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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998; OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______
Commission File Number 1-10315
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HEALTHSOUTH CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 63-0860407
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(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
ONE HEALTHSOUTH PARKWAY
BIRMINGHAM, ALABAMA 35243
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(Address of Principal Executive (Zip Code)
Offices)
Registrant's Telephone Number, Including Area Code: (205) 967-7116
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Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on which Registered
- - - --------------------------------- --------------------------------
COMMON STOCK, PAR VALUE NEW YORK STOCK EXCHANGE
$.01 PER SHARE
9.5% SENIOR SUBORDINATED NEW YORK STOCK EXCHANGE
NOTES DUE 2001
</TABLE>
Securities Registered Pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all Reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such Reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
|X|
State the aggregate market value of the voting stock held by
non-affiliates of the Registrant as of March 29, 1999:
Common Stock, par value $.01 per share -- $4,588,651,643
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
Class Outstanding at March 25, 1999
- - - --------------------------- ------------------------------
COMMON STOCK, PAR VALUE
$.01 PER SHARE 415,214,088 SHARES
DOCUMENTS INCORPORATED BY REFERENCE
No documents are incorporated by reference into this Annual Report on Form 10-K.
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PART I
ITEM 1. BUSINESS.
GENERAL
HEALTHSOUTH Corporation ("HEALTHSOUTH" or the "Company") is the
nation's largest provider of outpatient surgery and rehabilitative healthcare
services. The Company provides these services through its national network of
inpatient and outpatient healthcare facilities, including inpatient and
outpatient rehabilitation facilities, outpatient surgery centers, diagnostic
centers, occupational health centers, medical centers and other healthcare
facilities. The Company believes that it provides patients, physicians and
payors with high-quality healthcare services at significantly lower costs than
traditional inpatient hospitals. Additionally, the Company's national network,
reputation for quality and focus on outcomes has enabled it to secure contracts
with national and regional managed care payors. At December 31, 1998, the
Company had nearly 1,900 locations in 50 states, the United Kingdom and
Australia, exclusive of locations being closed, consolidated or held for sale.
See Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
The Company's healthcare services are provided through inpatient
healthcare facilities and facilities providing other clinical services
(including inpatient rehabilitation facilities and specialty medical centers ,
as well as certain physician practices and other services) and outpatient
healthcare facilities (including outpatient rehabilitation centers, outpatient
surgery centers, outpatient diagnostic centers and occupational health centers).
In its outpatient and inpatient rehabilitation facilities, the Company provides
interdisciplinary programs for the rehabilitation of patients experiencing
disability due to a wide variety of physical conditions, such as stroke, head
injury, orthopaedic problems, neuromuscular disease and sports-related injuries.
The Company's rehabilitation services include physical therapy, sports medicine,
work hardening, neurorehabilitation, occupational therapy, respiratory therapy,
speech-language pathology and rehabilitation nursing. Independent studies have
shown that rehabilitation services like those provided by the Company can save
money for payors and employers.
A patient referred to one of the Company's rehabilitation facilities
undergoes an initial evaluation and assessment process that results in the
development of a rehabilitation care plan designed specifically for that
patient. Depending upon the patient's disability, this evaluation process may
involve the services of a single discipline, such as physical therapy for a knee
injury, or of multiple disciplines, as in the case of a complicated stroke
patient. HEALTHSOUTH has developed numerous rehabilitation programs, which
include stroke, head injury, spinal cord injury, neuromuscular and work injury,
that combine certain services to address the needs of patients with similar
disabilities. In this way, all of the facilities' patients, regardless of the
severity and complexity of their disabilities, can receive the level and
intensity of those services necessary to restore them to as productive, active
and independent a lifestyle as possible.
In addition to its rehabilitation facilities, the Company operates the
largest network of freestanding outpatient surgery centers in the United States.
The Company's outpatient surgery centers provide the facilities and medical
support staff necessary for physicians to perform non-emergency surgical
procedures. While outpatient surgery is widely recognized as generally less
expensive than surgery performed in a hospital, the Company believes that
outpatient surgery performed at a freestanding outpatient surgery center is
generally less expensive than hospital-based outpatient surgery. Over 80% of the
Company's surgery center facilities are located in markets served by its
rehabilitative service facilities, enabling the Company to pursue opportunities
for cross-referrals.
The Company is also among the largest operators of outpatient
diagnostic centers and occupational health centers in the United States. Most of
the Company's diagnostic centers and occupational health centers operate in
markets where the Company also provides rehabilitative healthcare and outpatient
surgery services. The Company believes that its ability to offer a comprehensive
range of healthcare services in a particular geographic market makes the Company
more attractive to both patients and payors in such market. The Company focuses
on marketing its services in an integrated system to patients and payors in such
geographic markets.
Over the last four years, the Company has completed several significant
acquisitions in both inpatient and outpatient rehabilitation services and has
expanded into the outpatient surgery center, diagnostic and occupational health
businesses. The Company believes that these acquisitions complement its
historical operations and enhance its market position. The Company further
believes that its expansion into the outpatient surgery,
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diagnostic and occupational health businesses provides it with platforms for
future growth. The Company is continually evaluating potential acquisitions that
complement its existing operations.
The Company was organized as a Delaware corporation in February 1984.
The Company's principal executive offices are located at One HealthSouth
Parkway, Birmingham, Alabama 35243, and its telephone number is (205) 967-7116.
COMPANY STRATEGY
The Company's principal objective is to be the provider of choice
throughout the United States for patients, physicians and payors alike for the
outpatient and inpatient and other clinical healthcare services that it
provides. The Company's growth strategy is based upon four primary elements: (i)
the implementation of the Company's integrated service model in appropriate
markets, (ii) successful marketing to managed care organizations and other
payors, (iii) the provision of high-quality, cost-effective healthcare services,
and (iv) the expansion of its national network.
o Integrated Service Model. The Company seeks, where appropriate, to
provide an integrated system of healthcare services, including
outpatient rehabilitation services, inpatient rehabilitation and other
clinical services, outpatient surgery services and outpatient
diagnostic services. The Company believes that its integrated system
offers payors the convenience of dealing with a single provider for
multiple services. Additionally, it believes that its facilities can
provide extensive cross-referral opportunities. For example, the
Company estimates that approximately one-third of its outpatient
rehabilitation patients have had outpatient surgery, virtually all
inpatient rehabilitation patients will require some form of outpatient
rehabilitation, and virtually all inpatient rehabilitation patients
have had some type of diagnostic procedure. The Company has implemented
its Integrated Service Model in certain of its markets, and intends as
its long-term goal to expand the model into the 300 leading markets in
the United States.
o Marketing to Managed Care Organizations and Other Payors. Since the
late 1980s, the Company has focused on the development of contractual
relationships with managed care organizations, major insurance
companies, large regional and national employer groups and provider
alliances and networks. The Company's documented outcomes and
experience with several hundred thousand patients in delivering quality
healthcare services at reasonable prices has enhanced its
attractiveness to such entities and has given the Company a competitive
advantage over smaller and regional competitors. These relationships
have increased patient flow to the Company's facilities and contributed
to the Company's same-store growth. These relationships also expose the
Company to pressure from payors to limit pricing for the Company's
services, and the Company endeavors to manage and monitor such
relationships in an effort to ensure both competitive pricing and
patient volumes for its facilities.
o Cost-Effective Services. The Company's goal is to provide high-quality
healthcare services in cost-effective settings. To that end, the
Company has developed standardized clinical protocols for the treatment
of its patients. This results in "best practices" techniques being
utilized at all of the Company's facilities, allowing the consistent
achievement of demonstrable, cost-effective clinical outcomes. The
Company's reputation for its clinical programs is enhanced through its
relationships with major universities throughout the nation, and its
support of clinical research in its facilities. Further, independent
studies estimate that, for every dollar spent on rehabilitation, $11 to
$35 is saved. Finally, surgical procedures typically are less expensive
in outpatient surgery centers than in hospital settings. The Company
believes that outpatient and rehabilitative healthcare services will
assume increasing importance in the healthcare environment as payors
continue to seek to reduce overall costs by shifting patients to more
cost-effective treatment settings.
o Expansion of National Network. As one of the largest providers of
healthcare services in the United States, the Company is able to
realize economies of scale and compete successfully for national
contracts with large payors and employers while retaining the
flexibility to respond to particular needs of local markets. The
national network affords the Company the opportunity to offer large
national and regional employers and payors the convenience of dealing
with a single provider, to utilize greater buying power through
centralized purchasing, to achieve more efficient costs of capital and
labor and to more effectively recruit and retain clinicians. These
national benefits are realized without sacrificing local market
responsiveness. The Company's objective is to provide those outpatient
and rehabilitative healthcare services needed within each local market
by tailoring its services and facilities to that market's needs, thus
bringing the benefits of nationally recognized expertise and quality
into the local setting.
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RISK FACTORS
HEALTHSOUTH's business, operations and financial condition are subject
to certain risks. Some of these risks are described below, and readers of this
Annual Report on Form 10-K should take such risks into account in evaluating
HEALTHSOUTH or any investment decision involving HEALTHSOUTH. This section does
not describe all risks applicable to HEALTHSOUTH, and it is intended only as a
summary of certain material factors. More detailed information concerning the
factors described below is contained in other sections of this Annual Report on
Form 10-K.
HEALTHSOUTH Depends Upon Reimbursement by Third-Party Payors.
Substantially all of HEALTHSOUTH's revenues are derived from private and
governmental third-party payors (in 1998, approximately 35.9% from Medicare and
approximately 64.1% 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 reduce or
limit increases in reimbursement rates for medical services. There can be no
assurances that payments from government or private payors 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 reimbursement for certain services.
HEALTHSOUTH cannot now predict whether any of these pending proposals will be
adopted or what effect the adoption of such proposals would have on HEALTHSOUTH.
HEALTHSOUTH's Operations Are Subject to Extensive Regulation.
HEALTHSOUTH is subject to various other types of regulation by federal and state
governments, 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 if it cannot obtain such
approvals, by changes in the standards applicable to approvals and by possible
delays and expenses associated with obtaining approvals. HEALTHSOUTH's failure
to obtain, retain or renew any required regulatory approvals, licenses or
certificates could prevent HEALTHSOUTH from being reimbursed for its services or
from offering some of 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 regulation 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 Department of
Justice and other federal agencies interpret healthcare fraud and abuse
provisions liberally and enforce them aggressively.
Healthcare Reform Legislation May Affect HEALTHSOUTH's Business. In
recent years, many 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 currently being, or which recently have been, considered 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. The costs of
certain proposals would be funded in significant part by reductions in payment
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 programs 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 expend 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.
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HEALTHSOUTH Must Successfully Meet Year 2000 Compliance Risks.
HEALTHSOUTH is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. Many existing computer
programs use only two digits to identify a year in the date field. The issue is
whether such code exists in HEALTHSOUTH's mission-critical applications and if
that code will produce accurate information to date-sensitive calculations after
the turn of the century. As described under Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations", HEALTHSOUTH has
undertaken assessment activities to attempt to determine its year 2000
compliance status.
In that connection, it should be noted that substantially all of
HEALTHSOUTH's revenues are derived from reimbursement by governmental and
private third-party payors, and that HEALTHSOUTH is dependent upon such payors'
evaluation of their year 2000 compliance status to assess such risks. If such
payors are incorrect in their evaluation of their own year 2000 compliance
status, this could result in delays or errors in reimbursement to HEALTHSOUTH,
the effects of which could be material to HEALTHSOUTH.
Based on the information currently available, HEALTHSOUTH believes that
its risk associated with problems arising from year 2000 issues is not
significant. However, because of the many uncertainties associated with year
2000 compliance issues, and because HEALTHSOUTH's assessment is necessarily
based on information from third-party vendors, payors and suppliers, there can
be no assurance that HEALTHSOUTH's assessment is correct. HEALTHSOUTH will
continue with the assessment process described elsewhere in this Annual Report
on Form 10-K and, to the extent that changes in such assessment require it, will
attempt to develop alternatives or modifications to its compliance plan. There
can, however, be no assurance that such compliance plan, as it may be changed,
augmented or modified from time to time, will be successful.
HEALTHSOUTH Faces National, Regional and Local Competition. HEALTHSOUTH
operates in a highly competitive industry. HEALTHSOUTH generally operates its
facilities in communities that also are served by similar facilities operated by
its competitors. Although HEALTHSOUTH is the largest provider of its range of
inpatient and outpatient 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.
HEALTHSOUTH Is Subject to Material Litigation. HEALTHSOUTH is, and may
in the future be, subject to litigation which, if determined adversely to
HEALTHSOUTH, could have a material adverse affect on HEALTHSOUTH. In addition,
some of the companies and businesses acquired by HEALTHSOUTH have been subject
to such litigation. While HEALTHSOUTH attempts to conduct its operations in such
a way as to reduce the risk that adverse results in litigation could have a
material adverse affect on HEALTHSOUTH, there can be no assurance that pending
or future litigation, whether or not described in this Annual Report on Form
10-K, will not have such a material adverse affect. See Item 3, "Legal
Proceedings".
HEALTHSOUTH's Stock Price May Be Volatile. Healthcare stocks in
general, including HEALTHSOUTH's common stock, are subject to frequent changes
in stock price and trading volume, some of which may be large. These changes may
be influenced by the market's perceptions of the healthcare sector in general,
of other companies believed to be similar to HEALTHSOUTH, or of HEALTHSOUTH's
results of operations and future prospects. In addition, these perceptions may
be greatly affected not only by information provided by HEALTHSOUTH but also by
opinions and reports created by investment analysts and other third parties
which do not necessarily reflect information provided by HEALTHSOUTH. Adverse
movement in the Company's stock price, particularly as a result of factors over
which it has no control, may adversely affect the Company's access to capital
and the ability to consummate acquisitions using its stock.
GROWTH THROUGH ACQUISITIONS AND RELATED DIVESTITURES
Beginning in 1994, the Company has consummated a series of significant
acquisitions. The following paragraphs describe certain of such acquisitions
consummated during the period covered by the consolidated financial statements
contained in this Annual Report on Form 10-K, as well as related divestitures
and facility closings and consolidations in connection with the Company's
strategic plan.
During 1996, the Company acquired Surgical Care Affiliates, Inc.
("SCA"; 67 outpatient surgery centers in 24 states), Advantage Health
Corporation ("Advantage Health"; approximately 136 inpatient and outpatient
rehabilitation facilities in 11 states), Professional Sports Care
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Management, Inc. ("PSCM"; 36 outpatient rehabilitation facilities in New York,
New Jersey and Connecticut) and ReadiCare, Inc. ("ReadiCare"; 37 occupational
health centers in California and Washington) in pooling-of-interests
transactions. During 1997, the Company acquired Health Images, Inc. ("Health
Images"; 55 diagnostic imaging centers in 13 states and the United Kingdom), ASC
Network Corporation ("ASC"; 29 surgery centers in eight states), Horizon/CMS
Healthcare Corporation ("Horizon/CMS"; 30 inpatient rehabilitation facilities
and approximately 275 outpatient rehabilitation centers in 24 states) and
National Imaging Affiliates, Inc. ("NIA"; eight diagnostic imaging centers in
six states). On December 31, 1997, the Company sold the long-term care assets of
Horizon/CMS, consisting of 139 long-term care facilities, 12 specialty
hospitals, 35 institutional pharmacy locations and over 1,000 rehabilitation
therapy contracts with long-term care facilities, to Integrated Health Services,
Inc. ("IHS"). During 1998, the Company acquired National Surgery Centers, Inc.
("NSC"; 40 surgery centers in 14 states), as well as 34 surgery centers
(including centers under management arrangements) from Columbia/HCA Healthcare
Corporation ("Columbia/HCA"). These transactions, along with the Company's other
significant acquisitions since 1993, have further enhanced the Company's
position as the nation's largest provider of inpatient and outpatient
rehabilitative services and outpatient surgery services and its position as one
of the largest providers of occupational health and diagnostic imaging services.
The Company believes that the geographic dispersion of the nearly 1,900
locations now operated by the Company makes it more attractive to managed care
networks, major insurance companies, regional and national employers and
regional provider alliances and enhances the Company's ability to implement its
Integrated Service Model in additional markets.
In the course of its major acquisitions, the Company has from time to
time acquired ancillary businesses, such as healthcare staffing and home health
services, which are not part of the Company's strategic lines of business, and
has also acquired facilities which are duplicative of certain existing
facilities or which do not meet the Company's operating and performance
standards. Accordingly, the Company has from time to time determined to sell,
close or consolidate certain acquired facilities and businesses in order to
focus its resources on those facilities and businesses which are most consistent
with its strategic plan and core operations. The most significant divestiture by
the Company was its divestiture of the long-term care assets of Horizon/CMS to
IHS in 1997, described above. In addition, in the third quarter of 1998, the
Company adopted a plan to close substantially all of its home health operations,
which had been obtained as minor components of larger strategic acquisitions,
and in the fourth quarter of 1998 the Company adopted a plan to close,
consolidate or hold for sale certain other non-strategic businesses and
duplicative facilities, as well as facilities which the Company had determined
could not be brought up to the Company's operating and performance standards
without undue expenditure of resources. Unless the context otherwise indicates,
descriptions of the Company's patient care services locations in this Annual
Report on Form 10-K do not include those facilities which, as of December 31,
1998, had been or were being closed, consolidated or sold.
See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for additional information concerning the
Company's acquisitions, divestitures and plans with respect to facility closings
and consolidations.
INDUSTRY BACKGROUND
In 1996, there were an estimated 3,500,000 inpatient hospital
discharges in the United States involving impairments requiring rehabilitative
healthcare services. "Rehabilitative healthcare services" refers to the range of
skilled services provided to individuals in order to minimize physical and
cognitive impairments, maximize functional ability and restore lost functional
capacity. The focus of rehabilitative healthcare is to ameliorate physical and
cognitive impairments resulting from illness or injury, and to restore or
improve functional ability so that individuals can return to work and lead
independent and fulfilling lives. Typically, rehabilitative healthcare services
are provided by a variety of healthcare professionals including physiatrists,
rehabilitation nurses, physical therapists, occupational therapists,
speech-language pathologists, respiratory therapists, recreation therapists,
social workers, psychologists, rehabilitation counselors and others. Over 80% of
those receiving rehabilitative healthcare services return to their homes, work,
schools or active retirement.
Demand for rehabilitative healthcare services continues to be driven by
advances in medical technologies, an aging population and the recognition on the
part of the payor community (insurers, self-insured companies, managed care
organizations and federal, state and local governments) that appropriately
administered rehabilitative services can improve quality of life as well as
lower overall healthcare costs. Studies conducted by insurance companies
demonstrate the ability of rehabilitation to significantly reduce the cost of
future care. Estimates of the savings range from $11 to $35 per dollar spent on
rehabilitation. Further, reimbursement changes have encouraged the rapid
discharge of patients from acute-care hospitals while they remain in need of
rehabilitative healthcare services.
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The Company also believes that there is a growing trend toward the
provision of other healthcare services on an outpatient basis, fueled by
advances in technology, demands for cost-effective care and concerns for patient
comfort and convenience. An industry study indicates that there was a 75%
increase in the number of treatments in all ambulatory settings from 1986 to
1996, with over 70% of the total number of surgeries in the United States
currently being performed on an outpatient basis. The Company believes that
these trends will continue to foster demand for the delivery of healthcare
services on an outpatient basis.
PATIENT CARE SERVICES
The Company began its operations in 1984 with a focus on providing
comprehensive orthopaedic and musculoskeletal rehabilitation services on an
outpatient basis. Over the succeeding 14 years, the Company has consistently
sought and implemented opportunities to expand its services through acquisitions
and de novo development activities that complement its historic focus on
orthopaedic, sports medicine and occupational health services and that provide
independent platforms for growth. The Company's acquisitions and internal growth
have enabled it to become one of the largest providers of healthcare services in
the United States. The following sections discuss the range of services offered
by the Company in its inpatient and other clinical services and outpatient
services business segments.
Inpatient and Other Clinical Services
The Company's inpatient and other clinical services business segment
includes the operations of its inpatient rehabilitation facilities and medical
centers, as well as the operations of certain physician practices and other
clinical services which are managerially aligned with the Company's inpatient
services.
INPATIENT REHABILITATION FACILITIES. At December 31, 1998, the Company
operated 124 inpatient rehabilitation facilities with 7,690 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. The Company's inpatient rehabilitation facilities provide
high-quality comprehensive services to patients who require intensive
institutional rehabilitation care.
Inpatient rehabilitation patients are typically those who are
experiencing significant physical disabilities due to various conditions, such
as head injury, spinal cord injury, stroke, certain orthopaedic problems and
neuromuscular disease. The Company's inpatient rehabilitation facilities provide
the medical, nursing, therapy and ancillary services required to comply with
local, state and federal regulations as well as accreditation standards of the
Joint Commission on Accreditation of Healthcare Organizations (the "JCAHO") and
the Commission on Accreditation of Rehabilitation Facilities ("CARF").
All of the Company's inpatient rehabilitation facilities utilize an
interdisciplinary team approach to the rehabilitation process and involve the
patient and family, as well as the payor, in the determination of the goals for
the patient. Internal case managers monitor each patient's progress and provide
documentation of patient status, achievement of goals, functional outcomes and
efficiency.
In certain markets the Company's rehabilitation hospitals may provide
outpatient rehabilitation services as a complement to their inpatient services.
Typically, this opportunity arises when patients complete their inpatient course
of treatment but remain in need of additional therapy that can be accomplished
on an outpatient basis. Depending upon the demand for outpatient services and
physical space constraints, the rehabilitation hospital may establish the
services either within its building or in a satellite location. In either case,
the clinical protocols and programs developed for use in the freestanding
outpatient centers are utilized by these facilities.
A number of the Company's rehabilitation hospitals were developed in
conjunction with local tertiary-care facilities, including major teaching
hospitals such as those at Vanderbilt University, the University of Missouri and
the University of Virginia. This strategy of developing effective referral and
service networks prior to opening results in improved operating efficiencies for
the new facilities and provides a more coordinated continuum of care for the
constituencies served by the tertiary-care facilities. In addition to those
facilities so developed by the Company, the Company has entered into or is
pursuing similar affiliations with a number of its rehabilitation hospitals
which were obtained through the Company's major acquisitions.
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MEDICAL CENTERS. At December 31, 1998, the Company operated four
medical centers with 810 licensed beds in four distinct markets. These
facilities provide general and specialty medical and surgical healthcare
services, emphasizing orthopaedics, sports medicine and rehabilitation.
The Company acquired its medical centers as outgrowths of its
rehabilitative healthcare services. Often, patients require medical and surgical
interventions prior to the initiation of their rehabilitative care. In each of
the markets in which the Company has acquired a medical center, the Company had
well-established relationships with the medical communities serving each
facility. In addition, each of the facilities enjoyed well-established
reputations in orthopaedics and/or sports medicine prior to their acquisition by
the Company. Following the acquisition of each of its medical centers, the
Company has provided the resources to improve upon the physical plant and expand
services through the introduction of new technology. The Company has also
developed additional relationships between these facilities and certain
university facilities, including the University of Miami, Auburn University and
the University of Alabama at Birmingham. Through these relationships, the influx
of celebrity athletes and personalities and the acquisition of new technology,
all of the Company's medical centers have improved their operating efficiencies
and enhanced census.
Each of the Company's medical center facilities is licensed as an
acute-care hospital, is accredited by the JCAHO and participates in the Medicare
prospective payment system. See this Item, "Business -- Regulation".
In measuring patient utilization of the Company's inpatient facilities,
various factors must be considered. Due to market demand, demographics, start-up
status, renovation, patient mix and other factors, the Company may not treat all
licensed beds in a particular facility as available beds, which sometimes
results in a material variance between licensed beds and beds actually available
for utilization at any specific time. The Company is in a position to increase
the number of available beds at such facilities as market conditions dictate.
During the year ended December 31, 1998, the Company's inpatient facilities
achieved an overall utilization, based on patient days and available beds, of
76.25%.
Outpatient Services
The Company's outpatient services business segment includes the
Company's outpatient rehabilitation facilities, its outpatient surgery centers,
its outpatient diagnostic centers and its occupational health centers.
OUTPATIENT REHABILITATION SERVICES. The Company operates the largest
group of affiliated proprietary outpatient rehabilitation facilities in the
United States. The Company's outpatient rehabilitation centers offer a
comprehensive range of rehabilitative healthcare services, including physical
therapy and occupational therapy, that are tailored to the individual patient's
needs, focusing predominantly on orthopaedic injuries, sports injuries, work
injuries, hand and upper extremity injuries, back injuries, and various
neurological/neuromuscular conditions. As of December 31, 1998, the Company
provided outpatient rehabilitative healthcare services through approximately
1,187 outpatient locations, including freestanding outpatient centers and their
satellites, outpatient satellites of inpatient facilities and outpatient
facilities managed under contract.
Continuing emphasis on containing increases in healthcare costs, as
evidenced by Medicare's prospective payment system, the growth in managed care
and the various alternative healthcare reform proposals, has resulted in earlier
discharge of patients from acute-care facilities. As a result, many hospital
patients do not receive the intensity of services that may be necessary for them
to achieve a full recovery from their diseases, disorders or traumatic
conditions. The Company's outpatient rehabilitation services play a significant
role in the continuum of care because they provide hospital-level services, in
terms of intensity, quality and frequency, in a more cost-efficient setting.
Patients treated at the Company's outpatient centers will undergo
varying courses of therapy depending upon their individual needs. Some patients
may only require a few hours of therapy per week for a few weeks, while others
may spend up to five hours per day in therapy for six months or more, depending
on the nature, severity and complexity of their injuries.
In general, the Company initially establishes an outpatient center in a
given market, either by acquiring an existing private therapy practice or
through de novo development, and institutes its clinical protocols and programs
in response to the community's general need for services. The Company will then
establish satellite clinics that are dependent upon the main facility for
management and administrative services.
8
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These satellite clinics generally provide a specific evaluative or specialty
service/program, such as hand therapy or foot and ankle therapy, in response to
specific market demands.
Patient utilization of the Company's outpatient rehabilitation
facilities cannot be measured in the conventional manner applied to acute- care
hospitals, nursing homes and other healthcare providers which have a fixed
number of licensed beds and serve patients on a 24-hour basis. Utilization
patterns in outpatient rehabilitation facilities will be affected by the market
to be served, the types of injuries treated, the patient mix and the number of
available therapists, among other factors. Moreover, because of variations in
size, location, hours of operation, referring physician base and services
provided and other differences among each of the Company's outpatient
facilities, it is not possible to accurately assess patient utilization against
a norm.
SURGERY CENTERS. The Company is currently the largest operator of
outpatient surgery centers in the United States. At December 31, 1998, it
operated 221 freestanding surgery centers, including eight mobile lithotripsy
units, in 41 states. Over 80% of these facilities are located in markets served
by the Company's rehabilitation facilities, enabling the Company to pursue
opportunities for cross-referrals between surgery and rehabilitation facilities
as well as to centralize administrative functions. The Company's surgery centers
provide the facilities and medical support staff necessary for physicians to
perform non-emergency surgical procedures. Its typical surgery center is a
freestanding facility with three to six fully equipped operating and procedure
rooms and ancillary areas for reception, preparation, recovery and
administration. Each of the Company's surgery centers is available for use only
by licensed physicians, oral surgeons and podiatrists, and the centers do not
perform surgery on an emergency basis.
Outpatient surgery centers, unlike hospitals, have not historically
provided overnight accommodations, food services or other ancillary services.
Over the past several years, states have increasingly permitted the use of
extended-stay recovery facilities by outpatient surgery centers. As a result,
many outpatient surgery centers are adding extended recovery care capabilities
where permitted. Most of the Company's surgery centers currently provide for
extended recovery stays. The Company's ability to develop such recovery care
facilities is dependent upon state regulatory environments in the particular
states where its centers are located.
The Company's outpatient surgery centers implement quality control
procedures to evaluate the level of care provided at the centers. Each center
has a medical advisory committee of three to ten physicians which reviews the
professional credentials of physicians applying for medical staff privileges at
the center.
DIAGNOSTIC CENTERS. At December 31, 1998, the Company operated 118
diagnostic centers in 25 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 the Company's
diagnostic centers are multi-modality centers.
The Company's diagnostic centers provide outpatient diagnostic
procedures performed by experienced radiological technicians. After the
diagnostic procedure is completed, the images are reviewed by radiologists who
have contracted with the Company. Such radiologists prepare a report of the test
and their findings, which are then delivered to the referring physician. The
Company's diagnostic centers are open at such hours as are appropriate for the
local medical community.
Because many patients at the Company's rehabilitative healthcare and
outpatient surgery facilities require diagnostic procedures of the type
performed at the Company's diagnostic centers, the Company 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 HEALTH SERVICES. At December 31, 1998, the Company
operated 119 occupational health centers in 28 states. These centers provide
cost-effective, outpatient primary medical care and rehabilitation services to
individuals for the treatment of work-related medical problems.
The Company's occupational health centers market their services to
large and small employers, workers' compensation and health insurers and managed
care organizations. The services provided at the Company's occupational health
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
9
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physicians who are employed by or under contract with the Company or affiliated
medical practices. These centers also employ nurses, therapists and other
licensed professional staff as necessary for the services provided. The Company
believes that occupational health primary care services are a strategic
component of its business, and that the physicians in its occupational health
centers can, in many cases, serve as "gatekeepers" providing access to the other
services offered by the Company.
Other Patient Care Services
In certain of its markets, the Company provides other patient care
services, including physician services and contract management of hospital-based
rehabilitative healthcare services. The Company evaluates market opportunities
on a case-by-case basis in determining whether to provide additional services of
these types, which may be complementary to facility-based services provided by
the Company or stand-alone businesses. These services are included within the
business segment of the Company with which they are most closely aligned in the
particular local market.
MARKETING OF FACILITIES AND SERVICES
The Company markets its facilities, and their services and programs, on
local, regional and national levels. Local and regional marketing activities are
typically coordinated by local or area-based marketing personnel, whereas
large-scale regional and national efforts are coordinated by corporate-based
personnel. In Integrated Service Model markets, area marketing activities are
coordinated by an ISM Advisory Committee reflecting the Company's range of
services in each market.
In general, the Company develops a marketing plan for each facility
based on a variety of factors, including population characteristics, physician
characteristics and incidence of disability statistics, in order to identify
specific service opportunities. Facility-oriented marketing programs are focused
on increasing the volume of patient referrals to the specific facility and
involve the development of ongoing relationships with area schools, businesses
and industries as well as physicians, health maintenance organizations and
preferred provider organizations.
The Company's larger-scale marketing activities are focused more
broadly on efforts to generate patient referrals to multiple facilities and the
creation of new business opportunities. Such activities include the development
and maintenance of contractual relationships or national pricing agreements with
large third-party payors, such as CIGNA, United Healthcare or other national
insurance companies, with national HMO/PPO companies, such as First Health,
Hospital Network of America and Multiplan, with national case management
companies, such as INTRACORP and Crawford & Co., and with national employers,
such as Wal-Mart, Georgia-Pacific Corporation, Federated Department Stores,
Goodyear Tire & Rubber and Winn-Dixie. In addition, since many of the facilities
acquired by the Company during the past four years had very limited contractual
relationships with payors, managed care providers, employers and others, the
Company is expanding its existing payor relationships to include these
facilities.
The Company carries out broader programs designed to further enhance
its name recognition and association with amateur and professional athletics.
Among these is the HEALTHSOUTH Sports Medicine Council, headed by Bo Jackson and
involving other well-known professional and amateur athletes and sports medicine
specialists, which is dedicated to developing educational programs focused on
athletics for use in high schools. The Company has ongoing relationships with
the Professional Golfers Association, the Senior Professional Golfers
Association, the Ladies Professional Golf Association, the Southeastern
Conference, the U.S. Decathlon Team, USA Hockey, USA Wrestling, USA Volleyball
and more than 125 universities and colleges and 2,000 high schools to provide
sports medicine coverage of events and rehabilitative healthcare services for
injured athletes. In addition, the Company has established relationships with or
provided treatment services for athletes from some 40-50 professional sports
teams, as well as providing sports medicine services for Olympic and amateur
athletes. In 1996, the Company and the United States Olympic Committee
established the Richard M. Scrushy/HEALTHSOUTH Sports Medicine and Sport Science
Center at the USOC's Colorado Springs campus.
The Company is a national sponsor of the United Cerebral Palsy
Association and the National Arthritis Foundation and supports many other
charitable organizations on national and local levels. Through these endeavors,
the Company and its employees are able to support charitable organizations and
activities within their communities.
10
<PAGE>
SOURCES OF REVENUES
Private pay revenue sources represent the majority of the Company's
revenues. The following table sets forth the percentages of the Company's
revenues from various sources for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SOURCE DECEMBER 31, 1997 DECEMBER 31, 1998
- - - --------------------------- ----------------- -----------------
<S> <C> <C>
Medicare ....................................................36.9% 35.9%
Commercial (1)......................................................35.1 37.0
Workers' Compensation...............................................11.1 10.8
All Other Payors (2)................................................16.9 16.3
---- ----
100.0% 100.0%
===== =====
</TABLE>
- - - -----------
(1) Includes commercial insurance, HMOs, PPOs and other managed care plans.
(2) Medicaid is included in this category, but is insignificant in amount.
The above table does not reflect the NSC facilities for periods or
portions thereof prior to the effective date of the NSC acquisition. Comparable
information for those facilities is not available.
See this Item "Business -- Regulation -- Medicare Participation and
Reimbursement" for a description of certain of the reimbursement regulations
applicable to the Company's facilities.
COMPETITION
The Company's rehabilitation facilities compete on a regional and
national basis with other providers of specialized services such as sports
medicine and work hardening, and specific concentrations such as head injury
rehabilitation and orthopaedic surgery. The competition faced in each of these
markets is similar, with variations arising from the number of healthcare
providers in the given metropolitan area. The primary competitive factors in the
Company's rehabilitation components of the Company's inpatient and outpatient
business segments are quality of services, projected patient outcomes, charges
for services, responsiveness to the needs of the patients, community and
physicians, and ability to tailor programs and services to meet specific needs
of the patients. Competitors and potential competitors include hospitals,
private practice therapists, rehabilitation agencies and others. Some of these
competitors may have greater patient referral support and financial and
personnel resources in particular markets than the Company. Management believes
that the Company competes successfully within the marketplace based upon its
reputation for quality, competitive prices, positive rehabilitation outcomes,
innovative programs, clean and bright facilities and responsiveness to needs.
The Company's surgery centers compete primarily with hospitals and
other operators of freestanding surgery centers in attracting physicians and
patients and in developing new centers and in acquiring existing centers. The
primary competitive factors in the outpatient surgery business are convenience,
cost, quality of service, physician loyalty and reputation. Hospitals have many
competitive advantages in attracting physicians and patients, including
established standing in a community, historical physician loyalty and
convenience for physicians making rounds or performing inpatient surgery in the
hospital. However, the Company believes that its national market system and its
historical presence in certain of the markets where its surgery centers are
located will enhance the Company's ability to operate these facilities
successfully.
The Company's diagnostic centers compete with local hospitals, other
multi-center imaging companies, local independent diagnostic centers and imaging
centers owned by local physician groups. The Company believes that the principal
competitive factors in the diagnostic services are price, quality of service,
ability to establish and maintain relationships with managed care payors and
referring physicians, reputation of interpreting physicians, facility location
and convenience of scheduling. Management believes that the Company's diagnostic
facilities compete successfully within their respective markets, taking into
account these factors.
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The Company's medical centers are located in four urban areas of the
country, all with well established healthcare services provided by a number of
proprietary, not-for-profit, and municipal hospital facilities. The Company's
facilities compete directly with these local hospitals as well as various
nationally recognized centers of excellence in orthopaedics, sports medicine and
other specialties. Because the Company's facilities enjoy a national and
international reputation for orthopaedic surgery and sports medicine, the
Company believes that its medical centers' level of service and continuum of
care enable them to compete successfully, both locally and nationally.
The Company potentially faces competition any time it initiates a
Certificate of Need ("CON") project or seeks to acquire an existing facility or
CON. See this Item, "Business -- Regulation". This competition may arise either
from competing national or regional companies or from local hospitals or other
providers which file competing applications or oppose the proposed CON project.
The necessity for these approvals serves as a barrier to entry and has the
potential to limit competition by creating a franchise to provide services to a
given area. The Company has generally been successful in obtaining CONs or
similar approvals when required, although there can be no assurance that it will
achieve similar success in the future.
REGULATION
The healthcare industry is subject to regulation by federal, state and
local governments. The various levels of regulatory activity affect the
Company's business activities by controlling its growth, requiring licensure or
certification of its facilities, regulating the use of its properties and
controlling the reimbursement to the Company for services provided.
Licensure, Certification and Certificate of Need Regulations
Capital expenditures for the construction of new facilities, the
addition of beds or the acquisition of existing facilities may be reviewable by
state regulators under a statutory scheme which is sometimes referred to as a
CON program. States with CON programs place limits on the construction and
acquisition of healthcare facilities and the expansion of existing facilities
and services. In such states, approvals are required for capital expenditures
exceeding certain amounts which involve inpatient rehabilitation facilities or
services or outpatient surgery centers. Outpatient rehabilitation, occupational
health and diagnostic facilities and services do not require such approvals in a
majority of states.
State CON statutes generally provide that, prior to the addition of new
beds, the construction of new facilities or the introduction of new services, a
state health planning designated agency (a "SHPDA") must determine that a need
exists for those beds, facilities or services. The CON process is intended to
promote comprehensive healthcare planning, assist in providing high quality
healthcare at the lowest possible cost and avoid unnecessary duplication by
ensuring that only those healthcare facilities that are needed will be built.
Typically, the provider of services submits an application to the
appropriate SHPDA with information concerning the area and population to be
served, the anticipated demand for the facility or service to be provided, the
amount of capital expenditure, the estimated annual operating costs, the
relationship of the proposed facility or service to the overall state health
plan and the cost per patient day for the type of care contemplated. Whether the
CON is granted is based upon a finding of need by the SHPDA in accordance with
criteria set forth in CON statutes and state and regional health facilities
plans. If the proposed facility or service is found to be necessary and the
applicant to be the appropriate provider, the SHPDA will issue a CON containing
a maximum amount of expenditure and a specific time period for the holder of the
CON to implement the approved project.
Licensure and certification are separate, but related, regulatory
activities. The former is usually a state or local requirement and the latter is
a federal requirement. In almost all instances, licensure and certification will
follow specific standards and requirements that are set forth in readily
available public documents. Compliance with the requirements is monitored by
annual on-site inspections by representatives of various government agencies.
All of the Company's inpatient rehabilitation facilities and medical centers and
substantially all of the Company's surgery centers are currently required to be
licensed, but only the outpatient rehabilitation facilities located in Alabama,
Arizona, Kentucky, Maryland, Massachusetts, New Hampshire, New Mexico and Rhode
Island currently must satisfy such a licensing requirement. Diagnostic and
occupational health facilities are not required to be licensed in a majority of
states.
12
<PAGE>
Medicare Participation and Reimbursement
In order to participate in the Medicare program and receive Medicare
reimbursement, each facility must comply with the applicable regulations of the
United States Department of Health and Human Services relating to, among other
things, the type of facility, its equipment, its personnel and its standards of
medical care, as well as compliance with all state and local laws and
regulations. All of the Company's inpatient facilities, except for the St. Louis
head injury center, participate in the Medicare program. Approximately 1,065 of
the Company's outpatient rehabilitation facilities currently participate in, or
are awaiting the assignment of a provider number to participate in, the Medicare
program. All of the Company's surgery centers are certified (or awaiting
certification) under the Medicare program. Diagnostic and occupational health
facilities are not certified by the Medicare program. Its Medicare-certified
facilities, inpatient and outpatient, undergo annual on-site Medicare
certification surveys in order to maintain their certification status. Failure
to comply with the program's conditions of participation may result in loss of
program reimbursement or other governmental sanctions. All such facilities have
been deemed to be in satisfactory compliance on all applicable surveys. The
Company has developed its operational systems to assure compliance with the
various standards and requirements of the Medicare program and has established
ongoing quality assurance activities to monitor compliance. The Company believes
that all of such facilities currently meet all applicable Medicare requirements.
As a result of the Social Security Act Amendments of 1983, Congress
adopted a prospective payment system ("PPS") to cover the routine and ancillary
operating costs of most Medicare inpatient hospital services. Under this system,
the Secretary of Health and Human Services has established fixed payment amounts
per discharge based on diagnosis-related groups ("DRGs"). With limited
exceptions, a hospital's payment for Medicare inpatients is limited to the DRG
rate, regardless of the number of services provided to the patient or the length
of the patient's hospital stay. Under PPS, a hospital may retain the difference,
if any, between its DRG rate and its operating costs incurred in furnishing
inpatient services, and is at risk for any operating costs that exceed its DRG
rate. The Company's medical center facilities are generally subject to PPS with
respect to Medicare inpatient services.
The PPS program has been beneficial for the rehabilitation segment of
the healthcare industry because of the economic pressure on acute-care hospitals
to discharge patients as soon as possible. The result has been increased demand
for rehabilitation services for those patients discharged early from acute-care
hospitals. Freestanding inpatient rehabilitation facilities are currently exempt
from PPS, and inpatient rehabilitation units within acute- care hospitals are
eligible to obtain an exemption from PPS upon satisfaction of certain federal
criteria.
Currently, 12 of the Company's outpatient centers are
Medicare-certified Comprehensive Outpatient Rehabilitation Facilities ("CORFs")
and 873 are Medicare-certified rehabilitation agencies or satellites thereof.
Additionally, the Company has certification applications pending for four CORF
sites and 176 rehabilitation agency sites (including satellites.) Through
December 31, 1998, CORFs were reimbursed reasonable costs (subject to certain
limits) for services provided to Medicare beneficiaries, and outpatient
rehabilitation facilities certified by Medicare as rehabilitation agencies were
reimbursed on the basis of the lower of reasonable costs for services provided
to Medicare beneficiaries or charges for such services. Outpatient
rehabilitation facilities which are physician-directed clinics, as well as
outpatient surgery centers, are reimbursed by Medicare on a fee screen basis;
that is, they receive a fixed fee, which is determined by the geographical area
in which the facility is located, for each procedure performed. From January 1,
1999, CORFs and rehabilitation agencies are reimbursed on a fee screen basis as
well. The Company's outpatient rehabilitation facilities submit monthly bills to
their fiscal intermediaries for services provided to Medicare beneficiaries, and
the Company files annual cost reports with the intermediaries for each such
facility.
The Company's inpatient facilities (other than the medical center
facilities) either are not currently covered by PPS or are exempt from PPS, and
are also cost-reimbursed, receiving the lower of reasonable costs or charges.
Typically, the fiscal intermediary pays a set rate based on the prior year's
costs for each facility. As with outpatient facilities subject to cost-based
reimbursement, annual cost reports are filed with the Company's fiscal
intermediary and payment adjustments are made, if necessary.
As part of the Balanced Budget Act of 1997, Congress directed the
United States Department of Health and Human Services to develop regulations
that would subject inpatient rehabilitation hospitals to a PPS. The prospective
rates are to be phased in beginning October 1, 2000, and are to be fully
implemented on October 1, 2002. The Act requires that the rates must equal 98%
of the amount of payments that would have been made if the PPS had not been
adopted. In addition, the Act requires the establishment of a PPS for hospital
outpatient department services, effective for services furnished beginning in
1999. Since the drafting of the regulations covering these initiatives is in
very early stages, the Company cannot predict at this time the effect that any
such changes may have on its continuing operations. See Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for a
discussion of the impact of the Balanced Budget Act on certain businesses
discontinued by the Company in 1998.
13
<PAGE>
In June 1998, the Health Care Financing Administration issued proposed
rules setting forth new payment classifications which would significantly change
Medicare reimbursement for outpatient surgery centers. However, the comment
period for such proposed rules has now been extended for the third time, until
June 30, 1999, and the Company cannot currently predict when final rules, if
any, will be adopted or the content or effect on the Company's operations of
such rules.
Over the past several years an increasing number of healthcare
providers have been accused of violating the federal False Claims Act. That Act
prohibits the knowing presentation of a false claim to the United States
government. Because the Company performs thousands of similar procedures a year
for which it is reimbursed by Medicare and there is a relatively long statute of
limitations, a billing error could result in significant civil penalties. The
Company does not believe that it is or has been in violation of the False Claims
Act.
Relationships with Physicians and Other Providers
Various state and federal laws regulate relationships among providers
of healthcare services, including employment or service contracts and investment
relationships. These restrictions include a federal criminal law prohibiting (i)
the offer, payment, solicitation or receipt of remuneration by individuals or
entities, to induce referrals of patients for services reimbursed under the
Medicare or Medicaid programs or (ii) the leasing, purchasing, ordering,
arranging for or recommending the lease, purchase or order of any item, good,
facility or service covered by such programs (the "Fraud and Abuse Law"). In
addition to federal criminal sanctions, violators of the Fraud and Abuse Law may
be subject to significant civil sanctions, including fines and/or exclusion from
the Medicare and/or Medicaid programs.
In 1991, the Office of the Inspector General ("OIG") of the United
States Department of Health and Human Services promulgated regulations
describing compensation arrangements which are not viewed as illegal
remuneration under the Fraud and Abuse Law (the "Safe Harbor Rules"). The Safe
Harbor Rules create certain standards ("Safe Harbors") for identified types of
compensation arrangements which, if fully complied with, assure participants in
the particular arrangement that the OIG will not treat such participation as a
criminal offense under the Fraud and Abuse Law or as the basis for an exclusion
from the Medicare and Medicaid programs or an imposition of civil sanctions. The
OIG closely scrutinizes healthcare joint ventures involving physicians and other
referral sources. In 1989, the OIG published a Fraud Alert that outlined
questionable features of "suspect" joint ventures.
In 1992, regulations were published in the Federal Register
implementing the OIG sanction and civil money penalty provisions established in
the Fraud and Abuse Law. The regulations (the "Exclusion Regulations") provide
that the OIG may exclude a Medicare provider from participation in the Medicare
Program for a five-year period upon a finding that the Fraud and Abuse Law has
been violated. The regulations expressly incorporate a test adopted by three
federal circuit courts providing that if one purpose of remuneration that is
offered, paid, solicited or received is to induce referrals, then the statute is
violated. The regulations also provide that after the OIG establishes a factual
basis for excluding a provider from the program, the burden of proof shifts to
the provider to prove that the Fraud and Abuse Law has not been violated.
The Company currently operates 22 of its rehabilitation hospitals and
many of its outpatient rehabilitation facilities as limited partnerships or
limited liability companies (collectively, "partnerships") with third-party
investors. Seven of the rehabilitation hospital partnerships involve physician
investors, 13 of the rehabilitation hospital partnerships involve other
institutional healthcare providers and two of the rehabilitation hospital
partnerships involve both institutional providers and other investors, some of
whom are physicians. Seven of the outpatient partnerships currently have a total
of 20 physician limited partners, some of whom refer patients to the
partnerships. Those partnerships which are providers of services under the
Medicare program, and their limited partners, are subject to the Fraud and Abuse
Law. A number of the relationships established by the Company with physicians
and other healthcare providers do not fit within any of the Safe Harbors. The
Safe Harbor Rules do not expand the scope of activities that the Fraud and Abuse
Law prohibits, nor do they provide that failure to fall within a Safe Harbor
constitutes a violation of the Fraud and Abuse Law; however, the OIG has
informally indicated that failure to fall within a Safe Harbor may subject an
arrangement to increased scrutiny.
Most of the Company's surgery centers are owned by partnerships, which
include as partners physicians who perform surgical procedures at such centers.
Subsequent to the promulgation of the Safe Harbor Rules in 1991, the Department
of Health and Human Services issued for public comment additional proposed Safe
Harbors, one of which specifically addresses surgeon ownership interests in
ambulatory surgery centers (the "Proposed ASC Safe Harbor"). As proposed, the
Proposed ASC Safe Harbor would protect payments to be made to surgeons as a
return on investment interest in a surgery center if, among other conditions,
all the investors are surgeons who are in a position to refer patients directly
to the center and perform surgery on such referred patients. Since a subsidiary
14
<PAGE>
of the Company is an investor in each limited partnership which owns a surgery
center, the Company's arrangements with physician investors do not fit within
the Proposed ASC Safe Harbor as currently proposed. The Company is unable at
this time to predict whether the Proposed ASC Safe Harbor will become final, and
if so, whether the language and requirements will remain as currently proposed,
or whether changes will be made prior to becoming final. There can be no
assurance that the Company will ever meet the criteria under the Proposed ASC
Safe Harbor as proposed or as it may be adopted in final form. The Company
believes, however, that its arrangements with physicians with respect to its
surgery center facilities should not fall within the activities prohibited by
the Fraud and Abuse Law.
Certain of the Company's diagnostic centers are owned or operated by
partnerships which include radiologists as partners. While such ownership
interests are not directly covered by the Safe Harbor Rules, the Company does
not believe that such arrangements violate the Fraud and Abuse Law because
radiologists are typically not in a position to make or induce referrals to
diagnostic centers. In addition, the Company's mobile lithotripsy operations are
conducted by partnerships in which urologists are limited partners. Because such
urologists are in a position to, and do, perform lithotripsy procedures
utilizing the Company's lithotripsy equipment, the Company believes that the
same analysis underlying the Proposed ASC Safe Harbor should apply to ownership
interests in lithotripsy equipment held by urologists. In addition, the Company
believes that the nature of lithotripsy services (i.e., lithotripsy is only
prescribed and utilized when a condition for which lithotripsy is the treatment
of choice has been diagnosed) makes the risk of overutilization unlikely. There
can be no assurance, however, that the Fraud and Abuse Law will not be
interpreted in a manner contrary to the Company's beliefs with respect to
diagnostic and lithotripsy services.
While several federal court decisions have aggressively applied the
restrictions of the Fraud and Abuse Law, they provide little guidance as to the
application of the Fraud and Abuse Law to the Company's partnerships. The
Company believes that it is in compliance with the current requirements of
applicable federal and state law, but no assurances can be given that a federal
or state agency charged with enforcement of the Fraud and Abuse Law and similar
laws might not assert a contrary position or that new federal or state laws, or
new interpretations of existing laws, might not adversely affect relationships
established by the Company with physicians or other healthcare providers or
result in the imposition of penalties on the Company or certain of its
facilities. Even the assertion of a violation could have a material adverse
effect upon the Company.
The so-called "Stark II" provisions of the Omnibus Budget
Reconciliation Act of 1993 amend the federal Medicare statute to prohibit the
making by a physician of referrals for "designated health services" (including
physical therapy, occupational therapy, radiology services or radiation therapy)
to an entity in which the physician has an investment interest or other
financial relationship, subject to certain exceptions. Such prohibition took
effect on January 1, 1995 and applies to all of the Company's partnerships with
physician partners. On January 9, 1998, the Department of Health and Human
Services published proposed regulations (the "Proposed Stark Regulations") under
the Stark II statute and solicited comments thereon. The Proposed Stark
Regulations would implement, amplify and clarify the Stark II statute. Final
regulations are not expected to be promulgated until after 1999. In addition, a
number of states have passed or are considering statutes which prohibit or limit
physician referrals of patients to facilities in which they have an investment
interest. In response to these regulatory activities, the Company has
restructured most of its partnerships which involve physician investors to the
extent required by applicable law, in order to eliminate physician ownership
interests not permitted by applicable law. The Company intends to take such
actions as may be required to cause the remaining partnerships to be in
compliance with applicable laws and regulations, including, if necessary, the
prohibition of physician partners from referring patients. The Company believes
that this restructuring has not adversely affected and will not adversely affect
the operations of its facilities.
Ambulatory surgery is not identified as a "designated health service"
under Stark II, and the Company does not believe the statute is intended to
cover ambulatory surgery services. The Proposed Stark Regulations would
expressly clarify that the provision of designated health services in an
ambulatory surgery center would be excepted from the referral prohibition of
Stark II if payment for such designated health services is included in the
ambulatory surgery center payment rate.
Lithotripsy facilities operated by the Company frequently operate on
hospital campuses, and it is possible to conclude that such services are
"inpatient and outpatient hospital services" -- a category of designated health
services under Stark II. The legislative history of the Stark II statute
indicates that the statute was not intended to cover the provision of
lithotripsy services by physician-owned lithotripsy providers under contract
with a hospital. In the commentary to the Proposed Stark Regulations, the
Department of Health and Human Services specifically solicited comments as to
whether lithotripsy services should be excluded from the definition of
"inpatient and outpatient hospital services". In the event that lithotripsy
services are not so excluded, the Company believes that the operations of its
lithotripsy partnerships either comply with, or can be restructured to comply
with, certain other exceptions to the Stark II referral prohibitions, and the
Company intends to take such steps as may be required to cause those
partnerships to be in compliance with Stark II if the final regulations so
require. In addition, physicians frequently perform endoscopic procedures in the
procedure rooms of the Company's surgery centers, and it is possible to construe
such services to be "designated health services". While the Company does not
believe that Stark II was intended to apply to such services, if that were
determined to be the case, the Company intends to take steps necessary to cause
the operations of its facilities to comply with the law.
15
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The Health Insurance Portability and Accountability Act of 1996
In an effort to combat healthcare fraud, Congress included several
anti-fraud measures in the Health Insurance Portability and Accountability Act
of 1996 ("HIPAA"). HIPAA, among other things, amends existing crimes and
criminal penalties for Medicare fraud and enacts new federal healthcare fraud
crimes. HIPAA also expands the Fraud and Abuse Law to apply to all federal
healthcare programs, defined to include any plan or program that provides health
benefits through insurance that is funded by the federal government. Under
HIPAA, the Secretary of the Department of Health and Human Services (the
"Secretary") may exclude from the Medicare program any individual who has a
direct or indirect ownership or control interest in a healthcare entity that has
been convicted of a healthcare fraud crime or that has been excluded from the
Medicare program. HIPAA directs the Secretary to establish a program to collect
information on healthcare fraud and abuse to encourage individuals to report
information concerning fraud and abuse against the Medicare program and provides
for payment of a portion of amounts collected to such individuals. HIPAA
mandates the establishment of a Fraud and Abuse Program, among other programs,
to control fraud and abuse with respect to health plans and to conduct
investigations, audits, evaluations, and inspections relating to the delivery of
and payment for healthcare in the United States.
HIPAA prohibits any person or entity from knowingly and willfully
committing a federal healthcare offense relating to a healthcare benefit
program. Under HIPAA, a "health care benefit program" broadly includes any
private plan or contract affecting interstate commerce under which any medical
benefit, item, or service is provided to any individual. Among the "federal
health care offenses" prohibited by HIPAA are healthcare fraud and making false
statements relative to healthcare matters. Any person or entity that knowingly
and willfully defrauds or attempts to defraud a healthcare benefit program or
obtains by means of false or fraudulent pretenses, representations or promises,
any of the money or property of any healthcare benefit program in connection
with the delivery of healthcare services is subject to a fine and/or
imprisonment. In addition, HIPAA provides that any person or entity that
knowingly and willfully falsifies, conceals or covers up a material fact or
makes any materially false or fraudulent statements in connection with the
delivery of or payment of healthcare services by a healthcare benefit plan is
subject to a fine and/or imprisonment.
HIPAA further expands the list of acts which are subject to civil
monetary penalties under federal law and increases the amount of civil penalties
which may be imposed. HIPAA provides for civil fines for individuals who retain
an ownership or control interest in a Medicare or Medicaid participating entity
after such individuals have been excluded from participating in the Medicare or
Medicaid program. HIPAA further provides for civil fines for individuals who
offer inducements to Medicare or Medicaid eligible patients if the individuals
know or should know that their offers will influence the patients to order or
receive items or services from a particular provider, practitioner or supplier.
The Company cannot predict whether other regulatory or statutory
provisions will be enacted by federal or state authorities which would prohibit
or otherwise regulate relationships which the Company has established or may
establish with other healthcare providers or the possibility of materially
adverse effects on its business or revenues arising from such future actions.
Management of the Company believes, however, that the Company will be able to
adjust its operations so as to be in compliance with any regulatory or statutory
provision as may be applicable. See this Item, "Business -- Patient Care
Services" and "Business -- Sources of Revenues".
INSURANCE
Beginning December 1, 1993, the Company became self-insured for
professional liability and comprehensive general liability. The Company
purchased coverage for all claims incurred prior to December 1, 1993. In
addition, the Company purchased underlying insurance which would cover all
claims once established limits have been exceeded. It is the opinion of
management that as of December 31, 1998, the Company had adequate reserves to
cover losses on asserted and unasserted claims.
In connection with the Horizon/CMS acquisition, the Company assumed
Horizon/CMS's open professional and general liability claims. The Company has
entered into an agreement with an insurance carrier to assume responsibility for
the majority of open claims. Under this agreement, a "risk transfer" is being
conducted which will convert Horizon/CMS's self-insured claims to insured
liabilities consistent with the terms of the underlying insurance policy.
In connection with the risk transfer, the carrier has questioned the
availability of coverage for punitive damages. The Company and Horizon/CMS have
filed a declaratory judgment action in the United States District Court for the
District of New Mexico seeking a declaration that such damages are required to
be covered (HEALTHSOUTH Corporation, et al. v. St. Paul Fire and Marine
Insurance Company, et al., Civ. No. 98-800 BB/DIS-ACE). Thereafter, the carrier
filed an action seeking a contrary declaration in the United States District
Court for the
16
<PAGE>
Northern District of Texas (St. Paul Fire and Marine Insurance Company, et al.
v. Horizon/CMS Healthcare Corporation, et al., Civil Action No. 4-98CV-575-Y).
The parties have filed preliminary motions in both actions, and the Company
cannot now predict the outcome or effect of these actions or the length of time
it will take to resolve them.
EMPLOYEES
As of December 31, 1998, the Company employed approximately 51,901
persons, of whom 32,558 were full-time employees and 19,343 were part-time
employees. Of the above employees, 821 were employed at the Company's
headquarters in Birmingham, Alabama. Except for approximately 77 employees at
one rehabilitation hospital (about 14.6% of that facility's workforce), none of
the Company's employees are represented by a labor union. The Company is not
aware of any current activities to organize its employees at other facilities.
Management of the Company considers the relationship between the Company and its
employees to be good.
ITEM 2. PROPERTIES.
The Company's executive offices currently occupy a headquarters
building of approximately 200,000 square feet in Birmingham, Alabama. The
headquarters building, which was occupied by the Company in February 1997, was
constructed on a 73-acre parcel of land owned by the Company pursuant to a tax
retention operating lease structured through NationsBanc Leasing Corporation.
Substantially all of the Company's outpatient rehabilitation and occupational
health operations are carried out in leased facilities. The Company owns 29 of
its inpatient rehabilitation facilities and leases or operates under management
contracts the remainder of its inpatient rehabilitation facilities. The Company
also owns 62 of its surgery centers and 35 of its diagnostic centers and leases
or operates under management arrangements the remainder. The Company constructed
its rehabilitation hospitals in Florence and Columbia, South Carolina, Kingsport
and Nashville, Tennessee, Concord, New Hampshire, Dothan, Alabama, Columbia,
Missouri, and Charlottesville, Virginia on property leased under long-term
ground leases. The property on which the Company's Memphis, Tennessee
rehabilitation hospital is located is owned in partnership by the Company and
Methodist Hospitals of Memphis. The Company owns its four medical center
facilities. The Company currently owns, and from time to time may acquire,
certain other improved and unimproved real properties in connection with its
business. See Notes 5 and 7 of "Notes to Consolidated Financial Statements" for
information with respect to the properties owned by the Company and certain
indebtedness related thereto.
In management's opinion, the Company's physical properties are adequate
for the Company's needs for the foreseeable future, and are consistent with its
expansion plans described elsewhere in this Annual Report on Form 10-K.
17
<PAGE>
The following table sets forth a listing of the Company's primary domestic
patient care services locations (including both facilities owned or leased by
the Company and facilities under management agreements or similar arrangements)
at December 31, 1998, exclusive of those facilities to be closed, consolidated
or sold pursuant to plans adopted in 1998:
<TABLE>
<CAPTION>
INPATIENT OCCUPATIONAL OUTPATIENT
REHABILITATION MEDICAL HEALTH REHABILITATION SURGERY DIAGNOSTIC
STATE FACILITIES (BEDS)(1) CENTERS (BEDS)(1) CENTERS CENTERS(2) CENTERS CENTERS
- - - ----- -------------------- ----------------- ------- ---------- ------- -------
<S> <C> <C> <C> <C> <C>
Alabama 8 (404) 1 (219) 32 7 4
Alaska 4 7 1 1
Arizona 4 (243) 8 27 2 1
Arkansas 6 (309) 5 25 2
California 1 (60) 27 51 50 3
Colorado 1 (64) 1 35 5 5
Connecticut 1 (26) 2 18 6
Delaware 6 1
District of Columbia 1 1
Florida 9 (631) 1 (285) 6 83 18 8
Georgia 1 (50) 4 29 4 11
Hawaii 10 1
Idaho 4 1
Illinois 1 55 7 10
Indiana 3 (200) 2 14 5 1
Iowa 1 3 2
Kansas 4 (224) 11
Kentucky 2 (80) 2 4 6
Louisiana 5 (287) 3 5 2 3
Maine 2 (125) 11
Maryland 1 (44) 28 9 6
Massachusetts 11 (921) 1 52 1 2
Michigan 1 (30) 3 12
Minnesota 15 2
Mississippi 8 3
Missouri 2 (160) 1 55 8 1
Montana 4 1
Nebraska 1 5
Nevada 2 (130) 22 3
New Hampshire 3 (98) 9
New Jersey 1 (155) 1 66 3 3
New Mexico 1 (61) 1 6 1 1
New York 1 (27) 47 1 3
North Carolina 22 10 1
North Dakota 4
Ohio 1 (30) 3 36 7
Oklahoma 3 (155) 1 18 5 1
Oregon 31 1
Pennsylvania 14 (1,049) 3 57 6 8
Rhode Island 2 2
South Carolina 3 (216) 8 2 5
South Dakota 4 1
Tennessee 7 (407) 25 5 4
Texas 19 (1,114) 1 (106) 10 108 18 22
Utah 1 (86) 2 10 2
Vermont 1 2
Virginia 2 (90) 1 (200) 4 25 1 6
Washington 17 72 5 1
West Virginia 4 (214) 3 1
Wisconsin 1 4
Wyoming 2
</TABLE>
-----------------------
(1) "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.
18
<PAGE>
(2) Includes freestanding outpatient centers and their satellites,
outpatient satellites of inpatient rehabilitation facilities and
outpatient facilities managed under contract.
In addition, at December 31, 1998, the Company operated six diagnostic
centers in the United Kingdom and one rehabilitation hospital in Australia, as
well as numerous locations in various states providing other services.
ITEM 3. LEGAL PROCEEDINGS.
In the ordinary course of its business, the Company may be subject,
from time to time, to claims and legal actions by patients and others. The
Company does not believe that any such pending actions, if adversely decided,
would have a material adverse effect on its financial condition. See Item 1,
"Business -- Insurance" and Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for a description of the
Company's insurance coverage arrangements.
From time to time, the Company appeals decisions of various rate-making
authorities with respect to Medicare rates established for the Company's
facilities. These appeals are initiated in the ordinary course of business.
Management believes that adequate reserves have been established for possible
adverse decisions on any pending appeals and that the outcomes of currently
pending appeals, either individually or in the aggregate, will have no material
adverse effect on the Company's operations.
SECURITIES LITIGATION
The Company has been served with certain lawsuits filed beginning
September 30, 1998 which purport to be class actions under the federal and
Alabama securities laws. Such lawsuits were filed following a decline in the
Company's stock price at the end of the third quarter of 1998. Seven such suits
have been filed in the United States District Court for the Northern District of
Alabama: Robert M. Gordon, et al. v. HEALTHSOUTH Corporation, et al., Civil
Action No. 98-J-2634-S, Twin Plus LLC, et al. v. HEALTHSOUTH Corporation, et
al., Civil Action No. 98-PWG-2695-S, Irene Rigas, et al. v. HEALTHSOUTH
Corporation, et al., Civil Action No. 98-RRA-2777-S, Harry Schipper v.
HEALTHSOUTH Corporation, et al., Civil Action No. 98-N-2779-S, Ryan McCormick v.
HEALTHSOUTH Corporation, et al., Civil Action No. 98-RRA-2831-S, United Food &
Commercial Workers Union Local 100-A Pension Fund v. HEALTHSOUTH Corporation, et
al., Civil Action No. 98-BU-2869-S, and Vinod Parikh v. HEALTHSOUTH Corporation,
et al., Civil Action No. 98-BU-2869-S. These are substantially identical
complaints filed against the Company and certain of its officers and Directors
alleging that, during the period August 12, 1997 through September 30, 1998, the
defendants misrepresented or failed to disclose certain material facts
concerning the Company's business and financial condition in order to
artificially inflate the price of the Company's Common Stock and issued or sold
shares of such stock during the purported class period, all allegedly in
violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
thereunder. Certain of the named plaintiffs in some of the complaints also
purport to represent separate subclasses consisting of former stockholders of
Horizon/CMS Healthcare Corporation and National Surgery Centers, Inc. who
received shares of the Company's Common Stock in connection with the Company's
acquisition of those entities and assert additional claims under Section 11 of
the Securities Act of 1933 with respect to the registration of securities issued
in those acquisitions. In January 1999, these complaints were ordered to be
consolidated, with a consolidated amended complaint due to be filed on April 5,
1999 (after a one-month extension requested by the plaintiffs' counsel). Another
suit, Peter J. Petrunya v. HEALTHSOUTH Corporation, et al., Civil Action No.
98-05931, was filed in the Circuit Court for Jefferson County, Alabama, alleging
that during the period July 16, 1996 through September 30, 1998 the defendants
misrepresented or failed to disclose certain material facts concerning the
Company's business and financial condition, allegedly in violation of Section
8-6-17 and 8-6-19 of the Alabama Securities Act. The Petrunya complaint was
voluntarily dismissed by the plaintiff without prejudice in January 1999.
Additionally, a suit styled Dennis Family Trust v. Richard M. Scrushy, et
al., Civil Action No. 98-06592, has been filed in the Circuit Court for
Jefferson County, Alabama, purportedly as a derivative action on behalf of the
Company. That suit largely replicates the allegations of the federal actions
described in the preceding paragraph and alleges that the current Directors of
the Company, certain former Directors and certain officers of the Company
breached their fiduciary duties to the Company and engaged in other allegedly
tortious conduct. The plaintiff in that case has forborne pursuing its claim
thus far pending further progress in the federal actions, and the Company has
not yet been required to file a responsive pleading in the case.
The Company believes that all claims asserted in the above suits are
without merit, and expects to vigorously defend against such claims. Because
such suits have only recently been filed, the Company cannot predict the outcome
of any such suits or the magnitude of any potential loss if the Company's
defense is unsuccessful.
19
<PAGE>
CERTAIN HORIZON/CMS LITIGATION
On October 29, 1997, HEALTHSOUTH acquired 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.
The Company is not itself a party to the litigation described below.
SEC and NYSE Investigations
The Division of Enforcement of the SEC has for some time been
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 the Company 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 Company and Horizon/CMS have no knowledge of the current status
of the investigation, and neither Horizon/CMS nor the Company possesses all the
facts with respect to the matters under investigation. Although neither
Horizon/CMS nor the Company has been advised by the SEC that the SEC has
concluded that any of Horizon/CMS, Mr. Elliott or any other current or former
officer or director of Horizon/CMS has been involved in any violation of the
federal securities laws, there can be no assurance as to the outcome of the
investigation or the time of its conclusion. Both Horizon/CMS and the Company
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 informed Horizon/CMS that it
had initiated a review of trading in Hillhaven Corporation common stock prior to
the announcement of Horizon/CMS's proposed acquisition of Hillhaven. In April
1995, the NYSE extended the review of trading to include all dealings with CMS.
On April 3, 1996, the NYSE notified Horizon/CMS that it had initiated a review
of trading in its common stock preceding Horizon/CMS's March 1, 1996 press
release announcing a revision in Horizon/CMS's third quarter earnings estimate.
On February 20, 1997, the NYSE notified Horizon/CMS that it was reviewing
trading in Horizon/CMS's securities prior to the February 18, 1997 announcement
that the Company would acquire Horizon/CMS. Horizon/CMS has cooperated with the
NYSE in its reviews and has no knowledge of the current status of such reviews.
In February 1997, the Company 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 the Company would acquire
Horizon/CMS and a request for information from the NYSE in connection with its
review of such trading. The Company 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. The Company
provided certain additional information to the SEC in April 1997.
Neither the Company nor Horizon/CMS has received any further inquiries
from the SEC or the NYSE with respect to the matters described above since
mid-1997, and the Company is unaware of the current status of such
investigations or reviews. The Company does not intend to describe these matters
in future reports unless it becomes aware of new developments with respect to
them.
Michigan Attorney General Litigation Regarding 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.
20
<PAGE>
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. The litigation has continued at the pretrial hearing phase
for several months, including numerous adjournments, and such pretrial hearing
phase is not expected to conclude until April 1999, after which time the court
will determine which, if any, charges may be brought to trial. Because of the
preliminary status of this litigation, 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 a breach of their employment agreements with the companies. As a
result of such alleged conduct, the plaintiffs assert that they are entitled to
damages in an amount in excess of $27,000,000 from CMS and the other defendants.
Horizon/CMS believes, based upon its evaluation of the legal and factual matters
relating to the plaintiffs' assertions, that it has valid defenses to the
plaintiffs' claims and, as a result, intends to vigorously contest such claims.
Because this litigation remains at a procedurally early stage, the Company
cannot now predict the outcome or effect of such litigation or the length of
time it will take to resolve such 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. ss.ss. 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 remains at a
procedurally early stage, the Company cannot predict the length of time it will
take to resolve the litigation or the outcome of the litigation.
Heritage Western Hills Litigation
Since July 1996, Horizon/CMS has been a defendant in a lawsuit styled
Lexa A. Auld, Administratrix of Martha Hary, Deceased v. Horizon/CMS Healthcare
Corporation and Charles T. Maxvill, D.O., No. 48-165121, 48th Judicial District
Court, Tarrant County, Texas. The case involved injuries allegedly suffered by a
resident of the Heritage Western Hills nursing facility in Fort Worth, Texas.
Horizon/CMS tendered the claim to its insurance carrier, which accepted coverage
with a reservation of rights and provided a defense through the carrier's
selected counsel in Dallas, Texas. The case went to trial on October 29, 1997,
and on November 7, 1997, the jury rendered a verdict in favor of the plaintiff
in the amount of $2,370,000 in compensatory damages and $90,000,000 in punitive
damages. Counsel has advised Horizon/CMS that, under applicable Texas law, the
punitive damages award is, at worst, limited to four times the amount of the
compensatory damages (the "Punitive Damages Cap"), and thus that the maximum
amount of an enforceable judgment in favor of the plaintiff is approximately
$12,000,000. Counsel has also advised Horizon/CMS that there are, potentially,
other and further caps on both the amount of compensatory damages available to
the plaintiff and the amount of punitive damages. Horizon/CMS filed the required
motions with the court to impose the Punitive Damages Cap. On 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
21
<PAGE>
efficacy of the jury's verdict and has appealed the judgment. The judgment was
left unchanged by the intermediate appellate court and is now being appealed to
the Texas Supreme Court.
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 the
Company's retained counsel, continue with the plaintiff. It is not possible at
this time to predict the outcome of any 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. See Item 1, "Business --
Insurance".
HEALTH IMAGES/FONAR LITIGATION
On February 2, 1998, Fonar Corporation ("Fonar") filed an action
against HEALTHSOUTH in the United States District Court for the Eastern District
of New York styled Fonar Corporation v. HEALTHSOUTH, Inc., Civil Action No.
98-CV-679 (LDW)(ARL). In the complaint, Fonar alleges that HEALTHSOUTH infringed
United States Patent Number 4,871,966 (the "'966 patent") which pertains to the
operation of the Multi-Angle Oblique ("MAO") feature in MRI machines. The MAO
feature enables the MRI machine to scan multiple differing angles in a single
MAO scan. Fonar seeks damages in an unspecified amount, along with enhanced
damages for alleged willful infringement. Fonar's allegations of infringement
and willful infringement are based largely on the actions of Health Images prior
to its acquisition by HEALTHSOUTH in March 3, 1997. Health Images, and
subsequently HEALTHSOUTH, are alleged to have infringed the '966 patent through
the manufacture and use of MRI equipment that contains the MAO feature.
HEALTHSOUTH has answered Fonar's complaint denying the allegations of
infringement, and filed a third-party complaint against Picker International,
Inc., which seeks indemnity for those machines purchased by Health Images and
HEALTHSOUTH from Picker alleged to infringe the '966 patent. At this time, since
discovery has not yet commenced, HEALTHSOUTH cannot predict the outcome or
effect of this litigation or the length of time it will take to resolve this
litigation. The court has set the matter for a final pretrial conference on
September 15, 2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
22
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is listed for trading on the New York Stock
Exchange (Symbol: HRC). The following table sets forth for the fiscal periods
indicated the high and low reported sale prices for the Company's common stock
as reported on the NYSE Composite Transactions Tape. All prices shown have been
adjusted for a two-for-one stock split effected in the form of a 100% stock
dividend paid on March 17, 1997.
<TABLE>
<CAPTION>
REPORTED
SALE PRICE
--------------------------
HIGH LOW
-------- ------
1997
----
<S> <C> <C>
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.............................................................. $ 30.44 $ 21.69
Second Quarter............................................................. 30.81 25.75
Third Quarter.............................................................. 30.12 8.88
Fourth Quarter............................................................. 15.88 7.69
</TABLE>
-------------------------
The closing price for the Company's common stock on the New York Stock
Exchange on March 29, 1999, was $11.125.
There were approximately 6,924 holders of record of the Company's
common stock as of March 25, 1999, excluding those shares held by depository
companies for certain beneficial owners.
The Company has never paid cash dividends on its common stock (although
certain of the companies acquired by the Company in poolings- of-interests
transactions had paid dividends prior to such acquisitions) and does not
anticipate the payment of cash dividends in the foreseeable future. The Company
currently anticipates that any future earnings will be retained to finance the
Company's operations.
RECENT SALES OF UNREGISTERED SECURITIES
All unregistered sales of equity securities by the Company in 1998 have
been previously reported on Form 10-Q or Form 8-K, as applicable.
23
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
Set forth below is a summary of selected consolidated financial data
for the Company for the years indicated. All amounts have been restated to
reflect the effects of the 1994 acquisition of ReLife, Inc. ("ReLife"), the 1995
acquisitions of Surgical Health Corporation ("SHC") and Sutter Surgery Centers,
Inc. ("SSCI"), the 1996 SCA and Advantage Health acquisitions, the 1997 Health
Images acquisition and the 1998 NSC acquisition, each of which was accounted for
as a pooling of interests.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------
1994 1995 1996 1997 1998
------------- ------------- ------------ ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C>
Revenues $ 1,769,095 $ 2,173,012 $ 2,648,188 $ 3,123,176 $ 4,006,074
Operating unit expenses 1,237,750 1,478,208 1,718,108 1,952,189 2,491,914
Corporate general and administrative expenses 69,718 67,789 82,953 87,512 112,800
Provision for doubtful accounts 36,807 43,471 61,311 74,743 112,202
Depreciation and amortization 128,721 164,482 212,967 257,136 344,591
Merger and acquisition related expenses (1) 6,520 19,553 41,515 15,875 25,630
Impairment and restructuring charges (2) 10,500 53,549 37,390 --- 483,455
Loss on abandonment of computer project 4,500 --- --- --- ---
Loss on disposal of surgery centers 13,197 --- --- --- ---
Loss on sale of assets (2) --- --- --- --- 31,232
Interest expense 79,081 109,656 101,367 112,529 148,163
Interest income (6,838) (8,287) (6,749) (6,004) (11,286)
Gain on sale of MCA Stock (7,727) --- --- --- ---
-------------- ------------- ------------ ------------- -------------
1,572,229 1,928,421 2,248,862 2,493,980 3,738,701
------------- ------------- ------------ ------------- -------------
Income from continuing operations
before income taxes, minority interests
and extraordinary item 196,866 244,591 399,326 629,196 267,373
Provision for income taxes 69,578 88,142 148,545 213,668 143,347
------------- ------------- ------------ ------------- -------------
127,288 156,449 250,781 415,528 124,026
Minority interests 32,692 45,135 54,003 72,469 77,468
------------- ------------- ------------ ------------- -------------
Income from continuing operations
before extraordinary item 94,596 111,314 196,778 343,059 46,558
Income from discontinued operations (6,528) (1,162) --- --- ---
Extraordinary item --- (9,056) --- --- ---
------------- -------------- ------------ ------------- -------------
Net income $ 88,068 $ 101,096 $ 196,778 $ 343,059 $ 46,558
============= ============= ============ ============= =============
Weighted average common shares
outstanding (3) 280,506 298,462 336,603 366,768 421,462
============= ============= ============ ============= =============
Net income per common share: (3)
Continuing operations $ 0.34 $ 0.37 $ 0.58 $ 0.94 $ 0.11
Discontinued operations (0.02) --- --- --- ---
Extraordinary item --- (0.03) --- --- ---
------------- -------------- ------------ ------------- -------------
$ 0.32 $ 0.34 $ 0.58 $ 0.94 $ 0.11
============= ============= ============ ============= =============
Weighted average common shares
outstanding-- assuming dilution(3)(4) 307,784 329,000 365,715 386,211 432,275
============= ============= ============== ============= =============
Net income per common share --
assuming dilution: (3)(4)
Continuing operations $ 0.32 $ 0.35 $ 0.55 $ 0.89 $ 0.11
Discontinued operations (0.02) --- --- --- ---
Extraordinary item --- (0.03) --- --- ---
------------- -------------- ------------ ------------- -------------
$ 0.30 $ 0.32 $ 0.55 $ 0.89 $ 0.11
============= ============= ============ ============= =============
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------------------------
1994 1995 1996 1997 1998
------------- ------------- ------------ ------------- -------------
BALANCE SHEET DATA: (In thousands)
<S> <C> <C> <C> <C> <C>
Cash and marketable securities $ 138,518 $ 182,636 $ 205,166 $ 185,018 $ 142,513
Working capital 315,070 428,746 624,497 612,917 945,927
Total assets 2,412,874 3,190,095 3,671,958 5,566,324 6,773,008
Long-term debt (5) 1,206,846 1,477,092 1,570,597 1,614,961 2,830,926
Stockholders' equity 843,884 1,317,878 1,686,770 3,290,623 3,423,004
</TABLE>
- - - --------------
(1) Expenses related to the ReLife acquisition and SHC's Heritage Surgical
acquisition in 1994, the SHC, SSCI and NovaCare Rehabilitation Hospitals
acquisitions in 1995, the SCA, Advantage Health, PSCM and ReadiCare
acquisitions in 1996, the Health Images acquisition in 1997 and the NSC
acquisition in 1998.
(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 the Company's 5% Convertible
Subordinated Debentures due 2001. Substantially all of such Debentures
were converted into shares of the Company's Common Stock in 1997.
(5) Includes current portion of long-term debt.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
The following discussion is intended to facilitate the understanding and
assessment of significant changes and trends related to the consolidated results
of operations and financial condition of the Company, including certain factors
related to recent acquisitions by the Company, the timing and nature of which
have significantly affected the Company's consolidated results of operations.
This discussion and analysis should be read in conjunction with the Company's
consolidated financial statements and notes thereto included elsewhere in this
Annual Report on Form 10-K.
The Company completed the following major acquisitions over the last three
years (common share amounts have been adjusted to reflect a stock split effected
in the form of a 100% stock dividend paid on March 17, 1997):
o On January 17, 1996, the Company acquired Surgical Care Affiliates, Inc.
(the "SCA Acquisition"). A total of 91,856,678 shares of the Company's Common
Stock were issued in the transaction, representing a value of approximately
$1,400,000,000 at the time of the acquisition. At that time, SCA operated a
network of 67 freestanding surgery centers in 24 states.
o On March 14, 1996, the Company acquired Advantage Health Corporation (the
"Advantage Health Acquisition"). A total of 18,203,978 shares of the Company's
Common Stock were issued in the transaction, representing a value of
approximately $315,000,000 at the time of the acquisition. At that time,
Advantage Health operated a network of 136 sites of service, including four
freestanding rehabilitation hospitals, one freestanding multi-use hospital, one
nursing home, 68 outpatient rehabilitation facilities, 14 inpatient managed
rehabilitation units, 24 rehabilitation services management contracts and six
managed subacute rehabilitation units, primarily located in the northern United
States.
o On August 20, 1996, the Company acquired Professional Sports Care
Management, Inc. (the "PSCM Acquisition"). A total of 3,622,888 shares of the
Company's Common Stock were issued in the transaction, representing a value of
approximately $59,000,000 at the time of the acquisition. At that time, PSCM
operated a network of 36 outpatient rehabilitation centers in three states.
o On December 2, 1996, the Company acquired ReadiCare, Inc. (the "ReadiCare
Acquisition"). A total of 4,007,954 shares of the Company's Common Stock were
issued in the transaction, representing a value of approximately $76,000,000 at
the time of the acquisition. At that time, ReadiCare operated a network of 37
occupational medicine and rehabilitation centers in two states.
o On March 3, 1997, the Company acquired Health Images, Inc. (the "Health
Images Acquisition"). A total of 10,343,470 shares of the Company's Common Stock
were issued in the transaction, representing a value of approximately
$208,162,000 at the time of the acquisition. At that time, Health Images
operated 49 freestanding diagnostic centers in 13 states and six in the United
Kingdom.
o On September 30, 1997, the Company acquired ASC Network Corporation (the
"ASC Acquisition"). The Company paid approximately $130,827,000 in cash for all
of the issued and outstanding capital stock of ASC and assumed approximately
$61,000,000 in debt. At that time, ASC operated 29 outpatient surgery centers in
eight states.
o On October 23, 1997, the Company acquired National Imaging Affiliates, Inc.
(the "NIA Acquisition"). A total of 984,189 shares of the Company's Common Stock
were issued in the transaction, representing a value of approximately
$20,706,000 at the time of the acquisition. At that time, NIA operated eight
diagnostic imaging centers in six states.
25
<PAGE>
o On October 29, 1997, the Company acquired Horizon/CMS Healthcare
Corporation (the "Horizon/CMS Acquisition"). A total of 45,261,000 shares of the
Company's Common Stock were issued in the transaction, representing a value of
approximately $975,824,000 at the time of the acquisition, and the Company
assumed approximately $740,000,000 in debt. At that time, Horizon/CMS operated
30 inpatient rehabilitation facilities and approximately 275 outpatient
rehabilitation centers, among other strategic businesses, as well as certain
long-term care businesses. On December 31, 1997, the Company sold the long-term
care assets of Horizon/CMS, including 139 long-term care facilities, 12
specialty hospitals, 35 institutional pharmacy locations and over 1,000
rehabilitation therapy contracts with long-term care facilities, to Integrated
Health Services, Inc. ("IHS"). IHS paid approximately $1,130,000,000 in cash
(net of certain adjustments) and assumed approximately $94,000,000 in debt in
the transaction.
o On July 1, 1998, the Company acquired Columbia/HCA Healthcare Corporation's
interest in (or entered into interim management arrangements with respect to) 34
outpatient surgery centers located in 13 states (the "Columbia/HCA
Acquisition"). The cash purchase price was approximately $550,402,000.
o On July 22, 1998, the Company acquired National Surgery Centers, Inc. (the
"NSC Acquisition"). A total of 20,426,261 shares of the Company's Common Stock
were issued in connection with the transaction, representing a value of
approximately $574,489,000. At that time, NSC operated 40 outpatient surgery
centers in 14 states.
Each of the ASC Acquisition, the Horizon/CMS Acquisition, the NIA
Acquisition and the Columbia/HCA Acquisition was accounted for under the
purchase method of accounting and, accordingly, the acquired operations are
included in the Company's consolidated financial statements from their
respective dates of acquisition. Each of the SCA Acquisition, the Advantage
Health Acquisition, the Health Images Acquisition and the NSC Acquisition was
accounted for as a pooling of interests and, with the exception of data set
forth relating to revenues derived from Medicare and Medicaid, all amounts shown
in the following discussion have been restated to reflect such acquisitions.
SCA, Advantage Health, Health Images and NSC did not separately track such
revenues. The PSCM Acquisition and the ReadiCare Acquisition were also accounted
for as poolings of interests. However, due to the immateriality of PSCM and
ReadiCare, the Company's historical financial statements for all periods prior
to the quarters in which the respective mergers took place have not been
restated. Instead, stockholders' equity has been increased during 1996 to
reflect the effects of the PSCM Acquisition and the ReadiCare Acquisition. The
results of operations of PSCM and ReadiCare are included in the accompanying
consolidated financial statements and the following discussion from the date of
acquisition forward (see Note 2 of "Notes to Consolidated Financial Statements"
for further discussion).
The Company determines the amortization period of the cost in excess of net
asset value of purchased facilities based on an evaluation of the facts and
circumstances of each individual purchase transaction. The evaluation includes
an analysis of historic and projected financial performance, an evaluation of
the estimated useful life of the buildings and fixed assets acquired, the
indefinite useful life of certificates of need and licenses acquired, the
competition within local markets, lease terms where applicable, and the legal
terms of partnerships where applicable. The Company utilizes independent
appraisers and relies on its own management expertise in evaluating each of the
factors noted above. In connection with recent developments, including changes
in the reimbursement environment in the healthcare industry, the closing or
consolidation of certain of its locations, and the integration of some of its
purchased facilities in connection with implementation of its Integrated Service
Model strategy, the Company is undertaking a comprehensive review of its
amortization policies with respect to the excess of cost over net asset value of
purchased facilities. This review may result in future changes in certain of the
Company's accounting estimates following completion of such review. With respect
to the carrying value of the excess of cost over net asset value of individual
purchased facilities and other intangible assets, the Company determines on a
quarterly basis whether an impairment event has occurred by considering factors
such as the market value of the asset, a significant adverse change in legal
factors or in the business climate, adverse action by regulators, a history of
operating losses or cash flow losses, or a projection of continuing losses
associated with an operating entity. The carrying value of excess cost over net
asset value of purchased facilities and
26
<PAGE>
other intangible assets will be evaluated if the facts and circumstances suggest
that it has been impaired. If this evaluation indicates that the value of the
asset will not be recoverable, as determined based on the undiscounted cash
flows of the entity acquired over the remaining amortization period, the
Company's carrying value of the asset will be reduced by the estimated shortfall
of cash flows to the estimated fair market value.
In 1998, the Company adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an
Enterprise and Related Information". SFAS 131 requires an enterprise to report
operating segments based upon the way its operations are managed. This approach
defines operating segments along the lines used by management to assess
performance and make operating and resource allocation decisions. Based on the
Company's management and reporting structure, segment information has been
presented for inpatient and other clinical services and outpatient services.
The inpatient and other clinical services segments includes the operations
of its inpatient rehabilitation facilities and medical centers, as well as the
operations of certain physician practices and other clinical services which are
managerially aligned with the Company's inpatient services. The Company has
aggregated the financial results of its outpatient rehabilitation facilities
(including occupational health centers), outpatient surgery centers and
outpatient diagnostic centers into the outpatient services segment. These three
types of facilities have common economic characteristics, provide similar
services, serve a similar class of customers, cross-utilize administrative
services and operate in a similar regulatory environment. In addition, the
Company's Integrated Service Model strategy combines these services in a
seamless environment for the delivery of patient care on an episodic basis.
See Note 14 of "Notes to Consolidated Financial Statements" for financial
data for each of the Company's operating segments.
The Company's revenues include net patient service revenues and other
operating revenues. Net patient service revenues are reported at estimated net
realizable amounts from patients, insurance companies, third-party payors
(primarily Medicare and Medicaid) and others for services rendered. Revenues
from third-party payors also include estimated retroactive adjustments under
reimbursement agreements which are subject to final review and settlement by
appropriate authorities. Management determines allowances for doubtful accounts
and contractual adjustments based on historical experience and the terms of
payor contracts. Net accounts receivable include only those amounts estimated by
management to be collectible.
Substantially all of the Company's revenues are derived from private and
governmental third-party payors. The Company's reimbursement from governmental
third-party payors is based upon cost reports and other reimbursement mechanisms
which require the application and interpretation of complex regulations and
policies, and such reimbursement is subject to various levels of review and
adjustment by fiscal intermediaries and others, which may affect the final
determination of reimbursement. In addition, there are increasing pressures from
many payor sources to control healthcare costs and to reduce or limit increases
in reimbursement rates for medical services. There can be no assurance that
payments under governmental and third-party payor programs will remain at levels
comparable to present levels. In addition, there have been, and the Company
expects that there will continue to be, a number of proposals to limit Medicare
reimbursement for certain services. The Company cannot now predict whether any
of these proposals will be adopted or, if adopted and implemented, what effect
such proposals would have on the Company. Changes in reimbursement policies or
rates by private or governmental payors could have an adverse effect on the
future results of operations of the Company.
The Company, in many cases, operates more than one site within a market. In
such markets, there is customarily an outpatient center or inpatient facility
with associated satellite outpatient locations. For purposes of the following
discussion and analysis, same store operations are measured on locations within
markets in which similar operations existed at the end of the period and include
the operations of additional locations opened within the same market. New store
operations are measured on locations
27
<PAGE>
within new markets. The Company may, from time to time, close or consolidate
similar locations in multi-site markets to obtain efficiencies and respond to
changes in demand.
RESULTS OF OPERATIONS OF THE COMPANY
Twelve-Month Periods Ended December 31, 1996 and 1997
The Company's operations generated revenues of $3,123,176,000 in 1997, an
increase of $474,988,000, or 17.9%, as compared to 1996 revenues. Same store
revenues for the twelve months ended December 31, 1997 were $2,921,684,000, an
increase of $273,496,000, or 10.3%, as compared to the same period in 1996. New
store revenues for 1997 were $201,492,000. New store revenues reflect primarily
the addition of facilities through the Horizon/CMS Acquisition and the ASC
Acquisition and the acquisition of outpatient rehabilitation operations in new
markets through internal development (see Note 9 of "Notes to Consolidated
Financial Statements"). The increase in revenues is primarily attributable to
the addition of these operations and increases in patient volume. Revenues
generated from patients under the Medicare and Medicaid programs respectively
accounted for 36.9% and 2.3% of total revenues for 1997, compared to 37.8% and
2.9% of total revenues for 1996. Revenues from any other single third-party
payor were not significant in relation to the Company's total revenues. During
1997, same store inpatient days, outpatient visits, surgical cases and
diagnostic cases increased 10.8%, 20.6%, 8.8% and 12.3%, respectively. Revenue
per inpatient day, outpatient visit, surgical case and diagnostic case for same
store operations increased (decreased) by 1.6%, 4.6%, (0.9)% and (0.3) %,
respectively.
Operating expenses, at the operating unit level, were $1,952,189,000, or
62.5% of revenues, for 1997, compared to 64.9% of revenues for 1996. The
decrease in operating expenses as a percentage of revenues is primarily
attributable to the increase in same store revenues noted above. In same store
operations, the incremental costs associated with increased revenues are
significantly lower as a percentage of those increased revenues. Same store
operating expenses for 1997 were $1,804,674,000, or 61.8% of related revenues.
New store operating expenses were $147,515,000, or 73.2% of related revenues.
New store revenues and operating expenses for 1997 include two months of
operations of the facilities acquired from Horizon/CMS, in which aggregate
operating expenses were significantly higher as a percentage of related revenues
than in the Company's other facilities. Corporate general and administrative
expenses increased from $82,953,000 in 1996 to $87,512,000 in 1997. As a
percentage of revenues, corporate general and administrative expenses decreased
from 3.1% in 1996 to 2.8% in 1997. Total operating expenses were $2,039,701,000,
or 65.3% of revenues, for 1997, compared to $1,801,061,000, or 68.0% of
revenues, for 1996. The provision for doubtful accounts was $74,743,000, or 2.4%
of revenues, for 1997, compared to $61,311,000, or 2.3% of revenues, for 1996.
Depreciation and amortization expense was $257,136,000 for 1997, compared
to $212,967,000 for 1996. The increase resulted from the investment in
additional assets by the Company. Interest expense increased to $112,529,000 in
1997, compared to $101,367,000 for 1996, primarily because of the increased
amount outstanding under the Company's revolving credit facility (see "Liquidity
and Capital Resources"). For 1997, interest income was $6,004,000, compared to
$6,749,000 for 1996. The decrease in interest income resulted primarily from a
decrease in the average amount outstanding in interest-bearing investments.
Merger expenses in 1997 of $15,875,000 represent costs incurred or accrued
in connection with completing the Health Images Acquisition. For further
discussion, see Note 2 of "Notes to Consolidated Financial Statements".
Income before minority interests and income taxes for 1997 was
$629,196,000, compared to $399,326,000 for 1996. Minority interests reduced
income before income taxes by $72,469,000 in 1997, compared to $54,003,000 for
1996. The provision for income taxes for 1997 was $213,668,000, compared to
$148,545,000 for 1996, resulting in effective tax rates of 38.4% for 1997 and
43.0% for
28
<PAGE>
1996. Net income for 1997 was $343,059,000.
Twelve-Month Periods Ended December 31, 1997 and 1998
The Company's operations generated revenues of $4,006,074,000 in 1998, an
increase of $882,898,000, or 28.3%, as compared to 1997 revenues. Same store
revenues for the twelve months ended December 31, 1998 were $3,755,413,000, an
increase of $632,237,000, or 20.2%, as compared to the same period in 1997. New
store revenues for 1998 were $250,661,000. Same store revenues reflect the first
full year of operations of the Horizon/CMS facilities and the ASC Network
facilities acquired in October 1997. New store revenues reflect primarily the
addition of facilities from the Columbia/HCA Acquisition and the Company's
single facility acquisitions through internal development (see Note 9 of "Notes
to Consolidated Financial Statements"). The increase in revenues is primarily
attributable to the addition of these operations and increases in patient
volume. Revenues generated from patients under the Medicare and Medicaid
programs respectively accounted for 35.9% and 2.7% of total revenues for 1998,
compared to 36.9% and 2.3% of total revenues for 1997. Revenues from any other
single third-party payor were not significant in relation to the Company's total
revenues. During 1998, same store inpatient days, outpatient visits, surgical
cases and diagnostic cases increased 32.5%, 27.7%, 20.8% and 18.0%,
respectively. Revenue per inpatient day, outpatient visit, surgical case and
diagnostic case for same store operations decreased by (5.8)%, (0.2)%, (2.8)%
and (0.3)%, respectively.
Operating expenses, at the operating unit level, were $2,491,914,000, or
62.2% of revenues, for 1998, compared to 62.5% of revenues for 1997. Included in
operating expenses, at the operating unit level, for the year ended December 31,
1998, is a non-recurring expense item of approximately $27,768,000 related to
the Company's plan to dispose of or otherwise discontinue substantially all of
its home health operations, as described below. Excluding the non-recurring
expense, operating expenses at the operating unit level were $2,464,146,000, or
61.5% of revenues for the year ended December 31, 1998. The decrease in
operating expenses as a percentage of revenues is primarily attributable to the
increase in same store revenues noted above. In same store operations, the
incremental costs associated with increased revenues are significantly lower as
a percentage of those increased revenues. Same store operating expenses for
1998, excluding the non-recurring expense item noted above, were $2,296,802,000
or 61.2% of related revenues. New store operating expenses were $167,344,000, or
66.8% of related revenues. Corporate general and administrative expenses
increased from $87,512,000 in 1997 to $112,800,000 in 1998. As a percentage of
revenues, corporate general and administrative expenses remained constant at
2.8% in 1997 and 1998. Total operating expenses were $2,604,714,000, or 65.0% of
revenues, for 1998, compared to $2,039,701,000, or 65.3% of revenues, for 1997.
The provision for doubtful accounts was $112,202,000, or 2.8% of revenues, for
1998, compared to $74,743,000, or 2.4% of revenues, for 1997. Included in the
provision for doubtful accounts for the year ended December 31, 1998, is a
non-recurring expense item of approximately $19,228,000 related to the Company's
plan to dispose of or otherwise discontinue substantially all of its home health
operations, as described below. Excluding the non-recurring item, the provision
for doubtful accounts was $92,974,000 or 2.3% of revenues for 1998.
Depreciation and amortization expense was $344,591,000 for 1998, compared
to $257,136,000 for 1997. The increase resulted from the investment in
additional assets by the Company. Interest expense increased to $148,163,000 in
1998, compared to $112,529,000 for 1997, primarily because of the increased
amount outstanding under the Company's credit facilities (see "Liquidity and
Capital Resources"). For 1998, interest income was $11,286,000, compared to
$6,004,000 for 1997. The increase in interest income resulted primarily from an
increase in the average amount outstanding in interest-bearing investments.
Merger expenses in 1998 of $25,630,000 represent costs incurred or accrued
in connection with completing the NSC Acquisition. For further discussion, see
Note 2 of "Notes to Consolidated Financial Statements".
During the third quarter of 1998, the Company adopted a plan to dispose of
or otherwise discontinue substantially all of its home health operations. The
decision to adopt the plan was prompted in large part
29
<PAGE>
by the negative impact of the 1997 Balanced Budget Act (the "BBA"), which placed
reimbursement limits on home health businesses. The limits were announced in
March 1998 and the Company thereafter began to see the adverse affect on home
health margins. The negative trends that occurred as a result in the reduction
in reimbursement brought about by the BBA caused the Company to re-evaluate its
view of the home health product line. The plan was approved by the Board of
Directors on September 16, 1998 and all home health operations covered by the
plan were closed by December 31, 1998.
The Company recorded impairment and restructuring charges of approximately
$72,000,000 related to the home health plan. In addition, the Company determined
that approximately $27,768,000 in notes receivable and approximately $19,228,000
in accounts receivable would not be collectible as a result of the closing of
its home health operations. These non-recurring amounts have been recognized in
operating unit expenses and the provision for doubtful accounts, respectively.
The total non-recurring charges and expenses included in the results of
operations for the year ended December 31, 1998 related to the home health plan
was approximately $118,996,000.
During the fourth quarter of 1998, the Company adopted a plan to dispose of
or otherwise substantially discontinue the operations of certain facilities that
did not fit with the Company's Integrated Service Model strategy (see Item 1,
"Business - Company Strategy"), underperforming facilities and facilities not
located in target markets. The Board of Directors approved the plan on December
10, 1998 and as of March 12, 1999, 73% of the identified facilities had been
closed. The Company recorded impairment and restructuring charges of
approximately $404,000,000 related to the fourth quarter restructuring plan.
In addition, the Company recorded an impairment charge of approximately
$8,000,000 related to a rehabilitation hospital it had closed and recorded a
$31,232,000 loss on the sale of its physical therapy staffing business.
Total non-recurring charges and expenses included in the results of
operations for the year ended December 31, 1998 were approximately $587,000,000.
For further discussion, see Notes 2, 9 and 13 of "Notes to Consolidated
Financial Statements".
Income before minority interests and income taxes for 1998 was
$267,373,000, compared to $629,196,000 for 1997. Minority interests reduced
income before income taxes by $77,468,000 in 1998, compared to $72,469,000 for
1997. The provision for income taxes for 1998 was $143,347,000, compared to
$213,668,000 for 1997. Excluding the tax effects of the impairment and
restructuring charges, the merger costs, and the loss on sale of assets, the
effective tax rate for 1998 was 39.0%, compared to 38.4% for 1997 ( see Note 10
of "Notes to Consolidated Financial Statements" for further discussion). Net
income for 1998 was $46,558,000.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company had working capital of $945,927,000,
including cash and marketable securities of $142,513,000. Working capital at
December 31, 1997 was $612,917,000, including cash and marketable securities of
$185,018,000. For 1998, cash provided by operations was $636,132,000, compared
to $446,937,000 for 1997. For 1998, investing activities used $1,781,459,000,
compared to providing $346,778,000 for 1997. The change is primarily due to the
proceeds from sale of non-strategic assets in 1997. Additions to property, plant
and equipment and acquisitions accounted for $714,212,000 and $729,440,000,
respectively, during 1998. Those same investing activities accounted for
$349,861,000 and $309,548,000, respectively, in 1997. Financing activities
provided $1,121,162,000 and used $790,515,000 during 1998 and 1997,
respectively. The change is primarily due to the Company's use of the proceeds
from the sale of non-strategic assets to pay down outstanding indebtedness in
1997. Net borrowing proceeds (reductions) for 1998 and 1997 were $1,177,311,000
and $(774,303,000), respectively.
30
<PAGE>
Net accounts receivable were $897,901,000 at December 31, 1998, compared to
$765,335,000 at December 31, 1997. The number of days of average annual revenues
in ending receivables was 81.8 at December 31, 1998, compared to 79.9 at
December 31, 1997. See Note 1 of "Notes to Consolidated Financial Statements"
for concentration of net accounts receivable from patients, third-party payors,
insurance companies and others at December 31, 1998 and 1997.
The Company has a $1,750,000,000 revolving credit facility with
NationsBank, N.A. ("NationsBank") and other participating banks (the "1998
Credit Agreement"). The 1998 Credit Agreement replaced a previous $1,250,000,000
revolving credit agreement, also with NationsBank. In conjunction with the 1998
Credit Agreement, the Company also canceled its $350,000,000 364-day interim
revolving credit facility with NationsBank. Interest on the 1998 Credit
Agreement is paid based on LIBOR plus a predetermined margin, a base rate, or
competitively bid rates from the participating banks. The Company is required to
pay a fee based on the unused portion of the revolving credit facility ranging
from 0.09% to 0.25%, depending on certain defined ratios. The principal amount
is payable in full on June 22, 2003. The Company has provided a negative pledge
on all assets under the 1998 Credit Agreement. The effective interest rate on
the average outstanding balance under the 1998 Credit Agreement was 6.1% for the
twelve months ended December 31, 1998, compared to the average prime rate of
8.4% during the same period. At December 31, 1998, the Company had drawn
$1,325,000,000 under the 1998 Credit Agreement. For further discussion, see Note
7 of "Notes to Consolidated Financial Statements".
The Company also has a Short Term Credit Agreement with NationsBank (as
amended, the "Short Term Credit Agreement"), providing for a $500,000,000 short
term revolving credit facility. The terms of the Short Term Credit Agreement are
substantially consistent with those of the 1998 Credit Agreement. Interest on
the Short Term Credit Agreement is paid based on LIBOR plus a predetermined
margin or a base rate. The Company is required to pay a fee on the unused
portion of the credit facility ranging from 0.09% to 0.25%, depending on certain
defined ratios. The principal amount is payable in full on February 15, 2000,
with an earlier repayment required in the event that the Company consummates any
public offering or private placement of debt securities. At December 31, 1998,
the Company had not drawn down any amounts under the Short Term Credit
Agreement.
On March 20, 1998, the Company issued $500,000,000 in 3.25% Convertible
Subordinated Debentures due 2003 (the "3.25% Convertible Debentures") in a
private placement. An additional $67,750,000 principal amount of the 3.25%
Convertible Debentures was issued on March 31, 1998 to cover underwriters'
overallotments. Interest is payable on April 1 and October 1 of each year,
commencing on October 1, 1998. The Convertible Debentures are convertible into
Common Stock of the Company at the option of the holder at a conversion price of
$36.625 per share, subject to the adjustment upon the occurrence of certain
events. The net proceeds from the issuance of the Convertible Debentures were
used by the Company to pay down indebtedness outstanding under its other
existing credit facilities.
On June 22, 1998, the Company issued $250,000,000 in 6.875% Senior Notes
due 2005 and $250,000,000 in 7.0% Senior Notes due 2008 (collectively, the
"Senior Notes"). Interest is payable on June 15 and December 15 of each year,
commencing on December 15, 1998. The Senior Notes are unsecured, unsubordinated
obligations of the Company. The net proceeds from the issuance of the Senior
Notes were used by the Company to pay down indebtedness outstanding under its
existing credit facilities.
On February 8, 1999, the Company announced a plan to repurchase up to
70,000,000 shares of its common stock over the next 36 months through open
market purchases, block trades or privately negotiated transactions.
The Company intends to pursue the acquisition or development of additional
healthcare operations, including outpatient rehabilitation facilities, inpatient
rehabilitation facilities, ambulatory surgery centers, outpatient diagnostic
centers and companies engaged in the provision of other complementary services,
and to expand certain of its existing facilities. While it is not possible to
estimate precisely the amounts which will actually be expended in the foregoing
areas, the Company anticipates that over the next twelve months, it will spend
approximately $100,000,000 to $200,000,000 on maintenance and expansion of its
31
<PAGE>
existing facilities and approximately $300,000,000 to $500,000,000 to repurchase
outstanding shares of its common stock, depending on market conditions, and on
continued development of the Integrated Service Model. See Item 1, "Business --
Company Strategy".
Although the Company is continually considering and evaluating acquisitions
and opportunities for future growth, the Company has not entered into any
agreements with respect to material future acquisitions. The Company believes
that existing cash, cash flow from operations and borrowings under existing
credit facilities will be sufficient to satisfy the Company's estimated cash
requirements for the next twelve months, and for the reasonably foreseeable
future.
Inflation in recent years has not had a significant effect on the Company's
business, and is not expected to adversely affect the Company in the future
unless it increases significantly.
EXPOSURES TO MARKET RISK
The Company is exposed to market risk related to changes in interest rates.
Because of its favorable borrowing arrangements and current market conditions,
the Company currently does not use derivatives, such as swaps or caps, to alter
the interest characteristics of its debt instruments and investment securities.
The impact on earnings and value of market risk-sensitive financial instruments
(principally marketable security investments and long-term debt) is subject to
change as a result of movements in market rates and prices. The Company uses
sensitivity analysis models to evaluate these impacts.
The Company's investment in marketable securities was $3,686,000 at
December 31, 1998, compared to $22,026,000 at December 31, 1997. The investment
represents less than 1% of total assets at December 31, 1998 and 1997. These
securities are generally short-term, highly-liquid instruments and, accordingly,
their fair value approximates cost. Earnings on investments in marketable
securities are not significant to the Company's results of operations, and
therefore any changes in interest rates would have a minimal impact on future
pre-tax earnings.
With respect to the Company's interest-bearing liabilities, approximately
$1,325,000,000 in long-term debt at December 31, 1998 is subject to variable
rates of interest, while the remaining balance in long-term debt of
$1,505,926,000 is subject to fixed rates of interest. This compares to
$1,175,000,000 in long-term debt subject to variable rates of interest and
$439,961,000 in long-term debt subject to fixed rates of interest at December
31, 1997 (see Note 7 of "Notes to Consolidated Financial Statements" for further
description). The fair value of the Company's total long-term debt, based on
discounted cash flow analyses, approximates its carrying value at December 31,
1997 and, except for the 3.25% Convertible Debentures, at December 31, 1998. The
fair value of the 3.25% Convertible Debentures at December 31, 1998 was
approximately $483,000,000. Based on a hypothetical 1% increase in interest
rates, the potential losses in future pre-tax earnings would be approximately
$13,250,000. The impact of such a change on the carrying value of long-term debt
would not be significant. These amounts are determined considering the impact of
the hypothetical interest rates on the Company's borrowing cost and long-term
debt balances. These analyses do not consider the effects, if any, of the
potential changes in the overall level of economic activity that could exist in
such an environment. Further, in the event of a change of significant magnitude,
management would expect to take actions intended to further mitigate its
exposure to such change.
