherwise transfer or assign all or any part of
the shares of TCD Common Stock to any other person, firm or corporation.
5.8 Legal Proceedings. Except as disclosed in the HEALTHSOUTH 10-K or the
Horizon Proxy Statement, there is no material litigation, governmental
investigation or other proceeding pending or, so far as is known to HEALTHSOUTH,
threatened against or relating to HEALTHSOUTH, its properties or business, or
the transaction contemplated by the Plan of Merger and, so far as is known to
HEALTHSOUTH, no basis for any such action exists. No litigation, governmental
investigation or other
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proceeding is pending or threatened, to the best knowledge of HEALTHSOUTH, which
might result in judgments against HEALTHSOUTH not adequately covered by
insurance or which might collectively result in a material adverse change in the
condition (financial or otherwise), business or prospects of HEALTHSOUTH.
5.9 No Violations. Subject to compliance with applicable securities laws
and the HSR Act, the consummation of the Merger will not violate any law or
restriction to which HEALTHSOUTH is subject.
5.10 Subsequent Events. Except as disclosed in the last-filed HEALTHSOUTH
Document, HEALTHSOUTH has not, since the date of the last-filed HEALTHSOUTH
Document:
(a) Incurred any material adverse change.
(b) Discharged or satisfied any material lien or encumbrance, or paid or
satisfied any material obligation or liability (absolute, accrued,
contingent or otherwise) other than (i) liabilities shown or reflected on
the September 30, 1997 Balance Sheet contained in the HEALTHSOUTH Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997 (the
"HEALTHSOUTH September 30 10-Q") or (ii) liabilities incurred since the date
of the HEALTHSOUTH September 30 10-Q in the ordinary course of business,
which discharge or satisfaction would have a material adverse effect on
HEALTHSOUTH.
(c) Increased or established any reserve for taxes or any other liability
on its books or otherwise provided therefor which would have a material
adverse effect on HEALTHSOUTH, except as may have been required due to
income or operations of HEALTHSOUTH since June 30, 1997.
(d) Mortgaged, pledged or subjected to any lien, charge or other
encumbrance any of the assets, tangible or intangible, which assets are
material to the consolidated business or financial condition of HEALTHSOUTH.
(e) Sold or transferred any of the assets material to the consolidated
business of HEALTHSOUTH, canceled any material debts or claims or waived any
material rights, except in the ordinary course of business.
(f) Granted any general or uniform increase in the rates of pay of
employees or any material increase in salary payable or to become payable by
HEALTHSOUTH to any officer or employee, consultant or agent (other than
normal merit increases), or by means of any bonus or pension plan, contract
or other commitment, increased in a material respect the compensation of any
officer, employee, consultant or agent.
(g) Except for this Plan of Merger and any other agreement executed and
delivered pursuant to this Plan of Merger, entered into any material
transaction other than in the ordinary course of business or permitted under
other Sections hereof.
(h) Issued any stock, bonds or other securities, other than stock options
granted to employees or consultants of HEALTHSOUTH or warrants granted to
third parties, all of which are described in the HEALTHSOUTH Documents.
5.11 Tax Returns. HEALTHSOUTH has filed all tax returns required to be
filed by it or requests for extensions to file such returns or reports have been
timely filed and granted and have not expired, except to the extent that such
failures to file, taken together, do not have a material adverse effect on
HEALTHSOUTH. HEALTHSOUTH has made all payments shown as due on such returns. No
agreements have been made by HEALTHSOUTH for the extension of time or the waiver
of the statute of limitations for the assessment or payment of any federal,
state or local taxes.
5.12 Compliance with Laws in General. Except as disclosed in the
HEALTHSOUTH Documents, HEALTHSOUTH has not received any notices of material
violations of any federal, state and local laws, regulations and ordinances
relating to its business and operations, including, without limitation, the
Federal Environmental Protection Act, the Occupational Safety and Health Act,
the Americans with Disabilities Act, the Medicare or applicable Medicaid
statutes and regulations, the Texas Medical Prac-
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tice Act, the Foreign Corrupt Practices Act of 1977, as amended, any statutes or
regulations relating to political contributions, any statutes or regulations
relating to the provision of workers' compensation healthcare services, any
statutes regulating the provision and insurance services, health maintenance
organization services or similar services, and any Environmental Laws, and no
notice of any pending inspection or violation of any such law, regulation or
ordinance has been received by HEALTHSOUTH which, if it were determined that a
violation had occurred, would have a material effect on HEALTHSOUTH.
5.13 Licenses, Accreditation and Regulatory Approvals. Except as disclosed
in the HEALTHSOUTH Documents, HEALTHSOUTH holds all licenses, permits,
certificates of need and other regulatory approvals which are needed or required
by law with respect to its business operations and facilities as they are
currently or presently conducted (collectively, the "Licenses"), except where
the failure to possess such Licenses does not have a material adverse effect on
HEALTHSOUTH. All such Licenses are in full force and effect, and HEALTHSOUTH is
in compliance in all material respects with all conditions and requirements of
the Licenses and with all rules and regulations relating thereto. The amounts
established as provisions for adjustments by third-party payors on the financial
statements set forth in the last-filed HEALTHSOUTH Document are sufficient to
pay any amounts for which HEALTHSOUTH believes it will be liable. To the
knowledge of HEALTHSOUTH, neither HEALTHSOUTH nor its employees has committed a
violation of the Medicare and Medicaid fraud and abuse provisions of the Social
Security Act. Any and all past litigation concerning such Licenses, and all
claims and causes of action raised therein, has been finally adjudicated. No
such License has been revoked, conditioned (except as may be customary) or
restricted, and no action (equitable, legal or administrative), arbitration or
other process is pending, or to the knowledge of HEALTHSOUTH threatened, which
in any way challenges the validity of, or seeks to revoke, condition or restrict
any such License or regulatory approval. Subject to compliance with applicable
securities laws, the Hart Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and state or local statutes, rules or regulations
requiring notice, approval, or other action upon the occurrence of a change in
control of HEALTHSOUTH, the consummation of the Merger will not violate any law
or regulation to which HEALTHSOUTH is subject which, if violated, would have a
material adverse effect on HEALTHSOUTH.
5.14 Insurance. HEALTHSOUTH maintains insurance policies with such
coverages, deductibles and other characteristics as HEALTHSOUTH has determined
to be appropriate for its businesses, operations and properties.
5.15 No Untrue Representation. No representation or warranty by HEALTHSOUTH
in this Plan of Merger, and no Exhibit or certificate issued by HEALTHSOUTH and
furnished or to be furnished to TCD pursuant hereto, or in connection with the
transactions contemplated hereby, contains or will contain any untrue statement
of a material fact in response to the disclosure requested, or omits or will
omit to state a material fact necessary to make the statement or facts contained
therein in response to the disclosure requested not misleading in light of all
of the circumstances then prevailing.
Section 6. ACCESS TO INFORMATION AND DOCUMENTS.
6.1 Access to Information. Between the date hereof and the Closing Date,
each of TCD and HEALTHSOUTH will give to the other party and its counsel,
accountants and other representatives full access to all the properties,
documents, contracts, personnel files and other records of such party and shall
furnish the other party with copies of such documents and with such information
with respect to the affairs of such party as the other party may from time to
time reasonably request. Each party will disclose and make available to the
other party and its representatives all books, contracts, accounts, personnel
records, letters of intent, papers, records, communications with regulatory
authorities and other documents relating to the business and operations of such
party. In addition, TCD shall make available to HEALTHSOUTH all such banking,
investment and financial information as shall be necessary to allow for the
efficient integration of TCD banking, investment and financial arrangements with
those of HEALTHSOUTH at the Effective Time.
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6.2 Return of Records. If the transactions contemplated hereby are not
consummated and this Plan of Merger terminates, each party agrees to promptly
return all documents, contracts, records or properties of the other party and
all copies thereof furnished pursuant to this Section 6 or otherwise. All
information disclosed by any party or any affiliate or representative of any
party shall be deemed to be "Confidential Information" under the terms of the
Confidentiality Agreement dated October 6, 1997, between TCD and HEALTHSOUTH,
(the "Confidentiality Agreement").
6.3 Effect of Access. (a) Nothing contained in this Section 6 shall be
deemed to create any duty or responsibility on the part of either party to
investigate or evaluate the value, validity or enforceability of any contract,
lease or other asset included in the assets of the other party.
(b) With respect to matters as to which any party has made express
representations or warranties herein, the parties shall be entitled to rely
upon such express representations and warranties irrespective of any
investigations made by such parties, except to the extent that such
investigations result in actual knowledge of the inaccuracy or falsehood of
particular representations and warranties.
SECTION 7. COVENANTS.
7.1 Preservation of Business. TCD will use its best efforts to preserve the
business organization of TCD intact, to keep available to HEALTHSOUTH and the
Surviving Corporation the services of the present employees of TCD, and to
preserve for HEALTHSOUTH and the Surviving Corporation the goodwill of the
suppliers, customers and others having business relations with TCD.
7.2 Material Transactions. From the date hereof through the Effective Time,
TCD will not (other than as required pursuant to the terms of the Plan of Merger
and the related documents, and other than with respect to transactions for which
binding commitments have been entered into prior to the date hereof which are
described on Exhibit 7.2 to the Disclosure Schedule), without first obtaining
the written consent of HEALTHSOUTH:
(a) Encumber any asset or enter into any transaction or make any contract
or commitment relating to the properties, assets and business of TCD, other
than in the ordinary course of business or as otherwise disclosed herein.
(b) Enter into any employment contract which is not terminable upon
notice of 30 days or less, at will, and without penalty to TCD except as
provided herein.
(c) Enter into any contract or agreement (i) which cannot be performed
within three months or less, except with respect to contracts entered into
in the ordinary course of business between TCD and employers pursuant to
which TCD performs occupational medicine services or (ii) which involves the
expenditure of over $25,000.
(d) Issue or sell, or agree to issue or sell, any shares of capital stock
or other securities of TCD, except upon exercise of currently outstanding
stock options or warrants.