Foreign operations, and the related market risks associated with foreign
currency, are currently insignificant to the Company's results of operations and
financial position.
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 to date-sensitive calculations after
the turn of the century.
32
<PAGE>
The Company is involved in an extensive, ongoing program to identify and
correct problems arising from the year 2000 issues. The program is broken down
into the following categories: (1) mission-critical computer applications which
are internally maintained by the Company's information technology department;
(2) mission-critical computer applications which are maintained by third-party
vendors; (3) non-mission-critical applications, whether internally or externally
maintained; (4) hardware; (5) embedded applications which control certain
medical and other equipment; (6) computer applications of its significant
suppliers; and (7) computer applications of its significant payors.
Mission-critical computer applications are those which are integral to the
Company's business mission, which have no reasonable manual alternative for
producing the same information and results, and the failure of which to produce
accurate information and results would have a significant adverse impact on the
Company. Such applications include the Company's general business systems and
its patient billing systems. Most of the Company's clinical applications are not
considered mission-critical, because reasonable manual alternatives are
available to produce the same information and results for as long as necessary.
The Company's review of its internally maintained mission-critical
applications revealed that such applications contained very few date-sensitive
calculations. The revisions to these applications have been completed and
tested. Implementation will be completed during the first quarter of 1999. The
budget for this project is approximately $150,000.
The Company's general business applications are licensed from and
maintained by the same vendor. All such applications are already year 2000
compliant. The coding and testing of all of the Company's other externally
maintained mission-critical applications for year 2000 compliance was completed
during 1998. Installation of certain applications is still in process and will
be completed by June 30, 1999. The total cost of such installation is estimated
to be approximately $1,500,000.
The Company has reviewed all of its non-mission-critical applications and
determined that some of these applications are not year 2000 compliant and will
not be made to be compliant. In such cases, the Company has developed manual
alternatives to produce the information that such systems currently produce. The
incremental cost of the manual systems is not currently estimated to be
material. The Company plans to evaluate the effectiveness of the manual systems
before any decisions are made on the replacement of the non-compliant
applications.
The Company has engaged an independent contractor to inventory and test all
of its computer hardware for year 2000 compliance at an estimated cost of
$800,000 to $1,000,000. The contractor has completed site visits to each of the
Company's locations with over five processors. The Company has received the data
from the site visits and is currently determining an appropriate remediation
plan. The preliminary estimate of the range of cost to complete a remediation
plan is approximately $25,000,000 to $30,000,000. The contractor has sent
diskettes containing test programs to each of the Company's locations with five
or fewer processors. The data from those locations will be available by April
30, 1999. The cost of remediation for those facilities with five or fewer
processors cannot be estimated until the data is complete.
The Company has completed its review of embedded applications which control
certain medical and other equipment. As expected, the review revealed that the
nature of the Company's business is such that any failure of these type
applications is not expected to have a material adverse effect on its business.
In particular, the Company has focused on reviewing and testing those
applications the failure of which would be likely to cause a significant risk of
death or serious injury to patients under treatment in the Company's facilities,
and the Company believes that, because of the types of services it primarily
provides and the nature of its patient population, there is little likelihood of
such an event occurring because of the failure of an embedded application.
33
<PAGE>
The Company has sent inquiries to its significant suppliers of equipment
and medical supplies concerning the year 2000 compliance of their significant
computer applications. Responses have been received from over 89% of those
suppliers, and no significant problems have been identified. Third requests have
been mailed to all non-respondents.
The Company has also sent inquiries to its significant third-party payors.
Responses have been received from payors representing over 85% of the Company's
revenues. Such responses indicate that these payors' systems will be year 2000
compliant. Third requests have been mailed to non-respondents. The Company will
continue to evaluate year 2000 risks with respect to such payors as additional
responses are received. In that connection, it should be noted that
substantially all of the Company's revenues are derived from reimbursement by
governmental and private third-party payors, and that the Company is dependent
upon such payors' evaluation of their year 2000 compliance status to assess such
risks. If such payors are incorrect in their evaluation of their own year 2000
compliance status, this could result in delays or errors in reimbursement to the
Company by such payors, the effects of which could be material to the Company.
Each of the Company's facilities is required, by Company policy, to
maintain a disaster recovery plan. The management of each facility has been
instructed to review and update such facility's specific disaster recovery plan
in light of potential local area problems that may occur as a result of year
2000 computer failures. Such potential problems include, but are not limited to,
interruption and/or loss of electrical power and water, breakdowns in
telecommunications systems and the inability to transport supplies and/or
personnel. The Company's primary exposure resides in its inpatient locations,
where patients will be in residence during the time that such potential problems
may occur. Execution of each facility's disaster recovery plan should mitigate
this exposure for a period of ten to fourteen days. If such potential problems
continue to occur after that period of time, the Company will have to take
actions that are not currently contemplated in the various disaster recovery
plans. It is not currently possible to estimate the cost or scope of such
actions.
Guidance from the Securities and Exchange Commission requires the Company
to describe its "reasonably likely worst case scenario" in connection with year
2000 issues. As discussed above, while there is always the potential risk of
serious injury or death resulting from a failure of embedded applications in
medical and other equipment used by the Company, the Company does not believe
that such events are reasonably likely to occur. The Company believes that the
most reasonably likely worst case to which it would be exposed is that,
notwithstanding the Company's attempts to obtain year 2000 compliance assurance
from third-party payors, there is a material failure in such payors' systems
which prevents or substantially delays reimbursement to the Company for its
services. In such event, the Company would be forced to rely on cash on hand and
available borrowing capacity to the extent of any shortfall in reimbursement,
and could be forced to incur additional costs for personnel and other resources
necessary to resolve any payment issues. It is not possible at this time to
predict the nature or amount of such costs or the materiality of any
reimbursement issues that may arise as a result of the failure of payors'
payment systems, the effect of which could be substantial. The Company continues
to endeavor to obtain reliable information from its payors as to their
compliance status, and will attempt to adopt and revise its contingency plans
for dealing with payment issues if, as and when such issues become susceptible
of prediction.
Based on the information currently available, the Company believes that its
risk associated with problems arising from year 2000 issues is not significant.
However, 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 of such assessment to be correct. The Company will continue with its
assessment process as described above and, to the extent that changes in such
assessment require it, will attempt to develop alternatives or modifications to
its compliance plan described above. There can, however, be no assurance that
such compliance plan, as it may be changed, augmented or modified from time to
time, will be successful.
34
<PAGE>
FORWARD-LOOKING STATEMENTS
Statements contained in this Annual Report on Form 10-K which are not
historical facts are forward-looking statements. In addition, the Company,
through its senior management, from time to time makes forward-looking public
statements concerning its expected future operations and performance and other
developments. Such forward-looking statements are necessarily estimates
reflecting the Company's best judgment based upon current information, involve a
number of risks and uncertainties and are made pursuant to the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995. There can be
no assurance that other factors will not affect the accuracy of such
forward-looking statements or that HEALTHSOUTH's actual results will not differ
materially from the results anticipated in such forward-looking statements.
While is impossible to identify all such factors, factors which could cause
actual results to differ materially from those estimated by the Company include,
but are not limited to, changes in the regulation of the healthcare industry at
either or both of the federal and state levels, changes or delays in
reimbursement for the Company's services by governmental or private payors,
competitive pressures in the healthcare industry and the Company's response
thereto, the Company's ability to obtain and retain favorable arrangements with
third-party payors, unanticipated delays in the Company's implementation of its
Integrated Service Model, general conditions in the economy and capital markets,
and other factors which may be identified from time to time in the Company's
Securities and Exchange Commission filings and other public announcements.
35
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Consolidated financial statements of the Company meeting the
requirements of Regulation S-X are filed on the succeeding pages of this Item 8
of this Annual Report on Form 10-K, as listed below:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditor 37
Consolidated Balance Sheets as of December 31, 1997 and 1998 38
Consolidated Statements of Income for the Years Ended
December 31, 1996, 1997 and 1998 40
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1996, 1997 and 1998 41
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1997 and 1998 43
Notes to Consolidated Financial Statements 46
</TABLE>
Other financial statements and schedules required under Regulation S-X
are listed in Item 14(a)2, and filed under Item 14(d), of this Annual Report on
Form 10-K.
QUARTERLY RESULTS (UNAUDITED)
Set forth below is certain summary information with respect to the
Company's operations for the last eight fiscal quarters. All amounts have been
restated to reflect the 1997 acquisition of Health Images and the 1998
acquisition of NSC, both of which were accounted for as poolings of interests.
All per share amounts have been adjusted to reflect a two-for-one stock split
effected in the form of a 100% stock dividend paid on March 17, 1997.
<TABLE>
<CAPTION>
1997
- - - -------------------------------------------------------------------------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues $ 714,534 $ 748,032 $ 776,062 $ 884,548
Net income 67,191 84,586 89,053 102,229
Net income per common share 0.19 0.24 0.25 0.26
Net income per common share --
assuming dilution 0.18 0.22 0.24 0.25
</TABLE>
<TABLE>
<CAPTION>
1998
- - - -------------------------------------------------------------------------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues $ 938,779 $ 979,064 $ 1,047,422 $ 1,040,809
Net income 113,132 121,600 5,670 (193,844)
Net income per common share 0.27 0.29 0.01 (0.46)
Net income per common share --
assuming dilution 0.26 0.28 0.01 (0.46)
</TABLE>
36
<PAGE>
Report of Independent Auditors
The Board of Directors
HEALTHSOUTH Corporation
We have audited the accompanying consolidated balance sheets of HEALTHSOUTH
Corporation and Subsidiaries as of December 31, 1997 and 1998, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1998. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
HEALTHSOUTH Corporation and Subsidiaries at December 31, 1997 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material aspects the
information set forth therein.
ERNST & YOUNG LLP
Birmingham, Alabama
March 19, 1999
37
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
1997 1998
---------------------------------------------
(In thousands)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents (Note 3) $ 162,992 $ 138,827
Other marketable securities (Note 3) 22,026 3,686
Accounts receivable, net of allowances for doubtful
accounts of $127,572,000 in 1997 and $143,689,000 in
1998 765,335 897,901
Inventories 67,867 77,840
Prepaid expenses and other current assets 122,468 169,899
Income tax refund receivable - 58,832
---------------------------------------------
Total current assets 1,140,688 1,346,985
Other assets:
Loans to officers 1,007 3,263
Assets held for sale (Notes 9 and 13) 60,400 27,430
Other (Note 4) 161,129 147,158
---------------------------------------------
222,536 177,851
Property, plant and equipment, net (Note 5) 1,890,110 2,288,262
Intangible assets, net (Note 6) 2,312,990 2,959,910
---------------------------------------------
Total assets $ 5,566,324 $ 6,773,008
=============================================
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
1997 1998
---------------------------------------------
(In thousands)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 125,824 $ 76,099
Salaries and wages payable 124,823 111,243
Accrued interest payable and other liabilities 101,112 126,110
Income taxes payable 92,507 -
Deferred income taxes (Note 10) 34,345 37,612
Current portion of long-term debt (Note 7) 49,160 49,994
---------------------------------------------
Total current liabilities 527,771 401,058
Long-term debt (Note 7) 1,565,801 2,780,932
Deferred income taxes (Note 10) 75,533 28,856
Deferred revenue and other long-term liabilities 2,224 11,940
Minority interests-limited partnerships (Note 1) 104,372 127,218
Commitments and contingencies (Note 11)
Stockholders' equity (Notes 8 and 12):
Preferred stock, $.10 par value--1,500,000 shares
authorized; issued and outstanding-
none - -
Common stock, $.01 par value--600,000,000 shares
authorized; issued--415,537,000 in 1997 and
423,178,000 in 1998 4,155 4,232
Additional paid-in capital 2,474,726 2,577,647
Retained earnings 833,328 878,228
Treasury stock, at cost (552,000 shares in 1997 and
2,042,000 shares in 1998) (3,923) (21,813)
Receivable from Employee Stock Ownership
Plan (12,247) (10,169)
Notes receivable from stockholders (5,416) (5,121)
---------------------------------------------
Total stockholders' equity 3,290,623 3,423,004
---------------------------------------------
Total liabilities and stockholders' equity $ 5,566,324 $ 6,773,008
=============================================
</TABLE>
See accompanying notes.
39
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Consolidated Statements of Income
<TABLE>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1996 1997 1998
---------------------------------------------------------------
(In thousands, except for per share amounts)
<S> <C> <C> <C>
Revenues $ 2,648,188 $ 3,123,176 $ 4,006,074
Operating unit expenses 1,718,108 1,952,189 2,491,914
Corporate general and
administrative expenses 82,953 87,512 112,800
Provision for doubtful accounts 61,311 74,743 112,202
Depreciation and amortization 212,967 257,136 344,591
Merger and acquisition related expenses
(Notes 2 and 9) 41,515 15,875 25,630
Loss on sale of assets (Note 9) - - 31,232
Impairment and restructuring charges
(Note 13) 37,390 - 483,455
Interest expense 101,367 112,529 148,163
Interest income (6,749) (6,004) (11,286)
---------------------------------------------------------------
2,248,862 2,493,980 3,738,701
---------------------------------------------------------------
Income before income taxes and minority
interests 399,326 629,196 267,373
Provision for income taxes (Note 10) 148,545 213,668 143,347
---------------------------------------------------------------
250,781 415,528 124,026
Minority interests 54,003 72,469 77,468
---------------------------------------------------------------
Net income $ 196,778 $ 343,059 $ 46,558
===============================================================
Weighted average common shares outstanding 336,603 366,768 421,462
===============================================================
Net income per common share $ 0.58 $ 0.94 $ 0.11
===============================================================
Weighted average common shares
outstanding - assuming dilution 365,715 386,211 432,275
===============================================================
Net income per common share -
assuming dilution $ 0.55 $ 0.89 $ 0.11
===============================================================
</TABLE>
See accompanying notes.
40
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Retained Treasury Stock
Shares Amount Capital Earnings Shares Amount
---------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 170,301 $ 1,703 $1,053,713 $ 315,683 3,070 $ (30,864)
Adjustment for Advantage Health Merger - - - (17,638) - -
Adjustment for 1996 mergers (Note 2) 4,047 40 68,785 (1,256) - -
Proceeds from exercise of options (Note 8) 4,135 42 35,289 - - -
Proceeds from issuance of common shares 2,650 26 54,923 - - -
Common shares issued upon conversion of
convertible debt 562 6 6,693 - - -
Income tax benefits related to incentive stock
options (Note 8) - - 23,767 - - -
Reduction in receivable from ESOP - - - - - -
Payments received on stockholders' notes
receivable - - - - - -
Purchase of limited partnership units - - - (83) - -
Purchase of treasury stock - - - - 89 (736)
Retirement of treasury stock (1,835) (18) (31,259) - (3,068) 31,277
Net income - - - 196,778 - -
Translation adjustment - - - 692 - -
Dividends paid - - - (1,222) - -
Stock split 159,727 1,597 (1,597) - 91 -
---------------------------------------------------------------------------------
Balance at December 31, 1996 339,587 3,396 1,210,314 492,954 182 (323)
Common shares issued in connection with
acquisitions (Note 9) 46,412 464 999,587 - - -
Value of options exchanged in connection with
the Horizon/CMS acquisition (Note 9) - - 23,191 - - -
Common shares issued upon conversion of
convertible debt 12,324 123 114,390 - - -
Proceeds from exercise of options (Note 8) 10,525 105 60,221 - - -
Income tax benefits related to incentive stock
options (Note 8) - - 67,090 - - -
Reduction in receivable from ESOP - - - - - -
Payments received on stockholders' notes
receivable - - - - - -
Purchase of limited partnership units - - - (2,465) - -
Purchase of treasury stock - - - - 370 (3,600)
Net income - - - 343,059 - -
Translation adjustment - - - (220) - -
Stock dividend 6,689 67 (67) - - -
---------------------------------------------------------------------------------
Balance at December 31, 1997 415,537 4,155 2,474,726 833,328 552 (3,923)
Proceeds from exercise of options (Note 8) 6,885 69 60,135 - - -
Common shares issued in connection with
acquisitions (Note 9) 699 7 19,390 - - -
Common shares issued in connection with lease
buyout 57 1 1,592 - - -
Income tax benefits related to incentive stock
options (Note 8) - - 21,804 - - -
Purchase of treasury shares - - - - 1,490 (17,890)
Reduction in receivable from ESOP - - - - - -
Payments received on stockholders' notes
receivable - - - - - -
Purchase of limited partnership units - - - (1,634) - -
Net income - - - 46,558 - -
Translation adjustment - - - (24) - -
---------------------------------------------------------------------------------
Balance at December 31, 1998 423,178 $ 4,232 $2,577,647 $ 878,228 2,042 $(21,813)
=================================================================================
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
Notes
Receivable Total
Receivable from Stockholders'
from ESOP Stockholders Equity
---------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1995 $(15,886) $ (6,471) $ 1,317,878
Adjustment for Advantage Health Merger - - (17,638)
Adjustment for 1996 mergers (Note 2) - - 67,569
Proceeds from exercise of options (Note 8) - - 35,331
Proceeds from issuance of common shares - - 54,949
Common shares issued upon conversion of
convertible debt - - 6,699
Income tax benefits related to incentive stock
options (Note 8) - - 23,767
Reduction in receivable from ESOP 1,738 - 1,738
Payments received on stockholders' notes
receivable - 1,048 1,048
Purchase of limited partnership units - - (83)
Purchase of treasury stock - - (736)
Retirement of treasury stock - - -
Net income - - 196,778
Translation adjustment - - 692
Dividends paid - - (1,222)
Stock split - - -
-----------------------------------------------
Balance at December 31, 1996 (14,148) (5,423) 1,686,770
Common shares issued in connection with
acquisitions (Note 9) - - 1,000,051
Value of options exchanged in connection with
the Horizon/CMS acquisition (Note 9) - - 23,191
Common shares issued upon conversion of
convertible debt - - 114,513
Proceeds from exercise of options (Note 8) - - 60,326
Income tax benefits related to incentive stock
options (Note 8) - - 67,090
Reduction in receivable from ESOP 1,901 - 1,901
Payments received on stockholders' notes
receivable - 7 7
Purchase of limited partnership units - - (2,465)
Purchase of treasury stock - - (3,600)
Net income - - 343,059
Translation adjustment - - (220)
Stock dividend - - -
-----------------------------------------------
Balance at December 31, 1997 (12,247) (5,416) 3,290,623
Proceeds from exercise of options (Note 8) - - 60,204
Common shares issued in connection with
acquisitions (Note 9) - - 19,397
Common shares issued in connection with lease
buyout - - 1,593
Income tax benefits related to incentive stock
options (Note 8) - - 21,804
Purchase of treasury shares - - (17,890)
Reduction in receivable from ESOP 2,078 - 2,078
Payments received on stockholders' notes
receivable - 295 295
Purchase of limited partnership units - - (1,634)
Net income - - 46,558
Translation adjustment - - (24)
-----------------------------------------------
Balance at December 31, 1998 $(10,169) $(5,121) $ 3,423,004
===============================================
</TABLE>
See accompanying notes.
42
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1996 1997 1998
------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 196,778 $ 343,059 $ 46,558
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 212,967 257,136 344,591
Provision for doubtful accounts 61,311 74,743 112,202
Impairment and restructuring charges 37,390 - 483,455
Merger and acquisition related expenses 41,515 15,875 25,630
Loss on sale of assets - - 31,232
Income applicable to minority interests of
limited partnerships 54,003 72,469 77,468
Provision for deferred income taxes 15,818 15,237 (43,410)
Provision for deferred revenue (1,255) (406) -
Changes in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable (145,837) (200,778) (250,468)
Inventories, prepaid expenses and other
current assets (37,567) 21,803 (132,280)
Accounts payable and accrued expenses (34,548) (152,201) (58,846)
------------------------------------------------------
Net cash provided by operating activities 400,575 446,937 636,132
INVESTING ACTIVITIES
Purchases of property, plant and equipment (208,908) (349,861) (714,212)
Proceeds from sale of non-strategic assets - 1,136,571 34,100
Additions to intangible assets, net of effects of
acquisitions (175,380) (61,887) (48,415)
Assets obtained through acquisitions, net of
liabilities assumed (109,334) (309,548) (729,440)
Payments on purchase accounting accruals - - (292,949)
Changes in other assets (57,328) (108,245) (48,883)
Proceeds received on sale of other marketable
securities 8,774 41,087 18,340
Investments in other marketable securities - (1,339) -
------------------------------------------------------
Net cash (used in) provided by investing activities (542,176) 346,778 (1,781,459)
</TABLE>
43
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1996 1997 1998
------------------------------------------------------
(In thousands)
FINANCING ACTIVITIES
<S> <C> <C> <C>
Proceeds from borrowings $ 205,873 $ 1,763,317 $ 3,486,474
Principal payments on long-term debt (117,700) (2,537,620) (2,309,163)
Proceeds from exercise of options 35,331 60,326 60,204
Proceeds from issuance of common stock 55,628 70 -
Purchase of treasury stock (736) - (17,890)
Reduction in receivable from ESOP 1,738 1,901 2,078
Payments received from stockholders 1,048 7 295
Dividends paid (1,222) - -
Proceeds from investment by minority interests 83 4,096 4,471
Purchase of limited partnership units (3,064) (2,685) (1,658)
Payment of cash distributions to limited partners (42,051) (79,927) (103,649)
------------------------------------------------------
Net cash provided by (used in) financing
activities 134,928 (790,515) 1,121,162
------------------------------------------------------
(Decrease) increase in cash and cash equivalents (6,673) 3,200 (24,165)
Cash and cash equivalents at beginning of year 170,102 159,792 162,992
Cash flows related to mergers (3,637) - -
------------------------------------------------------
Cash and cash equivalents at end of year $ 159,792 $ 162,992 $ 138,827
======================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest $ 99,684 $ 113,241 $ 143,606
Income taxes 72,212 140,715 315,028
Non-cash investing activities:
</TABLE>
The Company assumed liabilities of $30,608,000, $1,163,913,000 and $107,091,000
during the years ended December 31, 1996, 1997 and 1998, respectively, in
connection with its acquisitions.
During the year ended December 31, 1996, the Company issued approximately
8,095,000 common shares as consideration for mergers (see Note 2).
During the year ended December 31, 1997, the Company issued 46,480,000 common
shares with a market value of $1,000,051,000 as consideration for acquisitions
accounted for as purchases.
During the year ended December 31, 1998, the Company issued 699,000 common
shares with a market value of $19,397,000 as consideration for acquisitions
accounted for as purchases.
44
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Consolidated Statements of Cash Flows (continued)
Non-cash financing activities:
During 1997, the Company effected a two-for-one stock split of its common stock
which was effected in the form of a 100% stock dividend.
The Company received a tax benefit from the disqualifying disposition of
incentive stock options of $23,767,000, $67,090,000 and $21,804,000 for the
years ended December 31, 1996, 1997 and 1998, respectively.
During 1997, the holders of the Company's $115,000,000 in aggregate principal
amount of 5% Convertible Subordinated Debentures due 2001 surrendered the
Debentures for conversion into approximately 12,324,000 shares of the Company's
Common Stock.
See accompanying notes.
45
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by HEALTHSOUTH Corporation and its
subsidiaries ("the Company") are presented as an integral part of the
consolidated financial statements.
NATURE OF OPERATIONS
HEALTHSOUTH is engaged in the business of providing healthcare services through
two business segments: inpatient and other clinical services and outpatient
services. Inpatient and other clinical services consist of services provided
through inpatient rehabilitation facilities, specialty medical centers and
certain physician practices and other clinical services. Outpatient services
consist of services provided through outpatient rehabilitation facilities
(including occupational health centers), outpatient surgery centers and
outpatient diagnostic centers.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of HEALTHSOUTH
Corporation ("HEALTHSOUTH") and its wholly-owned subsidiaries, as well as its
majority ownership or controlling interest in limited partnerships and limited
liability companies. All significant intercompany accounts and transactions have
been eliminated in consolidation.
OPERATING SEGMENTS
The Company has adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and
Related Information". SFAS 131 requires the utilization of a "management
approach" to define and report the financial results of operating segments. The
management approach defines operating segments along the lines used by
management to assess performance and make operating and resource allocation
decisions. The Company has aggregated the financial results of its outpatient
rehabilitation facilities, outpatient surgery centers and outpatient diagnostic
centers into the outpatient services segment. These three types of facilities
have common economic characteristics, provide similar services, serve a similar
class of customers, cross-utilize administrative services and operate in a
similar regulatory environment. In addition, the Company's integrated service
model strategy combines these services in a seamless environment for the
delivery of patient care on an episodic basis.
46
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The adoption of SFAS 131 did not affect results of operations or financial
position, but did require the disclosure of segment information (see Note 14).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the accompanying consolidated financial
statements and notes. Actual results could differ from those estimates.
MARKETABLE SECURITIES
Marketable securities and debt securities are classified as available-for-sale.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, if material, reported as a separate component of stockholders'
equity, net of tax. The cost of the specific security sold method is used to
compute gain or loss on the sale of securities. Interest and dividends on
securities classified as available-for-sale are included in interest income.
Marketable securities and debt securities held by the Company have maturities of
less than one year.
ACCOUNTS RECEIVABLE AND THIRD-PARTY REIMBURSEMENT ACTIVITIES
Receivables from patients, insurance companies and third-party contractual
insured accounts (Medicare and Medicaid) are based on payment agreements which
generally result in the Company's collecting an amount different from the
established rates. Net third-party settlement receivables included in accounts
receivable were $36,759,000 and $9,277,000 at December 31, 1997 and 1998,
respectively. Final determination of the settlement is subject to review by
appropriate authorities. The differences between original estimates made by the
Company and subsequent revisions (including final settlement) were not material
to the operations of the Company. Adequate allowances are provided for doubtful
accounts and contractual adjustments. Uncollectible accounts are written off
against the allowance for doubtful accounts after adequate collection efforts
are made. Net accounts receivable include only those amounts estimated by
management to be collectible.
47
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The concentration of net accounts receivable from third-party contractual payors
and others, as a percentage of total net accounts receivable, was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1997 1998
=======================================
<S> <C> <C>
Medicare 25% 21%
Medicaid 4 4
Other 71 75
---------------------------------------
100% 100%
=======================================
</TABLE>
INVENTORIES
Inventories are stated at the lower of cost or market using the specific
identification method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Upon sale or retirement of
property, plant or equipment, the cost and related accumulated depreciation are
eliminated from the respective account and the resulting gain or loss is
included in the results of operations.
Interest cost incurred during the construction of a facility is capitalized. The
Company incurred interest costs of $105,310,000, $115,020,000 and $148,793,000,
of which $3,943,000, $2,491,000 and $630,000 was capitalized, during 1996, 1997
and 1998, respectively.
Depreciation and amortization is computed using the straight-line method over
the estimated useful lives of the assets or the term of the lease, as
appropriate. The estimated useful life of buildings is 30-40 years and the
general range of useful lives for leasehold improvements, furniture, fixtures
and equipment is 10-15 years.
48
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
Cost in excess of net asset value of purchased facilities is amortized over 20
to 40 years using the straight-line method, with the majority of such cost being
amortized over 40 years. Organization and partnership formation costs are
deferred and amortized on a straight-line basis over a period of 36 months.
Organization, partnership formation and start-up costs for a project that is
subsequently abandoned are charged to operations in that period. Debt issue
costs are amortized over the term of the debt. Noncompete agreements are
amortized using the straight-line method over the term of the agreements.
Effective July 1, 1997, the Company began expensing amounts reflecting the costs
of implementing its clinical and administrative programs and protocols at
acquired facilities in the period in which such costs are incurred. Previously,
the Company had capitalized such costs and amortized them over 36 months. Such
costs at June 30, 1997 aggregated $64,643,000, net of accumulated amortization.
These capitalized costs will be amortized in accordance with the Company's
existing policy and will be fully amortized by June 2000.
Through June 30, 1997, the Company has assigned value to and capitalized
organization and partnership formation costs which have been incurred by the
Company or obtained by the Company in acquisitions accounted for as purchases.
Effective July 1, 1997, the Company no longer assigned value to organization and
partnership formation costs obtained in acquisitions accounted for as purchases
except to the extent that objective evidence exists that such costs will provide
future economic benefits to the Company after the acquisition. Such organization
and partnership formation costs at June 30, 1997 which were obtained by the
Company in purchase transactions aggregated $8,380,000, net of accumulated
amortization. Such costs at June 30, 1997 will be amortized in accordance with
the Company's existing policy and will be fully amortized by June 2000.
MINORITY INTERESTS
The equity of minority investors in limited partnerships and limited liability
companies of the Company is reported on the consolidated balance sheets as
minority interests. Minority interests reported in the consolidated income
statements reflect the respective interests in the income or loss of the limited
partnerships or limited liability companies attributable to the minority
investors (ranging from 1% to 50% at December 31, 1998), the effect of which is
removed from the results of operations of the Company.
49
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUES
Revenues include net patient service revenues and other operating revenues.
Other operating revenues include cafeteria revenue, gift shop revenue, rental
income, trainer/contract revenue, management and administrative fee revenue
(related to non-consolidated subsidiaries and affiliates) and transcriptionist
fees which are insignificant to total revenues. Net patient service revenues are
reported at the estimated net realizable amounts from patients, third-party
payors and others for services rendered, including estimated retroactive
adjustments under reimbursement agreements with third-party payors.
50
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1996 1997 1998
----------------- ------------------ -----------------
(In thousands, except per share amounts)
Numerator:
Net income $196,778 $343,059 $46,558
----------------- ------------------ -----------------
Numerator for basic earnings per
share--income available to
common stockholders 196,778 343,059 46,558
Effect of dilutive securities:
Elimination of interest and amortization on
5% Convertible Subordinated Debentures due
2001, less the related effect of the
provision for income taxes 3,839 968 -
----------------- ------------------ -----------------
Numerator for diluted earnings per share-income
available to common stockholders after
assumed conversion $200,617 $344,027 $ 46,558
================= ================== =================
Denominator:
Denominator for basic earnings per share -
weighted-average shares 336,603 366,768 421,462
----------------- ------------------ -----------------
Effect of dilutive securities:
Net effect of dilutive stock options 16,362 16,374 10,813
Assumed conversion of 5% Convertible
Subordinated Debentures due 2001 12,226 3,057 -
Assumed conversion of other dilutive
convertible debt 524 12 -
----------------- ------------------ -----------------
Dilutive potential common shares 29,112 19,443 10,813
----------------- ------------------ -----------------
Denominator of diluted earnings per share -
adjusted weighted-average shares and
assumed conversions 365,715 386,211 432,275
================= ================== =================
Basic earnings per share $ 0.58 $ 0.94 $ 0.11
================= ================== =================
Diluted earnings per share $ 0.55 $ 0.89 $ 0.11
================= ================== =================
</TABLE>
51
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPAIRMENT OF ASSETS
The Company records impairment losses on long-lived assets used in operations
when events and circumstances indicate that the assets might be impaired and the
undiscounted cash flows estimated to be generated by those assets are less than
the carrying amounts of those assets.
With respect to the carrying value of the excess of cost over net asset value of
purchased facilities and other intangible assets, the Company determines on a
quarterly basis whether an impairment event has occurred by considering factors
such as the market value of the asset; a significant adverse change in legal
factors or in the business climate; adverse action by a regulator; a history of
operating or cash flow losses; or a projection of continuing losses associated
with an operating entity. The carrying value of excess cost over net asset value
of purchased facilities and other intangible assets will be evaluated if the
facts and circumstances suggest that it has been impaired. If this evaluation
indicates that the value of the asset will not be recoverable, as determined
based on the undiscounted cash flows of the entity over the remaining
amortization period, an impairment loss is calculated based on the excess of the
carrying amount of the asset over the asset's fair value.
SELF-INSURANCE
The Company is self-insured for professional liability and comprehensive general
liability. Liabilities for asserted and unasserted claims are accrued based upon
specific claims and incidents and the claims history of the Company. The
reserves for estimated liabilities for asserted and unasserted claims, which are
not material in relation to the Company's consolidated financial position at
December 31, 1997 and 1998, are included with accrued interest payable and other
liabilities in the accompanying consolidated balance sheets.
RECLASSIFICATIONS
Certain amounts in 1996 and 1997 financial statements have been reclassified to
conform with the 1998 presentation. Such reclassifications had no effect on
previously reported consolidated financial position and consolidated net income.
52
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION
The Company translates the assets and liabilities of its foreign subsidiaries
stated in local functional currencies to U.S. dollars at the rates of exchange
in effect at the end of the period. Revenues and expenses are translated using
rates of exchange in effect during the period. Gains and losses from currency
translation are included in stockholders' equity. Currency transaction gains or
losses are recognized in current operations and have not been significant to the
Company's operating results in any period.
2. MERGERS
Effective January 17, 1996, a wholly-owned subsidiary of the Company merged with
Surgical Care Affiliates, Inc. ("SCA"), and in connection therewith the Company
issued 91,856,678 shares of its common stock in exchange for all of SCA's
outstanding common stock. Prior to the merger, SCA operated 67 surgery centers
in 24 states. Costs and expenses of approximately $19,727,000, primarily legal,
accounting and financial advisory fees, incurred by the Company in connection
with the SCA merger have been recorded in operations during 1996 and recorded as
merger expenses in the accompanying consolidated statements of income.
Effective March 14, 1996, a wholly-owned subsidiary of the Company merged with
Advantage Health Corporation ("Advantage Health"), and in connection therewith
the Company issued 18,203,978 shares of its common stock in exchange for all of
Advantage Health's outstanding common stock. Prior to the merger, Advantage
Health operated a network of 136 sites of service, including four freestanding
rehabilitation hospitals, one freestanding multi-use hospital, one nursing home,
68 outpatient rehabilitation facilities, 14 inpatient managed rehabilitation
units, 24 rehabilitation services management contracts and six managed subacute
rehabilitation units. Costs and expenses of approximately $9,212,000, primarily
legal, accounting and financial advisory fees, incurred by the Company in
connection with the Advantage Health merger have been recorded in operations
during 1996 and reported as merger expenses in the accompanying consolidated
statements of income.
Effective March 3, 1997, a wholly-owned subsidiary of the Company merged with
Health Images,
53
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. MERGERS (CONTINUED)
Inc. ("Health Images"), and in connection therewith the Company issued
10,343,470 shares of its common stock in exchange for all of Health Images'
outstanding common stock. Prior to the merger, Health Images operated 49
freestanding diagnostic imaging centers in 13 states and six in the United
Kingdom. Costs and expenses of approximately $15,875,000, primarily legal,
accounting and financial advisory fees, incurred by the Company in connection
with the Health Images merger have been recorded in operations during 1997 and
reported as merger expenses in the accompanying consolidated statements of
income.
Effective July 22, 1998, a wholly-owned subsidiary of the Company merged with
National Surgery Centers, Inc. ("NSC"), and in connection therewith the Company
issued 20,426,261 shares of its common stock in exchange for all of NSC's
outstanding common stock. Prior to the merger, NSC operated 40 outpatient
surgery centers in 14 states. Costs and expenses of approximately $25,630,000,
primarily legal, accounting and financial advisory fees, incurred by the Company
in connection with the NSC merger have been recorded in operations during 1998
and reported as merger expenses in the accompanying consolidated statements of
income.
The mergers of the Company with SCA, Advantage Health, Health Images and NSC
were accounted for as poolings of interests and, accordingly, the Company's
consolidated financial statements have been restated to include the results of
the acquired companies for all periods presented. There were no material
transactions between the Company, SCA, Advantage Health, Health Images and NSC
prior to the mergers. The effects of conforming the accounting policies of the
combined companies are not material.
Combined and separate results of the Company and NSC are as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
HEALTHSOUTH NSC Combined
---------------------- ----------------- --------------------
Year ended December 31, 1996
Revenues $ 2,568,155 $ 80,033 $ 2,648,188
Net income 189,864 6,914 196,778
Year ended December 31, 1997
Revenues $ 3,017,269 $ 105,907 $ 3,123,176
Net income 330,608 12,451 343,059
Year ended December 31, 1998
Revenues $ 3,938,376 $ 67,698 $ 4,006,074
Net income 38,421 8,137 46,558
</TABLE>
Separate 1998 results for NSC include only the period January 1 through June 30,
1998.
54
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. MERGERS (CONTINUED)
During 1996, wholly-owned subsidiaries of the Company merged with Professional
Sports Care Management, Inc. ("PSCM"), Fort Sutter Surgery Center, Inc.
("FSSCI") and ReadiCare, Inc. ("ReadiCare"). In connection with these mergers
the Company issued an aggregate of 8,094,598 shares of its common stock. Costs
and expenses of approximately $12,576,000, primarily legal, accounting and
financial advisory fees, incurred by the Company in connection with the mergers
have been recorded in operations during 1996 and reported as merger expenses in
the accompanying consolidated statements of income.
The PSCM and ReadiCare mergers were accounted for as poolings of interests.
However, due to the immateriality of these mergers, the Company's historical
financial statements for all periods prior to the quarters in which the
respective mergers were completed have not been restated. Instead, stockholders'
equity has been increased by $43,230,000 to reflect the effects of the PSCM
merger and $15,431,000 to reflect the effects of the ReadiCare merger. The
results of operations of PSCM and ReadiCare are included in the accompanying
consolidated financial statements from the date of acquisition forward. In
addition, the FSSCI merger was a stock-for-stock acquisition. Stockholders'
equity has been increased by $8,908,000 to reflect the effects of the merger.
3. CASH, CASH EQUIVALENTS AND OTHER MARKETABLE SECURITIES
Cash, cash equivalents and other marketable securities consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1997 1998
------------------- ------------------
(In thousands)
<S> <C> <C>
Cash $ 150,318 $ 131,709
Cash equivalents 12,674 7,118
------------------- ----------------
Total cash and cash equivalents 162,992 138,827
Certificates of deposit 1,256 1,256
Municipal put bonds 1,570 1,430
Municipal put bond mutual funds 500 -
Other debt securities 17,700 -
Collateralized mortgage obligations 1,000 1,000
------------------- ----------------
Total other marketable securities 22,026 3,686
------------------- ----------------
Total cash, cash equivalents and other
marketable securities (approximates
market value) $ 185,018 $ 142,513
=================== ================
</TABLE>
55
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. CASH, CASH EQUIVALENTS AND OTHER MARKETABLE SECURITIES (CONTINUED)
For purposes of the consolidated balance sheets and statements of cash flows,
marketable securities purchased with an original maturity of ninety days or less
are considered cash equivalents.
4. OTHER ASSETS
Other assets consisted of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
DECEMBER 31,
-------------------------------------------
1997 1998
--------------------- ---------------------
(In thousands)
Notes receivable $ 70,655 $ 59,992
Prepaid long-term lease 9,190 7,829
Investments accounted for on equity method 9,794 16,548
Investments accounted for at cost 28,427 52,004
Real estate investments 21,911 2,820
Trusteed funds 921 4,218
Other 20,231 3,747
--------------------- --------------------
$ 161,129 $ 147,158
===================== =====================
</TABLE>
The Company has various investments, with ownership percentages ranging from 24%
to 49%, which are accounted for using the equity method of accounting. The
Company's equity in earnings of these investments was not material to the
Company's consolidated results of operations for the years ended 1996, 1997 and
1998. At December 31, 1998, the investment balance on the Company's books was
not materially different than the underlying equity in net assets of the
unconsolidated entities.
Investments accounted for at cost are comprised of investments in companies
involved in operations similar to those of the Company. For those investments
with a quoted market price, the Company's investment balance is not materially
different than the quoted market price. For all other investments in this
category, it was not practicable to estimate the fair value because of the lack
of a quoted market price and the inability to estimate the fair value without
incurring excessive costs. The carrying amount at December 31, 1998 represents
the original cost of the investments, which management believes is not impaired.
56
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
DECEMBER 31,
---------------------------------------
1997 1998
--------------------- -----------------
(In thousands)
Land $ 115,117 $ 123,076
Buildings 1,039,523 1,153,845
Leasehold improvements 196,934 348,205
Furniture, fixtures and equipment 1,077,538 1,266,185
Construction-in-progress 32,876 29,212
--------------------- -----------------
2,461,988 2,920,523
Less accumulated depreciation and amortization 571,878 632,261
--------------------- -----------------
$ 1,890,110 $ 2,288,262
===================== =================
</TABLE>
6. INTANGIBLE ASSETS
Intangible assets consisted of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
DECEMBER 31,
-------------------------------------------
1997 1998
--------------------- --------------------
(In thousands)
Organizational, partnership formation and
start-up costs (see Note 1) $ 255,810 $ 200,160
Debt issue costs 33,114 56,068
Noncompete agreements 121,581 130,776
Cost in excess of net asset value of
purchased facilities 2,176,127 2,919,187
--------------------- ---------------------
2,586,632 3,306,191
Less accumulated amortization 273,642 346,281
--------------------- ---------------------
$ 2,312,990 $ 2,959,910
===================== =====================
</TABLE>
57
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
DECEMBER 31,
-------------------------------------------
1997 1998
--------------------- ---------------------
(In thousands)
Notes and bonds payable:
Advances under a $1,750,000,000 credit agreement with banks $ - $ 1,325,000
Advances under a $1,250,000,000 credit agreement with banks 1,175,000 -
9.5% Senior Subordinated Notes due 2001 250,000 250,000
3.25% Convertible Subordinated Debentures due 2003 - 567,750
6.875% Senior Notes due 2005 - 250,000
7.0% Senior Notes due 2008 - 250,000
Notes payable to banks and various other notes payable, at
interest rates from 5.5% to 14.9% 128,036 113,755
Hospital revenue bonds payable 14,836 13,712
Noncompete agreements payable with payments due at intervals
ranging through December 2004 47,089 60,709
--------------------- ---------------------
1,614,961 2,830,926
Less amounts due within one year 49,160 49,994
--------------------- ---------------------
$ 1,565,801 $ 2,780,932
===================== =====================
</TABLE>
The fair value of the total long-term debt approximates book value at December
31, 1997 and, except for the 3.25% Convertible Subordinated Debentures due 2003,
at December 31, 1998. The fair value of the 3.25% Convertible Subordinated
Debentures due 2003 was approximately $483,000,000 at December 31, 1998. The
fair values of the Company's long-term debt are estimated using discounted cash
flow analysis, based on the Company's current incremental borrowing rates for
similar types of borrowing arrangements.
The Company has a $1,750,000,000 revolving credit facility with NationsBank,
N.A. ("NationsBank") and other participating banks (the "1998 Credit
Agreement"). The 1998 Credit Agreement replaced a previous $1,250,000,000
revolving credit agreement, also with NationsBank. In conjunction with the 1998
Credit Agreement, the Company also canceled its $350,000,000 364-day interim
revolving credit facility with NationsBank. Interest on the 1998
58
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. LONG-TERM DEBT (CONTINUED)
Credit Agreement is paid based on LIBOR plus a predetermined margin, a base
rate, or competitively bid rates from the participating banks. The Company is
required to pay a fee on the unused portion of the revolving credit facility
ranging from 0.09% to 0.25%, depending on certain defined ratios. The principal
amount is payable in full on June 22, 2003. The Company has provided a negative
pledge on all assets under the 1998 Credit Agreement. At December 31, 1998, the
effective interest rate associated with the 1998 Credit Agreement was
approximately 5.9%.
The Company also has a Short Term Credit Agreement with NationsBank (as amended,
the "Short Term Credit Agreement"), providing for a $500,000,000 short term
revolving credit facility. The terms of the Short Term Credit Agreement are
substantially consistent with those of the 1998 Credit Agreement. Interest on
the Short Term Credit Agreement is paid based on LIBOR plus a predetermined
margin or a base rate. The Company is required to pay a fee on the unused
portion of the credit facility ranging from 0.09% to 0.25%, depending on certain
defined ratios. The principal amount is payable in full on February 15, 2000,
with an earlier repayment required in the event that the Company consummates any
public offering or private placement of debt securities. At December 31, 1998,
the Company had not drawn down any amounts under the Short Term Credit
Agreement.
On March 24, 1994, the Company issued $250,000,000 principal amount of 9.5%
Senior Subordinated Notes due 2001 (the "Notes"). Interest is payable on April 1
and October 1. The Notes are senior subordinated obligations of the Company and
as such are subordinated to all existing and future senior indebtedness of the
Company, and also are effectively subordinated to all existing and future
liabilities of the Company's subsidiaries and partnerships. The Notes mature on
April 1, 2001.
On March 20, 1998, the Company issued $500,000,000 in 3.25% Convertible
Subordinated Debentures due 2003 (the "3.25% Convertible Debentures") in a
private placement. An additional $67,750,000 principal amount of the 3.25%
Convertible Debentures was issued on March 31, 1998 to cover underwriters'
overallotments. Interest is payable on April 1 and October 1. The 3.25%
Convertible Debentures are convertible into Common Stock of the Company at the
option of the holder at a conversion price of $36.625 per share, subject to
adjustment upon the occurrence of certain events. The net proceeds from the
issuance of the 3.25% Convertible Debentures were used by the Company to pay
down indebtedness outstanding under its then-existing credit facilities.
59
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. LONG-TERM DEBT (CONTINUED)
On June 22, 1998, the Company issued $250,000,000 in 6.875% Senior Notes due
2005 and $250,000,000 in 7.0% Senior Notes due 2008 (collectively, the "Senior
Notes"). Interest is payable on June 15 and December 15 of each year, commencing
on December 15, 1998. The Senior Notes are unsecured, unsubordinated obligations
of the Company. The net proceeds from the issuance of the Senior Notes were used
by the Company to pay down indebtedness outstanding under its existing credit
facilities.
Principal maturities of long-term debt are as follows:
YEAR ENDING DECEMBER 31, (IN THOUSANDS)
- - - ------------------------ --------------
1999 $ 49,994
2000 36,564
2001 277,805
2002 17,221
2003 1,904,692
After 2003 544,650
--------------
$ 2,830,926
===============
8. STOCK OPTIONS
The Company has various stockholder-approved stock option plans which provide
for the grant of options to directors, officers and other key employees to
purchase Common Stock at 100% of the fair market value as of the date of grant.
The Audit and Compensation Committee of the Board of Directors administers the
stock option plans. Options may be granted as incentive stock options or as
non-qualified stock options. Incentive stock options vest 25% annually,
commencing upon completion of one year of employment subsequent to the date of
grant. Certain of the non-qualified stock options are not subject to any vesting
provisions, while others vest on the same schedule as the incentive stock
options. The options expire at dates ranging from five to ten years from the
date of grant.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 is effective for fiscal years beginning
after December 15, 1995 and allows for the option of continuing to account for
stock-based compensation under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), and related
60
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. STOCK OPTIONS (CONTINUED)
interpretations, or selecting the fair value method of expense recognition as
described in SFAS 123. The Company has elected to follow APB 25 in accounting
for its employee stock options. The Company follows SFAS 123 in accounting for
its non-employee stock options. The total compensation expense associated with
non-employee stock options granted in 1996, 1997 and 1998 was not material.
Pro forma information regarding net income and earnings per share is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of SFAS 123. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1996,
1997 and 1998, respectively: risk-free interest rates of 6.01%, 6.12% and 6.10%;
dividend yield of 0%; volatility factors of the expected market price of the
Company's common stock of .37, .37 and .76; and a weighted-average expected life
of the options of 4.3 years, 6.2 years and 5.5 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1996 1997 1998
--------------------- --------------------- ----------------
(In thousands, except per share amounts)
Pro forma net income $ 168,390 $ 301,467 $ 31,009
Pro forma earnings per share:
Basic $ 0.50 $ 0.82 $ 0.07
Diluted 0.46 0.78 0.07
</TABLE>
61
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. STOCK OPTIONS (CONTINUED)
The effect of compensation expense from stock options on 1996 pro forma net
income reflects the second year of vesting of 1995 awards and the first year of
vesting of 1996 awards. The 1997 pro forma net income reflects the third year of
vesting of the 1995 awards, the second year of vesting the 1996 awards and the
first year of vesting of the 1997 awards. Not until 1998 is full effect of
recognizing compensation expense for stock options representative of the
possible effects on pro forma net income for future years.
A summary of the Company's stock option activity and related information for the
years ended December 31 follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1997 1998
--------------------- --------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Options Exercise Options Exercise Options Exercise
(000) Price (000) Price (000) Price
----- ----- ----- ----- ----- -----
Options outstanding January 1 36,102 $ 5 34,736 $ 7 34,771 $12
Granted 5,730 17 11,286 22 6,020 12
Exercised (6,751) 5 (10,075) 7 (5,035) 12
Canceled (345) 6 (1,176) 19 (1,319) 21
------- ------- -------- ----- ---------- ------
Options outstanding at December 31 34,736 $ 7 34,771 $12 34,437 $12
Options exercisable at December 31 27,978 $ 6 28,703 $11 29,156 $11
Weighted average fair value of
options granted during the
year $ 7.13 $ 10.59 $ 7.50
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Options Outstanding Options Exercisable
---------------------------------------- ----------------------------
Weighted Weighted Weighted
Average Average Average
December 31, Remaining Exercise December 31, Exercise
1998 Life Price 1998 Price
---- ---- ----- ---- -----
(In thousands) (Years) (In thousands)
Under $10.00 21,808 5.76 $ 6.59 18,775 $ 6.08
$10.00 - $23.63 7,760 6.66 17.99 7,113 18.02
$23.63 and above 4,869 8.65 24.12 3,268 24.06
</TABLE>
62
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. ACQUISITIONS
The Company evaluates each of its acquisitions independently to determine the
appropriate amortization period for the cost in excess of net asset value of
purchased facilities. Each evaluation includes an analysis of historic and
projected financial performance, evaluation of the estimated useful lives of
buildings and fixed assets acquired, the indefinite lives of certificates of
need and licenses acquired, the competition within local markets, lease terms
where applicable, and the legal term of partnerships where applicable.
1996 ACQUISITIONS
At various dates during 1996, the Company acquired 80 outpatient rehabilitation
facilities, 19 outpatient surgery centers, one inpatient rehabilitation hospital
and one diagnostic imaging center. The acquired operations are located
throughout the United States. The total purchase price of the acquired
operations was approximately $122,264,000. The form of consideration
constituting the total purchase prices was approximately $110,262,000 in cash
and $12,002,000 in notes payable.
In connection with these transactions, the Company entered into noncompete
agreements with former owners totaling $11,900,000. In general, these noncompete
agreements are payable in monthly or quarterly installments over periods ranging
from five to ten years.
The fair value of the total net assets relating to the 1996 acquisitions
described above was approximately $42,459,000. The total cost of the 1996
acquisitions exceeded the fair value of the net assets acquired by approximately
$79,805,000. Based on the evaluation of each acquisition utilizing the criteria
described above, the Company determined that the cost in excess of net asset
value of purchased facilities relating to the 1996 acquisitions should be
amortized over periods ranging from 25 to 40 years on a straight-line basis. No
other identifiable intangible assets were recorded in the acquisitions described
above.
All of the 1996 acquisitions described above were accounted for as purchases
and, accordingly, the results of operations of the acquired businesses (not
material individually or in the aggregate) are included in the accompanying
consolidated financial statements from their respective dates of acquisition.
63
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. ACQUISITIONS (CONTINUED)
1997 ACQUISITIONS
Effective October 29, 1997, the Company acquired Horizon/CMS Healthcare
Corporation ("Horizon/CMS") in a stock-for-stock merger in which the
stockholders of Horizon/CMS received 0.84338 of a share of the Company's common
stock per share of Horizon/CMS common stock. At the time of the acquisition,
Horizon/CMS operated 30 inpatient rehabilitation hospitals and approximately 275
outpatient rehabilitation centers, among other strategic businesses, as well as
certain long-term care businesses. In the transaction, the Company issued
approximately 45,261,000 shares of its common stock, valued at $975,824,000,
exchanged options to acquire 3,313,000 shares of common stock, valued at
$23,191,000, and assumed approximately $740,000,000 in long-term debt.
Effective December 31, 1997, the Company sold certain non-strategic assets of
Horizon/CMS to Integrated Health Services, Inc. ("IHS"). Under the terms of the
sale, the Company sold 139 long-term care facilities, 12 specialty hospitals, 35
institutional pharmacy locations and over 1,000 rehabilitation therapy contracts
with long-term care facilities. The transaction was valued at approximately
$1,224,000,000, including the payment by IHS of approximately $1,130,000,000 in
cash (net of certain adjustments) and the assumption by IHS of approximately
$94,000,000 in debt.
In accordance with Emerging Issues Task Force Issue 87-11, "Allocation of
Purchase Price to Assets to be Sold" ("EITF 87-11"), the results of operations
of the non-strategic assets sold to IHS from the acquisition date to December
31, 1997, including a net loss of $7,376,000, have been excluded from the
Company's results of operations in the accompanying financial statements. The
gain on the disposition of the assets sold to IHS, totaling $10,996,000, has
been accounted for as an adjustment to the original Horizon/CMS purchase price
allocation.
The Company also planned to sell the physician and allied health professional
placement service business it acquired in the Horizon/CMS acquisition (the
"Physician Placement Services Subsidiary"). This sale was completed during the
fourth quarter of 1998. Accordingly, a portion of the Horizon/CMS purchase price
was allocated to the Physician Placement Services Subsidiary and this amount was
classified as assets held for sale in the accompanying December 31, 1997
consolidated balance sheet. The allocated amount of $60,400,000 represented the
net assets of the Physician Placement Services Subsidiary, plus anticipated cash
flows from (a) operations of the Physician Placement Services Subsidiary during
the holding period and (b) proceeds from the sale of the Physician Placement
Services Subsidiary. The actual net proceeds realized by the
64
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. ACQUISITIONS (CONTINUED)
Company upon the sale of the Physician Placement Services Subsidiary was
approximately $34,100,000. The difference between the original amount allocated
and the net proceeds realized by the Company has been accounted for in 1998 as
an adjustment to the Horizon/CMS purchase price allocation. The results of
operations of the Physician Placement Services Subsidiary from the Horizon/CMS
acquisition date to December 31, 1998, including a net loss of $10,065,000, have
been excluded from the Company's results of operations in the accompanying
financial statement in accordance with EITF 87-11.
In connection with the sale of the Physician Placement Services Subsidiary, the
Company also sold its physical therapy staffing business, which had been
acquired by the Company as part of a larger strategic acquisition in 1994. The
loss on the sale of the physical therapy staffing business was $31,232,000 and
was recorded by the Company in the fourth quarter of 1998.
Effective September 30, 1997, the Company acquired ASC Network Corporation
("ASC") in a cash-for-stock merger. At the time of the acquisition, ASC operated
29 outpatient surgery centers in eight states. The total purchase price for ASC
was approximately $130,827,000 in cash, plus the assumption of approximately
$61,000,000 in long-term debt.
Effective October 23, 1997, the Company acquired National Imaging Affiliates,
Inc. ("NIA") in a stock-for-stock merger. At the time of the acquisition, NIA
operated eight diagnostic imaging centers in six states and a radiology
management services business. In conjunction with the transaction, NIA spun off
its radiology management services business, which continues to be owned by the
former NIA stockholders. In the transaction, the Company issued approximately
984,000 shares of its common stock, valued at $20,706,000, in exchange for all
of the outstanding shares of NIA.
At various dates and in separate transactions throughout 1997, the Company
acquired 135 outpatient rehabilitation facilities, ten outpatient surgery
centers and eight diagnostic imaging facilities located throughout the United
States. The Company also acquired an inpatient rehabilitation hospital located
in Australia. The total purchase price of the acquired operations was
approximately $179,749,000. The form of consideration constituting the total
purchase prices was $173,519,000 in cash, $2,674,000 in notes payable and the
issuance of approximately 235,000 shares of the Company's common stock, valued
at $3,521,000.
In connection with these transactions, the Company entered into noncompete
agreements with former owners totaling $29,275,000. In general, these noncompete
agreements are payable in monthly or quarterly installments over periods ranging
from five to ten years.
65
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. ACQUISITIONS (CONTINUED)
As of December 31, 1997, the Company had estimated the fair value of the total
net assets relating to the 1997 acquisitions described above to be approximately
$237,369,000. During 1998, the Company made certain adjustments to reduce the
fair value of the Horizon/CMS net assets acquired by approximately $136,065,000.
These adjustments relate primarily to the valuation of accounts and notes
receivable acquired, the valuation of fixed assets acquired, final working
capital settlements with IHS and the payment of pre-acquisition liabilities in
excess of amounts accrued in the original purchase price allocation. After
considering the effects of the adjustments recorded in 1998, the total cost of
the 1997 acquisitions exceeded the fair value of the net assets acquired by
approximately $1,228,993,000. Based on the evaluation of each acquisition
utilizing the criteria described above, the Company determined that the cost in
excess of net asset value of purchased facilities relating to the 1997
acquisitions should be amortized over a period of 25 to 40 years on a
straight-line basis.
All of the 1997 acquisitions described above were accounted for as purchases
and, accordingly, the results of operations of the acquired businesses are
included in the accompanying consolidated financial statements from their
respective dates of acquisition. With the exception of the operations acquired
in the Horizon/CMS acquisition (for which pro forma data has been disclosed
above), the results of operations of the acquired businesses were not material
individually or in the aggregate to the Company's consolidated results of
operations and financial position.
1998 ACQUISITIONS
Effective July 1, 1998, the Company acquired Columbia/HCA Healthcare
Corporation's interests in 33 ambulatory surgery centers (subject to certain
outstanding consents and approvals with respect to three of the centers, as to
which the parties entered into management agreements) in a transaction accounted
for as a purchase. Effective July 31, 1998, the Company entered into certain
other arrangements to acquire substantially all of the economic benefit of
Columbia/HCA's interests in one additional ambulatory surgery center. The
purchase price was approximately $550,402,000 in cash.
At various dates and in separate transactions throughout 1998, the Company
acquired 112 outpatient rehabilitation facilities, four outpatient surgery
centers, one inpatient rehabilitation hospital and 27 diagnostic imaging
centers. The acquired operations are located throughout the United States. The
total purchase price of the acquired operations was approximately $216,305,000.
The form of consideration constituting the total purchase prices was
approximately $179,038,000 in cash and $17,870,000 in notes payable and the
issuance of approximately 699,000 shares of the Company's common stock, valued
at $19,397,000.
66
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. ACQUISITIONS (CONTINUED)
In connection with these transactions, the Company entered into noncompete
agreements with former owners totaling $25,926,000. In general, these noncompete
agreements are payable in monthly or quarterly installments over periods ranging
from five to ten years.
The fair value of the total net assets relating to the 1998 acquisitions
described above was approximately $15,570,000. The total cost of the 1998
acquisitions exceeded the fair value of the net assets acquired by approximately
$751,137,000. Based on the evaluation of each acquisition utilizing the criteria
described above, the Company determined that the cost in excess of net asset
value of purchased facilities relating to the 1998 acquisitions should be
amortized over periods ranging from 25 to 40 years on a straight-line basis. No
other identifiable intangible assets were recorded in the acquisitions described
above. At December 31, 1998, the purchase price allocation associated with the
1998 acquisitions is preliminary in nature. During 1999 the Company will make
adjustments, if necessary, to the purchase price allocation based on revisions
to the fair value of the assets acquired.
All of the 1998 acquisitions described above were accounted for as purchases
and, accordingly, the results of operations of the acquired businesses (not
material individually or in the aggregate) are included in the accompanying
consolidated financial statements from their respective dates of acquisition.
10. INCOME TAXES
HEALTHSOUTH and its subsidiaries file a consolidated federal income tax return.
The limited partnerships and limited liability companies file separate income
tax returns. HEALTHSOUTH's allocable portion of each partnership's income or
loss is included in the taxable income of the Company. The remaining income or
loss of each partnership and limited liability company is allocated to the
limited partners.
67
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. INCOME TAXES (CONTINUED)
The Company utilizes the liability method of accounting for income taxes, as
required by Financial Accounting Standards Board Statement No. 109, "Accounting
for Income Taxes". Deferred income taxes reflect the net effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities as of December
31, 1997 are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CURRENT NONCURRENT TOTAL
------------------- ------------------- -------------------
(In thousands)
Deferred tax assets:
Accruals $ 19,564 $ - $ 19,564
Net operating loss - 11,334 11,334
Other - 4,618 4,618
------------------- ------------------- -------------------
Total deferred tax assets 19,564 15,952 35,516
Deferred tax liabilities:
Depreciation and amortization - 91,485 91,485
Capitalized costs 9,038 - 9,038
Allowance for bad debts 40,520 - 40,520
Other 4,351 - 4,351
------------------- ------------------- -------------------
Total deferred tax liabilities 53,909 91,485 145,394
------------------- ------------------- -------------------
Net deferred tax liabilities $ (34,345) $ (75,533) $ (109,878)
=================== =================== ===================
</TABLE>
68
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities as
of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CURRENT NONCURRENT TOTAL
------------------- ------------------- -------------------
(In thousands)
Deferred tax assets:
Net operating loss $ - $ 3,504 $ 3,504
Accruals 19,482 - 19,482
Impairment & restructuring charges - 136,470 136,470
------------------- ------------------- -------------------
Total deferred tax assets 19,482 139,974 159,456
Deferred tax liabilities:
Depreciation and amortization - (90,753) (90,753)
Bad debts (53,642) - (53,642)
Capitalized costs - (78,077) (78,077)
Other (3,452) - (3,452)
------------------- ------------------- -------------------
Total deferred tax liabilities (57,094) (168,830) (225,924)
------------------- ------------------- -------------------
Net deferred tax liabilities $ (37,612) $ (28,856) $ (66,468)
=================== =================== ===================
</TABLE>
At December 31, 1998, the Company has net operating loss carryforwards of
approximately $9,829,000 for income tax purposes expiring through the year 2017.
Those carryforwards resulted from the Company's acquisitions of Diagnostic
Health Corporation, Renaissance Rehabilitation Center, Inc., Rebound, Inc.,
Health Images and Horizon/CMS.
The provision for income taxes was as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1996 1997 1998
--------------------- --------------------- ---------------------
(In thousands)
Currently payable:
Federal $ 118,448 $ 171,029 $ 162,433
State 14,279 27,402 24,324
--------------------- --------------------- ---------------------
132,727 198,431 186,757
Deferred expense :
Federal 14,742 13,186 (37,756)
State 1,076 2,051 (5,654)
--------------------- --------------------- ---------------------
15,818 15,237 (43,410)
--------------------- --------------------- ---------------------
$ 148,545 $ 213,668 $ 143,347
===================== ===================== =====================
</TABLE>
69
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. INCOME TAXES (CONTINUED)
The difference between the provision for income taxes and the amount computed by
applying the statutory federal income tax rate to income before taxes was as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1996 1997 1998
----------------- ----------------- ------------------
(In thousands)
Federal taxes at statutory rates $ 139,764 $ 220,219 $ 93,581
Add (deduct):
State income taxes, net of federal tax
benefit 9,981 19,144 12,136
Minority interests (18,901) (25,364) (27,114)
Nondeductible goodwill - - 7,630
Disposal/impairment charges 6,563 1,576 57,873
Other 11,138 (1,907) (759)
----------------- ------------------ ------------------
$ 148,545 $ 213,668 $ 143,347
================= ================== ==================
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
The Company is a party to legal proceedings incidental to its business. In the
opinion of management, any ultimate liability with respect to these actions will
not materially affect the consolidated financial position or results of
operations of the Company.
Beginning December 1, 1993, the Company became self-insured for professional
liability and comprehensive general liability. The Company purchased coverage
for all claims incurred prior to December 1, 1993. In addition, the Company
purchased underlying insurance which would cover all claims once established
limits have been exceeded. It is the opinion of management that at December 31,
1998 the Company has adequate reserves to cover losses on asserted and
unasserted claims.
Prior to consummation of the SCA and Advantage Health mergers (see Note 2),
these companies carried professional malpractice and general liability
insurance. The policies were carried on a
70
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
claims made basis. The companies had policies in place to track and monitor
incidents of significance. Management is unaware of any claims that may result
in a loss in excess of amounts covered by existing insurance.
In connection with the Horizon/CMS acquisition, the Company assumed
Horizon/CMS's open professional and general liability claims. The Company has
entered into an agreement with an insurance carrier to assume responsibility for
the majority of open claims. Under this agreement, a "risk transfer" was
conducted which converted Horizon/CMS's self-insured claims to insured
liabilities consistent with the terms of the underlying insurance policy.
Horizon/CMS is currently a party, or is subject, to certain litigation matters
and disputes. The Company itself is, in general, not a party to such litigation.
These matters include actions on investigations initiated by the Securities and
Exchange Commission, New York Stock Exchange, various federal and state
regulatory agencies, stockholders of Horizon/CMS and other parties. Both
Horizon/CMS and the Company are working to resolve these matters and cooperating
fully with the various regulatory agencies involved. As of December 31, 1998, it
was not possible for the Company to predict the ultimate outcome or effect of
these matters. In management's opinion, the ultimate resolution of these matters
will not have a material effect on the Company's consolidated financial
position.
The Company has been served with certain lawsuits filed beginning September 30,
1998, which purport to be class actions under the federal and Alabama securities
laws. Such lawsuits were filed following a decline in the Company's stock price
at the end of the third quarter of 1998. Seven such suits have been filed in the
United States District Court for the Northern District of Alabama, comprising
substantially identical complaints filed against the Company and certain of its
officers and directors alleging that, during the period August 12, 1997 through
September 30, 1998, the defendants misrepresented or failed to disclose certain
material facts concerning the Company's business and financial condition in
order to artificially inflate the price of the Company's Common Stock and issued
or sold shares of such stock during the purported class period, all allegedly in
violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
thereunder. Certain of the named plaintiffs in some of the complaints also
purport to represent separate subclasses consisting of former stockholders of
corporations acquired by the Company in 1997 and 1998 who received shares of the
Company's Common Stock in connection with such acquisitions and who assert
additional claims under Section 11 of the Securities Act of 1933. In January
1999, these complaints were ordered to be consolidated, with a consolidated
amended complaint due to be filed by April 5, 1999.
71
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Additionally, another suit has been filed in the Circuit Court of Jefferson
County, Alabama, purportedly as a derivative action on behalf of the Company.
This suit largely replicates the allegations of the federal actions described in
the preceding paragraph and alleges that the current directors of the Company,
certain former directors and certain officers of the Company breached their
fiduciary duties to the Company and engaged in other allegedly tortious conduct.
The plaintiff in that case has forborne pursuing its claim thus far pending
further progress in the federal actions, and the Company has not yet been
required to file a responsive pleading in the case. Another non-derivative state
court action was voluntarily dismissed by the plaintiff, without prejudice.
The Company believes that all claims asserted in the above suits are without
merit, and expects to vigorously defend against such claims. Because such suits
have only recently been filed, the Company cannot predict the outcome of any
such suits or the magnitude of any potential loss if the Company's defense is
unsuccessful.
At December 31, 1998, committed capital expenditures for the next twelve months
are $27,458,000.
Operating leases generally consist of short-term lease agreements for buildings
where facilities are located. These leases generally have 5-year terms, with one
or more renewal options, with terms to be negotiated at the time of renewal.
Total rental expense for all operating leases was $138,098,000, $167,749,000 and
$238,937,000 for the years ended December 31, 1996, 1997 and 1998, respectively.
72
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The following is a schedule of future minimum lease payments under all operating
leases having initial or remaining non-cancelable lease terms in excess of one
year:
YEAR ENDING DECEMBER 31, (IN THOUSANDS)
- - - ---------------------------- ---------------------
1999 $ 199,903
2000 171,245
2001 142,874
2002 110,545
2003 85,697
After 2003 285,008
--------------------
Total minimum payments required $ 995,272
====================
12. EMPLOYEE BENEFIT PLANS
The Company has a 401(k) savings plan which matches 15% of the first 4% of
earnings that an employee contributes. All contributions are in the form of
cash. All employees who have completed one year of service with a minimum of
1,000 hours worked are eligible to participate in the plan. Company
contributions are gradually vested over a seven-year service period.
Contributions to the plan by the Company were approximately $2,420,000,
$2,628,000 and $4,121,000 in 1996, 1997 and 1998, respectively.
In 1991, the Company established an Employee Stock Ownership Plan ("ESOP") for
the purpose of providing substantially all employees of the Company the
opportunity to save for their retirement and acquire a proprietary interest in
the Company. The ESOP currently owns approximately 3,320,000 shares of the
Company's common stock, which were purchased with funds borrowed from the
Company, $10,000,000 in 1991 (the "1991 ESOP Loan") and $10,000,000 in 1992 (the
"1992 ESOP Loan"). At December 31, 1997, the combined ESOP Loans had a balance
of $12,247,000. The 1991 ESOP Loan, which bears an interest rate of 10%, is
payable in annual installments covering interest and principal over a ten-year
period beginning in 1992. The 1992 ESOP Loan, which bears an interest rate of
8.5%, is payable in annual installments covering interest and principal over a
ten-year period beginning in 1993. Company contributions to the ESOP began in
1992 and shall at least equal the amount required to make all ESOP loan
amortization payments for each plan year. The Company recognizes compensation
expense based on the shares allocated method. Compensation expense related to
the ESOP recognized by the Company was $3,198,000, $3,249,000 and $3,195,000 in
1996,
73
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. EMPLOYEE BENEFIT PLANS (CONTINUED)
1997 and 1998, respectively. Interest incurred on the ESOP Loans was
approximately $1,298,000, $1,121,000 and $927,000 in 1996, 1997 and 1998,
respectively. Approximately 1,875,000 shares owned by the ESOP have been
allocated to participants at December 31, 1998.
During 1993, the American Institute of Certified Public Accountants issued
Statement of Position 93-6, "Employers Accounting for Employee Stock Ownership
Plans" ("SOP 93-6"). Among other provisions, SOP 93-6 requires that compensation
expense relating to employee stock ownership plans be measured based on the fair
market value of the shares when allocated to the employees. The provisions of
SOP 93-6 apply only to leveraged ESOPs formed after December 31, 1992, or shares
newly acquired by an existing leveraged ESOP after December 31, 1992. Because
all shares owned by the Company's ESOP were acquired prior to December 31, 1992,
the Company's accounting policies for the shares currently owned by the ESOP are
not affected by SOP 93-6.
13. IMPAIRMENT AND RESTRUCTURING CHARGES
In 1996, the Company recorded an asset impairment charge of approximately
$37,390,000 relating to tangible assets identifiable with the development and
manufacture of the HI Standard and HI STAR MRI systems. Approximately
$28,665,000 of this charge related to the development and manufacture of the HI
STAR MRI system, while the remaining charge of $8,725,000 related to HI Standard
MRI systems already in service.
During the fourth quarter of 1996 the Company performed an evaluation of the
viability of continued development and manufacture, and the continued use of
mid-field HI Standard and HI STAR MRI systems. The Company's evaluation revealed
that due to improvements in technology, high-field MRI systems could be
purchased at significantly lower costs than the production costs of the
Company's mid-field MRI systems. Additionally, it was noted that future
maintenance costs of the high-field MRI systems were significantly less than the
cost currently being incurred for maintenance of the internally developed
mid-field MRI systems. Based on these facts and circumstances, the Company
determined that there was a significant decrease in the market value of the
related assets. Accordingly, the Company decided to cease development and
manufacture of the HI STAR MRI system and developed a plan to replace all of its
HI Standard MRI systems during the following eighteen months. Since the MRI
system was not fully developed, the Company has not been able to find a buyer
for any of the assets, nor are there any alternative uses. Therefore, the
Company has assigned no fair value at December 31, 1996 to the assets related to
the development and manufacture of the HI STAR MRI system.
74
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. IMPAIRMENT AND RESTRUCTURING CHARGES (CONTINUED)
During the third quarter of 1998, the Company recorded impairment and
restructuring charges of approximately $72,000,000 related to the Company's
decision to dispose of or otherwise discontinue substantially all of its home
health operations. The decision was prompted in large part by the negative
impact of the 1997 Balanced Budget Act, which placed reimbursement limits on
home health businesses. The limits were announced in March 1998 and the Company
began to see the adverse affect on home health margins. Based on this
unfavorable trend, management prepared a plan to exit the home health operations
described above. The plan was approved by the Board of Directors on September
16, 1998. Revenues and income before income taxes and minority interests for the
home health operations were $71,163,000 and $(4,261,000), respectively. The home
health operations have been included in the inpatient and other clinical
services segment.
75
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. IMPAIRMENT AND RESTRUCTURING CHARGES (CONTINUED)
The Company has developed a strategic plan to provide integrated services in
major markets throughout the United States. In the fourth quarter of 1998, the
Company recorded a restructuring charge of approximately $404,000,000 as a
result of its decision to close certain facilities that do not fit with the
Company's strategic vision, underperforming facilities and facilities not
located in target markets. The identified facilities contributed $140,087,000 to
the Company's revenue and $(9,907,000) to the Company's income before income
taxes and minority interests during 1998.
The home health operations covered by the plan were closed by December 31, 1998.
At March 12, 1999, approximately 73% of the locations identified in the fourth
quarter restructuring plan had been closed. The Company expects the actions
associated with the fourth quarter restructuring plan to be substantially
completed during the first half of 1999. Assets that are no longer in use were
abandoned or written down to their fair value and either have been disposed of
or are being held for sale.
The total number of employees terminated in conjunction with the restructuring
plans was 7,900, with 7,879 having left the Company as of December 31, 1998. The
remaining employees will leave the Company during the first half of 1999.
The restructuring activities (shown below in tabular form) primarily relate to
asset write-downs, lease abandonments and the elimination of job
responsibilities resulting in costs incurred to sever employees.
Details of the impairment and restructuring charges are as follows:
<TABLE>
<CAPTION>
RESTRUCTURING BALANCE AT
DESCRIPTION CHARGE ACTIVITY 12/31/98
- - - ----------------------------------- --------------------- ----------------- --------------------
(In thousands)
<S> <C> <C> <C>
Impairment of assets:
Property, plant and equipment $ 146,243 $ 126,863 $ 19,380
Intangible assets 221,129 221,129 -
Lease abandonment costs 52,094 2,618 49,476
Other assets 24,765 24,765 -
Severance packages 6,027 4,753 1,274
Other incremental costs 25,524 9,120 16,404
---------------------- ----------------- --------------------
$ 475,782 $ 389,248 $ 86,534
====================== ================= ====================
</TABLE>
Of the remaining balance at December 31, 1998, $19,380,000 is included as assets
held for sale and the remaining $67,154,000 is included in accrued interest
payable and other liabilities in the accompanying consolidated balance sheet.
76
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. IMPAIRMENT AND RESTRUCTURING CHARGES (CONTINUED)
In addition, the Company recorded an impairment charge of approximately
$8,000,000 related to a rehabilitation hospital it had closed. The write-down
was based on a recently obtained independent appraisal.
The Company intends to abandon certain equipment and to sell certain properties
and equipment associated with the closed facilities. The fair value of assets to
be sold is approximately $27,000,000. The Company expects to have all properties
sold by the end of 1999. The effect of suspending depreciation is immaterial.
For assets that will not be abandoned, the fair values were based on independent
appraisals or estimates of recoverability for similar closings. Lease
abandonment costs were based on the lease terms remaining. Other incremental
costs consist primarily of costs to close the facilities, refurbish facilities
in accordance with lease requirements, security, legal and similar costs.
14. OPERATING SEGMENTS
The Company adopted SFAS 131 in 1998. Prior years' information has been restated
to present information for the Company's two business segments described in Note
1.
The accounting policies of the segments are the same as those for the Company
described in Note 1, Significant Accounting Policies. Intrasegment revenues are
not significant. The Company's Chief Operating Decision Maker evaluates the
performance of its segments and allocates resources to them based on income
before minority interests and income taxes and earnings before interest, income
taxes, depreciation and amortization ("EBITDA"). In addition, certain revenue
producing functions are managed directly from the Corporate office and are not
included in operating results for management reporting. Unallocated assets
represent those assets under the direct management of Corporate office
personnel.
77
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. OPERATING SEGMENTS (CONTINUED)
Operating results and other financial data are presented for the principal
operating segments as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1996 1997 1998
---------------------------------------------------------------
(In thousands)
Revenues:
Inpatient and other clinical services $ 1,405,877 $ 1,624,848 $ 1,909,462
Outpatient services 1,207,611 1,467,005 2,042,952
---------------------------------------------------------------
2,613,488 3,091,853 3,952,414
Unallocated corporate office 34,700 31,323 53,660
---------------------------------------------------------------
Consolidated revenues $ 2,648,188 $ 3,123,176 $ 4,006,074
===============================================================
Income before income taxes and minority
interests:
Inpatient and other clinical services $ 251,798 $ 356,978 $ 168,503
Outpatient services 240,618 420,567 331,790
---------------------------------------------------------------
492,416 777,545 500,293
Unallocated corporate office (93,090) (148,349) (232,920)
---------------------------------------------------------------
Consolidated income before income taxes and
minority interests $ 399,326 $ 629,196 $ 267,373
===============================================================
Depreciation and amortization:
Inpatient and other clinical services $ 76,225 $ 78,208 $ 90,251
Outpatient services 100,091 120,867 164,409
---------------------------------------------------------------
176,316 199,075 254,660
Unallocated corporate office 36,651 58,061 89,931
---------------------------------------------------------------
Consolidated depreciation and
amortization $ 212,967 $ 257,136 $ 344,591
===============================================================
Interest expense:
Inpatient and other clinical services $ 65,439 $ 68,393 $ 68,600
Outpatient services 10,068 3,731 2,176
---------------------------------------------------------------
75,507 72,124 70,776
Unallocated corporate office 25,860 40,405 77,387
---------------------------------------------------------------
Consolidated interest expense $ 101,367 $ 112,529 $ 148,163
===============================================================
</TABLE>
78
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1996 1997 1998
-----------------------------------------------------------
(In thousands)
Interest income:
Inpatient and other clinical services $ 187 $ 1,153 $ 4,399
Outpatient services 1,816 3,879 4,145
-----------------------------------------------------------
2,003 5,032 8,544
Unallocated corporate office 4,746 972 2,742
-----------------------------------------------------------
Consolidated interest income $ 6,749 $ 6,004 $ 11,286
=============================================================
EBITDA:
Inpatient and other clinical services $ 393,275 $ 502,426 $ 322,955
Outpatient services 348,961 541,286 494,230
-----------------------------------------------------------
742,236 1,043,712 817,185
Unallocated corporate office (35,325) (50,855) (68,344)
-----------------------------------------------------------
Consolidated EBITDA $ 706,911 $ 992,857 $ 748,841
=============================================================
Merger and acquisition related expenses,
loss on sale of assets and impairment and
restructuring charge:
Inpatient and other clinical services $ - $ - $ 224,710
Outpatient services 78,905 15,875 303,979
-----------------------------------------------------------
78,905 15,875 528,689
Unallocated corporate office - - 11,628
-----------------------------------------------------------
Consolidated merger and acquisition
related expenses, loss on sale of assets
and impairment and restructuring charge $ 78,905 $ 15,875 $ 540,317
=============================================================
Assets:
Inpatient and other clinical services $ 2,894,135 $ 2,590,677
Outpatient services 2,331,326 3,642,825
----------------------------------------
5,225,461 6,233,502
Unallocated corporate office 340,863 539,506
----------------------------------------
Total assets $ 5,566,324 $ 6,773,008
========================================
</TABLE>
79
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The Company has not changed independent accountants within the 24
months prior to December 31, 1998.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.
DIRECTORS
The following table sets forth certain information with respect to the
Company's Directors.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
AND ALL POSITIONS A DIRECTOR
NAME AGE WITH THE COMPANY SINCE
---- --- ---------------- -----
<S> <C> <C> <C>
Richard M. Scrushy 46 Chairman of the Board 1984
and Chief Executive Officer
and Director
James P. Bennett 41 President and Chief Operating Officer 1993
and Director
Phillip C. Watkins, M.D. 57 Physician, Birmingham, Alabama, 1984
and Director
George H. Strong 72 Private Investor, Locust, New Jersey, 1984
and Director
C. Sage Givens 42 General Partner, 1985
Acacia Venture Partners
and Director
Charles W. Newhall III 54 Partner, New Enterprise 1985
Associates Limited Partnerships,
and Director
Anthony J. Tanner 50 Executive Vice President-- 1993
Administration and Secretary
and Director
P. Daryl Brown 44 President-- HEALTHSOUTH Outpatient 1995
Centers and Director
</TABLE>
80
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
AND ALL POSITIONS A DIRECTOR
NAME AGE WITH THE COMPANY SINCE
---- --- ---------------- -----
<S> <C> <C> <C>
John S. Chamberlin 70 Private Investor, 1993
Princeton, New Jersey,
and Director
Joel C. Gordon 69 Chairman, Cardiology 1996
Partners of America, Inc.
Consultant to the Company
and Director
Michael D. Martin 38 Executive Vice President 1998
and Chief Financial Officer
and Director
Larry D. Striplin, Jr. 69 Chairman and Chief Executive Officer, 1999
Nelson-Brantley Glass Contractors, Inc.
and Director
</TABLE>
81
<PAGE>
Richard M. Scrushy, one of the Company's management founders, has
served as Chairman of the Board and Chief Executive Officer of the Company since
1984, and also served as President of the Company from 1984 until March 1995.
From 1979 to 1984, Mr. Scrushy was with Lifemark Corporation, a publicly-owned
healthcare corporation, serving in various operational and management positions.
Mr. Scrushy is also a director of MedPartners, Inc., a publicly-traded physician
practice management company, for which he also served as Acting Chief Executive
Officer from January 16 through March 18, 1998 and as Chairman of the Board from
January 16 through December 1, 1998.
Phillip C. Watkins, M.D., FACC, is and has been for more than five
years in the private practice of medicine in Birmingham, Alabama. A graduate of
The Medical College of Alabama, Dr. Watkins is a Diplomate of the American Board
of Internal Medicine. He is also a Fellow of the American College of Cardiology
and the Subspecialty Board of Cardiovascular Disease.
George H. Strong retired as senior vice president and chief financial
officer of Universal Health Services, Inc. in December 1984, a position he held
for more than six years. Mr. Strong is a private investor and continued to act
as a director of Universal Health Services, Inc., a publicly-traded hospital
management corporation, until 1993. Mr. Strong is also a director of Balanced
Care Corporation and Integrated Health Services, Inc., both publicly-traded
healthcare corporations, and AmeriSource, Inc., a large drug wholesaler.
C. Sage Givens is a general partner of Acacia Venture Partners, a
private venture capital fund capitalized at $66,000,000. From 1983 to June 30,
1995, Ms. Givens was a general partner of First Century Partners, a private
venture capital fund capitalized at $100,000,000. Ms. Givens managed the fund's
healthcare investments. Ms. Givens serves on the board of directors of PhyCor,
Inc., a publicly-traded healthcare corporation, and several privately-held
healthcare companies.
Charles W. Newhall III is a general partner and founder of New
Enterprise Associates Limited Partnerships, Baltimore, Maryland, where he has
been engaged in the venture capital business since 1978. Mr. Newhall is also a
director of Integrated Health Services, Inc., MedPartners, Inc. and Opta Food
Ingredients, Inc., all of which are publicly-traded corporations.
James P. Bennett joined the Company in May 1991 as Director of
Inpatient Operations, was promoted to Group Vice President -- Inpatient
Rehabilitation Operations in September 1991, again to President and Chief
Operating Officer -- HEALTHSOUTH Rehabilitation Hospitals in June 1992, to
President -- HEALTHSOUTH Inpatient Operations in February 1993, and to President
and Chief Operating Officer of the Company in March 1995. Mr. Bennett was
elected a Director in February 1993. From August 1987 to May 1991, Mr. Bennett
was employed by Russ Pharmaceuticals, Inc., Birmingham, Alabama, as Vice
President -- Operations, Chief Financial Officer, Secretary and director. Mr.
Bennett served as certified public accountant on the audit staff of the
Birmingham, Alabama office of Ernst & Whinney (now Ernst & Young LLP) from
October 1980 to August 1987.
Anthony J. Tanner, Sc.D., a management founder, serves as Executive
Vice President -- Administration and Secretary of the Company and was elected a
Director in February 1993. From 1980 to 1984, Mr. Tanner was with Lifemark
Corporation in the Shared Services Division as director, clinical and
professional programs (1982-1984) and director, quality assurance and education
(1980-1982), where he was responsible for the development of clinical programs
and marketing programs.
P. Daryl Brown joined the Company in April 1986 and served until June
1992 as Group Vice President -- Outpatient Operations. He became President --
HEALTHSOUTH Outpatient Centers in June 1992, and was elected as a Director in
March 1995. From 1977 to 1986, Mr. Brown served with the American Red Cross,
Alabama Region, in several positions, including Chief Operating Officer,
Administrative Director for Financing and Administration and Controller.
John S. Chamberlin retired in 1988 as president and chief operating
officer of Avon Products, Inc., a position he had held since 1985. From 1976
until 1985, he served as chairman and chief executive officer of Lenox,
Incorporated, after 22 years in various assignments for General Electric. From
1990 to 1991, he served as chairman and chief executive officer of New Jersey
Publishing Co. Mr. Chamberlin is chairman of the board of Sports Holding Company
and WNS, Inc., and is a director of Imagyn Medical Technologies Inc. He is a
member of the Board of Trustees of the Medical Center at Princeton and is a
trustee of the Woodrow Wilson National Fellowship Foundation.
Joel C. Gordon served as Chairman of the Board of Directors of SCA from
its founding in 1982 until January 17, 1996, when SCA was acquired by the
Company. Mr. Gordon also served as Chief Executive Officer of SCA from 1987
until January 17, 1996. Mr. Gordon is Chairman of Cardiology Partners of
America, Inc. and serves on the boards of directors of Genesco, Inc., an apparel
manufacturer, and SunTrust Bank of Nashville, N.A.
82
<PAGE>
Michael D. Martin joined the Company in October 1989 as Vice President
and Treasurer, and was named Senior Vice President -- Finance and Treasurer in
February 1994 and Executive Vice President -- Finance and Treasurer in May 1996.
In October 1997, he was additionally named Chief Financial Officer of the
Company, and in March 1998, he was named a Director of the Company. In March
1999, he ceased serving as Treasurer of the Company. From 1983 through September
1989, Mr. Martin specialized in healthcare lending with AmSouth Bank N.A.,
Birmingham, Alabama, where he was a Vice President immediately prior to joining
the Company. Mr. Martin is a director of MedPartners, Inc.
Larry D. Striplin, Jr. has been the Chairman and Chief Executive
Officer of Nelson-Brantley Glass Contractors, Inc. and Chairman and Chief
Executive Officer of Clearview Properties, Inc. since December 1995. Until
December 1995, Mr. Striplin had been Chairman of the Board and Chief Executive
Officer of Circle "S" Industries, Inc., a privately owned bonding wire
manufacturer. Mr. Striplin is a member of the boards of directors of Kulicke &
Suffa Industries, Inc., a publicly traded manufacturer of electronic equipment,
The Banc Corporation and MedPartners, Inc.
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
Company's executive officers.
<TABLE>
<CAPTION>
ALL POSITIONS AN OFFICER
NAME AGE WITH THE COMPANY SINCE
---- --- ---------------- -----
<S> <C> <C>
Richard M. Scrushy 46 Chairman of the Board 1984
and Chief Executive Officer and
Director
James P. Bennett 41 President and Chief Operating Officer 1991
and Director
Anthony J. Tanner 50 Executive Vice President-- Administration 1984
and Secretary and Director
Michael D. Martin 38 Executive Vice President 1989
and Chief Financial Officer
and Director
Thomas W. Carman 47 Executive Vice President-- 1985
Corporate Development
P. Daryl Brown 44 President-- HEALTHSOUTH 1986
Outpatient Centers and Director
Robert E. Thomson 51 President-- HEALTHSOUTH 1987
Inpatient Operations
Patrick A. Foster 52 President-- HEALTHSOUTH 1994
Surgery Centers
William T. Owens 40 Group Senior Vice President-- 1986
Finance and Controller
William W. Horton 39 Senior Vice President and 1994
Corporate Counsel and
Assistant Secretary
</TABLE>
83
<PAGE>
Biographical information for Messrs. Scrushy, Bennett, Tanner, Brown
and Martin is set forth above under this Item, "Directors and Executive Officers
- - - -- Directors".
Thomas W. Carman joined the Company in 1985 as Regional Director --
Corporate Development, and now serves as Executive Vice President -- Corporate
Development. From 1983 to 1985, Mr. Carman was director of development for
Medical Care International. From 1981 to 1983, Mr. Carman was assistant
administrator at the Children's Hospital of Birmingham, Alabama.
Robert E. Thomson joined the Company in August 1985 as administrator of
its Florence, South Carolina inpatient rehabilitation facility, and subsequently
served as Regional Vice President -- Inpatient Operations, Vice President --
Inpatient Operations, Group Vice President -- Inpatient Operations, and Senior
Vice President -- Inpatient Operations. Mr. Thomson was named President --
HEALTHSOUTH Inpatient Operations in February 1996.
Patrick A. Foster joined the Company in February 1994 as Director of
Operations and subsequently served as Group Vice President -- Inpatient
Operations and Senior Vice President -- Inpatient Operations. He was named
President -- HEALTHSOUTH Surgery Centers in October 1997. From August 1992 until
February 1994, he served as Senior Vice President of the Rehabilitation/Medical
Division of The Mediplex Group.
William T. Owens, C.P.A., joined the Company in March 1986 as
Controller and was appointed Vice President and Controller in December 1986. He
was appointed Group Vice President -- Finance and Controller in June 1992 and
Senior Vice President -- Finance and Controller in February 1994 and Group
Senior Vice President -- Finance and Controller in March 1998. Prior to joining
the Company, Mr. Owens served as a certified public accountant on the audit
staff of the Birmingham, Alabama office of Ernst & Whinney (now Ernst & Young
LLP) from 1981 to 1986.
William W. Horton joined the Company in July 1994 as Group Vice
President -- Legal Services and was named Senior Vice President and Corporate
Counsel in May 1996. From August 1986 through June 1994, Mr. Horton practiced
corporate, securities and healthcare law with the Birmingham, Alabama-based firm
now known as Haskell Slaughter & Young, L.L.C., where he served as Chairman of
the Healthcare Practice Group.
GENERAL
Directors of the Company hold office until the next Annual Meeting of
Stockholders of the Company and until their successors are elected and
qualified. Executive officers of the Company are elected annually by, and serve
at the discretion of the Board of Directors. There are no arrangements or
understandings known to the Company between any of the Directors, nominees for
Director or executive officers of the Company and any other person pursuant to
which any of such persons was elected as a Director or an executive officer,
except the Employment Agreements between the Company and Richard M. Scrushy,
James P. Bennett, Michael D. Martin, Anthony J. Tanner and P. Daryl Brown. (see
Item 11, "Executive Compensation -- Chief Executive Officer Employment
Agreement"; " -- Other Executive Employment Agreements") and except that the
Company initially agreed to appoint Mr. Gordon to the Board of Directors in
connection with the SCA merger. There are no family relationships between any
Directors, nominees for Director or executive officers of the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and Directors, and persons who beneficially own more than 10%
of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and the New York Stock Exchange. Officers, Directors and beneficial owners of
more than 10% of the Company's Common Stock are required by Securities and
Exchange Commission regulations to furnish the Company with copies of all
Section 16(a) forms that they file. Based solely on review of the copies of such
forms furnished to the Company, or written representations that no reports on
Form 5 were required, the Company believes that for the period from January 1,
1998, through December 31, 1998, all of its officers, Directors and
greater-than-10% beneficial owners complied with all Section 16(a) filing
requirements applicable to them.
84
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION -- GENERAL
The following table sets forth compensation paid or awarded to the
Chief Executive Officer and each of the other four most highly compensated
executive officers of the Company (the "Named Executive Officers") for all
services rendered to the Company and its subsidiaries in 1996, 1997 and 1998.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------------- -----------------------
BONUS/ANNUAL STOCK LONG-TERM ALL
INCENTIVE OPTION INCENTIVE OTHER COM-
NAME AND PRINCIPAL POSITION YEAR SALARY AWARD AWARDS PAYOUTS PENSATION(1)
- - - --------------------------- ---- ------ ----- ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Richard M. Scrushy 1996 $3,391,775 $ 8,000,000 1,500,000 --- $ 34,286 (2)
Chairman of the Board 1997 3,398,999 10,000,000 1,300,000 --- 21,430
and Chief Executive Officer(3) 1998 2,777,829 --- 1,500,000 --- 72,352
James P. Bennett 1996 496,590 800,000 200,000 --- 32,106 (2)
President and Chief 1997 639,161 1,500,000 700,000 --- 10,158
Operating Officer 1998 670,000 --- 300,000 --- 10,092
Michael D. Martin 1996 281,644 750,000 120,000 --- 31,586 (2)
Executive Vice President 1997 359,672 2,000,000 450,000 --- 9,700
and Chief Financial Officer 1998 415,826 --- 260,000 9,665
P. Daryl Brown 1996 335,825 400,000 100,000 --- 11,181
President-- HEALTHSOUTH 1997 370,673 450,000 250,000 --- 10,737
Outpatient Centers 1998 386,212 --- 75,000 --- 10,981
Anthony J. Tanner 1996 298,078 350,000 100,000 --- 7,763
Executive Vice President-- 1997 371,114 450,000 450,000 --- 9,817
Administration and Secretary 1998 388,422 --- 250,000 --- 11,197
</TABLE>
- - - --------------------
(1) Includes car allowances of $500 per month for Mr. Scrushy and $350 per
month for the other Named Executive Officers in 1996 and 1997, use of a
Company-owned automobile by Mr. Scrushy in 1998, and car allowances of
$500 per month for Mr. Scrushy and $450 per month for the other Named
Executive Officers through September 1998. Also includes (a) matching
contributions under the Company's Retirement Investment Plan for 1996,
1997 and 1998, respectively, of: $708, $791 and $1,450 to Mr. Scrushy;
$1,425, $1,425 and $1,499 to Mr. Bennett; $1,371, $1,324 and $1,395 to
Mr. Martin; $1,897 $1,319 and $1,415 to Mr. Brown; and $1,290, $1,215
and $1,308 to Mr. Tanner; (b) awards under the Company's Employee Stock
Benefit Plan for 1996, 1997 and 1998, respectively, of $3,389, $2,889
and $2,882 to Mr. Scrushy; $3,387, $2,889 and $2,882 to Mr. Bennett;
$3,386, $2,889 and $2,882 to Mr. Martin; $3,389, $2,889 and $2,882 to
Mr. Brown; and $1,276, $2,889 and $2,882 to Mr. Tanner; and (c)
split-dollar life insurance premiums paid in 1996, 1997 and 1998 of
$2,312, $11,750 and $45,187 with respect to Mr. Scrushy; $1,217, $1,644
and $1,661 with respect to Mr. Bennett; $752, $1,287 and $1,338 with
respect to Mr. Martin; $1,695, $2,329 and $2,634 with respect to Mr.
Brown; and $997, $1,513 and $2,957 with respect to Mr. Tanner. See this
Item, "Executive Compensation -- Retirement Investment Plan" and
"Executive Compensation -- Employee Stock Benefit Plan".
(2) In addition to the amounts described in the preceding footnote,
includes the forgiveness of loans in the amount of $21,877 each owed by
Messrs. Scrushy, Bennett and Martin in 1996.
(3) Salary amounts for Mr. Scrushy include monthly incentive compensation
amounts payable upon achievement of certain budget targets. Effective
November 1, 1998, Mr. Scrushy voluntarily suspended receipt of his base
salary and monthly incentive compensation. See this Item,"Executive
Compensation -- Chief Executive Officer Employment Agreement".
85
<PAGE>
STOCK OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------
% OF TOTAL
OPTIONS
NUMBER OF GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE EXPIRATION GRANT DATE
NAME GRANTED FISCAL YEAR PER SHARE DATE PRESENT VALUE (1)
- - - ---- ------- ----------- --------- ---- -----------------
<S> <C> <C> <C> <C> <C> <C>
Richard M. Scrushy 1,500,000 29.9% 10.00 10/22/08 $ 11,355,000
James P. Bennett 300,000 6.0% 10.00 10/22/08 2,271,000
Michael D. Martin 260,000 5.2% 10.00 10/22/08 1,968,200
P. Daryl Brown 75,000 1.5% 10.00 10/22/08 567,750
Anthony J. Tanner 250,000 5.0% 10.00 10/22/08 1,892,500
</TABLE>
- - - -----------------
(1) Based on the Black-Scholes option pricing model adapted for use in
valuing executive stock options. The actual value, if any, an
executive may realize will depend upon the excess of the stock price
over the exercise price on the date the option is exercised, so that
there is no assurance that the value realized by an executive will be
at or near the value estimated by the Black-Scholes model. The
estimated values under that model are based on arbitrary assumptions as
to certain variables, including the following: (i) stock price
volatility is assumed to be 76%; (ii) the risk-free rate of return is
assumed to be 6.01%; (iii) dividend yield is assumed to be 0; and (iv)
the time of exercise is assumed to be 7.3 years from the date of grant.
STOCK OPTION EXERCISES IN 1998 AND OPTION VALUES AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER VALUE OF UNEXERCISED
OF SHARES NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED AT DECEMBER 31, 1998 (1) AT DECEMBER 31, 1998 (2)
ON VALUE ------------------------------ -----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard M. Scrushy...... -- -- 12,672,524 -- $97,144,849 --
James P. Bennett........ -- -- 1,610,000 -- 4,945,175 --
Michael D. Martin....... -- -- 860,000 30,000 1,643,750 $ 213,750
P. Daryl Brown.......... 198,000 $2,458,802 915,000 -- 5,386,450 --
Anthony J. Tanner....... -- -- 1,190,000 -- 5,026,325 --
</TABLE>
- - - --------------------
(1) Does not reflect any options granted and/or exercised after December 31,
1998. The net effect of any such grants and exercises is reflected in the
table appearing under Item 12, "Security Ownership of Certain Beneficial
Owners and Management".
(2) Represents the difference between market price of the Company's Common
Stock and the respective exercise prices of the options at December 31,
1998. Such amounts may not necessarily be realized. Actual values which may
be realized, if any, upon any exercise of such options will be based on the
market price of the Common Stock at the time of any such exercise and thus
are dependent upon future performance of the Common Stock.
86
<PAGE>
STOCK OPTION PLANS
Set forth below is information concerning the various stock option
plans of the Company at December 31, 1998. All share numbers and exercise prices
have been adjusted to reflect the Company's March 1997 two-for-one stock split.
1984 Incentive Stock Option Plan
The Company had a 1984 Incentive Stock Option Plan (the "ISO Plan"),
intended to qualify under Section 422(b) of the Internal Revenue Code of 1986,
as amended (the "Code"), covering an aggregate of 4,800,000 shares of Common
Stock. The ISO Plan expired on February 28, 1994, in accordance with its terms.
As of December 31, 1998, there were outstanding under the ISO Plan options to
purchase 15,202 shares of the Company's Common Stock at $3.7825 per share. All
such options remain in full force and effect in accordance with their terms and
the ISO Plan. Under the ISO Plan, which was administered by the Board of
Directors, key employees could be granted options to purchase shares of Common
Stock at 100% of fair market value on the date of grant (or 110% of fair market
value in the case of a 10% stockholder/grantee). The outstanding options granted
under the ISO Plan must be exercised within ten years from the date of grant,
are cumulatively exercisable with respect to 25% of the shares covered thereby
after the expiration of each of the first through the fourth years following the
date of grant, are nontransferable except by will or pursuant to the laws of
descent and distribution, are protected against dilution and expire within three
months after termination of employment, unless such termination is by reason of
death.
1988 Non-Qualified Stock Option Plan
The Company also had a 1988 Non-Qualified Stock Option Plan (the "NQSO
Plan") covering a maximum of 4,800,000 shares of Common Stock. The NQSO Plan
expired on February 28, 1998, in accordance with its terms. As of December 31,
1998, there were outstanding under the NQSO Plan options to purchase 7,300
shares of the Company's Common Stock at $16.25 per share. Under the NQSO Plan,
which was administered by the Audit and Compensation Committee of the Board of
Directors, provides that Directors, executive officers and other key employees
could be granted options to purchase shares of Common Stock at 100% of fair
market value on the date of grant. The outstanding options granted pursuant to
the NQSO Plan have a ten-year term, are exercisable at any time during such
period, are nontransferable except by will or pursuant to the laws of descent
and distribution, are protected against dilution and expire within three months
of termination of association with the Company as a Director or termination of
employment, unless such termination is by reason of death.
1989, 1990, 1991, 1992, 1993, 1995 and 1997 Stock Option Plans
The Company also has a 1989 Stock Option Plan (the "1989 Plan"), a 1990
Stock Option Plan (the "1990 Plan"), a 1991 Stock Option Plan (the "1991 Plan"),
a 1992 Stock Option Plan (the "1992 Plan"), a 1993 Stock Option Plan (the "1993
Plan"), a 1995 Stock Option Plan (the "1995 Plan") and a 1997 Stock Option Plan
(the "1997 Plan"), under each of which incentive stock options ("ISOs") and
non-qualified stock options ("NQSOs") may be granted. The 1989, 1990, 1991,
1992, 1993 and 1995 Plans cover a maximum of 2,400,000 shares, 3,600,000 shares,
11,200,000 shares, 5,600,000 shares, 5,600,000 shares, 18,929,658 (to be
increased by 0.9% of the outstanding Common Stock of the Company on each January
1, beginning January 1, 1996) shares and 5,000,000 shares, respectively, of the
Company's Common Stock. As of December 31, 1998, there were outstanding options
to purchase an aggregate of 29,938,700 shares of the Company's Common Stock
under such Plans at exercise prices ranging from $2.52 to $28.0625 per share. An
additional 3,825,091 shares were reserved for future grants under such Plans.
Each of the 1989, 1990, 1991, 1992, 1993, 1995 and 1997 Plans is administered in
the same manner as the NQSO Plan and provides that Directors, executive officers
and other key employees may be granted options to purchase shares of Common
Stock at 100% of fair market value on the date of grant. The 1989, 1990, 1991,
1992, 1993, 1995 and 1997 Plans terminate on the earliest of (a) October 25,
1999, October 15, 2000, June 19, 2001, June 16, 2002, April 19, 2003, June 5,
2005 and April 30, 2007, respectively, (b) such time as all shares of Common
Stock reserved for issuance under the respective Plan have been acquired through
the exercise of options granted thereunder, or (c) such earlier times as the
Board of Directors of the Company may determine. Options granted under these
Plans which are designated as ISOs contain vesting provisions similar to those
contained in options granted under the ISO Plan and have a ten-year term. NQSOs
granted under these Plans have a ten-year term. Options granted under these
Plans are nontransferable except by will or pursuant to the laws of descent and
distribution (except for certain permitted transfers to family members or
charities), are protected against dilution and will expire within three months
of termination of association with the Company as a Director or termination of
employment, unless such termination is by reason of death.
87
<PAGE>
1993 Consultants' Stock Option Plan
The Company also has a 1993 Consultants' Stock Option Plan (the "1993
Consultants' Plan"), under which NQSOs may be granted, covering a maximum of
3,500,000 shares of Common Stock. As of December 31, 1998, there were
outstanding under the 1993 Consultants' Plan options to purchase 1,620,633
shares of Common Stock at prices ranging from $3.375 to $28.0625 per share. An
additional 120,000 shares were reserved for grants under such Plans. The 1993
Consultants' Plan, which is administered by the Board of Directors, provides
that certain non-employee consultants who provide significant services to the
Company may be granted options to purchase shares of Common Stock at such prices
as are determined by the Board of Directors or the appropriate committee. The
1993 Consultants' Plan terminates on the earliest of (a) February 25, 2003, (b)
such time as all shares of Common Stock reserved for issuance under the 1993
Consultants' Plan have been acquired through the exercise of options granted
thereunder, or (c) such earlier time as the Board of Directors of the Company
may determine. Options granted under the 1993 Consultants' Plan have a ten-year
term. Options granted under the 1993 Consultants' Plan are nontransferable
except by will or pursuant to the laws of descent and distribution, are
protected against dilution and expire within three months of termination of
association with the Company as a consultant, unless such termination is by
reason of death.
Other Stock Option Plans
In connection with certain of its major acquisitions, the Company
assumed certain existing stock option plans of the acquired companies, and
outstanding options to purchase stock of the acquired companies under such plans
were converted into options to acquire Common Stock of the Company in accordance
with the exchange ratios applicable to such mergers. At December 31, 1998, there
were outstanding under these assumed plans options to purchase 2,838,710 shares
of the Company's Common Stock at exercise prices ranging from $1.6363 to
$40.7042 per share. No additional options are being granted under any such
assumed plans.
1998 RESTRICTED STOCK PLAN
The Company has a 1998 Restricted Stock Plan (the "Restricted Stock
Plan"), covering a maximum of 3,000,000 shares of the Company's Common Stock.
The Restricted Stock Plan, which is administered by the Audit and Compensation
Committee of the Board of Directors, provides that executives and other key
employees of the Company and its subsidiaries may be granted restricted stock
awards vesting over a period of not less than one year and no more than ten
years, as determined by such Committee. The Restricted Stock Plan terminates on
the earliest of (a) May 28, 2008, (b) the date on which awards covering all
shares of Common Stock reserved for issuance thereunder have been granted and
are fully vested thereunder, or (c) such earlier time as the Board of Directors
of the Company may determine. Awards under the Restricted Stock Plan are
nontransferable except by will or pursuant to the laws of dissent and
distribution (except for certain permitted transfers to family members) are
protected against dilution and are forfeitable upon termination of a
participant's employment to the extent not vested. No awards have been made
under the Restricted Stock Plan.
RETIREMENT INVESTMENT PLAN
Effective January 1, 1990, the Company adopted the HEALTHSOUTH
Retirement Investment Plan (the "401(k) Plan"), a retirement plan intended to
qualify under Section 401(k) of the Code. The 401(k) Plan is open to all
full-time and part-time employees of the Company who are over the age of 21,
have one full year of service with the Company and have at least 1,000 hours of
service in the year in which they enter the 401(k) Plan. Eligible employees may
elect to participate in the Plan on January 1 and July 1 in each year.
Under the 401(k) Plan, participants may elect to defer up to 15% of
their annual compensation (subject to nondiscrimination rules under the Code).
The deferred amounts may be invested among four options, at the participant's
direction: a money market fund, a bond fund, a guaranteed insurance contract or
an equity fund. The Company will match a minimum of 15% of the amount deferred
by each participant, up to 4% of such participant's total compensation, with the
matched amount also directed by the participant. See Note 12 of "Notes to
Consolidated Financial Statements".
Michael D. Martin, Executive Vice President and Chief Financial Officer
of the Company, and Anthony J. Tanner, Executive Vice President --
Administration and Secretary of the Company, serve as Trustees of the 401(k)
Plan, which is administered by the Company.
88
<PAGE>
EMPLOYEE STOCK BENEFIT PLAN
Effective January 1, 1991, the Company adopted the HEALTHSOUTH
Rehabilitation Corporation and Subsidiaries Employee Stock Benefit Plan (the
"ESOP"), a retirement plan intended to qualify under sections 401(a) and
4975(e)(7) of the Code. The ESOP is open to all full-time and part-time
employees of the Company who are over the age of 21, have one full year of
service with the Company and have at least 1,000 hours of service in the year in
which they begin participation in the ESOP on the next January 1 or July 1 after
the date on which such employee satisfies the aforementioned conditions.
The ESOP was established with a $10,000,000 loan from the Company, the
proceeds of which were used to purchase 1,655,172 shares of the Company's Common
Stock. In 1992, an additional $10,000,000 loan was made to the ESOP, which was
used to purchase an additional 1,666,664 shares of Common Stock. Under the ESOP,
a Company Common Stock account (a "company stock account") is established and
maintained for each eligible employee who participates in the ESOP. In each plan
year, such account is credited with such employee's allocable share of the
Common Stock held by the ESOP and allocated with respect to such plan year. Each
employee's allocable share for any given plan year is determined according to
the ratio which such employee's compensation for such plan year bears to the
compensation of all eligible participating employees for the same plan year.
Eligible employees who participate in the ESOP and who have attained
age 55 and have completed 10 years of participation in the ESOP may elect to
diversify the assets in their company stock account by directing the plan
administrator to transfer to the 401(k) Plan a portion of their company stock
account to be invested, as the eligible employee directs, in one or more of the
investment options available under the 401(k) Plan. See Note 12 of "Notes to
Consolidated Financial Statements".
Richard M. Scrushy, Chairman of the Board and Chief Executive Officer
of the Company, Michael D. Martin, Executive Vice President and Chief Financial
Officer of the Company, and Anthony J. Tanner, Executive Vice President --
Administration and Secretary of the Company, serve as Trustees of the ESOP,
which is administered by the Company.
STOCK PURCHASE PLAN
In order to further encourage employees to obtain equity ownership in
the Company, the Company's Board of Directors adopted an Employee Stock Purchase
Plan (the "Stock Purchase Plan") effective January 1, 1994. Under the Stock
Purchase Plan, participating employees may contribute $10 to $200 per pay period
toward the purchase of the Company's Common Stock in open-market transactions.
The Stock Purchase Plan is open to regular full-time or part-time employees who
have been employed for six months and are at least 21 years old. After six
months of participation in the Stock Purchase Plan, the Company will provide a
10% matching contribution to be applied to purchases under the Stock Purchase
Plan. The Company also pays all fees and brokerage commissions associated with
the purchase of the stock. The Stock Purchase Plan is administered by a
broker-dealer firm not affiliated with the Company.
DEFERRED COMPENSATION PLAN
In 1997, the Board of Directors adopted an Executive Deferred
Compensation Plan (the "Deferred Compensation Plan"), which allows senior
management personnel to elect, on an annual basis, to defer receipt of up to 50%
of their base salary and up to 100% of their annual bonus, if any (but not less
than an aggregate of $2,400 per year) for a minimum of five years from the date
such compensation would otherwise have been received. Amounts deferred are held
by the Company pursuant to a "rabbi trust" arrangement, and amounts deferred are
credited with earnings at an annual rate equal to the Moody's Average Corporate
Bond Yield Index (the "Moody's Rate"), as adjusted from time to time, or the
Moody's Rate plus 2% if a participant's employment is terminated by reason of
retirement, disability or death or within 24 months of a change in control of
the Company. Amounts deferred may be withdrawn upon retirement, termination of
employment or death, upon a showing of financial hardship, or voluntarily with
certain penalties. The Deferred Compensation Plan is administered by an
Administrative Committee, currently consisting of Michael D. Martin, Executive
Vice President and Chief Financial Officer of the Company, and Anthony J.
Tanner, Executive Vice President -- Administration and Secretary of the Company.
89
<PAGE>
BOARD COMPENSATION
Directors who are not also employed by the Company are paid Directors'
fees of $10,000 per annum, plus $3,000 for each meeting of the Board of
Directors and $1,000 for each Committee meeting attended. In addition, Directors
are reimbursed for all out-of-pocket expenses incurred in connection with their
duties as Directors. The Directors of the Company, including Mr. Scrushy, have
been granted non-qualified stock options to purchase shares of the Company's
Common Stock. Under the Company's existing stock option plans, each non-employee
Director is granted an option covering 25,000 shares of such Common Stock on the
first business day in January of each year. See this Item, "Executive
Compensation -- Stock Option Plans" above.
CHIEF EXECUTIVE OFFICER EMPLOYMENT AGREEMENT
The Company is party to an Employment Agreement, dated April 1, 1998,
with Richard M. Scrushy, pursuant to which Mr. Scrushy, a management founder of
the Company, is employed as Chairman of the Board and Chief Executive Officer of
the Company for a five-year term expiring on April 1, 2003. Such term is
automatically extended for an additional year on each April 1 unless the
Agreement is terminated as provided therein. In addition, the Company has agreed
to use its best efforts to cause Mr. Scrushy to be elected as a Director of the
Company during the term of the Agreement. The Agreement provides for Mr. Scrushy
to receive an annual base salary of at least $1,200,000, as well as an "Annual
Target Bonus" equal to at least $2,400,000, based upon the Company's success in
meeting certain monthly and annual performance standards determined by the Audit
and Compensation Committee of the Board of Directors. The Annual Target Bonus is
earned at the rate of $200,000 per month if the monthly performance standards
are met, provided that if any monthly performance standards are not met but the
annual performance standards are met, Mr. Scrushy will be entitled to any
payments which were withheld as a result of failure to meet the monthly
performance standards. The Agreement further provides that Mr. Scrushy is
eligible for participation in all other management bonus or incentive plans and
stock option, stock purchase or equity-based incentive compensation plans in
which other senior executives of the Company are eligible to participate. Under
the Agreement, Mr. Scrushy is entitled to receive long-term disability insurance
coverage, a non-qualified retirement plan providing for annual retirement
benefits equal to 60% of his base compensation, use of a Company-owned
automobile, certain personal security services, and certain other retirement,
insurance and fringe benefits, as well as to generally participate in all
employee benefit programs maintained by the Company.
The Agreement may be terminated by Mr. Scrushy for "Good Reason" (as
defined), by the Company for "Cause" (as defined), upon Mr. Scrushy's
"Disability" (as defined) or death, or by either party at any time subject to
the consequences of such termination as described in the Agreement. If the
Agreement is terminated by Mr. Scrushy for Good Reason, the Company is required
to pay him a lump-sum severance payment equal to the discounted value of the sum
of his then-current base salary and Annual Target Bonus over the remaining term
of the Agreement and to continue certain employee and fringe benefits for the
remaining term of the Agreement. If the Agreement is terminated by Mr. Scrushy
otherwise than for Good Reason, the Company is required to pay him a lump-sum
severance amount equal to the discounted value of two times the sum of his
then-current base salary and Annual Target Bonus. If the Agreement is terminated
by the Company for Cause, Mr. Scrushy is not entitled to any severance or
continuation of benefits. If the Agreement is terminated by reason of Mr.
Scrushy's Disability, the Company is required to continue the payment of his
then-current base salary and Annual Target Bonus for three years as if all
relevant performance standards had been met, and if the Agreement is terminated
by Mr. Scrushy's death, the company is required to pay his representatives or
estate a lump-sum payment equal to his then-current base salary and Annual
Target Bonus. In the event of a voluntary termination by Mr. Scrushy following a
Change in Control (as defined) of the Company, other than for Cause, the Company
is required to pay Mr. Scrushy an additional lump-sum severance payment equal to
his then-current base salary and Annual Target Bonus. The Agreement provides for
the Company to indemnify Mr. Scrushy against certain "parachute payment" excise
taxes which may be imposed upon payments under the Agreement. The Agreement
restricts Mr. Scrushy from engaging in certain activities competitive with the
business of the Company during, and for 24 months after termination of, his
employment with the Company, unless such termination occurs after a Change in
Control.
As a result of the impact of the Balanced Budget Act of 1997 on the
Company's reimbursement and the increased pressure from managed care payors, the
Company reduced overhead and otherwise managed expenses. In order to lead by
example, Mr. Scrushy voluntarily chose to forgo receipt of his base salary and
Annual Target Bonus after October 31, 1998. Through that date, all monthly
performance standards required to be met for payment of monthly installments of
his Annual Target Bonus had been met. At some point in the future, Mr. Scrushy
may choose to resume receipt of some portion of his compensation package.
90
<PAGE>
OTHER EXECUTIVE EMPLOYMENT AGREEMENTS
The Company is also party to Employment Agreements, dated April 1,
1998, with James P. Bennett, President and Chief Operating Officer, Michael D.
Martin, Executive Vice President and Chief Financial Officer, Anthony J. Tanner,
Executive Vice President -- Administration and Secretary, Thomas W. Carman,
Executive Vice President -- Corporate Development, Robert E. Thomson, President
- - - -- HEALTHSOUTH Inpatient Operations, P. Daryl Brown, President -- HEALTHSOUTH
Outpatient Centers, and Patrick A. Foster, President -- HEALTHSOUTH Surgery
Centers, pursuant to which each of such persons is employed in such capacities
for a three-year term expiring on April 1, 2001. Such terms are automatically
extended for an additional year on each April 1 unless the Agreements are
terminated as provided therein. In addition, the Company has agreed to use its
best efforts to cause Messrs. Bennett, Tanner, Martin and Brown to be elected as
Directors of the Company during the term of their respective Agreements. The
Agreements provide for the payment of an annual base salary of at least $650,000
to Mr. Bennett, $400,000 to Mr. Martin, $375,000 to Mr. Tanner, $325,000 to Mr.
Carman, $300,000 to Mr. Thomson, $370,000 to Mr. Brown, and $240,000 to Mr.
Foster. The Agreements further provide that each such officer is eligible for
participation in all management bonus or incentive plans and stock option, stock
purchase or equity-based incentive compensation plans in which other senior
executives of the Company are eligible to participate, and provide for certain
specified fringe benefits, including car allowances of $500 per month.
If the Agreements are terminated by the Company other than for Cause
(as defined), Disability (as defined) or death, the Company is required to
continue the officers' base salary in effect for a period of two years (in the
case of Messrs. Bennett, Martin, Tanner and Brown) or one year (in each other
case) after termination, as severance compensation. In addition, in the event of
a voluntary termination of employment by the officer within six months after a
Change in Control (as defined), the Company is also required to continue the
officer's salary for the same period. The Agreements restrict the officers from
engaging in certain activities competitive with the business of the Company
during their employment with the Company and for any period during which the
officer is receiving severance compensation, unless such termination occurs
after a Change in Control.
The Company, with the consent of the affected officers, discontinued
payment of the car allowances in October 1998. In addition, each of the affected
officers has voluntarily agreed to a 25% reduction in base salary effective
January 1, 1999 until otherwise agreed between the Company and any such officer.
91
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 15, 1999, (a) by each person
who is known by the Company to own beneficially more than 5% of the Company's
Common Stock, (b) by each of the Company's Directors and (c) by the Company's
five most highly compensated executive officers and all executive officers and
Directors as a group.
<TABLE>
<CAPTION>
PERCENTAGE
NAME AND NUMBER OF SHARES OF
ADDRESS OF OWNER BENEFICIALLY OWNED (1) COMMON STOCK
---------------- ---------------------- ------------
<S> <C> <C> <C>
Richard M. Scrushy 14,187,658 (2) 3.31%
John S. Chamberlin 312,000 (3) *
C. Sage Givens 412,100 (4) *
Charles W. Newhall III 580,846 (5) *
George H. Strong 468,582 (6) *
Phillip C. Watkins, M.D. 644,254 (7) *
James P. Bennett 1,890,500 (8) *
Anthony J. Tanner 1,471,358 (9) *
P. Daryl Brown 1,219,736 (10) *
Joel C. Gordon 2,886,905 (11) *
Michael D. Martin 957,008 (12) *
Larry D. Striplin, Jr. 20,000 *
FMR Corp. 24,397,084 (13) 5.88%
82 Devonshire Street
Boston, Massachusetts 02109
All Executive Officers and Directors as a Group 28,131,863 (14) 6.38%
(17 persons)
</TABLE>
- - - -------------------------
(1) The persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by
them, except as otherwise indicated.
(2) Includes 6,000 shares held by trusts for Mr. Scrushy's minor children,
10,000 shares held by a charitable foundation of which Mr. Scrushy is an
officer and director and 13,522,524 shares subject to currently
exercisable stock options.
(3) Includes 200,000 shares subject to currently exercisable stock options.
(4) Includes 2,100 shares owned by Ms. Givens's spouse and 410,000 shares
subject to currently exercisable stock options.
(5) Includes 460 shares owned by members of Mr. Newhall's immediate family
and 460,000 shares subject to currently exercisable stock options. Mr.
Newhall disclaims beneficial ownership of the shares owned by his family
members except to the extent of his pecuniary interest therein.
(6) Includes 121,693 shares owned by trusts of which Mr. Strong is a trustee
and claims shared voting and investment power and 300,000 shares subject
to currently exercisable stock options.
(7) Includes 490,000 shares subject to currently exercisable stock options.
(8) Includes 1,810,000 shares subject to currently exercisable stock options.
(9) Includes 60,000 shares held in trust by Mr. Tanner for his children and
1,340,000 shares subject to currently exercisable stock options.
92
<PAGE>
(10) Includes 990,000 shares subject to currently exercisable stock options.
(11) Includes 364,340 shares owned by his spouse and 434,520 shares subject to
currently exercisable stock options.
(12) Includes 950,000 shares subject to currently exercisable stock options.
(13) Shares held by various investment funds for which affiliates of FMR Corp.
act as investment advisor. FMR Corp. or its affiliates claim sole power
to vote 1,012,734 of the shares and sole power to dispose of all of the
shares.
(14) Includes 25,380,844 shares subject to currently exercisable stock options
held by executive officers and Directors.
* Less than 1%
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company purchases computer equipment and related technology from a
variety of vendors. During 1998, the Company paid $12,837,000 for the purchase
of new NCR computer equipment from GG Enterprises, a value-added reseller of
computer equipment which is owned by Gerald Scrushy, the father of Richard M.
Scrushy, Chairman of the Board and Chief Executive Officer of the Company, and
Gerald P. Scrushy, Senior Vice President -- Physical Resources of the Company.
Such purchases were made in the ordinary course of the Company's business. The
price paid for this equipment was more favorable to the Company than that which
could have been obtained from an independent third-party seller.
Horizon/CMS is party to an agreement with AMI Aviation II, L.L.C.
("AMI") with respect to the use of an airplane owned by AMI. Neal M. Elliott,
who was Chairman, President and Chief Executive Officer of Horizon/CMS prior to
its acquisition by the Company in October 1997 and who served as a Director of
the Company from October 1997 until his death in February 1998, was Managing
Member of AMI, a position which is now held by a trust of which Mr. Elliott's
widow is a trustee. Mr. Elliott owned, and such trust now owns, a 99% interest
in AMI. Under the use agreement, Horizon/CMS is obligated to pay $43,000 per
month through December 1999 and $57,600 per month from January 2000 through
December 2004 for up to 30 hours per month of utilization of the airplane, plus
certain operating expenses of the airplane. The Company has caused Horizon/CMS
to continue to honor such use agreement, and is currently exploring available
options with respect to continued use of the airplane.
In November 1997, the Company agreed to lend up to $10,000,000 to 21st
Century Health Ventures L.L.C. ("21st Century"), an entity formed to sponsor a
private equity investment fund investing in the healthcare industry. Richard M.
Scrushy, Chairman of the Board and Chief Executive Officer of the Company and
Michael D. Martin, Executive Vice President and Chief Financial Officer and a
Director of the Company, along with another individual not employed by the
Company, were the principals of 21st Century. The purpose of the loan was to
facilitate certain investments by 21st Century prior to the establishment of its
proposed private equity fund, in which it was anticipated that the Company and
third-party investors would invest. Investment by the Company in such private
equity fund was expected to allow the Company to benefit from the opportunity to
participate in investments in healthcare businesses that are not part of the
Company's core businesses, but which the Company believes provide opportunities
for growth. Amounts outstanding under the loan bore interest at 1% over the
prime rate announced from time to time by AmSouth Bank of Alabama and were
repayable upon demand by the Company. During 1997 and 1998, 21st Century drew an
aggregate of $2,841,310 under the $10,000,000 commitment, of which $1,500,000
was used to purchase 576,924 shares of Series B Preferred Convertible Preferred
Stock in Summerville Healthcare Group, Inc. ("Summerville"), a developer and
operator of assisted living facilities, and the remainder of which was used to
make an investment in Pathology Partners, Inc., a provider of management
services to pathology groups. The Company owns an aggregate of 3,361,539 shares
of Series B Convertible Preferred Stock of Summerville, which it acquired in two
transactions in July and November 1997. In connection with the July transaction,
Mr. Scrushy and Mr. Martin were appointed to the Board of Directors of
Summerville. 21st Century repaid the principal and the interest allocated to the
purchase of the Summerville stock during 1998. In the first quarter of 1999,
21st Century determined that, due to adverse changes in the markets for private
equity funds specializing in the healthcare industry, it was advisable to
dissolve 21st Century. In connection with the dissolution of the 21st Century,
21st Century transferred to HEALTHSOUTH 675,005 shares of Series A Cumulative
Preferred Stock and 1,440,010 shares of Series B Convertible Preferred Stock of
Pathology Partners, Inc, in satisfaction of the principal and interest allocable
to the loan relating to the Pathology Partners, Inc. investment. The Company
believes that the value of the stock so received is equal to or greater than the
indebtedness of 21st Century to the Company.
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On December 31, 1998, the Company completed the sale through a
leveraged recapitalization of a majority interest in one of its subsidiaries
which acted as a holding company for its temporary physician staffing and
therapist placement businesses ("CompHealth"). These non-strategic businesses
were acquired by the Company in connection with certain of its major strategic
acquisitions. The Company retained approximately 15% of the equity in such
holding company. Net proceeds to the Company were approximately $34,100,000. The
purchasers comprised a group of venture capital funds, including funds
affiliated with C. Sage Givens and Charles W. Newhall III, both outside
Directors of the Company, as well as venture capital funds controlled by
unaffiliated third parties. The Company solicited offers from third parties to
purchase the business over a period of several months, and the Company believes
that the purchase price and terms of the transaction effected with the venture
capital funds were more favorable to the Company than those available from other
purchasers. In connection with the transaction, the Company entered into certain
"preferred vendor" arrangements with CompHealth, and Michael D. Martin,
Executive Vice President and Chief Financial Officer of the Company, was named
to the Board of Directors of CompHealth.
At various times, the Company has made loans to executive officers to
assist them in meeting financial obligations at certain times when they were
requested by the Company to refrain from selling Common Stock in the open
market. At January 1, 1998, loans in the following original principal amounts
were outstanding: $460,000 to Larry R. House, a former Director and a former
executive officer, $500,000 to Aaron Beam, Jr., formerly Executive Vice
President and Chief Financial Officer and a Director, and $140,000 and $350,000
to William T. Owens, Group Senior Vice President and Controller. Outstanding
principal balances at December 31, 1998 were $210,000 for Mr. House, $400,000
for Mr. Beam and an aggregate of $476,000 for Mr. Owens. During 1998, the
Company also made loans of $400,000 to P. Daryl Brown, President -- HEALTHSOUTH
Outpatient Centers and a Director, and $750,000 to Russell H. Maddox, then
President -- HEALTHSOUTH Diagnostic Centers, both of which remained outstanding
at December 31, 1998. In connection with Mr. Beam's retirement, the Company
agreed to forgive his loan over a period of five years in exchange for his
provision of consulting services to the Company over such period. Such loans
bear interest at the rate of 1-1/4% per annum below the prime rate of AmSouth
Bank of Alabama, Birmingham, Alabama, and are payable on demand.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements, Financial Statement Schedules and Exhibits.
1. Financial Statements.
The consolidated financial statements of the Company and its
subsidiaries filed as a part of this Annual Report on Form 10-K are listed in
Item 8 of this Annual Report on Form 10-K, which listing is hereby incorporated
herein by reference.
2. Financial Statement Schedules.
The financial statement schedules required by Regulation S-X are filed
under Item 14(d) of this Annual Report on Form 10-K, as listed below:
Schedules Supporting the Financial Statements
Schedule II Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission have been
omitted because they are not required under the related instructions or are
inapplicable, or because the information has been provided in the Consolidated
Financial Statements or the Notes thereto.
3. Exhibits.
The Exhibits filed as a part of this Annual Report are listed in Item
14(c) of this Annual Report on Form 10-K, which listing is hereby incorporated
herein by reference.
(b) Reports on Form 8-K.
The Company filed no Current Reports on Form 8-K during the three
months ended December 31, 1998.
(c) Exhibits.
The Exhibits required by Regulation S-K are set forth in the following
list and are filed either by incorporation by reference from previous filings
with the Securities and Exchange Commission or by attachment to this Annual
Report on Form 10-K as so indicated in such list.
(2)-1 Amended and Restated Plan and Agreement of Merger, dated as of
September 18, 1994, among HEALTHSOUTH Rehabilitation
Corporation, RRS Acquisitions Company, Inc. and ReLife, Inc.,
filed as Exhibit (2)-1 to the Company's Registration Statement
on Form S-4 (Registration No. 33-55929), is hereby
incorporated by reference.
(2)-2 Amended and Restated Plan and Agreement of Merger, dated as of
January 22, 1995, among HEALTHSOUTH Corporation, ASC Atlanta
Acquisition Company, Inc. and Surgical Health Corporation,
filed as Exhibit (2)-4 to the Company's Annual Report on Form
10-K for the Fiscal Year Ended December 31, 1994, is hereby
incorporated by reference.
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(2)-3 Stock Purchase Agreement, dated February 3, 1995, among
HEALTHSOUTH Corporation, NovaCare, Inc. and NC Resources,
Inc., filed as Exhibit (2)-3 to the Company's Annual Report on
Form 10-K for the Fiscal Year Ended December 31, 1994, is
hereby incorporated by reference.
(2)-4 Plan and Agreement of Merger, dated August 23, 1995, among
HEALTHSOUTH Corporation, SSCI Acquisition Corporation and
Sutter Surgery Centers, Inc., filed as Exhibit (2) to the
Company's Registration Statement on Form S-4 (Registration No.
33-63-055) is hereby incorporated by reference.
(2)-5 Amendment to Plan and Agreement of Merger, dated October 26,
1995, among HEALTHSOUTH Corporation, SSCI Acquisition
Corporation and Sutter Surgery Centers, Inc., filed as Exhibit
(2)-5 to the Company's Annual Report on Form 10-K for the
Fiscal Year Ended December 31, 1995, is hereby incorporated by
reference.
(2)-6 Amended and Restated Plan and Agreement of Merger, dated as of
October 9, 1995, among HEALTHSOUTH Corporation, SCA
Acquisition Corporation and Surgical Care Affiliates, Inc.,
filed as Exhibit (2)-1 to Amendment No. 1 to the Company's
Registration Statement on Form S-4 (Registration No.
33-64935), is hereby incorporated by reference.
(2)-7 Agreement and Plan of Merger, dated December 16, 1995, among
HEALTHSOUTH Corporation, Aladdin Acquisition Corporation and
Advantage Health Corporation, filed as Exhibit (2)-1 to the
Company's Registration Statement on Form S-4 (Registration No.
333-825), is hereby incorporated by reference.
(2)-8 Plan and Agreement of Merger, dated May 16, 1996, among
HEALTHSOUTH Corporation, Empire Acquisition Corporation and
Professional Sports Care Management, Inc., filed as Exhibit
(2)-1 to the Company's Registration Statement on Form S-4
(Registration No. 333-08449), is hereby incorporated by
reference.
(2)-9 Plan and Agreement of Merger, dated September 11, 1996, among
HEALTHSOUTH Corporation, Warwick Acquisition Corporation and
ReadiCare, Inc., filed as Exhibit (2)-1 to the Company's
Registration Statement on Form S-4 (Registration No.
333-14697), is hereby incorporated by reference.
(2)-10 Plan and Agreement of Merger, dated December 2, 1996, among
HEALTHSOUTH Corporation, Hammer Acquisition Corporation and
Health Images, Inc., filed as Exhibit (2)-1 to the Company's
Registration Statement on Form S-4 (Registration No.
333-19439), is hereby incorporated by reference.
(2)-11 Plan and Agreement of Merger, dated February 17, 1997, among
HEALTHSOUTH Corporation, Reid Acquisition Corporation and
Horizon/CMS Healthcare Corporation, as amended, filed as
Exhibit 2 to the Company's Registration Statement on Form S-4
(Registration No. 333-36419), is hereby incorporated by
reference.
(2)-12 Purchase and Sale Agreement, dated November 3, 1997, among
HEALTHSOUTH Corporation, Horizon/CMS Healthcare Corporation
and Integrated Health Services, Inc., filed as Exhibit 2.1 to
the Company's Current Report on Form 8-K, dated December 31,
1997, is hereby incorporated by reference.
(2)-13 Amendment to Purchase and Sale Agreement, dated December 31,
1997, among HEALTHSOUTH Corporation, Horizon/CMS Healthcare
Corporation and Integrated Health Services, Inc., filed as
Exhibit 2.2 to the Company's Current Report on Form 8-K, dated
December 31, 1997, is hereby incorporated by reference.
(2)-14 Second Amendment to Purchase and Sale Agreement, dated March
4, 1998, among HEALTHSOUTH Corporation, Horizon/CMS Healthcare
Corporation and Integrated Health Services, Inc., filed as
Exhibit (2-14) to the Company's Annual Report on Form 10-K for
the Fiscal Year Ended December 31, 1997, is hereby
incorporated by reference.
(2)-15 Plan and Agreement of Merger, dated May 5, 1998, among
HEALTHSOUTH Corporation, Field Acquisition Corporation and
National Surgery Centers, Inc., filed as Exhibit (2) to the
Company's Registration Statement on Form S-4 (Registration No.
333- 57087), is hereby incorporated by reference.
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(3)-1 Restated Certificate of Incorporation of HEALTHSOUTH
Corporation, as filed in the Office of the Secretary of State
of the State of Delaware on May 21, 1998, filed as Exhibit
(3)-1 to the Company's Current Report on Form 8 dated May 28,
1998, is hereby incorporated by reference.
(3)-2 By-laws of HEALTHSOUTH Corporation, filed as Exhibit (3)-2 to
the Company's Current Report on Form 98-K dated May 28, 1998,
are hereby incorporated by reference.
(4)-1 Indenture, dated March 24, 1994, between HEALTHSOUTH
Rehabilitation Corporation and NationsBank of Georgia,
National Association, relating to the Company's 9.5% Senior
Subordinated Notes due 2001, filed as Exhibit (4)-1 to the
Company's Annual Report on Form 10-K for the Fiscal Year Ended
December 31, 1994, is hereby incorporated by reference.
(4)-2 Subordinated Indenture, dated March 20, 1998, between
HEALTHSOUTH Corporation and The Bank of Nova Scotia Trust
Company of New York, as Trustee, filed as Exhibit (4)-2 to the
Company's Annual Report on Form 10-K for the Fiscal Year Ended
December 31, 1997, is hereby incorporated by reference.
(4)-3 Officer's Certificate pursuant to Sections 2.3 and 11.5 of the
Subordinated Indenture, dated March 20, 1998, between
HEALTHSOUTH Corporation and The Bank of Nova Scotia Trust
Company of New York, as Trustee, relating to the Company's
3.25% Convertible Subordinated Debentures due 2003, filed as
Exhibit (4)-3 to the Company's Annual Report on Form 10-K for
the Fiscal Year Ended December 31, 1997, is hereby
incorporated by reference.
(4)-4 Registration Rights Agreement, dated March 17, 1998, among
HEALTHSOUTH Corporation and Smith Barney Inc., Bear, Stearns &
Co. Inc., Cowen & Company, Credit Suisse First Boston
Corporation, J.P. Morgan Securities Inc., Morgan Stanley & Co.
Incorporated, NationsBanc Montgomery Securities LLC and
PaineWebber Incorporated, relating to the Company's 3.25%
Convertible Subordinated Debentures due 2003, filed as Exhibit
(4)-4 to the Company's Annual Report on Form 10-K for the
Fiscal Year Ended December 31, 1997, is hereby incorporated by
reference.
(4)-5 Indenture, dated June 22, 1998, between HEALTHSOUTH
Corporation and PNC Bank, National Association, as Trustee,
filed as Exhibit 4.1 to the Company's Quarterly Report on Form
10-Q for the Three Months Ended June 30, 1998, is hereby
incorporated by reference.
(4)-6 Form of Officer's Certificate pursuant to Sections 2.3 and
11.5 of the Indenture, dated June 22, 1998, between
HEALTHSOUTH Corporation and PNC Bank, National Association, as
Trustee, relating to the Company's 6.875% Senior Notes due
2005 and 7.0% Senior Notes due 2008, filed as Exhibit (4)-6 to
the Company's Registration Statement on Form S-4 (Registration
No. 333- 61485), is hereby incorporated by reference.
(10)-1 1984 Incentive Stock Option Plan, as amended, filed as Exhibit
(10)-1 to the Company's Annual Report on Form 10-K for the
Fiscal Year Ended December 31, 1987, is hereby incorporated by
reference.
(10)-2 1988 Non-Qualified Stock Option Plan, filed as Exhibit 4(a) to
the Company's Registration Statement on Form S-8 (Registration
No. 33-23642), is hereby incorporated by reference.
(10)-3 1989 Stock Option Plan, filed as Exhibit (10)-6 to the
Company's Annual Report on Form 10-K for the Fiscal Year Ended
December 31, 1989, is hereby incorporated by reference.
(10)-4 1990 Stock Option Plan, filed as Exhibit (10)-13 to the
Company's Annual Report on Form 10-K for the Fiscal Year ended
December 31, 1990, is hereby incorporated by reference.
(10)-5 1991 Stock Option Plan, as amended, filed as Exhibit (10)-15
to the Company's Annual Report on Form 10-K for the Fiscal
Year ended December 31, 1991, is hereby incorporated by
reference.
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<PAGE>
(10)-6 1992 Stock Option Plan, filed as Exhibit (10)-8 to the
Company's Annual Report on Form 10-K for the Fiscal Year Ended
December 31, 1992, is hereby incorporated by reference.
(10)-7 1993 Stock Option Plan, filed as Exhibit (10)-10 to the
Company's Annual Report on Form 10-K for the Fiscal Year Ended
December 31, 1993, is hereby incorporated by reference.
(10)-8 Amended and Restated 1993 Consultants Stock Option Plan, filed
as Exhibit 4 to the Company's Registration Statement on Form
S-8 (Commission File No. 333-42305), is hereby incorporated by
reference.
(10)-9 1995 Stock Option Plan, filed as Exhibit (10)-14 to the
Company's Annual Report on Form 10-K for the Fiscal Year Ended
December 31, 1995, is hereby incorporated by reference.
(10)-10 Employment Agreement, dated April 1, 1998, between HEALTHSOUTH
Corporation and Richard M. Scrushy.
(10)-11 Credit Agreement, dated as of June 23, 1998, by and among
HEALTHSOUTH Corporation, NationsBank, National Association,
J.P. Morgan Securities, Inc., Deutsche Bank AG, ScotiaBanc,
Inc. and the Lenders party thereto from time to time, filed as
Exhibit 10 to the Company's Quarterly Report on Form for the
Three Months Ended June 30, 1998, is hereby incorporated by
reference.
(10)-12 Form of Indemnity Agreement entered into between HEALTHSOUTH
Rehabilitation Corporation and each of its Directors, filed as
Exhibit (10)-13 to the Company's Annual Report on Form 10-K
for the Fiscal Year Ended December 31, 1991, is hereby
incorporated by reference.
(10)-13 Surgical Health Corporation 1992 Stock Option Plan, filed as
Exhibit 10(aa) to Surgical Health Corporation's Registration
Statement on Form S-4 (Commission File No. 33-70582), is
hereby incorporated by reference.
(10)-14 Surgical Health Corporation 1993 Stock Option Plan, filed as
Exhibit 10(bb) to Surgical Health Corporation's Registration
Statement on Form S-4 (Commission File No. 33-70582), is
hereby incorporated by reference.
(10)-15 Surgical Health Corporation 1994 Stock Option Plan, filed as
Exhibit 10(pp) to Surgical Health Corporation's Quarterly
Report on Form 10-Q for the Quarter Ended September 30, 1994,
is hereby incorporated by reference.
(10)-16 Heritage Surgical Corporation 1992 Stock Option Plan, filed as
Exhibit 4(d) to the Company's Registration Statement on Form
S-8 (Commission File No. 33-60231), is hereby incorporated by
reference.
(10)-17 Heritage Surgical Corporation 1993 Stock Option Plan, filed as
Exhibit 4(e) to the Company's Registration Statement on Form
S-8 (Commission File No. 33-60231), is hereby incorporated by
reference.
(10)-18 Sutter Surgery Centers, Inc. 1993 Stock Option Plan,
Non-Qualified Stock Option Plan and Agreement (Saibeni),
Non-Qualified Stock Option Plan and Agreement (Shah),
Non-Qualified Stock Option Plan and Agreement (Akella),
Non-Qualified Stock Option Plan and Agreement (Kelly) and
Non-Qualified Stock Option Plan and Agreement (May), filed as
Exhibits 4(a) - 4(f) to the Company's Registration Statement
on Form S-8 (Commission File No. 33-64615), are hereby
incorporated by reference.
(10)-19 Surgical Care Affiliates Incentive Stock Plan of 1986, filed
as Exhibit 10(g) to Surgical Care Affiliates, Inc.'s Annual
Report on Form 10-K for the Fiscal Year Ended December 31,
1993, is hereby incorporated by reference.
(10)-20 Surgical Care Affiliates 1990 Non-Qualified Stock Option Plan
for Non-Employee Directors, filed as Exhibit 10(i) to Surgical
Care Affiliates, Inc.'s Annual Report on Form 10-K for the
Fiscal Year Ended December 31, 1990, is hereby incorporated by
reference.
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<PAGE>
(10)-21 Professional Sports Care Management, Inc. 1992 Stock Option
Plan, as amended, filed as Exhibits 10.1 - 10.3 to
Professional Sports Care Management, Inc.'s Registration
Statement on Form S-1 (Commission File No. 33-81654), is
hereby incorporated by reference.
(10)-22 Professional Sports Care Management, Inc. 1994 Stock Incentive
Plan, filed as Exhibit 10.4 to Professional Sports Care
Management, Inc.'s Registration Statement on Form S-1
(Commission File No. 33-81654), is hereby incorporated by
reference.
(10)-23 Professional Sports Care Management, Inc. 1994 Directors'
Stock Option Plan, filed as Exhibit 10.5 to Professional
Sports Care Management, Inc.'s Registration Statement on Form
S-1 (Commission File No. 33-81654), is hereby incorporated by
reference.
(10)-24 ReadiCare, Inc. 1991 Stock Option Plan, filed as an exhibit to
ReadiCare, Inc.'s Annual Report on Form 10-K for the Fiscal
Year Ended February 29, 1992, is hereby incorporated by
reference.
(10)-25 ReadiCare, Inc. Stock Option Plan for Non-Employee Directors,
as amended, filed as an exhibit to ReadiCare, Inc's Annual
Report on Form 10-K for the Fiscal Year Ended February 29,
1992 and as an exhibit to ReadiCare, Inc.'s Annual Report on
Form 10-K for the Fiscal Year Ended February 28, 1994, is
hereby incorporated by reference.
(10)-26 1997 Stock Option Plan, filed as Exhibit 4 to the Company's
Registration Statement on Form S-8 (Registration No.
333-42307) is hereby incorporated by reference.
(10)-27 1998 Restricted Stock Plan.
(10)-28 Health Images, Inc. Non-Qualified Stock Option Plan, filed as
Exhibit 10(d)(i) to Health Images, Inc.'s Annual Report on
Form 10-K for the Fiscal Year Ended December 31, 1995, is
hereby incorporated by reference.
(10)-29 Amended and Restated Employee Incentive Stock Option Plan, as
amended, of Health Images, Inc., filed as Exhibits 10(c)(i),
10(c)(ii), 10(c)(iii) and 10(c)(iv) to Health Images, Inc.'s
Annual Report on Form 10-K for the Fiscal Year Ended December
31, 1995, is hereby incorporated by reference.
(10)-30 Form of Health Images, Inc. 1995 Formula Stock Option Plan,
filed as Exhibit 10(d)(iv) to Health Images, Inc.'s Annual
Report on Form 10-K for the Fiscal Year Ended December 31,
1995, is hereby incorporated by reference.
(10)-31 1996 Employee Incentive Stock Option Plan of Health Images,
Inc., filed as Exhibit 4(v) to the Company's Registration
Statement on Form S-8 (Registration No. 333-24429), is hereby
incorporated by reference.
(10)-32 Employee Stock Option Plan of Horizon/CMS Healthcare
Corporation, filed as Exhibit 10.5 to Horizon/CMS Healthcare
Corporation's Annual Report on Form 10-K for the Fiscal Year
Ended May 31, 1994, is hereby incorporated by reference.
(10)-33 First Amendment to Employee Stock Option Plan of Horizon/CMS
Healthcare Corporation, filed as Exhibit 10.6 to Horizon/CMS
Healthcare Corporation's Annual Report on Form 10-K for the
Fiscal Year Ended May 31, 1994, is hereby incorporated by
reference.
(10)-34 Corrected Second Amendment to Employee Stock Option Plan of
Horizon/CMS Healthcare Corporation, filed as Exhibit 10.7 to
Horizon/CMS Healthcare Corporation's Annual Report on Form
10-K for the Fiscal Year Ended May 31, 1994, is hereby
incorporated by reference.
(10)-35 Amendment No. 3 to Employee Stock Option Plan of Horizon/CMS
Healthcare Corporation, filed as Exhibit 10.12 to Horizon/CMS
Healthcare Corporation's Annual Report on Form 10-K for the
Fiscal Year Ended May 31, 1995, is hereby incorporated by
reference.
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(10)-36 Horizon Healthcare Corporation Stock Option Plan for
Non-Employee Directors, filed as Exhibit 10.6 to Horizon/CMS
Healthcare Corporation's Annual Report on Form 10-K for the
Fiscal Year Ended May 31, 1994, is hereby incorporated by
reference.
(10)-37 Amendment No. 1 to Horizon Healthcare Corporation Stock Option
Plan for Non-Employee Directors, filed as Exhibit 10.14 to
Horizon/CMS Healthcare Corporation's Annual Report on Form
10-K for the Fiscal Year Ended May 31, 1996, is hereby
incorporated by reference.
(10)-38 Horizon/CMS Healthcare Corporation 1995 Incentive Plan, filed
as Exhibit 4.1 to Horizon/CMS Healthcare Corporation's
Registration Statement on Form S-8 (Registration No.
33-63199), is hereby incorporated by reference.
(10)-39 Horizon/CMS Healthcare Corporation 1995 Non-Employee
Directors' Stock Option Plan, filed as Exhibit 4.2 to
Horizon/CMS Healthcare Corporation's Registration Statement on
Form S-8 (Registration No. 33-63199), is hereby incorporated
by reference.
(10)-40 First Amendment to Horizon Healthcare Corporation Employee
Stock Purchase Plan, filed as Exhibit 10.18 to Horizon/CMS
Healthcare Corporation's Annual Report on Form 10-K for the
Fiscal Year Ended May 31, 1996, is hereby incorporated by
reference.
(10)-41 Continental Medical Systems, Inc. 1994 Stock Option Plan (as
amended and restated effective December 1, 1991), Amendment
No. 1 to Continental Medical Systems, Inc. 1986 Stock Option
Plan and Amendment No. 2 to Continental Medical Systems, Inc.
1986 Stock Option Plan, filed as Exhibit 4.1 to Horizon/CMS
Healthcare Corporation's Registration Statement on Form S-8
(Registration No. 33-61697), is hereby incorporated by
reference.
(10)-42 Continental Medical Systems, Inc. 1989 Non-Employee Directors'
Stock Option Plan (as amended and restated effective December
1, 1991), filed as Exhibit 4.2 to Horizon/CMS Healthcare
Corporation's Registration Statement on Form S-8 (Registration
No. 33-61697), is hereby incorporated by reference.
(10)-43 Continental Medical Systems, Inc. 1992 CEO Stock Option Plan
and Amendment No. 1 to Continental Medical Systems, Inc. 1992
CEO Stock Option Plan, filed as Exhibit 4.3 to Horizon/CMS
Healthcare Corporation's Registration Statement on Form S-8
(Registration No. 33-61697), is hereby incorporated by
reference.
(10)-44 Continental Medical Systems, Inc. 1993 Nonqualified Stock
Option Plan, Amendment No. 1 to Continental Medical Systems,
Inc. 1993 Nonqualified Stock Option Plan and Amendment No. 2
to Continental Medical Systems, Inc. 1993 Nonqualified Stock
Option Plan, filed as Exhibit 4.4 to Horizon/CMS Healthcare
Corporation's Registration Statement on Form S-8 (Registration
No. 33-61697), is hereby incorporated by reference.
(10)-45 Continental Medical Systems, Inc. 1994 Stock Option Plan,
filed as Exhibit 4.5 to Horizon/CMS Healthcare Corporation's
Registration Statement on Form S-8 (Registration No.
33-61697), is hereby incorporated by reference.
(10)-46 The Company Doctor Amended and Restated Omnibus Stock Plan of
1995, filed as Exhibit 4.1 to the Company's Registration
Statement on Form S-8 (Registration No. 333-59895), is hereby
incorporated by reference.
(10)-47 National Surgery Centers, Inc. Amended and Restated 1992 Stock
Option Plan, filed as Exhibit 4.1 to the Company's
Registration Statement on Form S-8 (Registration No.
333-59887), is hereby incorporated by reference.
(10)-48 National Surgery Centers, Inc. 1997 Non-Employee Directors
Stock Option Plan, filed as Exhibit 4.2 to the Company's
Registration Statement on Form S-8 (Registration No.
333-59887), is hereby incorporated by reference.
(10)-49 Employment Agreement, dated April 1, 1998, between HEALTHSOUTH
Corporation and James P. Bennett.
(10)-50 Employment Agreement, dated April 1, 198, between HEALTHSOUTH
Corporation and P. Daryl Brown.
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(10)-51 Employment Agreement, dated April 1, 1998, between HEALTHSOUTH
Corporation and Thomas W. Carman.
(10)-52 Employment Agreement, dated April 1, 1998, between HEALTHSOUTH
Corporation and Michael D. Martin.
(10)-53 Employment Agreement, dated April 1, 1998, between HEALTHSOUTH
Corporation and Anthony J. Tanner.
(10)-54 Employment Agreement, dated April 1, 1998, between HEALTHSOUTH
Corporation and Patrick A. Foster.
(10)-55 Employment Agreement, dated April 1, 1998 between HEALTHSOUTH
Corporation and Robert E. Thomson.
(10)-56 Lease Agreement, dated December 18, 1998, between First
Security Bank, National Association, as Owner Trustee under
the HEALTHSOUTH Corporation Trust 1998-1, as Lessor, and
HEALTHSOUTH Corporation, as Lessee.
(10)-57 Participation Agreement, dated December 18, 1998, among
HEALTHSOUTH Corporation as Lessee, First Security Bank,
National Association, as Owner Trustee under the HEALTHSOUTH
Corporation Trust 1998-1, the Holders and the Lenders Party
Thereto From Time to Time, Deutsche Bank A.G. New York Branch
and NationsBank, N.A.
(10)-58 Short Term Credit Agreement, among HEALTHSOUTH Corporation,
NationsBank, N.A., NationsBanc Montgomery Securities LLC and
the Lenders Party Thereto From Time to Time, dated September
28, 1998.
(10)-59 Amendment Agreement No. 1 to Short Term Credit Agreement,
dated February 17, 1999, among HEALTHSOUTH Corporation,
NationsBank, N.A. and the Lenders Party Thereto From Time to
Time.
(21) Subsidiaries of HEALTHSOUTH Corporation.
(23) Consent of Ernst & Young LLP.
(27) Financial Data Schedule.
(d) Financial Statement Schedules.
Schedule II: Valuation and Qualifying Accounts
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SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- - - ------------------------------------------------------------------------------------------------------------------------------------
Balance at Additions Charged Additions Charged
Beginning of to Costs and to Other Accounts - Deductions - Balance at
Description Period Expenses Describe Describe End of Period
- - - ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Allowance for doubtful
accounts $ 61,267 $ 61,311 $ 13,737 (1) $ 59,232 (2) $ 77,083
============== ============== ============== ============== ==============
Year ended December 31, 1997:
Allowance for doubtful
accounts $ 77,083 $ 74,743 $ 43,077 (1) $ 67,331 (2) $ 127,572
============== ============== ============== ============== ==============
Year ended December 31, 1998:
Allowance for doubtful
accounts $ 127,572 $ 112,202 $ 18,524 (1) $ 114,609 (2) $ 143,689
============== ============== ============== ============== ==============
</TABLE>
- - - -------------------------
(1) Allowances of acquisitions in years 1996, 1997 and 1998, respectively.
(2) Write-offs of uncollectible patient accounts receivable.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HEALTHSOUTH CORPORATION
By RICHARD M. SCRUSHY
----------------------------------
Richard M. Scrushy,
Chairman of the Board
and Chief Executive Officer
Date: March 31, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
RICHARD M. SCRUSHY Chairman of the Board March 31, 1999
- - - -------------------------------------- and Chief Executive Officer
Richard M. Scrushy and Director
MICHAEL D. MARTIN Executive Vice President March 31, 1999
- - - -------------------------------------- and Chief Financial Officer
Michael D. Martin and Director
WILLIAM T. OWENS Group Senior Vice President-Finance March 31, 1999
- - - -------------------------------------- and Controller (Principal Accounting
William T. Owens Officer)
C. SAGE GIVENS Director March 31, 1999
- - - --------------------------------------
C. Sage Givens
CHARLES W. NEWHALL III Director March 31, 1999
- - - --------------------------------------
Charles W. Newhall III
GEORGE H. STRONG Director March 31, 1999
- - - --------------------------------------
George H. Strong
PHILLIP C. WATKINS Director March 31, 1999
- - - --------------------------------------
Phillip C. Watkins
JOHN S. CHAMBERLIN Director March 31, 1999
- - - --------------------------------------
John S. Chamberlin
ANTHONY J. TANNER Director March 31, 1999
- - - --------------------------------------
Anthony J. Tanner
</TABLE>
103
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<TABLE>
<S> <C> <C>
JAMES P. BENNETT Director March 31, 1999
- - - --------------------------------------
James P. Bennett
P. DARYL BROWN Director March 31, 1999
- - - --------------------------------------
P. Daryl Brown
JOEL C. GORDON Director March 31, 1999
- - - --------------------------------------
Joel C. Gordon
LARRY D. STRIPLIN, JR. Director March 31, 1999
- - - --------------------------------------
Larry D. Striplin, Jr.
</TABLE>
104
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of April 1, 1998 (this "Agreement"),
between HEALTHSOUTH Corporation, a Delaware corporation (the "Company"), and
RICHARD M. SCRUSHY, a resident of Birmingham, Alabama (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company provides comprehensive rehabilitative, clinical,
diagnostic and surgical healthcare services;
WHEREAS, the Executive is a founder of the Company and serves as Chief
Executive Officer of the Company and as Chairman of its Board of Directors; and
WHEREAS, the Company wishes to assure itself of the continued services
of the Executive so that it will have the continued benefit of his ability,
experience and services, and the Executive is willing to enter into an agreement
to that end, upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of good and valuable consideration
the receipt and sufficiency of which are hereby acknowledged, the parties hereby
covenant and agree as follows:
1. EMPLOYMENT
The Company hereby agrees to continue to employ the Executive, and the
Executive hereby agrees to remain in the employ of the Company, on and subject
to the terms and conditions of this Agreement.
2. TERM
(a) The period of this Agreement (the "Agreement Term") shall
commence as of the date hereof (the "Effective Date") and shall expire on the
fifth anniversary of the Effective Date. The Agreement Term shall be
automatically extended for an additional year on each anniversary of the
Effective Date, unless written notice of non-extension is provided by either
party to the other party at least 90 days prior to such anniversary.
(b) The period of the Executive's employment under this Agreement
(the "Employment Period") shall commence as of the Effective Date and shall
expire at the end of the Agreement Term, unless sooner terminated in accordance
with the terms and conditions of this Agreement.
<PAGE>
3. POSITION, DUTIES AND RESPONSIBILITIES
(a) The Executive shall serve as, and with the title, office and
authority of, the Chief Executive Officer of the Company and the Chairman of the
Board of Directors of the Company (the "Board") and shall report directly to the
Board. The Executive shall also hold similar titles, offices and authority with
the Company's subsidiaries and/or their successors. The Company shall use its
best efforts to cause the Executive to be nominated and elected (or renominated
and reelected, as the case may be) during the Employment Period as a director of
the Company and its subsidiaries or their successors.
(b) The Executive shall have effective supervision and control
over, and responsibility for, the strategic direction and general and active
day-to-day leadership and management of the business and affairs of the Company
and the direct and indirect subsidiaries of the Company, subject only to the
authority of the Board, and shall have all of the powers, authority, duties and
responsibilities usually incident to the positions and offices of Chief
Executive Officer and Chairman of the Board of the Company.
(c) The Executive agrees to devote substantially all of his
business time, efforts and skills to the performance of his duties and
responsibilities under this Agreement; provided, however, that nothing in this
Agreement shall preclude the Executive from devoting reasonable periods required
for (i) participating in professional, educational, philanthropic, public
interest, charitable, social or community activities, (ii) serving as a director
or member of an advisory committee of any corporation or other entity that the
Executive is serving on as of the Effective Date or any other corporation or
entity that is not in direct competition with the Company or (iii) managing his
personal investments, provided that such activities do not materially interfere
with the Executive's regular performance of his duties and responsibilities
hereunder.
(d) The foregoing provisions of this Section 3 shall be subject
to the Executive's right to elect to serve the Company solely as the Chairman of
the Board, as provided in Section 22 hereof.
4. PLACE OF PERFORMANCE
The Executive shall perform his duties at the principal offices of the
Company located at One HealthSouth Parkway, Birmingham, Alabama, but from time
to time the Executive may be required to travel to other locations in the proper
conduct of his responsibilities under this Agreement.
5. COMPENSATION AND BENEFITS
In consideration of the services rendered by the Executive during the
Employment Period, the Company shall pay or provide the Executive the amounts
and benefits set forth below.
2
<PAGE>
(a) Salary. The Company shall pay the Executive an annual base
salary (the "Base Salary") of at least $1,200,000. The Executive's Base Salary
shall be paid in arrears in substantially equal installments at monthly or more
frequent intervals, in accordance with the normal payroll practices of the
Company. The Executive's Base Salary shall be reviewed at least annually by the
Compensation Committee of the Board (the "Compensation Committee") for
consideration of appropriate merit increases and, once established, the Base
Salary shall not be decreased during the Employment Period, except as otherwise
contemplated by Section 22 hereof.
(b) Annual Target Bonus. The Company shall provide the Executive
with the opportunity to earn an annual target bonus (the "Annual Target Bonus")
equal to at least $2,400,000. The amount of the Annual Target Bonus will be
reviewed at least annually by the Compensation Committee for consideration of
appropriate merit increases and, once established at a specified amount, the
Annual Target Bonus shall not be decreased during the Employment Period, except
as otherwise contemplated by Section 22 hereof. The Annual Target Bonus will be
payable in the event that the Company's operations meet the annual performance
standard set forth in the Company's business plan, as approved by the
Compensation Committee in each year of the Employment Period (the "Business
Plan"). In the event that the Company's operations meet the monthly performance
standard set forth in the Business Plan, an amount equal to one-twelfth (1/12)
of the Annual Target Bonus (a "Monthly Target Bonus") shall be payable within
five days following the date the Company's internal monthly financial statements
have been completed. In the event that any Monthly Target Bonus shall not be
paid during the course of such calendar year because the relevant monthly
performance standard was not met, such Monthly Target Bonus shall again become
available for payment if the Company attains its annual performance standard for
such calendar year. For the remainder of the 1998 calendar year following the
Effective Date, the Executive will be paid $200,000 within five days following
the date the Company's internal monthly financial statements have been completed
for each calendar month ending following the Effective Date in which the
relevant monthly performance standard is met and, in the event the Company
attains its annual performance standard for 1998, the Executive shall be paid
$200,000 for any month, dating back to January, 1998, in which the Executive was
not paid the Monthly Target Bonus due to the relevant monthly performance
standard not having been met.
(c) Other Incentive Plans. The Executive shall participate in all
other bonus or incentive plans or arrangements in which other senior executives
of the Company are eligible to participate from time to time, including, without
limitation, any management bonus pool arrangement. The Executive's incentive
compensation opportunities under such plans and arrangements shall be determined
from time to time by the Compensation Committee upon consultation with the
Executive.
(d) Equity Incentives. The Executive shall be given
consideration, at least annually, by the Compensation Committee for the grant of
options to purchase shares of the common stock of the Company. In addition, the
Executive shall be entitled to receive awards under any stock option, stock
purchase or equity-based incentive compensation plan or arrangement adopted by
the Company from time to time for which senior executives of the Company are
eligible to participate. The Executive's awards under such plans and
arrangements shall be determined from time to time by the Compensation Committee
upon consultation with the Executive.
3
<PAGE>
(e) Employee Benefits. The Executive shall be entitled to
participate in all employee benefit plans, programs, practices or arrangements
of the Company in which other senior executives of the Company are eligible to
participate from time to time, including, without limitation, any qualified or
non-qualified pension, profit sharing and savings plans, any death benefit and
disability benefit plans, and any medical, dental, health and welfare plans.
Without limiting the generality of the foregoing, the Company shall provide the
Executive with the following:
(i) provision of long-term disability insurance coverage
paying benefits equal to at least 100% of the Executive's Base
Salary and Annual Target Bonus for the duration of any permanent
and total disability of the Executive, either through an
individual disability insurance policy or otherwise;
(ii) continued provision of split-dollar life insurance
coverage and payment of premiums pursuant to that certain
Split-Dollar Agreement between the Executive and the Company,
dated February 1, 1992, as amended; and
(iii) provision of the pension benefits provided under a
non-qualified retirement plan for the Executive, a summary of the
terms of which is attached hereto as Exhibit A.
(f) Fringe Benefits and Perquisites. The Executive shall be
entitled to continuation of all fringe benefits and perquisites provided to the
Executive on the Effective Date, and to all fringe benefits and perquisites
which are generally made available to senior executives of the Company from time
to time. Without limiting the generality of the foregoing, the Company shall
provide the Executive with the following:
(i) provision of executive offices and secretarial staff;
(ii) six weeks paid vacation during each calendar year;
(iii) provision of an automobile of the Executive's choice
(which may be traded in for a new automobile each year), plus
payment of all related automobile expenses, including gas,
maintenance expenses and automobile insurance;
(iv) payment of initiation fees and annual dues for two
country clubs of the Executive's choice, and payment of dues for
any professional societies and associations of which the
Executive is a member in furtherance of his duties hereunder;
(v) in order to ensure the accessibility and security of the
Executive, use of the Company's aircraft and related facilities
for both business and personal travel and provision of
appropriate personal residence security services, a 24-hour
bodyguard service, a security-trained driver/bodyguard and any
other measures prescribed from time to time by the Company's
corporate security advisor and approved by the Board; and
(vi) reimbursement of all reasonable travel and other
business expenses and disbursements incurred by the Executive in
the performance of his duties under this Agreement, upon proper
accounting in accordance with the Company's normal practices
4
<PAGE>
and procedures for reimbursement of business expenses.
6. TERMINATION OF EMPLOYMENT
The Employment Period will be terminated upon the happening of any of
the following events:
(a) Resignation for Good Reason. The Executive may voluntarily
terminate his employment hereunder for Good Reason. For purposes of this
Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent with the Executive's position (including status,
offices, titles or reporting relationships), authority, duties or
responsibilities as contemplated by Section 3 hereof, or any
action by the Company that results in a diminution in such
position, authority, duties or responsibilities, but excluding
for these purposes any isolated and insubstantial action not
taken in bad faith and which is remedied by the Company promptly
after receipt of notice thereof given by the Executive;
(ii) any material change in the Executive's reporting
responsibilities;
(iii) any material failure by the Company to honor its
obligations under this Agreement;
(iv) a notice of non-extension of the Agreement Term
provided by the Company to the Executive as set forth in Section
2 hereof;
(v) the relocation of the Company's principal executive
offices to a location more than 40 miles from its current
location in Birmingham, Alabama, or the location of the
Executive's own office to other than the Company's principal
executive offices;
(vi) any failure by the Company to obtain an assumption of
this Agreement by a successor corporation as required under
Section 14(a) hereof;
(vii) the failure of the Company to renominate the Executive
to the Board or the failure of the Company's stockholders to
reelect the Executive to the Board; or
(viii) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by
this Agreement.
However, in no event shall the Executive be considered to have terminated his
employment for "Good Reason" unless and until the Company receives written
notice from the Executive identifying in reasonable detail the acts or omissions
constituting "Good Reason" and the provision of this Agreement relied upon, and
such acts or omissions are not cured by the Company to the reasonable
satisfaction of the Executive within 30 days of the Company's receipt of such
notice.
5
<PAGE>
(b) Resignation other than for Good Reason. The Executive may
voluntarily terminate his employment hereunder for any reason other than Good
Reason.
(c) Termination for Cause. The Company may terminate the
Executive's employment hereunder for Cause. For purposes of this Agreement, the
Executive shall be considered to be terminated for "Cause" only if (i) the
Executive is found, by a non-appealable order of a court of competent
jurisdiction, to be guilty of a felony under the laws of the United States or
any state thereof or (ii) the Executive is found, by a non-appealable order of a
court of competent jurisdiction, to have committed a fraud, which has a material
adverse effect on the Company. However, in no event shall the Executive's
employment be considered to have been terminated for "Cause" unless and until
the Executive receives a copy of a resolution duly adopted by the affirmative
vote of a majority of the Board at a meeting called and held for such purpose
(after reasonable written notice is provided to the Executive setting forth in
reasonable detail the facts and circumstances claimed to provide a basis of
termination for Cause and the Executive is given an opportunity, together with
counsel, to be heard before the Board) finding that the Executive is guilty of
acts or omissions constituting Cause.
(d) Termination other than for Cause. The Board shall have the
right to terminate the Executive's employment hereunder for any reason at any
time, including for any reason that does not constitute cause, subject to the
consequences of such termination as set forth in this Agreement.
(e) Disability. The Executive's employment hereunder shall
terminate upon his Disability. For purposes of this Agreement, "Disability"
shall mean the inability of the Executive to perform his duties to the Company
on account of physical or mental illness for a period of six consecutive full
months, or for a period of eight full months during any 12-month period. The
Executive's employment shall terminate in such a case on the last day of the
applicable period; provided, however, in no event shall the Executive be
terminated by reason of Disability unless (i) the Executive is eligible for the
long-term disability benefits set forth in Section 5(e)(i) hereof and (ii) the
Executive receives written notice from the Company, at least 30 days in advance
of such termination, stating its intention to terminate the Executive for reason
of Disability and setting forth in reasonable detail the facts and circumstances
claimed to provide a basis for such termination.
(f) Death. The Executive's employment hereunder shall terminate
upon his death.
7. COMPENSATION UPON TERMINATION OF EMPLOYMENT
In the event the Executive's employment by the Company is terminated
during the Agreement Term, the Executive shall be entitled to the severance
benefits set forth below:
(a) Resignation for Good Reason. In the event the Executive
voluntarily terminates his employment hereunder for Good Reason, the Company
shall pay the Executive and provide him with the following:
6
<PAGE>
(i) Accrued Rights. The Company shall pay the Executive a
lump-sum amount equal to the sum of (A) his earned but unpaid
Base Salary through the date of termination, (B) any earned but
unpaid Annual Target Bonus for any completed calendar year, (C)
any earned but unpaid Monthly Target Bonus for any completed
month in the calendar year of the Executive's termination and (D)
any unreimbursed business expenses or other amounts due to the
Executive from the Company as of the date of termination. In
addition, the Company shall provide to the Executive all
payments, rights and benefits due as of the date of termination
under the terms of the Company's employee and fringe benefit
plans, practices, programs and arrangements referred to in
Sections 5(e) and 5(f) hereof (together with the lump-sum
payment, the "Accrued Rights").
(ii) Severance Payment. The Company shall pay the Executive
a lump-sum amount equal to the sum of the Executive's
then-current Base Salary and Annual Target Bonus at the time of
the Executive's termination, for each year remaining in the
Agreement Term (with pro-rated amounts of such Base Salary and
Annual Target Bonus, on a daily basis, for any partial calendar
years during such remaining Agreement Term), with such lump-sum
payment discounted to present value using an interest rate equal
to 100% of the monthly compounded applicable federal rate (the
"Applicable Rate"), as in effect under Section 1274(d) of the
Internal Revenue Code of 1986, as amended (the "Code"), for the
month in which payment is required to be made.
(iii) Continued Benefits. The Company shall pay or provide
the Executive with all employee and fringe benefits referred to
in Sections 5(e) and 5(f) hereof for the balance of the Agreement
Term; provided, however, that if and to the extent the Company
determines that any such benefits cannot be paid or provided
under the plans in question due to Code or other restrictions,
the Company shall provide payments, coverages or benefits, which
are at least as favorable to the Executive on an after-tax basis,
through other means reasonably satisfactory to the Executive.
(iv) Equity Rights. All stock options and other equity-based
rights held by the Executive at the date of termination shall
become immediately and fully vested and exercisable, and the
Executive shall retain the right to exercise all outstanding
stock options for the duration of their original full term
(without regard to termination of employment) in accordance with
the Founder Retirement Benefit Program attached hereto as Exhibit
B (the "Founders' Program"). The Company shall forthwith take all
necessary steps to amend any relevant stock option plans of the
Company and stock option agreements to the extent necessary to
allow for the foregoing vesting and term of exercise.
(b) Resignation other than for Good Reason. In the event the
Executive voluntarily terminates his employment hereunder other than for Good
Reason, the Company shall pay the Executive and provide him with the following:
(i) Accrued Rights. The Company shall pay and provide to the
Executive any Accrued Rights.
7
<PAGE>
(ii) Severance Payment. The Company shall pay the Executive
a lump-sum amount equal to two times the sum of the Executive's
then-current Base Salary and Annual Target Bonus at the time of
the Executive's termination, with such lump-sum payment
discounted to present value using the Applicable Rate for the
month in which payment is required to be made.
(c) Termination for Cause. In the event the Executive's
employment hereunder is terminated by the Company for Cause, the Company shall
pay and provide to the Executive any Accrued Rights.
(d) Termination other than for Cause, Disability or Death. In the
event the Executive's employment hereunder is terminated by the Company for any
reason other than for Cause, Disability or death, the Company shall pay the
Executive and provide him with all severance benefits set forth in Section 7(a)
hereof.
(e) Disability. In the event the Executive's employment hereunder
is terminated by reason of the Executive's Disability, the Company shall pay the
Executive and provide him with the following:
(i) Accrued Rights. The Company shall pay and provide to the
Executive any Accrued Rights, including all disability insurance
coverage.
(ii) Severance Payment. The Company shall provide the
Executive with continued payment of the Executive's Base Salary
and Annual Target Bonus, as in effect on the date of termination,
for a period of three years following the Executive's
termination, payable at the times and in the manner such Base
Salary and Annual Target Bonus would have been paid if the
Executive had continued in the employment of the Company and as
if all relevant performance standards had been achieved during
such periods.
(f) Death.
In the event the Executive's employment hereunder is terminated by
reason of the Executive's death, the Company shall pay the Executive's
representatives or estate the following:
(i) Accrued Rights. The Company shall pay and provide to the
Executive's representatives or estate any Accrued Rights,
including all life insurance coverage.
(ii) Severance Payment. The Company shall pay the
Executive's representatives or estate a lump-sum amount equal to
the sum of the Executive's then-current Base Salary and Annual
Target Bonus at the time of the Executive's death, with such
lump-sum payment discounted to present value using the Applicable
Rate for the month in which payment is required to be made.
8. FOUNDERS' BENEFITS
Upon the Executive's termination of employment hereunder for any
reason, and in
8
<PAGE>
addition to any severance benefits payable to him under Section 7 hereof, the
Company shall treat such termination as a "retirement" for purposes of the
Founders' Program, and shall provide the Executive with the benefits outlined in
the Founders' Program in recognition of his status as a founder of the Company.
9. CHANGE IN CONTROL
(a) Supplemental Termination Rights. In the event of a voluntary
termination of employment by the Executive pursuant to Section 6(b) hereof that
occurs within two years following a Change in Control, the Company shall pay to
the Executive, in addition to the severance benefits payable under Section 7(b)
hereof, an additional lump-sum amount equal to the Executive's then-current Base
Salary and Annual Target Bonus at the time of the Executive's termination, with
such lump-sum payment discounted to present value using the Applicable Rate for
the month in which payment is required to be made.
(b) Definition. For purposes of this Agreement, a "Change in Control"
shall be deemed to have occurred by reason of:
(i) the acquisition (other than from the Company) by any person,
entity or "group" (within the meaning of Sections 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, but excluding, for this
purpose, the Company or its subsidiaries, or any employee benefit plan
of the Company or its subsidiaries which acquires beneficial ownership
of voting securities of the Company) of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Securities Exchange
Act of 1934) of 25% or more of either the then-outstanding shares of
the common stock of the Company or the combined voting power of the
Company's then-outstanding voting securities entitled to vote
generally in the election of directors; or
(ii) individuals who, as of date hereof, constitute the Board (as
of such date, the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however, that
any person becoming a director subsequent to such date whose election,
or nomination for election, was approved by a vote of at least a
majority of the directors then constituting the Incumbent Board (other
than an election or nomination of an individual whose initial
assumption of office is in connection with an actual or threatened
election contest relating to the election of directors of the Company)
shall be, for purposes of this Section 9(b)(ii), considered as though
such person were a member of the Incumbent Board; or
(iii) approval by the stockholders of the Company of a
reorganization, merger, consolidation or share exchange, in each case
with respect to which persons who were the stockholders of the Company
immediately prior to such reorganization, merger, consolidation or
share exchange do not, immediately thereafter, own more than 75% of
the combined voting power entitled to vote generally in the election
of directors of the reorganized, merged, consolidated or other
surviving entity's then-outstanding voting securities, or a
liquidation or dissolution of the Company or the sale of all or
substantially all of the assets of the Company.
9
<PAGE>
10. PARACHUTE TAX INDEMNITY
(a) If it shall be determined that any amount paid, distributed
or treated as paid or distributed by the Company to or for the Executive's
benefit (whether paid or payable or distributed or distributable pursuant to the
terms of this Agreement or otherwise, but determined without regard to any
additional payments required under this Section 10) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code or any interest or
penalties are incurred by the Executive with respect to such excise tax (such
excise tax, together with any such interest and penalties, being hereinafter
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Executive of all federal, state and local taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) All determinations required to be made under this Section 10,
including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by a nationally recognized accounting firm as may
be designated by the Executive (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the Executive within 15
business days of the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. In the event that
the Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change in Control, the Executive shall appoint
another nationally recognized accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 10, shall be paid by the Company to the Executive within five days of
the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to this
Section 10 and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the Executive's benefit.
10
<PAGE>
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later then ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order to
effectively contest such claim, and
(iv) permit the Company to participate in any proceeding
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expense. Without limitation on the foregoing provisions of
this Section 10, the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis, and shall indemnify and
hold the Executive harmless, on an after-tax basis, from any Excise Tax or
income tax (including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with respect to
such advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the Executive's taxable year with
respect to which such contested amount is claimed to be due is limited solely to
such contested amount. Furthermore, the Company's control of the contest shall
be limited to issues with respect to which a Gross-Up Payment would be payable
hereunder and the Executive shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
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<PAGE>
(d) If, after the Executive's receipt of an amount advanced by
the Company pursuant to this Section 10, the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject to
the Company's complying with the requirements of this Section 10) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the Executive's
receipt of an amount advanced by the Company pursuant to this Section 10, a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
11. NO MITIGATION OR OFFSET
The Executive shall not be required to seek other employment or to
reduce any severance benefit payable to him under Sections 7, 8 or 9 hereof, and
no such severance benefit shall be reduced on account of any compensation
received by the Executive from other employment. The Company's obligation to pay
severance benefits under this Agreement shall not be reduced by any amount owed
by the Executive to the Company.
12. TAX WITHHOLDING; METHOD OF PAYMENT
All compensation payable pursuant to this Agreement, shall be subject
to reduction by all applicable withholding, social security and other federal,
state and local taxes and deductions. Any lump-sum payments provided for in
Sections 7 or 9 hereof shall be made in a cash payment, net of any required tax
withholding, no later than the fifth business day following the Executive's date
of termination. Any payment required to be made to the Executive under this
Agreement that is not made in a timely manner shall bear interest at the
Applicable Rate until the date of payment.
13. RESTRICTIVE COVENANTS
(a) Confidential Information. During the Employment Period and at
all times thereafter, the Executive agrees that he will not divulge to anyone
(other than the Company or any persons employed or designated by the Company)
any knowledge or information of a confidential nature relating to the business
of the Company or any of its subsidiaries or affiliates, including, without
limitation, all types of trade secrets (unless readily ascertainable from public
or published information or trade sources) and confidential commercial
information, and the Executive further agrees not to disclose, publish or make
use of any such knowledge or information without the consent of the Company.
(b) Noncompetition. During the Employment Period and, in the
event of a resignation by the Executive for any reason other than Good Reason,
for the 24 month period following the termination of employment, the Executive
shall not, without the prior written consent of the Company, engage in the
comprehensive rehabilitative and related healthcare services business on behalf
of any person, firm or corporation within any geographical area in which the
Company transacts such business, and the Executive shall not acquire any
financial interest (except for an
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equity interest in publicly-held companies that do not exceed 5% of any
outstanding class of equity of that company), in any business that engages in
the comprehensive rehabilitative and related healthcare services business within
any geographical area in which the Company transacts such business.
Notwithstanding the foregoing, upon the occurrence of a Change in Control
(whether before or after the termination of the Employment Period), the
restrictions of this Section 13(b) shall cease to apply to the Executive for any
period following his termination of employment hereunder.
(c) Enforcement. The Company shall be entitled to seek a
restraining order or injunction in any court of competent jurisdiction to
prevent any continuation of any violation of the provisions of this Section 13.
14. SUCCESSORS
(a) This Agreement shall be binding upon and shall inure to the
benefit of the Company, its successors and assigns and any person, firm,
corporation or other entity which succeeds to all or substantially all of the
business, assets or property of the Company. The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business, assets or property of
the Company, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. As used in this Agreement, the "Company"
shall mean the Company as hereinbefore defined and any successor to its
business, assets or property as aforesaid which executes and delivers an
agreement provided for in this Section 14 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
(b) This Agreement and all rights of the Executive hereunder
shall inure to the benefit of and be enforceable by the Executive's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die while any
amounts are due and payable to him hereunder, all such amounts, unless otherwise
provided herein, shall be paid to the Executive's designated beneficiary or, if
there be no such designated beneficiary, to the legal representatives of the
Executive's estate.
15. NO ASSIGNMENT
Except as to withholding of any tax under the laws of the United
States or any other country, state or locality, neither this Agreement nor any
right or interest hereunder nor any amount payable at any time hereunder shall
be subject in any manner to alienation, sale, transfer, assignment, pledge,
attachment, or other legal process, or encumbrance of any kind by the Executive
or the beneficiaries of the Executive or by his legal representatives without
the Company's prior written consent, nor shall there be any right of set-off or
counterclaim in respect of any debts or liabilities of the Executive, his
beneficiaries or legal representatives; provided, however, that nothing in this
Section shall preclude the Executive from designating a beneficiary to receive
any benefit payable on his death, or the legal representatives of the Executive
from assigning any rights hereunder to the person or persons entitled thereto
under his will or, in case of intestacy, to the person or persons entitled
thereto under the laws of intestacy applicable to his estate.
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16. ENTIRE AGREEMENT
This Agreement contains the entire understanding of the parties with
respect to the subject matter hereof and, except as specifically provided
herein, cancels and supersedes any and all other agreements between the parties
with respect to the subject matter hereof, including, without limitation, that
certain employment agreement dated July 23, 1986, as amended. Any amendment or
modification of this Agreement shall not be binding unless in writing and signed
by the Company and the Executive.
17. SEVERABILITY
In the event that any provision of this Agreement is determined to be
invalid or unenforceable, the remaining terms and conditions of this Agreement
shall be unaffected and shall remain in full force and effect, and any such
determination of invalidity or unenforceability shall not affect the validity or
enforceability of any other provision of this Agreement.
18. NOTICES
All notices which may be necessary or proper for either the Company or
the Executive to give to the other shall be in writing and shall be delivered by
hand or sent by registered or certified mail, return receipt requested, or by
air courier, to the Executive at:
Mr. Richard M. Scrushy
2406 Longleaf Street
Birmingham, Alabama 35243
with a copy to:
Frederick W. Kanner, Esq.
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019
and shall be sent in the manner described above to the Secretary of the Company
at the Company's principal executives offices at One HealthSouth Parkway,
Birmingham, Alabama 35243, or delivered by hand to the Secretary of the Company,
and shall be deemed given when sent, provided that any notice required under
Section 6 hereof or notice given pursuant to Section 2 hereof shall be deemed
given only when received. Any party may by like notice to the other party change
the address at which he or they are to receive notices hereunder.
19. GOVERNING LAW
This Agreement shall be governed by and enforceable in accordance with
the laws of the State of Alabama, without giving effect to the principles of
conflict of laws thereof.
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20. ARBITRATION
Any controversy or claim arising out of, or related to, this
Agreement, or the breach thereof, shall be settled by binding arbitration in the
City of Birmingham, Alabama, in accordance with the rules then obtaining of the
American Arbitration Association, and the arbitrator's decision shall be binding
and final, and judgment upon the award rendered may be entered in any court
having jurisdiction thereof.
21. LEGAL FEES AND EXPENSES
To induce the Executive to execute this Agreement and to provide the
Executive with reasonable assurance that the purposes of this Agreement will not
be frustrated by the cost of its enforcement should the Company fail to perform
its obligations under this Agreement or should the Company or any subsidiary,
affiliate or stockholder of the Company contest the validity or enforceability
of this Agreement, the Company shall pay and be solely responsible for any
attorneys' fees and expenses and court costs incurred by the Executive as a
result of a claim that the Company has breached or otherwise failed to perform
this Agreement or any provision hereof to be performed by the Company or as a
result of the Company or any subsidiary, affiliate or stockholder of the Company
contesting the validity or enforceability of this Agreement or any provision
hereof to be performed by the Company, in each case regardless of which party,
if any, prevails in the contest.
22. CONVERSION TO CHAIRMAN-ONLY STATUS
The Executive may elect at any time during the Employment Period to
resign his position as Chief Executive Officer and serve the Company solely as
the Chairman of the Board ("Chairman-Only Status") for the remainder of the
Employment Period under the terms and conditions hereof. In the event of an
election by the Executive to maintain Chairman-Only Status, (i) the Base Salary
described in Section 5(a) hereof and the Annual Target Bonus described in
Section 5(b) hereof shall be reduced to an amount equal to 50% of their
then-current level (subject to possible merit increases at the discretion of the
Board) at the time of such election and (ii) all other provisions of this
Agreement, including the compensation and benefits provisions of Sections 5(c)
through 5(f) hereof, shall remain in full force and effect for the remainder of
the Agreement Term. An election by the Executive to maintain Chairman-Only
Status, and the related reduction in his Base Salary and Annual Target Bonus
thereof, shall not constitute a violation of the Executive's obligations under
Section 3 hereof, nor shall it constitute a termination of the Executive's
employment for any purpose under Section 6 hereof. As used in this Agreement,
the term "employment" and similar terms shall be deemed to include service to
the Company while maintaining Chairman-Only Status.
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IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date first above written.
EXECUTIVE
/s Richard M. Scrushy/
--------------------------------
Richard M. Scrushy
HEALTHSOUTH CORPORATION
By /s/ Anthony J. Tanner
------------------------------
Name: Anthony J. Tanner
Title: Executive Vice President -
Administration and Secretary
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EXHIBIT A
HEALTHSOUTH CORPORATION
EXECUTIVE RETIREMENT PLAN
FOR RICHARD M. SCRUSHY
Summary of Terms
Benefit Formula: Annual retirement benefit equal to 60% of Base
Compensation at Normal Retirement Age
Base Compensation: Average base salary of Executive in 3 highest
consecutive calendar years of service with
HEALTHSOUTH
Vesting: Fully vested at all times
Normal Retirement Age: Age 60
Early Retirement: Benefit is fully vested and accrued if termi-
nation for any reason prior to age 60, but
earliest benefit commencement date is age 55
(with actuarial reduction)
Forms of Payment: Executive's choice of alternative forms:
Single Life Annuity
Single Life Annuity with 10 year
guarantee Joint and Survivor
Annuity (50% or 100%) Lump Sum
Death Benefit: For death prior to benefit commencement date,
spouse receives 50% survivor annuity payable
at later of date of death or 55th birthday
Actuarial Assumptions: Pre-age 60 commencement and alternative forms
of payment adjusted on an actuarial equivalent
basis:
interest rate - 30-year Treasury rate
mortality assumption - 1983 GAM Table
Unfunded Status: Plan is an unfunded, unsecured obligation of
HEALTHSOUTH, but HEALTHSOUTH may elect to fund
on a tax-neutral basis to Executive
EXHIBIT (10)-27
HEALTHSOUTH CORPORATION
1998 RESTRICTED STOCK PLAN
1. PURPOSE OF THE PLAN. The purpose of the 1998 Restricted Stock Plan
(hereinafter called the "Plan") of HEALTHSOUTH Corporation, a Delaware
corporation (hereinafter called the "Corporation"), is to provide incentive for
future endeavor and to advance the interests of the Corporation and its
stockholders by encouraging ownership of the Common Stock, par value $.01 per
share (hereinafter called the "Common Stock"), of the Corporation by its
executives and other key employees, upon whose judgment, interest and continuing
special efforts the Corporation is largely dependent for the successful conduct
of its operations, and to enable the Corporation to compete effectively with
other enterprises for the services of such new executives and employees as may
be needed for the continued improvement of the Corporation's business, through
the grant of restricted stock awards ("Awards") covering shares of the Common
Stock.
2. PARTICIPANTS. Awards may be granted under the Plan to such executives
and key employees of the Corporation and its subsidiaries as shall be determined
by the Committee appointed by the Board of Directors as set forth in Section 5
of the Plan; provided, however, that no Award may be granted to any person if
such grant would cause the Plan to cease to be an "employee benefit plan" as
defined in Rule 405 of Regulation C promulgated under the Securities Act of
1933.
3. TERM OF THE PLAN. The Plan shall become effective as of May 21, 1998,
subject to the approval by the holders of a majority of the shares of issued and
outstanding Common Stock of the Corporation present and voting at the 1998
Annual Meeting of Stockholders of the Corporation. The Plan shall terminate on
the earliest of (a) April 30, 2008, (b) such time as all shares of Common Stock
reserved for issuance under the Plan have been issued and are fully vested, or
(c) such earlier time as the Board of Directors of the Corporation may
determine. Any Award outstanding under the Plan at the time of its termination
shall remain in effect in accordance with its terms and conditions and those of
the Plan. No Award shall be granted under the Plan after April 30, 2008.
4. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 11, the
aggregate number of shares of Common Stock for which Awards may be granted under
the Plan shall not exceed 3,000,000 shares, and the maximum number of shares of
Common Stock for which any individual may be granted Awards under the Plan
during any calendar year is 100,000. If, on or prior to the termination of the
Plan as provided in Section 3, an Award granted under the Plan shall have
expired or terminated for any reason without having vested in full, the unvested
shares covered thereby shall again become available for the grant of Awards
under the Plan.
The shares to be delivered upon exercise of Awards under the Plan shall be
made available, at the discretion of the Board of Directors, either from
authorized but previously unissued shares as permitted by the Certificate of
Incorporation of the Corporation or from shares re-acquired by the Corporation,
including shares of Common Stock purchased in the open market, and shares held
in the treasury of the Corporation.
<PAGE>
5. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Audit
and Compensation Committee of the Board of Directors of the Corporation
(hereinafter called the "Committee"). The acts of a majority of the Committee,
at any meeting thereof at which a quorum is present, or acts reduced to or
approved in writing by a majority of the members of the Committee, shall be the
valid acts of the Committee. The Committee shall determine the executives and
key employees of the Corporation and its subsidiaries who shall be granted
Awards and the number of shares of Common Stock to be subject to each Award.
The interpretation and construction of any provision of the Plan or of any
Award granted under it by the Committee shall be final, conclusive and binding
upon all parties, including the Corporation, its stockholders and Directors, and
the executives and employees of the Corporation and its subsidiaries. No member
of the Board of Directors or the Committee shall be liable to the Corporation,
any stockholder, any optionholder or any employee of the Corporation or its
subsidiaries for any action or determination made in good faith with respect to
the Plan or any Award granted under it.
The expenses of administering the Plan shall be borne by the Corporation.
6. GRANT OF AWARDS. (a) Awards may be granted under the Plan by the
Committee in accordance with the provisions of Section 5 at any time prior to
the termination of the Plan. In making any determination as to executives and
key employees to whom Awards shall be granted and as to the number of shares to
be covered by such Awards, the Committee shall take into account the duties of
the respective executives and key employees, their present and potential
contribution to the success of the Corporation, and such other factors as the
Committee shall deem relevant in connection with the accomplishment of the
purposes of the Plan.
(b) Each Award granted under the Plan shall be granted pursuant to and
subject to the terms and conditions of a restricted stock agreement to be
entered into between the Corporation and the participant at the time of such
grant. Each such restricted stock agreement shall be in a form from time-to-time
adopted for use under the Plan by the Committee (such form being hereinafter
called a "Restricted Stock Agreement"). Any such Restricted Stock Agreement
shall incorporate by reference all of the terms and provisions of the Plan as in
effect at the time of grant and may contain such other terms and provisions as
shall be approved and adopted by the Committee.
7. CERTAIN CONDITIONS OF AWARDS. Awards granted under this Plan shall be
subject to the following terms and conditions:
(a) The prospective recipient of an Award shall not, with respect to
such Award, be deemed to have become a participant or to have any rights with
respect to such Award unless and until such recipient shall have executed a
Restricted Stock Agreement or other agreement evidencing the Award and its terms
and conditions and delivered a fully-executed copy thereof to the Corporation
and otherwise complied with the then-applicable terms and conditions under the
Plan.
(b) Each participant shall be issued a certificate in respect of
shares of Common Stock awarded under the Plan. Such certificate shall be
registered in the name of the participant, and shall bear an appropriate legend
referring to the terms, conditions and restrictions applicable to such Award
substantially in the following form:
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"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions
(including forfeiture) of the 1998 Restricted Stock Plan of
HEALTHSOUTH Corporation and a Restricted Stock Agreement entered
into between the registered owner and HEALTHSOUTH Corporation.
Copies of such Plan and Restricted Stock Agreement are on file in
the offices of the Secretary of HEALTHSOUTH Corporation."
(c) The Committee may adopt rules which provide that the stock
certificates evidencing shares covered by Awards might be held in custody by a
bank or other institution, or that the Corporation may itself hold such shares
in custody until the restrictions thereon shall have lapsed, and may require as
a condition of any Award that the participant shall have delivered a stock power
endorsed in blank relating to the stock covered by such Award.
(d) Recipients of Awards under the Plan are not required to make any
payment or provide consideration therefor other than the rendering of services
to the Corporation.
8. RESTRICTIONS AND FORFEITURES. The shares of Common Stock awarded
pursuant to the Plan shall be subject to the following restrictions and
conditions:
(a) During a period set by the Committee of not less than one year nor
more than 10 years commencing with the date of an Award (the "Restriction
Period"), a participant will not be permitted to sell, transfer, pledge, assign
or otherwise dispose of shares of Common Stock awarded pursuant to said Award.
Within these limits, the Committee may provide for the vesting of Awards and the
lapse of such restrictions in installments based upon the passage of time, the
achievement by the Corporation of certain identified performance goals, or the
occurrence of other events, or any combination thereof, all as the Committee
deems appropriate.
(b) Except as provided in Section 8(a), a participant shall have with
respect to the shares of Common Stock covered by an Award all of the rights of a
stockholder of the Corporation, including the right to vote such shares and
receive dividends and other distributions thereon.
(c) Subject to the provisions of Section 8(d), unless otherwise
provided in the applicable Restricted Stock Agreement, upon termination of a
participant's employment for any reason during the Restriction Period, all
shares awarded to such participant and still subject to restriction shall be
forfeited by the participant and be reacquired by the Corporation, without
consideration or payment therefor.
(d) In the event of a participant's retirement, disability or death,
all restrictions with respect to such participant's Award shall lapse (subject
to Section 8(e)) and such participant or his beneficiary shall be entitled to
receive (if held in custody by the Corporation or a bank or other institution)
and retain all of the stock subject to the Award; provided, however, that in the
case of retirement, the Committee in its sole discretion may determine that such
restrictions shall not lapse as to all or a portion of an Award or that all or
any of the shares subject to restriction shall be forfeited.
(e) The Committee may impose any conditions on an Award it deems
advisable to ensure the participant's payment to the Corporation of any federal,
state or local taxes required to be withheld with respect to such award.
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<PAGE>
(f) Notwithstanding any contrary provision contained herein, unless
otherwise expressly provided in the Restricted Stock Agreement, any Award
granted hereunder shall become immediately vested in full upon the occurrence of
a Change in Control of the Corporation. For purposes of this Section 8(f),
"Change in Control" shall mean
(i) the acquisition (other than from the Corporation) by any person,
entity or "group" (within the meaning of Sections 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, but excluding, for this purpose, the
Corporation or its subsidiaries, or any employee benefit plan of the
Corporation or its subsidiaries which acquires beneficial ownership of
voting securities of the Corporation) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Securities Exchange Act of
1934) of 25% or more of either the then-outstanding shares of Common Stock
or the combined voting power of the Corporation's then-outstanding voting
securities entitled to vote generally in the election of Directors; or
(ii) individuals who, as of May 21, 1998, constitute the Board of
Directors of the Corporation (as of such date, the "Incumbent Board") cease
for any reason to constitute at least a majority of the Board of Directors;
provided, however, that any person becoming a Director subsequent to such
date whose election, or nomination for election, was approved by a vote of
at least a majority of the Directors then constituting the Incumbent Board
(other than an election or nomination of an individual whose initial
assumption of office is in connection with an actual or threatened election
contest relating to the election of Directors of the Corporation) shall be,
for purposes of this Section 8(f), considered as though such person were a
member of the Incumbent Board; or
(iii) approval by the stockholders of the Corporation of a
reorganization, merger, consolidation or share exchange, in each case with
respect to which persons who were the stockholders of the Corporation
immediately prior to such reorganization, merger, consolidation or share
exchange do not, immediately thereafter, own more than 75% of the combined
voting power entitled to vote generally in the election of directors of the
reorganized, merged, consolidated or other surviving entity's
then-outstanding voting securities, or a liquidation or dissolution of the
Corporation or the sale of all or substantially all of the assets of the
Corporation.
9. NONTRANSFERABILITY OF AWARDS. (a) Except to the extent that such Awards
are vested, Awards granted under the Plan shall be assignable or transferable
only by will or pursuant to the laws of descent and distribution, except to the
extent set forth in the following paragraph.
(b) Upon written notice to the Secretary of the Corporation, a
participant may, except as otherwise prohibited by applicable law, transfer
shares granted under the Plan to one or more members of such participant's
immediate family, to a partnership consisting only of members of such
participant's immediate family, or to a trust all of whose beneficiaries are
members of the participant's immediate family. For purposes of this section, a
participant's "immediate family" shall be deemed to include such holder's
spouse, children and grandchildren only.
10. NO RIGHT OF CONTINUED EMPLOYMENT. Nothing in the Plan or in the
Restricted Stock Agreement shall confer upon any participant the right to
continue in the employ of the Corporation or
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<PAGE>
any of its subsidiaries or in any other relationship thereto or interfere in any
way with the right of the Corporation to terminate such employment or other
relationship at any time.
11. ADJUSTMENT OF AND CHANGES IN CAPITALIZATION. In the event that the
outstanding shares of Common Stock shall be changed in number or class by reason
of split-ups, combinations, mergers, consolidations or recapitalizations, or by
reason of stock dividends, the number or class of shares which thereafter may be
acquired through Awards granted under the Plan, both in the aggregate and as to
any individual, and the number and class of shares then subject to Awards
theretofore granted shall be adjusted so as to reflect such change, all as
determined by the Board of Directors of the Corporation. In the event there
shall be any other change in the number or kind of the outstanding shares of
Common Stock, or of any stock or other securities into which such Common Stock
shall have been changed, or for which it shall have been exchanged, then if the
Board of Directors shall, in its sole discretion, determine that such change
equitably requires an adjustment in any Award theretofore granted or which may
be granted under the Plan, such adjustment shall be made in accordance with such
determination.
Notice of any adjustment shall be given by the Corporation to each holder
of an Award which shall have been so adjusted and such adjustment (whether or
not such notice is given) shall be effective and binding for all purposes of the
Plan.
Fractional shares resulting from any adjustment in Awards pursuant to this
Section 11 may be settled in cash or otherwise as the Board of Directors may
determine.
12. SECURITIES ACTS REQUIREMENTS. As a condition to the issuance of any
shares pursuant to an Award under the Plan, the Board of Directors or the
Committee, as the case may be, may require a participant to furnish a written
representation that he is acquiring the shares for investment and not with a
view to distribution of the shares to the public and a written agreement
restricting the transferability of the shares solely to the Corporation, and may
affix a restrictive legend or legends on the face of the certificate
representing such shares. Such representation, agreement and/or legend shall be
required only in cases where in the opinion of the Board of Directors or the
Committee, as the case may be, and counsel for the Corporation, it is necessary
to enable the Corporation to comply with the provisions of the Securities Act of
1933 or other Federal or state statutes having similar requirements, and any
stockholder who gives such representation and agreement shall be released from
it and the legend removed at such time as the shares to which they applied are
registered or qualified pursuant to the Securities Act of 1933 or other Federal
or state statutes having similar requirements, or at such other time as, in the
opinion of the Board of Directors or the Committee, as the case may be, and
counsel for the Corporation, the representation and agreement and legend cease
to be necessary to enable the Corporation to comply with the provisions of the
Securities Act of 1933 or other Federal or state statutes having similar
requirements.
13. AMENDMENT OF THE PLAN. The Plan may, at any time or from time to time,
be termi nated, modified or amended by the stockholders of the Corporation by
the affirmative vote of the holders of a majority of the outstanding shares of
the Corporation's Common Stock present and entitled to vote at a meeting of the
Corporation's stockholders duly called and held (or, to the extent permitted by
law, by written consent of the holders of a majority of the outstanding shares
of the Corporation's Common Stock entitled to vote). The Board of Directors of
the Corporation may, insofar as permitted by law, from time to time with respect
to any shares of Common Stock at the time not subject to Awards, suspend or
discontinue the Plan or revise or amend it in any respect whatsoever; provided,
however, that, without approval of the stockholders of the Corporation, no such
revision or amendment shall increase the number
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<PAGE>
of shares subject to the Plan, extend the period during which Awards may be
vested, or change the provisions relating to adjustment to be made upon changes
in capitalization.
14. CHANGES IN LAW. Subject to the provisions of Section 13, the Board of
Directors shall have the power to amend the Plan and any outstanding Awards
granted thereunder in such respects as the Board of Directors shall, in its sole
discretion, deem advisable in order to incorporate in the Plan or any such Award
any new provision or change designed to comply with or take advantage of
requirements or provisions of the Internal Revenue Code of 1986, as amended, or
any other statute, or Rules or Regulations of the Internal Revenue Service or
any other Federal or state governmental agency enacted or promulgated after the
adoption of the Plan.
15. LEGAL MATTERS. Every right of action by or on behalf of the Corporation
or by any stock holder against any past, present or future member of the Board
of Directors, officer or employee of the Corporation arising out of or in
connection with this Plan shall, irrespective of the place where such action may
be brought and irrespective of the place of residence of any such Director,
officer or employee, cease and be barred by the expiration of three years from
whichever is the later of (a) the date of the act or omission in respect of
which such right of action arises, or (b) the first date upon which there has
been made generally available to stockholders an annual report of the
Corporation and a proxy statement for the Annual Meeting of Stockholders
following the issuance of such annual report, which annual report and proxy
statement alone or together set forth, for the related period, the aggregate
number of shares for which Awards were granted; and any and all right of action
by any employee or executive of the Corporation (past, present or future)
against the Corporation arising out of or in connection with this Plan shall,
irrespective of the place where such action may be brought, cease and be barred
by the expiration of three years from the date of the act or omission in respect
of which such right of action arises.
This Plan and all determinations made and actions taken pursuant hereto
shall be governed by the law of Delaware, applied without giving effect to any
conflicts-of-law principles, and construed accordingly.
6
EMPLOYMENT AGREEMENT, dated as of April 1, 1998 (this "Agreement"),
between HEALTHSOUTH Corporation, a Delaware corporation (the "Company"), and
JAMES P. BENNETT, a resident of Birmingham, Alabama (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company provides comprehensive rehabilitative, clinical,
diagnostic and surgical healthcare services;
WHEREAS, the Executive serves as President and Chief Operating Officer
of the Company and as a member of its Board of Directors; and
WHEREAS, the Company wishes to assure itself of the continued services
of the Executive so that it will have the continued benefit of his ability,
experience and services, and the Executive is willing to enter into an agreement
to that end, upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of good and valuable consideration
the receipt and sufficiency of which are hereby acknowledged, the parties hereby
covenant and agree as follows:
1. EMPLOYMENT
The Company hereby agrees to continue to employ the Executive, and the
Executive hereby agrees to remain in the employ of the Company, on and subject
to the terms and conditions of this Agreement.
2. TERM
(a) The period of this Agreement (the "Agreement Term") shall commence
as of the date hereof (the "Effective Date") and shall expire on the third
anniversary of the Effective Date. The Agreement Term shall be automatically
extended for an additional year on each anniversary of the Effective Date,
unless written notice of non-extension is provided by either party to the other
party at least 90 days prior to such anniversary.
(b) The period of the Executive's employment under this Agreement (the
"Employment Period") shall commence as of the Effective Date and shall expire at
the end of the Agreement Term, unless sooner terminated in accordance with the
terms and conditions of this Agreement.
3. POSITION, DUTIES AND RESPONSIBILITIES
(a) The Executive shall serve as, and with the title, office and
authority of, President and Chief Operating Officer of the Company and as a
member of the Board of Directors of the Company (the "Board") and shall report
directly to the Chief Executive Officer of the Company or such other person
designated from time to time by the Chief Executive Officer of the Company. The
Executive shall also hold similar titles, offices and authority with the
Company's subsidiaries and/or their successors. The Company shall use its best
efforts to cause the Executive to be nominated and elected (or renominated and
reelected, as the case may be) during the Employment Period as a director of the
Company and its subsidiaries or their successors.
<PAGE>
(b) The Executive shall have all of the powers, authority, duties and
responsibilities usually incident to the positions and offices of President and
Chief Operating Officer of the Company.
(c) The Executive agrees to devote substantially all of his business
time, efforts and skills to the performance of his duties and responsibilities
under this Agreement; provided, however, that nothing in this Agreement shall
preclude the Executive from devoting reasonable periods required for (i)
participating in professional, educational, philanthropic, public interest,
charitable, social or community activities, (ii) serving as a director or member
of an advisory committee of any corporation or other entity that the Executive
is serving on as of the Effective Date or any other corporation or entity that
is not in direct competition with the Company or (iii) managing his personal
investments, provided that such activities do not materially interfere with the
Executive's regular performance of his duties and responsibilities hereunder.
4. PLACE OF PERFORMANCE
The Executive shall perform his duties at the principal offices of the
Company located at One HealthSouth Parkway, Birmingham, Alabama, but from time
to time the Executive may be required to travel to other locations in the proper
conduct of his responsibilities under this Agreement.
5. COMPENSATION AND BENEFITS
In consideration of the services rendered by the Executive during the
Employment Period, the Company shall pay or provide the Executive the amounts
and benefits set forth below.
(a) Salary. The Company shall pay the Executive an annual base salary
(the "Base Salary") of at least $650,000. The Executive's Base Salary shall be
paid in arrears in substantially equal installments at monthly or more frequent
intervals, in accordance with the normal payroll practices of the Company. The
Executive's Base Salary shall be reviewed at least annually by the Compensation
Committee of the Board (the "Compensation Committee") for consideration of
appropriate merit increases and, once established, the Base Salary shall not be
decreased during the Employment Period.
(b) Incentive Plans. The Executive shall participate in all annual and
long-term bonus or incentive plans or arrangements in which other senior
executives of the Company of a comparable level are eligible to participate from
time to time, including, without limitation, any management bonus pool
arrangement. The Executive's incentive compensation opportunities under such
plans and arrangements shall be determined from time to time by the Compensation
Committee.
(c) Equity Incentives. The Executive shall be given consideration, at
least annually, by the Compensation Committee for the grant of options to
purchase shares of the common stock of the Company. In addition, the Executive
shall be entitled to receive awards under any stock option, stock purchase or
equity-based incentive compensation plan or arrangement adopted by the Company
from time to time for which other senior executives of the Company of a
comparable level are eligible to participate. The Executive's awards under such
plans and arrangements shall be determined from time to time by the Compensation
Committee.
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(d) Employee Benefits. The Executive shall be entitled to participate
in all employee benefit plans, programs, practices or arrangements of the
Company in which other senior executives of the Company of a comparable level
are eligible to participate from time to time, including, without limitation,
any qualified or non-qualified pension, profit sharing and savings plans, any
death benefit and disability benefit plans, and any medical, dental, health and
welfare plans. Without limiting the generality of the foregoing, the Company
shall provide the Executive with long-term disability insurance coverage paying
benefits equal to at least 60% of the Executive's Base Salary for the duration
of any permanent and total disability of the Executive.
(e) Fringe Benefits and Perquisites. The Executive shall be entitled
to continuation of all fringe benefits and perquisites provided to the Executive
on the Effective Date, and to all fringe benefits and perquisites which are
generally made available to other senior executives of the Company of a
comparable level from time to time. Without limiting the generality of the
foregoing, the Company shall provide the Executive with the following:
(i) provision of executive offices and secretarial staff;
(ii) vacation in accordance with Company's policy for other
senior executives of a comparable level;
(iii) provision of a non-accountable automobile allowance of $500
per month;
(iv) reimbursement of all reasonable travel and other business
expenses and disbursements incurred by the Executive in the
performance of his duties under this Agreement, upon proper accounting
in accordance with the Company's normal practices and procedures for
reimbursement of business expenses.
6. TERMINATION OF EMPLOYMENT
The Employment Period will be terminated upon the happening of any of
the following events:
(a) Resignation. The Executive may voluntarily terminate his
employment hereunder for any reason at any time.
(b) Termination for Cause. The Company may terminate the Executive's
employment hereunder for Cause. For purposes of this Agreement, the Executive
shall be considered to be terminated for "Cause" only if (i) the Executive is
found, by a non-appealable order of a court of competent jurisdiction, to be
guilty of a felony under the laws of the United States or any state thereof,
(ii) the Executive is found, by a non-appealable order of a court of competent
jurisdiction, to have committed a fraud, which has a material adverse effect on
the Company or (iii) the Executive is found to have committed a deliberate
violation of Company policy. However, in no event shall the Executive's
employment be considered to have been terminated for "Cause" unless and until
the Executive receives a copy of a resolution duly adopted by the affirmative
vote of a majority of the Board at a meeting called and held for such purpose
(after reasonable written notice is provided to the Executive setting forth in
reasonable detail the facts and circumstances claimed to provide a basis of
termination for Cause and the Executive is given an opportunity, together with
counsel, to be heard before the Board) finding that the Executive
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is guilty of acts or omissions constituting Cause.
(c) Termination other than for Cause. The Company shall have the right
to terminate the Executive's employment hereunder for any reason at any time,
including for any reason that does not constitute Cause, subject to the
consequences of such termination as set forth in this Agreement.
(d) Disability. The Executive's employment hereunder shall terminate
upon his Disability. For purposes of this Agreement, "Disability" shall mean the
inability of the Executive to perform his duties to the Company on account of
physical or mental illness for a period of six consecutive full months, or for a
period of eight full months during any 12-month period. The Executive's
employment shall terminate in such a case on the last day of the applicable
period; provided, however, in no event shall the Executive be terminated by
reason of Disability unless (i) the Executive is eligible for the long-term
disability benefits set forth in Section 5(d) hereof and (ii) the Executive
receives written notice from the Company, at least 30 days in advance of such
termination, stating its intention to terminate the Executive for reason of
Disability and setting forth in reasonable detail the facts and circumstances
claimed to provide a basis for such termination.
(e) Death. The Executive's employment hereunder shall terminate upon
his death.
7. COMPENSATION UPON TERMINATION OF EMPLOYMENT
In the event the Executive's employment by the Company is terminated
during the Agreement Term, the Executive shall be entitled to the severance
benefits set forth below:
(a) Resignation. In the event the Executive voluntarily terminates his
employment hereunder for any reason, the Company shall pay and provide to the
Executive any Accrued Rights (as defined in paragraph (c) below).
(b) Termination for Cause. In the event the Executive's employment
hereunder is terminated by the Company for Cause, the Company shall pay and
provide to the Executive any Accrued Rights (as defined in paragraph (c) below).
(c) Termination other than for Cause, Disability or Death. In the
event the Executive's employment hereunder is terminated by the Company for any
reason other than for Cause, Disability or death, the Company shall pay the
Executive and provide him with the following:
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(i) Accrued Rights. The Company shall pay the Executive a
lump-sum amount equal to the sum of (A) his earned but unpaid Base
Salary through the date of termination, (B) any earned but unpaid
bonus for any completed calendar year, (C) a pro-rata payment of any
bonus (based on the then-current target amount of such bonus) for any
partial year or period of service through the date of termination and
(D) any unreimbursed business expenses or other amounts due to the
Executive from the Company as of the date of termination. In addition,
the Company shall provide to the Executive all payments, rights and
benefits due as of the date of termination under the terms of the
Company's employee and fringe benefit plans, practices, programs and
arrangements referred to in Sections 5(d) and 5(e) hereof (together
with the lump-sum payment, the "Accrued Rights").
(ii) Severance Payment. The Company shall provide the Executive
with continued payment of the Executive's Base Salary, as in effect on
the date of termination, for a period of two years following the
Executive's termination, payable at the times and in the manner such
Base Salary would have been paid if the Executive had continued in the
employment of the Company.
(iii) Equity Rights. All stock options and other equity-based
rights held by the Executive at the date of termination shall become
immediately and fully vested and exercisable, and the Executive shall
retain the right to exercise all outstanding stock options for a period
of five years following termination of employment or to the end of the
original term of such options, if earlier. The Company shall forthwith
take all necessary steps to amend any relevant stock option plans of
the Company and stock option agreements to the extent necessary to
allow for the foregoing vesting and term of exercise.
(d) Disability. In the event the Executive's employment hereunder is
terminated by reason of the Executive's Disability, the Company shall pay and
provide to the Executive any Accrued Rights, including all disability insurance
coverage.
(e) Death. In the event the Executive's employment hereunder is
terminated by reason of the Executive's death, the Company shall pay and provide
to the Executive's representative or estate any Accrued Rights, including all
life insurance coverage.
8. CHANGE IN CONTROL
(a) Supplemental Termination Rights. In the event of a voluntary
termination of employment by the Executive pursuant to Section 6(a) hereof that
occurs within six months following a Change in Control, the Company shall pay
the Executive and provide him with the benefits and rights described in Section
7(c) hereof.
(b) Definition. For purposes of this Agreement, a "Change in Control"
shall be deemed to have occurred by reason of:
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(i) the acquisition (other than from the Company) by any person,
entity or "group" (within the meaning of Sections 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, but excluding, for this
purpose, the Company or its subsidiaries, or any employee benefit plan
of the Company or its subsidiaries which acquires beneficial ownership
of voting securities of the Company) of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Securities Exchange
Act of 1934) of 25% or more of either the then-outstanding shares of
the common stock of the Company or the combined voting power of the
Company's then-outstanding voting securities entitled to vote
generally in the election of directors; or
(ii) individuals who, as of date hereof, constitute the Board (as
of such date, the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board; provided, however, that any person
becoming a director subsequent to such date whose election, or
nomination for election, was approved by a vote of at least a majority
of the directors then constituting the Incumbent Board (other than an
election or nomination of an individual whose initial assumption of
office is in connection with an actual or threatened election contest
relating to the election of directors of the Company) shall be, for
purposes of this Section 8(b)(ii), considered as though such person
were a member of the Incumbent Board; or
(iii) approval by the stockholders of the Company of a
reorganization, merger, consolidation or share exchange, in each case
with respect to which persons who were the stockholders of the Company
immediately prior to such reorganization, merger, consolidation or
share exchange do not, immediately thereafter, own more than 75% of the
combined voting power entitled to vote generally in the election of
directors of the reorganized, merged, consolidated or other surviving
entity's then-outstanding voting securities, or a liquidation or
dissolution of the Company or the sale of all or substantially all of
the assets of the Company.
9. NO MITIGATION OR OFFSET
The Executive shall not be required to seek other employment or to
reduce any severance benefit payable to him under Sections 7 or 8 hereof, and no
such severance benefit shall be reduced on account of any compensation received
by the Executive from other employment. The Company's obligation to pay
severance benefits under this Agreement shall not be reduced by any amount owed
by the Executive to the Company.
10. TAX WITHHOLDING; METHOD OF PAYMENT
All compensation payable pursuant to this Agreement, shall be subject
to reduction by all applicable withholding, social security and other federal,
state and local taxes and deductions. Any lump-sum payments provided for in
Sections 7 or 8 hereof shall be made in a cash payment, net of any required tax
withholding, no later than the fifth business day following the Executive's date
of termination. Any payment required to be made to the Executive under this
Agreement that is not made in a timely manner shall bear interest until the date
of payment at a rate equal to 100% of the monthly compounded applicable federal
rate, as in effect under Section 1274(d) of the Internal Revenue Code of 1986,
as amended, for the month in which payment was requiredto be made.
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11. RESTRICTIVE COVENANTS
(a) Confidential Information. During the Employment Period and at all
times thereafter, the Executive agrees that he will not divulge to anyone (other
than the Company or any persons employed or designated by the Company) any
knowledge or information of a confidential nature relating to the business of
the Company or any of its subsidiaries or affiliates, including, without
limitation, all types of trade secrets (unless readily ascertainable from public
or published information or trade sources) and confidential commercial
information, and the Executive further agrees not to disclose, publish or make
use of any such knowledge or information without the consent of the Company.