(e) Make any contribution, payment or distribution to the trustee under
any bonus, pension, profit-sharing or retirement plan or incur any
obligation to make any such payment or contribution which is not in
accordance with TCD's usual past practice, or establish or enter into any
other plan or contract or arrangement providing for bonuses, executive
incentive compensation, pensions, deferred compensation, retirement
payments, profit-sharing or the like, or terminate any Plan.
(f) Extend credit to anyone, except in the ordinary course of business
consistent with prior practices.
(g) Guarantee the obligation of any person, firm or corporation, except
in the ordinary course of business consistent with prior practices.
(h) Amend its Certificate of Incorporation or Bylaws.
(i) Authorize or issue any warrants, options or other derivative rights
with respect to TCD's capital stock.
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(j) Take any action of a character described in Section 3.11(b) to
3.11(i), inclusive.
7.3 Meeting of TCD Stockholders. (a) TCD will take all steps necessary in
accordance with its Certificate of Incorporation and Bylaws to call, give notice
of, convene and hold a meeting of its stockholders (the "Special Meeting") as
soon as practicable after the effectiveness of the Registration Statement (as
defined in Section 7.4 hereof), for the purpose of approving this Plan of Merger
and for such other purposes as may be necessary. Unless this Plan of Merger
shall have been validly terminated as provided herein, the Board of Directors of
TCD (subject to the provisions of Section 8.1(d) hereof) will (i) recommend to
TCD stockholders the approval of this Plan of Merger, the transactions
contemplated hereby and any other matters to be submitted to the stockholders in
connection therewith, to the extent that such approval is required by applicable
law in order to consummate the Merger, and (ii) use reasonable, good faith
efforts to obtain the approval by TCD' stockholders of this Plan of Merger and
the transactions contemplated hereby.
(b) Nothing contained herein shall affect the right of TCD to take action
by written consent in lieu of meeting to the extent permitted by applicable
law and its Certificate of Incorporation and Bylaws.
7.4 Registration Statement. (a) HEALTHSOUTH shall prepare and file with the
SEC and any other applicable regulatory bodies, as soon as reasonably
practicable, a Registration Statement on Form S-4 with respect to the shares of
HEALTHSOUTH Common Stock to be issued in the Merger (the "Registration
Statement"), and will otherwise proceed promptly to satisfy the requirements of
the Securities Act of 1933 (the "Securities Act"), including Rule 145
thereunder. Such Registration Statement shall contain a proxy statement of TCD
(the "Proxy Statement") containing the information required by the Securities
Exchange Act of 1934 (the "Exchange Act"). HEALTHSOUTH shall take all reasonable
steps to cause the Registration Statement to be declared effective and to
maintain such effectiveness until all of the shares covered thereby have been
distributed. HEALTHSOUTH shall promptly amend or supplement the Registration
Statement to the extent necessary in order to make the statements therein not
misleading or to correct any misstatements which have become false or
misleading. HEALTHSOUTH shall use its reasonable, good faith efforts to have the
Registration Statement cleared by the SEC under the provisions of the Securities
Act and the Exchange Act. HEALTHSOUTH shall provide TCD with copies of all
filings made pursuant to this Section 7.4 and shall consult with TCD on
responses to any comments made by the Staff of the SEC with respect thereto.
(b) The information specifically designated as being supplied by TCD for
inclusion in the Registration Statement shall not, at the time the
Registration Statement is declared effective and at the time the Proxy
Statement is first mailed to holders of TCD Common Stock, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein not
misleading. The information specifically designated as being supplied by TCD
for inclusion in the Proxy Statement shall not, at the date the Proxy
Statement (or any amendment thereof or supplement thereto) is first mailed
to holders of TCD Common Stock, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading. If at any time
prior to the Effective Time any event or circumstance relating to TCD, or
its officers or directors, should be discovered by TCD which should be set
forth in an amendment to the Registration Statement or a supplement to the
Proxy Statement, TCD shall promptly inform HEALTHSOUTH. All documents, if
any, that TCD is responsible for filing with the SEC in connection with the
transactions contemplated herein will comply as to form and substance in all
material respects with the applicable requirements of the Securities Act and
the rules and regulations thereunder and the Exchange Act and the rules and
regulations thereunder.
(c) The information specifically designated as being supplied by
HEALTHSOUTH for inclusion in the Registration Statement shall not, at the
time the Registration Statement is declared effective and at the time the
Proxy Statement is first mailed to holders of TCD Common Stock, contain any
untrue statement of a material fact or omit to state any material fact
required to be
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stated therein or necessary in order to make the statements therein not
misleading. The information specifically designated as being supplied by
HEALTHSOUTH for inclusion in the Proxy Statement to be sent to the holders of
TCD Common Stock in connection with the Special Meeting shall not, at the
date the Proxy Statement (or any amendment thereof or supplement thereto) is
first mailed to holders of TCD Common Stock, contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they are made, not misleading. If at any time
prior to the Effective Time any event or circumstance relating to HEALTHSOUTH
or its officers or directors, should be discovered by HEALTHSOUTH which
should be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement, HEALTHSOUTH shall promptly inform TCD and
shall promptly file such amendment to the Registration Statement. All
documents that HEALTHSOUTH is responsible for filing with the SEC in
connection with the transactions contemplated herein will comply as to form
and substance in all material respects with the applicable requirements of
the Securities Act and the rules and regulations thereunder and the Exchange
Act and the rules and regulations thereunder.
(d) Prior to the Closing Date, HEALTHSOUTH shall use its reasonable, good
faith efforts to cause the shares of HEALTHSOUTH Common Stock to be issued
pursuant to the Merger to be registered or qualified under all applicable
securities or Blue Sky laws of each of the states and territories of the
United States, and to take any other actions which may be necessary to
enable the Common Stock to be issued pursuant to the Merger to be
distributed in each such jurisdiction.
(e) Prior to the Closing Date, HEALTHSOUTH shall file an additional
listing application (the "Listing Application") with the Exchange relating
to the shares of HEALTHSOUTH Common Stock to be issued in connection with
the Merger, and shall use its reasonable, good faith efforts to cause such
shares of HEALTHSOUTH Common Stock to be approved for listing on the
Exchange, upon official notice of issuance, prior to the Closing Date.
(f) TCD shall furnish all information to HEALTHSOUTH with respect to TCD
and the TCD Subsidiaries and TCD Other Entities as HEALTHSOUTH may
reasonably request for inclusion in the Registration Statement, the Proxy
Statement and the Listing Application, and shall otherwise cooperate with
HEALTHSOUTH in the preparation and filing of such documents.
7.5 Exemption from State Takeover Laws. TCD shall take all reasonable steps
necessary to exempt the Merger from the requirements of any state takeover
statute or other similar state law which would prevent or impede the
consummation of the transactions contemplated hereby, by action of TCD's Board
of Directors or otherwise.
7.6 HSR Act Compliance. HEALTHSOUTH and TCD shall promptly make their
respective filings, and shall thereafter use their reasonable, good faith
efforts to promptly make any required submissions, under the HSR Act with
respect to the Merger and the transactions contemplated hereby. HEALTHSOUTH and
TCD will use their respective reasonable, good faith efforts to obtain all other
permits, authorizations, consents and approvals from third parties and
governmental authorities necessary to consummate the Merger and the transactions
contemplated hereby.
7.7 Public Disclosures. HEALTHSOUTH and TCD will consult with each other
before issuing any press release or otherwise making any public statement with
respect to the transactions contemplated by this Plan of Merger, and shall not
issue any such press release or make any such public statement prior to such
consultation except as may be required by applicable law or requirements of the
Exchange. The parties shall issue a joint press release, mutually acceptable to
HEALTHSOUTH and TCD, promptly upon execution and delivery of this Plan of
Merger.
7.8 Resignation of TCD Directors. On or prior to the Closing Date, TCD
shall deliver to HEALTHSOUTH evidence satisfactory to HEALTHSOUTH of the
resignation of the Directors of TCD, such resignations to be effective on the
Closing Date.
7.9 Notice of Subsequent Events. Each party hereto shall notify the other
parties of any changes, additions or events which would cause any material
change in or material addition to any Exhibit to the Disclosure Schedule
delivered by the notifying party under this Plan of Merger, promptly after the
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occurrence of the same. If the effect of such change or addition would,
individually or in the aggregate with the effect of changes or additions
previously disclosed pursuant to this Section 7.9, constitute a material adverse
effect on the notifying party, the non-notifying party may, within ten days
after receipt of such notice, elect to terminate this Plan of Merger. If the
non-notifying party does not give written notice of such termination within such
10-day period, the non-notifying party shall be deemed to have consented to such
change or addition and shall not be entitled to terminate this Plan of Merger by
reason thereof.
7.10 No Solicitations. TCD may, directly or indirectly, furnish information
and access, in response to unsolicited requests therefor, to the same extent
permitted by Section 6.1, to any corporation, partnership, person or other
entity or group, pursuant to appropriate confidentiality agreements, and may
participate in discussions and negotiate with such corporation, partnership,
person or other entity or group concerning any proposal to acquire TCD upon a
merger, purchase of assets, purchase of or tender offer for shares of TCD Common
Stock or similar transaction (an "Acquisition Transaction"), if the Board of
Directors of TCD determines in its good faith judgment in the exercise of its
fiduciary duties or the exercise of its duties under Rule 14e-2 under the
Exchange Act, after consultation with legal counsel and its financial advisors,
that such action is appropriate in furtherance of the best interest of its
stockholders. Except as set forth above, TCD shall not, and will direct each
officer, director, employee, representative and agent of TCD not to, directly or
indirectly, encourage, solicit, participate in or initiate discussions or
negotiations with or provide any information to any corporation, partnership,
person or other entity or group (other than HEALTHSOUTH or an affiliate or
associate or agent of HEALTHSOUTH) concerning any merger, sale of assets, sale
of or tender offer for shares of TCD Common Stock or similar transactions
involving TCD, from the date hereof through the Effective Time. TCD shall
promptly notify HEALTHSOUTH if it shall, on or after the date hereof, have
entered into a confidentiality agreement with any third party in response to any
unsolicited request for information and access in connection with a possible
Acquisition Transaction involving such party, such notification to include the
identity of such third party.