(b) Noncompetition. During the Employment Period and, for any
applicable period that the Executive is entitled to receive severance payments
pursuant to Section 7(c) hereof, the Executive shall not, without the prior
written consent of the Company, engage in the comprehensive rehabilitative and
related healthcare services business on behalf of any person, firm or
corporation within any geographical area in which the Company transacts such
business, and the Executive shall not acquire any financial interest (except for
an equity interest in publicly-held companies that do not exceed 5% of any
outstanding class of equity of that company), in any business that engages in
the comprehensive rehabilitative and related healthcare services business within
any geographical area in which the Company transacts such business.
Notwithstanding the foregoing, upon the occurrence of a Change in Control
(whether before or after the termination of the Employment Period), the
restrictions of this Section 11(b) shall cease to apply to the Executive for any
period following his termination of employment hereunder.
(c) Enforcement. The Company shall be entitled to seek a restraining
order or injunction in any court of competent jurisdiction to prevent any
continuation of any violation of the provisions of this Section 11.
12. SUCCESSORS
This Agreement shall be binding upon and shall inure to the benefit of
the Company, its successors and assigns and any person, firm, corporation or
other entity which succeeds to all or substantially all of the business, assets
or property of the Company. The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business, assets or property of the Company, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, the "Company" shall mean
the Company as hereinbefore defined and any successor to its business, assets or
property as aforesaid which executes and delivers an agreement provided for in
this Section 12 or which otherwise becomes bound by all the terms and provisions
of this Agreement by operation of law.
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This Agreement and all rights of the Executive hereunder shall inure
to the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amounts are due and
payable to him hereunder, all such amounts, unless otherwise provided herein,
shall be paid to the Executive's designated beneficiary or, if there be no such
designated beneficiary, to the legal representatives of the Executive's estate.
13. NO ASSIGNMENT
Except as to withholding of any tax under the laws of the United
States or any other country, state or locality, neither this Agreement nor any
right or interest hereunder nor any amount payable at any time hereunder shall
be subject in any manner to alienation, sale, transfer, assignment, pledge,
attachment, or other legal process, or encumbrance of any kind by the Executive
or the beneficiaries of the Executive or by his legal representatives without
the Company's prior written consent, nor shall there be any right of set-off or
counterclaim in respect of any debts or liabilities of the Executive, his
beneficiaries or legal representatives; provided, however, that nothing in this
Section shall preclude the Executive from designating a beneficiary to receive
any benefit payable on his death, or the legal representatives of the Executive
from assigning any rights hereunder to the person or persons entitled thereto
under his will or, in case of intestacy, to the person or persons entitled
thereto under the laws of intestacy applicable to his estate.
14. ENTIRE AGREEMENT
This Agreement contains the entire understanding of the parties with
respect to the subject matter hereof and, except as specifically provided
herein, cancels and supersedes any and all other agreements between the parties
with respect to the subject matter hereof. Any amendment or modification of this
Agreement shall not be binding unless in writing and signed by the Company and
the Executive.
15. SEVERABILITY
In the event that any provision of this Agreement is determined to be
invalid or unenforceable, the remaining terms and conditions of this Agreement
shall be unaffected and shall remain in full force and effect, and any such
determination of invalidity or unenforceability shall not affect the validity or
enforceability of any other provision of this Agreement.
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16. NOTICES
All notices which may be necessary or proper for either the Company or
the Executive to give to the other shall be in writing and shall be delivered by
hand or sent by registered or certified mail, return receipt requested, or by
air courier, to the Executive at:
Mr. James P. Bennett
3732 Shady Grove Drive
Birmingham, Alabama 35243
with a copy to:
Frederick W. Kanner, Esq.
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019
and shall be sent in the manner described above to the Secretary of the Company
at the Company's principal executives offices at One HealthSouth Parkway,
Birmingham, Alabama 35243, or delivered by hand to the Secretary of the Company,
and shall be deemed given when sent, provided that any notice required under
Section 6 hereof or notice given pursuant to Section 2 hereof shall be deemed
given only when received. Any party may by like notice to the other party change
the address at which he or they are to receive notices hereunder.
17. GOVERNING LAW
This Agreement shall be governed by and enforceable in accordance with
the laws of the State of Alabama, without giving effect to the principles of
conflict of laws thereof.
18. ARBITRATION
Any controversy or claim arising out of, or related to, this
Agreement, or the breach thereof, shall be settled by binding arbitration in the
City of Birmingham, Alabama, in accordance with the rules then obtaining of the
American Arbitration Association, and the arbitrator's decision shall be binding
and final, and judgment upon the award rendered may be entered in any court
having jurisdiction thereof.
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19. LEGAL FEES AND EXPENSES
To induce the Executive to execute this Agreement and to provide the
Executive with reasonable assurance that the purposes of this Agreement will not
be frustrated by the cost of its enforcement should the Company fail to perform
its obligations under this Agreement or should the Company or any subsidiary,
affiliate or stockholder of the Company contest the validity or enforceability
of this Agreement, the Company shall pay and be solely responsible for any
attorneys' fees and expenses and court costs incurred by the Executive as a
result of a claim that the Company has breached or otherwise failed to perform
this Agreement or any provision hereof to be performed by the Company or as a
result of the Company or any subsidiary, affiliate or stockholder of the Company
contesting the validity or enforceability of this Agreement or any provision
hereof to be performed by the Company, in each case regardless of which party,
if any, prevails in the contest.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date first above written.
EXECUTIVE
/s/ James P. Bennett
--------------------------------
James P. Bennett
HEALTHSOUTH CORPORATION
By /s/ Richard M. Scrushy
------------------------------
Richard M. Scrushy
Chairman of the Board and
Chief Executive Officer
10
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of April 1, 1998 (this "Agreement"), between
HEALTHSOUTH Corporation, a Delaware corporation (the "Company"), and P. DARYL
BROWN, a resident of Birmingham, Alabama (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company provides comprehensive rehabilitative, clinical,
diagnostic and surgical healthcare services;
WHEREAS, the Executive serves as President and Chief Operating Officer,
Outpatient Division of the Company and as a member of its Board of Directors;
and
WHEREAS, the Company wishes to assure itself of the continued services of
the Executive so that it will have the continued benefit of his ability,
experience and services, and the Executive is willing to enter into an agreement
to that end, upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of good and valuable consideration the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
covenant and agree as follows:
1. EMPLOYMENT
The Company hereby agrees to continue to employ the Executive, and the
Executive hereby agrees to remain in the employ of the Company, on and subject
to the terms and conditions of this Agreement.
2. TERM
(a) The period of this Agreement (the "Agreement Term") shall commence as
of the date hereof (the "Effective Date") and shall expire on the third
anniversary of the Effective Date. The Agreement Term shall be automatically
extended for an additional year on each anniversary of the Effective Date,
unless written notice of non-extension is provided by either party to the other
party at least 90 days prior to such anniversary.
(b) The period of the Executive's employment under this Agreement (the
"Employment Period") shall commence as of the Effective Date and shall expire at
the end of the Agreement Term, unless sooner terminated in accordance with the
terms and conditions of this Agreement.
3. POSITION, DUTIES AND RESPONSIBILITIES
(a) The Executive shall serve as, and with the title, office and authority
of, President and Chief Operating Officer, Outpatient Division of the Company
and as a member of the Board of Directors of the Company (the "Board") and shall
report directly to the Chief Operating Officer of the Company. The Company shall
use its best efforts to cause the Executive to be nominated and elected (or
renominated and reelected, as the case may be) during the Employment Period as a
director of the Company an its subsidiaries or their successors.
<PAGE>
(b) The Executive shall have all of the powers, authority, duties and
responsibilities usually incident to the positions and offices of President and
Chief Operating Officer, Outpatient Division of the Company.
(c) The Executive agrees to devote substantially all of his business time,
efforts and skills to the performance of his duties and responsibilities under
this Agreement; provided, however, that nothing in this Agreement shall preclude
the Executive from devoting reasonable periods required for (i) participating in
professional, educational, philanthropic, public interest, charitable, social or
community activities, (ii) serving as a director or member of an advisory
committee of any corporation or other entity that the Executive is serving on as
of the Effective Date or any other corporation or entity that is not in direct
competition with the Company or (iii) managing his personal investments,
provided that such activities do not materially interfere with the Executive's
regular performance of his duties and responsibilities hereunder.
4. PLACE OF PERFORMANCE
The Executive shall perform his duties at the principal offices of the
Company located at One HealthSouth Parkway, Birmingham, Alabama, but from time
to time the Executive may be required to travel to other locations in the proper
conduct of his responsibilities under this Agreement.
5. COMPENSATION AND BENEFITS
In consideration of the services rendered by the Executive during the
Employment Period, the Company shall pay or provide the Executive the amounts
and benefits set forth below.
(a) Salary. The Company shall pay the Executive an annual base salary (the
"Base Salary") of at least $370,000. The Executive's Base Salary shall be paid
in arrears in substantially equal installments at monthly or more frequent
intervals, in accordance with the normal payroll practices of the Company. The
Executive's Base Salary shall be reviewed at least annually by the Compensation
Committee of the Board (the "Compensation Committee") for consideration of
appropriate merit increases and, once established, the Base Salary shall not be
decreased during the Employment Period.
(b) Incentive Plans. The Executive shall participate in all annual and
long-term bonus or incentive plans or arrangements in which other senior
executives of the Company of a comparable level are eligible to participate from
time to time, including, without limitation, any management bonus pool
arrangement. The Executive's incentive compensation opportunities under such
plans and arrangements shall be determined from time to time by the Compensation
Committee.
(c) Equity Incentives. The Executive shall be given consideration, at least
annually, by the Compensation Committee, for the grant of options to purchase
shares of the common stock of the Company. In addition, the Executive shall be
entitled to receive awards under any stock option, stock purchase or
equity-based incentive compensation plan or arrangement adopted by the Company
from time to time for which other senior executives of the Company of a
comparable level are eligible to participate. The Executive's awards under such
plans and arrangements shall be determined from time to time by the Compensation
Committee.
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(d) Employee Benefits. The Executive shall be entitled to participate in
all employee benefit plans, programs, practices or arrangements of the Company
in which other senior executives of the Company of a comparable level are
eligible to participate from time to time, including, without limitation, any
qualified or non-qualified pension, profit sharing and savings plans, any death
benefit and disability benefit plans, and any medical, dental, health and
welfare plans. Without limiting the generality of the foregoing, the Company
shall provide the Executive with long-term disability insurance coverage paying
benefits equal to at least 60% of the Executive's Base Salary for the duration
of any permanent and total disability of the Executive.
(e) Fringe Benefits and Perquisites. The Executive shall be entitled to
continuation of all fringe benefits and perquisites provided to the Executive on
the Effective Date, and to all fringe benefits and perquisites which are
generally made available to other senior executives of the Company of a
comparable level from time to time. Without limiting the generality of the
foregoing, the Company shall provide the Executive with the following:
(i) vacation in accordance with Company's policy for other senior
executives of a comparable level;
(ii) provision of a non-accountable automobile allowance of $500 per
month;
(iii) reimbursement of all reasonable travel and other business
expenses and disbursements incurred by the Executive in the performance of
his duties under this Agreement, upon proper accounting in accordance with
the Company's normal practices and procedures for reimbursement of business
expenses.
6. TERMINATION OF EMPLOYMENT
The Employment Period will be terminated upon the happening of any of the
following events:
(a) Resignation. The Executive may voluntarily terminate his employment
hereunder for any reason at any time.
(b) Termination for Cause. The Company may terminate the Executive's
employment hereunder for Cause. For purposes of this Agreement, the Executive
shall be considered to be terminated for "Cause" only if (i) the Executive is
found, by a non-appealable order of a court of competent jurisdiction, to be
guilty of a felony under the laws of the United States or any state thereof,
(ii) the Executive is found, by a non-appealable order of a court of competent
jurisdiction, to have committed a fraud, which has a material adverse effect on
the Company, or (iii) the Executive is found to have committed a deliberate
violation of Company policy. The determinations required by clauses (ii) and
(iii) above are to be made by the Chief Executive Officer of the Company.
(c) Termination other than for Cause. The Company shall have the right to
terminate the Executive's employment hereunder for any reason at any time,
including for any reason that does not constitute Cause, subject to the
consequences of such termination as set forth in this Agreement.
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(d) Disability. The Executive's employment hereunder shall terminate upon
his Disability. For purposes of this Agreement, "Disability" shall mean the
inability of the Executive to perform his duties to the Company on account of
physical or mental illness for a period of six consecutive full months, or for a
period of eight full months during any 12-month period. The Executive's
employment shall terminate in such a case on the last day of the applicable
period; provided, however, in no event shall the Executive be terminated by
reason of Disability unless (i) the Executive is eligible for the long-term
disability benefits set forth in Section 5(d) hereof and (ii) the Executive
receives written notice from the Company, at least 30 days in advance of such
termination, stating its intention to terminate the Executive for reason of
Disability and setting forth in reasonable detail the facts and circumstances
claimed to provide a basis for such termination.
(e) Death. The Executive's employment hereunder shall terminate upon his
death.
7. COMPENSATION UPON TERMINATION OF EMPLOYMENT
In the event the Executive's employment by the Company is terminated during
the Agreement Term, the Executive shall be entitled to the severance benefits
set forth below:
(a) Resignation. In the event the Executive voluntarily terminates his
employment hereunder for any reason, the Company shall pay and provide to the
Executive any Accrued Rights (as defined in paragraph (c) below).
(b) Termination for Cause. In the event the Executive's employment
hereunder is terminated by the Company for Cause, the Company shall pay and
provide to the Executive any Accrued Rights (as defined in paragraph (c) below).
(c) Termination other than for Cause, Disability or Death. In the event the
Executive's employment hereunder is terminated by the Company for any reason
other than for Cause, Disability or death, the Company shall pay the Executive
and provide him with the following:
(i) Accrued Rights. The Company shall pay the Executive a lump-sum
amount equal to the sum of (A) his earned but unpaid Base Salary through
the date of termination, (B) any earned but unpaid bonus for any completed
calendar year, (C) a pro-rata payment of any bonus (based on the
then-current target amount of such bonus) for any partial year or period of
service through the date of termination and (D) any unreimbursed business
expenses or other amounts due to the Executive from the Company as of the
date of termination. In addition, the Company shall provide to the
Executive all payments, rights and benefits due as of the date of
termination under the terms of the Company's employee and fringe benefit
plans, practices, programs and arrangements referred to in Sections 5(d)
and 5(e) hereof (together with the lump-sum payment, the "Accrued Rights").
(ii) Severance Payment. The Company shall provide the Executive with
continued payment of the Executive's Base Salary, as in effect on the date
of termination, for a period of one year following the Executive's
termination, payable at the times and in the manner such Base Salary would
have been paid if the Executive had continued in the employment of the
Company.
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(d) Disability. In the event the Executive's employment hereunder is
terminated by reason of the Executive's Disability, the Company shall pay and
provide to the Executive any Accrued Rights, including all disability insurance
coverage.
(e) Death. In the event the Executive's employment hereunder is terminated
by reason of the Executive's death, the Company shall pay and provide to the
Executive's representative or estate any Accrued Rights, including all life
insurance coverage.
8. CHANGE IN CONTROL
(a) Supplemental Termination Rights. In the event of a voluntary
termination of employment by the Executive pursuant to Section 6(a) hereof that
occurs within six months following a Change in Control, the Company shall pay
the Executive and provide him with the benefits and rights described in Section
7(c) hereof.
(b) Definition. For purposes of this Agreement, a "Change in Control" shall
be deemed to have occurred by reason of:
(i) the acquisition (other than from the Company) by any person,
entity or "group" (within the meaning of Sections 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, but excluding, for this purpose, the
Company or its subsidiaries, or any employee benefit plan of the Company or
its subsidiaries which acquires beneficial ownership of voting securities
of the Company) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act of 1934) of 25% or more of
either the then-outstanding shares of the common stock of the Company or
the combined voting power of the Company's then-outstanding voting
securities entitled to vote generally in the election of directors; or
(ii) individuals who, as of date hereof, constitute the Board (as of
such date, the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any person becoming
a director subsequent to such date whose election, or nomination for
election, was approved by a vote of at least a majority of the directors
then constituting the Incumbent Board (other than an election or nomination
of an individual whose initial assumption of office is in connection with
an actual or threatened election contest relating to the election of
directors of the Company) shall be, for purposes of this Section 8(b)(ii),
considered as though such person were a member of the Incumbent Board; or
(iii) approval by the stockholders of the Company of a reorganization,
merger, consolidation or share exchange, in each case with respect to which
persons who were the stockholders of the Company immediately prior to such
reorganization, merger, consolidation or share exchange do not, immediately
thereafter, own more than 75% of the combined voting power entitled to vote
generally in the election of directors of the reorganized, merged,
consolidated or other surviving entity's then-outstanding voting
securities, or a liquidation or dissolution of the Company or the sale of
all or substantially all of the assets of the Company.
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9. NO MITIGATION OR OFFSET
The Executive shall not be required to seek other employment or to reduce
any severance benefit payable to him under Sections 7 or 8 hereof, and no such
severance benefit shall be reduced on account of any compensation received by
the Executive from other employment. The Company's obligation to pay severance
benefits under this Agreement shall not be reduced by any amount owed by the
Executive to the Company.
10. TAX WITHHOLDING; METHOD OF PAYMENT
All compensation payable pursuant to this Agreement, shall be subject to
reduction by all applicable withholding, social security and other federal,
state and local taxes and deductions. Any lump-sum payments provided for in
Sections 7 or 8 hereof shall be made in a cash payment, net of any required tax
withholding, no later than the fifth business day following the Executive's date
of termination. Any payment required to be made to the Executive under this
Agreement that is not made in a timely manner shall bear interest until the date
of payment at a rate equal to 100% of the monthly compounded applicable federal
rate, as in effect under Section 1274(d) of the Internal Revenue Code of 1986,
as amended, for the month in which payment was required to be made.
11. RESTRICTIVE COVENANTS
(a) Confidential Information
thereafter, the Executive agrees that he will not divulge to anyone (other
than the Company or any persons employed or designated by the Company) any
knowledge or information of a confidential nature relating to the business of
the Company or any of its subsidiaries or affiliates, including, without
limitation, all types of trade secrets (unless readily ascertainable from public
or published information or trade sources) and confidential commercial
information, and the Executive further agrees not to disclose, publish or make
use of any such knowledge or information without the consent of the Company.
(b) Noncompetition. During the Employment Period and, for any applicable
period that the Executive is entitled to receive severance payments pursuant to
Section 7(c) hereof, the Executive shall not, without the prior written consent
of the Company, engage in the comprehensive rehabilitative and related
healthcare services business on behalf of any person, firm or corporation within
any geographical area in which the Company transacts such business, and the
Executive shall not acquire any financial interest (except for an equity
interest in publicly-held companies that do not exceed 5% of any outstanding
class of equity of that company), in any business that engages in the
comprehensive rehabilitative and related healthcare services business within any
geographical area in which the Company transacts such business. Notwithstanding
the foregoing, upon the occurrence of a Change in Control (whether before or
after the termination of the Employment Period), the restrictions of this
Section 11(b) shall cease to apply to the Executive for any period following his
termination of employment hereunder.
(c) Enforcement. The Company shall be entitled to seek a restraining order
or injunction in any court of competent jurisdiction to prevent any continuation
of any violation of the provisions of this Section 11.
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12. SUCCESSORS
This Agreement shall be binding upon and shall inure to the benefit of the
Company, its successors and assigns and any person, firm, corporation or other
entity which succeeds to all or substantially all of the business, assets or
property of the Company. The Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business, assets or property of the Company, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, the "Company" shall mean
the Company as hereinbefore defined and any successor to its business, assets or
property as aforesaid which executes and delivers an agreement provided for in
this Section 12 or which otherwise becomes bound by all the terms and provisions
of this Agreement by operation of law.
This Agreement and all rights of the Executive hereunder shall inure to the
benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amounts are due and
payable to him hereunder, all such amounts, unless otherwise provided herein,
shall be paid to the Executive's designated beneficiary or, if there be no such
designated beneficiary, to the legal representatives of the Executive's estate.
13. NO ASSIGNMENT
Except as to withholding of any tax under the laws of the United States or
any other country, state or locality, neither this Agreement nor any right or
interest hereunder nor any amount payable at any time hereunder shall be subject
in any manner to alienation, sale, transfer, assignment, pledge, attachment, or
other legal process, or encumbrance of any kind by the Executive or the
beneficiaries of the Executive or by his legal representatives without the
Company's prior written consent, nor shall there be any right of set-off or
counterclaim in respect of any debts or liabilities of the Executive, his
beneficiaries or legal representatives; provided, however, that nothing in this
Section shall preclude the Executive from designating a beneficiary to receive
any benefit payable on his death, or the legal representatives of the Executive
from assigning any rights hereunder to the person or persons entitled thereto
under his will or, in case of intestacy, to the person or persons entitled
thereto under the laws of intestacy applicable to his estate.
14. ENTIRE AGREEMENT
This Agreement contains the entire understanding of the parties with
respect to the subject matter hereof and, except as specifically provided
herein, cancels and supersedes any and all other agreements between the parties
with respect to the subject matter hereof. Any amendment or modification of this
Agreement shall not be binding unless in writing and signed by the Company and
the Executive.
15. SEVERABILITY
In the event that any provision of this Agreement is determined to be
invalid or unenforceable, the remaining terms and conditions of this Agreement
shall be unaffected and shall
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remain in full force and effect, and any such determination of invalidity or
unenforceability shall not affect the validity or enforceability of any other
provision of this Agreement.
16. NOTICES
All notices which may be necessary or proper for either the Company or the
Executive to give to the other shall be in writing and shall be delivered by
hand or sent by registered or certified mail, return receipt requested, or by
air courier, to the Executive at:
Mr. P. Daryl Brown
2604 Caldwell Mill Lane
Birmingham, Alabama 35243
with a copy to:
Frederick W. Kanner, Esq.
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019
and shall be sent in the manner described above to the Secretary of the Company
at the Company's principal executives offices at One HealthSouth Parkway,
Birmingham, Alabama 35243, or delivered by hand to the Secretary of the Company,
and shall be deemed given when sent, provided that any notice required under
Section 6 hereof or notice given pursuant to Section 2 hereof shall be deemed
given only when received. Any party may by like notice to the other party change
the address at which he or they are to receive notices hereunder.
17. GOVERNING LAW
This Agreement shall be governed by and enforceable in accordance with the
laws of the State of Alabama, without giving effect to the principles of
conflict of laws thereof.
18. ARBITRATION
Any controversy or claim arising out of, or related to, this Agreement, or
the breach thereof, shall be settled by binding arbitration in the City of
Birmingham, Alabama, in accordance with the rules then obtaining of the American
Arbitration Association, and the arbitrator's decision shall be binding and
final, and judgment upon the award rendered may be entered in any court having
jurisdiction thereof.
19. LEGAL FEES AND EXPENSES
To induce the Executive to execute this Agreement and to provide the
Executive with reasonable assurance that the purposes of this Agreement will not
be frustrated by the cost of its
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enforcement should the Company fail to perform its obligations under this
Agreement or should the Company or any subsidiary, affiliate or stockholder of
the Company contest the validity or enforceability of this Agreement, the
Company shall pay and be solely responsible for any attorneys' fees and expenses
and court costs incurred by the Executive as a result of a claim that the
Company has breached or otherwise failed to perform this Agreement or any
provision hereof to be performed by the Company or as a result of the Company or
any subsidiary, affiliate or stockholder of the Company contesting the validity
or enforceability of this Agreement or any provision hereof to be performed by
the Company, in each case regardless of which party, if any, prevails in the
contest.
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IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date first above written.
EXECUTIVE
/s/ P. Daryl Brown
--------------------------------
P. Daryl Brown
HEALTHSOUTH CORPORATION
By /s/ Richard M. Scrushy
------------------------------
Richard M. Scrushy
Chairman of the Board and
Chief Executive Officer
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EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of April 1, 1998 (this "Agreement"),
between HEALTHSOUTH Corporation, a Delaware corporation (the "Company"), and
THOMAS W. CARMAN, a resident of Birmingham, Alabama (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company provides comprehensive rehabilitative, clinical,
diagnostic and surgical healthcare services;
WHEREAS, the Executive serves as Executive Vice President -
Development of the Company; and
WHEREAS, the Company wishes to assure itself of the continued services
of the Executive so that it will have the continued benefit of his ability,
experience and services, and the Executive is willing to enter into an agreement
to that end, upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of good and valuable consideration
the receipt and sufficiency of which are hereby acknowledged, the parties hereby
covenant and agree as follows:
1. EMPLOYMENT
The Company hereby agrees to continue to employ the Executive, and the
Executive hereby agrees to remain in the employ of the Company, on and subject
to the terms and conditions of this Agreement.
2. TERM
(a) The period of this Agreement (the "Agreement Term") shall commence
as of the date hereof (the "Effective Date") and shall expire on the third
anniversary of the Effective Date. The Agreement Term shall be automatically
extended for an additional year on each anniversary of the Effective Date,
unless written notice of non-extension is provided by either party to the other
party at least 90 days prior to such anniversary.
(b) The period of the Executive's employment under this Agreement (the
"Employment Period") shall commence as of the Effective Date and shall expire at
the end of the Agreement Term, unless sooner terminated in accordance with the
terms and conditions of this Agreement.
<PAGE>
3. POSITION, DUTIES AND RESPONSIBILITIES
(a) The Executive shall serve as, and with the title, office and
authority of, Executive Vice President - Development of the Company and shall
report directly to the Chief Executive Officer of the Company or such other
person designated from time to time by the Chief Executive Officer of the
Company.
(b) The Executive shall have all of the powers, authority, duties and
responsibilities usually incident to the position and office of Executive Vice
President - Development of the Company.
(c) The Executive agrees to devote substantially all of his business
time, efforts and skills to the performance of his duties and responsibilities
under this Agreement; provided, however, that nothing in this Agreement shall
preclude the Executive from devoting reasonable periods required for (i)
participating in professional, educational, philanthropic, public interest,
charitable, social or community activities, (ii) serving as a director or member
of an advisory committee of any corporation or other entity that the Executive
is serving on as of the Effective Date or any other corporation or entity that
is not in direct competition with the Company or (iii) managing his personal
investments, provided that such activities do not materially interfere with the
Executive's regular performance of his duties and responsibilities hereunder.
4. PLACE OF PERFORMANCE
The Executive shall perform his duties at the principal offices of the
Company located at One HealthSouth Parkway, Birmingham, Alabama, but from time
to time the Executive may be required to travel to other locations in the proper
conduct of his responsibilities under this Agreement.
5. COMPENSATION AND BENEFITS
In consideration of the services rendered by the Executive during the
Employment Period, the Company shall pay or provide the Executive the amounts
and benefits set forth below.
(a) Salary. The Company shall pay the Executive an annual base salary
(the "Base Salary") of at least $325,000. The Executive's Base Salary shall be
paid in arrears in substantially equal installments at monthly or more frequent
intervals, in accordance with the normal payroll practices of the Company. The
Executive's Base Salary shall be reviewed at least annually by the Compensation
Committee of the board of directors of the Company (the "Compensation
Committee") for consideration of appropriate merit increases and, once
established, the Base Salary shall not be decreased during the Employment
Period.
(b) Incentive Plans. The Executive shall participate in all annual and
long-term bonus or incentive plans or arrangements in which other senior
executives of the Company of a comparable level are eligible to participate from
time to time, including, without limitation, any
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management bonus pool arrangement. The Executive's incentive compensation
opportunities under such plans and arrangements shall be determined from time to
time by the Compensation Committee.
(c) Equity Incentives. The Executive shall be given consideration, at
least annually, by the Compensation Committee, for the grant of options to
purchase shares of the common stock of the Company. In addition, the Executive
shall be entitled to receive awards under any stock option, stock purchase or
equity-based incentive compensation plan or arrangement adopted by the Company
from time to time for which other senior executives of the Company of a
comparable level are eligible to participate. The Executive's awards under such
plans and arrangements shall be determined from time to time by the Compensation
Committee.
(d) Employee Benefits. The Executive shall be entitled to participate
in all employee benefit plans, programs, practices or arrangements of the
Company in which other senior executives of the Company of a comparable level
are eligible to participate from time to time, including, without limitation,
any qualified or non-qualified pension, profit sharing and savings plans, any
death benefit and disability benefit plans, and any medical, dental, health and
welfare plans. Without limiting the generality of the foregoing, the Company
shall provide the Executive with long-term disability insurance coverage paying
benefits equal to at least 60% of the Executive's Base Salary for the duration
of any permanent and total disability of the Executive.
(e) Fringe Benefits and Perquisites. The Executive shall be entitled
to continuation of all fringe benefits and perquisites provided to the Executive
on the Effective Date, and to all fringe benefits and perquisites which are
generally made available to other senior executives of the Company of a
comparable level from time to time. Without limiting the generality of the
foregoing, the Company shall provide the Executive with the following:
(i) vacation in accordance with Company's policy for other senior
executives of a comparable level;
(ii) provision of a non-accountable automobile allowance of $500
per month; (iii) reimbursement of all reasonable travel and other
business expenses and disbursements incurred by the Executive in the
performance of his duties under this Agreement, upon proper accounting
in accordance with the Company's normal practices and procedures for
reimbursement of business expenses.
6. TERMINATION OF EMPLOYMENT
The Employment Period will be terminated upon the happening of any of
the following events:
(a) Resignation. The Executive may voluntarily terminate his
employment hereunder for any reason at any time.
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(b) Termination for Cause. The Company may terminate the Executive's
employment hereunder for Cause. For purposes of this Agreement, the Executive
shall be considered to be terminated for "Cause" only if (i) the Executive is
found, by a non-appealable order of a court of competent jurisdiction, to be
guilty of a felony under the laws of the United States or any state thereof,
(ii) the Executive is found, by a non-appealable order of a court of competent
jurisdiction, to have committed a fraud, which has a material adverse effect on
the Company, or (iii) the Executive is found to have committed a deliberate
violation of Company policy. The determinations required by clauses (ii) and
(iii) above are to be made by the Chief Executive Officer of the Company.
(c) Termination other than for Cause. The Company shall have the right
to terminate the Executive's employment hereunder for any reason at any time,
including for any reason that does not constitute Cause, subject to the
consequences of such termination as set forth in this Agreement.
(d) Disability. The Executive's employment hereunder shall terminate
upon his Disability. For purposes of this Agreement, "Disability" shall mean the
inability of the Executive to perform his duties to the Company on account of
physical or mental illness for a period of six consecutive full months, or for a
period of eight full months during any 12-month period. The Executive's
employment shall terminate in such a case on the last day of the applicable
period; provided, however, in no event shall the Executive be terminated by
reason of Disability unless (i) the Executive is eligible for the long-term
disability benefits set forth in Section 5(d) hereof and (ii) the Executive
receives written notice from the Company, at least 30 days in advance of such
termination, stating its intention to terminate the Executive for reason of
Disability and setting forth in reasonable detail the facts and circumstances
claimed to provide a basis for such termination.
(e) Death. The Executive's employment hereunder shall terminate upon
his death.
7. COMPENSATION UPON TERMINATION OF EMPLOYMENT
In the event the Executive's employment by the Company is terminated
during the Agreement Term, the Executive shall be entitled to the severance
benefits set forth below:
(a) Resignation. In the event the Executive voluntarily terminates his
employment hereunder for any reason, the Company shall pay and provide to the
Executive any Accrued Rights (as defined in paragraph (c) below).
(b) Termination for Cause. In the event the Executive's employment
hereunder is terminated by the Company for Cause, the Company shall pay and
provide to the Executive any Accrued Rights (as defined in paragraph (c) below).
(c) Termination other than for Cause, Disability or Death. In the
event the Executive's employment hereunder is terminated by the Company for any
reason other than for Cause, Disability or death, the Company shall pay the
Executive and provide him with the
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following:
(i) Accrued Rights. The Company shall pay the Executive a lump-sum
amount equal to the sum of (A) his earned but unpaid Base Salary
through the date of termination, (B) any earned but unpaid bonus for
any completed calendar year, (C) a pro-rata payment of any bonus (based
on the then-current target amount of such bonus) for any partial year
or period of service through the date of termination and (D) any
unreimbursed business expenses or other amounts due to the Executive
from the Company as of the date of termination. In addition, the
Company shall provide to the Executive all payments, rights and
benefits due as of the date of termination under the terms of the
Company's employee and fringe benefit plans, practices, programs and
arrangements referred to in Sections 5(d) and 5(e) hereof (together
with the lump-sum payment, the "Accrued Rights").
(ii) Severance Payment. The Company shall provide the Executive
with continued payment of the Executive's Base Salary, as in effect on
the date of termination, for a period of one year following the
Executive's termination, payable at the times and in the manner such
Base Salary would have been paid if the Executive had continued in the
employment of the Company.
(d) Disability. In the event the Executive's employment hereunder is
terminated by reason of the Executive's Disability, the Company shall pay and
provide to the Executive any Accrued Rights, including all disability insurance
coverage.
(e) Death. In the event the Executive's employment hereunder is
terminated by reason of the Executive's death, the Company shall pay and provide
to the Executive's representative or estate any Accrued Rights, including all
life insurance coverage.
8. CHANGE IN CONTROL
(a) Supplemental Termination Rights. In the event of a voluntary
termination of employment by the Executive pursuant to Section 6(a) hereof that
occurs within six months following a Change in Control, the Company shall pay
the Executive and provide him with the benefits and rights described in Section
7(c) hereof.
(b) Definition. For purposes of this Agreement, a "Change in Control"
shall be deemed to have occurred by reason of:
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(i) the acquisition (other than from the Company) by any person,
entity or "group" (within the meaning of Sections 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, but excluding, for this
purpose, the Company or its subsidiaries, or any employee benefit plan
of the Company or its subsidiaries which acquires beneficial ownership
of voting securities of the Company) of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Securities Exchange Act
of 1934) of 25% or more of either the then-outstanding shares of the
common stock of the Company or the combined voting power of the
Company's then-outstanding voting securities entitled to vote generally
in the election of directors; or
(ii) individuals who, as of date hereof, constitute the board of
directors of the Company (as of such date, the "Incumbent Board") cease
for any reason to constitute at least a majority of the board of
directors of the Company; provided, however, that any person becoming a
director subsequent to such date whose election, or nomination for
election, was approved by a vote of at least a majority of the
directors then constituting the Incumbent Board (other than an election
or nomination of an individual whose initial assumption of office is in
connection with an actual or threatened election contest relating to
the election of directors of the Company) shall be, for purposes of
this Section 8(b)(ii), considered as though such person were a member
of the Incumbent Board; or
(iii) approval by the stockholders of the Company of a
reorganization, merger, consolidation or share exchange, in each case
with respect to which persons who were the stockholders of the Company
immediately prior to such reorganization, merger, consolidation or
share exchange do not, immediately thereafter, own more than 75% of the
combined voting power entitled to vote generally in the election of
directors of the reorganized, merged, consolidated or other surviving
entity's then-outstanding voting securities, or a liquidation or
dissolution of the Company or the sale of all or substantially all of
the assets of the Company.
9. NO MITIGATION OR OFFSET
The Executive shall not be required to seek other employment or to
reduce any severance benefit payable to him under Sections 7 or 8 hereof, and no
such severance benefit shall be reduced on account of any compensation received
by the Executive from other employment. The Company's obligation to pay
severance benefits under this Agreement shall not be reduced by any amount owed
by the Executive to the Company.
10. TAX WITHHOLDING; METHOD OF PAYMENT
All compensation payable pursuant to this Agreement, shall be subject
to reduction by all applicable withholding, social security and other federal,
state and local taxes and deductions. Any lump-sum payments provided for in
Sections 7 or 8 hereof shall be made in a cash payment, net of any required tax
withholding, no later than the fifth business day following the Executive's date
of termination. Any payment required to be made to the Executive under this
Agreement that is not made in a timely manner shall bear interest until the date
of payment at a rate equal to
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100% of the monthly compounded applicable federal rate, as in effect under
Section 1274(d) of the Internal Revenue Code of 1986, as amended, for the month
in which payment was required to be made.
11. RESTRICTIVE COVENANTS
(a) Confidential Information. During the Employment Period and at all
times thereafter, the Executive agrees that he will not divulge to anyone (other
than the Company or any persons employed or designated by the Company) any
knowledge or information of a confidential nature relating to the business of
the Company or any of its subsidiaries or affiliates, including, without
limitation, all types of trade secrets (unless readily ascertainable from public
or published information or trade sources) and confidential commercial
information, and the Executive further agrees not to disclose, publish or make
use of any such knowledge or information without the consent of the Company.
(b) Noncompetition. During the Employment Period and, for any
applicable period that the Executive is entitled to receive severance payments
pursuant to Section 7(c) hereof, the Executive shall not, without the prior
written consent of the Company, engage in the comprehensive rehabilitative and
related healthcare services business on behalf of any person, firm or
corporation within any geographical area in which the Company transacts such
business, and the Executive shall not acquire any financial interest (except for
an equity interest in publicly-held companies that do not exceed 5% of any
outstanding class of equity of that company), in any business that engages in
the comprehensive rehabilitative and related healthcare services business within
any geographical area in which the Company transacts such business.
Notwithstanding the foregoing, upon the occurrence of a Change in Control
(whether before or after the termination of the Employment Period), the
restrictions of this Section 11(b) shall cease to apply to the Executive for any
period following his termination of employment hereunder.
(c) Enforcement. The Company shall be entitled to seek a restraining
order or injunction in any court of competent jurisdiction to prevent any
continuation of any violation of the provisions of this Section 11.
12. SUCCESSORS
This Agreement shall be binding upon and shall inure to the benefit of
the Company, its successors and assigns and any person, firm, corporation or
other entity which succeeds to all or substantially all of the business, assets
or property of the Company. The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business, assets or property of the Company, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, the "Company" shall mean
the Company as hereinbefore defined and any successor to its business, assets or
property as aforesaid which executes and delivers an agreement provided for in
this Section 12 or which otherwise becomes bound by all the terms and provisions
of this Agreement by operation of law.
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This Agreement and all rights of the Executive hereunder shall inure
to the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amounts are due and
payable to him hereunder, all such amounts, unless otherwise provided herein,
shall be paid to the Executive's designated beneficiary or, if there be no such
designated beneficiary, to the legal representatives of the Executive's estate.
13. NO ASSIGNMENT
Except as to withholding of any tax under the laws of the United
States or any other country, state or locality, neither this Agreement nor any
right or interest hereunder nor any amount payable at any time hereunder shall
be subject in any manner to alienation, sale, transfer, assignment, pledge,
attachment, or other legal process, or encumbrance of any kind by the Executive
or the beneficiaries of the Executive or by his legal representatives without
the Company's prior written consent, nor shall there be any right of set-off or
counterclaim in respect of any debts or liabilities of the Executive, his
beneficiaries or legal representatives; provided, however, that nothing in this
Section shall preclude the Executive from designating a beneficiary to receive
any benefit payable on his death, or the legal representatives of the Executive
from assigning any rights hereunder to the person or persons entitled thereto
under his will or, in case of intestacy, to the person or persons entitled
thereto under the laws of intestacy applicable to his estate.
14. ENTIRE AGREEMENT
This Agreement contains the entire understanding of the parties with
respect to the subject matter hereof and, except as specifically provided
herein, cancels and supersedes any and all other agreements between the parties
with respect to the subject matter hereof. Any amendment or modification of this
Agreement shall not be binding unless in writing and signed by the Company and
the Executive.
15. SEVERABILITY
In the event that any provision of this Agreement is determined to be
invalid or unenforceable, the remaining terms and conditions of this Agreement
shall be unaffected and shall remain in full force and effect, and any such
determination of invalidity or unenforceability shall not affect the validity or
enforceability of any other provision of this Agreement.
16. NOTICES
All notices which may be necessary or proper for either the Company or
the Executive to give to the other shall be in writing and shall be delivered by
hand or sent by registered or certified mail, return receipt requested, or by
air courier, to the Executive at:
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Mr. Thomas W. Carman
3667 West Altacrest
Birmingham Alabama 35243
with a copy to:
Frederick W. Kanner, Esq.
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019
and shall be sent in the manner described above to the Secretary of the Company
at the Company's principal executives offices at One HealthSouth Parkway,
Birmingham, Alabama 35243, or delivered by hand to the Secretary of the Company,
and shall be deemed given when sent, provided that any notice required under
Section 6 hereof or notice given pursuant to Section 2 hereof shall be deemed
given only when received. Any party may by like notice to the other party change
the address at which he or they are to receive notices hereunder.
17. GOVERNING LAW
This Agreement shall be governed by and enforceable in accordance with
the laws of the State of Alabama, without giving effect to the principles of
conflict of laws thereof.
18. ARBITRATION
Any controversy or claim arising out of, or related to, this
Agreement, or the breach thereof, shall be settled by binding arbitration in the
City of Birmingham, Alabama, in accordance with the rules then obtaining of the
American Arbitration Association, and the arbitrator's decision shall be binding
and final, and judgment upon the award rendered may be entered in any court
having jurisdiction thereof.
19. LEGAL FEES AND EXPENSES
To induce the Executive to execute this Agreement and to provide the
Executive with reasonable assurance that the purposes of this Agreement will not
be frustrated by the cost of its enforcement should the Company fail to perform
its obligations under this Agreement or should the Company or any subsidiary,
affiliate or stockholder of the Company contest the validity or enforceability
of this Agreement, the Company shall pay and be solely responsible for any
attorneys' fees and expenses and court costs incurred by the Executive as a
result of a claim that the Company has breached or otherwise failed to perform
this Agreement or any provision hereof to be performed by the Company or as a
result of the Company or any subsidiary, affiliate or stockholder of the Company
contesting the validity or enforceability of this Agreement or any provision
hereof to be performed by the Company, in each case regardless of which party,
if any, prevails in the contest.
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IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date first above written.
EXECUTIVE
/s/ Thomas W. Carman
--------------------------------
Thomas W. Carman
HEALTHSOUTH CORPORATION
By /s/ Richard M. Scrushy
------------------------------
Richard M. Scrushy
Chairman of the Board and
Chief Executive Officer
10
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of April 1, 1998 (this "Agreement"),
between HEALTHSOUTH Corporation, a Delaware corporation (the "Company"), and
MICHAEL D. MARTIN, a resident of Birmingham, Alabama (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company provides comprehensive rehabilitative, clinical,
diagnostic and surgical healthcare services;
WHEREAS, the Executive serves as Executive Vice President, Chief
Financial Officer and Treasurer of the Company; and
WHEREAS, the Company wishes to assure itself of the continued services
of the Executive so that it will have the continued benefit of his ability,
experience and services, and the Executive is willing to enter into an agreement
to that end, upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of good and valuable consideration
the receipt and sufficiency of which are hereby acknowledged, the parties hereby
covenant and agree as follows:
1. EMPLOYMENT
The Company hereby agrees to continue to employ the Executive, and the
Executive hereby agrees to remain in the employ of the Company, on and subject
to the terms and conditions of this Agreement.
2. TERM
(a) The period of this Agreement (the "Agreement Term") shall
commence as of the date hereof (the "Effective Date") and shall expire on the
third anniversary of the Effective Date. The Agreement Term shall be
automatically extended for an additional year on each anniversary of the
Effective Date, unless written notice of non-extension is provided by either
party to the other party at least 90 days prior to such anniversary.
(b) The period of the Executive's employment under this Agreement
(the "Employment Period") shall commence as of the Effective Date and shall
expire at the end of the Agreement Term, unless sooner terminated in accordance
with the terms and conditions of this Agreement.
3. POSITION, DUTIES AND RESPONSIBILITIES
(a) The Executive shall serve as, and with the title, office and
authority of, Executive Vice President, Chief Financial Officer and Treasurer of
the Company and shall report directly to the Chief Executive Officer of the
Company or such other person designated from time to time by the Chief Executive
Officer of the Company. The Executive shall also hold similar titles, offices
and authority with the Company's subsidiaries and/or their successors.
<PAGE>
(b) The Executive shall have all of the powers, authority, duties
and responsibilities usually incident to the positions and offices of Executive
Vice President, Chief Financial Officer and Treasurer of the Company.
(c) The Executive agrees to devote substantially all of his
business time, efforts and skills to the performance of his duties and
responsibilities under this Agreement; provided, however, that nothing in this
Agreement shall preclude the Executive from devoting reasonable periods required
for (i) participating in professional, educational, philanthropic, public
interest, charitable, social or community activities, (ii) serving as a director
or member of an advisory committee of any corporation or other entity that the
Executive is serving on as of the Effective Date or any other corporation or
entity that is not in direct competition with the Company or (iii) managing his
personal investments, provided that such activities do not materially interfere
with the Executive's regular performance of his duties and responsibilities
hereunder.
4. PLACE OF PERFORMANCE
The Executive shall perform his duties at the principal offices of the
Company located at One HealthSouth Parkway, Birmingham, Alabama, but from time
to time the Executive may be required to travel to other locations in the proper
conduct of his responsibilities under this Agreement.
5. COMPENSATION AND BENEFITS
In consideration of the services rendered by the Executive during the
Employment Period, the Company shall pay or provide the Executive the amounts
and benefits set forth below.
(a) Salary. The Company shall pay the Executive an annual base
salary (the "Base Salary") of at least $400,000. The Executive's Base Salary
shall be paid in arrears in substantially equal installments at monthly or more
frequent intervals, in accordance with the normal payroll practices of the
Company. The Executive's Base Salary shall be reviewed at least annually by the
Compensation Committee of the board of directors of the Company (the
"Compensation Committee") for consideration of appropriate merit increases and,
once established, the Base Salary shall not be decreased during the Employment
Period.
(b) Incentive Plans. The Executive shall participate in all
annual and long-term bonus or incentive plans or arrangements in which other
senior executives of the Company of a comparable level are eligible to
participate from time to time, including, without limitation, any management
bonus pool arrangement. The Executive's incentive compensation opportunities
under such plans and arrangements shall be determined from time to time by the
Compensation Committee.
(c) Equity Incentives. The Executive shall be given
consideration, at least annually, by the Compensation Committee for the grant of
options to purchase shares of the common stock of the Company. In addition, the
Executive shall be entitled to receive awards under any stock option, stock
purchase or equity-based incentive compensation plan or arrangement adopted by
the Company from time to time for which other senior executives of the Company
of a comparable level are eligible to participate. The Executive's awards under
such plans and arrangements shall be determined from time to time by the
Compensation Committee.
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<PAGE>
(d) Employee Benefits. The Executive shall be entitled to
participate in all employee benefit plans, programs, practices or arrangements
of the Company in which other senior executives of the Company of a comparable
level are eligible to participate from time to time, including, without
limitation, any qualified or non-qualified pension, profit sharing and savings
plans, any death benefit and disability benefit plans, and any medical, dental,
health and welfare plans. Without limiting the generality of the foregoing, the
Company shall provide the Executive with long-term disability insurance coverage
paying benefits equal to at least 60% of the Executive's Base Salary for the
duration of any permanent and total disability of the Executive.
(e) Fringe Benefits and Perquisites. The Executive shall be
entitled to continuation of all fringe benefits and perquisites provided to the
Executive on the Effective Date, and to all fringe benefits and perquisites
which are generally made available to other senior executives of the Company of
a comparable level from time to time. Without limiting the generality of the
foregoing, the Company shall provide the Executive with the following:
(i) provision of executive offices and secretarial staff;
(ii) vacation in accordance with Company's policy for other
senior executives of a comparable level;
(iii) provision of a non-accountable automobile allowance of
$500 per month;
(iv) reimbursement of all reasonable travel and other
business expenses and disbursements incurred by the Executive in
the performance of his duties under this Agreement, upon proper
accounting in accordance with the Company's normal practices and
procedures for reimbursement of business expenses.
6. TERMINATION OF EMPLOYMENT
The Employment Period will be terminated upon the happening of any of
the following events:
(a) Resignation. The Executive may voluntarily terminate his
employment hereunder for any reason at any time.
(b) Termination for Cause. The Company may terminate the
Executive's employment hereunder for Cause. For purposes of this Agreement, the
Executive shall be considered to be terminated for "Cause" only if (i) the
Executive is found, by a non-appealable order of a court of competent
jurisdiction, to be guilty of a felony under the laws of the United States or
any state thereof, (ii) the Executive is found, by a non-appealable order of a
court of competent jurisdiction, to have committed a fraud, which has a material
adverse effect on the Company, or (iii) the Executive is found to have committed
a deliberate violation of Company policy. However, in no event shall the
Executive's employment be considered to have been terminated for "Cause" unless
and until the Executive receives a copy of a resolution duly adopted by the
affirmative vote of a majority of the board of directors of the Company (the
"Board") at a meeting called and held for such purpose (after reasonable written
notice is provided to the Executive setting forth in reasonable detail the facts
and circumstances claimed
3
<PAGE>
to provide a basis of termination for Cause and the Executive is given an
opportunity, together with counsel, to be heard before the Board) finding that
the Executive is guilty of acts or omissions constituting Cause.
(c) Termination other than for Cause. The Company shall have the
right to terminate the Executive's employment hereunder for any reason at any
time, including for any reason that does not constitute Cause, subject to the
consequences of such termination as set forth in this Agreement.
(d) Disability. The Executive's employment hereunder shall
terminate upon his Disability. For purposes of this Agreement, "Disability"
shall mean the inability of the Executive to perform his duties to the Company
on account of physical or mental illness for a period of six consecutive full
months, or for a period of eight full months during any 12-month period. The
Executive's employment shall terminate in such a case on the last day of the
applicable period; provided, however, in no event shall the Executive be
terminated by reason of Disability unless (i) the Executive is eligible for the
long-term disability benefits set forth in Section 5(d) hereof and (ii) the
Executive receives written notice from the Company, at least 30 days in advance
of such termination, stating its intention to terminate the Executive for reason
of Disability and setting forth in reasonable detail the facts and circumstances
claimed to provide a basis for such termination.
(e) Death. The Executive's employment hereunder shall terminate
upon his death.
7. COMPENSATION UPON TERMINATION OF EMPLOYMENT
In the event the Executive's employment by the Company is terminated
during the Agreement Term, the Executive shall be entitled to the severance
benefits set forth below:
(a) Resignation. In the event the Executive voluntarily
terminates his employment hereunder for any reason, the Company shall pay and
provide to the Executive any Accrued Rights (as defined in paragraph (c) below).
(b) Termination for Cause. In the event the Executive's
employment hereunder is terminated by the Company for Cause, the Company shall
pay and provide to the Executive any Accrued Rights (as defined in paragraph (c)
below).
(c) Termination other than for Cause, Disability or Death. In the
event the Executive's employment hereunder is terminated by the Company for any
reason other than for Cause, Disability or death, the Company shall pay the
Executive and provide him with the following:
(i) Accrued Rights. The Company shall pay the Executive a
lump-sum amount equal to the sum of (A) his earned but unpaid
Base Salary through the date of termination, (B) any earned but
unpaid bonus for any completed calendar year, (C) a pro-rata
payment of any bonus (based on the then-current target amount of
such bonus) for any partial year or period of service through the
date of termination and (D) any unreimbursed business expenses or
other amounts due to the Executive from the Company as of the
date of
4
<PAGE>
termination. In addition, the Company shall provide to the
Executive all payments, rights and benefits due as of the date of
termination under the terms of the Company's employee and fringe
benefit plans, practices, programs and arrangements referred to
in Sections 5(d) and 5(e) hereof (together with the lump-sum
payment, the "Accrued Rights").
(ii) Severance Payment. The Company shall provide the
Executive with continued payment of the Executive's Base Salary,
as in effect on the date of termination, for a period of two
years following the Executive's termination, payable at the times
and in the manner such Base Salary would have been paid if the
Executive had continued in the employment of the Company.
(iii) Equity Rights. All stock options and other
equity-based rights held by the Executive at the date of
termination shall become immediately and fully vested and
exercisable, and the Executive shall retain the right to exercise
all outstanding stock options for a period of five years
following termination of employment or to the end of the original
term of such options, if earlier. The Company shall forthwith
take all necessary steps to amend any relevant stock option plans
of the Company and stock option agreements to the extent
necessary to allow for the foregoing vesting and term of
exercise.
(d) Disability. In the event the Executive's employment hereunder
is terminated by reason of the Executive's Disability, the Company shall pay and
provide to the Executive any Accrued Rights, including all disability insurance
coverage.
(e) Death. In the event the Executive's employment hereunder is
terminated by reason of the Executive's death, the Company shall pay and provide
to the Executive's representative or estate any Accrued Rights, including all
life insurance coverage.
8. CHANGE IN CONTROL
(a) Supplemental Termination Rights. In the event of a voluntary
termination of employment by the Executive pursuant to Section 6(a) hereof that
occurs within six months following a Change in Control, the Company shall pay
the Executive and provide him with the benefits and rights described in Section
7(c) hereof.
(b) Definition. For purposes of this Agreement, a "Change in
Control" shall be deemed to have occurred by reason of:
(i) the acquisition (other than from the Company) by any
person, entity or "group" (within the meaning of Sections
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, but
excluding, for this purpose, the Company or its subsidiaries, or
any employee benefit plan of the Company or its subsidiaries
which acquires beneficial ownership of voting securities of the
Company) of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Securities Exchange Act of 1934) of
25% or more of either the then-outstanding shares of the common
stock of the Company or the combined voting power of the
Company's then-outstanding voting securities entitled to vote
generally in the election of directors; or
5
<PAGE>
(ii) individuals who, as of date hereof, constitute the
Board (as of such date, the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board;
provided, however, that any person becoming a director
subsequent to such date whose election, or nomination for
election, was approved by a vote of at least a majority of the
directors then constituting the Incumbent Board (other than an
election or nomination of an individual whose initial
assumption of office is in connection with an actual or
threatened election contest relating to the election of
directors of the Company) shall be, for purposes of this
Section 8(b)(ii), considered as though such person were a
member of the Incumbent Board; or
(iii) approval by the stockholders of the Company of a
reorganization, merger, consolidation or share exchange, in
each case with respect to which persons who were the
stockholders of the Company immediately prior to such
reorganization, merger, consolidation or share exchange do
not, immediately thereafter, own more than 75% of the combined
voting power entitled to vote generally in the election of
directors of the reorganized, merged, consolidated or other
surviving entity's then-outstanding voting securities, or a
liquidation or dissolution of the Company or the sale of all
or substantially all of the assets of the Company.
9. NO MITIGATION OR OFFSET
The Executive shall not be required to seek other employment or to
reduce any severance benefit payable to him under Sections 7 or 8 hereof, and no
such severance benefit shall be reduced on account of any compensation received
by the Executive from other employment. The Company's obligation to pay
severance benefits under this Agreement shall not be reduced by any amount owed
by the Executive to the Company.
10. TAX WITHHOLDING; METHOD OF PAYMENT
All compensation payable pursuant to this Agreement, shall be subject
to reduction by all applicable withholding, social security and other federal,
state and local taxes and deductions. Any lump-sum payments provided for in
Sections 7 or 8 hereof shall be made in a cash payment, net of any required tax
withholding, no later than the fifth business day following the Executive's date
of termination. Any payment required to be made to the Executive under this
Agreement that is not made in a timely manner shall bear interest until the date
of payment at a rate equal to 100% of the monthly compounded applicable federal
rate, as in effect under Section 1274(d) of the Internal Revenue Code of 1986,
as amended, for the month in which payment was required to be made.
11. RESTRICTIVE COVENANTS
(a) Confidential Information. During the Employment Period and at
all times thereafter, the Executive agrees that he will not divulge to anyone
(other than the Company or any persons employed or designated by the Company)
any knowledge or information of a
6
<PAGE>
confidential nature relating to the business of the Company or any of its
subsidiaries or affiliates, including, without limitation, all types of trade
secrets (unless readily ascertainable from public or published information or
trade sources) and confidential commercial information, and the Executive
further agrees not to disclose, publish or make use of any such knowledge or
information without the consent of the Company.
(b) Noncompetition. During the Employment Period and, for any
applicable period that the Executive is entitled to receive severance payments
pursuant to Section 7(c) hereof, the Executive shall not, without the prior
written consent of the Company, engage in the comprehensive rehabilitative and
related healthcare services business on behalf of any person, firm or
corporation within any geographical area in which the Company transacts such
business, and the Executive shall not acquire any financial interest (except for
an equity interest in publicly-held companies that do not exceed 5% of any
outstanding class of equity of that company), in any business that engages in
the comprehensive rehabilitative and related healthcare services business within
any geographical area in which the Company transacts such business.
Notwithstanding the foregoing, upon the occurrence of a Change in Control
(whether before or after the termination of the Employment Period), the
restrictions of this Section 11(b) shall cease to apply to the Executive for any
period following his termination of employment hereunder.
(c) Enforcement. The Company shall be entitled to seek a
restraining order or injunction in any court of competent jurisdiction to
prevent any continuation of any violation of the provisions of this Section 11.
12. SUCCESSORS
This Agreement shall be binding upon and shall inure to the benefit of
the Company, its successors and assigns and any person, firm, corporation or
other entity which succeeds to all or substantially all of the business, assets
or property of the Company. The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business, assets or property of the Company, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, the "Company" shall mean
the Company as hereinbefore defined and any successor to its business, assets or
property as aforesaid which executes and delivers an agreement provided for in
this Section 12 or which otherwise becomes bound by all the terms and provisions
of this Agreement by operation of law.
This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amounts are due and
payable to him hereunder, all such amounts, unless otherwise provided herein,
shall be paid to the Executive's designated beneficiary or, if there be no such
designated beneficiary, to the legal representatives of the Executive's estate.
13. NO ASSIGNMENT
Except as to withholding of any tax under the laws of the United
States or any other country, state or locality, neither this Agreement nor any
right or interest hereunder nor any
7
<PAGE>
amount payable at any time hereunder shall be subject in any manner to
alienation, sale, transfer, assignment, pledge, attachment, or other legal
process, or encumbrance of any kind by the Executive or the beneficiaries of the
Executive or by his legal representatives without the Company's prior written
consent, nor shall there be any right of set-off or counterclaim in respect of
any debts or liabilities of the Executive, his beneficiaries or legal
representatives; provided, however, that nothing in this Section shall preclude
the Executive from designating a beneficiary to receive any benefit payable on
his death, or the legal representatives of the Executive from assigning any
rights hereunder to the person or persons entitled thereto under his will or, in
case of intestacy, to the person or persons entitled thereto under the laws of
intestacy applicable to his estate.
14. ENTIRE AGREEMENT
This Agreement contains the entire understanding of the parties with
respect to the subject matter hereof and, except as specifically provided
herein, cancels and supersedes any and all other agreements between the parties
with respect to the subject matter hereof. Any amendment or modification of this
Agreement shall not be binding unless in writing and signed by the Company and
the Executive.
15. SEVERABILITY
In the event that any provision of this Agreement is determined to be
invalid or unenforceable, the remaining terms and conditions of this Agreement
shall be unaffected and shall remain in full force and effect, and any such
determination of invalidity or unenforceability shall not affect the validity or
enforceability of any other provision of this Agreement.
16. NOTICES
All notices which may be necessary or proper for either the Company or
the Executive to give to the other shall be in writing and shall be delivered by
hand or sent by registered or certified mail, return receipt requested, or by
air courier, to the Executive at:
Mr. Michael D. Martin
5608 Canongate Lane
Birmingham, Alabama 35242
with a copy to:
Frederick W. Kanner, Esq.
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019
and shall be sent in the manner described above to the Secretary of the Company
at the Company's principal executives offices at One HealthSouth Parkway,
Birmingham, Alabama
8
<PAGE>
35243, or delivered by hand to the Secretary of the Company, and shall be deemed
given when sent, provided that any notice required under Section 6 hereof or
notice given pursuant to Section 2 hereof shall be deemed given only when
received. Any party may by like notice to the other party change the address at
which he or they are to receive notices hereunder.
17. GOVERNING LAW
This Agreement shall be governed by and enforceable in accordance with
the laws of the State of Alabama, without giving effect to the principles of
conflict of laws thereof.
18. ARBITRATION
Any controversy or claim arising out of, or related to, this
Agreement, or the breach thereof, shall be settled by binding arbitration in the
City of Birmingham, Alabama, in accordance with the rules then obtaining of the
American Arbitration Association, and the arbitrator's decision shall be binding
and final, and judgment upon the award rendered may be entered in any court
having jurisdiction thereof.
19. LEGAL FEES AND EXPENSES
To induce the Executive to execute this Agreement and to provide the
Executive with reasonable assurance that the purposes of this Agreement will not
be frustrated by the cost of its enforcement should the Company fail to perform
its obligations under this Agreement or should the Company or any subsidiary,
affiliate or stockholder of the Company contest the validity or enforceability
of this Agreement, the Company shall pay and be solely responsible for any
attorneys' fees and expenses and court costs incurred by the Executive as a
result of a claim that the Company has breached or otherwise failed to perform
this Agreement or any provision hereof to be performed by the Company or as a
result of the Company or any subsidiary, affiliate or stockholder of the Company
contesting the validity or enforceability of this Agreement or any provision
hereof to be performed by the Company, in each case regardless of which party,
if any, prevails in the contest.
9
<PAGE>
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date first above written.
EXECUTIVE
/s/ Michael D. Martin
--------------------------------
Michael D. Martin
HEALTHSOUTH CORPORATION
By /s/ Richard M. Scrushy
------------------------------
Richard M. Scrushy
Chairman of the Board and
Chief Executive Officer
10
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of April 1, 1998 (this "Agreement"),
between HEALTHSOUTH Corporation, a Delaware corporation (the "Company"), and
ANTHONY J. TANNER, a resident of Hoover, Alabama (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company provides comprehensive rehabilitative, clinical,
diagnostic and surgical healthcare services;
WHEREAS, the Executive is a founder of the Company and serves as
Executive Vice President - Administration and Secretary of the Company and as a
member of its Board of Directors; and
WHEREAS, the Company wishes to assure itself of the continued services
of the Executive so that it will have the continued benefit of his ability,
experience and services, and the Executive is willing to enter into an agreement
to that end, upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of good and valuable consideration
the receipt and sufficiency of which are hereby acknowledged, the parties hereby
covenant and agree as follows:
1. EMPLOYMENT
The Company hereby agrees to continue to employ the Executive, and the
Executive hereby agrees to remain in the employ of the Company, on and subject
to the terms and conditions of this Agreement.
2. TERM
(a) The period of this Agreement (the "Agreement Term") shall
commence as of the date hereof (the "Effective Date") and shall expire on the
third anniversary of the Effective Date. The Agreement Term shall be
automatically extended for an additional year on each anniversary of the
Effective Date, unless written notice of non-extension is provided by either
party to the other party at least 90 days prior to such anniversary.
(b) The period of the Executive's employment under this Agreement
(the "Employment Period") shall commence as of the Effective Date and shall
expire at the end of the Agreement Term, unless sooner terminated in accordance
with the terms and conditions of this Agreement.
3. POSITION, DUTIES AND RESPONSIBILITIES
(a) The Executive shall serve as, and with the title, office and
authority of, the Executive Vice President - Administration and Secretary of the
Company and as a member of the Board of Directors of the Company (the "Board")
and shall report directly to the Chief Executive Officer of the Company. The
Executive shall also hold similar titles, offices and authority with the
Company's subsidiaries and/or their successors. The Company shall use its
<PAGE>
best efforts to cause the Executive to be nominated and elected (or renominated
and reelected, as the case may be) during the Employment Period as a director of
the Company and its subsidiaries or their successors.
(b) The Executive shall have all of the powers, authority, duties
and responsibilities usually incident to the positions and offices of Executive
Vice President Administration and Secretary of the Company.
(c) The Executive agrees to devote substantially all of his
business time, efforts and skills to the performance of his duties and
responsibilities under this Agreement; provided, however, that nothing in this
Agreement shall preclude the Executive from devoting reasonable periods required
for (i) participating in professional, educational, philanthropic, public
interest, charitable, social or community activities, (ii) serving as a director
or member of an advisory committee of any corporation or other entity that the
Executive is serving on as of the Effective Date or any other corporation or
entity that is not in direct competition with the Company or (iii) managing his
personal investments, provided that such activities do not materially interfere
with the Executive's regular performance of his duties and responsibilities
hereunder.
4. PLACE OF PERFORMANCE
The Executive shall perform his duties at the principal offices of the
Company located at One HealthSouth Parkway, Birmingham, Alabama, but from time
to time the Executive may be required to travel to other locations in the proper
conduct of his responsibilities under this Agreement.
5. COMPENSATION AND BENEFITS
In consideration of the services rendered by the Executive during the
Employment Period, the Company shall pay or provide the Executive the amounts
and benefits set forth below.
(a) Salary. The Company shall pay the Executive an annual base
salary (the "Base Salary") of at least $375,000. The Executive's Base Salary
shall be paid in arrears in substantially equal installments at monthly or more
frequent intervals, in accordance with the normal payroll practices of the
Company. The Executive's Base Salary shall be reviewed at least annually by the
Compensation Committee of the Board (the "Compensation Committee") for
consideration of appropriate merit increases and, once established, the Base
Salary shall not be decreased during the Employment Period.
(b) Incentive Plans. The Executive shall participate in all
annual and long-term bonus or incentive plans or arrangements in which other
senior executives of the Company of a comparable level are eligible to
participate from time to time, including, without limitation, any management
bonus pool arrangement. The Executive's incentive compensation opportunities
under such plans and arrangements shall be determined from time to time by the
Compensation Committee.
(c) Equity Incentives. The Executive shall be given
consideration, at least annually, by the Compensation Committee for the grant of
options to purchase shares of the common stock of the Company. In addition, the
Executive shall be entitled to receive awards
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under any stock option, stock purchase or equity-based incentive compensation
plan or arrangement adopted by the Company from time to time for which other
senior executives of the Company of a comparable level are eligible to
participate. The Executive's awards under such plans and arrangements shall be
determined from time to time by the Compensation Committee.
(d) Employee Benefits. The Executive shall be entitled to
participate in all employee benefit plans, programs, practices or arrangements
of the Company in which other senior executives of the Company of a comparable
level are eligible to participate from time to time, including, without
limitation, any qualified or non-qualified pension, profit sharing and savings
plans, any death benefit and disability benefit plans, and any medical, dental,
health and welfare plans. Without limiting the generality of the foregoing, the
Company shall provide the Executive with the following:
(i) long-term disability insurance coverage paying benefits
equal to at least 60% of the Executive's Base Salary for the
duration of any permanent and total disability of the Executive;
and
(ii) continued provision of split-dollar life insurance
coverage.
(e) Fringe Benefits and Perquisites. The Executive shall be
entitled to continuation of all fringe benefits and perquisites provided to the
Executive on the Effective Date, and to all fringe benefits and perquisites
which are generally made available to other senior executives of the Company of
a comparable level from time to time. Without limiting the generality of the
foregoing, the Company shall provide the Executive with the following:
(i) provision of executive offices and secretarial staff;
(ii) vacation in accordance with Company's policy for other
senior executives of a comparable level;
(iii) provision of a non-accountable automobile allowance
equal to $500 per month; and
(iv) reimbursement of all reasonable travel and other
business expenses and disbursements incurred by the Executive in
the performance of his duties under this Agreement, upon proper
accounting in accordance with the Company's normal practices and
procedures for reimbursement of business expenses.
6. TERMINATION OF EMPLOYMENT
The Employment Period will be terminated upon the happening of any of
the following events:
(a) Resignation. The Executive may voluntarily terminate his
employment hereunder for any reason at any time.
(b) Termination for Cause. The Company may terminate the
Executive's
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employment hereunder for Cause. For purposes of this Agreement, the Executive
shall be considered to be terminated for "Cause" only if (i) the Executive is
found, by a non-appealable order of a court of competent jurisdiction, to be
guilty of a felony under the laws of the United States or any state thereof or
(ii) the Executive is found, by a non-appealable order of a court of competent
jurisdiction, to have committed a fraud, which has a material adverse effect on
the Company. However, in no event shall the Executive's employment be considered
to have been terminated for "Cause" unless and until the Executive receives a
copy of a resolution duly adopted by the affirmative vote of a majority of the
Board at a meeting called and held for such purpose (after reasonable written
notice is provided to the Executive setting forth in reasonable detail the facts
and circumstances claimed to provide a basis of termination for Cause and the
Executive is given an opportunity, together with counsel, to be heard before the
Board) finding that the Executive is guilty of acts or omissions constituting
Cause.
(c) Termination other than for Cause. The Company shall have the
right to terminate the Executive's employment hereunder for any reason at any
time, including for any reason that does not constitute Cause, subject to the
consequences of such termination as set forth in this Agreement.
(d) Disability. The Executive's employment hereunder shall
terminate upon his Disability. For purposes of this Agreement, "Disability"
shall mean the inability of the Executive to perform his duties to the Company
on account of physical or mental illness for a period of six consecutive full
months, or for a period of eight full months during any 12-month period. The
Executive's employment shall terminate in such a case on the last day of the
applicable period; provided, however, in no event shall the Executive be
terminated by reason of Disability unless (i) the Executive is eligible for the
long-term disability benefits set forth in Section 5(e)(i) hereof and (ii) the
Executive receives written notice from the Company, at least 30 days in advance
of such termination, stating its intention to terminate the Executive for reason
of Disability and setting forth in reasonable detail the facts and circumstances
claimed to provide a basis for such termination.
(e) Death. The Executive's employment hereunder shall terminate
upon his death.
7. COMPENSATION UPON TERMINATION OF EMPLOYMENT
In the event the Executive's employment by the Company is terminated
during the Agreement Term, the Executive shall be entitled to the severance
benefits set forth below:
(a) Resignation. In the event the Executive voluntarily
terminates his employment hereunder for any reason, the Company shall pay and
provide to the Executive any Accrued Rights (as defined in paragraph (c) below).
(b) Termination for Cause. In the event the Executive's
employment hereunder is terminated by the Company for Cause, the Company shall
pay and provide to the Executive any Accrued Rights (as defined in paragraph (c)
below).
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(c) Termination other than for Cause, Disability or Death. In the
event the Executive's employment hereunder is terminated by the Company for any
reason other than for Cause, Disability or death, the Company shall pay the
Executive and provide him with the following:
(i) Accrued Rights. The Company shall pay the Executive a
lump-sum amount equal to the sum of (A) his earned but unpaid
Base Salary through the date of termination, (B) any earned but
unpaid bonus for any completed calendar year, (C) pro-rata
payment of any bonus (based on the then-current target amount of
such bonus) for any partial year or period of service through the
date of termination and (D) any unreimbursed business expenses or
other amounts due to the Executive from the Company as of the
date of termination. In addition, the Company shall provide to
the Executive all payments, rights and benefits due as of the
date of termination under the terms of the Company's employee and
fringe benefit plans, practices, programs and arrangements
referred to in Sections 5(e) and 5(f) hereof (together with the
lump-sum payment, the "Accrued Rights").
(ii) Severance Payment. The Company shall provide the
Executive with continued payment of the Executive's Base Salary,
as in effect on the date of termination, for a period of two
years following the Executive's termination, payable at the times
and in the manner such Base Salary would have been paid if the
Executive had continued in the employment of the Company.
(iii) Equity Rights. All stock options and other
equity-based rights held by the Executive at the date of
termination shall become immediately and fully vested and
exercisable, and the Executive shall retain the right to exercise
all outstanding stock options for the duration of their original
full term (without regard to termination of employment) in
accordance with the Founder Retirement Benefit Program attached
hereto as Exhibit A (the "Founders' Program"). The Company shall
forthwith take all necessary steps to amend any relevant stock
option plans of the Company and stock option agreements to the
extent necessary to allow for the foregoing vesting and term of
exercise.
(d) Disability. In the event the Executive's employment hereunder
is terminated by reason of the Executive's Disability, the Company shall pay and
provide to the Executive any Accrued Rights, including all disability insurance
coverage.
(e) Death. In the event the Executive's employment hereunder is
terminated by reason of the Executive's death, the Company shall pay and provide
to the Executive's representative or estate any Accrued Rights, including all
life insurance coverage.
8. FOUNDERS' BENEFITS
Upon the Executive's termination of employment hereunder for any
reason, and in addition to any severance benefits payable to him under Section 7
hereof, the Company shall treat such termination as a "retirement" for purposes
of the Founders' Program, and shall provide the Executive with the benefits
outlined in the Founders' Program in recognition of his status as a founder of
the Company.
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9. CHANGE IN CONTROL
(a) Supplemental Termination Rights. In the event of a voluntary
termination of employment by the Executive pursuant to Section 6(a) hereof that
occurs within six months following a Change in Control, the Company shall pay
the Executive and provide him with the benefits and rights described in Section
7(c) hereof.
(b) Definition. For purposes of this Agreement, a "Change in
Control" shall be deemed to have occurred by reason of:
(i) the acquisition (other than from the Company) by any
person, entity or "group" (within the meaning of Sections
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, but
excluding, for this purpose, the Company or its subsidiaries, or
any employee benefit plan of the Company or its subsidiaries
which acquires beneficial ownership of voting securities of the
Company) of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Securities Exchange Act of 1934) of
25% or more of either the then-outstanding shares of the common
stock of the Company or the combined voting power of the
Company's then-outstanding voting securities entitled to vote
generally in the election of directors; or
(ii) individuals who, as of date hereof, constitute the
Board (as of such date, the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board; provided,
however, that any person becoming a director subsequent to such
date whose election, or nomination for election, was approved by
a vote of at least a majority of the directors then constituting
the Incumbent Board (other than an election or nomination of an
individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the
election of directors of the Company) shall be, for purposes of
this Section 9(b)(ii), considered as though such person were a
member of the Incumbent Board; or
(iii) approval by the stockholders of the Company of a
reorganization, merger, consolidation or share exchange, in each
case with respect to which persons who were the stockholders of
the Company immediately prior to such reorganization, merger,
consolidation or share exchange do not, immediately thereafter,
own more than 75% of the combined voting power entitled to vote
generally in the election of directors of the reorganized,
merged, consolidated or other surviving entity's then-outstanding
voting securities, or a liquidation or dissolution of the Company
or the sale of all or substantially all of the assets of the
Company.
10. NO MITIGATION OR OFFSET
The Executive shall not be required to seek other employment or to
reduce any severance benefit payable to him under Sections 7, 8 or 9 hereof, and
no such severance benefit shall be reduced on account of any compensation
received by the Executive from other employment. The Company's obligation to pay
severance benefits under this Agreement shall not be reduced by any amount owed
by the Executive to the Company.
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11. TAX WITHHOLDING; METHOD OF PAYMENT
All compensation payable pursuant to this Agreement, shall be subject
to reduction by all applicable withholding, social security and other federal,
state and local taxes and deductions. Any lump-sum payments provided for in
Sections 7 or 9 hereof shall be made in a cash payment, net of any required tax
withholding, no later than the fifth business day following the Executive's date
of termination. Any payment required to be made to the Executive under this
Agreement that is not made in a timely manner shall bear interest until the date
of payment at a rate equal to 100% of the monthly compounded applicable federal
rate, as in effect under Section 1274(d) of the Internal Revenue Code of 1986,
as amended, for the month in which payment was required to be made.
12. RESTRICTIVE COVENANTS
(a) Confidential Information. During the Employment Period and at
all times thereafter, the Executive agrees that he will not divulge to anyone
(other than the Company or any persons employed or designated by the Company)
any knowledge or information of a confidential nature relating to the business
of the Company or any of its subsidiaries or affiliates, including, without
limitation, all types of trade secrets (unless readily ascertainable from public
or published information or trade sources) and confidential commercial
information, and the Executive further agrees not to disclose, publish or make
use of any such knowledge or information without the consent of the Company.
(b) Noncompetition. During the Employment Period and, for any
applicable period the Executive is entitled to severance benefits under Section
7(c) hereof following the termination of his employment, the Executive shall
not, without the prior written consent of the Company, engage in the
comprehensive rehabilitative and related healthcare services business on behalf
of any person, firm or corporation within any geographical area in which the
Company transacts such business, and the Executive shall not acquire any
financial interest (except for an equity interest in publicly-held companies
that do not exceed 5% of any outstanding class of equity of that company), in
any business that engages in the comprehensive rehabilitative and related
healthcare services business within any geographical area in which the Company
transacts such business. Notwithstanding the foregoing, upon the occurrence of a
Change in Control (whether before or after the termination of the Employment
Period), the restrictions of this Section 12(b) shall cease to apply to the
Executive for any period following his termination of employment hereunder.
(c) Enforcement. The Company shall be entitled to seek a
restraining order or injunction in any court of competent jurisdiction to
prevent any continuation of any violation of the provisions of this Section 12.
13. SUCCESSORS
(a) This Agreement shall be binding upon and shall inure to the
benefit of the Company, its successors and assigns and any person, firm,
corporation or other entity which succeeds to all or substantially all of the
business, assets or property of the Company. The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business, assets or property of
the
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Company, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. As used in this Agreement, the "Company"
shall mean the Company as hereinbefore defined and any successor to its
business, assets or property as aforesaid which executes and delivers an
agreement provided for in this Section 13 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
(b) This Agreement and all rights of the Executive hereunder
shall inure to the benefit of and be enforceable by the Executive's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die while any
amounts are due and payable to him hereunder, all such amounts, unless otherwise
provided herein, shall be paid to the Executive's designated beneficiary or, if
there be no such designated beneficiary, to the legal representatives of the
Executive's estate.
14. NO ASSIGNMENT
Except as to withholding of any tax under the laws of the United States
or any other country, state or locality, neither this Agreement nor any right or
interest hereunder nor any amount payable at any time hereunder shall be subject
in any manner to alienation, sale, transfer, assignment, pledge, attachment, or
other legal process, or encumbrance of any kind by the Executive or the
beneficiaries of the Executive or by his legal representatives without the
Company's prior written consent, nor shall there be any right of set-off or
counterclaim in respect of any debts or liabilities of the Executive, his
beneficiaries or legal representatives; provided, however, that nothing in this
Section shall preclude the Executive from designating a beneficiary to receive
any benefit payable on his death, or the legal representatives of the Executive
from assigning any rights hereunder to the person or persons entitled thereto
under his will or, in case of intestacy, to the person or persons entitled
thereto under the laws of intestacy applicable to his estate.
15. ENTIRE AGREEMENT
This Agreement contains the entire understanding of the parties with
respect to the subject matter hereof and, except as specifically provided
herein, cancels and supersedes any and all other agreements between the parties
with respect to the subject matter hereof. Any amendment or modification of this
Agreement shall not be binding unless in writing and signed by the Company and
the Executive.
16. SEVERABILITY
In the event that any provision of this Agreement is determined to be
invalid or unenforceable, the remaining terms and conditions of this Agreement
shall be unaffected and shall remain in full force and effect, and any such
determination of invalidity or unenforceability shall not affect the validity or
enforceability of any other provision of this Agreement.
17. NOTICES
All notices which may be necessary or proper for either the Company or
the Executive to give to the other shall be in writing and shall be delivered by
hand or sent by registered or
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certified mail, return receipt requested, or by air courier, to the Executive
at:
Mr. Anthony J. Tanner
2112 Swan Lake Cove
Hoover, Alabama 35243
with a copy to:
Frederick W. Kanner, Esq.
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019
and shall be sent in the manner described above to the Secretary of the Company
at the Company's principal executives offices at One HealthSouth Parkway,
Birmingham, Alabama 35243, or delivered by hand to the Secretary of the Company,
and shall be deemed given when sent, provided that any notice required under
Section 6 hereof or notice given pursuant to Section 2 hereof shall be deemed
given only when received. Any party may by like notice to the other party change
the address at which he or they are to receive notices hereunder.
18. GOVERNING LAW
This Agreement shall be governed by and enforceable in accordance with
the laws of the State of Alabama, without giving effect to the principles of
conflict of laws thereof.
19. ARBITRATION
Any controversy or claim arising out of, or related to, this Agreement,
or the breach thereof, shall be settled by binding arbitration in the City of
Birmingham, Alabama, in accordance with the rules then obtaining of the American
Arbitration Association, and the arbitrator's decision shall be binding and
final, and judgment upon the award rendered may be entered in any court having
jurisdiction thereof.
20. LEGAL FEES AND EXPENSES
To induce the Executive to execute this Agreement and to provide the
Executive with reasonable assurance that the purposes of this Agreement will not
be frustrated by the cost of its enforcement should the Company fail to perform
its obligations under this Agreement or should the Company or any subsidiary,
affiliate or stockholder of the Company contest the validity or enforceability
of this Agreement, the Company shall pay and be solely responsible for any
attorneys' fees and expenses and court costs incurred by the Executive as a
result of a claim that the Company has breached or otherwise failed to perform
this Agreement or any provision hereof to be performed by the Company or as a
result of the Company or any subsidiary, affiliate or stockholder of the Company
contesting the validity or enforceability of this Agreement or any provision
hereof to be performed by the Company, in each case regardless of which party,
if any, prevails in the contest.
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IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date first above written.
EXECUTIVE
/s/ Anthony J. Tanner
--------------------------------
Anthony J. Tanner
HEALTHSOUTH CORPORATION
By /s/ Richard M. Scrushy
------------------------------
Richard M. Scrushy
Chairman of the Board and
Chief Executive Officer
10
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of April 1, 1998 (this "Agreement"),
between HEALTHSOUTH Corporation, a Delaware corporation (the "Company"), and
PATRICK A. FOSTER, a resident of Birmingham, Alabama (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company provides comprehensive rehabilitative, clinical,
diagnostic and surgical healthcare services;
WHEREAS, the Executive serves as President and Chief Operating
Officer, Surgery Division of the Company; and
WHEREAS, the Company wishes to assure itself of the continued services
of the Executive so that it will have the continued benefit of his ability,
experience and services, and the Executive is willing to enter into an agreement
to that end, upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of good and valuable consideration
the receipt and sufficiency of which are hereby acknowledged, the parties hereby
covenant and agree as follows:
1. EMPLOYMENT
The Company hereby agrees to continue to employ the Executive, and the
Executive hereby agrees to remain in the employ of the Company, on and subject
to the terms and conditions of this Agreement.
2. TERM
(a) The period of this Agreement (the "Agreement Term") shall
commence as of the date hereof (the "Effective Date") and shall expire on the
third anniversary of the Effective Date. The Agreement Term shall be
automatically extended for an additional year on each anniversary of the
Effective Date, unless written notice of non-extension is provided by either
party to the other party at least 90 days prior to such anniversary.
(b) The period of the Executive's employment under this Agreement
(the "Employment Period") shall commence as of the Effective Date and shall
expire at the end of the Agreement Term, unless sooner terminated in accordance
with the terms and conditions of this Agreement.
3. POSITION, DUTIES AND RESPONSIBILITIES
(a) The Executive shall serve as, and with the title, office and
authority of, President and Chief Operating Officer, Surgery Division of the
Company and shall report directly to the Chief Operating Officer of the Company.
(b) The Executive shall have all of the powers, authority, duties
and responsibilities usually incident to the positions and offices of President
and Chief Operating Officer, Surgery Division of the Company.
<PAGE>
(c) The Executive agrees to devote substantially all of his
business time, efforts and skills to the performance of his duties and
responsibilities under this Agreement; provided, however, that nothing in this
Agreement shall preclude the Executive from devoting reasonable periods required
for (i) participating in professional, educational, philanthropic, public
interest, charitable, social or community activities, (ii) serving as a director
or member of an advisory committee of any corporation or other entity that the
Executive is serving on as of the Effective Date or any other corporation or
entity that is not in direct competition with the Company or (iii) managing his
personal investments, provided that such activities do not materially interfere
with the Executive's regular performance of his duties and responsibilities
hereunder.
4. PLACE OF PERFORMANCE
The Executive shall perform his duties at the principal offices of the
Company located at One HealthSouth Parkway, Birmingham, Alabama, but from time
to time the Executive may be required to travel to other locations in the proper
conduct of his responsibilities under this Agreement.
5. COMPENSATION AND BENEFITS
In consideration of the services rendered by the Executive during the
Employment Period, the Company shall pay or provide the Executive the amounts
and benefits set forth below.
(a) Salary. The Company shall pay the Executive an annual base
salary (the "Base Salary") of at least $240,000. The Executive's Base Salary
shall be paid in arrears in substantially equal installments at monthly or more
frequent intervals, in accordance with the normal payroll practices of the
Company. The Executive's Base Salary shall be reviewed at least annually by the
Compensation Committee of the board of directors of the Company (the
"Compensation Committee") for consideration of appropriate merit increases and,
once established, the Base Salary shall not be decreased during the Employment
Period.
(b) Incentive Plans. The Executive shall participate in all
annual and long-term bonus or incentive plans or arrangements in which other
senior executives of the Company of a comparable level are eligible to
participate from time to time, including, without limitation, any management
bonus pool arrangement. The Executive's incentive compensation opportunities
under such plans and arrangements shall be determined from time to time by the
Compensation Committee.
(c) Equity Incentives. The Executive shall be given
consideration, at least annually, by the Compensation Committee, for the grant
of options to purchase shares of the common stock of the Company. In addition,
the Executive shall be entitled to receive awards under any stock option, stock
purchase or equity-based incentive compensation plan or arrangement adopted by
the Company from time to time for which other senior executives of the Company
of a comparable level are eligible to participate. The Executive's awards under
such plans and arrangements shall be determined from time to time by the
Compensation Committee.
(d) Employee Benefits. The Executive shall be entitled to
participate in all employee benefit plans, programs, practices or arrangements
of the Company in which other senior executives of the Company of a comparable
level are eligible to participate from time to
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time, including, without limitation, any qualified or non-qualified pension,
profit sharing and savings plans, any death benefit and disability benefit
plans, and any medical, dental, health and welfare plans. Without limiting the
generality of the foregoing, the Company shall provide the Executive with
long-term disability insurance coverage paying benefits equal to at least 60% of
the Executive's Base Salary for the duration of any permanent and total
disability of the Executive.
(e) Fringe Benefits and Perquisites. The Executive shall be
entitled to continuation of all fringe benefits and perquisites provided to the
Executive on the Effective Date, and to all fringe benefits and perquisites
which are generally made available to other senior executives of the Company of
a comparable level from time to time. Without limiting the generality of the
foregoing, the Company shall provide the Executive with the following:
(i) vacation in accordance with Company's policy for other
senior executives of a comparable level;
(ii) provision of a non-accountable automobile allowance of
$500 per month; and
(iii) reimbursement of all reasonable travel and other
business expenses and disbursements incurred by the Executive in
the performance of his duties under this Agreement, upon proper
accounting in accordance with the Company's normal practices and
procedures for reimbursement of business expenses.
6. TERMINATION OF EMPLOYMENT
The Employment Period will be terminated upon the happening of any of
the following events:
(a) Resignation. The Executive may voluntarily terminate his
employment hereunder for any reason at any time.
(b) Termination for Cause. The Company may terminate the
Executive's employment hereunder for Cause. For purposes of this Agreement, the
Executive shall be considered to be terminated for "Cause" only if (i) the
Executive is found, by a non-appealable order of a court of competent
jurisdiction, to be guilty of a felony under the laws of the United States or
any state thereof, (ii) the Executive is found, by a non-appealable order of a
court of competent jurisdiction, to have committed a fraud, which has a material
adverse effect on the Company, or (iii) the Executive is found to have committed
a deliberate violation of Company policy. The determinations required by clauses
(ii) and (iii) above are to be made by the Chief Executive Officer of the
Company.
(c) Termination other than for Cause. The Company shall have the
right to terminate the Executive's employment hereunder for any reason at any
time, including for any reason that does not constitute Cause, subject to the
consequences of such termination as set forth in this Agreement.
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(d) Disability. The Executive's employment hereunder shall
terminate upon his Disability. For purposes of this Agreement, "Disability"
shall mean the inability of the Executive to perform his duties to the Company
on account of physical or mental illness for a period of six consecutive full
months, or for a period of eight full months during any 12-month period. The
Executive's employment shall terminate in such a case on the last day of the
applicable period; provided, however, in no event shall the Executive be
terminated by reason of Disability unless (i) the Executive is eligible for the
long-term disability benefits set forth in Section 5(d) hereof and (ii) the
Executive receives written notice from the Company, at least 30 days in advance
of such termination, stating its intention to terminate the Executive for reason
of Disability and setting forth in reasonable detail the facts and circumstances
claimed to provide a basis for such termination.
(e) Death. The Executive's employment hereunder shall terminate
upon his death.
7. COMPENSATION UPON TERMINATION OF EMPLOYMENT
In the event the Executive's employment by the Company is terminated
during the Agreement Term, the Executive shall be entitled to the severance
benefits set forth below:
(a) Resignation. In the event the Executive voluntarily
terminates his employment hereunder for any reason, the Company shall pay and
provide to the Executive any Accrued Rights (as defined in paragraph (c) below).
(b) Termination for Cause. In the event the Executive's
employment hereunder is terminated by the Company for Cause, the Company shall
pay and provide to the Executive any Accrued Rights (as defined in paragraph (c)
below).
(c) Termination other than for Cause, Disability or Death. In the
event the Executive's employment hereunder is terminated by the Company for any
reason other than for Cause, Disability or death, the Company shall pay the
Executive and provide him with the following:
(i) Accrued Rights. The Company shall pay the Executive a
lump-sum amount equal to the sum of (A) his earned but unpaid
Base Salary through the date of termination, (B) any earned but
unpaid bonus for any completed calendar year, (C) a pro-rata
payment of any bonus (based on the then-current target amount of
such bonus) for any partial year or period of service through the
date of termination and (D) any unreimbursed business expenses or
other amounts due to the Executive from the Company as of the
date of termination. In addition, the Company shall provide to
the Executive all payments, rights and benefits due as of the
date of termination under the terms of the Company's employee and
fringe benefit plans, practices, programs and arrangements
referred to in Sections 5(d) and 5(e) hereof (together with the
lump-sum payment, the "Accrued Rights").
(ii) Severance Payment. The Company shall provide the
Executive with continued payment of the Executive's Base Salary,
as in effect on the date of termination, for a period of one year
following the Executive's termination, payable at the times and
in the manner such Base Salary would have been paid if the
Executive had continued in the employment of the Company.
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(d) Disability. In the event the Executive's employment hereunder
is terminated by reason of the Executive's Disability, the Company shall pay and
provide to the Executive any Accrued Rights, including all disability insurance
coverage.
(e) Death. In the event the Executive's employment hereunder is
terminated by reason of the Executive's death, the Company shall pay and provide
to the Executive's representative or estate any Accrued Rights, including all
life insurance coverage.
8. CHANGE IN CONTROL
(a) Supplemental Termination Rights. In the event of a voluntary
termination of employment by the Executive pursuant to Section 6(a) hereof that
occurs within six months following a Change in Control, the Company shall pay
the Executive and provide him with the benefits and rights described in Section
7(c) hereof.
(b) Definition. For purposes of this Agreement, a "Change in
Control" shall be deemed to have occurred by reason of:
(i) the acquisition (other than from the Company) by any
person, entity or "group" (within the meaning of Sections
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, but
excluding, for this purpose, the Company or its subsidiaries, or
any employee benefit plan of the Company or its subsidiaries
which acquires beneficial ownership of voting securities of the
Company) of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Securities Exchange Act of 1934) of
25% or more of either the then-outstanding shares of the common
stock of the Company or the combined voting power of the
Company's then-outstanding voting securities entitled to vote
generally in the election of directors; or
(ii) individuals who, as of date hereof, constitute the
board of directors of the Company (as of such date, the
"Incumbent Board") cease for any reason to constitute at least a
majority of the board of directors of the Company; provided,
however, that any person becoming a director subsequent to such
date whose election, or nomination for election, was approved by
a vote of at least a majority of the directors then constituting
the Incumbent Board (other than an election or nomination of an
individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the
election of directors of the Company) shall be, for purposes of
this Section 8(b)(ii), considered as though such person were a
member of the Incumbent Board; or
(iii) approval by the stockholders of the Company of a
reorganization, merger, consolidation or share exchange, in each
case with respect to which persons who were the stockholders of
the Company immediately prior to such reorganization, merger,
consolidation or share exchange do not, immediately thereafter,
own more than 75% of the combined voting power entitled to vote
generally in the election of directors of the reorganized,
merged, consolidated or other surviving entity's then-outstanding
voting securities, or a liquidation or dissolution of the Company
or the sale of all or substantially all of the assets of the
Company.
5
<PAGE>
9. NO MITIGATION OR OFFSET
The Executive shall not be required to seek other employment or to
reduce any severance benefit payable to him under Sections 7 or 8 hereof, and no
such severance benefit shall be reduced on account of any compensation received
by the Executive from other employment. The Company's obligation to pay
severance benefits under this Agreement shall not be reduced by any amount owed
by the Executive to the Company.
10. TAX WITHHOLDING; METHOD OF PAYMENT
All compensation payable pursuant to this Agreement, shall be subject
to reduction by all applicable withholding, social security and other federal,
state and local taxes and deductions. Any lump-sum payments provided for in
Sections 7 or 8 hereof shall be made in a cash payment, net of any required tax
withholding, no later than the fifth business day following the Executive's date
of termination. Any payment required to be made to the Executive under this
Agreement that is not made in a timely manner shall bear interest until the date
of payment at a rate equal to 100% of the monthly compounded applicable federal
rate, as in effect under Section 1274(d) of the Internal Revenue Code of 1986,
as amended, for the month in which payment was required to be made.
11. RESTRICTIVE COVENANTS
(a) Confidential Information. During the Employment Period and at
all times thereafter, the Executive agrees that he will not divulge to anyone
(other than the Company or any persons employed or designated by the Company)
any knowledge or information of a confidential nature relating to the business
of the Company or any of its subsidiaries or affiliates, including, without
limitation, all types of trade secrets (unless readily ascertainable from public
or published information or trade sources) and confidential commercial
information, and the Executive further agrees not to disclose, publish or make
use of any such knowledge or information without the consent of the Company.
that the Executive is entitled to receive severance payments pursuant to
Section 7(c) hereof, the Executive shall not, without the prior written consent
of the Company, engage in the comprehensive rehabilitative and related
healthcare services business on behalf of any person, firm or corporation within
any geographical area in which the Company transacts such business, and the
Executive shall not acquire any financial interest (except for an equity
interest in publicly-held companies that do not exceed 5% of any outstanding
class of equity of that company), in any business that engages in the
comprehensive rehabilitative and related healthcare services business within any
geographical area in which the Company transacts such business. Notwithstanding
the foregoing, upon the occurrence of a Change in Control (whether before or
after the termination of the Employment Period), the restrictions of this
Section 11(b) shall cease to apply to the Executive for any period following his
termination of employment hereunder.
(c) Enforcement. The Company shall be entitled to seek a
restraining order or injunction in any court of competent jurisdiction to
prevent any continuation of any violation of the provisions of this Section 11.
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12. SUCCESSORS
This Agreement shall be binding upon and shall inure to the benefit of
the Company, its successors and assigns and any person, firm, corporation or
other entity which succeeds to all or substantially all of the business, assets
or property of the Company. The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business, assets or property of the Company, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, the "Company" shall mean
the Company as hereinbefore defined and any successor to its business, assets or
property as aforesaid which executes and delivers an agreement provided for in
this Section 12 or which otherwise becomes bound by all the terms and provisions
of this Agreement by operation of law.
This Agreement and all rights of the Executive hereunder shall inure
to the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amounts are due and
payable to him hereunder, all such amounts, unless otherwise provided herein,
shall be paid to the Executive's designated beneficiary or, if there be no such
designated beneficiary, to the legal representatives of the Executive's estate.
13. NO ASSIGNMENT
Except as to withholding of any tax under the laws of the United States
or any other country, state or locality, neither this Agreement nor any right or
interest hereunder nor any amount payable at any time hereunder shall be subject
in any manner to alienation, sale, transfer, assignment, pledge, attachment, or
other legal process, or encumbrance of any kind by the Executive or the
beneficiaries of the Executive or by his legal representatives without the
Company's prior written consent, nor shall there be any right of set-off or
counterclaim in respect of any debts or liabilities of the Executive, his
beneficiaries or legal representatives; provided, however, that nothing in this
Section shall preclude the Executive from designating a beneficiary to receive
any benefit payable on his death, or the legal representatives of the Executive
from assigning any rights hereunder to the person or persons entitled thereto
under his will or, in case of intestacy, to the person or persons entitled
thereto under the laws of intestacy applicable to his estate.
14. ENTIRE AGREEMENT
This Agreement contains the entire understanding of the parties with
respect to the subject matter hereof and, except as specifically provided
herein, cancels and supersedes any and all other agreements between the parties
with respect to the subject matter hereof. Any amendment or modification of this
Agreement shall not be binding unless in writing and signed by the Company and
the Executive.
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15. SEVERABILITY
In the event that any provision of this Agreement is determined to be
invalid or unenforceable, the remaining terms and conditions of this Agreement
shall be unaffected and shall remain in full force and effect, and any such
determination of invalidity or unenforceability shall not affect the validity or
enforceability of any other provision of this Agreement.
16. NOTICES
All notices which may be necessary or proper for either the Company or
the Executive to give to the other shall be in writing and shall be delivered by
hand or sent by registered or certified mail, return receipt requested, or by
air courier, to the Executive at:
Mr. Patrick A. Foster
524 Castlebridge Lane
Birmingham, Alabama 35242
with a copy to:
Frederick W. Kanner, Esq.
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019
and shall be sent in the manner described above to the Secretary of the Company
at the Company's principal executives offices at One HealthSouth Parkway,
Birmingham, Alabama 35243, or delivered by hand to the Secretary of the Company,
and shall be deemed given when sent, provided that any notice required under
Section 6 hereof or notice given pursuant to Section 2 hereof shall be deemed
given only when received. Any party may by like notice to the other party change
the address at which he or they are to receive notices hereunder.
17. GOVERNING LAW
This Agreement shall be governed by and enforceable in accordance with
the laws of the State of Alabama, without giving effect to the principles of
conflict of laws thereof.
18. ARBITRATION
Any controversy or claim arising out of, or related to, this Agreement,
or the breach thereof, shall be settled by binding arbitration in the City of
Birmingham, Alabama, in accordance with the rules then obtaining of the American
Arbitration Association, and the arbitrator's decision shall be binding and
final, and judgment upon the award rendered may be entered in any court having
jurisdiction thereof.
19. LEGAL FEES AND EXPENSES
To induce the Executive to execute this Agreement and to provide the
Executive with reasonable assurance that the purposes of this Agreement will not
be frustrated by the cost of its enforcement should the Company fail to perform
its obligations under this Agreement or should
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<PAGE>
the Company or any subsidiary, affiliate or stockholder of the Company contest
the validity or enforceability of this Agreement, the Company shall pay and be
solely responsible for any attorneys' fees and expenses and court costs incurred
by the Executive as a result of a claim that the Company has breached or
otherwise failed to perform this Agreement or any provision hereof to be
performed by the Company or as a result of the Company or any subsidiary,
affiliate or stockholder of the Company contesting the validity or
enforceability of this Agreement or any provision hereof to be performed by the
Company, in each case regardless of which party, if any, prevails in the
contest.
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IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date first above written.
EXECUTIVE
/s/ Patrick A. Foster
--------------------------------
Patrick A. Foster
HEALTHSOUTH CORPORATION
By /s/ Richard M. Scrushy
------------------------------
Richard M. Scrushy
Chairman of the Board and
Chief Executive Officer
10
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of April 1, 1998 (this "Agreement"),
between HEALTHSOUTH Corporation, a Delaware corporation (the "Company"), and
ROBERT E. THOMSON, a resident of Indian Springs, Alabama (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company provides comprehensive rehabilitative, clinical,
diagnostic and surgical healthcare services;
WHEREAS, the Executive serves as President and Chief Operating
Officer, Inpatient Division of the Company; and
WHEREAS, the Company wishes to assure itself of the continued services
of the Executive so that it will have the continued benefit of his ability,
experience and services, and the Executive is willing to enter into an agreement
to that end, upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of good and valuable consideration
the receipt and sufficiency of which are hereby acknowledged, the parties hereby
covenant and agree as follows:
1. EMPLOYMENT
The Company hereby agrees to continue to employ the Executive, and the
Executive hereby agrees to remain in the employ of the Company, on and subject
to the terms and conditions of this Agreement.
2. TERM
(a) The period of this Agreement (the "Agreement Term") shall
commence as of the date hereof (the "Effective Date") and shall expire on the
third anniversary of the Effective Date. The Agreement Term shall be
automatically extended for an additional year on each anniversary of the
Effective Date, unless written notice of non-extension is provided by either
party to the other party at least 90 days prior to such anniversary.
(b) The period of the Executive's employment under this Agreement
(the "Employment Period") shall commence as of the Effective Date and shall
expire at the end of the Agreement Term, unless sooner terminated in accordance
with the terms and conditions of this Agreement.
3. POSITION, DUTIES AND RESPONSIBILITIES
(a) The Executive shall serve as, and with the title, office and
authority of, President and Chief Operating Officer, Inpatient Division of the
Company and shall report directly to the Chief Operating Officer of the Company.
(b) The Executive shall have all of the powers, authority, duties
and responsibilities usually incident to the positions and offices of President
and Chief Operating Officer, Inpatient
<PAGE>
Division of the Company.
(c) The Executive agrees to devote substantially all of his
business time, efforts and skills to the performance of his duties and
responsibilities under this Agreement; provided, however, that nothing in this
Agreement shall preclude the Executive from devoting reasonable periods required
for (i) participating in professional, educational, philanthropic, public
interest, charitable, social or community activities, (ii) serving as a director
or member of an advisory committee of any corporation or other entity that the
Executive is serving on as of the Effective Date or any other corporation or
entity that is not in direct competition with the Company or (iii) managing his
personal investments, provided that such activities do not materially interfere
with the Executive's regular performance of his duties and responsibilities
hereunder.
4. PLACE OF PERFORMANCE
The Executive shall perform his duties at the principal offices of the
Company located at One HealthSouth Parkway, Birmingham, Alabama, but from time
to time the Executive may be required to travel to other locations in the proper
conduct of his responsibilities under this Agreement.
5. COMPENSATION AND BENEFITS
In consideration of the services rendered by the Executive during the
Employment Period, the Company shall pay or provide the Executive the amounts
and benefits set forth below.
(a) Salary. The Company shall pay the Executive an annual base
salary (the "Base Salary") of at least $300,000. The Executive's Base Salary
shall be paid in arrears in substantially equal installments at monthly or more
frequent intervals, in accordance with the normal payroll practices of the
Company. The Executive's Base Salary shall be reviewed at least annually by the
Compensation Committee of the board of directors of the Company (the
"Compensation Committee") for consideration of appropriate merit increases and,
once established, the Base Salary shall not be decreased during the Employment
Period.
(b) Incentive Plans. The Executive shall participate in all
annual and long-term bonus or incentive plans or arrangements in which other
senior executives of the Company of a comparable level are eligible to
participate from time to time, including, without limitation, any management
bonus pool arrangement. The Executive's incentive compensation opportunities
under such plans and arrangements shall be determined from time to time by the
Compensation Committee.
(c) Equity Incentives. The Executive shall be given
consideration, at least annually, by the Compensation Committee, for the grant
of options to purchase shares of the common stock of the Company. In addition,
the Executive shall be entitled to receive awards under any stock option, stock
purchase or equity-based incentive compensation plan or arrangement adopted by
the Company from time to time for which other senior executives of the Company
of a comparable level are eligible to participate. The Executive's awards under
such plans and arrangements shall be determined from time to time by the
Compensation Committee.
(d) Employee Benefits. The Executive shall be entitled to
participate in all employee
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benefit plans, programs, practices or arrangements of the Company in which other
senior executives of the Company of a comparable level are eligible to
participate from time to time, including, without limitation, any qualified or
non-qualified pension, profit sharing and savings plans, any death benefit and
disability benefit plans, and any medical, dental, health and welfare plans.
Without limiting the generality of the foregoing, the Company shall provide the
Executive with long-term disability insurance coverage paying benefits equal to
at least 60% of the Executive's Base Salary for the duration of any permanent
and total disability of the Executive.
(e) Fringe Benefits and Perquisites. The Executive shall be
entitled to continuation of all fringe benefits and perquisites provided to the
Executive on the Effective Date, and to all fringe benefits and perquisites
which are generally made available to other senior executives of the Company of
a comparable level from time to time. Without limiting the generality of the
foregoing, the Company shall provide the Executive with the following:
(i) vacation in accordance with Company's policy for other
senior executives of a comparable level;
(ii) provision of a non-accountable automobile allowance of
$500 per month;
(iii) reimbursement of all reasonable travel and other
business expenses and disbursements incurred by the Executive in
the performance of his duties under this Agreement, upon proper
accounting in accordance with the Company's normal practices and
procedures for reimbursement of business expenses.
6. TERMINATION OF EMPLOYMENT
The Employment Period will be terminated upon the happening of any of
the following events:
(a) Resignation. The Executive may voluntarily terminate his
employment hereunder for any reason at any time.
(b) Termination for Cause. The Company may terminate the
Executive's employment hereunder for Cause. For purposes of this Agreement, the
Executive shall be considered to be terminated for "Cause" only if (i) the
Executive is found, by a non-appealable order of a court of competent
jurisdiction, to be guilty of a felony under the laws of the United States or
any state thereof, (ii) the Executive is found, by a non-appealable order of a
court of competent jurisdiction, to have committed a fraud, which has a material
adverse effect on the Company, or (iii) the Executive is found to have committed
a deliberate violation of Company policy. The determinations required by clauses
(ii) and (iii) above are to be made by the Chief Executive Officer of the
Company.
(c) Termination other than for Cause. The Company shall have the
right to terminate the Executive's employment hereunder for any reason at any
time, including for any reason that does not constitute Cause, subject to the
consequences of such termination as set forth in this Agreement.
(d) Disability. The Executive's employment hereunder shall
terminate upon his
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Disability. For purposes of this Agreement, "Disability" shall mean the
inability of the Executive to perform his duties to the Company on account of
physical or mental illness for a period of six consecutive full months, or for a
period of eight full months during any 12-month period. The Executive's
employment shall terminate in such a case on the last day of the applicable
period; provided, however, in no event shall the Executive be terminated by
reason of Disability unless (i) the Executive is eligible for the long-term
disability benefits set forth in Section 5(d) hereof and (ii) the Executive
receives written notice from the Company, at least 30 days in advance of such
termination, stating its intention to terminate the Executive for reason of
Disability and setting forth in reasonable detail the facts and circumstances
claimed to provide a basis for such termination.
(e) Death. The Executive's employment hereunder shall terminate
upon his death.
7. COMPENSATION UPON TERMINATION OF EMPLOYMENT
In the event the Executive's employment by the Company is terminated
during the Agreement Term, the Executive shall be entitled to the severance
benefits set forth below:
(a) Resignation. In the event the Executive voluntarily
terminates his employment hereunder for any reason, the Company shall pay and
provide to the Executive any Accrued Rights (as defined in paragraph (c) below).
(b) Termination for Cause. In the event the Executive's
employment hereunder is terminated by the Company for Cause, the Company shall
pay and provide to the Executive any Accrued Rights (as defined in paragraph (c)
below).
(c) Termination other than for Cause, Disability or Death. In the
event the Executive's employment hereunder is terminated by the Company for any
reason other than for Cause, Disability or death, the Company shall pay the
Executive and provide him with the following:
(i) Accrued Rights. The Company shall pay the Executive a
lump-sum amount equal to the sum of (A) his earned but unpaid
Base Salary through the date of termination, (B) any earned but
unpaid bonus for any completed calendar year, (C) a pro-rata
payment of any bonus (based on the then-current target amount of
such bonus) for any partial year or period of service through the
date of termination and (D) any unreimbursed business expenses or
other amounts due to the Executive from the Company as of the
date of termination. In addition, the Company shall provide to
the Executive all payments, rights and benefits due as of the
date of termination under the terms of the Company's employee and
fringe benefit plans, practices, programs and arrangements
referred to in Sections 5(d) and 5(e) hereof (together with the
lump-sum payment, the "Accrued Rights").
(ii) Severance Payment. The Company shall provide the
Executive with continued payment of the Executive's Base Salary,
as in effect on the date of termination, for a period of one year
following the Executive's termination, payable at the times and
in the manner such Base Salary would have been paid if the
Executive had continued in the employment of the Company.
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<PAGE>
(d) Disability. In the event the Executive's employment hereunder
is terminated by reason of the Executive's Disability, the Company shall pay and
provide to the Executive any Accrued Rights, including all disability insurance
coverage.
(e) Death. In the event the Executive's employment hereunder is
terminated by reason of the Executive's death, the Company shall pay and provide
to the Executive's representative or estate any Accrued Rights, including all
life insurance coverage.
8. CHANGE IN CONTROL
(a) Supplemental Termination Rights. In the event of a voluntary
termination of employment by the Executive pursuant to Section 6(a) hereof that
occurs within six months following a Change in Control, the Company shall pay
the Executive and provide him with the benefits and rights described in Section
7(c) hereof.
(b) Definition. For purposes of this Agreement, a "Change in
Control" shall be deemed to have occurred by reason of:
(i) the acquisition (other than from the Company) by any
person, entity or "group" (within the meaning of Sections
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, but
excluding, for this purpose, the Company or its subsidiaries, or
any employee benefit plan of the Company or its subsidiaries
which acquires beneficial ownership of voting securities of the
Company) of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Securities Exchange Act of 1934) of
25% or more of either the then-outstanding shares of the common
stock of the Company or the combined voting power of the
Company's then-outstanding voting securities entitled to vote
generally in the election of directors; or
(ii) individuals who, as of date hereof, constitute the
board of directors of the Company (as of such date, the
"Incumbent Board") cease for any reason to constitute at least a
majority of the board of directors of the Company; provided,
however, that any person becoming a director subsequent to such
date whose election, or nomination for election, was approved by
a vote of at least a majority of the directors then constituting
the Incumbent Board (other than an election or nomination of an
individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the
election of directors of the Company) shall be, for purposes of
this Section 8(b)(ii), considered as though such person were a
member of the Incumbent Board; or
(iii) approval by the stockholders of the Company of a
reorganization, merger, consolidation or share exchange, in each
case with respect to which persons who were the stockholders of
the Company immediately prior to such reorganization, merger,
consolidation or share exchange do not, immediately thereafter,
own more than 75% of the combined voting power entitled to vote
generally in the election of directors of the reorganized,
merged, consolidated or other surviving entity's then-outstanding
voting securities, or a liquidation or dissolution of the Company
or the sale of all or substantially all of the assets of the
Company.
9. NO MITIGATION OR OFFSET
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The Executive shall not be required to seek other employment or to
reduce any severance benefit payable to him under Sections 7 or 8 hereof, and no
such severance benefit shall be reduced on account of any compensation received
by the Executive from other employment. The Company's obligation to pay
severance benefits under this Agreement shall not be reduced by any amount owed
by the Executive to the Company.
10. TAX WITHHOLDING; METHOD OF PAYMENT
All compensation payable pursuant to this Agreement, shall be subject
to reduction by all applicable withholding, social security and other federal,
state and local taxes and deductions. Any lump-sum payments provided for in
Sections 7 or 8 hereof shall be made in a cash payment, net of any required tax
withholding, no later than the fifth business day following the Executive's date
of termination. Any payment required to be made to the Executive under this
Agreement that is not made in a timely manner shall bear interest until the date
of payment at a rate equal to 100% of the monthly compounded applicable federal
rate, as in effect under Section 1274(d) of the Internal Revenue Code of 1986,
as amended, for the month in which payment was required to be made.
11. RESTRICTIVE COVENANTS
(a) Confidential Information. During the Employment Period and at
all times thereafter, the Executive agrees that he will not divulge to anyone
(other than the Company or any persons employed or designated by the Company)
any knowledge or information of a confidential nature relating to the business
of the Company or any of its subsidiaries or affiliates, including, without
limitation, all types of trade secrets (unless readily ascertainable from public
or published information or trade sources) and confidential commercial
information, and the Executive further agrees not to disclose, publish or make
use of any such knowledge or information without the consent of the Company.
(b) Noncompetition. During the Employment Period and, for any
applicable period that the Executive is entitled to receive severance payments
pursuant to Section 7(c) hereof, the Executive shall not, without the prior
written consent of the Company, engage in the comprehensive rehabilitative and
related healthcare services business on behalf of any person, firm or
corporation within any geographical area in which the Company transacts such
business, and the Executive shall not acquire any financial interest (except for
an equity interest in publicly-held companies that do not exceed 5% of any
outstanding class of equity of that company), in any business that engages in
the comprehensive rehabilitative and related healthcare services business within
any geographical area in which the Company transacts such business.
Notwithstanding the foregoing, upon the occurrence of a Change in Control
(whether before or after the termination of the Employment Period), the
restrictions of this Section 11(b) shall cease to apply to the Executive for any
period following his termination of employment hereunder.
(c) Enforcement. The Company shall be entitled to seek a
restraining order or injunction in any court of competent jurisdiction to
prevent any continuation of any violation of the provisions of this Section 11.
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12. SUCCESSORS
This Agreement shall be binding upon and shall inure to the benefit of
the Company, its successors and assigns and any person, firm, corporation or
other entity which succeeds to all or substantially all of the business, assets
or property of the Company. The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business, assets or property of the Company, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, the "Company" shall mean
the Company as hereinbefore defined and any successor to its business, assets or
property as aforesaid which executes and delivers an agreement provided for in
this Section 12 or which otherwise becomes bound by all the terms and provisions
of this Agreement by operation of law.
This Agreement and all rights of the Executive hereunder shall inure
to the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amounts are due and
payable to him hereunder, all such amounts, unless otherwise provided herein,
shall be paid to the Executive's designated beneficiary or, if there be no such
designated beneficiary, to the legal representatives of the Executive's estate.
13. NO ASSIGNMENT
Except as to withholding of any tax under the laws of the United
States or any other country, state or locality, neither this Agreement nor any
right or interest hereunder nor any amount payable at any time hereunder shall
be subject in any manner to alienation, sale, transfer, assignment, pledge,
attachment, or other legal process, or encumbrance of any kind by the Executive
or the beneficiaries of the Executive or by his legal representatives without
the Company's prior written consent, nor shall there be any right of set-off or
counterclaim in respect of any debts or liabilities of the Executive, his
beneficiaries or legal representatives; provided, however, that nothing in this
Section shall preclude the Executive from designating a beneficiary to receive
any benefit payable on his death, or the legal representatives of the Executive
from assigning any rights hereunder to the person or persons entitled thereto
under his will or, in case of intestacy, to the person or persons entitled
thereto under the laws of intestacy applicable to his estate.
14. ENTIRE AGREEMENT
This Agreement contains the entire understanding of the parties with
respect to the subject matter hereof and, except as specifically provided
herein, cancels and supersedes any and all other agreements between the parties
with respect to the subject matter hereof. Any amendment or modification of this
Agreement shall not be binding unless in writing and signed by the Company and
the Executive.
15. SEVERABILITY
In the event that any provision of this Agreement is determined to be
invalid or unenforceable, the remaining terms and conditions of this Agreement
shall be unaffected and shall remain in full force and effect, and any such
determination of invalidity or unenforceability shall not affect the validity or
enforceability of any other provision of this Agreement.
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<PAGE>
16. NOTICES
All notices which may be necessary or proper for either the Company or
the Executive to give to the other shall be in writing and shall be delivered by
hand or sent by registered or certified mail, return receipt requested, or by
air courier, to the Executive at:
Mr. Robert E. Thomson
101 Indian Trail
Indian Springs, Alabama 35124
with a copy to:
Frederick W. Kanner, Esq.
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019
and shall be sent in the manner described above to the Secretary of the Company
at the Company's principal executives offices at One HealthSouth Parkway,
Birmingham, Alabama 35243, or delivered by hand to the Secretary of the Company,
and shall be deemed given when sent, provided that any notice required under
Section 6 hereof or notice given pursuant to Section 2 hereof shall be deemed
given only when received. Any party may by like notice to the other party change
the address at which he or they are to receive notices hereunder.
17. GOVERNING LAW
This Agreement shall be governed by and enforceable in accordance with
the laws of the State of Alabama, without giving effect to the principles of
conflict of laws thereof.
18. ARBITRATION
Any controversy or claim arising out of, or related to, this
Agreement, or the breach thereof, shall be settled by binding arbitration in the
City of Birmingham, Alabama, in accordance with the rules then obtaining of the
American Arbitration Association, and the arbitrator's decision shall be binding
and final, and judgment upon the award rendered may be entered in any court
having jurisdiction thereof.
19. LEGAL FEES AND EXPENSES
To induce the Executive to execute this Agreement and to provide the
Executive with reasonable assurance that the purposes of this Agreement will not
be frustrated by the cost of its enforcement should the Company fail to perform
its obligations under this Agreement or should the Company or any subsidiary,
affiliate or stockholder of the Company contest the validity or enforceability
of this Agreement, the Company shall pay and be solely responsible for any
attorneys' fees and expenses and court costs incurred by the Executive as a
result of a claim that the Company has breached or otherwise failed to perform
this Agreement or any provision hereof
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<PAGE>
to be performed by the Company or as a result of the Company or any subsidiary,
affiliate or stockholder of the Company contesting the validity or
enforceability of this Agreement or any provision hereof to be performed by the
Company, in each case regardless of which party, if any, prevails in the
contest.
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IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date first above written.
EXECUTIVE
/s/ Robert E. Thomson
--------------------------------
Robert E. Thomson
HEALTHSOUTH CORPORATION
By /s/ Richard M. Scrushy
------------------------------
Richard M. Scrushy
Chairman of the Board and
Chief Executive Officer
10
LEASE AGREEMENT
Dated as of December 18, 1998
between
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
not individually,
but solely as Owner Trustee
under the HEALTHSOUTH Corporation Trust 1998-1,
as Lessor
and
HEALTHSOUTH CORPORATION, as Lessee
- - - -----------------------------------------------------------------
This Lease Agreement is subject to a security interest in favor of NationsBank,
N.A., as Administrative Agent (the "Agent") under a Security Agreement dated as
of the date hereof among First Security Bank, National Association., not
individually except as expressly stated therein, but solely as Owner Trustee
under the HEALTHSOUTH Corporation Trust 1998-1, the Lenders and the Agent, as
amended, modified, supplemented, restated or replaced from time to time. This
Lease Agreement has been executed in several counterparts. To the extent, if
any, that this Lease Agreement constitutes chattel paper (as such term is
defined in the Uniform Commercial Code as in effect in any applicable
jurisdiction), no security interest in this Lease Agreement may be created
through the transfer or possession of any counterpart other than the original
counterpart containing the receipt therefor executed by the Agent on the
signature page hereof.
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE I........................................................................1
1.1 Definitions.......................................................1
ARTICLE II.......................................................................1
2.1 Properties........................................................1
2.2 Lease Term........................................................1
2.3 Title.............................................................2
2.4 Lease Supplements.................................................2
ARTICLE III......................................................................2
3.1 Rent..............................................................2
3.2 Payment of Basic Rent.............................................2
3.3 Supplemental Rent.................................................2
3.4 Performance on a Non-Business Day.................................3
3.5 Rent Payment Provisions...........................................3
ARTICLE IV.......................................................................3
4.1 Utility Charges; Taxes............................................3
ARTICLE V........................................................................4
5.1 Quiet Enjoyment...................................................4
ARTICLE VI.......................................................................4
6.1 Net Lease.........................................................4
6.2 No Termination or Abatement.......................................5
ARTICLE VII......................................................................5
7.1 Ownership of the Properties.......................................5
ARTICLE VIII.....................................................................7
8.1 Condition of the Properties.......................................7
8.2 Possession and Use of the Properties..............................7
ARTICLE IX.......................................................................8
9.1 Compliance with Legal Requirements and Insurance Requirements.....8
ARTICLE X........................................................................9
10.1 Maintenance and Repair; Return....................................9
10.2 Environmental Inspection.........................................10
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ARTICLE XI......................................................................10
11.1 Modifications....................................................10
ARTICLE XII.....................................................................11
12.1 Warranty of Title................................................11
ARTICLE XIII....................................................................12
13.1 Permitted Contests Other Than in Respect of Indemnities..........12
ARTICLE XIV.....................................................................12
14.1 Public Liability and Workers' Compensation Insurance.............12
14.2 Hazard and Other Insurance.......................................13
14.3 Coverage.........................................................13
ARTICLE XV......................................................................14
15.1 Casualty and Condemnation........................................14
15.2 Environmental Matters............................................16
15.3 Notice of Environmental Matters..................................16
ARTICLE XVI.....................................................................16
16.1 Termination Upon Certain Events..................................16
16.2 Procedures.......................................................17
ARTICLE XVII....................................................................17
17.1 Lease Events of Default..........................................17
17.2 Surrender of Possession..........................................19
17.3 Reletting........................................................20
17.4 Damages..........................................................20
17.5 Final Liquidated Damages.........................................21
17.6 Waiver of Certain Rights.........................................21
17.7 Assignment of Rights Under Contracts.............................21
17.8 Environmental Costs. ...........................................22
17.9 Remedies Cumulative..............................................22
17.10 Notice of Default or Event of Default............................22
ARTICLE XVIII...................................................................22
18.1 Lessor's Right to Cure Lessee's Lease Defaults...................22
ARTICLE XIX.....................................................................22
19.1 Provisions Relating to Lessee's Exercise of its Purchase Option..22
19.2 No Termination With Respect to Less than All of the Properties...23
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ARTICLE XX......................................................................23
20.1 Early Purchase Option............................................23
20.2 Purchase or Sale Option..........................................23
ARTICLE XXI.....................................................................24
21.1 Renewal. .......................................................24
ARTICLE XXII....................................................................25
22.1 Sale Procedure...................................................25
22.2 Application of Proceeds of Sale..................................27
22.3 Indemnity for Excessive Wear.....................................27
22.4 Appraisal Procedure..............................................27
22.5 Certain Obligations Continue.....................................28
ARTICLE XXIII...................................................................28
23.1 Holding Over.....................................................28
ARTICLE XXIV....................................................................28
24.1 Risk of Loss.....................................................28
ARTICLE XXV.....................................................................28
25.1 Assignment.......................................................28
25.2 Subleases........................................................29
ARTICLE XXVI....................................................................30
26.1 No Waiver........................................................30
ARTICLE XXVII...................................................................30
27.1 Acceptance of Surrender..........................................30
27.2 No Merger of Title...............................................30
ARTICLE XXVIII..................................................................30
28.1 Incorporation of Covenants.......................................30
28.2 Additional Reporting Requirements................................31
ARTICLE XXIX....................................................................32
29.1 Notices..........................................................32
ARTICLE XXX.....................................................................33
30.1 Miscellaneous....................................................33
30.2 Amendments and Modifications.....................................33
30.3 Successors and Assigns...........................................33
30.4 Headings and Table of Contents...................................33
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30.5 Counterparts.....................................................33
30.6 Governing Law....................................................34
30.7 Calculation of Rent..............................................34
30.8 Memorandum of Lease..............................................34
30.9 Allocations between the Lenders and the Holders..................34
30.10 Limitations on Recourse..........................................34
30.11 Waivers of Jury Trial............................................34
30.12 Original Leases..................................................34
30.13 Power of Sale....................................................35
30.14 Exercise of Lessor Rights........................................35
</TABLE>
EXHIBITS
EXHIBIT A Description of Properties
EXHIBIT B Other Names And Locations of Lessee
EXHIBIT C Compliance Certificate
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LEASE AGREEMENT
THIS LEASE AGREEMENT (as amended, supplemented or modified from time to
time, this "Lease"), dated as of December 18, 1998, is between FIRST SECURITY
BANK, NATIONAL ASSOCIATION, a national banking association, having its principal
office at 79 South Main Street, Salt Lake City, Utah 84111, not individually,
but solely as Owner Trustee under the HEALTHSOUTH Corporation Trust 1998-1, as
lessor (the "Lessor"), and HEALTHSOUTH CORPORATION, a Delaware corporation,
having its principal place of business at Birmingham, Alabama, as lessee (the
"Lessee").
W I T N E S S E T H:
A. WHEREAS, subject to the terms and conditions of the Participation
Agreement (defined below), Lessor will purchase or ground lease certain parcels
of real property, and will purchase the Improvements on such real property and
certain Equipment; and
B. WHEREAS, the Basic Term shall commence with respect to the
Properties as of the date hereof; and
C. WHEREAS, Lessor desires to lease to Lessee, and Lessee desires to
lease from Lessor, the Properties;
NOW, THEREFORE, in consideration of the foregoing, and of other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
1.1 Definitions. Capitalized terms used but not otherwise defined in
this Lease have the respective meanings specified in Appendix A to the
Participation Agreement of even date herewith (as such may be amended, modified,
supplemented, restated and/or replaced from time to time, the "Participation
Agreement") among the Lessee, First Security Bank, National Association, not
individually, except as expressly stated therein, but as Owner Trustee under the
HEALTHSOUTH Corporation Trust 1998-1, the Holders party thereto, the Lenders
party thereto and the Agent.
ARTICLE II
2.1 Properties. Subject to the terms and conditions hereinafter set
forth and contained in the respective Lease Supplement relating to each
Property, Lessor hereby leases to Lessee and Lessee hereby leases from Lessor,
each Property described in Exhibit A and Schedule I-A, Schedule I-B and Schedule
I-C attached thereto.
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2.2 Lease Term. The term of this Lease with respect to each Property
(the "Basic Term") shall begin upon the Property Closing Date for such Property
(the "Basic Term Commencement Date" or the "Term Commencement Date" for such
Property) and shall end on December 17, 1999 (the "Basic Term Expiration Date"),
unless the Term is extended in accordance with Article XXI of this Lease or
earlier terminated in accordance with the provisions of this Lease.
2.3 Title. Each Property is leased to Lessee without any representation
or warranty, express or implied, by Lessor and subject to the rights of parties
in possession (if any), the existing state of title (including, without
limitation, the Permitted Exceptions) and all applicable Legal Requirements.
Lessee shall in no event have any recourse against Lessor for any defect in
title to any Property other than for Lessor Liens.
2.4 Lease Supplements. On or prior to the Basic Term Commencement Date,
Lessee and Lessor shall each execute and deliver a Lease Supplement for each
Property to be leased effective as of such Basic Term Commencement Date in
substantially the form of Exhibit C hereto. Lessee hereby irrevocably appoints
Lessor as Lessee's attorney-in-fact, with power of substitution, in the name of
Lessor or the name of Lessee or otherwise, to execute any Lease Supplement which
Lessee fails or refuses to sign in accordance with the terms of this Section
2.4.
ARTICLE III
3.1 Rent.
(a) Lessee shall pay Basic Rent on each Payment Date, and on
any date on which this Lease shall terminate.
(b) Basic Rent shall be due and payable in lawful money of the
United States and shall be paid in immediately available funds on the
due date therefor (or within the applicable grace period) to such
account or accounts at such bank or banks as Lessor shall from time to
time direct.
(c) Lessee's inability or failure to take possession of all or
any portion of any Property when delivered by Lessor, whether or not
attributable to any act or omission of the Lessor, the Lessee, or any
other Person, or for any other reason whatsoever, shall not delay or
otherwise affect Lessee's obligation to pay Rent for such Property in
accordance with the terms of this Lease.
3.2 Payment of Basic Rent. Basic Rent shall be paid absolutely net to
Lessor or its designee, so that this Lease shall yield to Lessor the full amount
of Basic Rent, without setoff, deduction or reduction.
3.3 Supplemental Rent. Lessee shall pay to Lessor or its designee or to
the Person entitled thereto any and all Supplemental Rent promptly as the same
shall become due and payable,
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and if Lessee fails to pay any Supplemental Rent, Lessor shall have all rights,
powers and remedies provided for herein or by law or equity or otherwise in the
case of nonpayment of Basic Rent. Without limiting the generality of the
definition of "Supplemental Rent," Lessee shall pay to Lessor as Supplemental
Rent, among other things, on demand, to the extent permitted by applicable Legal
Requirements, (a) any and all unpaid fees, charges, payments and other
obligations (except the obligations of Lessor to pay the principal amount of the
Loans and the Holder Amount) due and owing by Lessor under the Credit Agreement,
the Trust Agreement or any other Operative Agreement (including specifically
without limitation any amounts owing to the Lenders under Section 2.11 or
Section 2.12 of the Credit Agreement and any amounts owing to the Holders under
Section 3.9 or Section 3.10 of the Trust Agreement) and (b) interest at the
applicable Base Rate on any installment of Basic Rent not paid when due (subject
to the applicable grace period) for the period for which the same shall be
overdue and on any payment of Supplemental Rent not paid when due or demanded by
the appropriate Person for the period from the due date or the date of any such
demand, as the case may be, until the same shall be paid. The expiration or
other termination of Lessee's obligations to pay Basic Rent hereunder shall not
limit or modify the obligations of Lessee with respect to Supplemental Rent.
Unless expressly provided otherwise in this Lease, in the event of any failure
on the part of Lessee to pay and discharge any Supplemental Rent as and when
due, Lessee shall also promptly pay and discharge any fine, penalty, interest or
cost which may be assessed or added (a) by any party to an Operative Agreement
pursuant to the terms of such agreement or (b) by any Person that is not a party
to an Operative Agreement, in each case for nonpayment or late payment of such
Supplemental Rent, all of which shall also constitute Supplemental Rent.
3.4 Performance on a Non-Business Day. If any Basic Rent is required
hereunder on a day that is not a Business Day, then such Basic Rent shall be due
on the corresponding Scheduled Interest Payment Date. If any Supplemental Rent
is required hereunder on a day that is not a Business Day, then such
Supplemental Rent shall be due on the next succeeding Business Day.
3.5 Rent Payment Provisions. Lessee shall make payment of all Basic
Rent and Supplemental Rent when due regardless of whether any of the Operative
Agreements pursuant to which same is calculated and is owing shall have been
rejected, avoided or disavowed in any bankruptcy or insolvency proceeding
involving any of the parties to any of the Operative Agreements. Such provisions
of such Operative Agreements and their related definitions are incorporated
herein by reference and shall survive any termination, amendment or rejection of
any such Operative Agreements.
ARTICLE IV
4.1 Utility Charges; Taxes. Lessee shall pay or cause to be paid all
charges for electricity, power, gas, oil, water, telephone, sanitary sewer
service and all other rents and utilities used in or on a Property and related
real property during the Term. Lessee shall be entitled to receive any credit or
refund with respect to any utility charge paid by Lessee. Unless a Lease Default
or Lease Event of Default shall have occurred and be continuing, the amount of
any credit or refund received
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by Lessor on account of any utility charges paid by Lessee, net of the costs and
expenses incurred by Lessor in obtaining such credit or refund, shall be
promptly paid over to Lessee. In addition, Lessee shall pay or cause to be paid
all taxes or tax assessments against a Property. All charges for utilities and
all taxes or tax assessments imposed with respect to a Property for a billing
period (or in the cases of tax assessments, a tax period) during which this
Lease expires or terminates shall be adjusted and prorated on a daily basis
between Lessor and Lessee, and each party shall pay or reimburse the other for
such party's pro rata share thereof.
ARTICLE V
5.1 Quiet Enjoyment. Subject to the rights of Lessor contained in
Sections 17.2 and 17.3 and the other terms of this Lease and the other Operative
Agreements and so long as no Lease Event of Default shall have occurred and be
continuing, Lessee shall peaceably and quietly have, hold and enjoy each
Property for the applicable Term, free of any claim or other action by Lessor or
anyone rightfully claiming by, through or under Lessor (other than Lessee) with
respect to any matters arising from and after the Basic Term Commencement Date.
ARTICLE VI
6.1 Net Lease. This Lease shall constitute a net lease. Any present or
future law to the contrary notwithstanding, this Lease shall not terminate, nor
shall Lessee be entitled to any abatement, suspension, deferment, reduction,
setoff, counterclaim, or defense with respect to the Rent, nor shall the
obligations of Lessee hereunder be affected (except as expressly herein
permitted and by performance of the obligations in connection therewith) by
reason of: (a) any damage to or destruction of any Property or any part thereof;
(b) any taking of any Property or any part thereof or interest therein by
Condemnation or otherwise; (c) any prohibition, limitation, restriction or
prevention of Lessee's use, occupancy or enjoyment of any Property or any part
thereof, or any interference with such use, occupancy or enjoyment by any Person
or for any other reason; (d) any title defect, Lien or any matter affecting
title to any Property; (e) any eviction by paramount title or otherwise; (f) any
default by Lessor hereunder; (g) any action for bankruptcy, insolvency,
reorganization, liquidation, dissolution or other proceeding relating to or
affecting the Agent, any Lender, Lessor, Lessee, any Holder or any Governmental
Authority; (h) the impossibility or illegality of performance by Lessor, Lessee
or both; (i) any action of any Governmental Authority or any other Person; (j)
Lessee's acquisition of ownership of all or part of any Property; (k) breach of
any warranty or representation with respect to any Property or any Operative
Agreement; (l) any defect in the condition, quality or fitness for use of any
Property or any part thereof; or (m) any other cause or circumstance whether
similar or dissimilar to the foregoing and whether or not Lessee shall have
notice or knowledge of any of the foregoing. The foregoing clause (j) shall not
prevent the termination of the Lease in accordance with the terms hereof if the
Lessee purchases all of the Properties pursuant to Section 20.1 or 20.2. The
parties intend that the obligations of Lessee hereunder shall be covenants,
agreements and obligations that are separate and independent from any
obligations of Lessor hereunder and shall continue unaffected unless such
covenants, agreements and obligations shall have been modified or terminated in
accordance with an express provision of this
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Lease. Lessor and Lessee acknowledge and agree that the provisions of this
Section 6.1 have been specifically reviewed and agreed to, and that this Lease
has been negotiated by the parties.
6.2 No Termination or Abatement. Lessee shall remain obligated under
this Lease in accordance with its terms and shall not take any action to
terminate, rescind or avoid this Lease, notwithstanding any action for
bankruptcy, insolvency, reorganization, liquidation, dissolution, or other
proceeding affecting Lessor or any Governmental Authority, or any action with
respect to this Lease or any Operative Agreement which may be taken by any
trustee, receiver or liquidator of Lessor or any Governmental Authority or by
any court with respect to Lessor, Lessee, any Holder, or any Governmental
Authority. Lessee hereby waives all right (a) to terminate or surrender this
Lease (except as permitted under the terms of the Operative Agreements) or (b)
to avail itself of any abatement, suspension, deferment, reduction, setoff,
counterclaim or defense with respect to any Rent. Lessee shall remain obligated
under this Lease in accordance with its terms and Lessee hereby waives any and
all rights now or hereafter conferred by statute or otherwise to modify or to
avoid strict compliance with its obligations under this Lease. Notwithstanding
any such statute or otherwise, Lessee shall be bound by all of the terms and
conditions contained in this Lease.
ARTICLE VII
7.1 Ownership of the Properties.
(a) Lessor and Lessee intend that (i) for financial accounting
purposes with respect to Lessee (A) this Lease will be treated as an
"operating lease" pursuant to Statement of Financial Accounting
Standards No. 13, as amended, (B) Lessor will be treated as the owner
and lessor of the Properties and (C) Lessee will be treated as the
lessee of the Properties, but (ii) for federal and all state and local
income tax purposes, for bankruptcy purposes and all other purposes (A)
this Lease will be treated as a financing arrangement and (B) Lessee
will be treated as the owner of the Properties and will be entitled to
all tax benefits ordinarily available to owners of property similar to
the Properties for such tax purposes, and (C) all payments of Basic
Rent shall be deemed to be interest payments. Consistent with the
foregoing, Lessee intends to claim depreciation and cost recovery
deductions associated with the Properties, and Lessor agrees not to
take any inconsistent position on its income tax returns. Neither
Lessor, the Agent, any Lender, any Holder nor NMS makes any
representation or warranty with respect to the foregoing matters
described in this Section 7.1 and will assume no liability for the
Lessee's accounting treatment of this transaction.
(b) For all purposes other than as set forth in Section
7.1(a)(i), Lessor and Lessee intend this Lease to constitute a finance
lease and not a true lease. Lessor and Lessee further intend and agree
that, for the purpose of securing Lessee's obligations hereunder (i)
this Lease shall be deemed to be a security agreement and financing
statement within the meaning of Article 9 of the Uniform Commercial
Code respecting each of the Properties to the extent such is personal
property and an irrevocable grant and conveyance of each
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Property to the Lessor as security for the Lessee's obligations
hereunder to the extent such is real property; (ii) the acquisition of
title (or to the extent applicable, a leasehold interest) in the
Properties referenced in Article II shall be deemed to be (A) a grant
by Lessee to Lessor of a lien on and security interest in all of
Lessee's right, title and interest in and to each Property and all
proceeds (including without limitation insurance proceeds) of each
Property, whether in the form of cash, investments, securities or other
property, and (B) an assignment by Lessee to Lessor of all rents,
profits and income produced by each Property; and (iii) notifications
to Persons holding such Property, and acknowledgments, receipts or
confirmations from financial intermediaries, bankers or agents (as
applicable) of Lessee shall be deemed to have been given for the
purpose of perfecting such security interest under applicable law.
Lessor and Lessee shall promptly take such actions as may be necessary
or advisable in either party's opinion (including without limitation
the filing of Uniform Commercial Code Financing Statements or Uniform
Commercial Code Fixture Filings) to ensure that the lien and security
interest in the Properties will be deemed to be a perfected lien and
security interest of first priority under applicable law and will be
maintained as such throughout the Term.
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ARTICLE VIII
8.1 Condition of the Properties. LESSEE ACKNOWLEDGES AND AGREES THAT IT
IS LEASING THE PROPERTIES "AS IS" WITHOUT REPRESENTATION, WARRANTY OR COVENANT
(EXPRESS OR IMPLIED) BY LESSOR AND IN EACH CASE SUBJECT TO (A) THE EXISTING
STATE OF TITLE, (B) THE RIGHTS OF ANY PARTIES IN POSSESSION THEREOF (IF ANY),
(C) ANY STATE OF FACTS WHICH AN ACCURATE SURVEY OR PHYSICAL INSPECTION MIGHT
SHOW, (D) ALL APPLICABLE LEGAL REQUIREMENTS AND (E) VIOLATIONS OF LEGAL
REQUIREMENTS WHICH MAY EXIST ON THE DATE HEREOF. NEITHER LESSOR NOR THE AGENT
NOR ANY LENDER NOR ANY HOLDER HAS MADE OR SHALL BE DEEMED TO HAVE MADE ANY
REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR IMPLIED) OR SHALL BE DEEMED TO
HAVE ANY LIABILITY WHATSOEVER AS TO THE TITLE, VALUE, HABITABILITY, USE,
CONDITION, DESIGN, OPERATION, MERCHANTABILITY OR FITNESS FOR USE OF ANY PROPERTY
(OR ANY PART THEREOF), OR ANY OTHER REPRESENTATION, WARRANTY OR COVENANT
WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO ANY PROPERTY (OR ANY PART
THEREOF), AND NEITHER LESSOR NOR THE AGENT NOR ANY LENDER NOR ANY HOLDER SHALL
BE LIABLE FOR ANY LATENT, HIDDEN, OR PATENT DEFECT THEREON OR THE FAILURE OF ANY
PROPERTY, OR ANY PART THEREOF, TO COMPLY WITH ANY LEGAL REQUIREMENT. THE LESSEE
HAS BEEN AFFORDED FULL OPPORTUNITY TO INSPECT EACH PROPERTY AND THE IMPROVEMENTS
THEREON (IF ANY), IS (INSOFAR AS THE LESSOR, THE AGENT, EACH LENDER AND EACH
HOLDER ARE CONCERNED) SATISFIED WITH THE RESULTS OF ITS INSPECTIONS AND IS
ENTERING INTO THIS LEASE SOLELY ON THE BASIS OF THE RESULTS OF ITS OWN
INSPECTIONS, AND ALL RISKS INCIDENT TO THE MATTERS DESCRIBED IN THE PRECEDING
SENTENCE, AS BETWEEN THE LESSOR, THE AGENT, THE LENDERS AND THE HOLDERS, ON THE
ONE HAND, AND THE LESSEE, ON THE OTHER HAND, ARE TO BE BORNE BY LESSEE.
8.2 Possession and Use of the Properties.
(a) At all times during the Term, the Properties shall be used
by Lessee or any sublessee permitted under Section 25.2 for the
provision of rehabilitation and other healthcare services and related
activities in the ordinary course of its business. Lessee shall pay, or
cause to be paid, all charges and costs required in connection with the
use of the Properties as contemplated by this Lease. Lessee shall not
commit or permit any waste of the Properties or any part thereof.
(b) Lessee represents and warrants that the address stated in
Section 29.1 of this Lease is the chief place of business and chief
executive office of Lessee (as such terms are used in Section 9-103 (or
other corresponding section) of the Uniform Commercial Code of any
applicable jurisdiction), and Lessee will provide Lessor with prior
written notice of any change of location of its chief place of business
or chief executive office. Regarding the
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Properties, Lessee represents and warrants that Schedules I-A and I-B
hereto correctly identify the initial location of the related Equipment
and Improvements, and Schedule I-C hereto contains an accurate legal
description for the Land. Lessee has no other places of business where
the Equipment or Improvements will be located other than those
identified on Schedule I-C.
(c) Lessee will not attach or incorporate any item of
Equipment to or in any other item of equipment or personal property or
to or in any real property (except the Land identified in Schedule I-C)
in a manner that could give rise to the assertion of any Lien on such
item of Equipment by reason of such attachment or the assertion of a
claim that such item of Equipment has become a fixture and is subject
to a Lien in favor of a third party that is prior to the Liens thereon
created by the Operative Agreements.
(d) Each Lease Supplement delivered under the terms of this
Lease shall contain, in regard to the relevant Property, an Equipment
Schedule that has a complete description of each item of Equipment, an
Improvement Schedule that has a complete description of each
Improvement and a legal description of the Land to be leased hereunder
as of such date. Simultaneously with the execution and delivery of each
Lease Supplement, such Equipment, Improvements and Land shall be deemed
to have been accepted by Lessee for all purposes of this Lease and to
be subject to this Lease.
(e) At all times during the Term, Lessee will comply with all
obligations under, and (to the extent no Event of Default has occurred
and is continuing and provided that such exercise will not impair the
value of any Property) shall be permitted to exercise all rights and
remedies under, all operation and easement agreements and related or
similar agreements applicable to each Property.
ARTICLE IX
9.1 Compliance with Legal Requirements and Insurance Requirements.
Subject to the terms of Article XIII relating to permitted contests, Lessee, at
its sole cost and expense, shall (i) comply with all material Legal Requirements
(including without limitation all Environmental Laws), and all Insurance
Requirements relating to the Properties, including the use, development,
construction, operation, maintenance, repair, refurbishment and restoration
thereof, whether or not compliance therewith shall require structural or
extraordinary changes in the Improvements or interfere with the use and
enjoyment of any Property, and (ii) procure, maintain and comply with all
material licenses, permits, orders, approvals, consents and other authorizations
required for the construction, use, maintenance and operation of any Property
and for the use, development, construction, operation, maintenance, repair and
restoration of the Improvements.
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ARTICLE X
10.1 Maintenance and Repair; Return.
(a) Lessee, at its sole cost and expense, shall maintain each
Property in good condition, repair and working order (ordinary wear and
tear excepted) and make all necessary repairs thereto, of every kind
and nature whatsoever, whether interior or exterior, ordinary or
extraordinary, structural or nonstructural, or foreseen or unforeseen,
in each case as required by all Legal Requirements, Insurance
Requirements, and manufacturer's specifications and standards and on a
basis consistent with the operation and maintenance of properties or
equipment comparable in type and function to such Property and in
compliance with standard industry practice, subject, however, to the
provisions of Article XV with respect to Condemnation and Casualty.
(b) Lessee shall not move, use or relocate any component of
any Property beyond the boundaries of the Land described in the
applicable Lease Supplement without Lessor's prior written consent,
which consent shall not be unreasonably withheld or delayed.
(c) If any material component of any Property becomes worn
out, lost, destroyed, damaged beyond repair or otherwise permanently
rendered unfit for use, Lessee, at its own expense, will within a
reasonable time replace such component with a replacement component
which is free and clear of all Liens (other than Permitted Liens) and
has a value, utility and useful life at least equal to the component
replaced. All components which are added to any Property shall
immediately become the property of, and title thereto shall vest in,
Lessor, and shall be deemed incorporated in such Property and subject
to the terms of this Lease as if originally leased hereunder.
(d) Upon reasonable advance notice, Lessor and its agents
shall have the right to inspect each Property and all maintenance
records with respect thereto at any reasonable time during normal
business hours but shall not materially disrupt the business of Lessee.
(e) In addition to any Appraisal required by Section 5.3 of
the Participation Agreement, Lessee shall cause to be delivered to
Lessor (at Lessee's sole expense) any additional Appraisals (or
reappraisals) as Lessor or the Agent may deem appropriate (i) if an
Event of Default has occurred and is continuing, or (ii) if any one of
Lessor, the Agent, any Lender or any Holder is required pursuant to any
applicable Legal Requirement to obtain such an Appraisal (or
reappraisal).
(f) Lessor shall under no circumstances be required to build
any improvements on any Property, make any repairs, replacements,
alterations or renewals of any nature or description to such Property,
make any expenditure whatsoever in connection with this Lease or
maintain any Property in any way. Lessor shall not be required to
maintain, repair or rebuild all or any part of any Property, and Lessee
waives the right to (i) require Lessor to
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maintain, repair, or rebuild all or any part of any Property (unless
such repairs are needed to cure damage to a Property caused by the
gross negligence or wilful misconduct of the Lessor), or (ii) make
repairs at the expense of Lessor pursuant to any Legal Requirement,
Insurance Requirement, contract, agreement, covenants, condition or
restriction at any time in effect.
(g) Lessee shall, upon the expiration or earlier termination
of this Lease with respect to the Properties, if Lessee shall not have
exercised its Purchase Option with respect to the Properties, surrender
the Properties to Lessor, or the third party purchaser, as the case may
be, subject to Lessee's obligations under this Lease (including without
limitation Sections 9.1, 10.1(a)-(f), 10.2, 11.1, 12.1, 22.1 and 23.1)
and the other Operative Agreements.
10.2 Environmental Inspection. If (a) Lessee has not given notice of
the exercise of its Purchase Option on the Expiration Date pursuant to Section
20.2, or (b) Lessee has given notice, pursuant to Section 20.2 of its election
to remarket the Properties pursuant to Section 22.1 then, in either case, not
more than 120 days nor less than 60 days prior to the Expiration Date, Lessee
shall, at its sole cost and expense, provide to Lessor and the Agent a report by
a reputable environmental consultant selected by Lessee, which report shall be
in form and substance reasonably satisfactory to Lessor and the Agent and shall
include without limitation a "Phase I" environmental report (or update of a
prior "Phase I" report that was previously delivered to the Lessor and the
Agent) on each of the Properties. If the report delivered pursuant to the
preceding sentence recommends that a "Phase II" report or other supplemental
report be obtained, the Lessee shall, at its own cost and expense, not less than
thirty (30) days prior to such Expiration Date or Payment Date, provide to
Lessor and the Agent such "Phase II" or other report, in form and substance
reasonably satisfactory to Lessor and the Agent. If Lessee fails to provide such
Phase I, Phase II or other supplemental reports with respect to any Property
within the time periods required by this Section 10.2, or if such report or
reports are not satisfactory in scope or content to the Agent or the Lessor (in
their sole discretion), then notwithstanding any other provision of this Lease,
Lessor may require Lessee to purchase all of the Properties on such Expiration
Date or Payment Date for the Termination Value thereof, plus all Rent due and
payable, and all other amounts due and owing under any Operative Agreement.
ARTICLE XI
11.1 Modifications. Lessee at its sole cost and expense, at any time
and from time to time without the consent of Lessor may make alterations,
renovations, improvements and additions to any Property or any part thereof and
substitutions and replacements therefor (collectively, "Modifications") and
shall make any Modifications required by all applicable Legal Requirements;
provided, that: (i) except for any Modification required to be made pursuant to
a Legal Requirement, no Modification shall materially impair the value, utility
or useful life of any Property from that which existed immediately prior to such
Modification; (ii) the Modification shall be done expeditiously and in a good
and workmanlike manner; (iii) Lessee shall comply with all
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material Legal Requirements (including all Environmental Laws) and Insurance
Requirements applicable to the Modification, including without limitation the
obtaining of all permits and certificates of occupancy, and the structural
integrity of any Property shall not be adversely affected; (iv) to the extent
required by Section 14.2(a), Lessee shall maintain builders' risk insurance at
all times when a Modification is in progress; (v) subject to the terms of
Article XIII relating to permitted contests, Lessee shall pay all costs and
expenses and discharge any Liens arising with respect to the Modification; (vi)
such Modification shall comply with the requirements of this Lease (including
without limitation Sections 8.2 and 10.1); and (vii) no Improvements shall be
demolished unless Lessee shall finance the proposed Modification outside of this
lease facility. Modifications that (y) are not required for any Property or any
part thereof pursuant to any Legal Requirement or otherwise and (z) are
severable from the applicable Property without damage or other loss of value to
such Property shall become property of the Lessee, and title to such
Modifications shall rest with the Lessee. Except as set forth in the immediately
preceding sentence, all Modifications shall become property of the Lessor and
shall be subject to this Lease, and title to any component of any Property
comprising any such Modifications shall immediately vest in Lessor.
ARTICLE XII
12.1 Warranty of Title.
(a) Lessee agrees that, except as otherwise provided herein
and subject to the terms of Article XIII relating to permitted
contests, Lessee shall not directly or indirectly create or allow to
remain, and shall promptly discharge at its sole cost and expense, (i)
any Lien, defect, attachment, levy, title retention agreement or claim
upon any Property or any Modifications or (ii) any Lien, attachment,
levy or claim with respect to the Rent or with respect to any amounts
held by the Agent pursuant to the Credit Agreement, in each case other
than Permitted Liens and Lessor Liens. Lessee shall promptly notify
Lessor in the event it receives actual knowledge that a Lien other than
a Permitted Lien or Lessor Lien has occurred with respect to any
Property, and Lessee represents and warrants to, and covenants with,
Lessor that the Liens in favor of the Lessor created by the Operative
Agreements are first priority perfected Liens subject only to Permitted
Liens.
(b) Nothing contained in this Lease shall be construed as
constituting the consent or request of Lessor, expressed or implied, to
or for the performance by any contractor, mechanic, laborer,
materialman, supplier or vendor of any labor or services or for the
furnishing of any materials for any construction, alteration, addition,
repair or demolition of or to any Property or any part thereof. NOTICE
IS HEREBY GIVEN THAT LESSOR IS NOT AND SHALL NOT BE LIABLE FOR ANY
LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO LESSEE, OR
TO ANYONE HOLDING A PROPERTY OR ANY PART THEREOF THROUGH OR UNDER
LESSEE, AND THAT NO MECHANIC'S OR OTHER LIENS FOR ANY SUCH LABOR,
SERVICES OR MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF LESSOR
IN AND TO SUCH PROPERTY.
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ARTICLE XIII
13.1 Permitted Contests Other Than in Respect of Indemnities. Except to
the extent otherwise provided for in Section 13 of the Participation Agreement,
Lessee, on its own or on Lessor's behalf but at Lessee's sole cost and expense,
may contest, by appropriate administrative or judicial proceedings conducted in
good faith and with due diligence, the amount, validity or application, in whole
or in part, of any Legal Requirement, or utility charges payable pursuant to
Section 4.1 or any Lien, attachment, levy, encumbrance or encroachment, and
Lessor agrees not to pay, settle or otherwise compromise any such item, provided
that (a) the commencement and continuation of such proceedings shall suspend the
collection of any such contested amount from, and suspend the enforcement
thereof against, the subject Property, Lessor, each Holder, the Agent and each
Lender; (b) there shall not be imposed a Lien (other than Permitted Liens) on
any Property and no part of any Property nor any Rent shall be in any danger of
being sold, forfeited, lost or deferred; (c) at no time during the permitted
contest shall there be a risk of the imposition of criminal liability or
material civil liability on Lessor, any Holder, the Agent or any Lender for
failure to comply therewith; and (d) in the event that, at any time, there shall
be a material risk of extending the application of such item beyond the end of
the Term, then Lessee shall deliver to Lessor an Officer's Certificate
certifying as to the matters set forth in clauses (a), (b) and (c) of this
Section 13.1. Lessor, at Lessee's sole cost and expense, shall execute and
deliver to Lessee such authorizations and other documents as may reasonably be
required in connection with any such contest and, if reasonably requested by
Lessee, shall join as a party therein at Lessee's sole cost and expense.
ARTICLE XIV
14.1 Public Liability and Workers' Compensation Insurance. During the
Term, Lessee shall procure and carry, at Lessee's sole cost and expense,
commercial general liability insurance for claims for injuries or death
sustained by persons or damage to property while on a Property or the premises
where the Equipment is located and such other public liability coverages as are
then customarily carried by similarly situated companies conducting business
similar to that conducted by Lessee. Such insurance shall be on terms and in
amounts that are no less favorable than insurance maintained by Lessee with
respect to similar properties and equipment that it owns and are then carried by
similarly situated companies conducting business similar to that conducted by
Lessee. The policies shall be endorsed to name Lessor, the Holders, the Agent
and the Lenders as additional insureds and, to the extent of their interest,
loss payees. The policies shall also specifically provide that such policies
shall be considered primary insurance which shall apply to any loss or claim
before any contribution by any insurance which Lessor, any Holder, the Agent or
any Lender may have in force. Lessee shall, in the operation of each Property,
comply with the applicable workers' compensation laws and protect Lessor, each
Holder, the Agent and each Lender against any liability under such laws.
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14.2 Hazard and Other Insurance.
(a) During the Term, Lessee shall keep, or cause to be kept,
each Property insured against loss or damage by fire and other risks
and shall maintain builders' risk insurance during construction of any
Improvements or Modifications in amounts not less than the replacement
value from time to time of such Property and on terms that (a) are no
less favorable than insurance covering other similar properties owned
by Lessee and (b) are then carried by similarly situated companies
conducting business similar to that conducted by Lessee. The policies
shall be endorsed to name Lessor, the Holders, the Agent and the
Lenders, to the extent of their respective interests, as additional
loss payees; provided, that so long as no Lease Event of Default has
occurred and is continuing, any loss payable under the insurance
policies required by this Section will be paid to Lessee.
(b) If, during the Term, the area in which a Property is
located is designated a "flood-prone" area pursuant to the Flood
Disaster Protection Act of 1973, or any amendments or supplements
thereto, then Lessee shall comply with the National Flood Insurance
Program as set forth in the Flood Disaster Protection Act of 1973. In
addition, Lessee will fully comply with the requirements of the
National Flood Insurance Act of 1968 and the Flood Disaster Protection
Act of 1973, as each may be amended from time to time, and with any
other Legal Requirement concerning flood insurance to the extent that
it may apply to any such Property.
14.3 Coverage.
(a) As of the date of this Lease and annually thereafter so
long as this Lease remains in effect, Lessee shall furnish Lessor and
the Agent with certificates prepared by the insurers or insurance
broker of Lessee showing the insurance required under Sections 14.1 and
14.2 to be in effect, naming (except with respect to workers'
compensation insurance) Lessor, the Holders, the Agent and the Lenders
as additional insureds and loss payees and evidencing the other
requirements of this Article XIV. All such insurance shall be at the
cost and expense of Lessee and provided by nationally recognized,
financially sound insurance companies. Such certificates shall include
a provision for thirty (30) days' advance written notice by the insurer
to Lessor and the Agent in the event of cancellation or material
alteration of such insurance. If a Lease Event of Default has occurred
and is continuing and Lessor so requests, Lessee shall deliver to
Lessor copies of all insurance policies required by Sections 14.1 and
14.2.
(b) Lessee agrees that any insurance policy required by
Sections 14.1, 14.2(a) and 14.2(b) shall include an appropriate
provision that such policy will not be invalidated should Lessee waive,
at any time, any or all rights of recovery against any party for losses
covered by such policy or due to any breach of warranty, fraud, action,
inaction or misrepresentation by Lessee or any Person acting on behalf
of Lessee. Lessee hereby waives any and all such rights against the
Lessor, the Holders, the Agent and the Lenders to the extent of
payments made to any such Person under any such policy.
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(c) Neither Lessor nor Lessee shall carry separate insurance
concurrent in kind or form or contributing in the event of loss with
any insurance required under this Article XIV, except that Lessor may
carry separate liability insurance at Lessor's sole cost so long as (i)
Lessee's insurance is designated as primary and in no event excess or
contributory to any insurance Lessor may have in force which would
apply to a loss covered under Lessee's policy and (ii) each such
insurance policy will not cause Lessee's insurance required under this
Article XIV to be subject to a coinsurance exception of any kind.
(d) Lessee shall pay as they become due all premiums for the
insurance required by Section 14.1 and Section 14.2, shall renew or
replace each policy prior to the expiration date thereof, and shall
otherwise maintain the coverage required by such Sections without any
lapse in coverage.
(e) Notwithstanding anything to the contrary contained in this
Section, Lessee's obligations to carry the insurance provided for
herein may be brought within the coverage of a so-called blanket policy
or policies of insurance carried or maintained by Lessee; provided,
however, that the coverage afforded Lessor will not be reduced or
diminished or otherwise be different from that which would exist under
separate policies meeting all other requirements of this Lease, and
that the requirements of this Article XIV are otherwise satisfied.
ARTICLE XV
15.1 Casualty and Condemnation.
(a) Subject to the provisions of this Article XV and Article
XVI (in the event Lessee delivers, or is obligated to deliver, a
Termination Notice), and prior to the occurrence and continuation of a
Lease Default or Lease Event of Default, Lessee shall be entitled to
receive (and Lessor hereby irrevocably assigns to Lessee all of
Lessor's right, title and interest in) any award, compensation or
insurance proceeds under Sections 14.2(a) or (b) hereof to which Lessee
or Lessor may become entitled by reason of their respective interests
in each Property (i) if all or a portion of such Property is damaged or
destroyed in whole or in part by a Casualty or (ii) if the use, access,
occupancy, easement rights or title to such Property or any part
thereof is the subject of a Condemnation; provided, however, that if a
Lease Default or Lease Event of Default shall have occurred and be
continuing, such award, compensation or insurance proceeds shall be
paid directly to Lessor or, if received by Lessee, shall be held in
trust for Lessor, and shall be paid over by Lessee to Lessor and held
in accordance with the terms of this paragraph (a). All amounts held by
Lessor hereunder on account of any award, compensation or insurance
proceeds either paid directly to Lessor or turned over to Lessor shall
be held as security for the performance of Lessee's obligations
hereunder.
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(b) Lessee may appear in any proceeding or action to
negotiate, prosecute, adjust or appeal any claim for any award,
compensation or insurance payment on account of any such Casualty or
Condemnation and shall pay all expenses thereof. At Lessee's reasonable
request, and at Lessee's sole cost and expense, Lessor and the Agent
shall participate in any such proceeding, action, negotiation,
prosecution or adjustment. Lessor and Lessee agree that this Lease
shall control the rights of Lessor and Lessee in and to any such award,
compensation or insurance payment.
(c) If Lessee shall receive notice of a Casualty or a possible
Condemnation of a Property or any interest therein where damage to such
Property is estimated to equal or exceed ten percent (10%) of the
Property Cost of such Property, Lessee shall give notice thereof to the
Lessor and to the Agent promptly after the receipt of such notice.
(d) In the event of a Casualty or a Condemnation (regardless
of whether notice thereof must be given pursuant to paragraph (c)),
this Lease shall terminate with respect to such Property in accordance
with Section 16.1 if Lessee, within thirty (30) days after such
occurrence, delivers to Lessor and the Agent a Termination Notice to
such effect.
(e) If, pursuant to this Section 15.1, this Lease shall
continue in full force and effect following a Casualty or Condemnation
with respect to a Property, Lessee shall, at its sole cost and expense
and using, if available, the proceeds of any award, compensation or
insurance with respect to such Casualty or Condemnation (including,
without limitation, any such award, compensation or insurance which has
been received by the Agent and which should be turned over to Lessee
pursuant to the terms of the Operative Agreements, and if not available
or sufficient, using its own funds), promptly and diligently repair any
damage to such Property caused by such Casualty or Condemnation in
conformity with the requirements of Sections 10.1 and 11.1, using the
as-built plans and specifications or manufacturer's specifications for
the applicable Improvements or Equipment (as modified to give effect to
any subsequent Modifications, any Condemnation affecting the Property
and all applicable Legal Requirements), so as to restore such Property
to substantially the same condition, operation, function and value as
existed immediately prior to such Casualty or Condemnation. In such
event, title to such Property shall remain with Lessor.
(f) In no event shall a Casualty or Condemnation with respect
to which this Lease remains in full force and effect under this Section
15.1 affect Lessee's obligations to pay Rent pursuant to Section 3.1.
(g) Notwithstanding anything to the contrary set forth in
Section 15.1(a) or Section 15.1(e), if during the Term, a Casualty
occurs with respect to any Property or Lessee receives notice of a
Condemnation with respect to any Property, and following such Casualty
or Condemnation, (i) such Property cannot reasonably be restored,
repaired or replaced on or before the 180th day prior to the Expiration
Date (if such Casualty or Condemnation occurs during the Term) to
substantially the same condition as existed immediately prior to
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such Casualty or Condemnation, or (ii) on or before such day such
Property is not in fact so restored, repaired or replaced, then Lessee
shall be required to purchase such Property on the next Payment Date
and pay Lessor the Termination Value for such Property, plus any and
all Rent then due and owing, plus all other amounts then due and owing
(including without limitation amounts described in clause FIRST of
Section 22.2).
15.2 Environmental Matters. Promptly upon Lessee's actual knowledge of
the presence of Hazardous Substances in any portion of a Property in
concentrations and conditions that constitute an Environmental Violation and as
to which, in the reasonable opinion of Lessee, the cost to undertake any legally
required response, clean up, remedial or other action might result in a cost to
Lessee of more than $100,000, Lessee shall notify Lessor in writing of such
condition. In the event of any Environmental Violation (regardless of whether
notice thereof must be given), Lessee shall, not later than thirty (30) days
after Lessee has actual knowledge of such Environmental Violation, either
deliver to Lessor a Termination Notice pursuant to Section 16.1, if applicable,
or, at Lessee's sole cost and expense, promptly and diligently undertake and
complete any response, clean up, remedial or other action necessary to remove,
cleanup or remediate the Environmental Violation in accordance with all
Environmental Laws. If Lessee does not deliver a Termination Notice pursuant to
Section 16.1, Lessee shall, upon completion of remedial action by Lessee, cause
to be prepared by a reputable environmental consultant acceptable to Lessor a
report describing the Environmental Violation and the actions taken by Lessee
(or its agents) in response to such Environmental Violation, and a statement by
the consultant that the Environmental Violation has been remedied in full
compliance with applicable Environmental Law.
15.3 Notice of Environmental Matters. Promptly, but in any event within
thirty (30) days from the date Lessee has actual knowledge thereof, Lessee shall
provide to Lessor written notice of any pending or threatened Environmental
Claim involving any Environmental Law or any Release on or in connection with
any Property. All such notices shall describe in reasonable detail the nature of
the claim, action or proceeding and Lessee's proposed response thereto. In
addition, Lessee shall provide to Lessor, within five (5) Business Days of
receipt, copies of all material written communications with any Governmental
Authority relating to any Environmental Law in connection with the Property.
Lessee shall also promptly provide such detailed reports of any such material
Environmental Claims as may reasonably be requested by Lessor.
ARTICLE XVI
16.1 Termination Upon Certain Events. If any of the following occur:
(i) if the requirements of Section 15.1(c) are satisfied, or (ii) if the
requirements of Section 15.1(d) are satisfied and Lessee has determined pursuant
to such section that following the applicable Casualty or Condemnation this
Lease shall terminate with respect to the affected Property, or (iii) Lessee has
determined pursuant to the second sentence of Section 15.2 that, due to the
occurrence of an Environmental Violation, this Lease shall terminate with
respect to the affected Property, then Lessee shall be obligated to deliver,
within thirty (30) days of its receipt of notice of the applicable Condemnation
or the occurrence of the applicable Casualty or Environmental Violation, a
written
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notice to the Lessor in the form described in Section 16.2(a) (a "Termination
Notice") of the termination of this Lease with respect to the affected Property.
16.2 Procedures.
(a) A Termination Notice shall contain: (i) notice of
termination of this Lease with respect to the affected Property on a
Payment Date not more than sixty (60) days after Lessor's receipt of
such Termination Notice (the "Termination Date"); and (ii) a binding
and irrevocable agreement of Lessee to pay the Termination Value for
the applicable Property, any and all Rent then due and owing and all
other amounts then due and owing from Lessee under any of the Operative
Agreements (including without limitation amounts described in clause
FIRST of Section 22.2) and purchase such Property on such Termination
Date.
(b) On the Termination Date, Lessee shall pay to Lessor the
Termination Value for the applicable Property, any and all Rent then
due and owing and all other amounts then due and owing from Lessee
under any of the Operative Agreements (including without limitation
amounts described in clause FIRST of Section 22.2), and Lessor shall
convey such Property, or the remaining portion thereof, if any, to
Lessee (or Lessee's designee), all in accordance with Section 19.1.
ARTICLE XVII
17.1 Lease Events of Default. If any one or more of the following
events (each a "Lease Event of Default") shall occur:
(a) Lessee shall fail to make payment of (i) any Basic Rent
(except as set forth in clause (ii)) within five (5) Business Days
after the same has become due and payable or (ii) any Termination
Value, on the date any such payment is due, or any payment of Basic
Rent or Supplemental Rent due on the due date of any such payment of
Termination Value, or any amount due on the Expiration Date;
(b) Lessee shall fail to make payment of any Supplemental Rent
(other than Supplemental Rent referred to in Section 17(a)(ii)) due and
payable within three (3) days after receipt of notice that such payment
is due;
(c) Lessee shall fail to maintain insurance as required by
Article XIV of this Lease;
(d) Lessee shall fail to observe or perform any term, covenant
or provision (including without limitation the Incorporated Covenants)
of Lessee under this Lease or any other Operative Agreement to which
Lessee is a party other than those set forth in Sections 17.1(a), (b)
(c) or (g) hereof, and such failure shall remain uncured for a period
of thirty (30)
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days after the earlier of receipt of written notice from Lessor thereof
or a Responsible Officer of Lessee becomes aware of such failure;
(e) Lessee shall default in the performance or observance of
any other provision of this Lease or any other Operative Agreement to
which Lessee is a party other than those set forth in Sections 17.1(a),
(b), (c) or (d) hereof, and shall not cure such default within thirty
days after the first to occur of (i) the date the Agent, Lenders or
Lessor gives written or telephonic notice of the default to Lessee, or
(ii) the date the Lessee otherwise has notice thereof;
(f) A default shall be made (i) in the payment of any
Indebtedness (other than obligations under the Operative Agreements) of
the Lessee or any Consolidated Entity when due or (ii) in the
performance, observance or fulfillment of any term or covenant
contained in any agreement or instrument under or pursuant to which any
such Indebtedness may have been issued, created, assumed, guaranteed or
secured by the Lessee or any Consolidated Entity, if the effect of such
default is to accelerate the maturity of such Indebtedness or to permit
the holder thereof to cause such Indebtedness to become due prior to
its stated maturity, and such default shall not be cured within 10 days
after the occurrence of such default, and the amount of the
Indebtedness involved exceeds $5,000,000;
(g) The liquidation or dissolution of Lessee, or the
suspension of the business of Lessee, or the filing by Lessee of a
voluntary petition or an answer seeking reorganization, arrangement,
readjustment of its debts or for any other relief under the United
States Bankruptcy Code, as amended, or under any other insolvency act
or law, state or federal, now or hereafter existing, or any other
action of Lessee indicating its consent to, approval of or acquiescence
in, any such petition or proceeding; the application by Lessee for, or
the appointment by consent or acquiescence of Lessee of a receiver, a
trustee or a custodian of Lessee for all or a substantial part of its
property; the making by Lessee of any assignment for the benefit of
creditors; the inability of Lessee or the admission by Lessee in
writing of its inability to pay its debts as they mature; or Lessee
taking any corporate action to authorize any of the foregoing;
(h) The filing of an involuntary petition against Lessee in
bankruptcy or seeking reorganization, arrangement, readjustment of its
debts or for any other relief under the United States Bankruptcy Code,
as amended, or under any other insolvency act or law, state or federal,
now or hereafter existing; or the involuntary appointment of a
receiver, a trustee or a custodian of Lessee for all or a substantial
part of its property; or the issuance of a warrant of attachment,
execution or similar process against any substantial part of the
property of Lessee, and the continuance of any of such events for
ninety (90) days undismissed or undischarged;
(i) The adjudication of Lessee as bankrupt or insolvent;
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(j) The entering of any order in any proceedings against
Lessee decreeing the dissolution, divestiture or split-up of Lessee,
and such order remains in effect for more than sixty (60) days;
(k) Any material report, certificate, financial statement or
other instrument delivered to Lessor by or on behalf of Lessee pursuant
to the terms of this Lease or any other Operative Agreement shall be
false or misleading in any material respect when made or delivered;
(l) A final judgment (after all avenues of appeal and all
applicable appeal periods have expired), which with other outstanding
final judgments against Lessee exceeds an aggregate of $500,000 shall
be rendered against Lessee, and if within thirty (30) days after entry
thereof such judgment shall not have been discharged, paid or bonded or
execution thereon stayed pending appeal, or if within thirty (30) days
after the expiration of any such stay such judgment shall not have been
discharged;
(m) Any "Event of Default" (as defined in the Existing
HEALTHSOUTH Credit Agreement, as such agreement may be amended,
supplemented or restated from time to time) (hereinafter referred to as
"Existing HEALTHSOUTH Corporation Credit Agreement Event of Default")
shall have occurred and be continuing beyond any applicable notice,
grace or cure period (if any) included within the definition of such
Existing HEALTHSOUTH Corporation Credit Agreement Event of Default;
(n) Any material Environmental Violation with respect to which
notice to the Lessor is required to be given in accordance with Section
15.2 shall have occurred and be continuing, unless (i) the Lessee shall
completely remediate such Environmental Violation to the reasonable
satisfaction of the Agent and the Lessor within 90 days following the
date the Lessee has actual knowledge of such Environmental Violation or
(ii) the Lessee shall consummate the purchase of the affected Property
in accordance with and at the price required by Section 16.2 by the
earlier of (A) 60 days after the Lessor's receipt of the respective
Termination Notice under Section 16.2(a) or (B) 90 days after the
Lessee has actual knowledge of such Environmental Violation;
(o) Any Operative Agreement shall cease to be in full force
and effect, other than due to its expiration or termination in
accordance with its terms.
then, in any such event, (i) Lessor may, in addition to the other rights and
remedies provided for in this Article XVII and in Section 18.1, terminate this
Lease by giving Lessee fifteen (15) days notice of such termination, and this
Lease shall terminate, and all rights of Lessee under this Lease shall cease.
Lessee shall, to the fullest extent permitted by law, pay as Supplemental Rent
all costs and expenses incurred by or on behalf of Lessor, including without
limitation reasonable fees and expenses of counsel, as a result of any Lease
Event of Default hereunder.
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17.2 Surrender of Possession. If a Lease Event of Default shall have
occurred and be continuing, and whether or not this Lease shall have been
terminated pursuant to Section 17.1, Lessee shall, upon thirty (30) days written
notice, surrender to Lessor possession of the Properties. Lessor may enter upon
and repossess the Properties by such means as are available at law or in equity,
and may remove Lessee and all other Persons and any and all personal property
and Lessee's equipment and personalty and severable Modifications from the
Properties. Lessor shall have no liability by reason of any such entry,
repossession or removal performed in accordance with applicable law. Upon the
written demand of Lessor, Lessee shall return the Properties promptly to Lessor,
in the manner and condition required by, and otherwise in accordance with the
provisions of, Section 22.1(c) hereof.
17.3 Reletting. If a Lease Event of Default shall have occurred and be
continuing, and whether or not this Lease shall have been terminated pursuant to
Section 17.1, Lessor may, but shall be under no obligation to, relet any
Property, for the account of Lessee or otherwise, for such term or terms (which
may be greater or less than the period which would otherwise have constituted
the balance of the Term) and on such conditions (which may include concessions
or free rent) and for such purposes as Lessor may determine, and Lessor may
collect, receive and retain the rents resulting from such reletting. Lessor
shall not be liable to Lessee for any failure to relet a Property or for any
failure to collect any rent due upon such reletting.
17.4 Damages. Neither (a) the termination of this Lease pursuant to
Section 17.1; (b) the repossession of any Property; nor (c) the failure of
Lessor to relet any Property, the reletting of all or any portion thereof, nor
the failure of Lessor to collect or receive any rentals due upon any such
reletting, shall relieve Lessee of its liabilities and obligations hereunder,
all of which shall survive any such termination, repossession or reletting. If
any Lease Event of Default shall have occurred and be continuing and
notwithstanding any termination of this Lease pursuant to Section 17.1, Lessee
shall forthwith pay to Lessor all Rent and other sums due and payable hereunder
to and including the date of such termination. Thereafter, on the days on which
the Basic Rent or Supplemental Rent, as applicable, are payable under this Lease
or would have been payable under this Lease if the same had not been terminated
pursuant to Section 17.1 and until the end of the Term hereof or what would have
been the Term in the absence of such termination, Lessee shall pay Lessor, as
current liquidated damages (it being agreed that it would be impossible
accurately to determine actual damages) an amount equal to the Basic Rent and
Supplemental Rent that are payable under this Lease or would have been payable
by Lessee hereunder if this Lease had not been terminated pursuant to Section
17.1, less the net proceeds, if any, which are actually received by Lessor with
respect to the period in question of any reletting of any Property or any
portion thereof; provided that Lessee's obligation to make payments of Basic
Rent and Supplemental Rent under this Section 17.4 shall continue only so long
as Lessor shall not have received the amounts specified in Section 17.5. In
calculating the amount of such net proceeds from reletting, there shall be
deducted all of Lessor's, any Holder's, the Agent's and any Lender's reasonable
expenses in connection therewith, including repossession costs, reasonable
brokerage or sales commissions, reasonable fees and expenses for counsel and any
necessary repair or alteration costs and expenses incurred in preparation for
such reletting. To the extent Lessor receives any damages pursuant to this
Section
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17.4, such amounts shall be regarded as amounts paid on account of Rent. Lessee
specifically acknowledges and agrees that its obligations under this Section
17.4 shall be absolute and unconditional under any and all circumstances and
shall be paid or performed, as the case may be, without notice or demand and
without any abatement, reduction, diminution, setoff, defense, counterclaim or
recoupment whatsoever.
17.5 Final Liquidated Damages. If a Lease Event of Default shall have
occurred and be continuing, whether or not this Lease shall have been terminated
pursuant to Section 17.1 and whether or not Lessor shall have collected any
current liquidated damages pursuant to Section 17.4, Lessor shall have the right
to recover, by demand to Lessee and at Lessor's election, and Lessee shall pay
to Lessor, as and for final liquidated damages, but exclusive of the indemnities
payable under Section 13 of the Participation Agreement, and in lieu of all
current liquidated damages beyond the date of such demand (it being agreed that
it would be impossible accurately to determine actual damages) the sum of (a)
the Termination Value of all Properties plus (b) all other amounts owing in
respect of Rent and Supplemental Rent heretofore accruing under this Lease and
all other amounts then due and owing by the Lessee under any Operative
Agreement. Upon payment of the amount specified pursuant to the first sentence
of this Section 17.5, Lessee shall be entitled to receive from Lessor, either at
Lessee's request or upon Lessor's election, in either case at Lessee's cost, an
assignment of Lessor's entire right, title and interest in and to the
Properties, the Improvements, Fixtures, Modifications and Equipment, in each
case in recordable form and otherwise in conformity with local custom and free
and clear of the Lien of this Lease (including the release of any memorandum of
Lease recorded in connection therewith) and any Lessor Liens. The Properties
shall be conveyed to Lessee "AS IS" "WHERE IS" and in their then present
physical condition. If any statute or rule of law shall limit the amount of such
final liquidated damages to less than the amount agreed upon, Lessor shall be
entitled to the maximum amount allowable under such statute or rule of law;
provided, however, Lessee shall not be entitled to receive an assignment of
Lessor's interest in the Property, the Improvements, Fixtures, Modifications or
Equipment or documents unless Lessee shall have paid in full the Termination
Value and all other amounts due and owing hereunder and under the other
Operative Agreements. Lessee specifically acknowledges and agrees that its
obligations under this Section 17.5 shall be absolute and unconditional under
any and all circumstances and shall be paid or performed, as the case may be,
without notice or demand (except as otherwise specifically provided herein) and
without any abatement, reduction, diminution, setoff, defense, counterclaim or
recoupment whatsoever.
17.6 Waiver of Certain Rights. If this Lease shall be terminated
pursuant to Section 17.1, Lessee waives, to the fullest extent permitted by law,
(a) any notice of re-entry or the institution of legal proceedings to obtain
re-entry or possession; provided, however, that the Lessor or the Agent shall
make a good faith effort to provide notice to the Lessee of any such action, but
the failure to provide such notice for any reason shall not result in the
invalidity of any action so taken and shall not give rise to any rights on the
part of the Lessee; (b) any right of redemption, re-entry or possession; (c) the
benefit of any laws now or hereafter in force exempting property from liability
for rent or for debt; and (d) any other rights which might otherwise limit or
modify any of Lessor's rights or remedies under this Article XVII.
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17.7 Assignment of Rights Under Contracts. If a Lease Event of Default
shall have occurred and be continuing, and whether or not this Lease shall have
been terminated pursuant to Section 17.1, Lessee shall upon Lessor's demand
immediately assign, transfer and set over to Lessor all of Lessee's right, title
and interest in and to each agreement executed by Lessee in connection with the
purchase, construction, development, use or operation of all Properties
(including, without limitation, all right, title and interest of Lessee with
respect to all warranty, performance, service and indemnity provisions), as and
to the extent that the same relate to the purchase, construction, use and
operation of any Property.
17.8 Environmental Costs. If a Lease Event of Default shall have
occurred and be continuing, and whether or not this Lease shall have been
terminated pursuant to Section 17.1, Lessee shall pay directly to any third
party (or at Lessor's election, reimburse Lessor) for the cost of any
environmental testing or remediation work undertaken respecting any Property as
such testing or work is deemed appropriate in the reasonable judgment of Lessor,
Lessee shall pay all amounts referenced in the immediately preceding sentence
within ten (10) days of any request by Lessor such payment.
17.9 Remedies Cumulative. The remedies herein provided shall be
cumulative and in addition to (and not in limitation of) any other remedies
available at law, equity or otherwise, including, without limitation, any
mortgage foreclosure remedies.
17.10 Notice of Default or Event of Default. Lessee shall promptly
notify the Lessor and the Agent if any Responsible Officer of Lessee has
received notice, or has actual knowledge, of any Default or Event of Default.
ARTICLE XVIII
18.1 Lessor's Right to Cure Lessee's Lease Defaults. Lessor, without
waiving or releasing any obligation or Lease Event of Default, may (but shall be
under no obligation to) remedy any Lease Event of Default for the account and at
the sole cost and expense of Lessee, including the failure by Lessee to maintain
the insurance required by Article XIV, and may, to the fullest extent permitted
by law, and notwithstanding any right of quiet enjoyment in favor of Lessee,
enter upon any Property, or real property owned or leased by Lessee and take all
such action thereon as may be necessary or appropriate therefor. No such entry
shall be deemed an eviction of any lessee. All reasonable out-of-pocket costs
and expenses so incurred (including without limitation reasonable fees and
expenses of counsel), together with interest thereon at the Base Rate from the
date on which such sums or expenses are paid by Lessor, shall be paid by Lessee
to Lessor on demand.
ARTICLE XIX
19.1 Provisions Relating to Lessee's Exercise of its Purchase Option.
Subject to Section 19.2, in connection with any termination of this Lease
pursuant to the terms of Section 16.2, or in connection with Lessee's exercise
of its Purchase Option or its option to purchase all Properties
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pursuant to Section 20.1, upon the date on which this Lease is to terminate, and
upon tender by Lessee of the amounts set forth in Sections 16.2(b), 20.1 or
20.2, as applicable, Lessor shall execute and deliver to Lessee (or to Lessee's
designee) at Lessee's cost and expense a deed and an assignment of Lessor's
entire interest in the Properties, in recordable form and otherwise in
conformity with local custom and free and clear of the Lien of this Lease and
any Lessor Liens attributable to Lessor but without any other warranties (of
title or otherwise) from the Lessor. All Property shall be conveyed to Lessee
"AS IS" "WHERE IS" and in then present physical condition.
19.2 No Termination With Respect to Less than All of the Properties.
Lessee shall not be entitled to exercise its Purchase Option separately with
respect to less than all of the Properties or that portion of any Property
consisting of Land, Equipment and Improvements but shall be required to exercise
its Purchase Option with respect to all Properties and each entire Property.
ARTICLE XX
20.1 Early Purchase Option. Provided that no Lease Default of the types
specified in Sections 17.1(a), (b), (h), (i) or (j) or any Lease Event of
Default shall have occurred and be continuing and provided that the Election
Notice referred to in Section 20.2 has not been delivered, Lessee shall have the
option, exercisable by giving the Agent and Lessor no more than one hundred
twenty (120) days and no less than sixty (60) days irrevocable written notice of
Lessee's election to exercise such option, to purchase all (but not less than
all) of the Properties on a Scheduled Interest Payment Date as identified in
such written notice, at a price equal to the Termination Value for the
Properties (which the parties do not intend to be a "bargain" purchase price),
and Lessee at such time shall also pay any and all Rent then due and owing and
all other amounts then due and owing by Lessee under this Lease and under any
other Operative Agreement (including without limitation amounts, if any,
described in clause FIRST of Section 22.2). If Lessee exercises its option to
purchase the Properties free and clear of the Lien of this Lease and any Lessor
Liens with respect to the Property pursuant to this Section 20.1, Lessor shall
transfer to Lessee all of Lessor's right, title and interest in and to each
Property as of the Scheduled Interest Payment Date on which such purchase
occurs.
20.2 Purchase or Sale Option. Not less than 120 days and no more than
180 days prior to the Expiration Date, Lessee may give Lessor and Agent
irrevocable written notice (the "Election Notice") that Lessee is electing to
exercise either (a) the option to purchase all, but not less than all, of the
Properties on the Expiration Date (the "Purchase Option") or (b) the option to
remarket all of the Properties and cause a sale of all of the Properties
pursuant to the terms of Section 22.1 (the "Sale Option"), such sale to occur on
the Expiration Date. If Lessee does not give an Election Notice indicating the
Sale Option at least 120 days and not more than 180 days prior to the then
current Expiration Date, then Lessee shall be deemed to have elected the
Purchase Option for the Expiration Date. Lessor shall have no obligation to sell
any Property unless all of the Properties are sold on the Expiration Date. If
Lessee shall (i) elect (or be deemed to elect) to exercise the Purchase Option,
or (ii) elect to remarket all of the Properties pursuant to Section 22.1 and
fail to deliver the environmental report required by Section 10.2 at the time
specified in such Section, or (iii) elect to
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remarket all of the Properties pursuant to Section 22.1 and fail to cause all of
the Properties to be sold in accordance with the terms of Section 22.1 on the
Expiration Date on which such a sale of all of the Properties is required in
connection with such election, then in each case, Lessee shall pay to Lessor on
the Expiration Date an amount equal to the Termination Value for all the
Properties (which the parties do not intend to be a "bargain" purchase) plus all
Rent and other amounts then due and payable under this Lease or under any other
Operative Agreement (including without limitation the amounts described in
clause FIRST of Section 22.2), and, upon receipt of such amount, Lessor shall
transfer to Lessee all of Lessor's right, title and interest in and to the
Properties in accordance with Section 19.1. If the Lessee elects the Purchase
Option or the Sale Option and fails to perform its obligations under this Lease
with respect to such option, a Lease Event of Default shall be deemed to occur.
ARTICLE XXI
21.1 Renewal.
(a) Provided that no Lease Event of Default shall have
occurred and be continuing and provided that the Maturity Date under
the Credit Agreement shall be simultaneously extended (in accordance
with the terms of the Credit Agreement) to a date that is identical to
the final day of the Extended Term, at the Basic Term Expiration Date
or at the expiration of any Extended Term, Lessee, with the unanimous
consent of the Agent and all Lenders and Holders (which consent the
Agent and each such Lender and Holder may withhold in its sole and
absolute discretion), may renew this Lease (the "Renewal Options") for
up to two successive Extended Terms of 364 days each with respect to
all, but not less than all Properties; provided, however, the Term
shall not be extended pursuant to this Section 21.1(a) beyond December
14, 2001. In order to exercise the first Renewal Option to extend the
Term through December 15, 2000, Lessee must give written notice of its
request for such extension to Lessor not less than one hundred twenty
(120) days and not more than one hundred eighty (180) days prior to
December 17, 1999, and must have obtained the necessary consents of the
Agent, Lenders and Holders not later than December 17, 1999. In order
to exercise the second Renewal Option to extend the Term through
December 14, 2001, Lessee must give written notice of its request for
such extension to Lessor not less than one hundred twenty (120) days
and not more than one hundred eighty (180) days prior to December 15,
2000, must have obtained the necessary consents of the Agent, Lenders
and Holders not later than December 15, 2000, and must have previously
renewed the Term through December 15, 2000 in accordance with clause
(i) above.
(b) If Lessee shall fail to obtain the necessary consents to
any renewal of the Term by any date required by this Section, then
Lessee shall be deemed to have elected the option to purchase all of
the Properties on such date in accordance with Section 20.2.
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(c) Each renewal of this Lease for an Extended Term pursuant
to Section 21.1(a) shall be on the same terms and conditions as those
set forth in this Lease for the original Basic Term (which the parties
do not intend to be "bargain" renewals).
ARTICLE XXII
22.1 Sale Procedure.
(a) During the Marketing Period, Lessee, on behalf of the
Lessor, shall obtain bids for the cash purchase of all of the
Properties in connection with a sale to one or more purchasers to be
consummated on the Expiration Date for the highest price available,
shall notify Lessor promptly of the name and address of each
prospective purchaser and the cash price which each prospective
purchaser shall have offered to pay for the Properties and shall
provide Lessor with such additional information about the bids and the
bid solicitation procedure as Lessor may reasonably request from time
to time. Lessor may reject any and all bids and may assume sole
responsibility for obtaining bids by giving Lessee written notice to
that effect; provided, however, that notwithstanding the foregoing,
Lessor may not reject the highest bid for the Properties submitted by
the Lessee if such bid is greater than or equal to the sum of the
Limited Recourse Amount for the Properties, plus all reasonable costs
and expenses referred to in clause FIRST of Section 22.2 and represent
bona fide offers from one or more third party purchasers and provided
further, that Lessor may not reject a bid from the Houston Purchaser
(defined below) with respect to all Property located in Houston, Texas,
or a bid from the Topeka Purchaser (defined below) with respect to all
Property located in Topeka, Kansas in each case if and only if each of
the following conditions in clauses (y) and (z) are met: (y) such bid
is at least equal to the Termination Value of such Property (whether or
not it is the highest bid for such Property), plus all reasonable costs
and expenses referred to in clause FIRST of Section 22.2 and represents
a bona fide offer from such purchaser and (z) with respect to all
Properties other than such Property (the "Other Properties"), the
Lessee has received (and the Lessor has accepted) bids from one or more
prospective purchasers, such bids are greater than or equal to the sum
of the Limited Recourse Amounts for the Other Properties, plus all
reasonable costs and expenses referred to in clause FIRST of Section
22.2 and such bids represent bona fide offers from such third party
purchasers. If the price which a prospective purchaser or purchasers
shall have offered to pay for the Properties is less than the sum of
the Limited Recourse Amount plus all reasonable costs and expenses
referred to in clause FIRST of Section 22.2, Lessor may elect to retain
the Properties by giving Lessee prior written notice of Lessor's
election to retain the Properties, and upon receipt of such notice,
Lessee shall surrender the Properties to Lessor pursuant to Section
10.1. Unless Lessor shall have elected to retain the Properties
pursuant to the preceding sentence, Lessee shall arrange for Lessor to
sell the Properties free and clear of the Lien of this Lease and any
Lessor Liens attributable to it, without recourse or warranty (of title
or otherwise), for cash on the last day of the Marketing Period (such
date being hereafter referred to as the "Sale Date") to the purchaser
or purchasers identified by Lessee or Lessor, as the case may be;
provided, however, solely as
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to Lessor or the Trust Company, in its individual capacity, any Lessor
Lien shall not constitute a Lessor Lien so long as Lessor or the Trust
Company, in its individual capacity, is diligently contesting such
Lessor Lien by appropriate proceedings in good faith. Lessee shall
surrender the Properties so sold or subject to such documents to the
purchaser in the condition specified in Section 10.1. Lessee shall not
take or fail to take any action which would have the effect of
unreasonably discouraging bona fide third party bids for the Property.
Lessor shall have no obligation to sell any Property on the Sale Date
unless all of the Properties are sold on the Sale Date. If the
Properties are not either (i) sold on the Sale Date in accordance with
the terms of this Section 22.1, or (ii) retained by the Lessor pursuant
to an affirmative election made by the Lessor pursuant to the third
sentence of this Section 22.1(a), then the Lessee shall be obligated to
pay the Lessor on the Sale Date an amount equal to the Termination
Value for the Properties (plus all Rent and other amounts then due and
payable under this Lease and any other Operative Agreements) in
accordance with the terms of Section 20.2. For the purposes of this
paragraph, "Houston Purchaser" shall mean Houston Rehabilitation
Associates, a Delaware general partnership; and "Topeka Purchaser"
shall mean Kansas Rehabilitation Hospital, Inc., a Delaware
corporation.
(b) If the Properties are sold on the Sale Date to a third
party purchaser or purchasers in accordance with the terms of Section
22.1(a) and the aggregate purchase price paid for the Properties minus
the sum of all costs and expenses referred to in clause FIRST of
Section 22.2 is less than the sum of the Termination Value for the
Properties plus all Rent and other amounts then due and payable under
this Lease and under any other Operative Agreements (hereinafter such
difference shall be referred to as the "Deficiency Balance"), then the
Lessee hereby unconditionally promises to pay to the Lessor on the Sale
Date the lesser of (i) the Deficiency Balance, or (ii) the Maximum
Residual Guarantee Amount for the Properties. If the Properties are
retained by the Lessor pursuant to an affirmative election made by the
Lessor pursuant to the third sentence of Section 22.1(a), then the
Lessee hereby unconditionally promises to pay to the Lessor on the Sale
Date an amount equal to the Maximum Residual Guarantee Amount for the
Properties.
(c) In the event that the Properties are either sold to a
third party purchaser or purchasers on the Sale Date or retained by the
Lessor in connection with an affirmative election made by the Lessor
pursuant to the third sentence of Section 22.1(a), then in either case
on the Sale Date the Lessee shall provide Lessor or such third party
purchaser or purchasers with (i) all permits, certificates of
occupancy, governmental licenses and authorizations necessary to use
and operate the Properties for their intended purposes, (ii) such
easements, licenses, rights-of-way and other rights and privileges in
the nature of an easement as are reasonably necessary or desirable in
connection with the use, repair, access to or maintenance of the
Properties for its intended purpose or otherwise as the Lessor shall
reasonably request, (iii) a services agreement covering such services
as Lessor or such third party purchaser may reasonably request and
having a reasonable duration, in order to use and operate the
Properties for their intended purposes at such rates (not in excess of
arm's-length fair market rates) as shall be acceptable to Lessee and
Lessor or such third party purchaser or purchasers, and (iv) an
assignment to the Lessor or such third party purchaser or
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purchasers (as the case may be) of any existing service agreements
relating to the Properties, to the extent such agreements are
assignable. All assignments, licenses, easements, agreements and other
deliveries required by clauses (i) and (ii) of this paragraph (c) shall
be in form reasonably satisfactory to the Lessor or such third party
purchaser or purchasers, as applicable, and shall be fully assignable
(including both primary assignments and assignments given in the nature
of security) without payment of any fee, cost or other charge.
22.2 Application of Proceeds of Sale. The Lessor shall apply the
proceeds of sale of the Properties in the following order of priority:
(a) FIRST, to pay or to reimburse Lessor for the
payment of all reasonable costs and expenses incurred by
Lessor in connection with the sale;
(b) SECOND, so long as the Participation
Agreement, the Credit Agreement or the Trust Agreement is in
effect and any Loan, Holder Advance or any amount is owing to
the Lenders, the Holders or any other Person under any
Operative Agreement, to the Agent to be applied pursuant to
the terms in the Operative Agreements; and
(c) THIRD, to the Lessee.
22.3 Indemnity for Excessive Wear. If the proceeds of the sale
described in Section 22.1 with respect to the Properties, less all expenses
incurred by Lessor in connection with such sale, shall be less than the Limited
Recourse Amount with respect to the Properties, and at the time of such sale it
shall have been reasonably determined (pursuant to the Appraisal Procedure) that
the Fair Market Sales Value of the Properties, shall have been impaired by
greater than expected wear and tear during the term of the Lease, Lessee shall
pay to Lessor within ten (10) days after receipt of Lessor's written statement
(i) the amount of such excess wear and tear determined by the Appraisal
Procedure or (ii) the amount of the Net Sale Proceeds Shortfall, whichever
amount is less.
22.4 Appraisal Procedure. For determining the Fair Market Sales Value
of the Properties or any other amount which may, pursuant to any provision of
any Operative Agreement, be determined by an appraisal procedure, Lessor and
Lessee shall use the following procedure (the "Appraisal Procedure"). Lessor and
Lessee shall endeavor to reach a mutual agreement as to such amount for a period
of ten (10) days from commencement of the Appraisal Procedure under the
applicable section of the Lease, and if they cannot agree within ten (10) days,
then two qualified appraisers, one chosen by Lessee and one chosen by Lessor,
shall mutually agree thereupon, but if either party shall fail to choose an
appraiser within twenty (20) days after notice from the other party of the
selection of its appraiser, then the appraisal by such appointed appraiser shall
be binding on Lessee and Lessor. If the two appraisers cannot agree within
twenty (20) days after both shall have been appointed, then a third appraiser
shall be selected by the two appraisers or, failing agreement as to such third
appraiser within (30) days after both shall have been appointed, by the American
Arbitration Association. The decisions of the three appraisers shall be given
within twenty (20) days
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of the appointment of the third appraiser and the decision of the appraiser most
different from the average of the other two shall be discarded and such average
shall be binding on Lessor and Lessee; provided that if the highest appraisal
and the lowest appraisal are equidistant from the third appraisal, the third
appraisal shall be binding on Lessor and Lessee. The fees and expenses of each
appraiser shall be paid by Lessee.
22.5 Certain Obligations Continue. During the Marketing Period, the
obligation of Lessee to pay Rent with respect to the Properties (including the
installment of Basic Rent due on the Expiration Date) shall continue
undiminished until payment in full to Lessor of the sale proceeds, if any, the
Maximum Residual Guarantee Amount, the amount due under Section 22.3, if any,
and all other amounts due to Lessor with respect to the Properties. Lessor shall
have the right, but shall be under no duty, to solicit bids, to inquire into the
efforts of Lessee to obtain bids or otherwise to take action in connection with
any such sale, other than as expressly provided in this Article XXII.
ARTICLE XXIII
23.1 Holding Over. If Lessee shall for any reason remain in possession
of the Properties after the expiration or earlier termination of this Lease
(unless Properties are conveyed to Lessee), such possession shall be as a
tenancy at sufferance during which time Lessee shall continue to pay
Supplemental Rent that would be payable by Lessee hereunder were the Lease then
in full force and effect with respect to the Properties and Lessee shall
continue to pay Basic Rent at 110% of the Basic Rent that would otherwise be due
and payable at such time. Such Basic Rent shall be payable from time to time
upon demand by Lessor and such additional 10% amount shall be applied by the
Lessor to the payment of the Loans pursuant to the Credit Agreement and the
Holder Advances pursuant to the Trust Agreement pro rata between the Loans and
the Holder Advances. During any period of tenancy at sufferance, Lessee shall,
subject to the first sentence of this paragraph, be obligated to perform and
observe all of the terms, covenants and conditions of this Lease, but shall have
no rights hereunder other than the right, to the extent given by law to tenants
at sufferance, to continue their occupancy and use of the Properties. Nothing
contained in this Article XXIII shall constitute the consent, express or
implied, of Lessor to the holding over of Lessee after the expiration or earlier
termination of this Lease as to the Properties (unless the Properties is
conveyed to Lessee) and nothing contained herein shall be read or construed as
preventing Lessor from maintaining a suit for possession of the Properties or
exercising any other remedy available to Lessor at law or in equity.
ARTICLE XXIV
24.1 Risk of Loss. During the Term, unless Lessee shall not be in
actual possession of the Properties solely by reason of Lessor's exercise of its
remedies of dispossession under Article XVII, the risk of loss or decrease in
the enjoyment and beneficial use of the Properties as a result of the damage or
destruction thereof by fire, the elements, casualties, thefts, riots, wars or
otherwise is assumed by Lessee, and Lessor shall in no event be answerable or
accountable therefor.
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ARTICLE XXV
25.1 Assignment.
(a) Lessee may not assign, mortgage, pledge or encumber this
Lease or any of its rights or obligations hereunder in whole or in part
to any Person without the prior written consent of the Agent, the
Lessor, each Lender and each Holder, with such consent to be given or
withheld in the sole discretion of each such party.
(b) No such assignment or other relinquishment of possession
to the Properties shall in any way discharge or diminish any of the
obligations of Lessee to Lessor hereunder and Lessee shall remain
directly and primarily liable under this Lease.
25.2 Subleases.
(a) Except as set forth in this Section 25.2, Lessee may not
sublet any Property or portion thereof without first obtaining the
prior written consent of the Lessor and the Agent, which consent may be
given or withheld in the sole discretion of each such party.
(b) Lessee may, without the consent of Lessor or the Agent,
sublet a Property to a Subsidiary of Lessee, or sublet professional
space constituting a portion of a Property to healthcare providers, in
each case if and only if:
(i) Lessee remains fully liable for all obligations
(including without limitation all Rent and other obligations
with respect to such subleased Properties and any other
Properties) under this Lease, each Lease Supplement and the
other Operative Agreements;
(ii) Such sublease is in writing and is expressly
subject and subordinate to the rights of the Lessor, the
Agent, the Lenders and the Holders under this Lease, the
Security Agreement, each Mortgage Instrument and all other
Operative Agreements; and
(iii) Such sublease is on commercially reasonable
terms and at market rates, and has a term that does not extend
past the Expiration Date, and such Property is at all times
used for the purposes set forth in this paragraph and in the
definition of "Property."
(c) No sublease or other relinquishment of possession to any
Property shall in any way discharge or diminish any of Lessee's
obligations to Lessor hereunder and Lessee shall remain directly and
primarily liable under this Lease as to the Property so sublet.
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(d) Each insurance policy carried by Lessee pursuant to
Article XIV hereof shall be endorsed to name each sublessee under any
such sublease as an additional insured. Prior to the effectiveness of
any such sublease, Lessee shall deliver a copy thereof to the Lessor
and the Agent.
(e) Promptly but in any event at least thirty (30) days prior
to the execution and delivery of any sublease permitted by this Article
XXV, Lessee shall notify Lessor and the Agent of the execution of such
sublease. As of the date of each Lease Supplement, Lessee shall lease
the respective Properties described in such Lease Supplement from
Lessor, and (without limiting the generality of Sections 25.2(a) - (d))
any existing tenant respecting such Property shall automatically be
deemed to be a subtenant of Lessee and not a tenant of Lessor.
ARTICLE XXVI
26.1 No Waiver. No failure by Lessor or Lessee to insist upon the
strict performance of any term hereof or to exercise any right, power or remedy
upon a default hereunder, and no acceptance of full or partial payment of Rent
during the continuance of any such default, shall constitute a waiver of any
such default or of any such term. To the fullest extent permitted by law, no
waiver of any default shall affect or alter this Lease, and this Lease shall
continue in full force and effect with respect to any other then existing or
subsequent default.
ARTICLE XXVII
27.1 Acceptance of Surrender. No surrender to Lessor of this Lease or
of all or any portion of the Properties or of any interest therein shall be
valid or effective unless agreed to and accepted in writing by Lessor and the
Agent and, prior to the payment or performance of all obligations under the
Credit Documents, the Agent, and no act by Lessor or the Agent or any
representative or agent of Lessor or the Agent, other than a written acceptance,
shall constitute an acceptance of any such surrender.
27.2 No Merger of Title. There shall be no merger of this Lease or of
the leasehold estate created hereby by reason of the fact that the same Person
may acquire, own or hold, directly or indirectly, in whole or in part, (a) this
Lease or the leasehold estate created hereby or any interest in this Lease or
such leasehold estate, (b) any right, title or interest in any Property, (c) any
Notes, or (d) a beneficial interest in Lessor.
ARTICLE XXVIII
28.1 Incorporation of Covenants.
(a) Reference is made to that certain Credit Agreement dated
as of June 23, 1998 (the "Existing HEALTHSOUTH Corporation Credit
Agreement") among the Lessee,
30
<PAGE>
NationsBank, N.A., as agent, and the other financial institutions party
thereto. Further reference is made to the covenants contained in
Articles VII and VIII of the Existing HEALTHSOUTH Corporation Credit
Agreement (hereinafter referred to as the "Incorporated Covenants").
The Lessee agrees with the Lessor that, effective as of the date hereof
(whether or not the Basic Term has commenced), the Incorporated
Covenants (and all other relevant provisions of the Existing
HEALTHSOUTH Corporation Credit Agreement related thereto) are hereby
incorporated by reference into this Lease to the same extent and with
the same effect as if set forth fully herein and shall inure to the
benefit of the Lessor, without giving effect to any waiver, amendment,
modification or replacement of the Existing HEALTHSOUTH Corporation
Credit Agreement or any term or provision of the Incorporated Covenants
occurring subsequent to the date of this Lease, except to the extent
otherwise specifically provided in the following provisions of this
paragraph. In the event a waiver is granted under the Existing
HEALTHSOUTH Corporation Credit Agreement or an amendment or
modification is executed with respect to the Existing HEALTHSOUTH
Corporation Credit Agreement, and such waiver, amendment or
modification affects the Incorporated Covenants, then such waiver,
amendment or modification shall be effective with respect to the
Incorporated Covenants as incorporated by reference into this Lease
only if consented to in writing by the Majority Lenders. In the event
of any replacement of the Existing HEALTHSOUTH Corporation Credit
Agreement with a similar credit facility (the "New Facility") the
covenants contained in the New Facility which correspond to the
covenants contained in Articles VII and VIII of the Existing
HEALTHSOUTH Corporation Credit Agreement shall become the Incorporated
Covenants hereunder only if consented to in writing by the Majority
Lenders and, if such consent is not granted, then the covenants
contained in Articles VII and VIII of the Existing HEALTHSOUTH
Corporation Credit Agreement (together with any modifications or
amendments approved in accordance with this paragraph) shall continue
to be the Incorporated Covenants hereunder. If the Existing HEALTHSOUTH
Corporation Credit Agreement (or any such New Facility, as the case may
be) is terminated and not replaced, then the covenants contained in
Articles VII and VIII of the Existing HEALTHSOUTH Corporation Credit
Agreement (together with any modifications or amendments thereto, or to
covenants of the New Facility, in each case approved in accordance with
this paragraph) shall continue to be the Incorporated Covenants
hereunder.
(b) Financial Statements, Reports, etc. Without limiting the
generality of the foregoing, from and after the date hereof (whether or
not the Basic Term has commenced with respect to any Property), to the
extent that the Incorporated Covenants require the Lessee or any of its
Subsidiaries to deliver any financial statement, certificate, notice,
report, or other document or information to the Existing Credit Agent
(or any other agent or lender under the applicable credit facility),
the Lessee shall, and shall cause the Lessee to, simultaneously deliver
a copy of such financial statement, certificate, notice, report,
document or information to the Agent, each Lender, each Holder and
(upon Lessor's request) the Lessor.
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<PAGE>
28.2 Additional Reporting Requirements. Without limiting the generality
of the foregoing, from and after the date hereof, the Lessee will deliver, or
will cause to be delivered, to the Agent, each Lender, each Holder and (upon the
Lessor's request) the Lessor:
(i) Such other information regarding the financial
condition or operations of the Lessee or its Subsidiaries as
the Agent shall reasonably request from time to time or at any
time;
(ii) Promptly after the same shall have become known
to any officer of the Lessee, a notice describing any action,
suit or proceeding at law or in equity or by or before any
Governmental Authority that, if adversely determined, might
impair the ability of the Lessee to perform its obligations
under this Agreement or any other Operating Agreement or might
materially and adversely affect the business or condition,
financial or otherwise, of the Lessee;
(iii) Prompt notice in writing of the occurrence of
any Lease Default or Lease Event of Default.
ARTICLE XXIX
29.1 Notices. All notices, demands, requests, consents, approvals and
other communications hereunder shall be in writing and delivered personally or
by a nationally recognized overnight courier service or mailed (by registered or
certified mail, return receipt requested, postage prepaid) or telecopied with a
confirming notice, addressed to the respective parties, as follows:
If to Lessee:
HEALTHSOUTH Corporation
One HealthSouth Parkway
Birmingham, Alabama 35243
Attention: Michael D. Martin
Telephone No.: (205) 969-4712
Telecopy No.: (205) 969-4620
With a copy to:
Leif Murphy
HEALTHSOUTH Corporation
One HealthSouth Parkway
Birmingham, Alabama 35243
Telephone No.: (205) 969-6056
Telecopy No.: (205) 969-6837
32
<PAGE>
If to Lessor:
First Security Bank, National Association
79 South Main Street
Salt Lake City, Utah 84111
Attention: Val T. Orton
Telephone No.: (801) 246-5630
Telecopy No.: (801) 246-5053
with a copy to the Agent:
NationsBank, N.A.
NationsBank Corporate Center
8th Floor
Charlotte, North Carolina 28255
Attention: Philip. S. Durand
Telephone No.: (704) 386-4955
Telecopy No.: (704) 388-0960
or such additional parties or other address as such party may hereafter
designate, and shall be effective upon receipt or refusal thereof.
ARTICLE XXX
30.1 Miscellaneous. Anything contained in this Lease to the contrary
notwithstanding, all claims against and liabilities of Lessee or Lessor arising
from events commencing prior to the expiration or earlier termination of this
Lease shall survive such expiration or earlier termination. If any provision of
this Lease shall be held to be unenforceable in any jurisdiction, such
unenforceability shall not affect the enforceability of any other provision of
this Lease in such jurisdiction or of such provision or of any other provision
hereof in any other jurisdiction.
30.2 Amendments and Modifications. Neither this Lease nor any provision
hereof may be amended, waived, discharged or terminated except by an instrument
in writing in recordable form signed by Lessor and Lessee.
30.3 Successors and Assigns. All the terms and provisions of this Lease
shall inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
30.4 Headings and Table of Contents. The headings and table of contents
in this Lease are for convenience of reference only and shall not limit or
otherwise affect the meaning hereof.
30.5 Counterparts. This Lease may be executed in any number of
counterparts, each of which shall be an original, but all of which shall
together constitute one and the same instrument.
33
<PAGE>
30.6 GOVERNING LAW. AS TO MATTERS RELATING TO THE CREATION, PERFECTION,
AND FORECLOSURE OF LIENS, AND ENFORCEMENT OF RIGHTS AND REMEDIES AGAINST ANY
LEASED PROPERTY, THIS LEASE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAW OF THE STATE IN WHICH THE APPLICABLE LEASED PROPERTY IS LOCATED
WITHOUT REGARD TO ANY OTHERWISE APPLICABLE PRINCIPLES OF CONFLICT OF LAWS. THIS
LEASE SHALL IN ALL OTHER RESPECTS BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NORTH CAROLINA.
30.7 Calculation of Rent. All calculation of Rent payable hereunder
shall be computed based on the actual number of days elapsed over a year of 360
days.
30.8 Memorandum of Lease and Lease Supplements. This Lease shall not be
recorded; provided Lessor and Lessee shall promptly record a Memorandum of this
Lease and of the applicable Lease Supplement (in substantially the form of
Exhibit C attached hereto) regarding each Property promptly after the
acquisition thereof in the local filing office with respect thereto in all cases
at Lessee's cost and expense, and as required under applicable law to
sufficiently evidence this Lease or any such Lease Supplement in the applicable
real estate filing records.
30.9 Allocations between the Lenders and the Holders. Notwithstanding
any other term or provision of this Lease to the contrary, the allocations of
the proceeds of the Properties and any and all other Rent and other amounts
received hereunder shall be subject to the inter-creditor provisions between the
Lenders and the Holders contained in the Operative Agreements (or as otherwise
agreed among the Lenders and the Holders from time to time).
30.10 Limitations on Recourse. Notwithstanding anything contained in
this Lease to the contrary, Lessee agrees to look solely to Lessor's estate and
interest in the Properties for the collection of any judgment requiring the
payment of money by Lessor in the event of liability by Lessor, and no other
property or assets of Lessor or any shareholder, owner or partner (direct or
indirect) in or of Lessor, or any director, officer, employee, beneficiary,
Affiliate of any of the foregoing shall be subject to levy, execution or other
enforcement procedure for the satisfaction of the remedies of Lessee under or
with respect to this Lease, the relationship of Lessor and Lessee hereunder or
Lessee's use of the Properties or any other liability of Lessor to Lessee.
Nothing in this Section shall be interpreted so as to limit the terms of
Sections 6.1 or 6.2.
30.11 WAIVERS OF JURY TRIAL. THE LESSOR AND THE LESSEE IRREVOCABLY AND
UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS LEASE OR ANY COUNTERCLAIM THEREIN.
30.12 Original Leases. The single executed original of this Lease
marked "THIS COUNTERPART IS THE ORIGINAL EXECUTED COUNTERPART" on the signature
page thereof and containing the receipt of the Agent therefor on or following
the signature page thereof shall be the original executed counterpart of this
Lease (the "Original Executed Counterpart"). To
34
<PAGE>
the extent that this Lease constitutes chattel paper, as such term is defined in
the Uniform Commercial Code as in effect in any applicable jurisdiction, no
security interest in this Lease may be created through the transfer or
possession of any counterpart other than the Original Executed Counterpart.
30.13 Power of Sale. Without limiting any other remedies set forth in
this Lease, in the event that a court of competent jurisdiction rules that this
Lease constitutes a mortgage, deed of trust or other secured financing as is the
intent of the parties, then the Lessor and the Lessee agree that the Lessee
hereby grants, bargains, sells, conveys, mortgages, and grants a security
interest in the Properties (and any additional property described in Exhibit A)
WITH POWER OF SALE, and that, upon the occurrence of any Event of Default, the
Lessor shall have the power and authority, to the extent provided by law or the
Operative Agreements, after prior notice and lapse of such time as may be
required by law, to foreclose its interest (or cause such interest to be
foreclosed) in all or any part of any Property, to appoint or obtain the
appointment of a receiver for all or any part of the Property, and to exercise
any other right or remedy that may be available under applicable law to the
holder of a mortgage, deed of trust, security deed or other secured financing.
30.14 Exercise of Lessor Rights. The Lessee hereby acknowledges and
agrees that the rights and powers of the Lessor under this Lease have been
collaterally assigned to the Agent pursuant to the terms of the Security
Agreement and the other Operative Agreements, and that the Lessor has encumbered
the Properties by various Mortgage Instruments made by the Lessor in favor of
the Agent, all as security for certain indebtedness and obligations described
therein of the Lessor to the Agent, the Lenders and the Holders under the
Operative Agreements. Lessee hereby consents to said assignment and said
Mortgage Instruments in favor of the Agent and further acknowledges and agrees
as follows:
(a) In the event that a court of competent jurisdiction rules
that this Lease constitutes a mortgage, deed of trust, security deed or
other secured financing as is the intent of the parties, then the
Lessor and the Lessee agree that the Lessor's collateral assignment of
this Lease to the Agent shall be deemed to be a collateral assignment
of such mortgage, deed of trust, security deed or other secured
financing, and the Agent as such collateral assignee shall be entitled
to exercise any and all rights and remedies of the Lessor set forth
herein during the existence of any Event of Default, including without
limitation the Lessor's rights to obtain a receiver, to obtain
possession of the Properties and the rents and revenues thereof, to
foreclose this Lease, to sell the Lessee's interest in the Properties,
and to exercise any other rights or remedies that may then be available
to the Lessor under applicable law on account of such Event of Default.
(b) Lessee's interest in the Properties is junior and
subordinate to the lien of any Mortgage Instruments made by the Lessor
in favor of the Agent against the respective Properties from time to
time in connection with the Operative Agreements; provided, however,
that for so long as no Event of Default shall have occurred and be
continuing, (i) the Agent shall not disturb Lessee's possession of the
Properties through any foreclosure or
35
<PAGE>
other remedial action against the Properties under any Mortgage
Instrument, and (ii) if Lessor's interest in any Property shall be
transferred to any Person other than the Lessee as the result of the
Agent's foreclosure or other remedial action under any Mortgage
Instrument, the Lessee shall (upon request of the Agent) attorn to such
transferee and recognize the transferee as the Lessee's landlord under
this Lease.
(c) During the existence of an Event of Default, the Agent as
holder of the Mortgage Instruments and as collateral assignee of this
Lease may exercise any and all rights and remedies that may then be
available under applicable law to the Agent in either or both
capacities, whether exercised singly, successively or concurrently.
Without limiting the generality of the foregoing, the Agent as
collateral assignee may enforce the Lessee's payment obligations under
this Lease (regardless of whether this Lease shall be deemed a
mortgage, deed of trust, security deed or other secured financing) even
if Lessee's interest and estate in any Property under this Lease shall
have been extinguished or forfeited under applicable law through the
foreclosure or other enforcement of any Mortgage Instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
36
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Lease to be duly
executed and delivered as of the date first above written.