7.11 Other Actions. Subject to the provisions of Section 7.10 hereof, none
of TCD, HEALTHSOUTH and the Subsidiary shall knowingly or intentionally take any
action, or omit to take any action, if such action or omission would, or
reasonably might be expected to, result in any of its representations and
warranties set forth herein being or becoming untrue in any material respect, or
in any of the conditions to the Merger set forth in this Plan of Merger not
being satisfied, or (unless such action is required by applicable law) which
would materially adversely affect the ability of TCD or HEALTHSOUTH to obtain
any consents or approvals required for the consummation of the Merger without
imposition of a condition or restriction which would have a material adverse
effect on the Surviving Corporation or which would otherwise materially impair
the ability of TCD or HEALTHSOUTH to consummate the Merger in accordance with
the terms of this Plan of Merger or materially delay such consummation.
7.12 Accounting Methods. Neither HEALTHSOUTH nor TCD shall change, in any
material respect, its methods of accounting in effect at its most recent fiscal
year end, except as required by changes in generally accepted accounting
principles as concurred in by such parties' independent accountants.
7.13 Tax-Free Reorganization Treatment. Neither HEALTHSOUTH nor TCD shall
intentionally take or cause to be taken any action, whether on or before the
Effective Time, which would disqualify the Merger as a "reorganization" within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended.
7.14 Affiliate Agreements. TCD will use its reasonable, good faith efforts
to cause each of its directors and executive officers and each of its
"affiliates" (within the meaning of Rule 145 under the Securities Act of 1933,
as amended) to execute and deliver to HEALTHSOUTH as soon as practicable an
agreement in the form attached hereto as Exhibit 7.14 relating to the
disposition of shares of TCD Common Stock and shares of HEALTHSOUTH Common Stock
held by such person and the shares of HEALTHSOUTH Common Stock issuable pursuant
to this Plan of Merger.
7.15 Cooperation. (a) HEALTHSOUTH and TCD shall together, or pursuant to an
allocation of responsibility agreed to between them, (i) cooperate with one
another in determining whether any filings
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required to be made or consents required to be obtained in any jurisdiction
prior to the Effective Time in connection with the consummation of the
transactions contemplated hereby and cooperate in making any such filings
promptly and in seeking to obtain timely any such consents, (ii) use their
respective best efforts to cause to be lifted any injunction prohibiting the
Merger, or any part thereof, or the other transactions contemplated hereby, and
(iii) furnish to one another and to one another's counsel all such information
as may be required to effect the foregoing actions.
(b) Subject to the terms and conditions herein provided, and unless this
Plan of Merger shall have been validly terminated as provided herein, each
of HEALTHSOUTH and TCD shall use all reasonable efforts (i) to take, or
cause to be taken, all actions necessary to comply promptly with all legal
requirements which may be imposed on such party (or any subsidiaries or
affiliates of such party) with respect to the Plan of Merger and to
consummate the transactions contemplated hereby, subject to the vote of
TCD's stockholders described above, and (ii) to obtain (and to cooperate
with the other party to obtain) any consent, authorization, order or
approval of, or any exemption by, any governmental entity and/or any other
public or private third party which is required to be obtained or made by
such party or any of its subsidiaries or affiliates in connection with this
Plan of Merger and the transactions contemplated hereby. Each of HEALTHSOUTH
and TCD will promptly cooperate with and furnish information to the other in
connection with any such burden suffered by, or requirement imposed upon,
either of them or any of their subsidiaries or affiliates in connection with
the foregoing.
7.16 TCD Stock Options and Warrants. (a) As soon as reasonably practicable
after the Effective Time of the Merger, HEALTHSOUTH shall deliver to the holders
of TCD stock options and warrants appropriate notices setting forth such
holders' rights pursuant to any stock option plans under which such TCD stock
options were issued and any stock option agreements or warrant agreements
evidencing such options or warrants, which shall continue in full force and
effect on the same terms and conditions (subject to the adjustments and
revisions required by Sections 2.1(d) or this Section 7.16 after giving effect
to the Merger and the assumption of such options and warrants by HEALTHSOUTH as
set forth herein) as in effect immediately prior to the Effective Time.
HEALTHSOUTH shall comply with the terms of the stock option plans, the stock
option agreements and the warrant agreements as so adjusted and revised, and
shall use its reasonable, good faith efforts to ensure, to the extent required
by, and subject to the provisions of and revisions to, such plans or agreements,
that the TCD stock options which qualified as incentive stock options prior to
the Effective Time shall continue to qualify as incentive stock options after
the Effective Time.
(b) HEALTHSOUTH shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of HEALTHSOUTH Common Stock for
delivery upon exercise of the TCD stock options and warrants assumed by
HEALTHSOUTH in accordance with Section 2.1(d). As soon as practicable after
the Effective Time, HEALTHSOUTH shall file with the SEC (i) a registration
statement on Form S-8 with respect to shares of HEALTHSOUTH Common Stock
subject to such TCD stock options and (ii) a registration statement on Form
S-3 covering the resale of the shares of HEALTHSOUTH Common Stock subject to
such TCD warrants and shall use its best efforts to maintain the
effectiveness of such registration statements (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as
such TCD stock options and warrants remain outstanding. HEALTHSOUTH shall
administer the plans assumed pursuant to Section 2.1(d) hereof in a manner
that complies with Rule 16b-3 promulgated under the Exchange Act to the
extent the applicable plan complied with such rule prior to the Merger.
(c) Except to the extent otherwise agreed to by the parties, all
restrictions or limitations on transfer with respect to the TCD stock
options awarded under any plan, program, or arrangement of TCD or any of its
subsidiaries, to the extent that such restrictions or limitations shall not
have already lapsed, shall remain in full force and effect with respect to
such options after giving effect to the Merger and the assumption by
HEALTHSOUTH as set forth above.
7.17 TCD Employees. HEALTHSOUTH shall retain all employees of TCD who are
employed at the Effective Time as employees-at-will (except to the extent that
such employees are parties to contracts providing for other employment terms, in
which case such employees shall be retained in accor-
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dance with the terms of such contracts) and shall provide such employees with
the same customary employee benefits as HEALTHSOUTH provides its existing
employees. HEALTHSOUTH shall give employees of TCD credit for their respective
periods of employment with TCD prior to the Effective Time for purposes of
determining their eligibility for and level of participation in any employee
benefit program, plan or arrangement maintained by HEALTHSOUTH and made
available to the employees of the Surviving Corporation.
7.18 Certain Information. For as long as any affiliate (as defined for
purposes of Rule 145 under the Securities Act of 1933) of TCD holds shares of
HEALTHSOUTH Common Stock issued in the Merger (but not for a period in excess of
two years from the date of consummation of the Merger), HEALTHSOUTH shall file
with the Securities and Exchange Commission or otherwise make publicly available
all information about HEALTHSOUTH required pursuant to Rule 144(c) under the
Securities Act of 1933 to enable such affiliate to resell such shares under the
provisions of Rule 145(d) under the Securities Act of 1933.
7.19 Announcement of Exchange Ratio. Promptly after the establishment of
the Exchange Ratio pursuant to Section 2.1(c), the parties shall issue a joint
press release publicly announcing the Exchange Ratio.
Section 8. TERMINATION, AMENDMENT AND WAIVER.
8.1 Termination. This Plan of Merger may be terminated at any time prior to
the Effective Time, whether before or after approval of matters presented in
connection with the Merger by the holders of shares of TCD Common Stock:
(a) by mutual written consent of HEALTHSOUTH and TCD;
(b) by either HEALTHSOUTH or TCD:
(i) if, upon a vote at a duly held meeting of stockholders or any
adjournment thereof, any required approval of the holders of shares of
TCD Common Stock shall not have been obtained;
(ii) if the Merger shall not have been consummated on or before June
30, 1998, unless the failure to consummate the Merger is the result of a
willful and material breach of this Plan of Merger by the party seeking
to terminate this Plan of Merger; provided, however, that the passage of
such period shall be tolled for any part thereof (but not exceeding 60
days in the aggregate) during which any party shall be subject to a
nonfinal order, decree, ruling or action restraining, enjoining or
otherwise prohibiting the consummation of the Merger or the calling or
holding of a meeting of stockholders;
(iii) if any court of competent jurisdiction or other governmental
entity shall have issued an order, decree or ruling or taken any other
action permanently enjoining, restraining or otherwise prohibited the
Merger and such order, decree, ruling or other action shall have become
final and nonappealable;
(iv) in the event of a breach by the other party of any
representation, warranty, covenant or other agreement contained in this
Plan of Merger which (A) would give rise to the failure of a condition
set forth in Section 9.2(a) or (b) or Section 9.3(a) or (b), as
applicable, and (B) cannot be or has not been cured within 30 days after
the giving of written notice to the breaching party of such breach (a
"Material Breach") (provided that the terminating party is not then in
Material Breach of any representation, warranty, covenant or other
agreement contained in this Plan of Merger);
(v) if either HEALTHSOUTH or TCD gives notice of termination as a
non-notifying party pursuant to Section 7.9; or
(c) By either HEALTHSOUTH or TCD in the event that (i) all of the
conditions to the obligation of such party to effect the Merger set forth in
Section 9.1 shall have been satisfied and (ii) any condition to the
obligation of such party to effect the Merger set forth in Section 9.2 (in
the case of HEALTHSOUTH) or Section 9.3 (in the case of TCD) is not capable
of being satisfied prior to the end of the period referred to in Section
8.1(b)(ii); or
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(d) By TCD, if TCD's Board of Directors shall have (i) determined, in the
exercise of its fiduciary duties under applicable law, not to recommend the
Merger to the holders of TCD Common Stock or shall have withdrawn such
recommendation or (ii) approved, recommended or endorsed any Acquisition
Transaction (as defined in Section 7.10) other than this Plan of Merger or
(iii) resolved to do any of the foregoing; or
(e) By HEALTHSOUTH, if the Base Period Trading Price is less than $24.00.