HEALTHSOUTH CORPORATION, as Lessee
By: /s/ William W. Horton
-------------------------------
Name: William W. Horton
Title: Senior Vice President
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
not individually, but solely as Owner
Trustee under the HEALTHSOUTH Corporation
Trust 1998-1, as Lessor
By: /s/ Janeen R. Higgs
--------------------------------
Name: Janeen R. Higgs
------------------------------
Title: Trust Officer
------------------------------
37
<PAGE>
Receipt of this original
counterpart of the foregoing
Lease is hereby acknowledged
as the date hereof
NATIONSBANK, N.A.,
as Agent
By: /s/ Philip S. Durand
-------------------------
Name: Philip S. Durand
Title: Vice President
38
<PAGE>
EXHIBIT A TO THE LEASE
Description of Properties
The Properties subject to this Lease includes the Land described on
Schedule I-C attached hereto, and all Equipment on and Improvements to such
Land, including without limitation the Equipment described on Schedule I-B
attached hereto and the Improvements described on Schedule I-C attached hereto.
In addition, to the extent that a court of competent jurisdiction rules
that this Lease constitute a mortgage, deed of trust or other secured financing,
the Lessee hereby grants, bargains, sells, conveys, mortgage and grants a
security interest WITH POWER OF SALE in each of the following:
1. All buildings, structures, fixtures, and other improvements of every
kind existing at any time and from time to time on or under the real property
described on Schedule I-C (such real property, together with any other Land (as
defined in the Participation Agreement) now or hereafter owned, leased or
acquired by Lessee being referred to collectively as the "Land"), purchased,
leased or otherwise acquired by the Lessee, together with any and all
appurtenances to such buildings, structures or improvements, including
sidewalks, utility pipes, conduits and lines, parking areas and roadways, and
including all Lease Modifications and other additions to or changes in the Lease
Improvements at any time (all of the foregoing in this paragraph 1 being
referred to as the "Lease Improvements");
2. All easements, rights-of-way, gores of land, streets, ways, alleys,
passages, sewer rights, waters, water courses, water rights and passages, sewer
rights, waters, water courses, water rights and powers, and all estate, rights,
title, interests, privileges, liberties, tenements, hereditaments and
appurtenances whatsoever, in any way belonging, relating or appertaining to any
of the Properties hereinabove described, or which hereafter shall in any way
belong, relate or be appurtenant thereto, whether now owned or hereafter
acquired by Lessee, and the reversion and reversions, remainder and remainders,
rents, issues and profits thereof, and all the estate, right, title, interest,
property, possession, claim and demand whatsoever, at law as well as in equity,
of Lessee in and to the same, including but not limited to all judgments, awards
of damages and settlements hereafter made resulting from condemnation
proceedings involving Lessee taking the Properties described in Paragraphs 1 and
2 hereof, or any part thereof, under the power of eminent domain, or for any
damage (whether caused by such taking or otherwise) to the Properties
hereinabove described or any part thereof, or to any rights appurtenant thereto,
and all proceeds of any sales or other dispositions of the Properties or any
part thereof (all of the foregoing in this paragraph 2 being referred to as the
"Lease Easements");
3. All equipment, apparatus, furnishings, fittings and personal
property of every kind and nature whatsoever purchased, leased or otherwise
acquired by the Lessee, whether or not now or subsequently attached to,
contained in or used or usable in any way in connection with any operation of
any Lease Improvements or other improvements to the Land, including without
<PAGE>
limitation, all equipment described in any appraisal, all heating, electrical,
and mechanical equipment, lighting, switchboards, plumbing, ventilation, air
conditioning and air-cooling apparatus, refrigerating, and incinerating
equipment, escalators, elevators, loading and unloading equipment and systems,
sprinkler systems and other fire prevention and extinguishing apparatus and
materials, security systems, motors, engines, machinery, pipes, pumps, tanks,
conduits, fittings and fixtures of every kind and description (all of the
foregoing in this paragraph 3 being referred to as the "Lease Equipment");
4. All fixtures relating to the Lease Improvements, including all
components thereof, located in or on the Lease Improvements, together with all
replacements, modifications, alterations and additions thereto (all of the
foregoing in this paragraph 4 being referred to as the "Lease Fixtures");
5. All alterations, renovations, improvements and additions to the
Land, any Lease Improvements or any Lease Equipment or any part thereof and
substitutions and replacements therefor (all of the foregoing in this paragraph
5 being referred to as the "Lease Modifications");
6. All right, title and interest of the Lessee in and to all of the
fixtures, chattels, business machines, machinery, apparatus, equipment,
furnishings, fittings and articles of personal property of every kind and nature
whatsoever, and all appurtenances and additions thereto and substitutions or
replacements thereof (together with, in each case, attachments, components,
parts and accessories) currently owned or subsequently acquired by the Lessee
and now or subsequently attached to, or contained in, comprising a portion of or
used or usable in any way in connection with the Properties, including but
without limiting the generality of the foregoing, all equipment referred to in
the Appraisals and the Equipment Schedules pursuant to the Lease or the
Participation Agreement, all computer hardware, and all heating, electrical, and
mechanical equipment, lighting, switchboards, plumbing, ventilation, air
conditioning and air-cooling apparatus, refrigerating, and incinerating
equipment, escalators, elevators, loading and unloading equipment and systems,
cleaning systems (including without limitation window cleaning apparatus),
telephones, communication systems (including without limitation satellite dishes
and antennae), televisions, computers, sprinkler systems and other fire
prevention and extinguishing apparatus and materials, security systems, motors,
engines, machinery, pipes, pumps, tanks, conduits, appliances, fittings and
fixtures of every kind and description (all of the foregoing in this paragraph 6
being referred to as the "Lease Equipment");
7. All right, title and interest of the Lessee in and to all of the
fixtures, furnishings and fittings of every kind and nature whatsoever, and all
appurtenances and additions thereto and substitutions or replacements thereof
(together with, in each case, attachments, components, parts and accessories)
currently owned or subsequently acquired by the Lessee and now or subsequently
attached to, or contained in or used or usable in any way in connection with any
of the Properties; together with (i) all property affixed to or located on the
Properties which to the fullest extent permitted by law, shall be deemed
fixtures and a part of the real property, (ii) all materials delivered to the
Properties for use in any construction being conducted thereon, and owned by
Lessee, (iii) all contract rights, general intangibles, actions and rights in
action including all rights to insurance
<PAGE>
proceeds, arising out of or related to any of the foregoing property described
in subparagraphs (i) and (ii) of this paragraph 7 and paragraphs 1, 2 and 12,
and (iv) all products, replacements, additions, substitutions, renewals and
accessions of any of the foregoing (all of the foregoing in this paragraph 7
being referred to as the "Lease Fixtures"; all Land, Lease Fixtures, Lease
Equipment, the Lease Improvements, Lease Easements, the Lease Equipment, the
Lease Fixtures, the Lease Modifications and the Lease Easements are being
collectively referred to herein as the "Property");
8. All estate, right, title, claim or demand whatsoever of the Lessee,
in possession or expectancy, in and to the Properties or any part thereof;
9. All right, title and interest of the Lessee in and to all
substitutes, modifications and replacements of, and all additions, accessions
and improvements to the Properties, subsequently acquired by the Lessee or
constructed, assembled or placed by the Lessee on the Land, immediately upon
such acquisition, release, construction, assembling or placement, and in each
such case, without any further conveyance, assignment or other act by the
Lessee;
10. All right, title and interest of the Lessee in and to all unearned
premiums under insurance policies now or subsequently obtained by the Lessee
relating to the Properties and the Lessee's interest in and to all proceeds of
any such insurance policies, including without limitation the right to collect
and receive such proceeds; and all awards and other compensation, including
without limitation the interest payable thereon and the right to collect and
receive the same, made to the present or any subsequent owner of the Properties
for the taking by eminent domain, condemnation or otherwise, of all or any part
of the Properties or any easement or other right therein;
11. All right, title and interest of the Lessee in and to (i) all
consents, licenses, certificates and other governmental approvals relating to
construction, use or operation of the Properties or any part thereof and (ii)
all Plans and Specifications relating to the Properties;
12. All rents, royalties, issues, profits, revenue, income and other
benefits from the Properties; together with all right, title and interest of
Lessee in and to any and all leases now or hereafter on or affecting the
Properties, together with all security therefor and monies payable thereunder;
and
13. All proceeds, both cash and noncash, of any of the foregoing.
<PAGE>
EXHIBIT B TO THE LEASE
OTHER NAMES AND LOCATIONS OF LESSEE
None.
<PAGE>
EXHIBIT C TO THE LEASE
FORM OF
LEASE SUPPLEMENT
[MAY BE MODIFIED, IF AGREEABLE TO LESSEE, LESSOR AND AGENT TO CONFORM
TO REQUIREMENTS OF LOCAL LAW WHERE PROPERTY IS LOCATED]
LEASE SUPPLEMENT NO.
THIS LEASE SUPPLEMENT NO. __ (this "Lease Supplement") dated as of
[__________] between FIRST SECURITY BANK, NATIONAL ASSOCIATION, not
individually, but solely as Owner Trustee under the HEALTHSOUTH Corporation
Trust 1998-1, as lessor (the "Lessor"), and HEALTHSOUTH CORPORATION, as lessee
(the "Lessee") under the Lease Agreement dated as of December 18, 1998, between
Lessor and Lessee (as same may have been or may hereafter be amended, modified,
extended, supplemented, restated and/or replaced, the "Lease").
WHEREAS, the Lessor is the owner or will be the owner of the Property
described on Schedule I hereto (the "Leased Property") and wishes to lease the
same to Lessee;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS; RULES OF USAGE. For purposes of this Lease
Supplement, capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to them in Appendix A to the Participation Agreement,
dated as of December 18, 1998, among the Lessee, the Lessor, not individually,
except as expressly stated therein, but solely as Owner Trustee under the
HEALTHSOUTH Corporation Trust 1998-1, the Holders party thereto, the Lenders
party thereto, and NationsBank, National Association, as Agent for the Lenders
(as such agreement may be amended, modified, supplemented or restated from time
to time).
SECTION 2. THE PROPERTIES. Attached hereto as Schedule I is the
description of the Leased Property, with an Equipment Schedule attached hereto
as Schedule I-A, an Improvement Schedule attached hereto as Schedule I-B and a
legal description of the Land for such Project attached hereto as Schedule I-C.
Effective upon the execution and delivery of this Lease Supplement by the Lessor
and the Lessee, the Leased Property shall be subject to the terms and provisions
of the Lease.
SECTION 3. USE OF PROPERTY. At all times during the Term with respect
to each Property, Lessee will comply with all obligations under and (to the
extent no Event of Default has occurred and is continuing and provided that such
exercise will not impair the value of such Property) shall
<PAGE>
be permitted to exercise all rights and remedies under, all operation and
easement agreements and related or similar agreements applicable to such
Property.
SECTION 4. RATIFICATION. Except as specifically modified hereby, the
terms and provisions of the Lease and the Operative Agreements are hereby
ratified and confirmed and remain in full force and effect.
SECTION 5. ORIGINAL LEASE SUPPLEMENT. The single executed original of
this Lease Supplement marked "THIS COUNTERPART IS THE ORIGINAL EXECUTED
COUNTERPART" on the signature page thereof and containing the receipt of the
Agent therefor on or following the signature page thereof shall be the original
executed counterpart of this Lease Supplement (the "Original Executed
Counterpart"). To the extent that this Lease Supplement constitutes chattel
paper, as such term is defined in the Uniform Commercial Code as in effect in
any applicable jurisdiction, no security interest in this Lease Supplement may
be created through the transfer or possession of any counterpart other than the
Original Executed Counterpart.
SECTION 6. GOVERNING LAW. THIS LEASE SUPPLEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF _____________________
WITHOUT REGARD TO ANY OTHERWISE APPLICABLE PRINCIPLES OF CONFLICT OF LAWS.
SECTION 7. MORTGAGE GRANT AND REMEDIES. Without limiting any other
remedies set forth in the Lease, in the event that a court of competent
jurisdiction rules that the Lease constitutes a mortgage, deed of trust,
security deed or other secured financing as is the intent of the parties, then
the Lessor and the Lessee agree that the Lessee hereby grants, bargains, sells,
conveys, mortgages, and grants a security interest in each Property (including
the Leased Property) to Lessor WITH POWER OF SALE to secure the payment of all
sums due and owing by Lessee hereunder or under any other Operative Agreement,
and that, upon the occurrence of any Event of Default, the Lessor shall have the
power and authority, to the extent provided by law or the Operative Agreements,
after prior notice and lapse of such time as may be required by law, to
foreclose its interest (or cause such interest to be foreclosed) in all or any
part of any Property, to appoint or obtain the appointment of a receiver for all
or any part of the Property, and to exercise any other right or remedy that may
be available under applicable law to the holder of a mortgage, deed of trust,
security deed or other secured financing.
SECTION 8. EXERCISE OF LESSOR RIGHTS. The Lessee hereby acknowledges
and agrees that the rights and powers of the Lessor under the Lease have been
collaterally assigned to the Agent pursuant to the terms of the Security
Agreement and the other Operative Agreements, and that the Lessor has encumbered
the Properties (including the Leased Property) by various Mortgage Instruments
made by the Lessor in favor of the Agent, all as security for certain
indebtedness and obligations described therein of the Lessor to the Agent, the
Lenders and the Holders under the Operative Agreements. Lessee hereby consents
to said assignment and said Mortgage Instruments in favor of the Agent and
further acknowledges and agrees as follows:
<PAGE>
i. In the event that a court of competent jurisdiction rules
that the Lease constitutes a mortgage, deed of trust, security deed or
other secured financing as is the intent of the parties, then the
Lessor and the Lessee agree that the Lessor's collateral assignment of
the Lease to the Agent shall be deemed to be a collateral assignment of
such mortgage, deed of trust, security deed or other secured financing,
and the Agent as such collateral assignee shall be entitled to exercise
any and all rights and remedies of the Lessor set forth herein during
the existence of any Event of Default, including without limitation the
Lessor's rights to obtain a receiver, to obtain possession of the
Properties (including the Leased Property) and the rents and revenues
thereof, to foreclose the Lease, to sell the Lessee's interest in the
Properties (including the Leased Property), and to exercise any other
rights or remedies that may then be available to the Lessor under
applicable law on account of such Event of Default.
ii. Lessee's interest in the Properties (including the Leased
Property) is junior and subordinate to the lien of any Mortgage
Instruments made by the Lessor in favor of the Agent against the
respective Properties (including the Leased Property) from time to time
in connection with the Operative Agreements; provided, however, that
for so long as no Lease Event of Default shall have occurred and be
continuing, (i) except to the extent permitted by Section 5.1 of the
Lease, the Agent shall not disturb Lessee's possession of the
Properties (including the Leased Property) through any foreclosure or
other remedial action against the Properties (including the Leased
Property) under any Mortgage Instrument, and (ii) if Lessor's interest
in any Property (including the Leased Property) shall be transferred to
any Person other than the Lessee as the result of the Agent's
foreclosure or other remedial action under any Mortgage Instrument, the
Lessee shall (upon request of the Agent) attorn to such transferee and
recognize the transferee as the Lessee's landlord under the Lease.
iii. During the existence of an Event of Default, the Agent as
holder of the Mortgage Instruments and as collateral assignee of the
Lease may exercise any and all rights and remedies that may then be
available under applicable law to the Agent in either or both
capacities, whether exercised singly, successively or concurrently.
Without limiting the generality of the foregoing, the Agent as
collateral assignee may enforce the Lessee's payment obligations under
the Lease (regardless of whether the Lease shall be deemed a mortgage,
deed of trust, security deed or other secured financing) even if
Lessee's interest and estate in any Property under this Lease shall
have been extinguished or forfeited under applicable law through the
foreclosure or other enforcement of any Mortgage Instrument.
SECTION 9. COUNTERPART EXECUTION. This Lease Supplement may be executed
in any number of counterparts and by each of the parties hereto in separate
counterparts, all such counterparts together constituting but one and the same
instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
[IF NECESSARY, MODIFY TO PUT IN RECORDABLE FORM.]
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Lease
Supplement to be duly executed by an officer thereunto duly authorized as of the
date and year first above written.
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
not individually, but solely as Owner
Trustee under the HEALTHSOUTH Corporation
Trust 1998-1, as Lessor
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
LESSEE:
HEALTHSOUTH CORPORATION, as Lessee
By:
-------------------------------------
Name: William W. Horton
Title: Senior Vice President
<PAGE>
Receipt of this original counterpart of the foregoing Lease Supplement is hereby
acknowledged as the date hereof.
NATIONSBANK, NATIONAL ASSOCIATION, as
Agent
By:
-------------------------------------
Name: Philip S. Durand
Title: Vice President
<PAGE>
STATE OF ________________ )
) ss:
COUNTY OF ____________ )
The foregoing Lease Supplement was acknowledged before me, the
undersigned Notary Public, in the County and State aforesaid of this ____ day of
___________, 199_, by _________ ______________, as __________ of FIRST SECURITY
BANK, NATIONAL ASSOCIATION, a national banking association, not individually,
but solely as Owner Trustee under the HEALTHSOUTH Corporation Trust 1998-1, on
behalf of the Owner Trustee.
[Notarial Seal] ----------------------------------
Notary Public
My commission expires:__________
STATE OF ________________ )
) ss:
COUNTY OF ____________ )
The foregoing Lease Supplement was acknowledged before me, the
undersigned Notary Public, in the County and State aforesaid this ____ day of
__________, 199_, by ____________ ________________, as _____________ of
HEALTHSOUTH CORPORATION, a Florida corporation, on behalf of the corporation.
[Notarial Seal] ----------------------------------
Notary Public
My commission expires:__________
STATE OF _________________ )
) ss:
COUNTY OF _____________ )
The foregoing Lease Supplement was acknowledged before me, the
undersigned Notary Public, in the County and State aforesaid this ____ day of
__________, 199_, by ____________ _________________, as _______________ of
NATIONSBANK, NATIONAL ASSOCIATION, a national banking association, as Agent.
[Notarial Seal] ----------------------------------
Notary Public
My commission expires:__________
- - - --------------------------------------------------------------------------------
PARTICIPATION AGREEMENT
Dated as of December 18, 1998
among
HEALTHSOUTH CORPORATION, INC.,
as Lessee,
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
not individually, except as expressly
stated herein, but solely as Owner Trustee
under the HEALTHSOUTH Corporation Trust 1998-1,
THE VARIOUS BANKS AND OTHER
LENDING INSTITUTIONS WHICH ARE PARTIES
HERETO FROM TIME TO TIME,
as the Holders,
THE VARIOUS BANKS AND OTHER
LENDING INSTITUTIONS WHICH
ARE PARTIES HERETO FROM TIME TO TIME,
as the Lenders,
DEUTSCHE BANK AG NEW YORK BRANCH,
as Documentation Agent
and
NATIONSBANK, N.A.,
as Administrative Agent for the
Lenders
- - - --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
SECTION 1. THE LOANS........................................................ 1
SECTION 2. HOLDER ADVANCES.................................................. 1
SECTION 3. SUMMARY OF TRANSACTIONS.......................................... 2
3.1. Operative Agreements .............................................. 2
3.2. Property Purchase ................................................. 2
3.3. Completion of Improvements ........................................ 2
SECTION 4. THE CLOSINGS..................................................... 2
4.1. Initial Closing Date .............................................. 2
4.2. Initial Closing Date; Property Closing Dates ...................... 2
4.3. Appointment of Lessee as Lessor's Agent ........................... 3
SECTION 5. FUNDING OF ADVANCES; REPORTING REQUIREMENTS; LESSEE
DELIVERY OF NOTICES................................................. 3
5.1. General ........................................................... 3
5.2. Procedures for Funding ............................................ 3
5.3. Conditions to the Holders' and the Lenders' Obligations to
advance funds on the Initial Closing Date or funds for the
Acquisition of Property ........................................... 4
5.4. Inspection of Documents; Hold Harmless; Removal of
Properties ........................................................ 8
SECTION 6. CONDITIONS OF THE INITIAL CLOSING................................ 9
6.1. Conditions to the Lessor's and the Holders' Obligations ........... 9
6.2. Conditions to the Lessee's Obligations ............................ 10
6.3. Conditions to the Agent's Obligations ............................. 12
SECTION 7. REPRESENTATIONS AND WARRANTIES ON THE INITIAL CLOSING
DATE................................................................ 13
7.1. Representations and Warranties of the Holders ..................... 13
7.2. Representations and Warranties of the Owner Trustee ............... 15
7.3. Representations and Warranties of the Lessee ...................... 17
7.4. Representations and Warranties of the Agent ....................... 21
SECTION 8. REPRESENTATIONS AND WARRANTIES ON ADVANCE DATES.................. 21
8.1. Representations and Warranties on Each Property Closing Date ...... 21
SECTION 9. PAYMENT OF CERTAIN EXPENSES...................................... 25
9.1. Transaction Expenses .............................................. 25
9.2. Certain Fees and Expenses ......................................... 26
9.3. Commitment Fee .................................................... 26
ii
<PAGE>
SECTION 10. OTHER COVENANTS AND AGREEMENTS.................................. 27
10.1. Cooperation with the Lessee ...................................... 27
10.2. Covenants of the Owner Trustee and the Holders ................... 27
10.3. Lessee Covenants, Consent and Acknowledgement .................... 29
10.4. Sharing of Certain Payments ...................................... 30
10.5. Grant of Easements, etc .......................................... 30
SECTION 11. CREDIT AGREEMENT AND TRUST AGREEMENT............................ 31
11.1. Lessee's Credit Agreement Rights ................................. 31
11.2. Lessee's Trust Agreement Rights .................................. 32
SECTION 12. TRANSFER OF INTEREST............................................ 32
12.1. Restrictions on Transfer ......................................... 32
12.2. Effect of Transfer ............................................... 32
SECTION 13. INDEMNIFICATION................................................. 33
13.1. General Indemnity ................................................ 33
13.2. General Tax Indemnity ............................................ 36
13.3. Environmental Indemnity .......................................... 40
SECTION 14. MISCELLANEOUS................................................... 40
14.1. Survival of Agreements ........................................... 40
14.2. No Broker, etc ................................................... 40
14.3. Notices .......................................................... 41
14.4. Counterparts ..................................................... 43
14.5. Amendments and Termination ....................................... 43
14.6. Headings, etc .................................................... 43
14.7. Parties in Interest .............................................. 43
14.8. Governing Law; Waivers of Jury Trial ............................. 43
14.9. Submission to Jurisdiction; Waivers .............................. 43
14.10. Severability .................................................... 44
14.11. Liability Limited ............................................... 44
14.12. Rights of Lessee ................................................ 45
14.13. Further Assurances .............................................. 46
14.14. Calculations under Operative Agreements ......................... 46
14.15. Confidentiality ................................................. 46
14.16. Calculation of Rent, Interest, Holder Yield and Fees ............ 47
EXHIBIT A REQUISITION FORM ................................................. A-1
Schedule 1 Legal Description of Land .................................. A-3
Schedule 2 Description of Improvements ................................ A-4
Schedule 3 Description of Equipment ................................... A-5
Schedule 4 Work ....................................................... A-6
iii
<PAGE>
EXHIBIT B HEALTHSOUTH CORPORATION OFFICER'S CERTIFICATE.................B-1
EXHIBIT A TO OFFICER'S CERTIFICATE............................B-2
EXHIBIT C FORM OF OPINION OF COUNSEL TO LESSEE..........................C-1
EXHIBIT D HEALTHSOUTH CORPORATION OFFICER'S CERTIFICATE.................D-1
EXHIBIT E HEALTHSOUTH CORPORATION SECRETARY'S CERTIFICATE...............E-1
EXHIBIT F FIRST SECURITY BANK, NATIONAL ASSOCIATION.....................F-1
EXHIBIT G FIRST SECURITY BANK, NATIONAL ASSOCIATION CERTIFICATE
OF ASSISTANT SECRETARY........................................G-1
EXHIBIT H FORM OF OPINION OF COUNSEL TO FIRST SECURITY
BANK, NATIONAL ASSOCIATION ...................................H-1
Appendix A Rules of Usage and Definitions................................A-1
iv
<PAGE>
PARTICIPATION AGREEMENT
THIS PARTICIPATION AGREEMENT, dated as of December 15, 1998 (as amended or
supplemented from time to time, this "Agreement"), is by and among HEALTHSOUTH
CORPORATION, as Lessee (the "Lessee"); FIRST SECURITY BANK, NATIONAL
ASSOCIATION, a national banking association, not individually (in its individual
capacity, the "Trust Company"), except as expressly stated herein, but solely as
Owner Trustee under the HEALTHSOUTH Corporation Trust 1998-1 (the "Owner
Trustee" or the "Lessor"); DEUTSCHE BANK AG NEW YORK BRANCH, as Documentation
Agent; NATIONSBANK, N.A., a national banking association, as Administrative
Agent (in such capacity, the "Agent") for the Lenders and the Holders;
NATIONSBANK, N.A., a national banking association, and the various other banks
and lending institutions which are parties hereto from time to time as Holders;
and NATIONSBANK, N.A. and the various other banks and lending institutions which
are parties hereto from time to time as Lenders. Capitalized terms used but not
otherwise defined in this Agreement shall have the meanings set forth in
Appendix A hereto.
In consideration of the mutual agreements herein contained and other good
and valuable consideration, receipt of which is hereby acknowledged, the parties
hereto hereby agree as follows:
SECTION 1. THE LOANS.
The Lenders have agreed to make Loans to the Lessor from time to time in an
aggregate principal amount of up to the aggregate amount of the Commitments of
the Lenders in order for the Lessor to acquire the Properties and certain
Improvements, and in consideration of the receipt of such Loan proceeds, the
Lessor will issue the Notes (together with any note or notes issued in exchange
or substitution therefor in accordance with the Credit Agreement, the "Notes").
The Loans shall be made and the Notes shall be issued pursuant to the Credit
Agreement. Pursuant to Section 5 of this Agreement and Section 2 of the Credit
Agreement, the Loans will be made to the Lessor from time to time upon the
appropriate submission by the Lessee of a Requisition therefor and in accordance
with this Agreement and the other Operative Agreements. The Loans and the
obligations of the Lessor under the Credit Agreement shall be secured by the
Collateral.
SECTION 2. HOLDER ADVANCES.
Subject to the terms and conditions of this Agreement and in reliance on
the representations and warranties of each of the parties hereto contained
herein or made pursuant hereto on each date Advances are made in accordance with
Section 5 hereof, each Holder shall make a Holder Advance on a pro rata basis to
the Owner Trustee with respect to the HEALTHSOUTH Corporation Trust 1998-1 based
on its Holder Commitment in an amount in immediately available funds such that
the aggregate of all Holder Advances shall be three percent (3%) of the amount
of the Advance being funded on such date; provided, no Holder shall be obligated
for any Holder Advance in excess of its pro rata share of the Available Holder
Commitment. The aggregate amount of Holder Advances shall be up to the aggregate
amount of
<PAGE>
the Holder Commitments. No prepayment or any other payment with respect to any
Advance shall be permitted such that the Holder Advance with respect to such
Advance is less than 3% of the outstanding amount of such Advance, except in
connection with termination or expiration of the Term or in connection with the
exercise of remedies relating to the occurrence of a Lease Event of Default. The
representations, warranties, covenants and agreements of the Holders herein and
in the other Operative Agreements are several, and not joint or joint and
several.
SECTION 3. SUMMARY OF TRANSACTIONS.
3.1. Operative Agreements. On the date hereof (the "Initial Closing Date"),
each of the respective parties hereto and thereto shall execute and deliver this
Agreement, the Lease, the Credit Agreement, the Notes, the Certificates, the
Trust Agreement, the Security Agreement and such other documents, instruments,
certificates and opinions of counsel as agreed to by the parties hereto.
3.2. Property Purchase. On the Property Closing Date and subject to the
terms and conditions of this Agreement (a) the Holders will each make a Holder
Advance in accordance with Sections 2 and 5 of this Agreement and the terms and
provisions of the Trust Agreement, (b) the Lenders will make Loans in accordance
with Sections 1 and 5 of this Agreement and the terms and provisions of the
Credit Agreement, and (c) the Lessor will purchase pursuant to a Deed or lease
pursuant to a Ground Lease each Property, as the case may be, and grant the
Agent a Lien on each Property by execution of the required Security Documents.
3.3. Completion of Improvements. Each Property shall be a Completed
Property on the applicable Property Closing Date for such Property.
SECTION 4. THE CLOSINGS.
4.1. Initial Closing Date. All documents and instruments required to be
delivered on the Initial Closing Date shall be delivered at the offices of Smith
Helms Mulliss & Moore, L.L.P., Charlotte, North Carolina, or at such other
location as may be determined by the Lessor, the Agent and the Lessee.
4.2. Initial Closing Date; Property Closing Dates. The Lessee shall deliver
to the Lessor and the Agent a requisition (a "Requisition"), in the form
attached hereto as Exhibit A or in such other form as is reasonably satisfactory
to the Lessor, the Lessee and the Agent (together with such additional
schedules, affidavits, releases, waivers, statements, invoices, bills, and other
documents, certificates and information reasonably required by the Agent, in
connection with (a) the Initial Closing Date relating to the Transaction
Expenses and other fees, expenses and disbursements payable by the Lessor
pursuant to Section 9.1(a) with invoices (in form and substance reasonably
acceptable to the Agent and the Lessor) for such Transaction Expenses and other
fees, expenses and disbursements attached to such Requisition and (b) the
Property Closing Date relating to each Acquisition Advance pursuant to Section
5.3.
2
<PAGE>
4.3. Appointment of Lessee as Lessor's Agent. The Lessor hereby irrevocably
designates and appoints the Lessee as its exclusive agent, and the Lessee
accepts such appointment, to take all action necessary or desirable for the
acquisition of the Properties (provided title to each Property shall be held in
the name of the Lessor) in accordance with the terms of this Agreement and the
other Operative Agreements. Notwithstanding any provisions hereof or in any
other Operative Agreement to the contrary, the Lessee acknowledges and agrees
that the Lessor shall advance no more than the sum of the aggregate Commitment
of the Lenders plus the aggregate amount of the Holder Commitments in regard to
the Properties (including without limitation for any and all Advances in the
aggregate from the Lenders under the Credit Agreement and from the Holders under
the Trust Agreement). This agency created hereunder shall commence on the date
hereof and shall terminate on the Commitment Period Termination Date.
SECTION 5. FUNDING OF ADVANCES; REPORTING REQUIREMENTS; LESSEE DELIVERY OF
NOTICES.
5.1. General. To the extent funds have been made available to the Lessor as
Loans by the Lenders and Holder Advances by the Holders, the Lessor will use
such funds from time to time in accordance with the terms and conditions of this
Agreement and the other Operative Agreements (i) at the direction of the Lessee
to acquire the Properties in accordance with the terms of this Agreement, the
Lease and the other Operative Agreements, (ii) to make advances to the Lessee to
permit the testing, engineering, installation, development, construction,
modification, design and renovation, as applicable, of Improvements in
accordance with the terms of the Lease and the other Operative Agreements, and
(iii) to pay Transaction Expenses, fees, expenses and other disbursements
payable by the Lessor under Sections 9.1(a) and (b).
5.2. Procedures for Funding.
(a) The Lessee shall designate the date for Advances hereunder in
accordance with the terms and provisions hereof; provided, however, it is
understood and agreed that (i) no more than two (2) Advances may be
requested during any calendar month and (ii) Advances with respect to a
Property (other than Advances with respect to Transaction Expenses, fees,
taxes, expenses and other disbursements funded pursuant to Sections 5.3,
9.1(a) or 9.1(b)) may only be made on the Property Closing Date for such
Property. Not less than three (3) Business Days prior to the date of any
requested Advance, the Lessee shall deliver to the Lessor and the Agent,
with respect to the Initial Closing Date and each Property Closing Date, a
Requisition as described in Section 4.2 hereof (including without
limitation a legal description of the Land, a schedule of the Improvements
and a schedule of the Equipment, if any, acquired on such date, each of the
foregoing in a form reasonably acceptable to the Lessor, and the Agent).
3
<PAGE>
(b) Each Requisition shall: (i) be irrevocable, (ii) request funds in
an amount that is not in excess of the total aggregate of the Available
Commitments plus the Available Holder Commitments at such time, and (iii)
request that the Holders make Advances and that the Lenders make Loans to
the Lessor for the payment of the Property Acquisition Costs or other
Property Costs that have previously been incurred and were not subject to a
prior Requisition, in each case as specified in the Requisition.
(c) Subject to the terms and conditions of the Credit Agreement and
the Trust Agreement and subject to the satisfaction of the conditions
precedent set forth in Section 5.3 on each Property Closing Date,
(i) the Lenders shall make Loans to the Lessor in an aggregate amount
equal to 97% of the Requested Funds specified in any Requisition up to an
aggregate principal amount equal to the Available Commitments (such loans
to be apportioned 87% to Series A Loans and 10% to Series B Loans);
(ii) each Holder shall make a pro rata Holder Advance based on its
Holder Commitment in an amount such that the aggregate of all Holder
Advances at such time shall be 3% of the Requested Funds specified in any
Requisition, provided no such Holder Advance shall exceed such Holder's pro
rata share of the Available Holder Commitments; and
(iii) the total amount of such Loans and Holder Advances made on such
date shall (w) be used by the Lessor to pay the Property Acquisition Costs
within three (3) Business Days of the receipt by the Lessor of such Advance
(in the case of a Property Closing Date), (x) be used by the Lessor to pay
Transaction Expenses, fees, taxes, expenses and other disbursements to the
extent permitted under Sections 5.3, 9.1(a) or 9.1(b) (as applicable), or
(y) be disbursed by the Lessor, on the date of such Advance, to the Lessee
to pay Property Costs, as applicable. Any such amounts held by the Lessor
(or the Agent on behalf of the Lessor) shall be subject to the lien of the
Security Agreement.
5.3. Conditions to the Holders' and the Lenders' Obligations to advance
funds on the Initial Closing Date or funds for the Acquisition of Property.
(a) The obligations of each Holders to make Holder Advances, and each
Lender to make Loans, to the Lessor on the Initial Closing Date for the
purpose of providing funds to the Lessor necessary to pay Transaction
Expenses, fees, expenses and other disbursements payable by the Lessor
under Section 9.1 of this Agreement, are subject to the prior or
contemporaneous satisfaction or waiver of the following conditions
precedent:
(i) the correctness in all material respects on such date of the
representations and warranties of the Owner Trustee, the Lessee and
the Holders contained herein and in each of the other Operative
Agreements;
4
<PAGE>
(ii) the performance in all material respects by the Lessee of
its agreements contained herein and in the other Operative Agreements
which covenants are to be performed by it on or prior to such date;
(iii) the satisfaction of all conditions to any such Holder
Advance or Loan set forth in any Operative Agreement;
(iv) the Agent and the Owner Trustee shall have received a fully
executed copy of a counterpart of the respective Requisition,
appropriately completed; and
(v) no Default or Event of Default under any of the Operative
Agreements shall have occurred after giving effect to the Advance
requested by such Requisition.
(b) The obligations of each Holder to make Holder Advances, and each
Lender to make Loans, to the Lessor on a Property Closing Date for the
purpose of providing funds to the Lessor necessary to pay the Transaction
Expenses, fees, expenses and other disbursements payable by Lessor under
Section 9.1 (b) of this Agreement and to acquire a Property, are subject to
the prior or contemporaneous satisfaction or waiver of the following
conditions precedent:
(i) the correctness in all material respects on such Property
Closing Date of the representations and warranties of the Owner
Trustee, the Lessee and the Holders contained herein and in each of
the other Operative Agreements;
(ii) the performance in all material respects by the Lessee of
its agreements contained herein and in the other Operative Agreements
which covenants are to be performed by it on or prior to each such
Property Closing Date;
(iii) the satisfaction of all conditions to any such Holder
Advance or Loan set forth in any Operative Agreement;
(iv) the Agent and the Owner Trustee shall have received a fully
executed copy of a counterpart of the respective Requisition,
appropriately completed, together with copies of all Bills of Sale
with respect to any Equipment;
(v) title to each Property being acquired on such Property
Closing Date shall conform to the representations and warranties set
forth in Section 8.1(c) hereof;
5
<PAGE>
(vi) the Lessee shall have delivered to the Lessor a copy of the
Deed with respect to the Land and existing Improvements and a copy of
the Bill of Sale with respect to the Equipment, respecting such of the
foregoing as are being acquired on such Property Closing Date; and
such Land and existing Improvements shall be located in an Approved
State;
(vii) there shall not have occurred and be continuing any Default
or Event of Default under any of the Operative Agreements and no
Default or Event of Default under any of the Operative Agreements
shall have occurred after giving effect to the Advance requested by
such Requisition;
(viii) the Lessee shall have delivered to the Agent and the Owner
Trustee, title insurance commitments to issue policies in favor of the
Owner Trustee and the Agent with respect to each Property being
acquired on such Property Closing Date, such policies being in form
and substance reasonably acceptable to the Owner Trustee and the
Agent, with such title exceptions thereto as are reasonably acceptable
to the Owner Trustee and the Agent; and the Lessee shall deliver to
the Owner Trustee and the Agent, as soon as possible (and in any event
by the latter of (A) the respective Property Closing Date or (B) 60
days after the Initial Closing Date), the final title insurance
policies for each such Property taking no specific exception for any
Lien filed on account of materials furnished or labor performed in
connection with such Property, and otherwise showing no additional
exceptions to coverage;
(ix) the Lessee shall have delivered to the Agent and the Owner
Trustee a "Phase I" environmental site assessment with respect to each
such Property, prepared by an independent recognized professional
reasonably acceptable to the Agent and the Owner Trustee and in a form
and substance that is reasonably acceptable to the Agent and the Owner
Trustee;
(x) the Lessee shall have delivered to the Agent and the Owner
Trustee an as-built survey of each such Property, prepared by an
independent recognized professional meeting the then current minimum
standard detail requirements for American Land Title
Association/American Congress of Surveying and Mapping (ALTA/ACSM)
Land Title Surveys certified to the Agent and otherwise reasonably
acceptable to the Agent;
(xi) the Lessee shall have caused to be delivered to the Agent
and the Owner Trustee a legal opinion (in form and substance
reasonably satisfactory to the Agent and the Owner Trustee) from
counsel located in the state where each such Property is located or,
if the Agent and the Owner Trustee have previously received an opinion
from counsel in such state, the Agent and the Owner Trustee (in their
discretion) may accept an update or a reaffirmation of the previous
opinion, in each case addressed to each Lender;
6
<PAGE>
(xii) the Owner Trustee and the Agent shall be satisfied, in
their discretion, that the acquisition of each Property and the
execution of the Mortgage Instruments and the other Security Documents
will not adversely affect in any material respect the rights of the
Owner Trustee, the Holders, the Agent or the Lenders under or with
respect to the Operative Agreements in effect as of the Property
Closing Date (it being understood and acknowledged that the Agent and
the Owner Trustee may require that the Lessee deliver an acceptable
legal opinion in connection with this condition);
(xiii) the Lessee shall have delivered to the Agent and the Owner
Trustee, respecting each such Property, invoices for the various
Transaction Expenses and other fees, expenses and disbursements
referenced in Section 9.1(a) or (b) of this Agreement and an Officer's
Certificate in the form attached hereto as Exhibit B specifying the
aggregate Property Cost for such Property;
(xiv) the Lessee shall have delivered to the Agent and the Owner
Trustee, respecting each Property, certificates of insurance meeting
the requirements of Section 14.3 of the Lease;
(xv) the Lessor shall have delivered to the Agent a Mortgage
Instrument and Lender Financing Statements with respect to each such
Property in a form reasonably acceptable to the Agent and Lessee and
all necessary recording fees, documentary stamp taxes or similar
amounts will be paid in connection with the related Mortgage
Instrument in an amount sufficient to cover such maximum total
Property Cost, or (in the case of the recording tax with respect to
the Mortgage Instrument) in an amount required to be paid at the time
of recording of such instrument (provided that the Lessee shall
promptly pay or reimburse any Indemnified Person for payment of, any
additional recording tax that may be due at any time with respect to
such instrument);
(xvi) the Lessee shall have delivered to the Lessor with respect
to each such Property, a Lease Supplement and a memorandum regarding
the Lease and such Lease Supplement (such memorandum to be
substantially in the forms attached to the Lease as Exhibit B and in
each case in form suitable for recording);
(xvii) the Lessee shall have delivered to the Lessor with respect
to each such Property Lessor Financing Statements executed by the
Lessee and the Lessor;
(xviii) all necessary (or in the reasonable opinion of the Owner
Trustee, the Agent, or their respective counsel, advisable)
Governmental Actions, in each case required by any law or regulation
enacted, imposed or adopted on or prior to
7
<PAGE>
each such date or by any change in facts or circumstances on or prior
to each such date, shall have been obtained or made and be in full
force and effect;
(xix) if any such Property is subject to a Ground Lease, the
Lessee shall have caused a lease memorandum (in form and substance
satisfactory to the Agent) to be delivered to the Agent for such
Ground Lease;
(xx) counsel for the ground lessor of each such Property subject
to a Ground Lease shall have issued to the Lessor, the Agent and the
Holders, an opinion satisfactory to the Agent;
(xxi) the Lessee shall cause (i) Uniform Commercial Code lien
searches, tax lien searches and judgment lien searches regarding each
of the Lessee and the Lessor to be conducted (and copies thereof to be
delivered to the Agent and the Owner Trustee) in the state and county
(or other jurisdiction) in which such Property is located, by a
nationally recognized search company acceptable to the Owner Trustee
and the Agent, and (ii) the liens referenced in such lien searches
which are objectionable to the Owner Trustee or the Agent to be either
removed or otherwise handled in a manner reasonably satisfactory to
the Owner Trustee and the Agent;
(xxii) the Agent shall have received on the later of (A) the
respective Property Closing Date or (B) 60 days following the Initial
Closing Date, an Appraisal for such Property showing that such
Property has an enterprise value, when taken together with the
enterprise value of all other Properties for which an Appraisal has
been obtained, equal to at least fifty percent (50%) of the total
Property Cost of all Properties and all Improvements constructed or
expected to be constructed thereon; and
(xxiii) the Lessee shall have determined (as set forth in the
related Requisition) that such Improvements are appropriate to its
business; and the Agent shall have consented to such Improvements,
which consent shall not be unreasonably withheld or delayed.
5.4. Inspection of Documents; Hold Harmless; Removal of Properties. Any
document or item (including without limitation any environmental report)
delivered to the Agent shall be available for inspection at any time during
ordinary business hours upon reasonable notice by any Lender or Holder. The
Agent shall not incur any liability to any Lender, any Holder, the Owner Trustee
or any other Person (and each Lender, each Holder, the Owner Trustee and the
Lessee hereby holds the Agent harmless from any such liability) as a result of
any such document or item, any information contained therein, the failure to
receive any such document, or the Agent's approval of any Property. In the event
the Majority Lenders determine that any environmental site assessment reveals an
Environmental Violation and they or the Agent so
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notify the Lessee, then the Lessee shall remedy or purchase such Property in
accordance with Sections 15.2, 16.1 and 16.2 of the Lease.
SECTION 6. CONDITIONS OF THE INITIAL CLOSING.
6.1. Conditions to the Lessor's and the Holders' Obligations. The
obligations of the Lessor and the Holders to consummate the transactions
contemplated by this Agreement, including the obligation to execute and deliver
the applicable Operative Agreements to which each is a party on the Initial
Closing Date, are subject to (i) the accuracy and correctness on the Initial
Closing Date of the representations and warranties of the other parties hereto
contained herein, (ii) the accuracy and correctness on the Initial Closing Date
of the representations and warranties of the other parties hereto contained in
any other Operative Agreement or certificate delivered pursuant hereto or
thereto, (iii) the performance by the other parties hereto of their respective
agreements contained herein and in the other Operative Agreements and to be
performed by them on or prior to the Initial Closing Date and (iv) the
satisfaction, or waiver by the Lessor and the Holders, of all of the following
conditions on or prior to the Initial Closing Date:
(a) Each of the Operative Agreements to be entered into on the Initial
Closing Date shall have been duly authorized, executed and delivered by the
parties thereto, other than the Lessor, and shall be in full force and
effect, and no Default or Event of Default shall exist thereunder (both
before and after giving effect to the transactions contemplated by the
Operative Agreements), and the Lessor shall have received a fully executed
copy of each of the Operative Agreements (other than the Notes of which it
shall have received specimens). The Operative Agreements (or memoranda
thereof), any supplements thereto and any financing statements and fixture
filings in connection therewith required under the Uniform Commercial Code
shall have been filed or shall be promptly filed, if necessary, in such
manner as to enable the Lessee's counsel to render its opinion referred to
in Section 6.1(g) hereof;
(b) All taxes, fees and other charges in connection with the
execution, delivery, recording, filing and registration of the Operative
Agreements shall have been paid or provision for such payment shall have
been made to the reasonable satisfaction of the Lessor and the Agent;
(c) No action or proceeding shall have been instituted, nor shall any
action or proceeding be threatened, before any Governmental Authority, nor
shall any order, judgment or decree have been issued or proposed to be
issued by any Governmental Authority (i) to set aside, restrain, enjoin or
prevent the full performance of this Agreement, any other Operative
Agreement or any transaction contemplated hereby or thereby or (ii) which
is reasonably likely to have a Material Adverse Effect;
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(d) In the reasonable opinion of the Lessor and the Holders and their
counsel, the transactions contemplated by the Operative Agreements do not
and will not violate any material Legal Requirements and do not and will
not subject the Lessor or the Holders to any materially adverse regulatory
prohibitions or constraints, in each case enacted, imposed, adopted or
proposed since the date hereof;
(e) The Lessor and the Agent shall each have received an Officer's
Certificate of the Lessee, dated as of the Initial Closing Date, in the
form attached hereto as Exhibit D or in such other form as is reasonably
acceptable to such parties stating that (i) each and every representation
and warranty of the Lessee contained in the Operative Agreements to which
it is a party is true and correct in all material respects on and as of the
Initial Closing Date; (ii) no Default or Event of Default has occurred and
is continuing under any Operative Agreement; (iii) each Operative Agreement
to which Lessee is a party is in full force and effect with respect to it;
and (iv) the Lessee has performed and complied with all covenants,
agreements and conditions contained herein or in any Operative Agreement
required to be performed or complied with by it on or prior to the Initial
Closing Date;
(f) The Lessor and the Agent shall each have received (i) a
certificate of the Secretary or an Assistant Secretary of the Lessee in the
form attached hereto as Exhibit E or in such other form as is reasonably
acceptable to such parties attaching and certifying as to (A) the
resolutions of the Board of Directors of Lessee duly authorizing the
execution, delivery and performance by Lessee of each of the Operative
Agreements to which it is or will be a party, (B) its certificate of
incorporation and by-laws, in each case certified as of a recent date by
the Secretary of State of the State of its incorporation, and (C) the
incumbency and signature of persons authorized to execute and deliver on
its behalf the Operative Agreements to which it is a party and (ii) a good
standing certificate from the appropriate officer of the State of Alabama
and each state in which any Property is located as to its good standing in
such state;
(g) Counsel for the Lessee reasonably acceptable to the other parties
hereto shall have issued to the Lessor, the Agent, the Lenders and the
Holders an opinion in the form attached hereto as Exhibit C or in such
other form as is reasonably acceptable to such parties; and
(h) As of the Initial Closing Date, there shall not have occurred any
material adverse change in the consolidated assets, liabilities,
operations, business or financial condition of the Lessee from that set
forth in the audited financial statements of the Lessee dated December 31,
1997.
6.2. Conditions to the Lessee's Obligations. The obligation of the Lessee
to consummate the transactions contemplated by this Agreement, including the
obligation to execute and deliver the Operative Agreements to which it is a
party on the Initial Closing Date, is subject to (i) the accuracy and
correctness on the Initial Closing Date of the representations and
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warranties of the other parties hereto contained herein, (ii) the accuracy and
correctness on the Initial Closing Date of the representations and warranties of
the other parties hereto contained in any other Operative Agreement or
certificate delivered pursuant hereto or thereto, (iii) the performance by the
other parties hereto of their respective agreements contained herein and in the
other Operative Agreements, in each case to be performed by them on or prior to
the Initial Closing Date, and (iv) the satisfaction or waiver by the Lessee of
all of the following conditions on or prior to the Initial Closing Date:
(a) Each of the Operative Agreements to be entered into on the Initial
Closing Date shall have been duly authorized, executed and delivered by the
parties thereto, other than the Lessee, and shall be in full force and
effect, and no Default, other than Defaults of the Lessee, shall exist
thereunder, and the Lessee shall have received a fully executed copy of
each of the Operative Agreements (other than Notes of which it shall have
received a specimen);
(b) In the reasonable opinion of the Lessee and its counsel, the
transactions contemplated by the Operative Agreements do not violate any
material Legal Requirements and will not subject Lessee to any materially
adverse regulatory prohibitions or constraints, in each case enacted,
imposed, adopted or proposed since the date hereof;
(c) No action or proceeding shall have been instituted nor shall any
action or proceeding be threatened, before any Governmental Authority, nor
shall any order, judgment or decree have been issued or proposed to be
issued by any Governmental Authority (i) to set aside, restrain, enjoin or
prevent the full performance of this Agreement, any other Operative
Agreement or any transaction contemplated hereby or thereby or (ii) which
is reasonably likely to have a Material Adverse Effect;
(d) The Lessee and the Agent shall each have received an Officer's
Certificate of the Lessor dated as of such Closing Date in the form
attached hereto as Exhibit F or in such other form as is reasonably
acceptable to Lessee and the Agent, stating that (i) each and every
representation and warranty of the Lessor contained in the Operative
Agreements to which it is a party is true and correct on and as of the
Initial Closing Date; (ii) each Operative Agreement to which the Lessor is
a party is in full force and effect with respect to it, and (iii) the
Lessor has duly performed and complied with all covenants, agreements and
conditions contained herein or in any Operative Agreement required to be
performed or complied with by it on or prior to the Initial Closing Date;
(e) The Lessee and the Agent shall each have received (i) a
certificate of the Secretary, an Assistant Secretary, Trust Officer or Vice
President of the Trust Company in the form attached hereto as Exhibit G or
in such other form as is reasonably acceptable to Lessee and the Agent,
attaching and certifying as to (A) the signing resolutions, (B) its
articles of incorporation or other equivalent charter documents, as the
case may be, certified as of a recent date by an appropriate officer of the
Trust Company, (C) its by-
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laws and (D) the incumbency and signature of persons authorized to execute
and deliver on its behalf the Operative Agreements to which it is a party
and (ii) a good standing certificate from the state of incorporation of the
Trust Company; and
(f) Counsel for the Lessor acceptable to the other parties hereto
shall have issued to the Lessee, the Holders, the Lenders and the Agent an
opinion in the form attached hereto as Exhibit H or in such other form as
is reasonably acceptable to such parties.
6.3. Conditions to the Agent's Obligations. The obligation of the Agent to
consummate the transactions contemplated by this Agreement on the Initial
Closing Date, including the obligation to execute and deliver each of the
Operative Agreements to which it is a party on the Initial Closing Date, is
subject to (i) the accuracy and correctness on the Initial Closing Date of the
representations and warranties of the other parties hereto contained herein,
(ii) the accuracy and correctness on the Initial Closing Date of the
representations and warranties of the other parties hereto contained in any
other Operative Agreement or certificate delivered pursuant hereto or thereto,
(iii) the performance by the other parties hereto of their respective agreements
contained herein and in the other Operative Agreements, in each case to be
performed by them on or prior to the Initial Closing Date, and (iv) the
satisfaction, or waiver by the Agent, of all of the following conditions on or
prior to the Initial Closing Date:
(a) Each of the Operative Agreements to be entered into on the Initial
Closing Date shall have been duly authorized, executed and delivered by the
parties thereto, other than the Agent, and shall be in full force and
effect, and no Default or Event of Default shall exist thereunder (both
before and after giving effect to the transactions contemplated by the
Operative Agreements), and the Agent shall have received a fully executed
copy of each of the Operative Agreements (including the Notes). The
Operative Agreements (or memoranda thereof), any supplements thereto and
any financing statements and fixture filings in connection therewith
required under the Uniform Commercial Code shall have been filed or shall
be promptly filed, if necessary, in such manner as to enable the Lessor's
counsel to render its opinion referred to in Section 6.2(f) hereof;
(b) The satisfaction of each of the conditions set forth in Sections
6.1(b), (c), (e), (f) and (h) and Sections 6.2(d), (e) and (f) hereof; and
(c) In the reasonable opinion of the Agent and its counsel, the
transactions contemplated by the Operative Agreements do not and will not
violate any material Legal Requirements and do not and will not subject the
Agent or the Lenders to any materially adverse regulatory prohibitions or
constraints, in each case enacted, imposed, adopted or proposed since the
date hereof.
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SECTION 7. REPRESENTATIONS AND WARRANTIES ON THE INITIAL CLOSING DATE.
7.1. Representations and Warranties of the Holders. Effective as of the
Initial Closing Date, each of the Holders represents and warrants to each of the
other parties hereto that:
(a) It is a banking corporation or banking association, or branch or
agency thereof (the entity of which such Holder is a branch or agency being
referred to in this Section 7.1 as the "Primary Institution"), as the case
may be, duly organized, validly existing and in good standing under the
laws of the jurisdiction of its formation, and has the power and authority
to carry on its business as now conducted and to enter into and perform its
obligations under each Operative Agreement to which it is or will be a
party and each other agreement, instrument and document to be executed and
delivered by it on or before each Closing Date in connection with or as
contemplated by each such Operative Agreement to which it is or will be a
party;
(b) The execution, delivery and performance of each Operative
Agreement to which it is or will be a party have been duly authorized by
all necessary action on its part (and on the part of any applicable Primary
Institution) and neither the execution and delivery thereof, nor the
consummation of the transactions contemplated thereby, nor compliance by it
with any of the terms and provisions thereof (i) requires or will require
any approval of the stockholders of, or approval or consent of any trustee
or holder of any indebtedness or obligations of, such Holder (or any
applicable Primary Institution) which have not been obtained and in full
force and effect, (ii) violates or will violate any Legal Requirement
applicable to or binding on it (or any applicable Primary
Institution)(except no representation or warranty is made as to any Legal
Requirement to which it may be subject solely as a result of the activities
of the Lessee) as of the date hereof, (iii) violates or will violate or
result in any breach of or constitute any default under, or result in the
creation of any Lien upon any Property or any of the Improvements (other
than Liens created by the Operative Agreements) under its certificate of
incorporation or other equivalent charter documents, or any indenture,
mortgage, chattel mortgage, deed of trust, conditional sales contract, bank
loan or credit agreement or other agreement or instrument to which it (or
any applicable Primary Institution) is a party or by which it (or any
applicable Primary Institution) or its properties is bound or affected or
(iv) requires or will require any Governmental Action by any Governmental
Authority (other than arising solely by reason of the business, condition
or activities of the Lessee or any Affiliate thereof or the construction or
use of the Properties or the Improvements);
(c) This Agreement and each other Operative Agreement to which it is
or will be a party have been, or will be, duly executed and delivered by it
and constitutes, or upon execution and delivery will constitute, a legal,
valid and binding obligation enforceable against it (including any
applicable Primary Institution) in accordance with the terms thereof,
subject to the effect of any applicable bankruptcy, moratorium, insolvency,
reorganization or other similar laws affecting the enforceability of
creditors'
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rights generally and to the effect of general principles of equity (whether
considered in a proceeding at law or in equity);
(d) There is no action or proceeding pending or, to its knowledge,
threatened against it (or any applicable Primary Institution) before any
Governmental Authority that questions the validity or enforceability of any
Operative Agreement to which it is or will become a party or that, if
adversely determined, would materially and adversely affect its ability (or
that of any applicable Primary Institution) to perform its obligations
under the Operative Agreements to which it is a party;
(e) It has not assigned or transferred any of its right, title or
interest in or under the Lease except in accordance with the Operative
Agreements;
(f) No Default or Event of Default under the Operative Agreements
attributable to it has occurred and is continuing;
(g) It is not a "holding company" or a "subsidiary company" of a
"holding company" or an "affiliate" of a "holding company" or a "public
utility" within the meaning of the Public Utility Holding Company Act of
1935, as amended, or a "public utility" within the meaning of the Federal
Power Act, as amended. It is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act or an "investment adviser" within the meaning of the
Investment Advisers Act of 1940, as amended;
(h) Except as otherwise contemplated by the Operative Agreements, it
shall not, nor shall it direct the Owner Trustee to, use the proceeds of
any Loan or Holder Advance for any purpose other than the payment of
Transaction Expenses and the fees, expenses and other disbursements
referenced in Sections 9.1(a) and (b) of this Agreement, the purchase or
lease of the Property, the acquisition of Equipment and the construction of
Improvements; and
(i) It is acquiring its interest in the Trust Estate for its own
account (including that of any applicable Primary Institution) for
investment and not with a view to any distribution (as such term is used in
Section 2(11) of the Securities Act) thereof, and if in the future it
should decide to dispose of its interest in the Trust Estate, it
understands that it may do so only in compliance with the Securities Act
and the rules and regulations of the Securities and Exchange Commission
thereunder and any applicable state securities laws. Neither it nor anyone
authorized to act on its behalf has taken or will take any action which
would subject, as a direct result of such action alone, the issuance or
sale of any interest in any Property, the Trust Estate or the Lease to the
registration requirements of Section 5 of the Securities Act. No
representation or warranty contained in this Section 7.1(i) shall include
or cover any action or inaction of the Lessee or any Affiliate thereof
whether or not purportedly on behalf of the Holders, the Owner Trustee or
any of their Affiliates.
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7.2. Representations and Warranties of the Owner Trustee. Effective as of
the Initial Closing Date, Trust Company in its individual capacity and as the
Owner Trustee, as indicated, represents and warrants to each of the other
parties hereto as follows, provided, that the representations in paragraphs (h),
(i), (j) and (k) below are made solely in its capacity as the Owner Trustee:
(a) It is a national banking association duly organized, validly
existing and in good standing under the laws of the United States of
America and has the power and authority to enter into and perform its
obligations under the Trust Agreement and (assuming due authorization,
execution and delivery of the Trust Agreement by the Holders) has the
corporate and trust power and authority to act as the Owner Trustee and to
enter into and perform the obligations under each of the other Operative
Agreements to which Trust Company or the Owner Trustee, as the case may be,
is or will be a party and each other agreement, instrument and document to
be executed and delivered by it on or before each Closing Date in
connection with or as contemplated by each such Operative Agreement to
which Trust Company or the Owner Trustee, as the case may be, is or will be
a party;
(b) The execution, delivery and performance of each Operative
Agreement to which it is or will be a party, either in its individual
capacity or (assuming due authorization, execution and delivery of the
Trust Agreement by the Holders) as the Owner Trustee, as the case may be,
has been duly authorized by all necessary action on its part and neither
the execution and delivery thereof, nor the consummation of the
transactions contemplated thereby, nor compliance by it with any of the
terms and provisions thereof (i) requires or will require any approval of
its stockholders, or any approval or consent of any trustee or holders of
any of its indebtedness or obligations, (ii) violates or will violate any
current law, governmental rule or regulation relating to its banking or
trust powers, (iii) violates or will violate or result in any breach of or
constitute any default under, or result in the creation of any Lien upon
any of its property under, (A) its charter or by-laws, or (B) any
indenture, mortgage, chattel mortgage, deed of trust, conditional sales
contract, bank loan or credit agreement or other agreement or instrument to
which it is a party or by which it or its properties may be bound or
affected, which violation, breach, default or Lien under clause (B) would
materially and adversely affect its ability, in its individual capacity or
as Owner Trustee, to perform its obligations under the Operative Agreements
to which it is a party or (iv) requires or will require any Governmental
Action by any Governmental Authority regulating its banking or trust
powers;
(c) The Trust Agreement and, assuming the Trust Agreement is the
legal, valid and binding obligation of the Holders, each other Operative
Agreement to which the Trust Company or the Owner Trustee, as the case may
be, is or will be a party have been, or will be, duly executed and
delivered by Trust Company or the Owner Trustee, as the case may be, and
the Trust Agreement and each such other Operative Agreement to which Trust
Company or the Owner Trustee, as the case may be, is a party constitutes,
or
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upon execution and delivery will constitute, a legal, valid and binding
obligation enforceable against Trust Company or the Owner Trustee, as the
case may be, in accordance with the terms thereof;
(d) There is no action or proceeding pending or, to its knowledge,
threatened to which it is or will be a party, either in its individual
capacity or as the Owner Trustee, before any Governmental Authority that,
if adversely determined, would materially and adversely affect its ability,
in its individual capacity or as Owner Trustee, to perform its obligations
under the Operative Agreements to which it is a party or would question the
validity or enforceability of any of the Operative Agreements to which it
is or will become a party;
(e) It has not assigned or transferred any of its right, title or
interest in or under the Lease except in accordance with the Operative
Agreements;
(f) No Default or Event of Default under the Operative Agreements
attributable to it has occurred and is continuing;
(g) Except as otherwise contemplated in the Operative Agreements, the
Owner Trustee shall not use the proceeds of the Loans and Holder Advances
for any purpose other than the payment of Transaction Expenses and the
fees, expenses and other disbursements referenced in Sections 9.1(a) and
(b) of this Agreement, the purchase or lease of the Properties, the
acquisition of Equipment and the acquisition of Improvements;
(h) Neither the Owner Trustee nor any Person authorized by the Owner
Trustee to act on its behalf has offered or sold any interest in the Trust
Estate or the Notes, or in any similar security relating to any Property,
or in any security the offering of which for the purposes of the Securities
Act would be deemed to be part of the same offering as the offering of the
aforementioned securities to, or solicited any offer to acquire any of the
same from, any Person other than, in the case of the Notes, the Lenders,
and neither the Owner Trustee nor any Person authorized by the Owner
Trustee to act on its behalf will take any action which would subject, as a
direct result of such action alone, the issuance or sale of any interest in
the Trust Estate or the Notes to the provisions of Section 5 of the
Securities Act, or require the qualification of any Operative Agreement
under the Trust Indenture Act of 1939, as amended;
(i) The Owner Trustee's chief place of business, chief executive
office and office where the documents, accounts and records relating to the
transactions contemplated by this Agreement and each other Operative
Agreement are kept are located at 79 South Main Street, Salt Lake City,
Utah 84111;
(j) The Owner Trustee is not engaged principally in, and does not have
as one of its important activities, the business of extending credit for
the purpose of purchasing
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or carrying any margin stock (within the meaning of Regulation U of the
Board of Governors of the Federal Reserve System of the United States), and
no part of the proceeds of the Loans or the Holder Advances will be used by
it to purchase or carry any margin stock or to extend credit to others for
the purpose of purchasing or carrying any such margin stock or for any
purpose that violates, or is inconsistent with, the provisions of
Regulations T, U, or X of the Federal Reserve Board; and
(k) The Owner Trustee is not a "holding company" or a "subsidiary
company" of a "holding company" or an "affiliate" of a "holding company" or
a "public utility" within the meaning of the Public Utility Holding Company
Act of 1935, as amended, or a "public utility" within the meaning of the
Federal Power Act, as amended. The Owner Trustee is not an "investment
company" or a company "controlled" by an "investment company" within the
meaning of the Investment Company Act or an "investment adviser" within the
meaning of the Investment Advisers Act of 1940, as amended.
7.3. Representations and Warranties of the Lessee. Effective as of the
Initial Closing Date, the Lessee represents and warrants to each of the other
parties hereto that:
(a) It is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware; each of its Subsidiaries
is duly organized and validly existing under the laws of the jurisdiction
of its organization and is duly qualified to do business in each other
jurisdiction where the nature of its business makes such qualification
necessary, except where such failure to so qualify would not have a
Material Adverse Effect. The Lessee and each of its Subsidiaries has the
power and authority to carry on its business as now conducted and to enter
into and perform its obligations under each Operative Agreement to which it
is or will be a party and each other agreement, instrument and document to
be executed and delivered by it on or before each Closing Date in
connection with or as contemplated by each such Operative Agreement to
which it is or will be a party;
(b) The execution, delivery and performance by the Lessee and each of
its relevant Subsidiaries of this Agreement and the other Operative
Agreements to which each is or will be a party have been duly authorized by
all necessary corporate action on the part of the Lessee and each such
Subsidiary (including any necessary shareholder action), have received all
necessary governmental approval, and do not and will not (i) violate any
Legal Requirement, decree, judgment or award which is applicable to or
binding on the Lessee or any of its Subsidiaries, (ii) violate or conflict
with, or result in a breach of, any provision of the Certificate of
Incorporation, By-Laws or other organizational documents of the Lessee or
any of its Subsidiaries, or any indenture, mortgage, chattel mortgage, deed
of trust, conditional sales contract, bank loan, credit agreement or other
agreement, instrument or document to which the Lessee or any of its
Subsidiaries is a party or which is binding on the Lessee or any of its
Subsidiaries or any of their respective properties, or (iii) result in, or
require, the creation or imposition of any
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Lien (other than pursuant to the terms of the Operative Agreements) on any
asset of the Lessee or any of its Subsidiaries;
(c) Each of this Agreement and each other Operative Agreement to which
the Lessee or any of its Subsidiaries is or will be a party has been, or
will be, duly executed and delivered by it and constitutes, or upon
execution and delivery will constitute, the legal, valid and binding
obligation of the Lessee or such Subsidiary, as the case may be,
enforceable against it in accordance with the terms thereof. The Lessee and
each of its relevant Subsidiaries have each executed the various Operative
Agreements required to be executed as of the Initial Closing Date;
(d) Except as disclosed in the Lessee's annual report on Form 10-K for
the year ended December 31, 1997, or the Lessee's quarterly report on Form
10-Q for the three months ended September 30, 1998, there are no actions,
suits or proceedings (including, without limitation, any derivative action)
pending or, to the knowledge of the Lessee, threatened with respect to the
Lessee or any of its Subsidiaries which, if adversely decided, are
reasonably likely to result, either individually or collectively, in a
Material Adverse Effect. None of the Lessee or any of its Subsidiaries has
any material contingent liabilities not provided for or disclosed in the
financial statements referred to in Section 7.3(f), which are required in
accordance with GAAP to be reported in such financial statements;
(e) No Governmental Action by any Governmental Authority or
authorization, registration, consent, approval, waiver, notice or other
action by, to or of any other Person is required to authorize or is
required in connection with (i) the execution, delivery or performance of
any Operative Agreement or (ii) the legality, validity, binding effect or
enforceability of any Operative Agreement, in each case, except those which
have been obtained and are in full force and effect;
(f) (i) The audited consolidated financial statements of the
Consolidated Entities as at December 31, 1997, copies of which have been
furnished to the Agent and the Owner Trustee, were prepared in accordance
with GAAP and fairly present the financial condition of the Lessee and the
other Consolidated Entities on a consolidated basis as of such date and
their consolidated results of operations for the fiscal year then ended and
(ii) the unaudited consolidated financial statements as at September 30,
1998, copies of which have been furnished to the Agent and the Owner
Trustee, were prepared in accordance with GAAP (subject to normal year-end
adjustments) and fairly present in all material respects the financial
condition of the Lessee and its Consolidated Entities on a consolidated
basis as of such date and its consolidated results of operations for the
fiscal period then ended and such three-quarter period, respectively;
(g) Since the date of the audited financial statements described in
Section 7.3(f), there has been no event or occurrence which has had or is
reasonably likely to have a Material Adverse Effect;
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(h) The Lessee knows of no proposed material tax assessments against
it or any of its Subsidiaries. No extension of time for assessment or
payment of any material federal, state or local tax by the Lessee or any of
its Subsidiaries is in effect;
(i) The execution and delivery of the Operative Agreements will not
involve any prohibited transaction within the meaning of ERISA, the Lessee
and each ERISA Affiliate has fulfilled its obligations under the minimum
funding standards imposed by ERISA and each is in compliance in all
material respects with the applicable provisions of ERISA, and no
"Reportable Event," as defined in Section 4043(b) of Title IV of ERISA, has
occurred with respect to any plan maintained by the Lessee or any of its
ERISA Affiliates.
(j) Upon the execution and delivery of each Lease Supplement to the
Lease, (i) the Lessee will have unconditionally accepted the Property
subject to the Lease Supplement and will have a valid and subsisting
leasehold interest in the Property, subject only to the Permitted
Exceptions, and (ii) no offset will exist with respect to any Rent or other
sums payable under the Lease;
(k) Neither the Lessee nor any of its Subsidiaries has filed a
voluntary petition in bankruptcy or been adjudicated a bankrupt or
insolvent, or filed any petition or answer seeking any reorganization,
liquidation, receivership, dissolution or similar relief under any
bankruptcy, receivership, insolvency, or other law relating to relief for
debtors, or sought or consented to or acquiesced in the appointment of any
trustee, receiver, conservator or liquidator of all or any part of its
properties or its interest in any Property. No court of competent
jurisdiction has entered an order, judgment, or decree approving a petition
filed against the Lessee or any of its Subsidiaries seeking any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any federal or state bankruptcy,
receivership, insolvency or other law relating to relief for debtors, and
no other liquidator has been appointed for the Lessee or any of its
Subsidiaries or all or any part of its properties or its interest in any
Property, and no such action is pending. Neither the Lessee nor any of its
Subsidiaries has given notice to any Governmental Authority or any Person
of insolvency or pending insolvency, or suspension or pending suspension of
operations;
(l) Each of the Lessee and its Subsidiaries owns marketable title to,
or a subsisting leasehold interest in, all of its Properties free and clear
of all Liens, except Permitted Liens;
(m) Neither the Lessee nor any of its Subsidiaries is (a) an
"investment company" or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act or an "investment adviser"
within the meaning of the Investment Advisers Act of 1940, as amended, or
(b) a "holding company", or a "subsidiary company" of a "holding company",
or an "affiliate" of a "holding company" or of a "subsidiary company" of a
"holding company", or a "public utility", within the
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meaning of the Public Utility Holding Company Act of 1935, as amended, or a
"public utility" within the meaning of the Federal Power Act, as amended;
(n) Neither the Lessee nor any of its Subsidiaries is engaged
principally in, or has as one of its important activities, the business of
extending credit for the purpose of purchasing or carrying any margin stock
(within the meaning of Regulation U of the Federal Reserve Board), and no
part of the proceeds of the Loans or the Holder Advances will be used for
the purpose, whether immediate, incidental or ultimate, of purchasing or
carrying any margin stock or maintaining or extending credit to others for
such purpose, or for any purpose that violates, or is inconsistent with
Regulations T, U, or X of the Federal Reserve Board;
(o) The Lessee and each of its Subsidiaries has filed all material tax
returns and reports required by Law to have been filed by it and has paid
all Taxes and governmental charges thereby shown to be owing, except any
such Taxes or charges which are being diligently contested in good faith by
appropriate proceedings and for which adequate reserves shall in accordance
with GAAP have been set aside on its books;
(p) To the best of the knowledge of the Lessee, after inquiry it has
deemed appropriate, the Lessee and each Subsidiary is in material
compliance with all Environmental Laws and Occupational Safety and Health
Laws where failure to comply could have a Material Adverse Effect. Neither
the Lessee nor any of its Subsidiaries has received notice of any claims
that any of them is not in compliance in all material respects with any
Environmental Law where failure to comply could have a Material Adverse
Effect;
(q) The Lessee and each of its Subsidiaries is in compliance with all
statutes, judicial and administrative orders, permits and governmental
rules and regulations which are material to its business or the
non-compliance with which could result in any material fine, penalty or
liability;
(r) No financial statement, document, certificate or other written
communication furnished to the Agent, the Owner Trustee, any Lender or any
Holder by or on behalf of the Lessee or any Consolidated Entity, or to the
extent not a Consolidated Entity any Subsidiary, in connection with any
Operative Agreement contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements contained
herein or therein not misleading. There is no fact known to the Lessee that
materially adversely affects the business or condition of the Lessee or any
Material Group that has not been disclosed herein or in such financial
statements; and
(s) Each of the Arizona Ground Lease Documents to which TMC or
Meditrust is or will be a party has been, or will be, duly executed and
delivered by it and constitutes, or upon execution and delivery will
constitute, the legal, valid and binding
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obligation of TMC or Meditrust, as the case may be, enforceable against it
in accordance with the terms thereof.
7.4. Representations and Warranties of the Agent. Effective as of the
Initial Closing Date, the Agent represents and warrants to each of the other
parties hereto that:
(a) It is a national banking association duly organized and validly
existing under the laws of the United States of America and has the full
power and authority to enter into and perform its obligations under this
Agreement and each other Operative Agreement to which it is or will be a
party;
(b) The execution, delivery and performance by the Agent of this
Agreement and each other Operative Agreement to which it is or will be a
party are not, and will not be, inconsistent with the articles of
incorporation or by-laws or other charter documents of the Agent, do not
and will not contravene any applicable Law of the State of North Carolina
or of the United States of America governing its activities and will not
contravene any provision of, or constitute a default under any indenture,
mortgage, contract or other instrument to which it is a party or by which
it or its properties are bound, or require any consent or approval of any
Governmental Authority under any applicable law, rule or regulation of the
State of North Carolina or any federal law, rule or regulation of the
United States of America governing its activities; and
(c) Each of this Agreement and each other Operative Agreement to which
it is a party has been, or when executed and delivered will be, duly
authorized by all necessary corporate action on the part of the Agent and
has been, or on such Closing Date will be, duly executed and delivered by
the Agent and, assuming the due authorization, execution and delivery
hereof and thereof by the other parties hereto and thereto, will constitute
a legal, valid and binding obligation enforceable against the Agent in
accordance with the terms thereof;
(d) Except as otherwise contemplated by the Operative Agreements, the
Agent shall not, nor shall it direct the Owner Trustee to, use the proceeds
of any Loan for any purpose other than the payment of Transaction Expenses
and the fees, expenses and other disbursements referenced in Section 9.1(a)
and (b) of this Agreement, the purchase or lease of the Properties, the
acquisition of Equipment and the acquisition of Improvements.
SECTION 8. REPRESENTATIONS AND WARRANTIES ON ADVANCE DATES.
8.1. Representations and Warranties on Each Property Closing Date. The
Lessee hereby represents and warrants as of each Property Closing Date as
follows:
(a) The representations and warranties of the Lessee set forth in the
Operative Agreements are true and correct in all material respects on and
as of the Property Closing
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Date as if made on and as of such date. The Lessee and its Subsidiaries are
in all material respects in compliance with their respective obligations
under the Operative Agreements and there exists no Default or Event of
Default under any of the Operative Agreements. No Default or Event of
Default will occur under any of the Operative Agreements as a result of, or
after giving effect to, the Advance requested by the Requisition on such
Property Closing Date;
(b) The Properties are being acquired at a price that is not in excess
of fair market value, and such Properties consist of (i) Land and existing
Improvements thereon which Improvements are either suitable for occupancy
at the time or acquisition or will be renovated or modified in accordance
with the terms of this Agreement, or (ii) Equipment. Each of the Properties
is located at the site set forth on the applicable Requisition, which is in
one of the Approved States;
(c) Upon the acquisition of each Property on such Property Closing
Date, and at all times thereafter, the Lessor will have marketable title to
such Property, as evidenced with respect to the Land by the issuance of an
ALTA form owner's policy showing title in the name of the Lessor, subject
only to Permitted Liens, or such Property is subject to a valid and
enforceable Ground Lease;
(d) The execution and delivery of each Operative Agreement delivered
by the Lessee or any of its Subsidiaries on such Property Closing Date and
the performance of the obligations of the Lessee and each of its
Subsidiaries under each Operative Agreement have been duly authorized by
all requisite corporate action on the part of the Lessee or such
Subsidiary, as applicable;
(e) Each Operative Agreement delivered on such Property Closing Date
by the Lessee or any of its Subsidiaries has been duly executed and
delivered by the Lessee or such Subsidiary;
(f) Each Operative Agreement delivered by the Lessee or any of its
Subsidiaries on such Property Closing Date is a legal, valid and binding
obligation of the Lessee or such Subsidiary, as applicable, enforceable
against the Lessee or such Subsidiary, as applicable, in accordance with
its respective terms;
(g) Upon filing of each of the UCC Financing Statements (with respect
to the Property being acquired) in the filing offices designated by the
Lessee, such UCC Financing Statements will have been filed with the
appropriate Governmental Authorities in order to perfect a security
interest in the Property described therein (to the extent perfection can be
obtained by filing under the UCC);
(h) Upon filing in the filing offices designated by the Lessee, the
Lender Financing Statements, together with an assignment to the Agent of
the filed Lessor Financing Statements, will perfect a valid first priority
security interest (in favor of the
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Agent, for the benefit of itself, the Lenders and the Holders) in all the
Properties and other collateral described therein in which a security
interest or mortgage can be perfected by filing under the UCC, and upon
filing, the Lessor Financing Statements will protect Lessor's interest
under the Lease to the extent the Lease is a security agreement and
mortgage;
(i) No portion of any Property being acquired by the Lessor on such
Property Closing Date is located in an area identified as a special flood
hazard area by the Federal Emergency Management Agency or other applicable
agency, or if any such Property is located in an area identified as a
special flood hazard area by any such agency, then flood insurance has been
obtained for such Property in accordance with Section 14.2(b) of the Lease
and in accordance with the National Flood Insurance Act of 1968, as
amended.
(j) None of the Property consists of Tangible Personal Property; and,
without limitation the generality of the first clause of this paragraph
(j), the aggregate Property Cost of any "Personal Property" (as defined in
the Arizona Ground Lease) located at, or included in, the Arizona Property
does not exceed $3,000,000;
(k) The Lessee has obtained insurance coverage for each Property being
acquired by the Lessor on such Property Closing Date which meet the
requirements of Article XIV of the Lease and all of such coverage is in
full force and effect;
(l) Each Property being acquired by the Lessor on such Property
Closing Date complies with all Legal Requirements (including, without
limitation, all zoning and land use laws and Environmental Laws), except to
the extent that failure to comply therewith would not, individually or in
the aggregate, have a Material Adverse Effect;
(m) All consents, licenses, permits, authorizations, assignments and
building permits required as of the date on which such Advance is made by
all Legal Requirements or pursuant to the terms of any contract, indenture,
instrument or agreement for construction, completion, occupancy, operation,
leasing or subleasing of each Property with respect to which an Advance is
being made have been obtained and are in full force and effect, except to
the extent that the failure to so obtain would not, individually or in the
aggregate, have a Material Adverse Effect;
(n) All Improvements comply with all applicable Legal Requirements and
Insurance Requirements (including, without limitation, all zoning and land
use laws and Environmental Laws), except to the extent the failure to
comply therewith would not, individually or in the aggregate, have a
Material Adverse Effect. Such Improvements do not encroach in any manner
onto any adjoining land (except as permitted by express written easements)
and such Improvements and the use thereof by the Lessee and its agents,
assignees, employees, invitees, lessees, licensees and tenants comply in
all respects with all applicable Legal Requirements (including, without
limitation, all applicable Environmental Laws and building, planning,
zoning and fire codes), except to
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the extent the failure to comply therewith would not, individually or in
the aggregate, have a Material Adverse Effect. There are no material
defects to such Improvements including, without limitation, the plumbing,
heating, air conditioning and electrical systems thereof and all water,
sewer, electric, gas, telephone and drainage facilities and all other
utilities required to adequately service such Improvements for their
intended use will be available pursuant to adequate permits (including any
that may be required under applicable Environmental Laws), except to the
extent that failure to obtain any such permit would not, individually or in
the aggregate, have a Material Adverse Effect. There is no action, suit or
proceeding (including any proceeding in condemnation or eminent domain or
under any Environmental Law) pending or, to the best knowledge of the
Lessee, threatened which adversely affects the title to, or the use,
operation or value of, such Properties. No fire or other casualty with
respect to such Properties has occurred which has had a Material Adverse
Effect. All utilities serving the related Properties, or proposed to serve
the related Properties in accordance with the Plans and Specifications, are
located in (or will be located in) and vehicular access to such
Improvements is provided by (or will be provided by), either public
rights-of-way abutting each related Property or Appurtenant Rights. All
licenses, approvals, authorizations, consents, permits (including, without
limitation, building, demolition and environmental permits, licenses,
approvals, authorizations and consents), easements and rights-of-way,
including proof of dedication, required for (i) the use, treatment,
storage, transport, disposal or disposition of any Hazardous Substance on,
at, under or from the real property underlying such Improvements during the
construction of such Improvements and the use and operation of such
Improvements following such construction, (ii) the construction of such
Improvements in accordance with the Plans and Specifications and (iii) the
use and operation of such Improvements following such construction with the
applicable Equipment which such Improvements support for the purposes for
which they were intended have either been obtained from the appropriate
Governmental Authorities or from private parties, as the case may be, or
will be obtained from the appropriate Governmental Authorities or from
private parties, as the case may be, prior to commencing any such
construction or use and operation, as applicable;
(o) Construction of Improvements, if any, to date has been performed
in a good and workmanlike manner in compliance with all Insurance
Requirements and Legal Requirements, except to the extent noncompliance
with any Legal Requirements would not, individually or in the aggregate,
have a Material Adverse Effect;
(p) When completed, the Improvements shall be wholly within any
building restriction lines (unless consented to by applicable Government
Authorities), however established; and
(q) The Advance is secured by the Lien of the Security Documents, and
the Lessee has not received any notice of, or taken any action to incur,
any Lien against the applicable Improvements other than Permitted Liens;
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(r) All conditions precedent contained in this Agreement and in the
other Operative Agreements relating to the Initial Closing Date have been
substantially satisfied.
SECTION 9. PAYMENT OF CERTAIN EXPENSES.
9.1. Transaction Expenses.
(a) Lessor agrees on the Initial Closing Date, to pay, or cause to be
paid, all reasonable fees, expenses and disbursements of the various legal
counsels for the Lessor and the Agent in connection with the transactions
contemplated by the Operative Agreements and incurred in connection with
the Initial Closing Date, including all Transaction Expenses (arising in
connection with the Initial Closing Date), and all other reasonable fees,
expenses and disbursements in connection with the Initial Closing Date, and
including, without limitation, all fees, taxes and expenses for the
recording, registration and filing of documents; provided, however, that
the Lessor shall pay such amounts described in this Section 9.1(a) only if
(i) such amounts are properly described in a Requisition delivered on or
before such date (or, in the absence of such a Requisition, if requested by
the Agent), subject to Section 5.2(c), and (ii) funds are made available by
the Lenders and the Holders in connection with such Requisition in an
amount sufficient to allow such payment. On the Initial Closing Date, after
delivery and receipt of the Requisition referenced in Section 4.2(a) hereof
and satisfaction of the other conditions precedent for such date, the
Holders shall make Holder Advances and the Lenders shall make Loans to the
Lessor to pay for the Transaction Expenses, fees, expenses and other
disbursements referenced in this Section 9.1(a). The Lessee agrees to pay
all amounts referred to in this Section 9.1(a) to the extent not paid by
Lessor.
(b) Lessor agrees on each Property Closing Date to pay, or cause to be
paid, all reasonable fees, expenses and disbursements of the various legal
counsels for the Lessor and the Agent in connection with the transactions
contemplated by the Operative Agreements and billed in connection with such
Property Closing Date, including all Transaction Expenses arising with
respect to such Property Closing Date, all fees, expenses and disbursements
incurred with respect to the various items referenced in Sections 5.3
(including without limitation the cost of any Appraisals or environmental
site assessments, any developer's fees, any premiums for title insurance
policies and charges for any updates to such policies) and all other
reasonable fees, expenses and disbursements in connection with such
Property Closing Date, including, without limitation, all expenses relating
to and all fees (including brokers' fees), taxes (including any and all
stamp, transfer or similar taxes) and expenses for the recording,
registration and filing of documents; provided, however, the Lessor shall
pay such amounts described in this Section 9.1(b) only if (i) such amounts
are properly described in a Requisition delivered on the applicable date
(or, in the absence of such a Requisition, if requested by the Agent,
subject to Section 5.2(c), and (ii) funds are made available by the Lenders
and
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the Holders in connection with such Requisition in an amount sufficient to
allow such payment. On each Property Closing Date after delivery of the
applicable Requisition in satisfaction of the other conditions precedent
for such date, the Holders shall make a Holder Advance and the Lenders
shall make Loans to the Lessor to pay for the Transaction Expenses, fees,
expenses and other disbursements referenced in this Section 9.1(b). The
Lessee agrees to pay all amounts referred to in this Section 9.1(b) to the
extent not paid by the Lessor.
9.2. Certain Fees and Expenses. Lessee agrees to pay or cause to be paid
(i) the initial and annual Owner Trustee's fee and all reasonable expenses of
the Owner Trustee and any necessary co-trustees (including without limitation
reasonable counsel fees and expenses) or any successor owner trustee, for acting
as owner trustee under the Trust Agreement, (ii) all reasonable costs and
expenses incurred by the Lessee, the Agent, the Lenders, the Holders or the
Lessor in entering into any future amendments or supplements requested by the
Lessee with respect to any of the Operative Agreements, whether or not such
amendments or supplements are ultimately entered into, or giving or withholding
of waivers of consents hereto or thereto which have been requested by the
Lessee, and (iii) all reasonable costs and expenses incurred by the Lessor, the
Lessee, the Holders, the Lenders or the Agent in connection with the enforcement
of any Operative Agreement or any exercise of remedies under any Operative
Agreement or any purchase of any Property by the Lessee pursuant to Article XX
of the Lease.
9.3. Commitment Fee. The Lessee agrees to pay (a) to the Agent for the
account of each Lender a commitment fee (the "Lender Commitment Fee"), and (b)
to the Owner Trustee for the account of each Holder a commitment fee (the
"Holder Commitment Fee"), in each case during the Commitment Period, computed at
a rate per annum equal to the Applicable Commitment Fee Rate on the average
daily amount, with respect to each Lender, of the Available Commitment of such
Lender and, with respect to each Holder, of the Available Holder Commitment of
such Holder during the period for which payment is made, payable quarterly in
arrears on each Commitment Fee Payment Date, commencing on the first such date
to occur after the Initial Closing Date. Lender Commitment Fees and Holder
Commitment Fees shall be calculated on the basis of a 360-day year for the
actual days elapsed. Notwithstanding the foregoing, so long as any Lender or
Holder fails (in violation of the Operative Agreements) to make available any
portion of its Commitment or Holder Commitment when requested, such Person shall
not be entitled to receive payment of its pro rata share of its Commitment Fee
or Holder Commitment Fee (as the case may be) until such Person shall make
available such portion. Each such fee shall be calculated on the basis of a year
of 360 days for the actual number of days elapsed. If all or a portion of any
Commitment Fee or Holder Commitment Fee shall not be paid when due, such overdue
amount shall bear interest, payable by the Lessee on demand, at a rate per annum
equal to the Base Rate plus 2%, from the date of such non-payment until such
amount is paid in full (as well as before judgment).
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SECTION 10. OTHER COVENANTS AND AGREEMENTS.
10.1. Cooperation with the Lessee. The Holders, the Owner Trustee (at the
direction of the Holders) and the Agent shall, to the extent reasonably
requested by the Lessee (but without assuming additional liabilities on account
thereof), at the Lessee's expense, cooperate with the Lessee in connection with
its covenants contained herein including, without limitation, at any time and
from time to time, upon the request of the Lessee, promptly and duly executing
and delivering any and all such further instruments, documents and financing
statements (and continuation statements related thereto) as the Lessee may
reasonably request in order to perform such covenants.
10.2. Covenants of the Owner Trustee and the Holders. Each of the Owner
Trustee and the Holders hereby agree that so long as this Agreement is in
effect:
(a) None of the Holders and the Owner Trustee (both in its trust
capacity and in its individual capacity) will create or permit to exist at
any time, and each of the Holders and the Owner Trustee will, at its own
cost and expense, promptly take such action (and notify Lessee of such
action) as may be necessary duly to discharge, or to cause to be
discharged, all Lessor Liens attributable to it on the Properties;
provided, however, that the Holders and the Owner Trustee shall not be
required to discharge any such Lessor Lien while the same is being
contested in good faith by appropriate proceedings diligently prosecuted so
long as (a) such proceedings shall not involve any material danger of
impairment of the Liens of the Security Documents or of the sale,
forfeiture or loss of, any Property or title thereto or any interest
therein or the payment of Rent, and (b) such proceedings shall not
materially interfere with the disposition of any Property or title thereto
or interest therein or the payment of Rent.
(b) Without prejudice to any right of the Owner Trustee under the
Trust Agreement to resign (subject to the requirement set forth in the
Trust Agreement that such resignation shall not be effective until a
successor shall have agreed to accept such appointment), or the Holders'
rights under the Trust Agreement to remove the institution acting as Owner
Trustee (after consent to such removal by the Agent as provided in the
Trust Agreement), each of the Holders and the Owner Trustee hereby agrees
with the Lessee and the Agent (i) not to terminate or revoke the trust
created by the Trust Agreement except as permitted by Article VIII of the
Trust Agreement, (ii) not to amend, supplement, terminate or revoke or
otherwise modify any provision of the Trust Agreement in such a manner as
to adversely affect the rights of the Lessee or the Agent without the prior
written consent of such party and (iii) to comply with all of the terms of
the Trust Agreement, the nonperformance of which would adversely affect any
such party;
(c) The Owner Trustee or any successor may resign or be removed by the
Holders as Owner Trustee, a successor Owner Trustee may be appointed and a
corporation may become the Owner Trustee under the Trust Agreement, only in
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accordance with the provisions of Article IX of the Trust Agreement and,
with respect to such appointment, with the consent of the Lessee, which
consent shall not be unreasonably withheld, conditioned or delayed;
(d) The Owner Trustee, in its capacity as Owner Trustee under the
Trust Agreement, and not in its individual capacity, shall not contract
for, create, incur or assume any indebtedness, or enter into any business
or other activity, other than pursuant to or under the Operative
Agreements;
(e) The Holders will not instruct the Owner Trustee to take any action
in violation of the terms of any Operative Agreement;
(f) Neither any Holder nor the Owner Trustee shall (i) commence any
case, proceeding or other action with respect to the Owner Trustee under
any existing or future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization, arrangement,
winding-up, liquidation, dissolution, composition or other relief with
respect to it or its debts, or (ii) seek appointment of a receiver,
trustee, custodian or other similar official with respect to the Owner
Trustee or for all or any substantial benefit of the creditors of the Owner
Trustee; and neither any Holder nor the Owner Trustee shall take any action
in furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in this paragraph;
(g) The Owner Trustee shall give prompt notice to the Lessee and the
Agent if the Owner Trustee's chief place of business or chief executive
office, or the office where the records concerning the accounts or contract
rights relating to any Property are kept, shall cease to be located at 79
South Main Street, Salt Lake City, Utah 84111, or if it shall change its
name;
(h) Provided that no Lease Default or Lease Event of Default has
occurred and is continuing, neither the Owner Trustee nor any Holder shall,
without the prior written consent of the Lessee, consent to or permit any
amendment, supplement or other modification of the terms and provisions of
the Credit Agreement or the Notes;
(i) Neither the Owner Trustee nor any Holder shall consent to or
permit any amendment, supplement or other modification of the terms and
provisions of any Operative Agreement, in each case without the prior
written consent of the Agent except as described in Section 10.5 of this
Agreement; and
(j) The Owner Trustee (i) shall take such actions and shall refrain
from taking such actions with respect to the Operative Agreements or the
Properties and shall grant such approvals and otherwise act or refrain from
acting with respect to the Operative Agreements or the Properties in each
case as directed in writing by the Agent or, to the extent required by
Section 10.5 hereof, the Lessee, notwithstanding any contrary instruction
or absence of instruction by any Holder or Holders; and (ii) shall not take
any
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action, grant any approvals or otherwise act under or with respect to the
Operative Agreements or any matters relating to the Properties without
first obtaining the prior written consent of the Agent (and without regard
to any contrary instruction or absence of instruction by any Holder);
provided, however, that notwithstanding the foregoing provisions of this
subparagraph (j) the Owner Trustee, the Agent and the Holders each
acknowledge, covenant and agree that, with respect to all matters under the
Operative Agreements that require the consent or concurrence of all of the
Lenders pursuant to the terms of Section 9.1 of the Credit Agreement (the
"Unanimous Vote Matters"), neither the Owner Trustee nor the Agent shall
act or refrain from acting with respect to any Unanimous Vote Matter until
such party has received the approval of each Lender and each Holder with
respect thereto.
10.3. Lessee Covenants, Consent and Acknowledgement.
(a) Lessee acknowledges and agrees that the Owner Trustee, pursuant to
the terms and conditions of the Security Agreement and the Mortgage
Instruments, shall create Liens respecting the various personal property,
fixtures and real property described therein in favor of the Agent. Lessee
hereby irrevocably consents to the creation, perfection and maintenance of
such Liens.
(b) Lessor hereby instructs Lessee, and Lessee hereby acknowledges and
agrees, that until such time as the Loans are paid in full and the Liens
evidenced by the Security Agreement and the Mortgage Instruments have been
released, (i) any and all Rent and any and all other amounts of any kind or
type under any of the Operative Agreements due and owing or payable to the
Lessor or the Owner Trustee shall instead be paid directly to the Agent or
as the Agent may direct from time to time and (ii) Lessee shall cause all
notices, certificates, financial statements, communications and other
information which is delivered, or is required to be delivered, to the
Lessor, the Owner Trustee or any Holder also to be delivered at the same
time to the Agent.
(c) Lessee shall not consent to or permit any amendment, supplement or
other modification of the terms or provisions of any Operative Agreement
without, in each case, obtaining the prior written consent of the Agent
and, to the extent required by the proviso at the end of Section 10.2(j)
hereof, each of the Holders.
(d) Except as otherwise contemplated by the Operative Agreements,
neither the Owner Trustee nor the Lessee shall use the proceeds of any
Holder Advance for any purpose other than the payment of Transaction
Expenses and the fees, expenses and other disbursements referenced in
Section 9.1(a) and (b) of this Agreement, the purchase or lease of the
Properties, the acquisition of Equipment and the acquisition of
Improvements;
(e) The Lessee shall not permit any of the Property to consist of
Tangible Personal Property; and, without limiting the generality of the
first clause of this paragraph
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(e), the Lessee shall not permit the aggregate Property Cost of any
"Personal Property" (as defined in the Arizona Ground Lease) located at, or
included in, the Arizona Property to exceed $3,000,000;
(f) The Lessee agrees that aggregate appraised enterprise value of all
Properties as shown in the most recent Appraisals of each Property received
by the Agent pursuant to Section 5.3(b) or otherwise shall at all times be
greater than or equal to 50% of the aggregate Property Cost of all
Properties; and any Appraisal obtained to comply with this provision shall
be at the Lessee's sole cost and expense.
(g) The Lessee agrees to perform each of the Incorporated Covenants
and any other covenants set forth in (or incorporated by reference into)
Article XXVIII of the Lease, in accordance with their respective terms.
(h) The Lessee shall not create or permit to exist at any time (and
the Lessee shall, at its own expense, take such action as may be necessary
to duly discharge, or cause to be discharged) any Lien against any Property
other than Permitted Liens.
(i) The Lessee shall perform or shall cause to be performed, within
sixty (60) days after the Initial Closing Date, all actions recommended or
required by the Existing Environmental Reports, such performance to be
satisfactory to the Agent in its reasonable discretion.
(j) The Lessee shall pay (when and as due) any fees pursuant to the
Fee Letter.
10.4. Sharing of Certain Payments. The parties hereto acknowledge and agree
that all payments due and owing by the Lessee to the Lessor under the Lease or
any of the other Operative Agreements shall be made by the Lessee directly to
the Agent as more particularly provided in Section 10.3 hereof. The Holders and
the Agent, on behalf of the Lenders, acknowledge the terms of Section 8 of the
Credit Agreement regarding the allocation of payments and other amounts made or
received from time to time under the Operative Agreements and agree all such
payments and amounts are to be allocated as provided in Section 8 of the Credit
Agreement. In connection therewith the Holders hereby (a) appoint the Agent to
act as collateral agent for the Holders in connection with the Lien granted by
the Mortgage Instruments and other Security Documents to secure the Holder
Amount and (b) acknowledge and agree and direct that the rights and remedies of
the beneficiaries of the Lien of the Mortgage Instruments and other Security
Documents shall be exercised by the Agent on behalf of the Lenders and the
Holders as directed from time to time by the Lenders without notice to or
consent from the Holders.
10.5. Grant of Easements, etc. The Agent and the Holders hereby agree that,
so long as no Event of Default shall have occurred and be continuing, and until
such time as the Agent gives instructions to the contrary to the Owner Trustee,
the Owner Trustee shall, from time to
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time at the request of the Lessee, in connection with the transactions
contemplated by the Lease or the other Operative Agreements, (i) grant easements
and other rights in the nature of easements with respect to any Property, (ii)
release existing easements or other rights in the nature of easements which are
for the benefit of any Property, (iii) execute and deliver to any Person any
instrument appropriate to confirm or effect such grants or releases, and (iv)
execute and deliver to any Person such other documents or materials in
connection with the acquisition, development or operation of any Property,
including, without limitation, reciprocal easement agreements, operating
agreements, development agreements, plats, replats or subdivision documents;
provided, that each of the agreements and documents referred to in this Section
10.5 shall be of the type normally executed by the Lessee in the ordinary course
of the Lessee's business, or consistent with local practice or as required by
local governmental authorities, and shall be on commercially reasonable terms so
as not to diminish the value of any Property in any material respect.
SECTION 11. CREDIT AGREEMENT AND TRUST AGREEMENT.
11.1. Lessee's Credit Agreement Rights. Notwithstanding anything to the
contrary contained in the Credit Agreement, the Agent, the Lessee and the Owner
Trustee hereby agree that, prior to the occurrence and continuation of any Lease
Default or Lease Event of Default the Lessee (as designated below) shall have
the following rights:
(a) the Lessee shall have the right to give the notice referred to in
Section 2.3 of the Credit Agreement, to designate the account to which a
borrowing under the Credit Agreement is to be credited pursuant to Section
2.3 of the Credit Agreement;
(b) the Lessee shall have the right to terminate or reduce the
Commitments pursuant to Section 2.5(a) of the Credit Agreement and to make
an Extension Request pursuant to Section 2.5(c) of the Credit Agreement;
(c) the Lessee shall have the right to exercise the conversion and
continuation options pursuant to Section 2.7 of the Credit Agreement;
(d) the Lessee shall have the right to approve any successor agent
pursuant to Section 7.8 of the Credit Agreement;
(e) the Lessee shall have the right to consent to any assignment by a
Lender to which the Lessor has the right to consent pursuant to Section 9.8
of the Credit Agreement; and
(f) without limiting the foregoing clauses (a) through (e), and in
addition thereto, provided that no Event of Default then exists, the Lessee
shall have the right to exercise any other right of the Owner Trustee under
the Credit Agreement upon not less than five (5) Business Days' prior
written notice from the Lessee to the Owner Trustee and the Agent.
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11.2. Lessee's Trust Agreement Rights. Notwithstanding anything to the
contrary contained in the Trust Agreement, the Lessee, the Owner Trustee and the
Holders hereby agree that, prior to the occurrence and continuation of any Lease
Default or Lease Event of Default the Lessee (as designated below) shall have
the following rights:
(a) the Lessee shall have the right to exercise the conversion and
continuation options pursuant to Section 3.8 of the Trust Agreement;
(b) no removal of the Owner Trustee and appointment of a successor
Owner Trustee pursuant to Section 9.1 of the Trust Agreement shall be made
without the prior written consent (not to be unreasonably withheld or
delayed) of the Lessee; and
(c) the Holders and the Owner Trustee shall not amend, supplement or
otherwise modify any provision of the Trust Agreement in such a manner as
to adversely affect the rights of the Lessee without the prior written
consent (not to be unreasonably withheld or delayed) of the Lessee.
SECTION 12. TRANSFER OF INTEREST.
12.1. Restrictions on Transfer. The Holders may, directly or indirectly,
assign, convey or otherwise transfer any of their right, title or interest in or
to the Trust Estate or the Trust Agreement with the prior written consent of the
Agent, and (provided no Default or Event of Default has occurred and is
continuing) the Lessee and (only if such assignee is not a Lender) the Majority
Lenders (which consent in each case shall not be unreasonably withheld or
delayed); provided that such consents shall not be required for an assignment to
a Lender or an affiliate of a Lender. The Owner Trustee may, subject to the Lien
of the applicable Security Documents, but only with the prior written consent of
the Agent, the Holders (which consent may be withheld by the Agent or the
Holders in their sole discretion) and (provided no Default or Event of Default
has occurred and is continuing) the Lessee, directly or indirectly, assign,
convey, appoint an agent with respect to enforcement of, or otherwise transfer
any of the Owner Trustee's right, title or interest in or to any Property, the
Lease, the Trust Agreement, this Agreement (including, without limitation, any
right to indemnification thereunder), or any other document relating to a
Property or any interest in a Property as provided in the Trust Agreement and
the Lease. The provisions of the immediately preceding sentence shall not apply
to the obligations of the Owner Trustee to transfer the Properties to the Lessee
or a third party purchaser pursuant to Article XXII of the Lease upon payment
for such Properties in accordance with each of the terms and conditions of the
Lease.
12.2. Effect of Transfer. From and after any transfer effected in
accordance with this Section 12, the transferor shall be released, to the extent
of such transfer, from its liability hereunder and under the other documents to
which it is a party in respect of obligations to be performed on or after the
date of such transfer; provided, however, that any transferor Holder shall
remain liable under Article XI of the Trust Agreement to the extent that the
transferee Holder shall not have assumed the obligations of the transferor
Holder thereunder. Upon any
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transfer by the Owner Trustee or a Holder as above provided, any such transferee
shall assume the obligations of the Owner Trustee and Lessor or the obligations
of a Holder, as the case may be, and shall be deemed an "Owner Trustee",
"Lessor" or "Holder", as the case may be, for all purposes of such documents and
each reference herein to the transferor shall thereafter be deemed a reference
to such transferee for all purposes, except as provided in the preceding
sentence. Notwithstanding any transfer of all or a portion of the transferor's
interest as provided in this Section 12, the transferor shall be entitled to all
benefits accrued and all rights vested prior to such transfer including, without
limitation, rights to indemnification under any such document.
SECTION 13. INDEMNIFICATION.
13.1. General Indemnity.
(a) Whether or not any of the transactions contemplated hereby shall
be consummated, the Indemnity Provider hereby assumes liability for and
agrees to defend, indemnify and hold harmless each Indemnified Person on an
After Tax Basis from and against any Claims which may be imposed on,
incurred by or asserted against an Indemnified Person by any other Person
in any way relating to or arising or alleged to arise out of the execution,
delivery, performance or enforcement of this Agreement, the Lease or any
other Operative Agreement or on or with respect to any Property or any part
thereof, including, without limitation, Claims in any way relating to or
arising or alleged to arise out of (i) the financing, refinancing,
purchase, acceptance, rejection, ownership, design, construction,
refurbishment, development, delivery, acceptance, nondelivery, leasing,
subleasing, possession, use, operation, maintenance, repair, modification,
transportation, condition, sale, return, repossession (whether by summary
proceedings or otherwise), or any other disposition of a Property, or any
part thereof, including the acquisition, holding or disposition of any
interest in any Property, lease or agreement comprising a portion of any
thereof; (ii) any latent or other defect in any property whether or not
discoverable by an Indemnified Person or the Indemnity Provider; (iii) any
Environmental Claim, any violation of Environmental Laws, or any other loss
of or damage to any property or the environment relating to any Property,
the Lease or the Indemnity Provider; (iv) the Operative Agreements, or any
transaction contemplated thereby; (v) any breach by the Lessee of any of
its representations or warranties under the Operative Agreements to which
it is a party or failure by the Lessee to perform or observe any covenant
or agreement to be performed by it under any of the Operative Agreements;
(vi) the transactions contemplated hereby or by any other Operative
Agreement, in respect of the application of Parts 4 and 5 of Subtitle B of
Title I of ERISA; (vii) any personal injury, death or property damage,
including without limitation Claims based on strict or absolute liability
in tort; (viii) any easement, right, agreement or document referred to in
Section 10.5 of this Agreement; or (ix) any Lien on any Property (other
than Liens created by the Operative Agreements). The foregoing indemnity
shall not apply to a Claim imposed on, incurred by or asserted against an
Indemnified Person to the extent such Claim arises from (A) the gross
negligence, willful misconduct or willful
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breach of such Indemnified Person, or (B) the negligence of such
Indemnified Person unless such Indemnified Person is (1) the Owner Trustee
or the Trust Company, (2) a Holder and the claim is brought against such
Holder in its capacity as such or arises from its role as a Holder or (3)
any successor, director, shareholder, officer, employee or agent of any of
the foregoing.
(b) If a written Claim is made against any Indemnified Person or if
any proceeding shall be commenced against such Indemnified Person
(including a written notice of such proceeding) for any Claim, such
Indemnified Person shall promptly notify the Indemnity Provider in writing
and shall not take action with respect to such Claim without the consent of
the Indemnity Provider for thirty (30) days after the receipt of such
notice by the Indemnity Provider; provided, however, that, in the case of
any such Claim, if action shall be required by law or regulation to be
taken prior to the end of such 30-day period, such Indemnified Person shall
endeavor, in such notice to the Indemnity Provider, to inform the Indemnity
Provider of such shorter period, and no action shall be taken with respect
to such Claim without the consent of the Indemnity Provider before seven
(7) days before the end of such shorter period; provided, further, that the
failure of such Indemnified Person to give the notices referred to in this
sentence shall not diminish the Indemnity Provider's obligation hereunder
except to the extent such failure materially precludes the Indemnity
Provider from contesting such Claim.
(c) If, within thirty (30) days of receipt of such notice from the
Indemnified Person (or such shorter period as the Indemnified Person has
notified the Indemnity Provider is required by law or regulation for the
Indemnified Person to respond to such Claim), the Indemnity Provider shall
request in writing that such Indemnified Person respond to such Claim, the
Indemnified Person shall, at the expense of the Indemnity Provider, in good
faith conduct and control such action (including, without limitation by
pursuit of appeals) (provided, however, that (A) if such Claim can be
pursued by the Indemnity Provider on behalf of or in the name of such
Indemnified Person, the Indemnified Person, at the Indemnity Provider's
request, shall allow the Indemnity Provider to conduct and control the
response to such Claim and (B) in the case of any Claim, the Indemnified
Person may request the Indemnity Provider to conduct and control the
response to such Claim (with counsel to be selected by the Indemnity
Provider and consented to by such Indemnified Person, such consent not to
be unreasonably withheld, conditioned or delayed; provided, however, that
any Indemnified Person may retain separate counsel at the expense of the
Indemnity Provider in the event of a conflict)) by, in the sole discretion
of the Person conducting and controlling the response to such Claim, (1)
resisting payment thereof, (2) not paying the same except under protest, if
protest is necessary and proper, (3) if the payment be made, using
reasonable efforts to obtain a refund thereof in appropriate administrative
and judicial proceedings, or (4) taking such other action as is reasonably
requested by the Indemnity Provider from time to time.
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(d) The party controlling the response to any Claim shall consult in
good faith with the non-controlling party and shall keep the
non-controlling party reasonably informed as to the conduct of the response
to such Claim; provided, that all decisions ultimately shall be made in the
discretion of the controlling party, except that the Indemnity Provider may
not agree to any dismissal or settlement of, or other agreement in
connection with, any claim without the prior written consent of such
Indemnified Person, if such dismissal, settlement or agreement would
require any admission or acknowledgment of any culpability or wrongdoing by
such Indemnified Person or provide for any nonmonetary relief to be
performed by such Indemnified Person. The parties agree that an Indemnified
Person may at any time decline to take further action with respect to the
response to such Claim and may settle such Claim if such Indemnified Person
shall waive its rights to any indemnity from the Indemnity Provider that
otherwise would be payable in respect of such Claim (and any future Claim,
the pursuit of which is precluded by reason of such resolution of such
Claim) and shall pay to the Indemnity Provider any amount previously paid
or advanced by the Indemnity Provider pursuant to this Section 13.1 by way
of indemnification or advance for the payment of any amount regarding such
Claim other than expenses of the action relating to such Claim.
(e) Notwithstanding the foregoing provisions of this Section 13.1, an
Indemnified Person shall not be required to take any action and no
Indemnity Provider shall be permitted to respond to any Claim in its own
name or that of the Indemnified Person unless (i) the Indemnity Provider
shall have agreed to pay and shall pay to such Indemnified Person on demand
and on an After Tax Basis all reasonable costs, losses and expenses that
such Indemnified Person actually incurs in connection with such Claim,
including, without limitation, all reasonable legal, accounting and
investigatory fees and disbursements, (ii) the Indemnified Person shall
have reasonably determined that the action to be taken will not result in
any material danger of sale, forfeiture or loss of any Property, or any
part thereof or interest therein, will not interfere with the payment of
Rent, and will not result in risk of criminal liability, (iii) if such
Claim shall involve the payment of any amount prior to the resolution of
such Claim, the Indemnity Provider shall provide to the Indemnified Person
an interest-free advance in an amount equal to the amount that the
Indemnified Person is required to pay (with no additional net after-tax
cost to such Indemnified Person), (iv) in the case of a Claim that must be
pursued in the name of an Indemnified Person (or an Affiliate thereof), the
Indemnity Provider shall have provided to such Indemnified Person an
opinion of independent counsel selected by the Indemnified Person and
reasonably satisfactory to the Indemnity Provider stating that a reasonable
basis exists to contest such Claim, and (v) such claim is covered by
insurance and no Event of Default shall have occurred and be continuing. In
addition, an Indemnified Person shall not be required to contest any Claim
in its name (or that of an Affiliate) if the subject matter thereof shall
be of a continuing nature and shall have previously been decided adversely
by a court of competent jurisdiction pursuant to the contest provisions of
this Section 13.1, unless there shall have been a change in law (or
interpretation thereof) and the Indemnified Person shall have received, at
the Indemnity Provider's expense, an opinion of independent counsel
selected by the Indemnified
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Person and reasonably acceptable to the Indemnity Provider stating that as
a result of such change in law (or interpretation thereof), it is more
likely than not that the Indemnified Person will prevail in such contest.
13.2. General Tax Indemnity.
(a) The Indemnity Provider shall pay and assume liability for, and
does hereby agree to indemnify, protect and defend each Property and all
Indemnified Persons, and hold them harmless against, all Impositions on an
After Tax Basis.
(b) (i) Subject to the terms of Section 13.2(f), the Indemnity
Provider shall pay or cause to be paid all Impositions directly to the
taxing authorities where feasible and otherwise to the Indemnified
Person, as appropriate, and the Indemnity Provider shall at its own
expense, upon such Indemnified Person's reasonable request, furnish to
such Indemnified Person copies of official receipts or other
satisfactory proof evidencing such payment.
(ii) In the case of Impositions for which no contest is conducted
pursuant to Section 13.2(f) and which the Indemnity Provider pays
directly to the taxing authorities, the Indemnity Provider shall pay
such Impositions prior to the latest time permitted by the relevant
taxing authority for timely payment. In the case of Impositions for
which the Indemnity Provider reimburses an Indemnified Person, the
Indemnity Provider shall do so within thirty (30) days after receipt
by the Indemnity Provider of demand by such Indemnified Person
describing in reasonable detail the nature of the Imposition and the
basis for the demand (including the computation of the amount
payable). In the case of Impositions for which a contest is conducted
pursuant to Section 13.2(f), the Indemnity Provider shall pay such
Impositions or reimburse such Indemnified Person for such Impositions,
to the extent not previously paid or reimbursed pursuant to subsection
(a), prior to the latest time permitted by the relevant taxing
authority for timely payment after conclusion of all contests under
Section 13.2(f).
(iii) Impositions imposed with respect to a Property for a
billing period during which the Lease expires or terminates with
respect to such Property (unless the Lessee has exercised the Purchase
Option with respect to such Property or the Lessee has otherwise
purchased such Property) shall be adjusted and prorated on a daily
basis between the Indemnity Provider and the Lessor, whether or not
such Imposition is imposed before or after such expiration or
termination and each party shall pay its pro rata share thereof.
(iv) At the Indemnity Provider's request, the amount of any
indemnification payment by the Indemnity Provider pursuant to
subsection (a) shall be verified and certified by an independent
public accounting firm mutually acceptable to the Indemnity Provider
and the Indemnified Person. The fees and
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expenses of such independent public accounting firm shall be paid by
the Indemnity Provider unless such verification shall result in an
adjustment in the Indemnity Provider's favor of 15% or more of the
payment as computed by the Indemnified Person, in which case such fee
shall be paid by the Indemnified Person.
(c) The Indemnity Provider shall be responsible for preparing and
filing any real and personal property or ad valorem tax returns with
respect to each Property. In case any other report or tax return shall be
required to be made with respect to any obligations of the Indemnity
Provider under or arising out of subsection (a) and of which the Indemnity
Provider has knowledge or should have knowledge, the Indemnity Provider, at
its sole cost and expense, shall notify the relevant Indemnified Person of
such requirement and (except if such Indemnified Person notifies the
Indemnity Provider that such Indemnified Person intends to file such report
or return) (A) to the extent required or permitted by and consistent with
Legal Requirements, make and file in Indemnity Provider's name such return,
statement or report; and (B) in the case of any other such return,
statement or report required to be made in the name of such Indemnified
Person, advise such Indemnified Person of such fact and prepare such
return, statement or report for filing by such Indemnified Person or, where
such return, statement or report shall be required to reflect items in
addition to any obligations of the Indemnity Provider under or arising out
of subsection (a), provide such Indemnified Person at the Indemnity
Provider's expense with information sufficient to permit such return,
statement or report to be properly made with respect to any obligations of
the Indemnity Provider under or arising out of subsection (a). Such
Indemnified Person shall, upon the Indemnity Provider's request and at the
Indemnity Provider's expense, provide any data maintained by such
Indemnified Person (and not otherwise available to or within the control of
the Indemnity Provider) with respect to any Property which the Indemnity
Provider may reasonably require to prepare any required tax returns or
reports.
(d) If as a result of the payment or reimbursement by the Indemnity
Provider of any Imposition or other reasonable expenses of the Lessor or
the payment of any Transaction Expenses incurred in connection with the
transactions contemplated by the Operative Agreements, the Lessor, the
Holders, partners of any Holder, or shareholders of such partners of a
partnership which is a partner of such Holder, shall suffer a net increase
in any federal, state or local income tax liability, the Indemnity Provider
shall indemnify such Persons (without duplication of any indemnification
required by subsection (a)) on an After Tax Basis for the amount of such
increase. The calculation of any such net increase shall take into account
any current or future tax savings (including any net operating loss
carry-forward) realized or reasonably expected to be realized by such
Person in respect thereof, as well as any interest, penalties and additions
to tax payable by such Lessor, or such Holder, or such Affiliate, in
respect thereof.
(e) As between the Indemnity Provider on one hand, and the Lessor or
the Agent, any Lender or any Holder on the other hand, the Indemnity
Provider shall be
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responsible for, and the Indemnity Provider shall indemnify and hold
harmless the Lessor, the Agent, the Lenders and each Holder (without
duplication of any indemnification required by subsection (a)) on an After
Tax Basis against, any obligation for United States or foreign withholding
taxes imposed in respect of payments on the Notes or Certificates or with
respect to Rent payments under the Lease (and, if the Lessor, the Agent,
any Lender or any Holder receives a demand for such payment from any taxing
authority, the Indemnity Provider shall discharge such demand on behalf of
the Lessor, the Agent, such Lender or such Holder); provided, however, that
the right of any Lender to make a claim for indemnification under this
Section 13.2(e) is subject to the compliance by such Lender with the
requirements of Section 2.13 of the Credit Agreement.
(f) (i) If a written Claim is made against any Indemnified Person, or
if any proceeding shall be commenced against such Indemnified Person
(including a written notice of such proceeding), for any Impositions,
such Indemnified Person shall promptly notify the Indemnity Provider
in writing and shall not take action with respect to such Claim or
proceeding without the consent of the Indemnity Provider for thirty
(30) days after the receipt of such notice by the Indemnity Provider;
provided, however, that, in the case of any such Claim or proceeding,
if action shall be required by law or regulation to be taken prior to
the end of such 30- day period, such Indemnified Person shall, in such
notice to the Indemnity Provider, inform the Indemnity Provider of
such shorter period, and no action shall be taken with respect to such
Claim or proceeding without the consent of the Indemnity Provider
before seven (7) days before the end of such shorter period; provided,
further, that the failure of such Indemnified Person to give the
notices referred to this sentence shall not diminish the Indemnity
Provider's obligation hereunder except to the extent such failure
materially precludes the Indemnity Provider from contesting such
Claim.
(ii) If, within thirty (30) days of receipt of such notice from
the Indemnified Person (or such shorter period as the Indemnified
Person has notified the Indemnity Provider is required by law or
regulation for the Indemnified Person to commence such contest), the
Indemnity Provider shall request in writing that such Indemnified
Person contest such Imposition, the Indemnified Person shall, at the
expense of the Indemnity Provider, in good faith conduct and control
such contest (including, without limitation, by pursuit of appeals)
relating to the validity, applicability or amount of such Imposition
(provided, however, that (A) if such contest can be pursued
independently from any other proceeding involving a tax liability of
such Indemnified Person, the Indemnified Person, at the Indemnity
Provider's request, shall allow the Indemnity Provider to conduct and
control such contest and (B) in the case of any contest, the
Indemnified Person may request the Indemnity Provider to conduct and
control such contest (with counsel to be selected by the Indemnity
Provider and consented to by such Indemnified Person, such consent not
to be unreasonably withheld, conditioned or
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delayed; provided, however, that any Indemnified Person may retain
separate counsel at the expense of the Indemnity Provider in the event
of a conflict)) by, in the sole discretion of the Person conducting
and controlling such contest, (1) resisting payment thereof, (2) not
paying the same except under protest, if protest is necessary and
proper, (3) if the payment be made, using reasonable efforts to obtain
a refund thereof in appropriate administrative and judicial
proceedings, or (4) taking such other action as is reasonably
requested by the Indemnity Provider from time to time.
(iii) The party controlling any contest shall consult in good
faith with the non-controlling party and shall keep the
non-controlling party reasonably informed as to the conduct of such
contest; provided, that all decisions ultimately shall be made in the
sole discretion of the controlling party. The parties agree that an
Indemnified Person may at any time decline to take further action with
respect to the contest of any Imposition and may settle such contest
if such Indemnified Person shall waive its rights to any indemnity
from the Indemnity Provider that otherwise would be payable in respect
of such Imposition (and any future Claim by any taxing authority, the
contest of which is precluded by reason of such resolution of such
contest) and shall pay to the Indemnity Provider any amount previously
paid or advanced by the Indemnity Provider pursuant to this Section
13.2 by way of indemnification or advance for the payment of any
amount regarding such Imposition other than expenses of such contest.
(iv) Notwithstanding the foregoing provisions of this Section
13.2, an Indemnified Person shall not be required to take any action
and no Indemnity Provider shall be permitted to contest any Imposition
in its own name or that of the Indemnified Person unless (A) the
Indemnity Provider shall have agreed to pay and shall pay to such
Indemnified Person on demand and on an After Tax Basis all reasonable
costs, losses and expenses that such Indemnified Person actually
incurs in connection with contesting such Imposition, including,
without limitation, all reasonable legal, accounting and investigatory
fees and disbursements, (B) the Indemnified Person shall have
reasonably determined that the action to be taken will not result in
any material danger of sale, forfeiture or loss of any Property, or
any part thereof or interest therein, will not interfere with the
payment of Rent, and will not result in risk of criminal liability,
(C) if such contest shall involve the payment of the Imposition prior
to or during the contest, the Indemnity Provider shall provide to the
Indemnified Person an interest-free advance in an amount equal to the
Imposition that the Indemnified Person is required to pay (with no
additional net after-tax cost to such Indemnified Person), (D) in the
case of a Claim that must be pursued in the name of an Indemnified
Person (or an Affiliate thereof), the Indemnity Provider shall have
provided to such Indemnified Person an opinion of independent tax
counsel selected by the Indemnified Person and reasonably satisfactory
to the Indemnity Provider stating that a reasonable basis exists to
contest such Claim, and (E) no Event of Default
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shall have occurred and be continuing. In addition, an Indemnified
Person shall not be required to contest any claim in its name (or that
of an Affiliate) if the subject matter thereof shall be of a
continuing nature and shall have previously been decided adversely by
a court of competent jurisdiction pursuant to the contest provisions
of this Section 13.2, unless there shall have been a change in law (or
interpretation thereof) and the Indemnified Person shall have
received, at the Indemnity Provider's expense, an opinion of
independent tax counsel selected by the Indemnified Person and
reasonably acceptable to the Indemnity Provider stating that as a
result of such change in law (or interpretation thereof), it is more
likely than not that the Indemnified Person will prevail in such
contest.
13.3. Environmental Indemnity. Without limiting the generality of the
foregoing, whether or not the transactions contemplated hereby shall be
consummated, the Indemnity Provider hereby assumes liability for and agrees to
defend, indemnify and hold harmless each Indemnified Person on an After Tax
Basis from and against any Claims which may be imposed on, incurred by or
asserted against an Indemnified Person by any other Person (but not to the
extent such Claims arise from the gross negligence or willful misconduct of such
Indemnified Person) in any way relating to or arising, or alleged (by any Person
asserting such a Claim against an Indemnified Person) to arise, out of any
Environmental Claim, any violation of Environmental Laws, or any other loss of
or damage to any Property or the environment (including without limitation the
presence on any Property of wetlands, tidelands or swamp or overflow lands, or
any condition arising from or affecting any Property or arising from or
affecting any lands nearby or adjacent to any Property that has or threatens to
have any adverse effect upon human health or the environment at such Property or
upon the use or value of such Property), in each case relating to any Property,
the Lease or the Indemnity Provider.
SECTION 14. MISCELLANEOUS.
14.1. Survival of Agreements. The representations, warranties, covenants,
indemnities and agreements of the parties provided for in the Operative
Agreements, and the parties' obligations under any and all thereof, shall
survive the execution and delivery of this Agreement, the transfer of any
Property to the Owner Trustee, the acquisition of any Equipment, the
construction of any Improvements, any disposition of any interest of the Owner
Trustee in any Property or any interest of the Holders in the Owner Trust, the
payment of the Notes and any disposition thereof, and shall be and continue in
effect notwithstanding any investigation made by any party and the fact that any
party may waive compliance with any of the other terms, provisions or conditions
of any of the Operative Agreements. Except as otherwise expressly set forth
herein or in other Operative Agreements, the indemnities of the parties provided
for in the Operative Agreements shall survive the expiration or termination of
any thereof.
14.2. No Broker, etc. Each of the parties hereto represents to the others
that it has not retained or employed any broker, finder or financial adviser to
act on its behalf in connection with this Agreement, nor has it authorized any
broker, finder or financial adviser retained or employed by any other Person so
to act. Any party who is in breach of this representation shall
40
<PAGE>
indemnify and hold the other parties harmless from and against any liability
arising out of such breach of this representation.
14.3. Notices. Unless otherwise specifically provided herein, all notices,
consents, directions, approvals, instructions, requests and other communications
required or permitted by the terms hereof to be given to any Person shall be
given in writing by United States certified or registered mail (postage
prepaid), by nationally recognized courier service, by hand or by telecopy with
confirming notice and any such notice shall become effective upon receipt and
shall be directed to the address of such Person as indicated:
If to the Lessee, to it at the following address:
HEALTHSOUTH CORPORATION
One HealthSouth Parkway
Birmingham, Alabama 35243
Attention: Michael D. Martin
Telephone No.: (205) 969-4712
Telecopy No.: (205) 969-4629
With a copy to:
HEALTHSOUTH CORPORATION
One HealthSouth Parkway
Birmingham, Alabama 35243
Attention: Leif Murphy
Telephone No.: (205) 969-6056
Telecopy No.: (205) 969-6837
If to the Owner Trustee, to it at the following address:
First Security Bank, National Association
79 South Main Street
Salt Lake City, Utah 84111
Attention: Val T. Orton
Telephone No.: (801) 246-5208
Telecopy No.: (801) 246-5053
41
<PAGE>
If to NationsBank, National Association, as a Holder or a Lender, to it at the
following address:
NationsBank, N.A.
NationsBank Corporate Center
100 North Tryon Street, 8th Floor
Charlotte, North Carolina 28255
Attn: Philip S. Durand
Telephone No.: (704) 386-4955
Telecopy No.: (704) 388-0960
with all notices of requests for Holder Advances, or conversion, continuation or
prepayment of any Holder Advance, to be sent to:
NationsBank, N.A.
Independence Center, 15th Floor
Charlotte, North Carolina 28255
Attn: Cindy Harmon
Telephone No.: (704) 388-3918
Telecopy No.: (704) 409-0016
If to any other Holder, to it at the address set forth for such Holder on
Schedule 1 hereto or in the applicable Assignment and Assumption;
If to any other Lender, to it at the address for notice set forth on Schedule
1.2 to the Credit Agreement or in the applicable Assignment and Assumption;
If to the Agent, to it at the following address:
NationsBank, N.A.
Independence Center, 15th Floor
Charlotte, North Carolina 28255
Attn: Cindy Harmon
Telephone No.: (704) 388-3918
Telecopy No.: (704) 409-0016
with all notices of borrowing, conversion, continuation or prepayment of any
Loan to be delivered to the address set forth in Section 9.2 of the Credit
Agreement.
From time to time any party may designate a new address for purposes of notice
hereunder by notice to each of the other parties hereto.
42
<PAGE>
14.4. Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute but one and the
same instrument.
14.5. Amendments and Termination. Neither this Agreement nor any of the
terms hereof may be terminated, amended, supplemented, waived or modified except
by an instrument in writing signed by the Lessor, the Lessee and (subject to
Section 9.1 of the Credit Agreement) the Agent. This Agreement may be terminated
by an agreement signed in writing by the Owner Trustee, the Holders, the
Lenders, the Lessee and the Agent.
14.6. Headings, etc. The Table of Contents and headings of the various
Articles and Sections of this Agreement are for convenience of reference only
and shall not modify, define, expand or limit any of the terms or provisions
hereof.
14.7. Parties in Interest. Except as expressly provided herein, none of the
provisions of this Agreement are intended for the benefit of any Person except
the parties hereto; provided, that the Lenders are intended to be third-party
beneficiaries of this Agreement.
14.8. GOVERNING LAW; WAIVERS OF JURY TRIAL.
(a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH, THE LAW OF THE STATE OF NORTH CAROLINA, WITHOUT REGARD
TO ANY OTHERWISE APPLICABLE PRINCIPLES OF CONFLICT OF LAWS.
(b) TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE
PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY
LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER
OPERATIVE AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN.
14.9. Submission to Jurisdiction; Waivers. Each of the parties hereto
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Operative Agreements to
which it is a party, or for recognition and enforcement of any judgement in
respect thereof, to the non-exclusive general jurisdiction of the courts of
the State of North Carolina and the courts of the United States of America,
in each case located in Mecklenburg County, North Carolina, and appellate
courts from any thereof;
(b) consents that any such action or proceeding may be brought in such
courts and waives any objection that it may now or hereafter have to the
venue of any such
43
<PAGE>
action or proceeding in any such court or that such action or proceeding
was brought in an inconvenient court and agrees not to plead or claim the
same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail) postage prepaid, to the
respective party at its address set forth in Section 14.3 hereof or at such
other address of which the Administrative Agent shall have been notified
pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to
in this Section 14.9 any special, exemplary, punitive or consequential
damages.
14.10. Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render such provision unenforceable in any
other jurisdiction.
14.11. Liability Limited.
(a) The Agent, the Lessee and the Holders each acknowledge and agree
that the Owner Trustee is (except as otherwise expressly provided herein or
therein) entering into this Agreement and the other Operative Agreements to
which it is a party (other than the Trust Agreement and other than as set
forth in Section 7.2 of this Agreement), solely in its capacity as trustee
under the Trust Agreement and not in its individual capacity and that Trust
Company shall not be liable or accountable under any circumstances
whatsoever in its individual capacity for or on account of any statements,
representations, warranties, covenants or obligations stated to be those of
the Owner Trustee, except for its own gross negligence or willful
misconduct and except as otherwise expressly provided herein or in the
other Operative Agreements.
(b) Anything to the contrary contained in this Agreement, the Credit
Agreement, the Notes or in any other Operative Agreement notwithstanding,
neither the Lessor nor any Holder (in its capacity as a Holder) nor any
officer, director, shareholder, or partner thereof, nor any of the
successors or assigns of the foregoing (all such Persons being hereinafter
referred to collectively as the "Exculpated Persons"), shall be personally
liable in any respect for any liability or obligation hereunder or under
any other Operative Agreement including the payment of the principal of, or
interest on, the Notes, or for monetary damages for the breach of
performance of any of the covenants contained in the
44
<PAGE>
Credit Agreement, the Notes, this Agreement, the Security Agreement or any
of the other Operative Agreements. The Agent (for itself and on behalf of
the Lenders) agrees that, in the event the Agent or any Lender pursues any
remedies available to them under the Credit Agreement, the Notes, this
Agreement, the Security Agreement, the Mortgage Instruments or under any
other Operative Agreement, neither the Lenders nor the Agent shall have any
recourse against any Exculpated Person, for any deficiency, loss or Claim
for monetary damages or otherwise resulting therefrom, and recourse shall
be had solely and exclusively against the Trust Estate and the Lessee (with
respect to the Lessee's obligations under the Lease, the Participation
Agreement and any other Operative Agreement); but nothing contained herein
shall be taken to prevent recourse against or the enforcement of remedies
against the Trust Estate in respect of any and all liabilities, obligations
and undertakings contained herein, in the Credit Agreement, in the Notes,
in the Security Agreement, the Mortgage Instruments or in any other
Operative Agreement. Notwithstanding the provisions of this Section,
nothing in this Agreement, the Credit Agreement, the Notes, the Security
Agreement, the Mortgage Instruments or any other Operative Agreement shall:
(i) constitute a waiver, release or discharge of any indebtedness or
obligation evidenced by the Notes or arising under this Agreement, the
Security Agreement, the Mortgage Instruments or the Credit Agreement or
secured by the Security Agreement, the Mortgage Instruments or any other
Operative Agreement, but the same shall continue until paid or discharged;
(ii) relieve the Lessor or any Exculpated Person from liability and
responsibility for (but only to the extent of the damages arising by reason
of): (a) active waste knowingly committed by such Lessor or such Exculpated
Person with respect to the Properties or (b) any fraud, gross negligence,
willful misconduct or willful breach on the part of such Lessor or such
Exculpated Person; (iii) relieve such Lessor or such Exculpated Person from
liability and responsibility for (but only to the extent of the moneys
misappropriated, misapplied or not turned over) (a) misappropriation or
misapplication by such Lessor (i.e., application in a manner contrary to
any Operative Agreement) of any insurance proceeds or condemnation award
paid or delivered to such Lessor by any Person other than the Agent or (b)
any rents or other income received by such Lessor from the Lessee that are
not turned over to the Agent; or (iv) affect or in any way limit the
Agent's rights and remedies under any Operative Agreement with respect to
the Rents and its rights thereunder or its right to obtain a judgment
against the Lessor's interest in the Properties.
14.12. Rights of Lessee. Notwithstanding any provision of the Operative
Agreements, if at any time all obligations (i) of the Owner Trustee under the
Credit Agreement, the Security Documents, the Trust Agreement and the other
Operative Agreements and (ii) of the Lessee under the Operative Agreements have
in each case been satisfied or discharged in full, then the Lessee shall be
entitled to (a) terminate the Lease and (b) receive all amounts then held under
the Operative Agreements and all proceeds with respect to any of the Properties.
Upon the termination of the Lease pursuant to the foregoing clause (a), the
Lessor shall transfer to the Lessee all of its right, title and interest free
and clear of the Lien of the Lease and all Lessor Liens in and to any Properties
then subject to the Lease and any amounts or proceeds referred to in the
foregoing clause (b) shall be paid over to the Lessee.
45
<PAGE>
14.13. Further Assurances. The parties hereto shall promptly cause to be
taken, executed, acknowledged or delivered, at the sole expense of the Lessee,
all such further acts, conveyances, documents and assurances as the other
parties may from time to time reasonably request in order to carry out and
effectuate the intent and purposes of this Participation Agreement, the other
Operative Agreements and the transactions contemplated hereby and thereby
(including, without limitation, the preparation, execution and filing of any and
all Uniform Commercial Code financing statements and other filings or
registrations which the parties hereto may from time to time request to be filed
or effected). The Lessee, at its own expense and without need of any prior
request from any other party, shall take such action as may be necessary
(including any action specified in the preceding sentence), or (if Owner Trustee
shall so request) as so requested, in order to maintain and protect all security
interests provided for hereunder or under any other Operative Agreement.
14.14. Calculations under Operative Agreements. The parties hereto agree
that all calculations and numerical determinations to be made under the
Operative Agreements by the Owner Trustee shall be made by the Agent and that
such calculations and determinations shall be conclusive and binding on the
parties hereto in the absence of manifest error.
14.15. Confidentiality. Each of the Owner Trustee, the Holders, the Agent
and the Lenders severally agrees to use reasonable efforts to keep confidential
all non-public information pertaining to the Lessee or its Subsidiaries which is
provided to it by the Lessee or its Subsidiaries and shall not intentionally
disclose such information to any Person except:
(a) to the extent such information is public when received by such
Person or becomes public thereafter due to the act or omission of any party
other than such Person;
(b) to the extent such information is independently obtained from a
source other than the Lessee or any of its Subsidiaries and such
information from such source is not, to such Person's knowledge, subject to
an obligation of confidentiality or, if such information is subject to an
obligation of confidentiality, that disclosure of such information is
permitted;
(c) to counsel, auditors or accountants retained by any such Person or
any Affiliates of any such Person provided they agree to keep such
information confidential as if such Person or Affiliate were party to this
Agreement and to financial institution regulators, including examiners of
any Lender, the Agent or the Owner Trustee, any Holder or any Affiliate in
the course of examinations of such Persons;
(d) in connection with any litigation or the enforcement or
preservation of the rights of the Agent, the Owner Trustee, the Lessor, any
Lender or any Holder under the Operative Agreements;
(e) to the extent required by any applicable statute, rule or
regulation or court order (including, without limitation, by way of
subpoena) or pursuant to the request of
46
<PAGE>
any regulatory or Governmental Authority having jurisdiction over any such
Person; provided, however, that such Person shall endeavor (if not
otherwise prohibited by Law) to notify the Lessee prior to any disclosure
made pursuant to this clause (e), except that no such Person shall be
subject to any liability whatsoever for any failure to so notify the
Lessee;
(f) the Agent may disclose such information to the Owner Trustee, any
Lender or any Holder; or
(g) to the extent disclosure to any other financial institution or
other Person is appropriate in connection with any proposed or actual (i)
assignment or grant of a participation by any of the Lenders of interests
in the Credit Agreement or any Note to such other financial institution
(who will in turn be required by the Agent to agree in writing to maintain
confidentiality as if it were a Lender originally party to the Credit
Agreement) or (ii) assignment by any Holder of interests in the Trust
Agreement to another Person (who will in turn be required by the
transferring Holder to agree in writing to maintain confidentiality as if
it were a Holder originally party to this Participation Agreement).
14.16. Calculation of Rent, Interest, Holder Yield and Fees. Except as
otherwise expressly set forth in the Operative Agreements, all calculation of
Rent, interest, Holder Yield, Overdue Rate, Holder Overdue Rate, Commitment
Fees, or Holder Commitment Fees payable hereunder shall be computed based on the
actual number of days elapsed over a year of 360 days.
47
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers thereunto duly authorized as of the
day and year first above written.
HEALTHSOUTH CORPORATION,
as Lessee
By: /s/ William W. Horton
-------------------------------------
Name: William W. Horton
-----------------------------------
Title: Vice President
FIRST SECURITY BANK, NATIONAL
ASSOCIATION, not individually, except as
expressly stated herein, but solely as
Owner Trustee under the HEALTHSOUTH
Corporation Trust 1995-1
By: /s/ Janeen R. Higgs
-------------------------------------
Name: Janeen R. Higgs
Title: Trust Officer
NATIONSBANK, N.A., as Agent
By: /s/ Philip S. Durand
-------------------------------------
Name: Philip S. Durand
Title: Vice President
DEUTSCHE BANK AG NEW YORK BRANCH,
as Documentation Agent
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
48
<PAGE>
NATIONSBANK, N.A.,
as a Holder
By: /s/ Philip S. Durand
-------------------------------------
Name: Philip S. Durand
Title: Vice President
NATIONSBANK, N.A.,
as a Lender
By: /s/ Philip S. Durand
-------------------------------------
Name: Philip S. Durand
Title: Vice President
Applicable Funding Office:
NationsBank, N.A.
NationsBank Corporate Center
100 North Tryon Street, 8th Floor
Charlotte, North Carolina 28255
Attn: Philip S. Durand
Telephone No.: (704) 386-4955
Telecopy No.: (704) 388-0960
49
<PAGE>
DEUTSCHE BANK AG NEW YORK BRANCH,
as a Holder
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
DEUTSCHE BANK AG NEW YORK BRANCH,
as a Lender
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Applicable Funding Office:
----------------------------------
----------------------------------
Attn:
-----------------------------
Telephone No.:
--------------------
Telecopy No.:
---------------------
50
<PAGE>
---------------------------------------,
as a Holder
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
----------------------------------------
as a Lender
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Applicable Funding Office:
----------------------------------------
----------------------------------------
----------------------------------------
51
<PAGE>
SCHEDULE 1
Holders at the Initial Closing Date
-----------------------------------
<TABLE>
<CAPTION>
Holder
Name and Address Holder Commitment
For Notices Commitment Percentage
- - - ---------------- ---------- ----------
<S> <C> <C>
NationsBank, N.A. $___________ ____%
Independence Center, 15th Floor
Charlotte, North Carolina 28255
Attn: Cindy Harmon
Telephone No.: (704) 388-3918
Telecopy No.: (704) 409-0016
$___________ ____%
</TABLE>
- - - ----------------------------------
- - - ----------------------------------
Attn:
-----------------------------
Telephone No.:
--------------------
Telecopy No.:
---------------------
52
<PAGE>
- - - --------------------------------------------------------------------------------
Appendix A
Rules of Usage and Definitions
- - - --------------------------------------------------------------------------------
I. Rules of Usage
The following rules of usage shall apply to this Appendix A and the
Operative Agreements (and each appendix, schedule, exhibit and annex to the
foregoing) unless otherwise required by the context or unless otherwise defined
therein:
(a) Capitalized terms used in any of the Operative Agreements and not
defined therein shall have the meanings ascribed to such terms in this
Appendix A or, if not defined herein, in the Credit Agreement or, if not
defined in the Credit Agreement, in the Lease Agreement.
(b) Except as otherwise expressly provided, any definitions set forth
herein or in any other document shall be equally applicable to the singular
and plural forms of the terms defined.
(c) Except as otherwise expressly provided, references in any document
to articles, sections, paragraphs, clauses, annexes, appendices, schedules
or exhibits are references to articles, sections, paragraphs, clauses,
annexes, appendices, schedules or exhibits in or to such document.
(d) The headings, subheadings and table of contents used in any
document are solely for convenience of reference and shall not constitute a
part of any such document nor shall they affect the meaning, construction
or effect of any provision thereof.
(e) References to any Person shall include such Person, its successors
and permitted assigns and transferees.
(f) Except as otherwise expressly provided, reference to any agreement
means such agreement as amended, modified, extended, supplemented, restated
or replaced from time to time in accordance with the applicable provisions
thereof.
(g) Except as otherwise expressly provided, references to any law
includes any amendment or modification to such law and any rules or
regulations issued thereunder or any law enacted in substitution or
replacement therefor.
(h) When used in any document, words such as "hereunder", "hereto",
"hereof" and "herein" and other words of like import shall, unless the
context clearly
A-1
<PAGE>
indicates to the contrary, refer to the whole of the applicable document
and not to any particular article, section, subsection, paragraph or clause
thereof.
(i) References to "including" means including without limiting the
generality of any description preceding such term and for purposes hereof
the rule of ejusdem generis shall not be applicable to limit a general
statement, followed by or referable to an enumeration of specific matters,
to matters similar to those specifically mentioned.
(j) Unless the context indicates otherwise, the disjunctive "or" shall
include the conjunctive "and."
(k) Each of the parties to the Operative Agreements and their counsel
have reviewed and revised, or requested revisions to, the Operative
Agreements, and the usual rule of construction that any ambiguities are to
be resolved against the drafting party shall be inapplicable in the
construing and interpretation of the Operative Agreements and any
amendments or exhibits thereto.
II. Definitions
"acquire" or "purchase" shall mean, with respect to any Property, unless
the context indicates otherwise, the acquisition or purchase of such Property by
the Owner Trustee from any Person.
"Acquisition Advance" shall mean an advance of funds (consisting of Loans
by the Lenders and Holder Advances by the Holders) to the Lessor on a specified
date to pay Property Acquisition Costs and other expenses pursuant to Section
5.3(b) of the Participation Agreement.
"Acquisition Loan" shall mean any Loan made in connection with and as part
of an Acquisition Advance.
"Advance" shall mean an Acquisition Advance, or any other advance of funds
(consisting of Loans by the Lenders and Holder Advances by the Holders).
"Affiliate" shall have the meaning specified in Section 1.2 of the Credit
Agreement.
"After Tax Basis" shall mean, with respect to any payment to be received,
the amount of such payment increased so that, after deduction of the amount of
all taxes required to be paid by the recipient calculated at the then maximum
marginal rates generally applicable to Persons of the same type as the
recipients (less any tax savings realized as a result of the payment of the
indemnified amount) with respect to the receipt by the recipient of such
amounts, such increased payment (as so reduced) is equal to the payment
otherwise required to be made.
A-2
<PAGE>
"Agent" or "Administrative Agent" shall mean NationsBank, N.A., as
Administrative Agent for the Lenders pursuant to the Credit Agreement, or any
successor agent appointed in accordance with the terms of the Credit Agreement.
"Applicable Funding Office" means for each Lender or Holder and for each
Type of Loan or Holder Advance, the "Funding Office" of such Lender aor Holder
(or of an affiliate of such Lender or Holder) designated for such Type of Loan
or Holder Advance on the signature pages of the Participation Agreement or the
respective Assignment and Acceptance, or such other office of such Lender or
Holder (or an affiliate of such Lender or Holder) as such Lender or Holder may
from time to time specify to the Agent and the Borrower by written notice in
accordance with the terms of the Operative Agreements as the office by which its
Loans or Holder Advances of such Type are to be made and maintained.
"Applicable Margin" shall have the meaning specified in Section 1.2 of the
Credit Agreement.
"Applicable Commitment Fee Rate" shall have the meaning specified in
Section 1.2 of the Credit Agreement.
"Appraisal" shall mean, with respect to any Property, an appraisal to be
delivered in connection with Section 5.6 of the Participation Agreement or in
accordance with the terms of Section 10.1(e) of the Lease, or any other
provision of the Operative Agreements, in each case prepared by a reputable
appraiser reasonably acceptable to the Agent, which in the judgment of counsel
to the Agent, complies with all of the provisions of the Financial Institutions
Reform, Recovery and Enforcement Act of 1989, as amended, the rules and
regulations adopted pursuant thereto, and all other applicable Legal
Requirements.
"Appraisal Procedure" shall have the meaning given such term in Section
22.4 of the Lease.
"Approved State" shall mean Texas, Arizona, California, Kansas, Arkansas
and Louisiana.
"Appurtenant Rights" shall mean (i) all agreements, easements, rights of
way or use, rights of ingress or egress, privileges, appurtenances, tenements,
hereditaments and other rights and benefits at any time belonging or pertaining
to the Land underlying any Improvements, or the Improvements, including, without
limitation, the use of any streets, ways, alleys, vaults or strips of land
adjoining, abutting, adjacent or contiguous to the Land and (ii) all permits,
licenses and rights, whether or not of record, appurtenant to such Land.
"Arizona Ground Lease" means the Ground Lease with respect to the Arizona
Property, as such Ground Lease may be amended, modified, restated or
supplemented from time to time in accordance with the terms thereof.
A-3
<PAGE>
"Arizona Ground Lease Documents" shall mean collectively:
(a) the Arizona Ground Lease;
(b) the Assignment and Assumption of Ground Lease (Tucson) dated as of
the Initial Closing Date between Meditrust and the Owner Trustee;
(c) the Estoppel Certificate dated as of the Initial Closing Date by
TMC in favor of the Owner Trustee; and
(d) the Liability Exculpation Agreement dated as of the Initial
Closing Date between TMC and the Owner Trustee,
as each such agreement or certificate may be amended, modified, restated or
supplemented from time to time in accordance with the terms thereof.
"Arizona Property" means the Property located in Tucson, Arizona.
"Assignment of Project Rights" shall mean, collectively, each Assignment of
Project Rights and Contract Documents dated as of the Initial Closing Date or a
later Property Closing Date between the Owner Trustee and the Agent, as such
agreement may be amended, modified, restated or supplemented from time to time
in accordance with the terms thereof.
"Available Commitment" shall have the meaning specified in Section 1.2 of
the Credit Agreement.
"Available Holder Commitments" shall mean an amount equal to the excess, if
any, of (i) the amount of the Holder Commitments over (ii) the aggregate amount
of the Holder Advances made since the Initial Closing Date.
"Bankruptcy Code" shall mean Title 11 of the U.S. Code entitled
"Bankruptcy" as now or hereafter in effect, or any successor thereto.
"Base Rate" shall have the meaning specified in Section 1.2 of the Credit
Agreement.
"Base Rate Advance" shall mean an Advance that bears interest (with respect
to the Loans included therein) and Holder Yield (with respect to the Holder
Advances included therein) based on the Base Rate.
"Base Rate Holder Advance" shall mean a Holder Advance bearing a Holder
Yield based on the Base Rate.
"Base Rate Loan" shall have the meaning specified in Section 1.2 of the
Credit Agreement.
A-4
<PAGE>
"Basic Rent" shall mean, the sum of (i) the Loan Basic Rent and (ii) the
Lessor Basic Rent, calculated as of the applicable date on which Basic Rent is
due.
"Basic Term" shall have the meaning specified in Section 2.2(a) of the
Lease.
"Basic Term Commencement Date" shall have the meaning specified in Section
2.2 of the Lease.
"Basic Term Expiration Date" shall have the meaning specified in Section
2.2 of the Lease.
"Bill of Sale" shall mean a Bill of Sale regarding Equipment in form and
substance satisfactory to the Owner Trustee, the Holders and the Agent.
"Board" shall mean the Board of Governors of the Federal Reserve System of
the United States (or any successor).
"Borrowing Date" shall have the meaning specified in Section 1.2 of the
Credit Agreement.
"Business Day" shall mean a day other than a Saturday, Sunday or other day
on which commercial banks in Charlotte, North Carolina, Atlanta, Georgia or New
York, New York, are authorized or required by law to close; provided, however,
that when used in connection with a Eurodollar Loan, the term "Business Day"
shall also exclude any day on which banks are not open for dealings in dollar
deposits in the London interbank market.
"Casualty" shall mean any damage or destruction of all or any portion of a
Property as a result of a fire or other casualty.
"CERCLA" shall mean the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, 42 U.S.C. ss.ss. 9601 et seq., as amended by the
Superfund Amendments and Reauthorization Act of 1986.
"Certificate" shall mean a Certificate in favor of each Holder evidencing
the Holder Advances made by such Holder and issued pursuant to the Trust
Agreement.
"Claims" shall mean any and all obligations, liabilities, losses, actions,
suits, penalties, claims, demands, costs and expenses (including, without
limitation, reasonable attorney's fees and expenses) of any nature whatsoever.
"Closing Date" shall mean the Initial Closing Date and any Property Closing
Date.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time, or any successor statute thereto.
A-5
<PAGE>
"Collateral" shall have the meaning specified in Section 1.2 of the Credit
Agreement.
"Commitment" shall have the meaning defined in Section 1.2 of the Credit
Agreement.
"Commitment Fee Payment Date" shall mean the last day of each March, June,
September and December and the last day of the Commitment Period, or such
earlier date as the Commitments shall terminate as provided in the Credit
Agreement.
"Commitment Period" shall mean the period from the Initial Closing Date to
and including the Commitment Period Termination Date, or such earlier date as
the Commitments shall terminate as provided in the Credit Agreement.
"Commitment Period Termination Date" shall mean the earlier of (i) the date
that the Commitments have been terminated in their entirety in accordance with
the terms of Section 2.5(a) of the Credit Agreement, (ii) the sixtieth (60th)
day following the Closing Date or (iii) the Maturity Date.
"Completion" or "Completed" shall mean, with respect to a Property, such
time as final completion of the Improvements on such Property has been achieved
in accordance with the Plans and Specifications (excluding punch list items) and
the Lease, and in compliance with all material Legal Requirements and Insurance
Requirements and a certificate of occupancy has been issued with respect to such
Property by the appropriate Governmental Authority, and no additional Advances
are needed for such Property. If the Lessor purchases a Property that includes
existing Improvements that are to be immediately occupied by the Lessee,
Completion shall be deemed to have occurred for such Property on the Property
Closing Date.
"Condemnation" shall mean any taking or sale of the use, access, occupancy,
easement rights or title to any Property or any part thereof, wholly or
partially (temporarily or permanently), by or on account of: (a) any actual or
threatened eminent domain proceeding or other taking of action by any Person
having the power of eminent domain, including any action by a Governmental
Authority to change the grade of, or widen the streets adjacent to, any Property
or alter the pedestrian or vehicular traffic flow to any Property so as to
result in a change in access to such Property, or (b) an eviction by paramount
title or any transfer made in lieu of any such proceeding or action.
"Consolidated Entities" has the meaning specified in the Existing
HEALTHSOUTH Corporation Credit Agreement.
"Contingent Liability" shall mean any agreement, undertaking or arrangement
by which any Person guarantees, endorses or otherwise becomes or is contingently
liable upon (by direct or indirect agreement, to provide funds for payment, to
supply funds to, or otherwise to invest in, a debtor, or otherwise to assure a
creditor against loss) the Indebtedness of any other Person (other than by
endorsements of instruments in the course of collection), or guarantees the
payment of dividends or other distributions upon the shares of any other Person.
The amount of
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any Person's obligation under any Contingent Liability shall (subject to any
limitation set forth therein) be deemed to be the outstanding principal amount
or maximum principal amount (if larger) of the Indebtedness guaranteed thereby.
"Control" (including the correlative meanings of the terms "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities or by contract or otherwise.
"Co-Owner Trustee" shall have the meaning specified in Section 9.2 of the
Trust Agreement.
"Credit Agreement" shall mean the Credit Agreement, dated as of the Initial
Closing Date, among the Lessor, the Agent, and the Lenders, as specified
therein, as such agreement may be amended, modified, restated or supplemented
from time to time in accordance with the terms thereof.
"Credit Agreement Default" shall mean any event or condition which, with
the lapse of time or the giving of notice, or both, would constitute a Credit
Agreement Event of Default.
"Credit Agreement Event of Default" shall mean any event or condition
defined as an "Event of Default" in Section 6 of the Credit Agreement.
"Credit Documents" shall have the meaning specified in Section 1.2 of the
Credit Agreement.
"Deed" shall mean a warranty deed regarding Land or Improvements in form
and substance satisfactory to the Owner Trustee, the Holders and the Agent.
"Default" shall mean any event, act or condition which with notice or lapse
of time, or both, would constitute an Event of Default.
"Dollars" and "$" shall mean dollars in lawful currency of the United
States of America.
"Election Notice" shall have the meaning given to such term in Section 20.2
of the Lease.
"Employee Benefit Plan" or "Plan" shall mean an employee benefit plan
(within the meaning of Section 3(3) of ERISA, including any Multiemployer Plan),
or any "plan" as defined in Section 4975(e)(1) of the Code and as interpreted by
the Internal Revenue Service and the Department of Labor in rules, regulations,
releases or bulletins in effect on any Closing Date.
"Environmental Claim" shall mean any investigation, notice, violation,
demand, allegation, action, suit, injunction, judgment, order, consent decree,
penalty, fine, lien, proceeding, or claim (whether administrative, judicial, or
private in nature) arising (a) pursuant
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to, or in connection with, any actual or alleged violation of, any Environmental
Law, (b) in connection with any Hazardous Substance, (c) from or with respect to
any abatement, removal, remedial, corrective, or other response action in
connection with a Hazardous Material, Environmental Law, or other similar order
of a Governmental Authority or (d) from or with respect to any actual or alleged
damage, injury, threat, or harm to health, safety, natural resources, or the
environment.
"Environmental Indemnity" means any indemnity pursuant to Section 13.3, or
any indemnity with respect to an Environmental Claim.
"Environmental Law" shall mean any Law, permit, consent, approval, license,
award, or other authorization or requirement of any Governmental Authority
relating to emissions, discharges, releases, threatened releases of any
Hazardous Substance into ambient air, surface water, ground water, publicly
owned treatment works, septic system, or land, or otherwise relating to the
handling, storage, treatment, generation, use, emission or disposal of any
Hazardous Substance or pollution or to the protection of health or the
environment, including without limitation CERCLA, the Resource Conservation and
Recovery Act, 42 U.S.C. ss. 6901, et seq., and state or local statutes analogous
thereto.
"Environmental Violation" shall mean any activity, occurrence or condition
that violates or threatens to violate (if the threat requires remediation under
any Environmental Law and is not remediated during any grace period allowed
under such Environmental Law) or results in or threatens (if the threat requires
remediation under any Environmental Law and is not remediated during any grace
period allowed under such Environmental Law) to result in noncompliance with any
Environmental Law.
"Equipment" shall mean equipment, apparatus, furnishings, fittings and
personal property of every kind and nature whatsoever purchased, leased or
otherwise acquired using the proceeds of the Loans or the Holder Advances by the
Lessee or the Lessor as specified or described in either a Requisition or a
Lease, whether or not now or subsequently attached to, contained in or used or
usable in any way in connection with any operation of any Improvements or other
improvements to real property, including without limitation, all equipment
described in the Appraisal, all heating, electrical, and mechanical equipment,
lighting, switchboards, plumbing, ventilation, air conditioning and air-cooling
apparatus, refrigerating, and incinerating equipment, escalators, elevators,
loading and unloading equipment and systems, sprinkler systems and other fire
prevention and extinguishing apparatus and materials, security systems, motors,
engines, machinery, pipes, pumps, tanks, conduits, fittings and fixtures of
every kind and description.
"Equipment Schedule" shall mean (a) each Equipment Schedule attached to the
applicable Requisition and (b) each Equipment Schedule attached to the
applicable Lease Supplement as Schedule I-A.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
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"ERISA Affiliate" shall mean each entity required to be aggregated with the
Lessee pursuant to the requirements of Section 414(b) or (c) of the Code.
"Eurocurrency Reserve Requirements" shall have the meaning specified in
Section 1.2 of the Credit Agreement.
"Eurodollar Advance" shall mean an Advance that bears interest (with
respect to the Loans included therein) and Holder Yield (with respect to the
Holder Advances included therein) based on the Eurodollar Rate.
"Eurodollar Holder Advance" shall mean a Holder Advance bearing a Holder
Yield based on the Eurodollar Rate.
"Eurodollar Loan" shall have the meaning specified in Section 1.2 of the
Credit Agreement.
"Eurodollar Rate" shall have the meaning specified in Section 1.2 of the
Credit Agreement.
"Eurodollar Reserve Rate" shall have the meaning specified in Section 1.2
of the Credit Agreement.
"Event of Default" shall mean a Lease Event of Default or a Credit
Agreement Event of Default.
"Excepted Payments" shall mean:
(a) all indemnity payments (including indemnity payments made pursuant to
Section 13 of the Participation Agreement), any amount payable to a Holder by
any transferee of such interest of a Holder as the purchase price of such
Holder's interest in the Trust Estate (or portion thereof);
(b) any amounts (other than Basic Rent, Termination Value, or Purchase
Option Price) payable under any Operative Agreement to reimburse the Owner
Trustee, any Holder or any of their respective Affiliates for performing or
complying with any of the obligations of the Lessee under and as permitted by
any Operative Agreement (including without limitation any reimbursement of the
reasonable expenses of the Owner Trustee, the Trust Company and the Holders
incurred in connection with any such payment);
(c) any insurance proceeds (or payments with respect to risks self-insured
or policy deductibles) under liability policies other than such proceeds or
payments payable to the Agent or any Lender;
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(d) any insurance proceeds under policies maintained by the Owner Trustee
or any Holder other than such proceeds payable to the Agent or any Lender;
(e) Transaction Expenses or other amounts or expenses paid or payable to or
for the benefit of the Owner Trustee or any Holder;
(f) all right, title and interest of any Holder or the Owner Trustee to any
Property or any portion thereof or any other property to the extent any of the
foregoing has been released from the Liens of the Security Documents and the
Lease pursuant to the terms thereof;
(g) upon termination of the Credit Agreement pursuant to the terms thereof,
all remaining property covered by the Lease or Security Documents;
(h) all payments in respect of the Holder Yield;
(i) any payments in respect of interest to the extent attributable to
payments referred to in clauses (a) through (g) above; and
(j) any rights of either the Owner Trustee or Trust Company to demand,
collect, sue for or otherwise receive and enforce payment of any of the
foregoing amounts, provided that such rights shall not include the right to
terminate the Lease.
"Excess Proceeds" shall mean the excess, if any, of the aggregate of all
awards, compensation or insurance proceeds payable in connection with a Casualty
or Condemnation over the Termination Value paid by the Lessee pursuant to the
Lease with respect to such Casualty or Condemnation.
"Existing Credit Agent" shall mean the "Agent" as defined in the Existing
HEALTHSOUTH Corporation Credit Agreement.
"Existing Environmental Reports" means, collectively, each of the
environmental reports identified on Schedule 5 hereto.
"Existing HEALTHSOUTH Corporation Credit Agreement" shall have the meaning
specified in Section 28.1 of the Lease.
"Expiration Date" shall mean the Basic Term Expiration Date or the last day
of any Extended Term, if applicable.
"Expiration Date Purchase Option" shall mean the Lessee's option to
purchase all (but not less than all) of the Properties on the Expiration Date.
"Extended Term" shall mean the extension of the Basic Term (or a previous
Extended Term) for a period of 364 days following the end of the Basic Term (or
such previous Extended
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Term) with respect to which Lessee has exercised its Renewal Option pursuant to
Section 21.1 of the Lease.
"Fair Market Sales Value" shall mean, with respect to any Property, the
amount, which in any event, shall not be less than zero, that would be paid in
cash in an arms-length transaction between an informed and willing purchaser and
an informed and willing seller, neither of whom is under any compulsion to
purchase or sell, respectively, such Property. Fair Market Sales Value of any
Property shall be determined based on the assumption that, except for purposes
of Section 17 of the Lease, such Property is in the condition and state of
repair required under Section 10.1 of the Lease and the Lessee is in compliance
with the other requirements of the Operative Agreements.
"Fee Letter" shall mean that certain letter agreement dated November 19,
1998 among HEALTHSOUTH Corporation, NationsBank and NMS.
"Fiscal Quarter" means any quarter of a Fiscal Year.
"Fiscal Year" means any period of twelve consecutive calendar months ending
on December 31; references to a Fiscal Year with a number corresponding to any
calendar year (e.g., the "1995 Fiscal Year") refer to the Fiscal Year ending on
the December 31 occurring during such calendar year.
"Fixtures" shall mean all fixtures relating to the Improvements, including
all components thereof, located in or on the Improvements, together with all
replacements, modifications, alterations and additions thereto.
"Force Majeure Event" shall mean any event beyond the control of the
Lessee, other than a Casualty or Condemnation, including, but not limited to,
strikes, lockouts, adverse soil conditions, acts of God, adverse weather
conditions, inability to obtain labor or materials, governmental activities,
civil commotion and enemy action; but excluding any event, cause or condition
that results from the Lessee's financial condition.
"GAAP" shall have the meaning specified in Section 1.1 of the Existing
HEALTHSOUTH Corporation Credit Agreement.
"Governmental Action" shall mean all permits, authorizations,
registrations, consents, approvals, waivers, exceptions, variances, orders,
judgments, written interpretations, decrees, licenses, exemptions, publications,
filings, notices to and declarations of or with, or required by, any
Governmental Authority, or required by any Legal Requirement, and shall include
all environmental and operating permits and licenses that are required for the
full use, occupancy, zoning and operation of any Property.
"Governmental Authority" shall mean any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory
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or administrative functions of or pertaining to government, including any court
or governmental body, agency, department, commission, board, bureau or
instrumentality of a governmental body.
"Ground Lease" shall mean (a) a ground lease (in form and substance
satisfactory to the Agent and the Lessor) with respect to any Property owned by
the Lessee and leased to the Lessor where such lease has a ninety-nine year term
and payments set at $1.00 per year, or (b) a ground lease or ground sub-lease of
any Property by any Person to the Lessor, where such lease or sublease (as well
as any other lease or sub-lease with respect to such Property) is in form and
substance, and contains such terms and conditions, as are satisfactory in all
respects to the Agent and the Lessor.
"Hazardous Substance" shall mean any of the following: (i) any petroleum or
petroleum product, explosives, radioactive material, asbestos, formaldehyde,
polychlorinated biphenyls, lead and radon gas; (ii) any substance, material,
product, derivative, compound or mixture, mineral, chemical, waste, gas, medical
waste, or pollutant, in each case whether naturally occurring, man-made or the
by-product of any process, that is toxic, harmful or hazardous to the
environment or human health or safety as determined in accordance with any
Environmental Law; or (iii) any substance, material, product, derivative,
compound or mixture, mineral, chemical, waste, gas, medical waste or pollutant
that would support the assertion of any claim under any Environmental Law,
whether or not defined as hazardous as such under any Environmental Law.
"HEALTHSOUTH Corporation Credit Agreement Event of Default" shall have the
meaning assigned thereto in Section 17.1 of the Lease.
"HEALTHSOUTH Corporation" means HEALTHSOUTH Corporation, a Delaware
corporation.
"HEALTHSOUTH Corporation Trust 1998-1" shall mean the grantor trust created
pursuant to the terms and conditions of the Trust Agreement.
"Hedging Obligations" shall mean, with respect to any Person, all
liabilities of such Person under interest rate swap agreements, interest rate
cap agreements and interest rate collar agreements, and all other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates or currency exchange rates.
"Holder Advance" shall mean any advance made by any Holder to the Owner
Trustee pursuant to the terms of the Trust Agreement or the Participation
Agreement.
"Holder Amount" shall mean as of any date, the aggregate amount of Holder
Advances made by each Holder to the Trust Estate pursuant to Section 2 of the
Participation Agreement or Section 3.1 of the Trust Agreement less any payments
of any Holder Advances received by the Holders pursuant to Section 3.4 of the
Trust Agreement.
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"Holder Applicable Margin" shall mean the Applicable Margin plus, in each
case, three-fourths of one percent (.75%).
"Holder Commitment" shall mean, as to any Holder, the obligation of such
Holder to make Holder Advances to the Lessor in an aggregate principal amount at
any time outstanding not to exceed the respective amount set forth opposite such
Holder's name on Schedule 1, as such amounts may be reduced or increased from
time to time in accordance with the provisions of this Agreement and the Trust
Agreement. "Holder Commitments" shall mean the aggregate of all Holder
Commitments.
"Holder Property Cost" shall mean with respect to each Property an amount
equal to the outstanding Holder Advances with respect thereto.
"Holder Commitment Fee" shall have the meaning specified in Section 9.3(b)
of the Participation Agreement.
"Holder Yield" shall mean with respect to Holder Advances from time to time
either the Eurodollar Reserve Rate plus the Holder Applicable Margin or the Base
Rate plus three-fourths of one percent (.75%) as in effect from time to time
with respect to such Holder Advances in accordance with the terms of the Trust
Agreement; provided, however, that (i) upon delivery of the notice described in
Section 3.7(c) of the Trust Agreement, the outstanding Holder Advances of each
Holder shall bear a yield at the Base Rate applicable from time to time plus
.75%from and after the dates and during the periods specified in Section 3.7(c)
of the Trust Agreement, and (ii) upon the delivery by a Holder of the notice
described in Section 3.9(d) of the Trust Agreement or as otherwise set forth in
Section 3.8 of the Trust Agreement, the Holder Advances of such Holder shall
bear a yield at the Base Rate applicable from time to time plus .75% after the
dates and during the periods specified in Section 3.9(d) or 3.8 (as the case may
be) of the Trust Agreement.
"Holders" shall mean the several banks and other financial institutions
which are from time to time holders of Certificates in connection with the
HEALTHSOUTH Corporation Trust 1995-1.
"Impositions" shall mean, except to the extent described in the following
sentence, any and all liabilities, losses, expenses, costs, charges and Liens of
any kind whatsoever for fees, taxes, levies, imposts, duties, charges,
assessments or withholdings ("Taxes") including without limitation (i) any real
and personal property taxes, including personal property taxes on any property
covered by the Lease that is classified by Governmental Authorities as personal
property, frontage taxes and real estate or ad valorem taxes in the nature of
property taxes; (ii) any sales taxes, use taxes and other similar taxes
(including rent taxes and intangibles taxes); (iii) any excise taxes; (iv) any
real estate transfer taxes, conveyance taxes, mortgage taxes, stamp taxes and
documentary recording taxes and fees; (v) any taxes that are or are in the
nature of franchise, income, value added, privilege and doing business taxes,
license and registration fees; (vi) any assessments on any Property, including
all assessments for public Improvements or
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benefits, whether or not such improvements are commenced or completed within the
Term; and (vii) any tax, Lien, assessment or charge asserted, imposed or
assessed by the PBGC or any governmental authority succeeding to or performing
functions similar to, the PBGC; and in each case all interest, additions to tax
and penalties thereon, which at any time prior to, during or with respect to the
Term or in respect of any period for which the Lessee shall be obligated to pay
Supplemental Rent, may be levied, assessed or imposed by any Governmental
Authority upon or with respect to (a) any Property or any part thereof or
interest therein; (b) the leasing, financing, refinancing, demolition,
construction, substitution, subleasing, assignment, control, condition,
occupancy, servicing, maintenance, repair, ownership, possession, activity
conducted on, delivery, insuring, use, operation, improvement, transfer of
title, return or other disposition of any Property or any part thereof or
interest therein; (c) the Certificates or the Notes or other indebtedness with
respect to any Property or any part thereof or interest therein; (d) the
rentals, receipts or earnings arising from any Property or any part thereof or
interest therein; (e) the Operative Agreements, the performance thereof, or any
payment made or accrued pursuant thereto; (f) the income or other proceeds
received with respect to any Property or any part thereof or interest therein
upon the sale or disposition thereof; (g) any contract relating to the
construction, acquisition or delivery of the Improvements or any part thereof or
interest therein; (h) the issuance of the Certificates or the Notes; or (i)
otherwise in connection with the transactions contemplated by the Operative
Agreements.
The term "Imposition" shall not mean or include:
(i) Taxes and impositions (other than Taxes that are, or are in the
nature of, withholding, sales, use, rental, value added, transfer or
property taxes) that are imposed on any Indemnified Person (other than
Lessor) by the United States federal government or (in the case of a Person
organized under the laws of a foreign country) by a Governmental Authority
of such country, and that are in each case based on or measured by the net
income (including taxes based on capital gains and minimum taxes or
franchise taxes) of such Person; provided, that this clause (i) shall not
apply to (and shall not exclude) any Tax or imposition imposed with respect
to a payment (including any Rent payment) except for (A) the portion of
such payment constituting interest on a Loan or Holder Yield or (B) any
such Tax or imposition to the extent it arises because an Indemnified
Person has previously written off as uncollectible (and reduced the tax
basis for) an Obligation which it has subsequently collected, and provided,
further that this clause (i) shall not be interpreted to prevent a payment
from being made on an After Tax Basis if such payment is otherwise required
to be so made;
(ii) Taxes and impositions (other than Taxes that are, or are in the
nature of, sales, use, rental, value added, transfer or property taxes)
that are imposed on any Indemnified Person (other than Lessor) by any state
or local jurisdiction or taxing authority within any state or local
jurisdiction and that are based upon or measured by the net income or net
receipts; provided that this clause (ii) shall not apply to (and shall not
exclude) (A) any Tax or imposition imposed with respect to a payment
(including any Rent payment) except for (I) the portion of such payment
constituting interest on a Loan or Holder Yield
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or (II) any such Tax or imposition to the extent it arises because an
Indemnified Person has previously written off (and reduced the tax basis
for) an Obligation which it has subsequently collected, or (B) any Tax or
imposition imposed on an Indemnified Person by any state or local
jurisdiction if such Tax or imposition would not arise as to such Person
but for the location, possession or use of any Property in such
jurisdiction; and provided, further, that this clause (ii) shall not be
interpreted to prevent a payment from being made on an After Tax Basis if
such payment is otherwise required to be so made;
(iii) any Tax or imposition to the extent, but only to such extent, it
relates to any act, event or omission that occurs after the termination of
the Lease and redelivery or sale of the property in accordance with the
terms of the Lease (but not any Tax or imposition that relates to such
termination, redelivery or sale or to any period prior to such termination,
redelivery or sale); or
(iv) any Taxes which are imposed on an Indemnified Person as a result
of the gross negligence or willful misconduct of such Indemnified Person
itself (as opposed to any gross negligence or willful misconduct imputed to
such Indemnified Person), but not Taxes imposed as a result of ordinary
negligence of such Indemnified Person;
Any Tax or imposition excluded from the defined term "Imposition" by any one of
the foregoing clauses (i) through (iv) shall not be construed as constituting an
Imposition by any provision of any other of the aforementioned clauses.
"Improvements" shall mean, with respect to the construction, renovation or
Modification of any Property, all buildings, structures, Fixtures, and other
improvements of every kind existing at any time and from time to time on or
under the Land purchased, leased or otherwise acquired using the proceeds of the
Loans or the Holder Advances, together with any and all appurtenances to such
buildings, structures or improvements, including sidewalks, utility pipes,
conduits and lines, parking areas and roadways, and including all Modifications
and other additions to or changes in the Improvements at any time, including
without limitation (a) any Improvements existing as of a Property Closing Date
as such Improvements may be referenced on the applicable Requisition and (b) any
Improvements made subsequent to such Property Closing Date.
"Incorporated Covenants" shall have the meaning specified in Section 28.1
of the Lease.
"Indemnified Person" shall mean each of the Lessor, the Owner Trustee, in
its individual and its trust capacity, the Agent, NMS, the Holders, the Lenders
and their respective successors, assigns, directors, shareholders, partners,
officers, employees, agents and Affiliates.
"Indemnity Provider" shall mean the Lessee.
"Initial Closing Date" shall mean the date of the Participation Agreement.
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"Insurance Requirements" shall mean (a) all terms and conditions of any
insurance policy required by the Lease to be maintained by the Lessee, (b) all
requirements of the issuer of any such policy and (c) in the case of
self-insurance, all other requirements of Lessee.
"Interest Period" shall have the meaning specified in Section 1.2 of the
Credit Agreement.
"Investment Company Act" shall mean the Investment Company Act of 1940, as
amended, together with the rules and regulations promulgated thereunder.
"Investment" shall mean, with respect to any Person,
(a) any loan or advance made by such Person to any other Person
(excluding commission, travel and similar advances to officers and
employees made in the ordinary course of business);
(b) any Contingent Liability of such Person; and
(c) any ownership or similar interest held by such Person in any other
Person.
The amount of any Investment shall be the original principal or capital amount
thereof less all returns of principal or equity thereon (and without adjustment
by reason of the financial condition of such other Person) and shall, if made by
the transfer or exchange of property other than cash, be deemed to have been
made in an original principal or capital amount equal to the fair market value
of such property.
"Land" shall mean (a) a parcel or parcels of real property that is
described on (i) the Requisition issued by the Lessee on a Property Closing Date
relating to such parcel or (ii) Schedule I-C to each applicable Lease Supplement
executed and delivered in accordance with the requirements of Section 2.4 of the
Lease and, to the extent set forth in any such Requisition or Schedule, may
include without limitation a leasehold interest (pursuant to a Ground Lease) in
such Land, and (b) all Appurtenant Rights with respect to such Land.
"Law" shall mean any statute, law, ordinance, code, regulation, rule,
directive, order, writ, injunction or decree of any Governmental Authority.
"Lease" or "Lease Agreement" shall mean the Lease Agreement (Tax Retention
Operating Lease) dated as of the Initial Closing Date, between the Lessor and
the Lessee, together with any Lease Supplements thereto, as such Lease Agreement
may from time to time be supplemented, amended, restated or modified in
accordance with the terms thereof.
"Lease Default" shall mean any event or condition which, with the lapse of
time or the giving of notice, or both, would constitute a Lease Event of
Default.
"Lease Event of Default" shall have the meaning specified in Section 17.1
of the Lease.
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"Lease Supplement" shall mean each Lease Supplement substantially in the
form of Exhibit A to the Lease, together with all attachments and schedules
thereto, as such Lease Supplement may be supplemented, amended, restated or
modified from time to time.
"Legal Requirements" shall mean all foreign, Federal, state, county,
municipal and other governmental statutes, laws, rules, orders, regulations,
ordinances, judgments, decrees and injunctions affecting the Owner Trustee, the
Holders, the Agent, any Lender or any Improvements or the taxation, demolition,
construction, use or alteration of such Improvements, whether now or hereafter
enacted and in force, including without limitation any that require repairs,
modifications or alterations in or to any Property or in any way limit the use
and enjoyment thereof (including all building, zoning and fire codes and the
Americans with Disabilities Act of 1990, 42 U.S.C. ss. 12101 et seq., and any
other similar Federal, state or local laws or ordinances and the regulations
promulgated thereunder) and any that may relate to environmental requirements
(including all Environmental Laws), and all permits, certificates of occupancy,
licenses, authorizations and regulations relating thereto, and all covenants,
agreements, restrictions and encumbrances contained in any instruments which are
either of record or known to the Lessee affecting any Property or the
Appurtenant Rights.
"Lender Financing Statements" shall mean UCC financing statements and
fixture filings appropriately completed and executed for filing in the
applicable jurisdiction in order to evidence or perfect the Agent's security
interest (for itself and on behalf of the Lenders) in any Equipment or in any
Improvements.
"Lender Commitment Fees" means the fees payable to the Lenders specified in
Section 9.3 of the Participation Agreement.
"Lenders" shall mean the several banks and other financial institutions
from time to time party to the Credit Agreement.
"Lessee" shall have the meaning set forth in the Lease.
"Lessor" shall mean the Owner Trustee, not in its individual capacity, but
as Lessor under the Lease.
"Lessor Basic Rent" shall mean the scheduled Holder Yield due on the Holder
Advances on any Scheduled Interest Payment Date pursuant to the Trust Agreement
(but not including interest on overdue amounts under the Trust Agreement or
otherwise).
"Lessor Financing Statements" shall mean UCC financing statements and
fixture filings appropriately completed and executed for filing in the
applicable jurisdictions in order to evidence or perfect the Lessor's interest
under the Lease to the extent the Lease is a security agreement or a mortgage.
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"Lessor Lien" shall mean any Lien, true lease or sublease or disposition of
title arising as a result of (a) any claim against the Lessor or Trust Company,
in its individual capacity, not resulting from the transactions contemplated by
the Operative Agreements, (b) any act or omission of the Lessor or Trust
Company, in its individual capacity, which is not required by the Operative
Agreements or is in violation of any of the terms of the Operative Agreements,
(c) any claim against the Lessor or Trust Company, in its individual capacity,
with respect to Taxes or Transaction Expenses against which the Lessee is not
required to indemnify Lessor or Trust Company, in its individual capacity,
pursuant to Section 13 of the Participation Agreement or (d) any claim against
the Lessor or Trust Company, in its individual capacity, arising out of any
transfer by the Lessor of all or any portion of the interest of the Lessor in
the Properties, the Trust Estate or the Operative Agreements other than the
transfer of title to or possession of any Properties by the Lessor pursuant to
and in accordance with the Lease, the Credit Agreement, the Security Agreement
or the Participation Agreement or pursuant to the exercise of the remedies set
forth in Article XVII of the Lease.
"Lien" shall mean any mortgage, pledge, security interest, encumbrance,
lien, option or charge of any kind.
"Limited Recourse Amount" shall mean, with respect to any Properties on an
aggregate basis as of a specified date, an amount equal to the sum of the
Termination Values with respect to such Properties on such date, less the
Maximum Residual Guarantee Amount as of such date with respect to the
Properties.
"Loans" shall have the meaning specified in Section 1.2 of the Credit
Agreement.
"Loan Basic Rent" shall mean the interest due on the Loans on any Scheduled
Interest Payment Date pursuant to the Credit Agreement (but not including
interest on any overdue amounts under Section 2.8(c) of the Credit Agreement or
otherwise).
"Loan Property Cost" shall have the meaning specified in Section 1.2 of the
Credit Agreement.
"Majority Lenders" shall have the meaning specified in Section 1.2 of the
Credit Agreement.
"Marketing Period" shall mean, if the Lessee has given an Election Notice
in accordance with Section 20.2 of the Lease, the period commencing on the date
such Sale Notice is given and ending on the Expiration Date.
"Material Adverse Effect" shall mean a material adverse effect on (a) the
business, condition (financial or otherwise) assets, liabilities or operations
of HEALTHSOUTH Corporation and its Consolidated Entities taken as a whole;
provided, however, it is understood and agreed that such Material Adverse Effect
shall not be deemed to occur under this subparagraph (a) unless the matter at
issue will have a monetary effect on HEALTHSOUTH
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<PAGE>
Corporation in an amount which, when added to all other matters occurring since
the Initial Closing Date, equals $5,000,000 or more, (b) the ability of the
Lessee to perform its respective obligations under any Operative Agreement to
which it is a party, (c) the validity or enforceability of any Operative
Agreement or the rights and remedies of the Agent, the Lenders, the Holders, or
the Lessor thereunder, (d) the validity, priority or enforceability of any Lien
on any Property created by any of the Operative Agreements, or (e) the value,
utility or useful life of any Property or the use, or ability of the applicable
Lessee to use, any Property for the purpose for which it was intended.
"Material Group" has the meaning specified in Section 1.1 of the Existing
HEALTHSOUTH Corporation Credit Agreement.
"Maturity Date" shall have the meaning specified in Section 1.2 of the
Credit Agreement.
"Maximum Property Cost" shall mean the aggregate amount of the Property
Costs for all Properties subject to the Lease as of the applicable determination
date.
"Maximum Residual Guarantee Amount", with respect to any properties, shall
mean an amount equal to the sum of (a) eighty-seven percent (87%) of the
aggregate Property Cost for all of such Properties plus (b) one hundred percent
(100%) of all Rents and other amounts then due and owing by the Lessee under the
Lease and the other Operative Agreements.
"Meditrust" shall mean Meditrust Company LLC, a Delaware limited liability
company.
"Modifications" shall have the meaning specified in Section 11.1(a) of the
Lease.
"Mortgage Instruments" shall mean any mortgage, deed of trust, leasehold
mortgage or any other instrument executed by the Owner Trustee in favor of the
Agent and evidencing a Lien on any Property, in form and substance reasonably
acceptable to the Agent.
"Multiemployer Plan" shall mean any plan described in Section 4001(a)(3) of
ERISA to which contributions are or have been made or are required to be made by
HEALTHSOUTH Corporation or any of its Consolidated Entities or ERISA Affiliates.
"Multiple Employer Plan" shall mean a plan to which HEALTHSOUTH Corporation
or any ERISA Affiliate and at least one other employer other than an ERISA
Affiliate is making or accruing an obligation to make, or has made or accrued an
obligation to make, contributions.
"NationsBank" shall mean NationsBank, National Association, a national
banking association.
"NMS" means NationsBanc Montgomery Securities LLC.
A-19
<PAGE>
"Net Proceeds" shall mean all amounts paid in connection with any Casualty
or Condemnation, and all interest earned thereon, less the expense of claiming
and collecting such amounts, including all costs and expenses in connection
therewith for which the Agent or Lessor is entitled to be reimbursed pursuant to
the Lease.
"Net Sale Proceeds Shortfall" shall mean the amount by which the proceeds
of a sale described in Section 22.1 of the Lease (net of all expenses of sale)
are less than the Limited Recourse Amount with respect to the Properties if it
has been determined that the Fair Market Sales Value of the Properties at the
expiration of the term of the Lease has been impaired by greater than expected
wear and tear during the Term of the Lease.
"New Facility" shall have the meaning specified in Section 28.1 of the
Lease.
"Notes" shall have the meaning specified in Section 1.2 of the Credit
Agreement.
"Occupational Safety and Health Law" shall mean the Occupational Safety and
Health Act of 1970 and any other federal, state or local statute, law,
ordinance, code, rule, regulation, order or decree regulating or relating to, or
imposing liability or standards of conduct concerning, employee health or
safety, as now or at any time hereafter in effect.
"Officer's Certificate" shall mean a certificate signed by any individual
holding the office of vice president or higher, which certificate shall certify
as true and correct the subject matter being certified to in such certificate.
"Operative Agreements" shall mean, collectively, the Participation
Agreement, the Trust Agreement, the Certificates, the Credit Agreement, the
Notes, the Lease (and a memorandum thereof in a form reasonably acceptable to
the Agent), each Lease Supplement (and a memorandum thereof in a form reasonably
acceptable to the Agent), the Security Agreement, the Assignment of Project
Rights, each Ground Lease, each Mortgage Instrument, the Arizona Ground Lease
Documents, and (to the extent set forth therein) any other agreement that states
that it is an Operative Agreement.
"Owner Trustee" shall mean First Security Bank, National Association, not
individually, except as expressly stated in the various Operative Agreements,
but solely as Owner Trustee under the HEALTHSOUTH Corporation Trust 1998-1, and
any successor or replacement Owner Trustee expressly permitted under the
Operative Agreements.
"Participation Agreement" shall mean the Participation Agreement dated as
of the Initial Closing Date, among the Lessee, Deutsche Bank AG New York Branch,
as Documentation Agent, the Owner Trustee, not in its individual capacity except
as expressly stated therein, the Holders, the Lenders and the Agent.
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<PAGE>
"Payment Date" shall mean any Scheduled Interest Payment Date and any date
on which interest or Holder Yield in connection with a prepayment of principal
on the Loans or of the Holder Advances is due under the Credit Agreement or the
Trust Agreement.
"PBGC" shall mean the Pension Benefit Guaranty Corporation created by
Section 4002(a) of ERISA or any successor thereto.
"Pension Plan" means a "pension plan", as such term is defined in Section
3(2) of ERISA, which is subject to Title IV of ERISA (other than a Multiemployer
Plan), and to which the Lessee or any ERISA Affiliate may have any liability,
including any liability by reason of having been a substantial employer within
the meaning of Section 4063 of ERISA at any time during the preceding five
years, or by reason of being deemed to be a contributing sponsor under Section
4069 of ERISA.
"Permitted Exceptions" shall mean:
(i) Liens of the types described in clauses (i), (ii) and (v) of the
definition of Permitted Liens;
(ii) Liens for Taxes not yet due; and
(iii) all encumbrances, exceptions, restrictions, easements, rights of
way, servitudes, encroachments and irregularities in title, other than
Liens which, in the reasonable assessment of the Agent, materially impair
the use of any Property for its intended purpose.
"Permitted Liens" shall mean:
(i) the respective rights and interests of the parties to the
Operative Agreements as provided in the Operative Agreements;
(ii) the rights of any sublessee or assignee under a sublease or an
assignment expressly permitted by the terms of the Lease;
(iii) Liens for Taxes that either are not yet delinquent or are being
contested in accordance with the provisions of Section 13.1 of the Lease;
(iv) Liens arising by operation of law, materialmen's, mechanics',
workmen's, repairmen's, employees', carriers', warehousemen's and other
like Liens relating to the construction of the Improvements or in
connection with any Modifications or arising in the ordinary course of
business for amounts that either are not more than 30 days past due or are
being diligently contested in good faith by appropriate proceedings, so
long as such proceedings satisfy the conditions for the continuation of
proceedings to contest Taxes set forth in Section 13.1 of the Lease;
A-21
<PAGE>
(v) Liens of any of the types referred to in clause (iv) above that
have been bonded for not less than the full amount in dispute (or as to
which other security arrangements satisfactory to the Lessor and the Agent
have been made), which bonding (or arrangements) shall comply with
applicable Legal Requirements, and shall have effectively stayed any
execution or enforcement of such Liens;
(vi) Liens arising out of judgments or awards with respect to which
appeals or other proceedings for review are being prosecuted in good faith
and for the payment of which adequate reserves have been provided as
required by GAAP or other appropriate provisions have been made, so long as
such proceedings have the effect of staying the execution of such judgments
or awards and satisfy the conditions for the continuation of proceedings to
contest Taxes set forth in Section 13.1 of the Lease;
(vii) Liens in favor of municipalities to the extent agreed to by the
Lessor and the Agent; and
(viii) Permitted Exceptions.
"Person" shall mean any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
governmental authority, limited liability company, limited liability partnership
or any other entity.
"Plans and Specifications" shall mean, with respect to Improvements, the
plans and specifications for such Improvements to be constructed or already
existing, as such Plans and Specifications may be amended, modified or
supplemented from time to time in accordance with the terms of the Participation
Agreement.
"Prime Rate" shall have the meaning specified in Section 1.2 of the Credit
Agreement.
"Property" or "Properties" shall mean the Land (as described on Schedule
I-C to the Lease), and each item of Equipment located on such Land (as described
on Schedule 3 to any Requisition delivered to the Lessor and the Agent), and the
various Improvements located on such Land (as described on Schedule 2 to any
Requisition delivered to the Lessor and the Agent).
"Property Acquisition Cost" shall mean the cost to Lessor to purchase a
Property on a Property Closing Date.
"Property Closing Date" shall mean each date on which the Lessor purchases
a Property, or leases the Land included in a Property pursuant to a Ground
Lease.
"Property Cost" shall mean with respect to a Property the aggregate amount
of the Loan Property Cost plus the Holder Property Cost for such Property (as
such amounts shall be increased equally among all Properties respecting the
Holder Advances and the Loans extended
A-22
<PAGE>
from time to time to pay for the Transaction Expenses, fees, taxes, expenses and
other disbursements referenced in Sections 9.1(a) and (b) of the Participation
Agreement).
"Purchase Option" shall have the meaning given to such term in Section 20.2
of the Lease.
"Release" shall mean any release, pumping, pouring, emptying, injecting,
escaping, leaching, dumping, seepage, spill, leek, flow, discharge, disposal or
emission of a Hazardous Substance.
"Renewal Option" shall have the meaning specified in Section 21.1(a) of the
Lease.
"Rent" shall mean, collectively, the Basic Rent and the Supplemental Rent,
in each case payable under the Lease.
"Reportable Event" shall have the meaning specified in ERISA.
"Requested Funds" shall mean any funds requested by the Lessee in
accordance with Section 5 of the Participation Agreement.
"Requirement of Law" shall have the meaning specified in Section 1.2 of the
Credit Agreement.
"Requisition" shall have the meaning specified in Section 4.2 of the
Participation Agreement.
"Responsible Officer" shall mean the Chairman or Vice Chairman of the Board
of Directors, the Chairman or Vice Chairman of the Executive Committee of the
Board of Directors, the President, any Senior Vice President or Executive Vice
President, any Vice President, the Secretary, any Assistant Secretary, the
Treasurer, or any Assistant Treasurer, except that when used with respect to the
Trust Company or the Owner Trustee, "Responsible Officer" shall also include the
Cashier, any Assistant Cashier, any Trust Officer or Assistant Trust Officer,
the Controller and any Assistant Controller or any other officer of the Trust
Company or the Owner Trustee customarily performing functions similar to those
performed by any of the above designated officers and also means, with respect
to a particular corporate trust matter, any other officer to whom such matter is
referred because of his or her knowledge of and familiarity with the particular
subject.
"Sale Date" shall have the meaning given to such term in Section 22.1(a) of
the Lease.
"Sale Notice" shall mean a notice given to Lessor in connection with the
election by Lessee of its Sale Option.
"Sale Option" shall have the meaning given to such term in Section 20.2 of
the Lease.
A-23
<PAGE>
"Scheduled Interest Payment Date" shall have the meaning specified in
Section 1.2 of the Credit Agreement.
"SEC" means the Securities and Exchange Commission of the United States (or
any successor).
"Securities Act" shall mean the Securities Act of 1933, as amended,
together with the rules and regulations promulgated thereunder.
"Security Agreement" shall mean the Security Agreement, dated as of the
Initial Closing Date between the Owner Trustee and the Agent, as such agreement
may be amended, modified, restated or supplemented from time to time in
accordance with the terms thereof.
"Security Documents" shall have the meaning specified in Section 1.2 of the
Credit Agreement.
"Significant Subsidiary" shall have the meaning specified in Section 1.2 of
the Credit Agreement.
"Subordinated Indebtedness" shall have the meaning specified in Section 1.1
of the Existing HEALTHSOUTH Corporation Credit Agreement.
"Subsidiary" shall mean, as to any Person, any corporation or other entity
in which more than 50% of its outstanding voting stock or more than 50% of all
equity interests is owned directly or indirectly by such Person and/or by one or
more of such Persons's Subsidiaries.
"Supplemental Rent" shall mean all amounts, liabilities and obligations
(other than Basic Rent) which the Lessee assumes or agrees to pay to Lessor, the
Holders, the Agent, the Lenders or any other Person under the Lease or under any
of the other Operative Agreements including, without limitation, payments of the
Purchase Option Price, the Termination Value and the Maximum Residual Guarantee
Amount and all indemnification amounts, liabilities and obligations.
"Tangible Personal Property" shall mean all Equipment other than Equipment
consisting of Fixtures or other goods incorporated into or customarily
considered to be part of a building or structure erected on real property (such
as heating, ventilating, air-conditioning, electrical and mechanical equipment
or systems, escalators, elevators, wall and floor coverings, plumbing, pumps,
tanks, conduits, wiring, lighting, security systems, sprinklers and other fire
prevention and extinguishing apparatus).
"Taxes" shall have the meaning specified in the definition of Impositions.
"Term" shall mean the Basic Term and each Extended Term, if any.
A-24
<PAGE>
"Termination Date" shall have the meaning specified in Section 16.2(a) of
the Lease.
"Termination Event" shall mean (a) with respect to any Pension Plan, the
occurrence of a Reportable Event or an event described in Section 4062(e) of
ERISA, (b) the withdrawal of the Lessee or any ERISA Affiliate from a Multiple
Employer Plan during a plan year in which it was a substantial employer (as such
term is defined in Section 4001(a)(2) of ERISA), or the termination of a
Multiple Employer Plan, (c) the distribution of a notice of intent to terminate
a Plan or Multiemployer Plan pursuant to Section 4041(a)(2) or 4041A of ERISA,
(d) the institution of proceedings to terminate a Plan or Multiemployer Plan by
the PBGC under Section 4042 of ERISA, (e) any other event or condition which
might constitute grounds under Section 4042 of ERISA for the termination of, or
the appointment of a trustee to administer, any Plan or Multiemployer Plan, or
(f) the complete or partial withdrawal of the Lessee or any ERISA Affiliate from
a Multiemployer Plan.
"Termination Notice" shall have the meaning specified in Section 16.1 of
the Lease.
"Termination Value" shall mean, as of any date of determination, the sum of
(a) either (i) with respect to all Properties, an amount equal to the aggregate
outstanding Property Cost for all the Properties, or (ii) with respect to a
particular Property, an amount equal to the outstanding Property Cost allocable
to the particular Property in question, plus (b) respecting the amounts
described in each of the foregoing subclause (i) or (ii), as applicable, any and
all accrued interest on the Loans and any and all Holder Yield on the Holder
Advances related to the applicable Property Cost, plus (c) to the extent not
otherwise paid on such date of determination, all other Rent and other amounts
then due and payable for all Properties under the Lease or any other Operative
Agreement (including without limitation all amounts due and payable under
Sections 13.1 or 13.2 of the Participation Agreement and all costs and expenses
referred to in clause FIRST of Section 22.2 of the Lease).
"TMC" shall mean TMC Foundation, an Arizona non-profit corporation.
"Transaction Expenses" shall mean all costs and expenses incurred in
connection with the preparation, execution and delivery of the Operative
Agreements and the transactions contemplated by the Operative Agreements
including without limitation:
(a) the reasonable fees, out-of-pocket expenses and disbursements of
counsel in negotiating the terms of the Operative Agreements and the other
transaction documents, preparing for the closings under, and rendering
opinions in connection with, such transactions and in rendering other
services customary for counsel representing parties to transactions of the
types involved in the transactions contemplated by the Operative
Agreements;
(b) any and all other reasonable fees, charges or other amounts
payable to the Lenders, Agent, the Holders, the Owner Trustee or any broker
which arises under any of the Operative Agreements;
A-25
<PAGE>
(c) any other reasonable fee, out-of-pocket expenses, disbursement or
cost of any party to the Operative Agreements or any of the other
transaction documents; and
(d) any and all Taxes and fees incurred in recording or filing any
Operative Agreement or any other transaction document, any deed,
declaration, mortgage, security agreement, notice or financing statement
with any public office, registry or governmental agency in connection with
the transactions contemplated by the Operative Agreement.
"Trust Agreement" shall mean the Trust Agreement dated as of the Initial
Closing Date between the Holders and the Owner Trustee, as such agreement may be
amended, modified, restated or supplemented from time to time in accordance with
the terms thereof.
"Trust Company" shall mean First Security Bank, National Association in its
individual capacity, and any successor owner trustee under the Trust Agreement,
in each case in its individual capacity.
"Trust Estate" shall have the meaning specified in Section 2.2 of the Trust
Agreement.
"Type" shall mean, as to any Loan, whether it is a Base Rate Loan or a
Eurodollar Loan.
"UCC Financing Statements" shall mean collectively the Lender Financing
Statements and the Lessor Financing Statements.
"Uniform Commercial Code" and "UCC" shall mean the Uniform Commercial Code
as in effect in any applicable jurisdiction.
"United States Bankruptcy Code" shall mean Title 11 of the United States
Code.
"U.S." shall mean the United States of America, its territories, its
possessions and all other areas subject to its jurisdiction.
"Voting Stock" shall mean, with respect to any Person, capital stock issued
by a corporation or equivalent interests in any other Person, the holders of
which are ordinarily, in the absence of contingencies, entitled to vote for the
election of directors (or persons performing similar functions) of such Person,
even though the right to vote may have been suspended by the happening of such a
contingency.
"Withdrawal Liability" shall mean liability to a Multiemployer Plan as a
result of a complete or partial withdrawal from such Multiemployer Plan, as such
terms are defined in Part I of Subtitle E of Title IV of ERISA.
"Work" shall mean the furnishing of labor, materials, components,
furniture, furnishings, fixtures, appliances, machinery, equipment, tools,
power, water, fuel, lubricants, supplies, goods or services with respect to any
Property.
A-26
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SHORT TERM CREDIT AGREEMENT
by and among
HEALTHSOUTH CORPORATION,
as Borrower,
NATIONSBANK, N. A.,
as Administrative Agent,
NATIONSBANC MONTGOMERY SECURITIES LLC,
as Lead Arranger
and
THE LENDERS PARTY HERETO FROM TIME TO TIME
September 28, 1998
---------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
Definitions and Terms
<S> <C>
1.1. Definitions....................................................................2
1.2. Rules of Interpretation.......................................................25
1.3. Classes and Types of Loans....................................................26
ARTICLE II
The Loans
2.1. Loans.........................................................................27
2.2. Payment of Interest...........................................................29
2.3. Payment of Principal..........................................................29
2.4. Non-Conforming Payments.......................................................30
2.5. Notes.........................................................................30
2.6. Pro Rata Payments.............................................................30
2.7. Reductions....................................................................31
2.8. Conversions and Elections of Subsequent Interest Periods......................31
2.9. Unused Fees...................................................................31
2.10. Deficiency Advances...........................................................32
2.11. Use of Proceeds...............................................................32
2.12. Increase and Decrease in Amounts..............................................32
ARTICLE III
Letters of Credit
3.1. Letters of Credit.............................................................33
3.2. Reimbursement.................................................................33
3.3. Letter of Credit Facility Fees................................................36
3.4. Administrative Fees...........................................................37
ARTICLE IV
Change in Circumstances
4.1. Increased Cost and Reduced Return. ...........................................38
4.2. Limitation on Types of Loans..................................................39
i
<PAGE>
4.3. Illegality....................................................................40
4.4. Treatment of Affected Loans...................................................40
4.5. Compensation..................................................................40
4.6. Taxes.........................................................................41
ARTICLE V
Conditions to Making Loans and Issuing Letters of Credi
5.1. Conditions of Initial Advance.................................................43
5.2. Conditions of Loans and Letters of Credit.....................................44
ARTICLE VI
Representations and Warranties
6.1. Organization and Authority....................................................46
6.2. Loan Documents................................................................46
6.3. Solvency......................................................................47
6.4. Subsidiaries..................................................................47
6.5. Ownership Interests...........................................................47
6.6. Financial Condition...........................................................47
6.7. Title to Properties...........................................................48
6.8. Taxes.........................................................................48
6.9. Other Agreements..............................................................48
6.10. Litigation....................................................................49
6.11. Margin Stock..................................................................49
6.12. Investment Company............................................................49
6.13. Patents, Etc..................................................................49
6.14. No Untrue Statement...........................................................50
6.15. No Consents, Etc..............................................................50
6.16. ERISA Requirement.............................................................50
6.17. No Default....................................................................50
6.18. Hazardous Materials...........................................................50
6.19. Employment Matters............................................................50
6.20. RICO..........................................................................51
6.21. Reimbursement from Third Party Payors.........................................51
6.22. Year 2000 Compliance..........................................................51
ARTICLE VII
Affirmative Covenants
7.1. Financial Statements, Reports, Etc............................................52
ii
<PAGE>
7.2. Maintain Properties...........................................................53
7.3. Existence, Qualification, Etc.................................................53
7.4. Regulations and Taxes.........................................................54
7.5. Insurance.....................................................................54
7.6. True Books....................................................................54
7.7. Right of Inspection...........................................................54
7.8. Observe all Laws..............................................................54
7.9. Governmental Licenses.........................................................54
7.10. Covenants Extending to Other Persons..........................................55
7.11. Officer's Knowledge of Default................................................55
7.12. Suits or Other Proceedings....................................................55
7.13. Notice of Discharge of Hazardous Material or Environmental Complaint..........55
7.14. Environmental Compliance......................................................55
7.15. Continuation of Current Business..............................................56
7.16. Management Contracts..........................................................56
7.17. Year 2000 Compliance..........................................................56
ARTICLE VIII
Negative Covenants
8.1. Financial Covenants...........................................................57
8.2. Investments and Loans.........................................................57
8.3. Indebtedness..................................................................57
8.4. Disposition of Assets.........................................................58
8.5. Consolidation or Merger.......................................................58
8.6. Liens.........................................................................58
8.7. Dividends and Distributions...................................................58
8.8. Acquisitions..................................................................58
8.9. Restricted Payments...........................................................58
8.10. Compliance with ERISA.........................................................58
8.11. Fiscal Year...................................................................59
8.12. Dissolution, etc..............................................................59
8.13. Transactions with Affiliates..................................................59
ARTICLE IX
Events of Default and Acceleration
9.1. Events of Default.............................................................61
9.2. Agent to Act..................................................................63
9.3. Cumulative Rights.............................................................64
9.4. No Waiver.....................................................................64
9.5. Allocation of Proceeds........................................................64
iii
<PAGE>
ARTICLE X
The Agent
10.1. Appointment, Powers, and Immunities...........................................65
10.2. Reliance by Agent.............................................................65
10.3. Defaults......................................................................65
10.4. Rights as Lender..............................................................66
10.5. Indemnification...............................................................66
10.6. Non-Reliance on Agent and Other Lenders.......................................66
10.7. Resignation of Agent..........................................................67
10.8. Fees..........................................................................67
ARTICLE XI
Miscellaneous
11.1. Assignments and Participations................................................68
11.2. Notices.......................................................................69
11.3. No Waiver.....................................................................70
11.4. Rights of Setoff; Adjustments.................................................70
11.5. Survival......................................................................71
11.6. Expenses......................................................................71
11.7. Amendments and Waivers........................................................72
11.8. Counterparts..................................................................72
11.9. Waivers by Borrower...........................................................72
11.10. Termination...................................................................73
11.11. Governing Law.................................................................73
11.12. Indemnification...............................................................74
11.13. Agreement Controls............................................................74
11.14. Integration...................................................................75
11.15. Successors and Assigns........................................................75
11.16. Severability..................................................................75
11.17. Usury Savings Clause..........................................................75
EXHIBIT A Applicable Commitment Percentages.......................................A-1
EXHIBIT B Form of Assignment and Acceptance.......................................B-1
EXHIBIT C Notice of Appointment (or Revocation) of Authorized
Representative..........................................................C-1
EXHIBIT D Form of Borrowing Notice................................................D-1
EXHIBIT E Form of Interest Rate Selection Notice..................................E-1
EXHIBIT F Form of Note............................................................F-1
EXHIBIT G Investments.............................................................G-1
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<PAGE>
EXHIBIT H Form of Opinion of Borrower's Counsel.................................H-1
EXHIBIT I Compliance Certificate................................................I-1
EXHIBIT J Executive Officers....................................................J-1
Schedule 6.4 Subsidiaries......................................................... S-1
Schedule 6.13 Patent Issue..........................................................S-2
Schedule 6.19 Employment Matters....................................................S-3
Schedule 8.3 Existing Subsidiary Indebtedness......................................S-4
</TABLE>
v
<PAGE>
SHORT TERM CREDIT AGREEMENT
THIS SHORT TERM CREDIT AGREEMENT dated as of September 28, 1998 (this
"Agreement") is entered into by and among HEALTHSOUTH CORPORATION, a Delaware
corporation (the "Borrower"), NATIONSBANK, N.A., a national banking association
organized and existing under the laws of the United States, in its capacity as a
Lender ("NationsBank"), and each other financial institution executing and
delivering a signature page hereto and each other financial institution which
may hereafter execute and deliver an instrument of assignment with respect to
this Agreement pursuant to Section 11.1 (hereinafter such financial institutions
may be referred to individually as a "Lender" or collectively as the "Lenders"),
and NATIONSBANK, N.A., a national banking association organized and existing
under the laws of the United States, in its capacity as agent for the Lenders
(in such capacity, and together with any successor agent appointed in accordance
with the terms of Section 10.7, the "Agent").
RECITAL:
The Borrower has requested that the Lenders make a short term revolving
credit facility of up to $500,000,000, including a $25,000,000 sublimit for the
issuance of standby letters of credit, to the Borrower, the proceeds of which
shall be used as set forth in Section 2.11, and the Lenders have agreed to make
such short term revolving credit facility available to the Borrower on the
following terms and conditions:
1
<PAGE>
ARTICLE I
Definitions and Terms
1.1. Definitions. For the purposes of this Agreement, in addition to
the definitions set forth above, the following terms shall have the respective
meanings set forth below:
"Acquisition" means the acquisition, whether with cash,
property, stock or promise to pay, of all or a portion of a Person or a
Facility or Facilities of a Person, permitted under Section 8.8;
provided such Person or Facilities is in substantially the same line of
business engaged in by Borrower or its Consolidated Entities.
"Actual/360 Basis" shall mean a method of computing interest
or other charges hereunder on the basis of an assumed year of 360 days
for actual number of days elapsed, meaning that interest or other
charges accrued for each day will be computed by multiplying the rate
applicable on that day by the unpaid principal balance (or other
relevant sum) on that day and dividing the result by 360.
"Advance" means a borrowing under the Short Term Credit
Facility consisting of the aggregate principal amount of a Loan.
"Affiliate" of any specified Person means any other Person (i)
which directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, such
specified Person; or (ii) which beneficially owns or holds 5% or more
of any class of the outstanding voting stock (or in the case of a
Person which is not a corporation, 5% or more of the equity interest)
of such specified Person; or 5% or more of any class of the outstanding
voting stock (or in the case of a Person which is not a corporation, 5%
or more of the equity interest) of which is beneficially owned or held
by such specified Person. The term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction
of the management and policies of a Person, whether through ownership
of voting stock, by contract or otherwise.
"Applicable Commitment Percentage" means, with respect to each
Lender, that portion of the Total Short Term Credit Commitment
allocable to such Lender (a) with respect to Lenders as of the Closing
Date, as set forth on Exhibit A, and (b) with respect to any Person who
becomes a Lender thereafter, as reflected in each Assignment and
Acceptance to which such Lender is a party assignee; provided that the
Applicable Commitment Percentage of each Lender shall be increased or
decreased to reflect any assignments to or by such Lender effected in
accordance with Section 11.1.
"Applicable Lending Office" means, for each Lender and for
each Type of Loan, the "Lending Office" of such Lender (or an affiliate
of such Lender) designated for such Type of Loan on the signature pages
hereof or such other office of such Lender (or an affiliate of such
Lender) as such Lender may from time to time specify to the Agent and
the Borrower
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by written notice in accordance with the terms hereof as the office by
which its Loans of such Type are to be made and maintained.
"Applicable Margin" means that number of basis points per
annum set forth below determined based upon the more favorable to the
Borrower of either (i) the highest Rating of outstanding senior
unsecured Indebtedness of the Borrower from time to time as specified
in Table I below (provided that in the event of a Rating split between
Tiers, then the Tier next above the Tier corresponding to the lower
Rating shall apply) or (ii) the ratio of Consolidated Indebtedness at
the date of determination to Consolidated EBITDA for the Four-Quarter
Period most recently ended as specified in Table II below:
================================================================================
TABLE I
Tier Rating Applicable Margin
S&P or Moody's
I A- A3 40 b.p.
II BBB+ Baa1 45
III BBB Baa2 50
IV BBB- Baa3 60
V BB+ Ba1 80
VI BB Ba2 115
or lower or lower
================================================================================
================================================================================
TABLE II
Tier Ratio of Consolidated Indebtedness to Applicable Margin
Consolidated EBITDA
I Less than 1.50 to 1.00 45 b.p.
II Equal to or greater than 1.50 to 1.00 50
but less than 2.00 to 1.00
III Equal to or greater than 2.00 to 1.00 60
but less than 2.50 to 1.00
IV Equal to or greater than 2.50 to 1.00 80
but less than 3.00 to 1.00
V Equal to or greater than 3.00 to 1.00 115
================================================================================
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; provided, however, that any time during which the sum of Short Term
Credit Outandings, and Letter of Credit Outstandings exceed
$166,666,500, 7.5 basis points shall automatically be added to the
Applicable Margin set forth in Tables I and II above; provided,
further, that any time during which the sum of Short Term Credit
Outstandings and Letter of Credit Outstandings exceed $333,333,000,
another 7.5 basis points (in addition to the 7.5 basis points added
pursuant to the preceding proviso) shall automatically be added to the
Applicable Margin set forth in Tables I and II above.
The Applicable Margin shall be established in the case of a Rating from
time to time based upon the Rating then in effect and, in the case of
the ratio, at the end of each fiscal quarter of the Borrower (the
"Ratio Determination Date"). Any change in the Applicable Margin
following each Ratio Determination Date shall be determined based upon
the computations set forth in the Compliance Certificate, subject to
review and approval of such computations by the Agent, and shall be
effective commencing on the date following the date such certificate is
received until the date following the date on which a new Compliance
Certificate is delivered or is required to be delivered, whichever
shall first occur; provided however, if the Borrower shall fail to
deliver any such certificate within the time period required by Section
7.1, then the Applicable Margin shall be 2% until the appropriate
certificate is so delivered. From the Closing Date to the first Ratio
Determination Date, the Applicable Margin shall be 50 basis points
(subject to the provisos in the first sentence of this definition).
"Applicable Unused Fee" means that number of basis points per
annum set forth below determined based upon the more favorable to the
Borrower of either (i) the highest Rating of outstanding senior
unsecured Indebtedness of the Borrower from time to time as specified
in Table III below (provided that in the event of a Rating split
between Tiers, then the Tier next above the Tier corresponding to the
lower Rating shall apply) or (ii) the ratio of Consolidated
Indebtedness at the date of determination to Consolidated EBITDA for
the Four-Quarter Period most recently ended as specified in Table IV
below:
================================================================================
TABLE III
Tier Rating Applicable Unused
S&P or Moody's Fee
I A- A3 9.0 b.p.
II BBB+ Baa1 10.0
III BBB Baa2 12.5
IV BBB- Baa3 15.0
V BB+ Ba1 20.0
VI BB Ba2 25.0
or lower or lower
================================================================================
4
<PAGE>
================================================================================
TABLE IV
Tier Ratio of Consolidated Indebtedness to Applicable Unused
Consolidated EBITDA Fee
I Less than 1.50 to 1.00 10.0 b.p.
II Equal to or greater than 1.50 to 1.00 12.5
but less than 2.00 to 1.00
III Equal to or greater than 2.00 to 1.00 15.0
but less than 2.50 to 1.00
IV Equal to or greater than 2.50 to 1.00 20.0
but less than 3.00 to 1.00
V Equal to or greater than 3.00 to 1.00 25.0
================================================================================
The Applicable Unused Fee shall be established in the case of a Rating
from time to time based upon the Rating then in effect, and in the case
of the ratio, at the end of each fiscal quarter of the Borrower (the
"Ratio Determination Date"). Any change in the Applicable Unused Fee
following each Ratio Determination Date shall be determined based upon
the computations set forth in the Compliance Certificate, subject to
review and approval of such computations by the Agent and shall be
effective commencing on the date following the date such certificate is
received until the date following the date on which a new Compliance
Certificate is delivered or is required to be delivered, whichever
shall first occur; provided however, if the Borrower shall fail to
deliver any such certificate within the time period required by Section
7.1, then the Applicable Unused Fee shall be 2%. From the Closing Date
to the first Ratio Determination Date, the Applicable Unused Fee shall
be 12.5 basis points.
"Applications and Agreements for Letters of Credit" means,
collectively, the Applications and Agreements for Letters of Credit, or
similar documentation, executed by the Borrower from time to time and
delivered to the Issuing Bank to support the issuance of Letters of
Credit.
"Assignment and Acceptance" shall mean an Assignment and
Acceptance in the form of Exhibit B (with blanks appropriately filled
in) delivered to the Agent in connection with an assignment of a
Lender's interest under this Agreement pursuant to Section 11.1.
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<PAGE>
"Authorized Representative" means any of the Executive
Officers of the Borrower or, with respect to financial matters, the
Treasurer or the Chief Financial Officer of the Borrower, or any other
Person expressly designated by the Board of Directors of the Borrower
(or the appropriate committee thereof) as an Authorized Representative
of the Borrower, as set forth from time to time in a certificate in the
form of Exhibit C.
"Base Rate" means, for any day, the rate per annum equal to
the higher of (i) the Prime Rate for such day or (ii) the Federal Funds
Rate for such day plus one-half of one percent (1/2%). Any change in
the Base Rate due to a change in the Prime Rate or the Federal Funds
Rate shall be effective on the effective date of such change in the
Prime Rate or Federal Funds Rate.
"Base Rate Loan" means a Loan for which the rate of interest
is determined by reference to the Base Rate.
"Base Rate Refunding Loan" means an Advance under the Short
Term Credit Facility which bears interest at a Base Rate made to
satisfy Reimbursement Obligations arising from a drawing under a Letter
of Credit.
"Board" means the Board of Governors of the Federal Reserve
System (or any successor body).
"Borrowing Notice" means the notice delivered by an Authorized
Representative in connection with an Advance under the Short Term
Credit Facility, in the form of Exhibit D.
"Business Day" means, (i) except in the case of a Eurodollar
Rate Loan, any day which is not a Saturday, Sunday or a day on which
banks in the States of New York and North Carolina are authorized or
obligated by law, executive order or governmental decree to be closed
and, (ii) with respect to any Eurodollar Rate Loan, any day which is a
Business Day, as described above, and on which the relevant
international financial markets are open for the transaction of
business contemplated by this Agreement in London, England, New York,
New York and Charlotte, North Carolina.
"Capital Leases" means all leases which have been or should be
capitalized in accordance with GAAP as in effect from time to time
including Statement No. 13 of the Financial Accounting Standards Board
and any successor thereof.
"Capital Stock" of any Person means any and all shares, rights
to purchase, warrants or options (whether or not currently
exercisable), participation or other equivalents of or interest in
(however designated) the equity (including without limitation common
stock, preferred stock and partnership and joint venture interests) of
such Person (excluding any debt securities that are convertible into,
or exchangeable for, such equity).
"Change of Control" means, at any time:
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<PAGE>
(i) any "person" or "group" (each as used in Sections
13(d)(3) and 14(d)(2) of the Exchange Act), who are not as of
the Closing Date owners of one percent (1%) or more of the
Voting Stock of the Borrower, either (A) becomes the
"beneficial owner" (as defined in Rule 13d-3 of the Exchange
Act), directly or indirectly, of Voting Stock of the Borrower
(or securities convertible into or exchangeable for such
Voting Stock) representing 15% or more of the combined voting
power of all Voting Stock of the Borrower (on a fully diluted
basis) or (B) otherwise has the ability, directly or
indirectly, to elect a majority of the board of directors of
the Borrower;
(ii) during any period of up to 24 consecutive
months, commencing on the Closing Date, individuals who at the
beginning of such period were directors of the Borrower shall
cease for any reason (other than the death, disability or
retirement of an officer of the Borrower that is serving as a
director at such time so long as another officer of the
Borrower replaces such Person as a director) to constitute a
majority of the board of directors of the Borrower; or
(iii) any Person or two or more Persons acting in
concert shall have acquired by contract or otherwise, or shall
have entered into a contract or arrangement that, upon
consummation thereof, will result in its or their acquisition,
of the power to exercise, directly or indirectly, a
controlling influence on the management or policies of the
Borrower.
"Closing Date" means the date as of which this Agreement is
executed by the Borrower, the Lenders and the Agent and on which the
conditions set forth in Section 5.1 have been satisfied.
"Code" means the Internal Revenue Code of 1986, as amended,
and any regulations promulgated thereunder.
"Common Stock" means the common stock, par value $.01 per
share, of the Borrower.