8.2 Effect of Termination. In the event of termination of this Plan of
Merger as provided in Section 8.1, this Plan of Merger shall forthwith become
void and have no effect, without any liability or obligation on the part of any
party, other than the provisions of Sections 6.2, 8.2 and 8.6, and except to the
extent that such termination results from the willful and material breach by a
party of any of its representations, warranties, covenants or other agreements
set forth in this Plan of Merger.
8.3 Amendment. This Plan of Merger may be amended by the parties at any
time before or after any required approval of matters presented in connection
with the Merger by the holders of shares of TCD Common Stock; provided, however,
that after any such approval, there shall be made no amendment that pursuant to
Section 251(d) of the DGCL requires further approval by such stockholders
without the further approval of such stockholders. This Plan of Merger may not
be amended except by an instrument in writing signed on behalf of each of the
parties.
8.4 Extension; Waiver. At any time prior to the Effective Time of the
Merger, the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties contained in this Plan of Merger or in any
document delivered pursuant to this Plan of Merger or (c) subject to the proviso
of Section 8.3, waive compliance with any of the agreements or conditions
contained in this Plan of Merger. Any agreement on the part of a party to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party to this Plan of
Merger to assert any of its rights under this Plan of Merger or otherwise shall
not constitute a waiver of such rights, except as otherwise provided in Section
7.9.
8.5 Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Plan of Merger pursuant to Section 8.1, an amendment of this
Plan of Merger pursuant to Section 8.3, or an extension or waiver pursuant to
Section 8.4 shall, in order to be effective, require in the case of HEALTHSOUTH,
the Subsidiary or TCD, action by its Board of Directors or the duly authorized
designee of the Board of Directors.
8.6 Expenses; Break-up Fees. (a) All costs and expenses incurred in
connection with this Plan of Merger and the transactions contemplated hereby
shall be paid by the party incurring such expense, except that expenses (other
than legal, accounting and investment banking costs, which shall be paid by the
party incurring such expenses) incurred in connection with preparing, filing,
printing and mailing the Proxy Statement and the Registration Statement shall be
shared equally by TCD and HEALTHSOUTH as they are incurred.
(b) (i) If this Plan of Merger is terminated by TCD pursuant to Section
8.1(d), and within one year after the effective date of such termination TCD is
the subject of a Third Party Acquisition Event with any Person (as defined in
Sections 3(a)(9) and 13(d)(3) of the Exchange Act) (other than a party hereto),
then at the time of consummation of such a Third Party Acquisition Event, TCD
shall pay to HEALTHSOUTH a break-up fee of $750,000 in immediately available
funds, which fee represents the parties' best estimates of the out-of-pocket
costs incurred by HEALTHSOUTH and the value of management time, overhead,
opportunity costs and other unallocated costs of HEALTHSOUTH incurred by or on
behalf of HEALTHSOUTH in connection with this Plan of Merger. TCD shall not
enter into any agreement with respect to any Third Party Acquisition Event which
does not, as a condition precedent to the consummation of such Third Party
Acquisition Event, require such break-up fee to be paid to HEALTHSOUTH upon such
consummation.
(c) If this Plan of Merger is terminated by HEALTHSOUTH for a reason
other than as set forth in Section 8.1, then at the time of such
termination, HEALTHSOUTH shall pay to TCD a fee
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of $100,000 in immediately available funds, which fee represents the
parties' best estimates of the out-of-pocket costs incurred by TCD and the
value of management time, overhead, opportunity costs and other unallocated
costs of TCD incurred by or on behalf of TCD in connection with this Plan of
Merger.
(i) As used herein, the term "Third Party Acquisition Event" shall
mean either of the following:
(A) TCD shall enter into any agreement for, or otherwise be the
subject of, any Acquisition Transaction (as defined in Section 7.10)
which is consummated within two years after the effective date of
termination of this Plan of Merger; or
(B) any Person (other than a party hereto or its affiliates) shall
have acquired beneficial ownership (as such term is defined in Rule
13d-3 under the Exchange Act) or the right to acquire beneficial
ownership of, or a new group has been formed which beneficially owns
or has the right to acquire beneficial ownership of, 30% or more of
the outstanding TCD Common Stock.
(d) TCD and HEALTHSOUTH acknowledge that the provisions for the payment
of break-up fees and allocation of expenses contained in this Section 8.6
are an integral part of the transactions contemplated by this Plan of Merger
and that, without these provisions, TCD and HEALTHSOUTH would not have
entered into this Plan of Merger. Accordingly, if a break-up fee shall
become due and payable by either party, and such party shall fail to pay
such amount when due pursuant to this Section, and, in order to obtain such
payment, suit is commenced which results in a judgment against such party
therefor, such party shall pay the other party's reasonable costs and
expenses (including reasonable attorneys' fees) in connection with such
suit, together with interest computed on any amounts determined to be due
pursuant to this Section (computed from the date upon which such amounts
were due and payable pursuant to this Section) and such costs (computed from
the date incurred) at the prime rate of interest announced from time to time
by NationsBank, N.A. (South). The obligations of TCD and HEALTHSOUTH under
this Section 8.6 shall survive any termination of this Plan of Merger.
Section 9. CONDITIONS TO CLOSING.
9.1 Mutual Conditions. The respective obligations of each party to effect
the Merger shall be subject to the satisfaction, at or prior to the Closing Date
of the following conditions (any of which may be waived in writing by
HEALTHSOUTH and TCD):
(a) None of HEALTHSOUTH, the Subsidiary or TCD nor any of their
respective subsidiaries shall be subject to any order, decree or injunction
by a court of competent jurisdiction which (i) prevents or materially delays
the consummation of the Merger or (ii) would impose any material limitation
on the ability of HEALTHSOUTH effectively to exercise full rights of
ownership of the Common Stock of the Surviving Corporation or any material
portion of the assets or business of TCD, the TCD Subsidiaries and the TCD
Other Entities, taken as a whole.
(b) No statute, rule or regulation shall have been enacted by the
government (or any governmental agency) of the United States or any state,
municipality or other political subdivision thereof that makes the
consummation of the Merger and any other transaction contemplated hereby
illegal.
(c) Any waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated.
(d) The Registration Statement shall have been declared effective and no
stop order with respect to the Registration Statement shall be in effect.
(e) The holders of TCD Common Stock shall have approved the adoption of
this Plan of Merger and any other matters submitted to them in accordance
with the provisions of Section 7.3 hereof.
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(f) The shares of HEALTHSOUTH Common Stock to be issued in connection
with the Merger shall have been approved for listing on the Exchange.
(g) HEALTHSOUTH and the Subsidiary shall have obtained, or obtained the
transfer of, any licenses, certificates of need and other regulatory
approvals necessary to allow the Surviving Corporation to operate the TCD
facilities, unless the failure to obtain such transfer or approval would not
have a material adverse effect on the Surviving Corporation.
(h) HEALTHSOUTH and the Subsidiary shall have received all consents,
approvals and authorizations of third parties with respect to all material
leases and management agreements to which the TCD Subsidiaries and the TCD
Other Entities are parties, which consents, approvals and authorizations are
required of such third parties by such documents, in form and substance
acceptable to HEALTHSOUTH, except where the failure to obtain such consent,
approval or authorization would not have a material effect on the business
of the Surviving Corporation.
9.2 Conditions to Obligations of HEALTHSOUTH and the Subsidiary. The
obligations of HEALTHSOUTH and the Subsidiary to consummate the Merger and the
other transactions contemplated hereby shall be subject to the satisfaction, at
or prior to the Closing Date, of the following conditions (any of which may be
waived by HEALTHSOUTH and the Subsidiary):
(a) Each of the agreements of TCD to be performed at or prior to the
Closing Date pursuant to the terms hereof shall have been duly performed in
all material respects, and TCD shall have performed, in all material
respects, all of the acts required to be performed by it at or prior to the
Closing Date by the terms hereof.
(b) The representations and warranties of TCD set forth in Section
3.11(a) shall be true and correct as of the date of this Plan of Merger and
as of the Closing Date. The representations and warranties of TCD set forth
in this Plan of Merger that are qualified as to materiality shall be true
and correct, and those that are not so qualified shall be true and correct
in all material respects, as of the date of this Plan of Merger and as of
the Closing as though made at and as of such time, except to the extent such
representations and warranties expressly relate to an earlier date (in which
case such representations and warranties that are qualified as to
materiality shall be true and correct, and those that are not so qualified
shall be true and correct in all material respects, as of such earlier
date); provided, however, that TCD shall not be deemed to be in breach of
any such representations or warranties by taking any action permitted (or
approved by HEALTHSOUTH) under Section 7.2. HEALTHSOUTH and the Subsidiary
shall have been furnished with a certificate, executed by a duly authorized
officer of TCD, dated the Closing Date, certifying in such detail as
HEALTHSOUTH and the Subsidiary may reasonably request as to the fulfillment
of the foregoing conditions.
(c) HEALTHSOUTH shall have received an opinion from Haskell Slaughter &
Young, L.L.C., to the effect that the merger will constitute a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended, which opinion may be based upon reasonable
representations of fact provided by officers of HEALTHSOUTH, TCD and the
Subsidiary.
(d) HEALTHSOUTH shall have received an opinion from Berliner Zisser
Walter & Gallegos, P.C., substantially to the effect set forth in Exhibit
9.2(d) hereto.
(e) (i) TCD shall have entered into a new practice management agreement
satisfactory to HEALTHSOUTH, in HEALTHSOUTH's sole discretion, with a
physician's professional association.
9.3 Conditions to Obligations of TCD. The obligations of TCD to consummate
the Merger and the other transactions contemplated hereby shall be subject to
the satisfaction, at or prior to the Closing Date, of the following conditions
(any of which may be waived by TCD):
(a) Each of the agreements of HEALTHSOUTH and the Subsidiary to be
performed at or prior to the Closing Date pursuant to the terms hereof shall
have been duly performed, in all
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<PAGE>
material respects, and HEALTHSOUTH and the Subsidiary shall have performed,
in all material respects, all of the acts required to be performed by them at
or prior to the Closing Date by the terms hereof.
(b) The representations and warranties of HEALTHSOUTH set forth in
Section 5.10(a) shall be true and correct as of the date of this Plan of
Merger and as of the Closing Date. The representations and warranties of
HEALTHSOUTH set forth in this Plan of Merger that are qualified as to
materiality shall be true and correct, and those that are not so qualified
shall be true and correct in all material respects, as of the date of this
Plan of Merger and as of the Closing as though made at and as of such time,
except to the extent such representations and warranties expressly relate to
an earlier date (in which case such representations and warranties that are
qualified as to materiality shall be true and correct, and those that are
not so qualified shall be true and correct in all material respects, as of
such earlier date). TCD shall have been furnished with a certificate,
executed by duly authorized officers of HEALTHSOUTH and the Subsidiary,
dated the Closing Date, certifying in such detail as TCD may reasonably
request as to the fulfillment of the foregoing conditions.
(c) TCD shall have received an opinion from Berliner Zisser Walter &
Gallegos, P.C. to the effect that the Merger will constitute a
reorganization with the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended, which opinion may be based upon reasonable
representations of fact provided by officers of HEALTHSOUTH, TCD and the
Subsidiary.
(d) TCD shall have received an opinion from Haskell Slaughter & Young,
L.L.C., substantially to the effect set forth in Exhibit 9.3(d) hereto.
SECTION 10. MISCELLANEOUS.
10.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Plan of Merger or in any instrument
delivered pursuant to this Plan of Merger shall survive the Effective Time.
10.2 Notices. Any communications required or desired to be given hereunder
shall be deemed to have been properly given if sent by hand delivery or by
facsimile and overnight courier to the parties hereto at the following
addresses, or at such other address as either party may advise the other in
writing from time to time:
If to HEALTHSOUTH:
HEALTHSOUTH Corporation
One HealthSouth Parkway
Birmingham, Alabama 35243
Attention: Michael D. Martin
Facsimile: (205) 969-4719
with a copy to:
William W. Horton, Esq.
HEALTHSOUTH Corporation
One HealthSouth Parkway
Birmingham, Alabama 35243
Facsimile: (205) 969-4732
If to TCD:
The Company Doctor
Suite 1800
5215 North O'Connor Boulevard
Irving, Texas 75039
Attention:
Facsimile:
A-24
<PAGE>
with a copy to:
Robert W. Walter, Esq.
Berliner Zisser Walter & Gallegos, P.C.
One Norwest Center
1700 Lincoln Street, Suite 4700
Denver, Colorado 80203-4547
Facsimile: (303) 830-0863
All such communications shall be deemed to have been delivered on the date of
hand delivery or on the next business day following the deposit of such
communications with the overnight courier.
10.3 Further Assurances. Each party hereby agrees to perform any further
acts and to execute and deliver any documents which may be reasonably necessary
to carry out the provisions of this Plan of Merger.
10.4 Indemnification. (a) TCD shall, and from and after the Effective Time
HEALTHSOUTH and the Surviving Corporation shall, indemnify, defend and hold
harmless each person who is now, or has been at any time prior to the date of
this Plan of Merger or who becomes prior to the Effective Time, an officer,
director or employee of TCD or any of its subsidiaries (the "Indemnified
Parties") against (i) all losses, claims, damages, costs, expenses, liabilities
or judgments, or amounts that are paid in settlement with the approval of the
indemnifying party (which approval shall not be unreasonably withheld) of, or in
connection with, any claim, action, suit, proceeding or investigation based in
whole or in part on or arising in whole or in part out of the fact that such
person is or was a director, officer or employee of TCD or any of its
subsidiaries, whether pertaining to any matter existing or occurring at or prior
to, or at or after, the Effective Time ("Indemnified Liabilities") and (ii) all
Indemnified Liabilities based in whole or in part on, or arising in whole or in
part out of, or pertaining to this Plan of Merger, the Merger or any other
transactions contemplated hereby or thereby, in each case to the full extent a
corporation is permitted under the DGCL to indemnify its own directors, officers
and employees, as the case may be (and HEALTHSOUTH and the Surviving
Corporation, as the case may be, will pay expenses in advance of the final
disposition of any such action or proceeding to each Indemnified Party to the
full extent permitted by law upon receipt of any undertaking contemplated by
Section 145(e) of the DGCL). Without limiting the foregoing, in the event any
such claim, action, suit, proceeding or investigation is brought against any
Indemnified Party (whether arising before or after the Effective Time), (i) the
Indemnified Parties may retain counsel satisfactory to them and TCD (or them and
HEALTHSOUTH and the Surviving Corporation after the Effective Time), (ii) TCD
(or after the Effective Time, HEALTHSOUTH and the Surviving Corporation) shall
pay all reasonable fees and expenses of such counsel for the Indemnified Parties
promptly as statements therefor are received and (iii) TCD (or after the
Effective Time, HEALTHSOUTH and the Surviving Corporation) will use all
reasonable efforts to assist in the vigorous defense of any such matter,
provided that none of TCD, HEALTHSOUTH or the Surviving Corporation shall be
liable for any settlement of any claim effected without its written consent,
which consent, however, shall not be unreasonably withheld. Any Indemnified
Party wishing to claim indemnification under this Section 10.4, upon learning of
any such claim, action, suit, proceeding or investigation, shall notify TCD,
HEALTHSOUTH or the Surviving Corporation (but the failure so to notify an
Indemnifying Party shall not relieve it from any liability which it may have
under this Section 10.4 except to the extent such failure prejudices such
party), and shall deliver to TCD (or after the Effective Time, HEALTHSOUTH and
the Surviving Corporation) the undertaking contemplated by Section 145(e) of the
DGCL. The Indemnified Parties as a group may retain only one law firm to
represent them with respect to such matter unless there is, under applicable
standards of professional conduct, a conflict on any significant issue between
the positions of any two or more Indemnified Parties.
(b) The provisions of this Section 10.4 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party and his or
her heirs and representatives.
10.5 Governing Law. This Plan of Merger shall be interpreted, construed and
enforced in accordance with the laws of the State of Delaware, applied without
giving effect to any conflicts-of-law principles.
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<PAGE>
10.6 "Including". The word "including", when following any general
statement, term or matter, shall not be construed to limit such statement, term
or matter to the specific terms or matters as provided immediately following the
word "including" or to similar items or matters, whether or not non-limiting
language (such as "without limitation", "but not limited to", or words of
similar import) is used with reference to the word "including" or the similar
items or matters, but rather shall be deemed to refer to all other items or
matters that could reasonably fall within the broadest possible scope of the
general statement, term or matter.
10.7 "Knowledge". "To the knowledge", "to the best knowledge, information
and belief", or any similar phrase shall be deemed to refer to the knowledge of
the Chairman of the Board, Chief Executive Officer, Chief Operating Officer or
Chief Financial Officer of a party and to include the assurance that such
knowledge is based upon a reasonable investigation, unless otherwise expressly
provided.
10.8 "Material adverse change" or "material adverse effect". "Material
adverse change" or "material adverse effect" means, when used in connection with
TCD or HEALTHSOUTH, any change, effect, event or occurrence that has, or is
reasonably likely to have, individually or in the aggregate, a material adverse
impact on the business or financial position of such party and its subsidiaries
taken as a whole; provided, however, that "material adverse change" and
"material adverse effect" shall be deemed to exclude the impact of (i) changes
in generally accepted accounting principles and (ii) the public announcement of
the Merger and compliance with the provisions of this Plan of Merger, and (iii)
any changes resulting from any restructuring or other similar charges or
write-offs taken by TCD with the consent of HEALTHSOUTH; provided, however, that
no such charges or write-offs will be taken if such would adversely affect
pooling-of-interests accounting treatment for the Merger.
10.9 "Hazardous Materials". The term "Hazardous Materials" means any
material which has been determined by any applicable governmental authority to
be harmful to the health or safety of human or animal life or vegetation,
regardless of whether such material is found on or below the surface of the
ground, in any surface or underground water, airborne in ambient air or in the
air inside any structure built or located upon or below the surface of the
ground or in building materials or in improvements of any structures, or in any
personal property located or used in any such structure, including, but not
limited to, all hazardous substances, imminently hazardous substances, hazardous
wastes, toxic substances, infectious wastes, pollutants and contaminants from
time to time defined, listed, identified, designated or classified as such under
any Environmental Laws (as defined in Section 10.10) regardless of the quantity
of any such material.
10.10 Environmental Laws. The term "Environmental Laws" means any federal,
state or local statute, regulation, rule or ordinance, and any judicial or
administrative interpretation thereof, regulating the use, generation, handling,
storage, transportation, discharge, emission, spillage or other release of
Hazardous Materials or relating to the protection of the environment.
10.11 Taxes. For purposes of this Agreement, the term "tax" or "taxes"
shall mean all taxes, charges, fees, levies, penalties or other assessment
imposed by any United States federal, state, local or foreign taxing authority,
including, but not limited to, income, excise, property, sales, transfer,
franchise, payroll, withholding, Social Security or other taxes, including any
interest, penalties or additions attributable thereto. For purposes of this
Agreement, the term "tax return" shall mean any return, report, information
return or other document (including any related or supporting information) with
respect to taxes.
10.12 Captions. The captions or headings in this Plan of Merger are made
for convenience and general reference only and shall not be construed to
describe, define or limit the scope or intent of the provisions of this Plan of
Merger.
10.13 Integration of Exhibits. All Exhibits attached to this Plan of Merger
are integral parts of this Plan of Merger as if fully set forth herein, and all
statements appearing therein shall be deemed disclosed for all purposes and not
only in connection with the specific representation in which they are explicitly
referenced.
10.14 Entire Agreement. This instrument, including all Exhibits attached
hereto, together with the Confidentiality Agreement and the Willets Letter,
contains the entire agreement of the parties and supersedes any and all prior or
contemporaneous agreements between the parties, written or oral, with
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<PAGE>
respect to the transactions contemplated hereby. It may not be changed or
terminated orally, but may only be changed by an agreement in writing signed by
the party or parties against whom enforcement of any waiver, change,
modification, extension, discharge or termination is sought.
10.15 Counterparts. This Plan of Merger may be executed in several
counterparts, each of which, when so executed, shall be deemed to be an
original, and such counterparts shall, together, constitute and be one and the
same instrument.
10.16 Binding Effect. This Plan of Merger shall be binding on, and shall
inure to the benefit of, the parties hereto, and their respective successors and
assigns, and, except as provided in Section 10.4, no other person shall acquire
or have any right under or by virtue of this Plan of Merger. No party may assign
any right or obligation hereunder without the prior written consent of the other
parties.
10.17 No Rule of Construction. The parties acknowledge that this Plan of
Merger was initially prepared by HEALTHSOUTH, and that all parties have read and
negotiated the language used in this Plan of Merger. The parties agree that,
because all parties participated in negotiating and drafting this Plan of
Merger, no rule of construction shall apply to this Plan of Merger which
construes ambiguous language in favor of or against any party by reason of that
party's role in drafting this Plan of Merger.
A-27
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amended and Restated Plan
and Agreement of Merger to be executed by their respective duly authorized
officers, and have caused their respective corporate seals to be hereunto
affixed, all as of the day and year first above written.
THE COMPANY DOCTOR
By /s/ DALE W. WILLETS
-----------------------------------
Its Chief Executive Officer
-----------------------------------
ATTEST:
/s/ R. KENNETH AIKEN
- -------------------------------------
R. Kenneth Aiken
Secretary
[CORPORATE SEAL]
HEALTHSOUTH CORPORATION
By /s/ MICHAEL D. MARTIN
-----------------------------------
Its Executive Vice President
----------------------------------
ATTEST:
/s/ ANTHONY J. TANNER
- ---------------------------------
Anthony J. Tanner
Secretary
[CORPORATE SEAL]
CHANDLER ACQUISITION CORPORATION
By /s/ MICHAEL D. MARTIN
---------------------------------
Its Executive Vice President
---------------------------------
ATTEST:
/s/ ANTHONY J. TANNER
- ---------------------------------
Anthony J. Tanner
Secretary
[CORPORATE SEAL]
A-28
<PAGE>
ANNEX B
DECEMBER 16, 1997
Board of Directors
The Company Doctor
5215 North O'Connor Boulevard
Suite 1800
Irving, Texas 75039
Members of the Board:
The Company Doctor (the "Company"), HEALTHSOUTH Corporation (the
"Acquiror") and Chandler Acquisition Corporation, a newly formed wholly owned
subsidiary of the Acquiror (the "Acquisition Sub"), have entered into a Plan and
Agreement of Merger dated as of December 16, 1997 (the "Agreement"), pursuant to
which the Acquisition Sub will be merged with the Company in a transaction (the
"Merger") in which each outstanding share of the Company's common stock, par
value $0.01 per share (the "Company Shares"), will be converted into the right
to receive 0.142 shares (the "Exchange Ratio") of the common stock of the
Acquiror, par value $0.01 per share (the "Acquiror Shares"), subject to certain
adjustments based on the Base Period Trading Price (as defined in the
Agreement). In addition, all currently outstanding warrants and options to
purchase Company Shares, whether or not exercisable, will be converted, at the
Exchange Ratio, into warrants and options to purchase Acquiror Shares. The terms
and conditions of the Merger are set forth in more detail in the Agreement.
You have asked us whether, in our opinion, the consideration to be received
by the holders of the Company Shares is fair from a financial point of view to
the holders of the Company Shares.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial
information relating to the Company and the Acquiror that we deemed
to be relevant;
(2) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets, liabilities
and prospects of the Company furnished to us by the Company;
(3) Conducted discussions with members of senior management and
representatives of the Company and the Acquiror concerning the
matters described in clauses (1) and (2) above, as well as their
respective business and prospects;
(4) Reviewed certain Wall Street research analyst reports, projections
and estimates regarding the Acquiror's historical and future
financial and stock price performance;
(5) Reviewed the historical market prices and trading activity for the
Company Shares and the Acquiror Shares and compared them with those
of certain publicly traded companies that we deemed to be relevant;
(6) Compared the historical and projected results of operations of the
Company and the Acquiror with those of certain companies that we
deemed to be relevant;
(7) Compared the proposed financial terms of the Merger, as contemplated
by the Agreement, with the financial terms of certain other
transactions that we deemed to be relevant;
(8) Reviewed the Agreement;
(9) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary.
B-1
<PAGE>
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us by
the Company and the Acquiror or publicly available, and we have not assumed any
responsibility for independently verifying such information or undertaken an
independent evaluation or appraisal of any of the assets or liabilities of the
Company or the Acquiror or been furnished with any such evaluation or appraisal.
In addition, we have not conducted any physical inspection of the properties or
facilities of the Acquiror. With respect to the financial forecast information
furnished to or discussed with us by the Company, we have assumed that they have
been reasonably prepared and reflect the best currently available estimates and
judgment of the Company's management as to the expected future financial
performance of the Company. Additionally, we have assumed that the Merger will
be consummated as contemplated by the Agreement and will qualify as a tax-free
reorganization for U.S. federal income tax purposes.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on the date hereof. In rendering our opinion,
we have assumed with your consent that in the course of obtaining the necessary
regulatory or other consents or approvals for the Merger, no restrictions,
including any divestiture requirements or amendments or modifications, will be
imposed that will have a material adverse effect on the contemplated benefits of
the Merger.
We will receive a fee for our rendering of this opinion. We are also acting
as financial advisor to the Company in connection with the Merger and will
receive a fee from the Company for our services, a significant portion of which
is contingent upon the consummation of the Merger. In addition, the Company has
agreed to indemnify us for certain liabilities arising out of our engagement. As
part of our investment banking services, we are regularly engaged in the
valuation of businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and other purposes. In the ordinary course of our business,
we and our affiliates may actively trade the Company Shares and the Acquiror
Shares and other securities of the Company and the Acquiror, for our own account
and for the accounts of customers and, accordingly, may at any time hold a long
or short position in such securities.
This opinion is for the benefit of the Board of Directors of the Company in
connection with its consideration of the Merger. Our opinion is not to be quoted
or referred to, in whole or in part, nor shall this letter be used for other
purposes without our prior written consent. Our opinion does not address the
merits of the underlying decision by the Company to engage in the Merger, and
does not constitute a recommendation to any shareholder as to how such
shareholder should vote on the proposed Merger.
We are not expressing any opinion herein as to the prices at which the
Acquiror Shares will trade following the announcement or consummation of the
Merger.
On the basis of, and subject to the foregoing, we are of the opinion that,
as of the date hereof, the consideration to be received by the holders of the
Company Shares is fair from a financial point of view to the holders of the
Company Shares.
Very truly yours,
Loewenbaum & Company Incorporated
By: /s/ Calvin L. Chrisman
------------------------------------
Managing Director
B-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102(b)(7) of the Delaware General Corporation Law ("DGCL") grants
corporations the right to limit or eliminate the personal liability of their
directors in certain circumstances in accordance with provisions therein set
forth. Article Nine of the HEALTHSOUTH Certificate filed in the Office of the
Secretary of the State of Delaware on June 13, 1995, contains a provision
eliminating or limiting director liability to HEALTHSOUTH and its stockholders
for monetary damages arising from acts or omissions in the director's capacity
as a director. The provision does not, however, eliminate or limit the personal
liability of a director (i) for any breach of such director's duty of loyalty to
HEALTHSOUTH or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
the Delaware statutory provision making directors personally liable, under a
negligence standard, for unlawful dividends or unlawful stock purchases or
redemptions, or (iv) for any transaction from which the director derived an
improper personal benefit. This provision offers persons who serve on the Board
of Directors of HEALTHSOUTH protection against awards of monetary damages
resulting from breaches of their duty of care (except as indicated above). As a
result of this provision, the ability of HEALTHSOUTH or a stockholder thereof to
successfully prosecute an action against a director for a breach of his duty of
care is limited. However, the provision does not affect the availability of
equitable remedies such as an injunction or rescission based upon a director's
breach of his duty of care. The SEC has taken the position that the provision
will have no effect on claims arising under the Federal securities laws.
Section 145 of the DGCL grants corporations the right to indemnify their
directors, officers, employees and agents in accordance with the provisions
therein set forth. Article Nine of the HEALTHSOUTH Certificate and Article IX of
the HEALTHSOUTH Bylaws provide for mandatory indemnification rights, subject to
limited exceptions, to any director, officer, employee, or agent of HEALTHSOUTH
who, by reason of the fact that he or she is a director, officer, employee, or
agent of HEALTHSOUTH, is involved in a legal proceeding of any nature. Such
indemnification rights include reimbursement for expenses incurred by such
director, officer, employee, or agent in advance of the final disposition of
such proceeding in accordance with the applicable provisions of the DGCL.
HEALTHSOUTH has entered into agreements with all of its directors and its
executive officers pursuant to which HEALTHSOUTH has agreed to indemnify such
directors and executive officers against liability incurred by them by reason of
their services as a director or executive officer to the fullest extent
allowable under applicable law.
See Item 22 of this Registration Statement on Form S-4.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibits:
EXHIBIT
NO. DESCRIPTION
--- -----------
(2) Amended and Restated Plan and Agreement of Merger, dated December
16, 1997, among HEALTHSOUTH Corporation, Chandler Acquisition
Corporation and The Company Doctor attached to the
Prospectus-Proxy Statement as a part of Annex A, is hereby
incorporated herein by reference.
(5) Opinion of Haskell Slaughter & Young, L.L.C. as to the legality of
the shares of HEALTHSOUTH Common Stock being registered.
(8)-1 Opinion of Haskell Slaughter & Young, L.L.C. as to the description
in the Prospectus-Proxy Statement of certain federal income tax
consequences of the Merger.
(8)-2 Opinion of Berliner Zisser Walter & Gallegos, P.C. as to the
description in the Prospectus- Proxy Statement of certain federal
income tax consequences of the Merger.
(23)-1 Consent of Ernst & Young LLP.
(23)-2 Consent of Ehrhardt Keefe Steiner & Hottman PC
(23)-3 Consents of Haskell Slaughter & Young, L.L.C. (included in the
opinions filed as Exhibits (5) and (8)-1).
(23)-4 Consent of Berliner Zisser Walter & Gallegos, P.C. (included in
the opinion filed as Exhibit ( 8)-2).
(23)-5 Consent of Loewenbaum & Company Incorporated
(24) Powers of Attorney (See the signature pages to this Registration
Statement).
(99) The Company Doctor Proxy.
ITEM 22. UNDERTAKINGS.
(a) 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:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the forgoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in the volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the 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.
II-2
<PAGE>
(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.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to section 13(a) or section 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) The undersigned Registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use
of a prospectus which is part of this registration statement, by any person
or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain
the information called for by the applicable registration form with respect
to reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(d) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (c) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(f) The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day
of receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
(g) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not subject of and
included in the Registration Statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Birmingham, State of
Alabama, on May 21, 1998.
HEALTHSOUTH CORPORATION
By /s/ RICHARD M. SCRUSHY
------------------------------------
Richard M. Scrushy
Chairman of the Board and
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard M. Scrushy and Michael D. Martin, and
each of them, his attorney-in-fact with powers of substitution for him in any
and all capacities, to sign any amendments, supplements, subsequent registration
statements relating to the offering to which this Registration Statement
relates, or other instruments he deems necessary or appropriate, and to file the
same, with exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact or his substitute may do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ RICHARD M. SCRUSHY Chairman of the Board May 21, 1998
----------------------------- and Chief Executive Officer
Richard M. Scrushy and Director
/s/ MICHAEL D. MARTIN Executive Vice President, May 21, 1998
----------------------------- Chief Financial Officer,
Michael D. Martin Treasurer and Director
/s/ WILLIAM T. OWENS Group Senior Vice President-Finance May 21, 1998
----------------------------- and Controller (Principal
William T. Owens Accounting Officer)
/s/ JAMES P. BENNETT Director May 21, 1998
-----------------------------
James P. Bennett
/s/ ANTHONY J. TANNER Director May 21, 1998
-----------------------------
Anthony J. Tanner
/s/ P. DARYL BROWN Director May 21, 1998
-----------------------------
P. Daryl Brown
/s/ PHILLIP C. WATKINS, M.D. Director May 21, 1998
-----------------------------
Phillip C. Watkins, M.D.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GEORGE H. STRONG Director May 21, 1998
-----------------------------
George H. Strong
/s/ C. SAGE GIVENS Director May 21, 1998
-----------------------------
C. Sage Givens
/s/ CHARLES W. NEWHALL III Director May 21, 1998
-----------------------------
Charles W. Newhall III
/s/ JOHN S. CHAMBERLIN Director May 21, 1998
-----------------------------
John S. Chamberlin
/s/ JOEL C. GORDON Director May 21, 1998
-----------------------------
Joel C. Gordon
</TABLE>
II-5
EXHIBIT 5
May 21, 1998
HEALTHSOUTH Corporation
One Healthsouth Parkway
Birmingham, Alabama 35243
RE: REGISTRATION STATEMENT ON FORM S-4 --
HEALTHSOUTH CORPORATION / THE COMPANY DOCTOR
OUR FILE NO. 29075/415
Gentlemen:
We have served as counsel for HEALTHSOUTH Corporation, a corporation
organized and existing under the laws of the State of Delaware ("HEALTHSOUTH"),
in connection with the registration under the Securities Act of 1933, as
amended, pursuant to HEALTHSOUTH's Registration Statement on Form S-4
(Commission File No. 333- ) (the "Registration Statement") of up to 1,218,307
shares of Common Stock, par value $.01 per share, of HEALTHSOUTH (the "Shares")
to be issued pursuant to that certain Amended and Restated Plan and Agreement of
Merger, dated as of December 16, 1997, by and among HEALTHSOUTH, Chandler
Acquisition Corporation, a wholly-owned subsidiary of HEALTHSOUTH and The
Company Doctor, a Delaware corporation. This opinion is furnished to you
pursuant to the requirements of the Registration Statement.
In connection with this opinion, we have examined and are familiar with
originals or copies (certified or otherwise identified to our satisfaction) of
such documents, corporate records and other instruments relating to the
incorporation of HEALTHSOUTH and to the authorization and issuance of the Shares
and the authorization and adoption of the Agreement as we have deemed necessary
and appropriate.
Based upon the foregoing, and having regard for such legal considerations
as we have deemed relevant, it is our opinion that:
1. The Shares have been duly authorized.
2. Upon issuance, sale and delivery of the Shares as contemplated in the
Registration Statement and the Agreement, the Shares will be legally issued,
fully paid and nonassessable.
We do hereby consent to the reference to our firm under the heading "Legal
Matters" in the Registration Statement and to the filing of this Opinion as an
Exhibit thereto.
Very truly yours,
HASKELL SLAUGHTER & YOUNG, L.L.C.
By /s/ Robert E. Lee Garner
------------------------------------
Robert E. Lee Garner
EXHIBIT 8.1
May 21, 1998
HEALTHSOUTH Corporation
One HEALTHSOUTH Parkway
Birmingham, Alabama 35243
RE: AMENDED AND RESTATED PLAN AND AGREEMENT OF MERGER BY AND AMONG
HEALTHSOUTH CORPORATION, CHANDLER ACQUISITION CORPORATION AND THE
COMPANY DOCTOR
Gentlemen:
We have acted as counsel to HEALTHSOUTH Corporation, a Delaware corporation
("HEALTHSOUTH"), in connection with the proposed merger (the "Merger") of
Chandler Acquisition Corporation, a Delaware corporation (the "Subsidiary") and
wholly-owned subsidiary of HEALTHSOUTH, with and into The Company Doctor, a
Delaware corporation ("TCD"), pursuant to the terms of the Amended and Restated
Plan and Agreement of Merger, dated as of December 16, 1997 (the "Plan of
Merger"), by and among HEALTHSOUTH, the Subsidiary and TCD, as described in more
detail in the Plan of Merger and in the Registration Statement on Form S-4
(Commission File No. 333-_______) to be filed by HEALTHSOUTH with the Securities
and Exchange Commission (the "Registration Statement"). This opinion is being
provided in satisfaction of the conditions set forth in Section 9.2(c) of the
Plan of Merger. All capitalized terms, unless otherwise specified, have the
meaning assigned to them in the Registration Statement.
In connection with this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
(i) the Plan of Merger, (ii) the Registration Statement, and (iii) such other
documents as we have deemed necessary or appropriate in order to enable us to
render the opinion below. In our examination, we have assumed the genuineness of
all signatures, the legal capacity of all natural persons, the authenticity of
all documents submitted to us as originals, the conformity to original documents
of all documents submitted to us as certified, conformed or photostatic copies
and the authenticity of the originals of such copies. In rendering the opinion
set forth below, we have relied upon certain written representations and
covenants of HEALTHSOUTH, the Subsidiary and TCD which are annexed hereto (the
"Representations and Warranties").
In rendering our opinion, we have considered the applicable provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations, pertinent judicial authorities, interpretive rulings of the
Internal Revenue Service and such other authorities as we have considered
relevant.
Based upon and subject to the foregoing and assuming that, as of the
Effective Time of the Merger and following the Merger there will be no acts or
omissions which will violate or be inconsistent with any of the Representations
and Warranties, we are of the opinion that:
(i) Provided the Merger qualifies as a statutory merger under the
Delaware General Corporation Law, the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code, and
HEALTHSOUTH, the Subsidiary and TCD will each be a "party to the
reorganization" within the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by HEALTHSOUTH, the Subsidiary or
TCD as a result of the Merger;
(iii) No gain or loss will be recognized by a TCD stockholder who
receives solely shares of HEALTHSOUTH Common Stock in exchange for TCD Common
Stock, except that a TCD stockholder who receives cash proceeds in lieu of a
fractional share of HEALTHSOUTH Common
<PAGE>
Stock will recognize gain or loss equal to the difference, if any, between
such stockholder's tax basis allocated to such fractional share (as described
in paragraph (v) below) and the amount of cash received (as described in
paragraph (iv) below);
(iv) The receipt of cash by a TCD stockholder in lieu of fractional
shares of HEALTHSOUTH Common Stock will be treated as if the fractional
shares were distributed as part of the exchange and then were redeemed by
HEALTHSOUTH. These payments will be treated as having been received as
distributions in full payment in exchange for the stock redeemed as
provided in Section 302(a) of the Code, provided the redemption is not
essentially equivalent to a dividend;
(v) The aggregate tax basis of the shares of HEALTHSOUTH Common Stock
received by a TCD stockholder will be equal to the aggregate tax basis of
the TCD Common Stock exchanged therefor, excluding any basis allocable to a
fractional share of HEALTHSOUTH Common Stock for which cash is received; and
(vi) The holding period of the shares of HEALTHSOUTH Common Stock
received by a TCD stockholder will include the holding period or periods of
the TCD Common Stock exchanged therefor, provided that the TCD Common Stock
is held as a capital asset within the meaning of Section 1221 of the Code
at the Effective Time of the Merger.
The Merger should have no immediate federal income tax consequences to
HEALTHSOUTH stockholders.
Except as set forth above, we express no opinion as to the tax
consequences, whether federal, state, local or foreign, to any party to the
Merger or of any transactions related to the Merger or contemplated by the Plan
of Merger.
We hereby consent to the reference to our Firm under the heading "Legal
Matters" in the Prospectuses which form a part of the Registration Statement,
and to the filing of this opinion as an Exhibit thereto.
Very truly yours,
Haskell Slaughter & Young LLC
By /s/ Ross N. Cohen
-------------------------
EXHIBIT 8.2
May 21, 1998
The Company Doctor
5215 North O'Connor, Suite 1800
Irving, Texas 75039
Ladies and Gentlemen:
This opinion is being delivered to you in accordance with Section 9.3(c) of
the Plan and Agreement of Merger (the "Merger Agreement") executed as of
December 16, 1997, and amended March 16, 1998, by and among HEALTHSOUTH
Corporation, a Delaware corporation ("HEALTHSOUTH"), Chandler Acquisition
Corporation, a Delaware corporation ("Subsidiary"), and The Company Doctor, a
Delaware corporation ("TCD"). Pursuant to the Merger Agreement, and as of the
Effective Time specified in the Merger Agreement, Subsidiary will merge with and
into TCD. Immediately thereafter, each issued and outstanding share of TCD
Common Stock will be converted into the right to receive shares of HEALTHSOUTH
Common Stock. For purposes hereof, these transactions shall be referred to in
the aggregate as the "Merger."
Except as otherwise provided, capitalized terms referred to herein have the
meanings set forth in the Merger Agreement. All section references, unless
otherwise indicated, are to the Internal Revenue Code of 1986, as amended (the
"Code").
For the purpose of rendering our opinion, we have examined the following
documents:
(i) The Merger Agreement; and
(ii) Letters provided by HEALTHSOUTH and TCD containing certain
representations of HEALTHSOUTH and TCD, and attached hereto as Exhibit 1
(the "Representation Letter"); and
(iii) Such other instruments and documents related to the formation,
organization and operation of HEALTHSOUTH, Subsidiary and TCD and related
to the consummation of the Merger and the transactions contemplated
thereby as we have deemed necessary or appropriate.
Based on our examination of the foregoing items and subject to (a) the
completion of the proceedings being taken or contemplated to be taken pursuant
to the Merger Agreement and (b) the limitations, qualifications, assumptions and
covenants set forth at the end of this opinion, we are of the opinion that, for
federal income tax purposes, the following federal income tax consequences (the
"Consequences") will result:
1. The Merger constitutes a reorganization within the meaning of Section
368(a)(1)(A);
2. Pursuant to Section 361(a), no gain or loss will be recognized by TCD
upon the Merger of Subsidiary with and into TCD;
3. Pursuant to Section 354(a), no gain or loss will be recognized by the
shareholders of TCD upon the receipt in the Merger of HEALTHSOUTH Common
Stock in exchange for their shares of TCD Common Stock;
4. Pursuant to Section 358, the aggregate basis of the HEALTHSOUTH Common
Stock received by each shareholder of TCD in the Merger will be equal to the
aggregate basis of the TCD Common Stock exchanged therefor;
5. Pursuant to Section 1223(1), the holding period for each share of
HEALTHSOUTH Common Stock received by each shareholder of TCD in exchange for
TCD Common Stock will include the period for which such shareholder held the
TCD Common Stock exchanged therefor, provided such share of TCD Common Stock
is a capital asset in the hands of such TCD shareholder as of the Effective
Time;
<PAGE>
6. Payment received by a TCD shareholder in lieu of a fractional share of
HEALTHSOUTH Common Stock will be treated as payment in redemption of such
fractional share and will result in the recognition of capital gain or
capital loss measured by the difference between the amount of such payment
and such shareholder's basis in such fractional share, provided that such
fractional share is a capital asset in the hands of such shareholder on the
Merger Date and that such payment is neither essentially equivalent to a
dividend nor has the effect of a distribution of a dividend.
In connection with rendering this opinion, we have assumed, without any
independent investigation or review thereof, the following:
(a) The genuineness of all signatures on, and the authenticity of,
original documents, the conformity to original documents of all documents
submitted to us as copies, and the genuineness of all signatures and the due
execution and delivery of all documents;
(b) That the Merger is effective under the laws of the State of Delaware;
and
(c) The truth and accuracy, at all relevant times, of all
representations, warranties, and statements made by HEALTHSOUTH, Subsidiary
and TCD and their shareholders in connection with the Merger, including those
set forth in the Merger Agreement.
In addition to the limitations set forth above, this opinion is subject to
the following limitations, qualifications and caveats:
1. In preparing this opinion, we relied upon the representations,
warranties, and statements made by HEALTHSOUTH and TCD in the Representation
Letter, as well as certain assumptions identified herein. If any of these
representations, warranties, statements, and assumptions upon which we have
relied are not true and accurate at all relevant times, our opinion might be
adversely affected and may not be relied upon.
2. This opinion only addresses certain federal income tax consequences of
the Merger and does not address the various state, local or foreign tax
consequences that may result from the Merger.
3. No opinion is expressed as to any federal income tax consequence of
the Merger except as specifically set forth herein and this opinion may not
be relied upon except with respect to the Consequences. In particular, we
express no opinion regarding, among other things: (a) whether any TCD
shareholder who has provided or will provide services to HEALTHSOUTH or TCD
will have compensation income under any provision of the Code; (b) the effect
of such compensation income on the basis and holding period of HEALTHSOUTH
Common Stock received by any such shareholder in the Merger; (c) the
potential application of the "golden parachute" provisions of the Code
(Sections 280G, 3121(v) (2) and 4999); (d) the potential application of the
"disqualifying disposition" rules of Section 425 to dispositions of
HEALTHSOUTH Common Stock or TCD Common Stock; and (e) the amount, existence,
and/or availability, after the Merger, of any of the federal income tax
attributes of TCD after application of any provision of the Code, as well as
the regulations promulgated thereunder and judicial interpretations thereof.
4. No opinion is expressed as to any transaction other than the Merger as
described in the Agreement or as to any transaction whatsoever if all the
transactions described in the Agreement are not consummated in accordance
with the terms of such Agreement and without waiver of any material provision
thereof.
5. This opinion only represents our best judgment as to the Consequences
and is not binding on the Internal Revenue Service or the courts. The
conclusions are based on the Code, existing judicial decisions,
administrative regulations and published rulings. No assurance can be given
that future legislative, judicial or administrative changes would not
adversely affect the accuracy of the conclusions stated herein. Nevertheless,
by rendering this opinion, we undertake no responsibility to advise you of
any new developments in the application or interpretation of the federal
income tax laws.
<PAGE>
6. This opinion has been delivered to you for the purposes set forth in
Section 9.3 of the Merger Agreement and may not be relied upon for any other
purpose or by any other person or entity (with the exception of TCD and its
shareholders), and may not be made available to any other person or entity
without our prior written consent.
Very truly yours,
Berliner Zisser Walter & Gallegos
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4, No. 333- ) and related Prospectus-Proxy
Statement of HEALTHSOUTH Corporation and The Company Doctor 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 14, 1998
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of HealthSouth Corporation on Form S-4 of our reports dated August 7, 1997 and
July 26, 1996 (except for Note 2 as to which the date is August 23, 1996),
appearing in the Annual Reports on Form 10-KSB of The Company Doctor for the
years ended June 30, 1997 and 1996 and of our report dated September 29, 1995
appearing in the Registration Statement on Form SB-2, as amended (SEC File No.
333-99530D) (the "IPO Registration Statement") filed with the commission on
November 16, 1995 and to the references to us under the heading "Experts" in the
Prospectus, which is part of this Registration Statement.
Ehrhardt Keefe Steiner & Hottman PC
May 21, 1998
Denver, Colorado
EXHIBIT 23.5
CONSENT OF
LOEWENBAUM & COMPANY INCORPORATED
We hereby consent to the use of our opinion letter dated the date December
16, 1997 relating to the proposed merger of Chandler Acquisition Corporation, a
wholly-owned subsidiary of HEALTHSOUTH Corporation, with and into The Company
Doctor to the Board of Directors of The Company Doctor included as Annex B to
the Prospectus-Proxy Statement, and to the references to such opinion in the
Prospectus-Proxy Statement that forms a part of the Registration Statement for
such transaction. In giving such consent, we do not admit that we come within
the category of persons the consent of whom is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder, nor do we thereby
admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "experts" as used in the Securities Act
of 1933, as amended, or the rules and regulations of the Securities and Exchange
Commission promulgated thereunder.
LOEWENBAUM & COMPANY INCORPORATED
By: /s/ Calvin L. Chrisman
-------------------------------------
Calvin L. Chrisman
Managing Director
May 21, 1998
- --------------------------------------------------------------------------------
PROXY
THE COMPANY DOCTOR
SPECIAL MEETING OF STOCKHOLDERS -- JUNE 29, 1998
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS
The undersigned hereby appoints Dale W. Willetts and Fred G. Parrish, and
each of them, with several powers of substitution, proxies to vote the shares of
Common Stock, par value $0.01 per share, of The Company Doctor ("TCD") which the
undersigned could vote if personally present at the Special Meeting of
Stockholders of TCD to be held in the Lakeside Room, Suite 2600, in the same
building as the principal offices of TCD at 5215 North O'Connor Boulevard,
Irving, Texas 75039, on June 29, 1998, at 10:00 a.m., local time, and any
adjournment thereof:
(Continued and to be signed on other side)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
-------------
Common
1. Approval and adoption of the Amended and Restated Plan and Agreement of
Merger, dated as of December 16, 1997, attached as Annex A to the
Prospectus-Proxy Statement that has been transmitted in connection with the
Special Meeting, pursuant to which Chandler Acquisition Corporation, a
wholly-owned subsidiary of HEALTHSOUTH Corporation ("HEALTHSOUTH"), will merge
with and into TCD, and stockholders of TCD will receive 0.142 of a share of
HEALTHSOUTH Common Stock for each share of TCD Common Stock surrendered for
exchange, subject to adjustment, all as described in said Prospectus-Proxy
Statement.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. In their discretion to act upon any matters incidental to the foregoing
and such other business as may properly come before the Special Meeting or any
adjournment thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR ITEM 1.
Dated:
--------------------------------
---------------------------------------
Signature(s)
---------------------------------------
(Please sign exactly and as fully as
your name appears on your stock
certificate. If shares are held
jointly, each stockholder should sign.)
- --------------------------------------------------------------------------------