"Compliance Certificate" shall have the meaning attributed to
that term in Section 7.1(c).
"Consistent Basis" in reference to the application of GAAP
means the accounting principles observed in the period referred to are
comparable in all material respects to those applied in the preparation
of the audited financial statements of the Borrower referred to in
Section 6.6(a).
"Consolidated Amortization Expense" of the Borrower for any
period means the amortization expense of the Borrower and its
Consolidated Entities for such period (to the
7
<PAGE>
extent included in the computation of Consolidated Net Income),
determined on a consolidated basis in accordance with GAAP.
"Consolidated Depreciation Expense" of the Borrower means the
depreciation expense of the Borrower and its Consolidated Entities for
such period (to the extent included in the computation of Consolidated
Net Income of the Borrower), determined on a consolidated basis in
accordance with GAAP.
"Consolidated EBITDA" means, with respect to the Borrower and
its Consolidated Entities for any Four-Quarter Period ending on the
date of computation thereof, the sum of, without duplication, (i)
Consolidated Net Income, (ii) Consolidated Interest Expense, (iii)
Consolidated Income Tax Expense, (iv) Consolidated Amortization
Expense, (v) Consolidated Depreciation Expense and (vi) the minority
interest of any Person or Persons in the income of Consolidated
Entities for such period, all determined on a consolidated basis in
accordance with GAAP applied on a Consistent Basis.
"Consolidated Entity" shall mean any Person whose financial
statements are appropriately consolidated with the Borrower's financial
statements under GAAP.
"Consolidated Indebtedness" means all Indebtedness of the
Borrower and its Consolidated Entities, all determined on a
consolidated basis.
"Consolidated Interest Expense" means, with respect to any
Four-Quarter Period ending on the date of computation thereof, the
gross interest expense of the Borrower and its Consolidated Entities,
including without limitation (i) the current amortized portion of debt
discounts to the extent included in gross interest expense, (ii) the
current amortized portion of all fees (including fees payable in
respect of any Rate Hedging Obligation) payable in connection with the
incurrence of Indebtedness to the extent included in gross interest
expense, (iii) the portion of any payments made in connection with
Capital Leases allocable to interest expense, and (iv) lease payments,
other than the Headquarters Obligations, made pursuant to the
Headquarters Lease, all determined on a consolidated basis in
accordance with GAAP applied on a Consistent Basis.
"Consolidated Net Income" of the Borrower for any period means
the net income (or loss) of the Borrower and its Consolidated Entities
for such period determined on a consolidated basis in accordance with
GAAP, without giving effect to dividends on any series of preferred
stock of any Consolidated Entity, whether or not in cash, to the extent
such consolidated net income was reduced thereby; provided that there
shall be excluded from such net income (for all purposes, other than
compliance with Section 8.1(a), to the extent otherwise included
therein), without duplication, (i) the net income of any Person (other
than a Consolidated Entity) to the extent that any such income has not
actually been received by the Borrower or a Consolidated Entity in the
form of dividends or similar distributions during such period, but
including, in any event, net income of any Person who becomes a
Consolidated Entity whose Acquisition is accounted for on a "pooling of
8
<PAGE>
interests" basis; (ii) except to the extent includable in the
consolidated net income of the Borrower or a Consolidated Entity
pursuant to the foregoing clause (i), the net income of any Person that
accrued prior to the date that (a) such Person becomes a Consolidated
Entity or is merged into or consolidated with a Consolidated Entity or
(b) the assets of such Person are acquired by the Borrower or a
Consolidated Entity; (iii) the net income of any Consolidated Entity to
the extent that the declaration or payment of dividends or similar
distributions by such Consolidated Entity of that income is not
permitted by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Consolidated Entity during such period;
(iv) any gain (or loss), together with any related provisions for taxes
on any such gain, realized during such period by the Borrower or its
Consolidated Entities upon (a) the acquisition of any securities, or
the extinguishment of any Indebtedness, of the Borrower or its
Consolidated Entities or (b) any asset sale by the referent person or
any of its Subsidiaries; (v) any extraordinary gain (or extraordinary
loss), together with any related provision for taxes or tax benefit
resulting from any such extraordinary gain or loss, realized by the
Borrower or its Consolidated Entities during such period; and (vi) in
the case of a successor to any Person by consolidation, merger or
transfer of its assets, any earnings of the successor prior to such
merger, consolidation or transfer of assets; provided, further,
however, that there shall be added back to net income non-recurring,
non-cash expenses and cash transaction costs relating to professional
fees arising in conjunction with an Acquisition provided such expenses
do not exceed 10% of the Cost of Acquisition.
"Consolidated Net Worth" of the Borrower as of any date means
the Consolidated Stockholders' Equity (including any preferred stock
that is classified as equity under GAAP, other than Disqualified Stock)
of the Borrower and its Consolidated Entities (excluding any equity
adjustment for foreign currency translation for any period subsequent
to the Closing Date) on a consolidated basis at such date, as
determined in accordance with GAAP, less all write-ups subsequent to
the Closing Date in the book value of any asset owned by the Borrower
or any of its Consolidated Entities.
"Consolidated Stockholders' Equity" shall mean at any time as
at which the amount thereof is to be determined, the sum of the
following amounts in respect of the Borrower and the Consolidated
Entities: (i) the par or stated value of all Capital Stock of the
Borrower, (ii) retained earnings, (iii) additional paid in capital,
(iv) capital surplus and (v) earned surplus minus treasury stock.
"Consolidated Tangible Net Worth" means, as of any date on
which the amount thereof is to be determined, Consolidated
Stockholders' Equity minus (without duplication of deductions in
respect of items already deducted in arriving at surplus and retained
earnings) (i) all reserves (other than contingency reserves not
allocated to any particular purpose), including without limitation
reserves for depreciation, depletion, amortization, obsolescence,
deferred income taxes, insurance and inventory valuation and (ii) the
net book value of all assets which would be treated as intangible
assets, such as (without limitation) goodwill (whether representing the
excess of cost over book value of assets acquired or
9
<PAGE>
otherwise), capitalized expenses, unamortized debt discount and
expense, consignment inventory rights, patents, trademarks, trade
names, copyrights, franchises and licenses, all as determined on a
consolidated basis in accordance with GAAP applied on a Consistent
Basis.
"Consolidated Total Assets" means, as of any date on which the
amount thereof is to be determined, the net book value of all assets of
the Borrower and its Consolidated Entities as determined on a
consolidated basis in accordance with GAAP applied on a Consistent
Basis.
"Consolidated Total Capital" means, as of any date on which
the amount thereof is to be determined, the sum of Consolidated
Indebtedness plus Consolidated Stockholders' Equity of the Borrower and
its Consolidated Entities.
"Continue", "Continuation", and "Continued" shall refer to the
continuation pursuant to Section 2.8 hereof of a Eurodollar Rate Loan
of one Type as a Eurodollar Rate Loan of the same Type from one
Interest Period to the next Interest Period.
"Convert", "Conversion" and "Converted" shall refer to a
conversion pursuant to Section 2.8 or Article IV of one Type of Loan
into another Type of Loan.
"Contract Provider" means any Person who provides professional
health care services under or pursuant to any contract with the
Borrower or any Subsidiary.
"Controlled Partnership" shall mean a general partnership of
which the Borrower or a Subsidiary is a general partner (but not
including Alabama World Football), or a limited partnership whose
general partners include the Borrower or a Subsidiary (but not
including Vanderbilt), or a limited liability company whose members
include the Borrower or a Subsidiary or another Controlled Partnership,
which partnership, whether general or limited, or limited liability
company has assets with a value in excess of $2,000.00, and with
respect to which partnership or limited liability company the Borrower
or a Subsidiary is entitled to receive not less than 50% of any
distributions of cash made to the partners or members thereof, other
than any preferred cash distribution arrangement in existence at the
Closing Date or approved by the Required Lenders in writing, or which
is otherwise a Consolidated Entity.
"Cost of Acquisition" means, in respect of any Acquisition,
the sum of (i) the amount of cash paid by the Borrower and its
Consolidated Entities in connection with such Acquisition, (ii) the
Fair Market Value of all Capital Stock or other ownership interests of
the Borrower or any Consolidated Entity issued or given in connection
with such Acquisition, (iii) the amount (determined by using the face
amount or the amount payable at maturity, whichever is greater) of all
Indebtedness incurred, assumed or acquired in connection with such
Acquisition, (iv) all additional purchase price amounts in the form of
earnouts and other contingent obligations that should be recorded on
the financial statements
10
<PAGE>
of the Borrower and its Consolidated Entities in connection with
Generally Accepted Accounting Principles, (v) all amounts paid in
respect of covenants not to compete, consulting agreements and other
affiliated contracts in connection with such Acquisition and (vi) the
aggregate fair market value of all other consideration given by the
Borrower and its Consolidated Entities in connection with such
Acquisition.
"Default" means any event or condition which, with the giving
or receipt of notice or lapse of time or both, would constitute an
Event of Default.
"Default Rate" means (i) with respect to each Eurodollar Rate
Loan, until the end of the Interest Period applicable thereto, a rate
of two percent (2%) plus the Eurodollar Rate applicable to such Loan,
and thereafter at a rate of interest per annum which shall be two
percent (2%) plus the Base Rate, (ii) with respect to Base Rate Loans,
at a rate of interest per annum which shall be two percent (2%) plus
the Base Rate and (iii) in any case, the maximum rate permitted by
applicable law, if lower.
"Disqualified Stock" means any Capital Stock that, by its
terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event,
matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder
thereof, in whole or in part, on or prior to the Short Term Credit
Termination Date.
"Dollars" and the symbol "$" mean dollars constituting legal
tender for the payment of public and private debts in the United States
of America.
"Eligible Assignee" means (i) a Lender, (ii) an affiliate of a
Lender, and (iii) any other Person approved by the Agent and, unless an
Event of Default has occurred and is continuing at the time any
assignment is effected in accordance with Section 11.1, the Borrower,
such approval not to be unreasonably withheld or delayed by the
Borrower or the Agent and such approval to be deemed given by the
Borrower if no objection is received by the assigning Lender and the
Agent from the Borrower within two Business Days after written notice
of such proposed assignment has been provided by the assigning Lender
to the Borrower; provided, however, that neither the Borrower nor an
affiliate of the Borrower shall qualify as an Eligible Assignee.
"Employee Benefit Plan" means any employee benefit plan within
the meaning of Section 3(3) of ERISA which (i) is maintained for
employees of the Borrower or any of its ERISA Affiliates or is assumed
by the Borrower or any of its ERISA Affiliates in connection with any
Acquisition or (ii) has at any time been maintained for the employees
of the Borrower or any current or former ERISA Affiliate.
"Environmental Laws" means any federal, state or local
statute, law, ordinance, code, rule, regulation, order, decree, permit
or license regulating, relating to, or imposing liability or standards
of conduct concerning any environmental matters or conditions,
environmental
11
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protection or conservation, including without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended; the Superfund Amendments and Reauthorization Act of
1986, the Resource Conservation and Recovery Act, as amended; the Toxic
Substances Control Act, as amended; the Clean Air Act, as amended; the
Clean Water Act, as amended; together with all regulations promulgated
thereunder, and any other "Superfund" or "Superlien" law.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and any successor statute and all
rules and regulations promulgated thereunder.
"ERISA Affiliate", as applied to the Borrower, means any
Person or trade or business which is a member of a group which is under
common control with the Borrower, who together with the Borrower, is
treated as a single employer within the meaning of Section 414(b) and
(c) of the Code.
"Eurodollar Rate" means the interest rate per annum calculated
according to the following formula:
Eurodollar = Interbank Offered Rate + Applicable
----------------------
Rate 1- Reserve Requirement Margin
"Eurodollar Rate Loan" means a Loan for which the rate of
interest is determined by reference to the Eurodollar Rate.
"Event of Default" means any of the occurrences set forth as
such in Section 9.1.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the regulations promulgated thereunder.
"Executive Officer" means any Person who from time to time
holds the offices with Borrower listed on Exhibit J.
"Existing Availability" means that, at any point in time,
there shall be available to the Borrower under the Existing Credit
Agreement for borrowing or issuance of letters of credit an amount of
$5,000,000 or more.
"Existing Credit Agreement" means the Credit Agreement dated
June 23, 1998 among the Borrower, NationsBank, N.A. as agent, and the
lenders party thereto from time to time, as amended, modified,
supplemented or amended and restated.
"Facility" shall mean an inpatient or outpatient
rehabilitation facility, certified outpatient rehabilitation facility,
skilled nursing facility, specialty medical center, specialty
orthopedic hospital or acute care hospital, subacute inpatient
facility, transitional living
12
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center, medical office building, outpatient surgery center or
outpatient diagnostic center with all buildings and improvements
associated therewith, that is owned or leased, in whole or part, by the
Borrower or a Subsidiary or any Controlled Partnership.
"Fair Market Value" shall mean, with respect to any capital
stock or other ownership interests issued or given by the Borrower or
any Consolidated Entity in connection with an Acquisition, (i) in the
case of capital stock that is Common Stock and such Common Stock is
then designated as a national market system security by the National
Association of Securities Dealers, Inc. ("NASD") or is listed on a
national securities exchange, the average of the last reported bid and
ask quotations or prices reported thereon for Common Stock or such
other value as may be ascribed to the Common Stock in a definitive
merger or acquisition agreement provided such value is determined
according to customary methods for like transactions and is approved
(to the extent required by Borrower's charter or bylaws) by the
Borrower's Board of Directors or (ii) in the case of capital stock that
is not Common Stock or in the event that Common Stock is not so
designated by NASD or listed on such national exchange, or in the case
of any other ownership interests, the determination of the fair market
value thereof in good faith by a majority of disinterested members of
the board of directors of the Borrower or such Consolidated Entity, in
each case effective as of the close of business on the Business Day
immediately preceding the closing date of such Acquisition.
"Federal Funds Rate" means, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100th of 1%) equal to
the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by
Federal funds brokers on such day, as published by the Federal Reserve
Bank of New York on the Business Day next succeeding such day, provided
that (a) if such day is not a Business Day, the Federal Funds Rate for
such day shall be such rate on such transactions on the next preceding
Business Day as so published on the next succeeding Business Day, and
(b) if no such rate is so published on such next succeeding Business
Day, the Federal Funds Rate for such day shall be the average rate
charged to the Agent (in its individual capacity) on such day on such
transaction as determined by the Agent.
"Fiscal Year" means, with respect to the Borrower, the twelve
month fiscal period of the Borrower commencing on January 1 of each
calendar year and ending on December 31 of each calendar year.
"Four-Quarter Period" means a period of four full consecutive
fiscal quarters of the Borrower and its Subsidiaries, taken together as
one accounting period.
"GAAP" or "Generally Accepted Accounting Principles" means
generally accepted accounting principles, being those principles of
accounting set forth in pronouncements of the Financial Accounting
Standards Board or the American Institute of Certified Public
Accountants or which have other substantial authoritative support and
are applicable in the circumstances as of the date of a report.
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"Governmental Authority" shall mean any Federal, state,
municipal, national or other governmental department, commission,
board, bureau, court, agency or instrumentality or political
subdivision thereof or any entity or officer exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to any government or any court, in each case whether
associated with a state of the United States, the United States, or a
foreign entity or government.
"Guaranteed Obligations" of any Person shall mean all
guaranties (including guaranties of guaranties and guaranties of
dividends and other monetary obligations), endorsements, assumptions
and other contingent obligations with respect to, or to purchase or to
otherwise pay or acquire, Indebtedness of others; provided, however,
that such term shall not include obligations under leases and other
contracts initially incurred directly by another Person and
subsequently directly assumed by the Person in question, but such term
shall include obligations that, if the same had been initially incurred
directly by the Person in question, would have constituted Guaranteed
Obligations.
"Hazardous Material" means and includes any pollutant,
contaminant, or hazardous, toxic or dangerous waste, substance or
material (including without limitation petroleum products,
asbestos-containing materials, and lead), the generation, handling,
storage, disposal, treatment or emission of which is subject to any
Environmental Law.
"HCFA" means the United States Health Care Financing
Administration and any successor thereto.
"Headquarters Lease" means the Lease Agreement between
HEALTHSOUTH Holdings, Inc., as Lessee, and First Security Bank of Utah,
N.A., as Lessor, dated as of November 16, 1995 providing for the lease
to HEALTHSOUTH Holdings, Inc. of the land and improvements thereon
located on the property described therein, as such Lease Agreement may
be amended, modified, supplemented or restated in its entirety from
time to time.
"Headquarters Obligations" means all of the Holder Advances
and Loans, as each such term is defined in the Participation Agreement.
"Indebtedness" of any Person at any date means, without
duplication: (i) all indebtedness of such Person for borrowed money
(whether or not the recourse of the lender is to the whole of the
assets of such Person or only to a portion thereof); (ii) all
obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments; (iii) all obligations (contingent or
otherwise) of such Person in respect of letters of credit or other
similar instruments (or reimbursement obligations with respect
thereto); (iv) all obligations of such Person with respect to Rate
Hedging Obligations (other than those that fix the interest rate on
variable rate indebtedness otherwise permitted hereunder or that
protect the Borrower and or its Consolidated Entities against changes
in foreign exchange rates); (v) obligations of such Person to pay the
deferred and unpaid purchase price of property or
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services, except trade payables and accrued expenses incurred in the
ordinary course of business; (vi) all Capitalized Lease Obligations of
such Person; (vii) all indebtedness of others secured by a Lien on any
assets of such Person, whether or not such indebtedness is assumed by
such Person; (viii) all Guaranteed Obligations; (ix) the Headquarters
Obligations; and (x) all obligations of a like nature to those
described in clauses (i) through (ix) above of a partnership of which
such Person is a general partner or of a limited liability company of
which such Person is a member. The amount of Indebtedness of any Person
at any date shall be the outstanding balance at such date of all
unconditional obligations as described above, the maximum liability of
such Person for any such contingent obligations at such date and, in
the case of clause (vii), the amount of the Indebtedness secured.
"Interbank Offered Rate" means, for any Eurodollar Rate Loan
for the Interest Period applicable thereto, the rate per annum (rounded
upwards, if necessary, to the nearest one-one hundredth (1/100) of one
percent) appearing on Dow Jones Telerate Page 3750 (or any successor
page) as the London interbank offered rate for deposits in Dollars at
approximately 11:00 a.m. (London time) two Business Days prior to the
first day of such Interest Period for a term comparable to such
Interest Period. If for any reason such rate is not available, the term
"Interbank Offered Rate" shall mean, for any Eurodollar Rate Loan for
the Interest Period applicable thereto, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters
Screen LIBO Page as the London interbank offered rate for deposits in
Dollars at approximately 11:00 a.m. (London time) two Business Days
prior to the first day of such Interest Period for a term comparable to
such Interest Period; provided, however, if more than one rate is
specified on Reuters Screen LIBO Page, the applicable rate shall be the
arithmetic mean of all such rates (rounded upwards, if necessary, to
the nearest 1/100 of 1%).
"Interest Period" means, with respect to any Eurodollar Rate
Loan, each period commencing on the date such Eurodollar Rate Loan is
made or Converted from a Loan of another Type or the last day of the
next preceding Interest Period for such Loan and ending on the
numerically corresponding day in the first, second, third or sixth
calendar month thereafter, as the Borrower may select as provided in
Section 2.2, except that each Interest Period that commences on the
last Business Day of a calendar month (or on any day for which there is
no numerically corresponding day in the appropriate subsequent calendar
month) shall end on the last Business Day of the appropriate subsequent
calendar month. Notwithstanding the foregoing: (i) if any Interest
Period for any Eurodollar Rate Loan would otherwise end after the Short
Term Credit Termination Date, such Interest Period shall end on the
Short Term Credit Termination Date; (ii) each Interest Period that
would otherwise end on a day which is not a Business Day shall end on
the next succeeding Business Day (or, in the case of an Interest Period
for a Eurodollar Rate Loan if such next succeeding Business Day falls
in the next succeeding calendar month, on the next preceding Business
Day); and (iii) notwithstanding clauses (i) and (ii) above, no Interest
Period for any Loan shall have a duration of less than one month (in
the case of a Eurodollar Rate Loan) and, if the Interest Period for any
Eurodollar Rate Loan would otherwise be a shorter period, such Loan
shall not be available hereunder for such period.
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<PAGE>
"Interest Rate Selection Notice" means the written notice
delivered by an Authorized Representative in connection with the
election of a subsequent Interest Period for any Eurodollar Rate Loan
or the Conversion of any Eurodollar Rate Loan into a Base Rate Loan or
the Conversion of any Base Rate Loan into a Eurodollar Rate Loan, in
the form of Exhibit E.
"Issuing Bank" means NationsBank as issuer of Letters of
Credit under Article III.
"LC Account Agreement" means the LC Account Agreement dated as
of the date hereof between the Borrower and the Issuing Bank, as
amended, modified or supplemented from time to time.
"Letter of Credit" means a standby letter of credit issued by
the Issuing Bank pursuant to Article III for the account of the
Borrower in favor of a Person advancing credit or securing an
obligation on behalf of the Borrower.
"Letter of Credit Commitment" means, with respect to each
Lender, the obligation of such Lender to acquire Participations in
respect of Letters of Credit and Reimbursement Obligations up to an
aggregate amount at any one time outstanding equal to such Lender's
Applicable Commitment Percentage of the Total Letter of Credit
Commitment as the same may be increased or decreased from time to time
pursuant to this Agreement.
"Letter of Credit Facility" means the facility described in
Article III providing for the issuance by the Issuing Bank for the
account of the Borrower of Letters of Credit in an aggregate stated
amount at any time outstanding not exceeding, together with all
Reimbursement Obligations, the Total Letter of Credit Commitment.
"Letter of Credit Outstandings" means, as of any date of
determination, the aggregate amount remaining undrawn under all Letters
of Credit plus Reimbursement Obligations then outstanding.
"Lien" means any interest in property securing any obligation
owed to, or a claim by, a Person other than the owner of the property,
whether such interest is based on the common law, statute or contract,
and including but not limited to the lien or security interest arising
from a mortgage, encumbrance, pledge, security agreement, conditional
sale or trust receipt or a lease, consignment or bailment for security
purposes. For the purposes of this Agreement, the Borrower and any
Subsidiary shall be deemed to be the owner of any property which it has
acquired or holds subject to a conditional sale agreement, financing
lease, or other arrangement pursuant to which title to the property has
been retained by or vested in some other Person for security purposes.
"Loan" or "Loans" means any borrowing made pursuant to an
Advance under the Short Term Credit Facility in accordance with Section
2.1(a) and all extensions and renewals thereof.
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"Loan Documents" means this Agreement, the Notes, the LC
Account Agreement, the Applications and Agreements for Letter of Credit
and all other instruments and documents heretofore or hereafter
executed or delivered to or in favor of any Lender or the Agent in
connection with the Loans made, Letters of Credit issued and
transactions contemplated under this Agreement, as the same may be
amended, supplemented or replaced from time to time.
"Material Adverse Effect" means a material adverse effect on
(i) the business, properties, operations or condition, financial or
otherwise, of the Borrower and its Consolidated Entities, taken as a
whole, (ii) the ability of the Borrower to pay or perform its
obligations, liabilities and indebtedness under the Loan Documents as
such payment or performance becomes due in accordance with the terms
thereof, or (iii) the rights, powers and remedies of the Agent or any
Lender under any Loan Document or the validity, legality or
enforceability thereof (including for purposes of clauses (ii) and
(iii) the imposition of burdensome conditions thereon).
"Material Group" shall mean, at any time, any group, whether
one or more, or combination of Consolidated Entities (a) whose assets,
in the aggregate, constitute 5% or more of the assets of the Borrower
and the Consolidated Entities on a consolidated basis or (b) whose net
revenues, in the aggregate, constitute 5% or more of the net revenues
of the Borrower and the Consolidated Entities on a consolidated basis.
"Medicaid Certification" means certification by HCFA or a
state agency or entity under contract with HCFA that a health care
operation is in compliance with all the conditions of participation set
forth in the Medicaid Regulations.
"Medicaid Provider Agreement" means an agreement entered into
between a state agency or other entity administering the Medicaid
program and a health care operation under which the health care
operation agrees to provide services for Medicaid patients in
accordance with the terms of the agreement and Medicaid Regulations.
"Medicaid Regulations" means, collectively, (i) all federal
statutes (whether set forth in Title XIX of the Social Security Act or
elsewhere) affecting the medical assistance program established by
Title XIX of the Social Security Act and any statutes succeeding
thereto; (ii) all applicable provisions of all federal rules,
regulations, manuals and orders of all Governmental Authorities
promulgated pursuant to or in connection with the statutes described in
clause (i) above and all federal administrative, reimbursement and
other guidelines of all Governmental Authorities having the force of
law promulgated pursuant to or in connection with the statutes
described in clause (i) above; (iii) all state statutes and plans for
medical assistance enacted in connection with the statutes and
provisions described in clauses (i) and (ii) above; and (iv) all
applicable provisions of all rules, regulations, manuals and orders of
all Governmental Authorities promulgated pursuant to or in connection
with the statutes described in clause (iii) above and all state
administrative, reimbursement and other guidelines of all Governmental
Authorities having the force of law
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<PAGE>
promulgated pursuant to or in connection with the statutes described in
clause (ii) above, in each case as may be amended, supplemented or
otherwise modified from time to time.
"Medicare Certification" means certification by HCFA or a
state agency or entity under contract with HCFA that a health care
operation is in compliance with all the conditions of participation set
forth in the Medicare Regulations.
"Medicare Provider Agreement" means an agreement entered into
between a state agency or other entity administering the Medicare
program and a health care operation under which the health care
operation agrees to provide services for Medicare patients in
accordance with the terms of the agreement and Medicare Regulations.
"Medicare Regulations" means, collectively, all federal
statutes (whether set forth in Title XVIII of the Social Security Act
or elsewhere) affecting the health insurance program for the aged and
disabled established by Title XVIII of the Social Security Act and any
statutes succeeding thereto; together with all applicable provisions of
all rules, regulations, manuals and orders and administrative,
reimbursement and other guidelines having the force of law of all
Governmental Authorities (including without limitation, Health and
Human Services ("HHS"), HCFA, the Office of the Inspector General for
HHS, or any Person succeeding to the functions of any of the foregoing)
promulgated pursuant to or in connection with any of the foregoing
having the force of law, as each may be amended, supplemented or
otherwise modified from time to time.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA to which the Borrower or any ERISA
Affiliate is making, or is accruing an obligation to make,
contributions or has made, or been obligated to make, contributions
within the preceding six (6) Fiscal Years.
"NationsBank" means NationsBank, N.A.
"1997 10-K" means the Borrower's Annual Report on Form 10-K
for the Fiscal Year Ended December 31, 1997.
"Notes" means, collectively, the promissory notes of the
Borrower evidencing Loans executed and delivered to the Lenders as
provided in Section 2.5, substantially in the form of Exhibit F, with
appropriate insertions as to amounts, dates and names of Lenders.
"Obligations" means the obligations, liabilities and
Indebtedness of the Borrower with respect to (i) the principal and
interest on the Loans as evidenced by the Notes, (ii) the Reimbursement
Obligations and otherwise in respect of the Letters of Credit, (iii)
all liabilities of the Borrower to any Lender which arise under a Swap
Agreement, and (iv) the payment and performance of all other
obligations, liabilities and Indebtedness of the
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<PAGE>
Borrower to the Lenders or the Agent hereunder, under any one or more
of the other Loan Documents or with respect to the Loans.
"Participation" means, with respect to any Lender (other than
the Issuing Bank) and a Letter of Credit, the extension of credit
represented by the participation of such Lender hereunder in the
liability of the Issuing Bank in respect of a Letter of Credit issued
by the Issuing Bank in accordance with the terms hereof.
"Participation Agreement" means the Participation Agreement
dated November 16, 1995 among HEALTHSOUTH Corporation, as Construction
Agent, HEALTHSOUTH Holdings, Inc., as Lessee, First Security Bank of
Utah, N.A., as Trustee, the Holders identified therein, the Lenders
identified therein, and NationsBank, National Association, as Agent, as
such Participation Agreement may be amended, modified, supplemented or
restated in its entirety from time to time.
"PBGC" means the Pension Benefit Guaranty Corporation and any
successor thereto.
"Pension Plan" means any employee pension benefit plan within
the meaning of Section 3(2) of ERISA, other than a Multiemployer Plan,
which is subject to the provisions of Title IV of ERISA or Section 412
of the Code and which (i) is maintained for employees of the Borrower
or any of its ERISA Affiliates or is assumed by the Borrower or any of
its ERISA Affiliates in connection with any Acquisition or (ii) has at
any time been maintained for the employees of the Borrower or any
current or former ERISA Affiliate.
"Permitted Encumbrances" shall mean:
(1) liens for taxes, assessments and other
governmental charges that are not delinquent or that are being
contested in good faith by appropriate proceedings duly
pursued;
(2) mechanic's, materialmen's, contractor's,
landlord's or other similar liens arising in the ordinary
course of business, securing obligations that are not
delinquent or that are being contested in good faith by
appropriate proceedings duly pursued;
(3) restrictions, exceptions, reservations,
easements, conditions, limitations and other matters of record
that do not materially adversely affect the value or utility
of the affected property;
(4) Liens on assets securing Indebtedness the
proceeds of which are used to acquire such assets;
(5) Liens and other matters approved in writing by
the Required Lenders; and
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(6) Liens in favor of landlords, the amount secured
by which landlords' Liens, in the aggregate, would not
materially adversely affect the Borrower or a Material Group.
"Permitted Investments" shall mean:
(1) direct obligations of, or obligations the payment
of which is guaranteed by, the United States of America or an
interest in any trust or fund that invests solely in such
obligations or repurchase agreements, properly secured, with
respect to such obligations.
(2) direct obligations of agencies or
instrumentalities of the United States of America having a
rating of A or higher by S&P or A2 or higher by Moody's;
(3) a certificate of deposit issued by, or other
interest-bearing deposits with, a bank which is a Lender or an
affiliate of a Lender, or a bank having its principal place of
business in the United States of America and having equity
capital of not less than $250,000,000;
(4) a certificate of deposit issued by, or other
interest-bearing deposits with, any other bank organized under
the laws of the United States of America or any state thereof,
provided that such deposit is either (i) insured by the
Federal Deposit Insurance Corporation or (ii) properly secured
by such bank by pledging direct obligations of the United
States of America having a market value not less than the face
amount of such deposits;
(5) the capital stock of and partnership interests
in, and loans made by the Borrower to, Controlled Partnerships
and Subsidiaries;
(6) prime commercial paper maturing within 270 days
of the acquisition thereof and, at the time of acquisition,
having a rating of A-1 or higher by S&P, or P-1 or higher by
Moody's;
(7) eligible banker's acceptances, repurchase
agreements and tax-exempt municipal bonds having a maturity of
less than one year, in each case having a rating, or that is
the full recourse obligation of a person whose senior debt is
rated, A or higher by S&P or A2 or higher by Moody's;
(8) loans made by the Borrower or a Consolidated
Entity in an aggregate amount of $2,000,000 or less to
employees of the Borrower or of a Consolidated Entity;
(9) loans made by the Borrower or a Controlled
Partnership in an aggregate amount of $1,000,000 or less to
limited partners (or potential limited
20
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partners) of Controlled Partnerships for the purpose of
enabling such limited partners to acquire limited partnership
interests in Controlled Partnerships, to operate their
practices or to restructure partnership interests;
(10) loans in an aggregate amount of up to
$20,000,000 made by the Borrower to the HEALTHSOUTH Employee
Stock Benefit Plan;
(11) scholarship loans made by the Borrower in an
aggregate amount not exceeding $1,000,000 to individuals who
meet certain eligibility requirements as established by the
Borrower from time to time;
(12) up to 100% of the outstanding shares of stock of
Caretenders Healthcorp (formerly known as Senior Services,
Inc.) provided that aggregate costs incurred to purchase such
shares shall not exceed $12,000,000;
(13) other investments of less than $5,000,000 in the
aggregate expressly approved in writing by the Agent and
investments of $5,000,000 or greater expressly approved in
writing by the Required Lenders;
(14) any other investment having a rating of A or
higher or A-1 or higher by S&P or A2 or higher or P-1 or
higher by Moody's;
(15) loans to health care practitioners and other
persons not to exceed in the aggregate $5,000,000;
(16) investments in Acacia Venture Partners,
HEALTHSMART, MedPartners and Austin Medical Office Building
which in the aggregate do not exceed $5,000,000; and
(17) additional investments existing on the Closing
Date and described in Exhibit G.
"Person" means an individual, partnership, corporation,
limited liability company, trust, unincorporated organization,
association, joint venture or a government or agency or political
subdivision thereof.
"Prime Rate" means the per annum rate of interest established
from time to time by NationsBank as its prime rate, which rate may not
be the lowest rate of interest charged by NationsBank to its Customers.
"Principal Office" means the office of the Agent at
NationsBank, N.A., 101 North Tryon Street, 15th Floor, NC1-001-15-04,
Charlotte, North Carolina 28255, Attention: Agency Services, or such
other office and address as the Agent may from time to time designate.
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"Rate Hedging Obligations" means any and all obligations of
the Borrower or any Consolidated Entity, whether absolute or contingent
and howsoever and whensoever created, arising, evidenced or acquired
(including all renewals, extensions and modifications thereof and
substitutions therefor), under (i) any and all agreements, devices or
arrangements designed to protect the Borrower or such Consolidated
Entity from the fluctuations of interest rates, exchange rates or
forward rates applicable to such party's assets, liabilities or
exchange transactions, including, but not limited to,
Dollar-denominated or cross-currency interest rate exchange agreements,
forward currency exchange agreements, interest rate cap or collar
protection agreements, forward rate currency or interest rate options,
puts, warrants and those commonly known as interest rate "swap"
agreements; and (ii) any and all cancellations, buybacks, reversals,
terminations or assignments of any of the foregoing.
"Rating" means the rating of senior unsecured Indebtedness of
the Borrower in effect at any time which rating is made by either of
Moody's or S&P.
"Regulation D" means Regulation D of the Board as the same may
be amended or supplemented from time to time.
"Reimbursement Obligation" shall mean, at any time, the
obligation of the Borrower with respect to any Letter of Credit to
reimburse the Issuing Bank and the Lenders to the extent of their
respective Participations (including by the receipt by the Issuing Bank
of proceeds of Loans pursuant to Section 3.2) for amounts theretofore
paid by the Issuing Bank pursuant to a drawing under such Letter of
Credit.
"Required Lenders" means, as of any date, Lenders on such date
having Credit Exposures (as defined below) aggregating at least 51% of
the aggregate Credit Exposures of all the Lenders on such date. For
purposes of the preceding sentence, the amount of the "Credit Exposure"
of each Lender shall be equal to the aggregate principal amount of the
Loans, so long as there exists no Event of Default, owing to such
Lender plus the aggregate unutilized amounts of such Lender's Short
Term Credit Commitment plus the amount of such Lender's Applicable
Commitment Percentage of Letter of Credit Outstandings; provided that,
if any Lender shall have failed to pay to the Issuing Bank its
Applicable Commitment Percentage of any drawing under any Letter of
Credit resulting in an outstanding Reimbursement Obligation, such
Lender's Credit Exposure attributable to Letters of Credit and
Reimbursement Obligations shall be deemed to be held by the Issuing
Bank for purposes of this definition.
"Reserve Requirement" means, at any time, the maximum rate at
which reserves (including, without limitation, any marginal, special,
supplemental, or emergency reserves) are required to be maintained
under regulations issued from time to time by the Board by member banks
of the Federal Reserve System (or any successor) by member banks of the
Federal Reserve System against "Eurocurrency liabilities" (as such term
is used in Regulation D). Without limiting the effect of the foregoing,
the Reserve Requirement shall reflect any other reserves required to be
maintained by such member banks with respect to
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(i) any category of liabilities which includes deposits by reference to
which the Eurodollar Rate is to be determined, or (ii) any category of
extensions of credit or other assets which include Eurodollar Rate
Loans. The Eurodollar Rate shall be adjusted automatically on and as of
the effective date of any change in the Reserve Requirement.
"Restricted Payment" means (a) any dividend or other
distribution, direct or indirect, on account of any shares of any class
of stock of Borrower or any of its Consolidated Entities (other than
those payable or distributable solely to the Borrower) now or hereafter
outstanding, except a dividend payable solely in shares of a class of
stock to the holders of that class; (b) any redemption, conversion,
exchange, retirement or similar payment, purchase or other acquisition
for value, direct or indirect, of any shares of any class of stock of
the Borrower or any of its Consolidated Entities (other than those
payable or distributable solely to the Borrower) now or hereafter
outstanding; (c) any payment made to retire, or to obtain the surrender
of, any outstanding warrants, options or other rights to acquire shares
of any class of stock of the Borrower or any of its Consolidated
Entities now or hereafter outstanding; and (d) any issuance and sale of
capital stock of any Consolidated Entity of the Borrower (or any
option, warrant or right to acquire such stock) other than to the
Borrower.
"S&P" means Standard & Poor's Rating Group, a division of The
McGraw Hill Companies.
"Short Term Credit Commitment" means, with respect to each
Lender, the obligation of such Lender to make Loans to the Borrower up
to an aggregate principal amount at any one time outstanding equal to
such Lender's Applicable Commitment Percentage of the Total Short Term
Credit Commitment.
"Short Term Credit Facility" means the facility described in
Article II providing for Loans to the Borrower by the Lenders in the
aggregate principal amount of the Total Short Term Credit Commitment.
"Short Term Credit Outstandings" means, as of any date of
determination, the aggregate principal amount of all Loans then
outstanding.
"Short Term Credit Termination Date" means (i) the Stated
Termination Date or (ii) such earlier date of termination of Lenders'
Obligations as may be determined pursuant to Section 9.1 upon the
occurrence of an Event of Default, or (iii) such date as the Borrower
may voluntarily and permanently terminate the Short Term Credit
Facility by payment in full of all Short Term Credit Outstandings and
all Letter of Credit Outstandings and cancellation of all Letters of
Credit, together with all accrued and unpaid interest and fees thereon.
"Single Employer Plan" means any employee pension benefit plan
covered by Title IV of ERISA in respect of which the Borrower or any
Subsidiary is an "employer" as described in Section 4001(b) of ERISA
and which is not a Multiemployer Plan.
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"Solvent" means, when used with respect to any Person, that at
the time of determination:
(i) the fair value of its assets (both at fair
valuation and at present fair saleable value on an orderly
basis) is in excess of the total amount of its liabilities,
including contingent obligations; and
(ii) it is then able and expects to be able to pay
its debts as they mature; and
(iii) it has capital sufficient to carry on its
business as conducted and as proposed to be conducted.
"Stated Termination Date" means September 27, 1999.
"Subordinated Debt" means any unsecured Indebtedness of the
Borrower or any Consolidated Entity (other than inter-company
Indebtedness) which is subordinated in right of payment in all respects
to the Obligations in a manner reasonably acceptable to the Agent.
"Subsidiary" means any corporation or other entity in which
more than 50% of its outstanding voting stock or more than 50% of all
equity interests is owned directly or indirectly by the Borrower and/or
by one or more of the Borrower's Subsidiaries.
"Swap Agreement" means one or more agreements between the
Borrower and any Person with respect to Indebtedness evidenced by any
or all of the Notes, on terms mutually acceptable to Borrower and such
Person and approved by each of the Lenders, which agreements create
Rate Hedging Obligations; provided, however, that no such approval of
the Lenders shall be required to the extent such agreements are entered
into between the Borrower and any Lender.
"Termination Event" means: (i) a "Reportable Event" described
in Section 4043 of ERISA and the regulations issued thereunder (unless
the notice requirement has been waived by applicable regulation); or
(ii) the withdrawal of the Borrower or any ERISA Affiliate from a
Pension Plan during a plan year in which it was a "substantial
employer" as defined in Section 4001(a)(2) of ERISA or was deemed such
under Section 4062(e) of ERISA; or (iii) the termination of a Pension
Plan, the filing of a notice of intent to terminate a Pension Plan or
the treatment of a Pension Plan amendment as a termination under
Section 4041 of ERISA; or (iv) the institution of proceedings to
terminate a Pension Plan by the PBGC; or (v) any other event or
condition which would constitute grounds under Section 4042(a) of ERISA
for the termination of, or the appointment of a trustee to administer,
any Pension Plan; or (vi) the partial or complete withdrawal of the
Borrower or any ERISA Affiliate from a Multiemployer Plan; or (vii) the
imposition of a Lien pursuant to Section 412 of the Code or Section 302
of ERISA; or (viii) any event or condition which results in the
reorganization or insolvency of a Multiemployer Plan under Section 4241
or Section 4245 of ERISA,
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<PAGE>
respectively; or (ix) any event or condition which results in the
termination of a Multiemployer Plan under Section 4041A of ERISA or the
institution by the PBGC of proceedings to terminate a Multiemployer
Plan under Section 4042 of ERISA.
"Total Letter of Credit Commitment" means an amount not to
exceed $25,000,000.
"Total Short Term Credit Commitment" means a principal amount
equal to $500,000,000, as reduced from time to time in accordance with
Section 2.1(a) and Section 2.7.
"Vanderbilt" shall mean Vanderbilt Stallworth Rehabilitation
Hospital, L.P., the partners of which are the Borrower, Vanderbilt
University and Vanderbilt Health Services.
"Voting Stock" means shares of Capital Stock issued by a
corporation, or equivalent interests in any other Person, the holders
of which are ordinarily, in the absence of contingencies, entitled to
vote for the election of directors (or persons performing similar
functions) of such Person, even if the right so to vote has been
suspended by the happening of such a contingency.
1.2. Rules of Interpretation.
(a) All accounting terms not specifically defined herein shall
have the meanings assigned to such terms and shall be interpreted in
accordance with GAAP applied on a Consistent Basis.
(b) The headings, subheadings and table of contents used
herein or in any other Loan Document are solely for convenience of
reference and shall not constitute a part of any such document or
affect the meaning, construction or effect of any provision thereof.
(c) Except as otherwise expressly provided, references herein
to articles, sections, paragraphs, clauses, annexes, appendices,
exhibits and schedules are references to articles, sections,
paragraphs, clauses, annexes, appendices, exhibits and schedules in or
to this Agreement.
(d) All definitions set forth herein or in any other Loan
Document shall apply to the singular as well as the plural form of such
defined term, and all references to the masculine gender shall include
reference to the feminine or neuter gender, and vice versa, as the
context may require.
(e) When used herein or in any other Loan Document, words such
as "hereunder", "hereto", "hereof" and "herein" and other words of like
import shall, unless the context clearly indicates to the contrary,
refer to the whole of the applicable document and not to any particular
article, section, subsection, paragraph or clause thereof.
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(f) References to "including" means including without limiting
the generality of any description preceding such term, and for purposes
hereof the rule of ejusdem generis shall not be applicable to limit a
general statement, followed by or referable to an enumeration of
specific matters, to matters similar to those specifically mentioned.
(g) All dates and times of day specified herein shall refer to
such dates and times at Charlotte, North Carolina.
(h) Each of the parties to the Loan Documents and their
counsel have reviewed and revised, or requested (or had the opportunity
to request) revisions to, the Loan Documents, and any rule of
construction that ambiguities are to be resolved against the drafting
party shall be inapplicable in the construing and interpretation of the
Loan Documents and all exhibits, schedules and appendices thereto.
(i) Any reference to an officer of the Borrower or any other
Person by reference to the title of such officer shall be deemed to
refer to each other officer of such Person, however titled, exercising
the same or substantially similar functions.
(j) All references to any agreement or document as amended,
modified or supplemented, or words of similar effect, shall mean such
document or agreement, as the case may be, as amended, modified or
supplemented from time to time only as and to the extent permitted
therein and in the Loan Documents.
1.3. Classes and Types of Loans. Loans hereunder are distinguished by
"Type". The "Type" of a Loan refers to whether such Loan is a Base Rate Loan or
a Eurodollar Rate Loan, each of which constitutes a Type.
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ARTICLE II
The Loans
2.1. Loans.
(a) Commitment. Subject to the terms and conditions of this
Agreement, each Lender severally agrees to make Advances to the Borrower under
the Short Term Credit Facility from time to time from the Closing Date until the
Short Term Credit Termination Date on a pro rata basis as to the total borrowing
requested by the Borrower on any day determined by such Lender's Applicable
Commitment Percentage up to but not exceeding the Short Term Credit Commitment
of such Lender, provided, however, that the Lenders will not be required and
shall have no obligation to make any such Advance (i) so long as a Default or an
Event of Default has occurred and is continuing or (ii) if the maturity of any
of the Notes has been accelerated as a result of an Event of Default or (iii)
there is Existing Availability; provided further, however, that immediately
after giving effect to each such Advance, the principal amount of Short Term
Credit Outstandings plus Letters of Credit Outstandings shall not exceed the
Total Short Term Credit Commitment. Within such limits, the Borrower may borrow,
repay and reborrow under the Short Term Credit Facility on a Business Day from
the Closing Date until, but (as to borrowings and reborrowings) not including,
the Short Term Credit Termination Date; provided, however, that (y) no Loan that
is a Eurodollar Rate Loan shall be made which has an Interest Period that
extends beyond the Short Term Credit Termination Date and (z) each Loan that is
a Eurodollar Rate Loan may, subject to the provisions of Section 2.3, be repaid
only on the last day of the Interest Period with respect thereto unless such
payment is accompanied by the additional payment, if any, required by Section
4.5.
(b) Amounts. The aggregate unpaid principal amount of the
Short Term Credit Outstandings plus Letter of Credit Outstandings shall not
exceed the Total Short Term Credit Commitment and, in the event there shall be
outstanding any such excess, the Borrower shall immediately make such payments
and prepayments as shall be necessary to comply with this restriction. Each Loan
hereunder, other than Base Rate Refunding Loans, and each Conversion under
Section 2.8, shall be in an amount of at least $5,000,000, and, if greater than
$5,000,000, an integral multiple of $1,000,000.
(c) Advances. (i) An Authorized Representative shall give the
Agent (1) at least three (3) Business Days' irrevocable written notice by
telefacsimile transmission of a Borrowing Notice or Interest Rate Selection
Notice (as applicable) with appropriate insertions, effective upon receipt, of
each Loan that is a Eurodollar Rate Loan (whether representing an additional
borrowing hereunder or the Conversion of a borrowing hereunder from Base Rate
Loans to Eurodollar Rate Loans) prior to 10:30 A.M. and (2) irrevocable written
notice by telefacsimile transmission of a Borrowing Notice or Interest Rate
Selection Notice (as applicable) with appropriate insertions, effective upon
receipt, of each Loan (other than Base Rate Refunding Loans to the extent the
same are effected without notice pursuant to Section 2.1(c)(iv)) that is a Base
Rate Loan (whether representing an additional borrowing hereunder or the
Conversion of borrowing hereunder from Eurodollar Rate Loans to Base Rate Loans)
prior to 10:30 A.M. on the day of such proposed Loan.
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Each such notice shall specify the amount of the borrowing, the Type of Loan
(Base Rate or Eurodollar Rate), the date of borrowing and, if a Eurodollar Rate
Loan, the Interest Period to be used in the computation of interest. Notice of
receipt of such Borrowing Notice or Interest Rate Selection Notice, as the case
may be, together with the amount of each Lender's portion of an Advance
requested thereunder, shall be provided by the Agent to each Lender by
telefacsimile transmission with reasonable promptness, but (provided the Agent
shall have received such notice by 10:30 A.M.) not later than 1:00 P.M. on the
same day as the Agent's receipt of such notice.
(ii) Not later than 2:00 P.M. on the date specified for each borrowing
under this Section 2.1, each Lender shall, pursuant to the terms and subject to
the conditions of this Agreement, make the amount of the Loan or Loans to be
made by it on such day available by wire transfer to the Agent in the amount of
its pro rata share, determined according to such Lender's Applicable Commitment
Percentage of the Loan or Loans to be made on such day. Such wire transfer shall
be directed to the Agent at the Principal Office and shall be in the form of
Dollars constituting immediately available funds. The amount so received by the
Agent shall, subject to the terms and conditions of this Agreement, be made
available to the Borrower by delivery of the proceeds thereof as shall be
directed in the applicable Borrowing Notice by the Authorized Representative and
reasonably acceptable to the Agent.
(iii) The Borrower shall have the option to elect the duration of the
initial and any subsequent Interest Periods and to Convert the Loans in
accordance with Section 2.8. Eurodollar Rate Loans and Base Rate Loans may be
outstanding at the same time, provided, however, there shall not be outstanding
at any one time Loans having more than eight (8) different Interest Periods. If
the Agent does not receive a Borrowing Notice or an Interest Rate Selection
Notice giving notice of election of the duration of an Interest Period or of
Conversion of any Loan to or Continuation of a Loan as a Eurodollar Rate Loan by
the time prescribed by Section 2.1(c) or 2.8, the Borrower shall be deemed to
have elected to Convert such Loan to (or Continue such Loan as) a Base Rate Loan
until the Borrower notifies the Agent in accordance with Section 2.8.
(iv) Notwithstanding the foregoing, if a drawing is made under any
Letter of Credit, such drawing is honored by the Issuing Bank prior to the Short
Term Credit Termination Date, and the Borrower shall not immediately fully
reimburse the Issuing Bank in respect of such drawing, (A) provided that the
conditions to making a Loan as herein provided shall then be satisfied, the
Reimbursement Obligation arising from such drawing shall be paid to the Issuing
Bank by the Agent without the requirement of notice to or from the Borrower from
immediately available funds which shall be advanced as a Base Rate Refunding
Loan by each Lender under the Short Term Credit Facility in an amount equal to
such Lender's Applicable Commitment Percentage of such Reimbursement Obligation,
and (B) if the conditions to making a Loan as herein provided shall not then be
satisfied, each of the Lenders shall fund by payment to the Agent (for the
benefit of the Issuing Bank) in immediately available funds the purchase from
the Issuing Bank of their respective Participations in the related Reimbursement
Obligation based on their respective Applicable Commitment Percentages. If a
drawing is presented under any Letter of Credit in accordance with the terms
thereof and the Borrower shall not immediately reimburse the Issuing Bank in
respect thereof, then notice of such drawing or payment shall be provided
promptly by the Issuing Bank to
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the Agent and the Agent shall provide notice to each Lender by telephone or
telefacsimile transmission. If notice to the Lenders of a drawing under any
Letter of Credit is given by the Agent at or before 12:00 noon on any Business
Day, each Lender shall, pursuant to the conditions specified in this Section
2.1(c)(iv), either make a Base Rate Refunding Loan or fund the purchase of its
Participation in the amount of such Lender's Applicable Commitment Percentage of
such drawing or payment and shall pay such amount to the Agent for the account
of the Issuing Bank at the Principal Office in Dollars and in immediately
available funds before 2:30 P.M. on the same Business Day. If notice to the
Lenders of a drawing under a Letter of Credit is given by the Agent after 12:00
noon on any Business Day, each Lender shall, pursuant to the conditions
specified in this Section 2.1(c)(iv), either make a Base Rate Refunding Loan or
fund the purchase of its Participation in the amount of such Lender's Applicable
Commitment Percentage of such drawing or payment and shall pay such amount to
the Agent for the account of the Issuing Bank at the Principal Office in Dollars
and in immediately available funds before 12:00 noon on the next following
Business Day. Any such Base Rate Refunding Loan shall be advanced as, and shall
Continue as, a Base Rate Loan unless and until the Borrower Converts such Base
Rate Loan in accordance with the terms of Section 2.8.
2.2. Payment of Interest. (a) The Borrower shall pay interest to the
Agent for the account of each Lender on the outstanding and unpaid principal
amount of each Loan made by such Lender for the period commencing on the date of
such Loan until such Loan shall be due at the then applicable Base Rate for Base
Rate Loans or applicable Eurodollar Rate for Eurodollar Rate Loans, as
designated by the Authorized Representative pursuant to Section 2.1; provided,
however, that if any amount payable under this Agreement shall not be paid when
due (at maturity, by acceleration or otherwise, subject to the provisions of
Section 9.1(a)), all amounts outstanding hereunder shall bear interest
thereafter at the Default Rate.
(b) Interest on each Loan shall be computed on an Actual/360
Basis. Interest on each Loan shall be paid (i) quarterly in arrears on the last
Business Day of each March, June, September and December, commencing December
31, 1998, for each Base Rate Loan, (ii) on the last day of the applicable
Interest Period for each Eurodollar Rate Loan and, if such Interest Period
extends for more than three (3) months, at intervals of three (3) months after
the first day of such Interest Period, and (iii) upon the Short Term Credit
Termination Date. Interest payable at the Default Rate shall be payable on
demand.
2.3. Payment of Principal. The principal amount of each Loan shall be
due and payable to the Agent for the benefit of each Lender in full on the
Stated Termination Date, or earlier as specifically provided herein. No
principal amount shall be repaid under the Existing Credit Agreement so long as
there are Short Term Credit Outstandings. Any principal payments made to the
Agent shall be applied first to the Short Term Credit Outstandings and then to
any outstandings under the Existing Credit Agreement. The principal amount of
any Base Rate Loan may be prepaid in whole or in part at any time. The principal
amount of any Eurodollar Rate Loan may be prepaid only at the end of the
applicable Interest Period unless the Borrower shall pay to the Agent for the
account of the Lenders the additional amount, if any, required under Section
4.5. All prepayments of Loans made by the Borrower shall be in the amount of
$5,000,000 or such greater amount which
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is an integral multiple of $1,000,000, or the amount equal to all Short Term
Credit Outstandings, as the case may be, or such other amount as necessary to
comply with Section 2.1(b) or Section 2.8.
2.4. Non-Conforming Payments. (a) Each payment of principal (including
any prepayment) and payment of interest and fees, and any other amount required
to be paid to the Lenders with respect to the Loans, shall be made to the Agent
at the Principal Office, for the account of each Lender, in Dollars and in
immediately available funds, without setoff, deduction or counterclaim before
10:00 A.M. on the date such payment is due. The Agent may, but shall not be
obligated to, debit the amount of any such payment which is not made by such
time to any ordinary deposit account, if any, of the Borrower with the Agent.
The Agent shall promptly notify the Borrower of any such debit; however, failure
to give such notice shall not affect the validity of such debit.
(b) The Agent shall deem any payment made by or on behalf of the
Borrower hereunder that is not made both in Dollars and in immediately available
funds and prior to 10:00 A.M. to be a non-conforming payment. Any such payment
shall not be deemed to be received by the Agent until the later of (i) the time
such funds become available funds and (ii) the next Business Day. Any
non-conforming payment may constitute or become a Default or Event of Default.
Interest shall continue to accrue on any principal as to which a non-conforming
payment is made until the later of (x) the date such funds become available
funds or (y) the next Business Day at the Default Rate from the date such amount
was due and payable.
(c) In the event that any payment hereunder or under the Notes becomes
due and payable on a day other than a Business Day, then such due date shall be
extended to the next succeeding Business Day unless provided otherwise under the
definition of "Interest Period"; provided that interest shall continue to accrue
during the period of any such extension and provided further, that in no event
shall any such due date be extended beyond the Stated Termination Date.
2.5. Notes. Loans made by each Lender shall be evidenced by the Note
payable to the order of such Lender in the respective amount of its Applicable
Commitment Percentage of the Total Short Term Credit Commitment, which Note
shall be dated the Closing Date or a later date pursuant to an Assignment and
Acceptance and shall be duly completed, executed and delivered by the Borrower.
2.6. Pro Rata Payments. Except as otherwise provided herein, (a) each
payment on account of the principal of and interest on the Loans and the fees
described in Section 2.9 and the first sentence of Section 3.3(a) shall be made
to the Agent for the account of the Lenders pro rata based on their Applicable
Commitment Percentages, (b) all payments to be made by the Borrower for the
account of each of the Lenders on account of principal, interest and fees, shall
be made without diminution, setoff, recoupment or counterclaim, and (c) the
Agent will promptly distribute to the Lenders in immediately available funds
payments received in fully collected, immediately available funds from the
Borrower.
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2.7. Reductions. The Borrower shall, by irrevocable notice from an
Authorized Representative, have the right from time to time but not more
frequently than once each calendar month, upon not less than three (3) Business
Days' written notice to the Agent, effective upon receipt, to permanently reduce
the Total Short Term Credit Commitment. The Agent shall give each Lender, within
one (1) Business Day of receipt of such notice, telefacsimile notice, or
telephonic notice (confirmed in writing), of such reduction. Each such reduction
shall be in the aggregate amount of $10,000,000 or such greater amount which is
in an integral multiple of $1,000,000, or the entire remaining Total Short Term
Credit Commitment, and shall permanently reduce the Total Short Term Credit
Commitment. Each reduction of the Total Short Term Credit Commitment shall be
accompanied by payment of Loans to the extent that the principal amount of Short
Term Credit Outstandings plus Letter of Credit Outstandings exceeds the Total
Short Term Credit Commitment after giving effect to such reduction, together
with accrued and unpaid interest on the amounts prepaid. If any such reduction
shall result in the payment of any Eurodollar Rate Loan other than on the last
day of the Interest Period of such Eurodollar Rate Loan such prepayment shall be
accompanied by amounts due, if any, under Section 4.5.
2.8. Conversions and Elections of Subsequent Interest Periods. Subject
to the limitations set forth below and in Article IV, the Borrower may:
(a) upon delivery, effective upon receipt, of a properly
completed Interest Rate Selection Notice to the Agent on or before 10:30 A.M. on
any Business Day, Convert all or a part of Eurodollar Rate Loans to Base Rate
Loans on the last day of the Interest Period for such Eurodollar Rate Loans; and
(b) provided that no Default or Event of Default shall have
occurred and be continuing upon delivery, effective upon receipt, of a properly
completed Interest Rate Selection Notice to the Agent on or before 10:30 A.M.
three (3) Business Days prior to the date of such election or Conversion:
(i) elect a subsequent Interest Period for all or a
portion of Eurodollar Rate Loans to begin on the last day of
the then current Interest Period for such Eurodollar Rate
Loans; and
(ii) Convert Base Rate Loans to Eurodollar Rate Loans
on any Business Day.
Each election and Conversion pursuant to this Section 2.8 shall be
subject to the limitations on Eurodollar Rate Loans set forth in the definition
of "Interest Period" herein and in Sections 2.1 and 2.3 and Article IV. The
Agent shall give written notice to each Lender of such notice of election or
Conversion prior to 3:00 P.M. on the day such notice of election or Conversion
is received. All such Continuations or Conversions of Loans shall be effected
pro rata based on the Applicable Commitment Percentages of the Lenders.
2.9. Unused Fees.
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(a) For the period beginning on the Closing Date and ending on the
Short Term Credit Termination Date, the Borrower agrees to pay to the Agent, for
the benefit of each Lender, an unused fee equal to the Applicable Unused Fee
multiplied by the average daily amount by which the Total Short Term Credit
Commitment exceeds the aggregate principal amount of Short Term Credit
Outstandings plus Letter of Credit Outstandings. Such fees shall be due in
arrears on the last Business Day of each March, June, September and December
commencing December 31, 1998 to and on the Short Term Credit Termination Date.
(b) Notwithstanding the foregoing, so long as any Lender fails to make
available any portion of its Short Term Credit Commitment when requested, such
Lender shall not be entitled to receive payment of its pro rata share of such
fees until such Lender shall make available such portion. All fees payable
pursuant to this Section 2.9 shall be calculated on an Actual/360 Basis.
2.10. Deficiency Advances. No Lender shall be responsible for any
default of any other Lender in respect of such other Lender's obligation to make
any Loan or fund its purchase of any Participation hereunder nor shall the Short
Term Credit Commitment of any Lender hereunder be increased as a result of such
default of any other Lender. Without limiting the generality of the foregoing,
in the event any Lender shall fail to advance funds to the Borrower under the
Short Term Credit Facility as herein provided, the Agent may in its discretion,
but shall not be obligated to, advance under the Note in its favor as a Lender
all or any portion of such amount or amounts (each, a "deficiency advance") and
shall thereafter be entitled to payments of principal of and interest on such
deficiency advance in the same manner and at the same interest rate or rates to
which such other Lender would have been entitled had it made such advance under
its Note; provided that, upon payment to the Agent from such other Lender of the
entire outstanding amount of each such deficiency advance, together with accrued
and unpaid interest thereon, from the most recent date or dates interest was
paid to the Agent by the Borrower on each Loan comprising such deficiency
advance at the interest rate per annum for overnight borrowing by the Agent from
the Federal Reserve Bank of Richmond, Virginia, then such payment shall be
credited against the applicable Note of the Agent in full payment of such
deficiency advance and the Borrower shall be deemed to have borrowed the amount
of such deficiency advance from such other Lender as of the most recent date or
dates, as the case may be, upon which any payments of interest were made by the
Borrower thereon.
2.11. Use of Proceeds. The proceeds of the Loans made pursuant to this
Agreement shall be used by the Borrower to repay existing indebtedness and for
general corporate purposes, including working capital needs, capital
expenditures and permitted Acquisitions.
2.12. Increase and Decrease in Amounts. The amount of the Total Short
Term Credit Commitment which shall be available to the Borrower as Advances
shall be reduced by the aggregate amount of Letter of Credit Outstandings.
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ARTICLE III
Letters of Credit
3.1. Letters of Credit. The Issuing Bank agrees, subject to the terms
and conditions of this Agreement, upon request of the Borrower to issue from
time to time for the account of the Borrower Letters of Credit upon delivery to
the Issuing Bank of an Application and Agreement for Letter of Credit relating
thereto in form and content acceptable to the Issuing Bank; provided, that (i)
the Letter of Credit Outstandings shall not exceed the Total Letter of Credit
Commitment, (ii) no Letter of Credit shall be issued so long as a Default or an
Event of Default has occurred or is continuing or if the applicable conditions
set forth in Article V shall not have been satisfied, (iii) no Letter of Credit
shall be issued if, after giving effect thereto, Letter of Credit Outstandings
plus the aggregate principal amount of Short Term Credit Outstandings shall
exceed the Total Short Term Credit Commitment and (iv) no Letter of Credit shall
be issued if there is Existing Availability. No Letter of Credit shall have an
expiry date (including all rights of the Borrower or any beneficiary named in
such Letter of Credit to require renewal) or payment date occurring later than
the fifth Business Day prior to the Short Term Credit Termination Date.
3.2. Reimbursement.
(a) The Borrower hereby unconditionally agrees to pay to the
Issuing Bank immediately on demand at the Principal Office all amounts required
to pay all drafts drawn or purporting to be drawn under the Letters of Credit
and all reasonable expenses incurred by the Issuing Bank in connection with the
Letters of Credit, and in any event and without demand to place in possession of
the Issuing Bank (which shall include Advances under the Short Term Credit
Facility if permitted by Section 2.1(c)) sufficient funds to pay all debts and
liabilities arising in respect of any Letter of Credit. The Issuing Bank agrees
to give the Borrower prompt notice of any request for a draw under a Letter of
Credit. The Issuing Bank may charge any account the Borrower may have with it
for any and all amounts the Issuing Bank pays under a Letter of Credit, plus
charges and reasonable expenses as from time to time agreed to by the Issuing
Bank and the Borrower; provided that to the extent permitted by Section
2.1(c)(iv), amounts shall be paid pursuant to Advances under the Short Term
Credit Facility. The Borrower agrees to pay the Issuing Bank interest on any
Reimbursement Obligations not paid when due hereunder at the Default Rate.
(b) In accordance with the provisions of Section 2.1(c), the
Issuing Bank shall notify the Agent of any drawing under any Letter of Credit
promptly following the receipt by the Issuing Bank of such drawing.
(c) Each Lender (other than the Issuing Bank) shall
automatically acquire on the date of issuance thereof a Participation in the
liability of the Issuing Bank in respect of each Letter of Credit in an amount
equal to such Lender's Applicable Commitment Percentage of such liability, and
to the extent that the Borrower is obligated to pay the Issuing Bank under
Section 3.2(a), each Lender (other than the Issuing Bank) thereby shall
absolutely, unconditionally and irrevocably assume, and shall be unconditionally
obligated to pay to the Issuing Bank as hereinafter described,
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its Applicable Commitment Percentage of the liability of the Issuing Bank under
such Letter of Credit.
(i) Each Lender (including the Issuing Bank in its
capacity as a Lender) shall, subject to the terms and conditions of
Article II, pay to the Agent for the account of the Issuing Bank at the
Principal Office in Dollars and in immediately available funds, an
amount equal to its Applicable Commitment Percentage of any drawing
under a Letter of Credit, such funds to be provided in the manner
described in Section 2.1(c)(iv).
(ii) Simultaneously with the making of each payment
by a Lender to the Issuing Bank pursuant to Section 2.1(c)(iv)(B), such
Lender shall, automatically and without any further action on the part
of the Issuing Bank or such Lender, acquire a Participation in an
amount equal to such payment (excluding the portion thereof
constituting interest accrued prior to the date such Lender made its
payment) in the related Reimbursement Obligation of the Borrower. The
Reimbursement Obligations of the Borrower shall be immediately due and
payable whether by Advances made in accordance with Section 2.1(c)(iv)
or otherwise.
(iii) Each Lender's obligation to make payment to the
Agent for the account of the Issuing Bank pursuant to Section
2.1(c)(iv) and this Section 3.2(c), and the right of the Issuing Bank
to receive the same, shall be absolute and unconditional, shall not be
affected by any circumstance whatsoever and shall be made without any
offset, abatement, withholding or reduction whatsoever. If any Lender
is obligated to pay but does not pay amounts to the Agent for the
account of the Issuing Bank in full upon such request as required by
Section 2.1(c)(iv) or this Section 3.2(c), such Lender shall, on
demand, pay to the Agent for the account of the Issuing Bank interest
on the unpaid amount for each day during the period commencing on the
date of notice given to such Lender pursuant to Section 2.1(c) until
such Lender pays such amount to the Agent for the account of the
Issuing Bank in full at the interest rate per annum for overnight
borrowing by the Agent from the Federal Reserve Bank of Richmond,
Virginia.
(iv) In the event the Lenders have purchased
Participations in any Reimbursement Obligation as set forth in clause
(ii) above, then at any time payment (in fully collected, immediately
available funds) of such Reimbursement Obligation, in whole or in part,
is received by the Issuing Bank from the Borrower, the Issuing Bank
shall promptly pay to each Lender an amount equal to its Applicable
Commitment Percentage of such payment from the Borrower.
(d) Promptly following the end of each calendar quarter, the
Issuing Bank shall deliver to the Agent and the Agent shall deliver to each
Lender a notice describing the aggregate undrawn amount of all Letters of Credit
at the end of such quarter. The Agent shall promptly notify each Lender of the
issuance of a Letter of Credit.
(e) The issuance by the Issuing Bank of each Letter of Credit
shall, in addition to the conditions precedent set forth in Article V, be
subject to the conditions that such Letter of Credit be in such form and contain
such terms as shall be reasonably satisfactory to the Issuing Bank
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consistent with the then current practices and procedures of the Issuing Bank
with respect to similar letters of credit, and the Borrower shall have executed
and delivered such other instruments and agreements relating to such Letters of
Credit as the Issuing Bank shall have reasonably requested consistent with such
practices and procedures and shall not be in conflict with any of the express
terms herein contained. All Letters of Credit shall be issued pursuant to and
subject to the Uniform Customs and Practice for Documentary Credits, 1993
revision, International Chamber of Commerce Publication No. 500 and all
subsequent amendments and revisions thereto.
(f) The Borrower agrees that the Issuing Bank may, in its sole
discretion, accept or pay, as complying with the terms of any Letter of Credit,
any drafts or other documents otherwise in order which may be signed or issued
by an administrator, executor, trustee in bankruptcy, debtor in possession,
assignee for the benefit of creditors, liquidator, receiver, attorney in fact or
other legal representative of a party who is authorized under such Letter of
Credit to draw or issue any drafts or other documents.
(g) Without limiting the generality of the provisions of
Section 11.12, the Borrower hereby agrees to indemnify and hold harmless the
Issuing Bank, each other Lender and the Agent from and against any and all
claims and damages, losses, liabilities, reasonable costs and expenses which the
Issuing Bank, such other Lender or the Agent may incur (or which may be claimed
against the Issuing Bank, such other Lender or the Agent) by any Person by
reason of or in connection with the issuance or transfer of or payment or
failure to pay under any Letter of Credit; provided that the Borrower shall not
be required to indemnify the Issuing Bank, any other Lender or the Agent for any
claims, damages, losses, liabilities, costs or expenses to the extent, but only
to the extent, (i) caused by the willful misconduct or negligence of the party
to be indemnified or (ii) in the case of the Issuing Bank, caused by the failure
of the Issuing Bank to pay under any Letter of Credit after the presentation to
it of a request for payment strictly complying with the terms and conditions of
such Letter of Credit, unless such payment is prohibited by any law, regulation,
court order or decree. The indemnification and hold harmless provisions of this
Section 3.2(g) shall survive repayment of the Obligations, occurrence of the
Short Term Credit Termination Date and expiration or termination of this
Agreement.
(h) Without limiting the Borrower's rights as set forth in
Section 3.2(g), the obligation of the Borrower to immediately reimburse the
Issuing Bank for drawings made under Letters of Credit and to repay Loans made
under Section 2.1(c) and the Issuing Bank's and each Lender's right to receive
such payment shall be absolute, unconditional and irrevocable, and such
obligations of the Borrower shall be performed strictly in accordance with the
terms of this Agreement and such Letters of Credit and the related Applications
and Agreement for any Letter of Credit, under all circumstances whatsoever,
including the following circumstances:
(i) any lack of validity or enforceability of any
Letter of Credit, the obligation supported by any Letter of Credit or
any other agreement or instrument relating thereto (collectively, the
"Related LC Documents");
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(ii) any amendment or waiver of or any consent to or
departure from all or any of the Related LC Documents;
(iii) the existence of any claim, setoff, defense
(other than the defense of payment in accordance with the terms of this
Agreement) or other rights which the Borrower may have at any time
against any beneficiary or any transferee of a Letter of Credit (or any
persons or entities for whom any such beneficiary or any such
transferee may be acting), the Agent, the Lenders or any other Person,
whether in connection with the Loan Documents, the Related LC Documents
or any unrelated transaction;
(iv) any breach of contract or other dispute between
the Borrower and any beneficiary or any transferee of a Letter of
Credit (or any persons or entities for whom such beneficiary or any
such transferee may be acting), the Agent, the Lenders or any other
Person;
(v) any draft, statement or any other document
presented under any Letter of Credit proving to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein being
untrue or inaccurate in any respect whatsoever;
(vi) any delay, extension of time, renewal,
compromise or other indulgence or modification granted or agreed to by
the Agent or the requisite number of Lenders, with or without notice to
or approval by the Borrower in respect of any of Borrower's Obligations
under this Agreement; or
(vii) any other circumstance or happening whatsoever,
whether or not similar to any of the foregoing;
provided, however, that nothing in this Section 3.2(h) shall give the Issuing
Bank any right to reimbursement for drawings made under a Letter of Credit
otherwise than pursuant to a request for payment strictly complying with the
terms and conditions of such Letter of Credit unless the Borrower has
specifically waived such strict compliance in writing.
3.3. Letter of Credit Facility Fees. (a) The Borrower shall pay to the
Agent, for the pro rata benefit of the Lenders based on their Applicable
Commitment Percentages, a fee on the aggregate amount available to be drawn on
each outstanding Letter of Credit at a rate equal to the Applicable Margin. In
addition, the Borrower agrees to pay to the Agent for the benefit of the Issuing
Bank an issuance fee equal to one-eighth of one percent (1/8%) per annum times
the amount of outstanding Letters of Credit. Such fees shall be due with respect
to each Letter of Credit quarterly in arrears on the last Business Day of each
March, June, September and December, the first such payment to be made on June
30, 1998. The fees described in this Section 3.3 shall be calculated on an
Actual/360 Basis.
(b) The Borrower acknowledges that the Issuing Bank as issuer of each
Letter of Credit will be required by applicable rules and regulations of the
Board to maintain reserves for its liability to honor draws made pursuant to a
Letter of Credit notwithstanding the obligation of the Lenders
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for a Participation in such liability. The Borrower agrees to promptly reimburse
the Issuing Bank for all additional costs which it may hereafter incur solely by
reason of its acting as issuer of the Letters of Credit and its being required
to reserve for such liability, it being understood by the Borrower that other
interest and fees payable under this Agreement do not include compensation of
the Issuing Bank for such reserves. The Issuing Bank shall furnish to the
Borrower at the time of its demand for payment of such additional costs, the
computation of such additional cost which shall be conclusive absent manifest
error, provided that such computations are made on a reasonable basis.
3.4. Administrative Fees. The Borrower shall pay to the Issuing Bank
such administrative fee and other fees, if any, in connection with the Letters
of Credit in such amounts and at such times as the Issuing Bank and the Borrower
shall agree from time to time.
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ARTICLE IV
Change in Circumstances
4.1. Increased Cost and Reduced Return.
(a) If, after the date hereof, the adoption of any applicable
law, rule, or regulation, or any change in any applicable law, rule, or
regulation, or any change in the interpretation or administration thereof by any
governmental authority, central bank, or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender (or its
Applicable Lending Office) with any request or directive (whether or not having
the force of law) of any such governmental authority, central bank, or
comparable agency:
(i) shall subject such Lender (or its Applicable
Lending Office) to any tax, duty, or other charge with respect to any
Eurodollar Rate Loans, its Note, or its obligation to make Eurodollar
Rate Loans, or change the basis of taxation of any amounts payable to
such Lender (or its Applicable Lending Office) under this Agreement or
its Note in respect of any Eurodollar Rate Loans (other than taxes
imposed on the overall net income of such Lender by the jurisdiction in
which such Lender has its principal office or such Applicable Lending
Office);
(ii) shall impose, modify, or deem applicable any
reserve, special deposit, assessment, or similar requirement (other
than the Reserve Requirement utilized in the determination of the
Eurodollar Rate) relating to any extensions of credit or other assets
of, or any deposits with or other liabilities or commitments of, such
Lender (or its Applicable Lending Office), including the Short Term
Credit Commitment of such Lender hereunder; or
(iii) shall impose on such Lender (or its Applicable
Lending Office) or on the London interbank market any other condition
affecting this Agreement or its Note or any of such extensions of
credit or liabilities or commitments;
and the result of any of the foregoing is to increase the cost to such Lender
(or its Applicable Lending Office) of making, Converting into, Continuing, or
maintaining any Eurodollar Rate Loans or to reduce any sum received or
receivable by such Lender (or its Applicable Lending Office) under this
Agreement or its Note with respect to any Eurodollar Rate Loans, then the
Borrower shall pay to such Lender on demand such amount or amounts as will
compensate such Lender for such increased cost or reduction; provided that no
Lender will be entitled to any compensation for any such increased cost or
reduction if demand for payment thereof is made by such Lender more than 180
days after the occurrence of the circumstances giving rise to such claim. If any
Lender requests compensation by the Borrower under this Section 4.1(a), the
Borrower may, by notice to such Lender (with a copy to the Agent), suspend the
obligation of such Lender to make or Continue Loans of the Type with respect to
which such compensation is requested, or to Convert Loans of any other Type into
Loans of such Type, until the event or condition giving rise to such request
ceases to be
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in effect (in which case the provisions of Section 4.4 shall be applicable);
provided that such suspension shall not affect the right of such Lender to
receive the compensation so requested.
(b) If, after the date hereof, any Lender shall have determined that
the adoption of any applicable law, rule, or regulation regarding capital
adequacy or any change therein or in the interpretation or administration
thereof by any governmental authority, central bank, or comparable agency
charged with the interpretation or administration thereof, or any request or
directive regarding capital adequacy (whether or not having the force of law) of
any such governmental authority, central bank, or comparable agency, has or
would have the effect of reducing the rate of return on the capital of such
Lender or any corporation controlling such Lender as a consequence of such
Lender's obligations hereunder to a level below that which such Lender or such
corporation could have achieved but for such adoption, change, request, or
directive (taking into consideration its policies with respect to capital
adequacy), then from time to time upon demand the Borrower shall pay to such
Lender such additional amount or amounts as will compensate such Lender for such
reduction.
(c) Each Lender shall promptly notify the Borrower and the Agent of any
event of which it has knowledge, occurring after the date hereof, which will
entitle such Lender to compensation pursuant to this Section and will designate
a different Applicable Lending Office if such designation will avoid the need
for, or reduce the amount of, such compensation and will not, in the reasonable
judgment of such Lender, be otherwise disadvantageous to it. Any Lender claiming
compensation under this Section shall furnish to the Borrower and the Agent a
statement setting forth the additional amount or amounts to be paid to it
hereunder which shall be conclusive in the absence of manifest error. In
determining such amount, such Lender may use any reasonable averaging and
attribution methods that such Lender uses for its customers that are similarly
situated to the Borrower.
4.2. Limitation on Types of Loans. If on or prior to the first day of
any Interest Period for any Eurodollar Rate Loan:
(a) the Agent reasonably determines (which determination shall
be conclusive) that by reason of circumstances affecting the relevant
market, adequate and reasonable means do not exist for ascertaining the
Eurodollar Rate for such Interest Period; or
(b) the Required Lenders reasonably determine (which
determination shall be conclusive) and notify the Agent that the
Eurodollar Rate will not adequately and fairly reflect the cost to the
Lenders of funding Eurodollar Rate Loans for such Interest Period;
then the Agent shall give the Borrower prompt notice thereof specifying the
relevant Type of Loans and the relevant amounts or periods, and so long as such
condition remains in effect, the Lenders shall be under no obligation to make
additional Loans of such Type, Continue Loans of such Type, or to Convert Loans
of any other Type into Loans of such Type and the Borrower shall, on the last
day(s) of the then current Interest Period(s) for the outstanding Loans of the
affected Type, either prepay such Loans or Convert such Loans into another Type
of Loan in accordance with the terms of this Agreement.
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4.3. Illegality. Notwithstanding any other provision of this Agreement,
in the event that it becomes unlawful for any Lender or its Applicable Lending
Office to make, maintain, or fund Eurodollar Rate Loans hereunder, then such
Lender shall promptly notify the Borrower thereof and such Lender's obligation
to make or Continue Eurodollar Rate Loans and to Convert other Types of Loans
into Eurodollar Rate Loans shall be suspended until such time as such Lender may
again make, maintain, and fund Eurodollar Rate Loans (in which case the
provisions of Section 4.4 shall be applicable).
4.4. Treatment of Affected Loans. If the obligation of any Lender to
make a Eurodollar Rate Loan or to Continue, or to Convert Loans of any other
Type into, Loans of a particular Type shall be suspended pursuant to Section 4.1
or 4.3 hereof (Loans of such Type being herein called "Affected Loans" and such
Type being herein called the "Affected Type"), such Lender's Affected Loans
shall be automatically Converted into Base Rate Loans on the last day(s) of the
then current Interest Period(s) for Affected Loans (or, in the case of a
Conversion required by Section 4.3 hereof, on such earlier date as such Lender
may specify to the Borrower with a copy to the Agent) and, unless and until such
Lender gives notice as provided below that the circumstances specified in
Section 4.1 or 4.3 hereof that gave rise to such Conversion no longer exist:
(a) to the extent that such Lender's Affected Loans have been
so Converted, all payments and prepayments of principal that would
otherwise be applied to such Lender's Affected Loans shall be applied
instead to its Base Rate Loans; and
(b) all Loans that would otherwise be made or Continued by
such Lender as Loans of the Affected Type shall be made or Continued
instead as Base Rate Loans, and all Loans of such Lender that would
otherwise be Converted into Loans of the Affected Type shall be
Converted instead into (or shall remain as) Base Rate Loans.
If such Lender gives notice to the Borrower (with a copy to the Agent) that the
circumstances specified in Section 4.1 or 4.3 hereof that gave rise to the
Conversion of such Lender's Affected Loans pursuant to this Section 4.4 no
longer exist (which such Lender agrees to do promptly upon such circumstances
ceasing to exist) at a time when Loans of the Affected Type made by other
Lenders are outstanding, such Lender's Base Rate Loans shall be automatically
Converted, on the first day(s) of the next succeeding Interest Period(s) for
such outstanding Loans of the Affected Type, to the extent necessary so that,
after giving effect thereto, all Loans held by the Lenders holding Loans of the
Affected Type and by such Lender are held pro rata (as to principal amounts,
Types, and Interest Periods) in accordance with their respective Short Term
Credit Commitments.
4.5. Compensation. Upon the request of any Lender, the Borrower shall
pay to such Lender such amount or amounts as shall be sufficient (in the
reasonable opinion of such Lender) to compensate it for any loss, cost, or
expense (including loss of anticipated profits) incurred by it as a result of:
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(a) any payment, prepayment, or Conversion of a Eurodollar
Rate Loan for any reason (including, without limitation, the
acceleration of the Loans pursuant to Section 9.1) on a date other than
the last day of the Interest Period for such Loan; or
(b) any failure by the Borrower for any reason (including,
without limitation, the failure of any condition precedent specified in
Article V to be satisfied) to borrow, Convert, Continue, or prepay an
Eurodollar Rate Loan on the date for such borrowing, Conversion,
Continuation, or prepayment specified in the relevant notice of
borrowing, prepayment, Continuation, or Conversion under this
Agreement.
4.6. Taxes. (a) Any and all payments by the Borrower to or for the
account of any Lender or the Agent hereunder or under any other Loan Document
shall be made free and clear of and without deduction for any and all present or
future taxes, duties, levies, imposts, deductions, charges or withholdings, and
all liabilities with respect thereto, excluding, in the case of each Lender and
the Agent, taxes imposed on its income, and franchise taxes imposed on it, by
the jurisdiction under the laws of which such Lender (or its Applicable Lending
Office) or the Agent (as the case may be) is organized or any political
subdivision thereof (all such non-excluded taxes, duties, levies, imposts,
deductions, charges, withholdings, and liabilities being hereinafter referred to
as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from
or in respect of any sum payable under this Agreement or any other Loan Document
to any Lender or the Agent, (i) the sum payable shall be increased as necessary
so that after making all required deductions (including deductions applicable to
additional sums payable under this Section 4.6) such Lender or the Agent
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions, (iii) the
Borrower shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law, and (iv) the Borrower
shall furnish to the Agent, at its address referred to in Section 11.2, the
original or a certified copy of a receipt evidencing payment thereof.
(b) In addition, the Borrower agrees to pay any and all present or
future stamp or documentary taxes and any other excise or property taxes or
charges or similar levies which arise from any payment made under this Agreement
or any other Loan Document or from the execution or delivery of, or otherwise
with respect to, this Agreement or any other Loan Document (hereinafter referred
to as "Other Taxes").
(c) The Borrower agrees to indemnify each Lender and the Agent for the
full amount of Taxes and Other Taxes (including, without limitation, any Taxes
or Other Taxes imposed or asserted by any jurisdiction on amounts payable under
this Section 4.6) paid by such Lender or the Agent (as the case may be) and any
liability (including penalties, interest, and expenses) arising therefrom or
with respect thereto.
(d) Each Lender organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Lender listed on the signature pages hereof and on
or prior to the date on which it becomes a Lender in the case of each other
Lender, and from time to time thereafter if requested in writing by the Borrower
or the Agent (but only so long as such Lender remains lawfully able to do so),
shall provide the Borrower
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and the Agent with (i) Internal Revenue Service Form 1001 or 4224, as
appropriate, or any successor form prescribed by the Internal Revenue Service,
certifying that such Lender is entitled to benefits under an income tax treaty
to which the United States is a party which reduces the rate of withholding tax
on payments of interest or certifying that the income receivable pursuant to
this Agreement is effectively connected with the conduct of a trade or business
in the United States, (ii) Internal Revenue Service Form W-8 or W-9, as
appropriate, or any successor form prescribed by the Internal Revenue Service,
and (iii) any other form or certificate required by any taxing authority
(including any certificate required by Sections 871(h) and 881(c) of the
Internal Revenue Code), certifying that such Lender is entitled to an exemption
from or a reduced rate of tax on payments pursuant to this Agreement or any of
the other Loan Documents.
(e) For any period with respect to which a Lender has failed to provide
the Borrower and the Agent with the appropriate form pursuant to Section 4.6(d)
(unless such failure is due to a change in treaty, law, or regulation occurring
subsequent to the date on which a form originally was required to be provided),
such Lender shall not be entitled to indemnification under Section 4.6(a),
4.6(b), or 4.6(c) with respect to Taxes imposed by the United States; provided,
however, that should a Lender, which is otherwise exempt from or subject to a
reduced rate of withholding tax, become subject to Taxes because of its failure
to deliver a form required hereunder, the Borrower shall take such steps as such
Lender shall reasonably request to assist such Lender to recover such Taxes.
(f) If the Borrower is required to pay additional amounts to or for the
account of any Lender pursuant to this Section 4.6, then such Lender will agree
to use reasonable efforts to change the jurisdiction of its Applicable Lending
Office so as to eliminate or reduce any such additional payment which may
thereafter accrue if such change, in the judgment of such Lender, is not
otherwise disadvantageous to such Lender.
(g) Within thirty (30) days after the date of any payment of Taxes, the
Borrower shall furnish to the Agent the original or a certified copy of a
receipt evidencing such payment.
(h) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 4.6 shall survive the termination of the Short Term Credit
Commitments and the payment in full of the Notes.
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ARTICLE V
Conditions to Making Loans and Issuing Letters of Credit
5.1. Conditions of Initial Advance. This Agreement shall not become
effective until the following conditions precedent have been satisfied in the
sole judgment of the Agent:
(a) the Agent shall have received on the Closing Date, in form
and substance satisfactory to the Agent and Lenders, the following:
(i) executed originals of each of this Agreement,
the Notes, the LC Account Agreement and the other Loan
Documents, together with all schedules and exhibits thereto;
(ii) the favorable written opinion or opinions with
respect to the Loan Documents and the transactions
contemplated thereby of counsel to the Borrower dated the
Closing Date, addressed to the Agent and the Lenders and
satisfactory to Smith Helms Mulliss & Moore, L.L.P., special
counsel to the Agent, substantially in the form of Exhibit H;
(iii) resolutions of the board of directors of the
Borrower certified by its secretary or assistant secretary as
of the Closing Date, approving and adopting the Loan Documents
to be executed by the Borrower, and authorizing the execution
and delivery and performance thereof;
(iv) specimen signatures of officers of the
Borrower executing the Loan Documents on behalf of the
Borrower, certified by the secretary or assistant secretary of
the Borrower;
(v) the charter documents of the Borrower
certified as of a recent date by the Secretary of State of its
state of organization;
(vi) the bylaws of the Borrower certified as of the
Closing Date as true and correct by its secretary or assistant
secretary;
(vii) certificates issued as of a recent date by the
Secretary of State of the jurisdiction of formation of the
Borrower as to the valid existence and good standing of the
Borrower;
(viii) notice of appointment of the initial
Authorized Representative(s);
(ix) evidence of all insurance required by the Loan
Documents;
(x) evidence that all fees payable by the Borrower
on the Closing Date to the Agent and the Lenders have been
paid in full;
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(xiii) such other documents, instruments,
certificates and opinions as the Agent or any Lender may
reasonably request on or prior to the Closing Date in
connection with the consummation of the transactions
contemplated hereby; and
(b) In the good faith judgment of the Agent and the Lenders:
(i) there shall not have occurred or become known
to the Agent or the Lenders any event, condition, situation or
status since December 31, 1997 that has had or could
reasonably be expected to result in a Material Adverse Effect;
(ii) no litigation, action, suit, investigation or
other arbitral, administrative or judicial proceeding shall be
pending or threatened which could reasonably be expected to
result in a Material Adverse Effect; and
(iii) the Borrower and its Consolidated Entities
shall have received all approvals, consents and waivers, and
shall have made or given all necessary filings and notices, as
shall be required to consummate the transactions contemplated
hereby without the occurrence of any default under, conflict
with or violation of (A) any applicable law, rule, regulation,
order or decree of any Governmental Authority or arbitral
authority or (B) any agreement, document or instrument to
which any of the Borrower or any Consolidated Entity is a
party or by which any of them or their properties is bound,
except for such approvals, consents, waivers, filings and
notices the receipt, making or giving of which will not have a
Material Adverse Effect.
5.2. Conditions of Loans and Letters of Credit. The obligations of the
Lenders to make any Loans, and the Issuing Bank to issue Letters of Credit,
hereunder on or subsequent to the Closing Date, are subject to the satisfaction
of the following conditions:
(a) the Agent shall have received a Borrowing Notice if
required by Article II;
(b) the representations and warranties of the Borrower and the
Subsidiaries set forth in Article VI and in each of the other Loan
Documents shall be true and correct in all material respects on and as
of the date of such Advance or Letter of Credit issuance or renewal,
with the same effect as though such representations and warranties had
been made on and as of such date, except to the extent that such
representations and warranties expressly relate to an earlier date and
except that the financial statements referred to in Section 6.6(a)
shall be deemed to be those financial statements most recently
delivered to the Agent and the Lenders pursuant to Section 7.1 from the
date financial statements are delivered to the Agent and the Lenders in
accordance with such Section;
(c) in the case of the issuance of a Letter of Credit, the
Borrower shall have executed and delivered to the Issuing Bank an
Application and Agreement for the Letter of Credit in form and content
acceptable to the Issuing Bank together with such other instruments and
documents as it shall request;
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(d) at the time of (and after giving effect to) each Advance
or the issuance of a Letter of Credit, no Default or Event of Default
shall have occurred and be continuing and there shall not be any
Existing Availability; and
(e) immediately after giving effect to:
(i) a Loan, the aggregate principal balance of all
outstanding Loans for each Lender plus such Lender's
Applicable Commitment Percentage of the aggregate amount of
Letter of Credit Outstandings shall not exceed such Lender's
Short Term Credit Commitment;
(ii) a Letter of Credit or renewal thereof, the
aggregate principal balance of all outstanding Participations
in Letters of Credit and Reimbursement Obligations (or in the
case of the Issuing Bank, its remaining interest after
deduction of all Participations in Letters of Credit and
Reimbursement Obligations of other Lenders) for each Lender
and in the aggregate shall not exceed, respectively, (X) such
Lender's Letter of Credit Commitment or (Y) the Total Letter
of Credit Commitment; and
(iii) a Loan or a Letter of Credit or renewal
thereof, the sum of Letter of Credit Outstandings plus the
aggregate principal amount of Short Term Credit Outstandings
shall not exceed the Total Short Term Credit Commitment.
Each borrowing hereunder and each issuance of a Letter of Credit
hereunder shall constitute a representation and warranty by the Borrower to the
effect that the conditions set forth in clauses (b) and (d) have been satisfied
as of the date of such borrowing.
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ARTICLE VI
Representations and Warranties
The Borrower represents and warrants with respect to itself and (to the
extent expressly set forth below) its Consolidated Entities (which
representations and warranties shall survive the delivery of the documents
mentioned herein and the making of Loans and the issuance of a Letter of
Credit), that:
6.1. Organization and Authority.
(a) The Borrower and each Consolidated Entity is a
corporation, partnership or limited liability company duly organized
and validly existing under the laws of the jurisdiction of its
formation;
(b) The Borrower and each Consolidated Entity (x) has the
requisite power and authority to own its properties and assets and to
carry on its business as now being conducted and as contemplated in the
Loan Documents, and (y) is qualified to do business in every
jurisdiction in which failure so to qualify would have a Material
Adverse Effect;
(c) The Borrower has the power and authority to execute,
deliver and perform this Agreement and the Notes, and to borrow and
obtain other extensions of credit hereunder, and to execute, deliver
and perform each of the other Loan Documents to which it is a party;
and
(d) When executed and delivered, each of the Loan Documents to
which the Borrower is a party will be the legal, valid and binding
obligation or agreement, as the case may be, of the Borrower,
enforceable against the Borrower in accordance with its terms, subject
to the effect of any applicable bankruptcy, moratorium, insolvency,
reorganization or other similar law affecting the enforceability of
creditors' rights generally and to the effect of general principles of
equity (whether considered in a proceeding at law or in equity).
6.2. Loan Documents. The execution, delivery and performance by the
Borrower of each of the Loan Documents and the credit extensions hereunder:
(a) have been duly authorized by all requisite corporate
actions (including any required shareholder approval) of the Borrower
required for the lawful execution, delivery and performance thereof;
(b) do not violate any provisions of (i) applicable law, rule
or regulation, (ii) any judgment, writ, order, determination, decree or
arbitral award of any Governmental Authority or arbitral authority
binding on the Borrower or any Subsidiary or its or any Subsidiary's
properties, or (iii) the charter documents or bylaws of the Borrower;
(c) do not and will not be in conflict with, result in a
breach of or constitute an event of default, or an event which, with
notice or lapse of time or both, would constitute an event
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of default, under any contract, indenture, agreement or other
instrument or document to which Borrower or any Consolidated Entity is
a party, or by which the properties or assets of the Borrower or any
Consolidated Entity are bound; and
(d) do not and will not result in the creation or imposition
of any Lien upon any of the properties or assets of Borrower or any
Subsidiary.
6.3. Solvency. The Borrower is Solvent and the Borrower and its
Consolidated Entities taken as a whole are Solvent, in each case after giving
effect to the transactions contemplated by the Loan Documents.
6.4. Subsidiaries. The Borrower has no Subsidiaries other than those
Persons listed as Subsidiaries in Schedule 6.4 and additional Subsidiaries
created or acquired after the Closing Date.
6.5. Ownership Interests. Borrower owns no interest in any Person other
than the Persons listed in Schedule 6.4, equity investments in Persons not
constituting Subsidiaries permitted under Section 8.2 and additional
Subsidiaries created or acquired after the Closing Date.
6.6. Financial Condition.
(a) The Borrower has heretofore furnished to the Agent and
each Lender an audited consolidated balance sheet of the Borrower and
its Consolidated Entities as at December 31, 1997 and the notes thereto
and the related consolidated statements of income, stockholders' equity
and cash flows for the Fiscal Year then ended as examined and certified
by Ernst & Young LLP. Except as set forth therein, such financial
statements (including the notes thereto) present fairly the financial
condition of the Borrower and its Consolidated Entities as of the end
of such Fiscal Year and results of their operations and the changes in
its stockholders' equity for the Fiscal Year, all in conformity with
GAAP applied on a Consistent Basis, subject however, in the case of
unaudited interim statements to year end audit adjustments;
(b) since December 31, 1997, there has been no material
adverse change in the condition, financial or otherwise, of the
Borrower or any of its Consolidated Entities, or in the businesses,
properties, performance, prospects or operations of the Borrower or any
of its Consolidated Subsidiaries nor have such businesses or properties
been materially adversely affected as a result of any fire, explosion,
earthquake, accident, strike, lockout, combination of workers, flood,
embargo or act of God; and
(c) neither the Borrower nor any Consolidated Entity has any
material Indebtedness, Guaranteed Obligations or other obligations or
liabilities, direct or contingent, in an aggregate amount in excess of
$300,000 other than (a) the liabilities reflected in such balance sheet
and the notes thereto, (b) $567,750,000 aggregate principal amount of
the Borrower's 3.25% Convertible Subordinated Debentures due 2003, (c)
$250,000,000 aggregate principal amount of the Borrower's 6.875% Senior
Notes due 2005 and $250,000,000 aggregate principal amount of the
Borrower's 7.0% Senior Notes due 2005,
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(d) Obligations arising under this Agreement, and (e) liabilities
incurred in the ordinary course of business.
6.7. Title to Properties. The Borrower and each Consolidated Entity has
good and marketable title to all its real and personal properties, subject to no
transfer restrictions or Liens of any kind, except for the transfer restrictions
and Liens permitted by this Agreement.
6.8. Taxes. The Borrower and each Consolidated Entity have filed or
caused to be filed all federal, state and local tax returns which are required
to be filed by it and, except for taxes and assessments being contested in good
faith by appropriate proceedings diligently conducted and against which reserves
reflected in the financial statements described in Section 6.6(a) and
satisfactory to the Borrower's independent certified public accountants have
been established, have paid or caused to be paid all taxes as shown on said
returns or on any assessment received by it, to the extent that such taxes have
become due.
6.9. Other Agreements. Except as disclosed in or incorporated by
reference in the 1997 10-K:
(a) neither the Borrower nor any Consolidated Entity is a
party to or subject to any judgment, order, decree, agreement, lease or
instrument, or subject to other restrictions, compliance with the terms
of which individually or in the aggregate could reasonably be likely to
have a Material Adverse Effect;
(b) neither the Borrower nor any Consolidated Entity is in
default in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in (i) any Medicaid
Provider Agreement, Medicare Provider Agreement or other agreement or
instrument to which the Borrower or any Consolidated Entity is a party,
which default has resulted in, or if not remedied within any applicable
grace period could result in, the revocation, termination, cancellation
or suspension of Medicaid Certification or Medicare Certification of
Borrower or any Consolidated Entity which could have a Material Adverse
Effect or (ii) any other agreement or instrument to which the Borrower
or any Consolidated Entity is a party, which default has, or if not
remedied within any applicable grace period could reasonably be likely
to have, a Material Adverse Effect;
(c) to the knowledge of Borrower's Executive Officers, no
Contract Provider is a party to any judgment, order, decree, agreement
or instrument, or subject to restrictions, compliance with the terms of
which could individually or in the aggregate reasonably be likely to
have a Material Adverse Effect; and
(d) to the knowledge of Borrower's Executive Officers, no
Contract Provider is in default in the performance, observance or
fulfillment of any of the obligations, covenants or conditions
contained in any Medicaid Provider Agreement, Medicare Provider
Agreement or other agreement or instrument to which such Person is a
party, which default has resulted in, or if not remedied within any
applicable grace period could result in, the revocation, termination,
cancellation or suspension of Medicaid Certification or Medicare
Certification
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of such Person, which revocation, termination, cancellation or
suspension could reasonably be likely to have a Material Adverse
Effect.
6.10. Litigation. Except as disclosed in or incorporated by reference
in the 1997 10-K, there is no action, suit, investigation or proceeding at law
or in equity or by or before any governmental instrumentality or agency or
arbitral body pending or, to the knowledge of the Borrower, threatened by or
against the Borrower or any Consolidated Entity or, to the knowledge of the
Borrower, pending or threatened by or against any Contract Provider, or
affecting the Borrower or any Consolidated Entity or, to the knowledge of the
Borrower, any Contract Provider or any properties or rights of the Borrower or
any Consolidated Entity or, to the knowledge of the Borrower, any Contract
Provider, which could reasonably be likely (i) to result in the revocation,
termination, cancellation or suspension of Medicaid Certification or Medicare
Certification of such Person, which revocation, termination, cancellation or
suspension could reasonably be likely to have a Material Adverse Effect, or (ii)
to have a Material Adverse Effect.
6.11. Margin Stock. The proceeds of the borrowings and other extensions
of credit made hereunder will be used by the Borrower only for the purposes
expressly authorized herein. None of such proceeds will be used, directly or
indirectly, for the purpose of purchasing or carrying any margin stock or for
the purpose of reducing or retiring any Indebtedness which was originally
incurred to purchase or carry margin stock or for any other purpose which might
constitute any of the Loans or Letters of Credit under this Agreement a "purpose
credit" within the meaning of Regulation U or Regulation X of the Board. Neither
the Borrower nor any agent acting in its behalf has taken or will take any
action which might cause this Agreement or any of the documents or instruments
delivered pursuant hereto to violate any regulation of the Board or to violate
the Exchange Act or the Securities Act of 1933, as amended, or any state
securities laws, in each case as in effect on the date hereof.
6.12. Investment Company. Neither the Borrower nor any Consolidated
Entity is an "investment company," or an "affiliated person" of, or "promoter"
or "principal underwriter" for, an "investment company", as such terms are
defined in the Investment Company Act of 1940, as amended (15 U.S.C. ss. 80a-1,
et seq.). The application of the proceeds of the Loans and repayment thereof by
the Borrower and the issuance of Letters of Credit and the performance by the
Borrower and any Consolidated Entity of the transactions contemplated by the
Loan Documents will not violate any provision of said Act, or any rule,
regulation or order issued by the Securities and Exchange Commission thereunder,
in each case as in effect on the date hereof.
6.13. Patents, Etc. Except as set forth on Schedule 6.13, the Borrower
and each Consolidated Entity owns or has the right to use, under valid license
agreements or otherwise, all material patents, licenses, franchises, trademarks,
trademark rights, trade names, trade name rights, trade secrets, service marks,
service mark rights and copyrights necessary to or used in the conduct of its
businesses as now conducted and as contemplated by the Loan Documents, without
known conflict by, or with, any patent, license, franchise, trademark, trade
secret, trade name, service mark, copyright or other proprietary right of, any
other Person.
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6.14. No Untrue Statement. Neither (a) this Agreement nor any other
Loan Document or certificate or document executed and delivered by or on behalf
of the Borrower or any Consolidated Entity in accordance with or pursuant to any
Loan Document nor (b) any statement, representation, or warranty provided to the
Agent or any Lender in connection with the negotiation or preparation of the
Loan Documents contains any misrepresentation or untrue statement of material
fact or omits to state a material fact necessary, in light of the circumstance
under which it was made, in order to make any such warranty, representation or
statement contained therein not misleading.
6.15. No Consents, Etc. Neither the respective businesses or properties
of the Borrower or any Consolidated Entity, nor any relationship between the
Borrower or any Consolidated Entity and any other Person, nor any circumstance
in connection with the execution, delivery and performance of the Loan Documents
and the transactions contemplated thereby, is such as to require a consent,
approval or authorization of, or filing, registration or qualification with, any
Governmental Authority or any other Person on the part of the Borrower or any
Consolidated Entity as a condition to the execution, delivery and performance
of, or consummation of the transactions contemplated by, or the validity or
enforceability of, the Loan Documents, which, if not obtained or effected, would
be reasonably likely to have a Material Adverse Effect, or if so, such consent,
approval, authorization, filing, registration or qualification has been duly
obtained or effected, as the case may be;
6.16. ERISA Requirement. (i) The execution and delivery of the Loan
Documents will not involve any prohibited transaction within the meaning of
ERISA, (ii) the Borrower and each ERISA Affiliate has fulfilled its obligations
under the minimum funding standards imposed by ERISA and each is in compliance
in all material respects with the applicable provisions of ERISA, and (iii) no
"Reportable Event," as defined in Section 4043(b) of Title IV of ERISA, has
occurred with respect to any plan maintained by the Borrower or any of its ERISA
Affiliate.
6.17. No Default. As of the date hereof, there does not exist any
Default or Event of Default.
6.18. Hazardous Materials. The Borrower and each Consolidated Entity is
in compliance with all applicable Environmental Laws in all material respects.
Neither the Borrower nor any Consolidated Entity has been notified of any
action, suit, proceeding or investigation which, and neither the Borrower nor
any Consolidated Entity is aware of any facts which, (i) calls into question, or
could reasonably be expected to call into question, compliance in all material
respects by the Borrower or any Consolidated Entity with any Environmental Laws,
(ii) which seeks, or could reasonably be expected to form the basis of a
meritorious proceeding, to suspend, revoke or terminate any material license,
permit or approval necessary for the generation, handling, storage, treatment or
disposal of any Hazardous Material, or (iii) seeks to cause, or could reasonably
be expected to form the basis of a meritorious proceeding to cause, any property
of the Borrower or any Consolidated Entity material to the operations of the
Borrower or such Consolidated Entity to be subject to any material restrictions
on ownership, use, occupancy or transferability under any Environmental Law.
6.19. Employment Matters. (a) Except as set forth on Schedule 6.19,
none of the employees of the Borrower or any Consolidated Entity is subject to
any collective bargaining agreement and there are no strikes, work stoppages,
election or decertification petitions or proceedings, unfair labor
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charges, equal opportunity proceedings, or other material labor/employee related
controversies or proceedings pending or, to the best knowledge of the Borrower,
threatened against the Borrower or any Consolidated Entity or between the
Borrower or any Consolidated Entity and any of its employees, other than
employee grievances, controversies or proceedings arising in the ordinary course
of business which could not reasonably be likely, individually or in the
aggregate, to have a Material Adverse Effect; and
(b) Except to the extent a failure to maintain compliance would not
have a Material Adverse Effect, the Borrower and each Consolidated Entity is in
compliance in all respects with all applicable laws, rules and regulations
pertaining to labor or employment matters, including without limitation those
pertaining to wages, hours, occupational safety and taxation and there is
neither pending nor threatened any litigation, administrative proceeding or, to
the knowledge of the Borrower, any investigation, in respect of such matters
which, if decided adversely, could reasonably be likely, individually or in the
aggregate, to have a Material Adverse Effect.
6.20. RICO. Neither the Borrower nor any Consolidated Entity is engaged
in or has engaged in any course of conduct that could subject any of their
respective properties to any Lien, seizure or other forfeiture under any
criminal law, racketeer influenced and corrupt organizations law, civil or
criminal, or other similar laws.
6.21. Reimbursement from Third Party Payors. The accounts receivable of
the Borrower and each Consolidated Entity and each Contract Provider have been
and will continue to be adjusted to reflect reimbursement policies of third
party payors such as Medicare, Medicaid, Blue Cross/Blue Shield, private
insurance companies, health maintenance organizations, preferred provider
organizations, alternative delivery systems, managed care systems, government
contracting agencies and other third party payors. In particular, accounts
receivable relating to such third party payors do not and shall not exceed
amounts any obligee is entitled to receive under any capitation arrangement, fee
schedule, discount formula, cost-based reimbursement or other adjustment or
limitation to its usual charges.
6.22. Year 2000 Compliance. The Borrower has (i) initiated a review and
assessment of all areas within its and each of its Consolidated Entities'
business and operations (including those affected by suppliers, vendors, and
customers) that could be adversely affected by the "Year 2000 Problem" (that is,
the risk that computer applications used by the Borrower or any of its
Consolidated Entities (or suppliers, vendors and customers) may be unable to
recognize and perform properly date-sensitive functions involving certain dates
prior to and any date after December 31, 1999), (ii) developed a plan and
timeline for addressing the Year 2000 Problem on a timely basis, and (iii) to
date, implemented that plan in accordance with that timetable. Based on the
foregoing, the Borrower believes that all computer applications (including those
of its suppliers, vendors and customers) that are material to its or any of its
Consolidated Entities' business and operations are reasonably expected on a
timely basis to be able to perform proper date-sensitive functions for all dates
before and after January 1, 2000 (that is, be "Year 2000 compliant"), except to
the extent that a failure to do so could not reasonably be expected to have a
Material Adverse Effect.
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ARTICLE VII
Affirmative Covenants
Until the Short Term Credit Termination Date and termination of this
Agreement in accordance with the terms hereof, unless the Required Lenders shall
otherwise consent in writing, the Borrower will, and where applicable will cause
each Consolidated Entity to:
7.1. Financial Statements, Reports, Etc. The Borrower shall deliver or
cause to be delivered to the Agent and each Lender:
(a) Not later than 50 days after the end of each of the first
three quarters of each Fiscal Year, a balance sheet and a statement of
income of the Borrower and its Consolidated Entities on a consolidated
basis and a statement of cash flow of the Borrower and its Consolidated
Entities on a consolidated basis for such calendar quarter and for the
period beginning on the first day of such Fiscal Year and ending on the
last day of such quarter (in sufficient detail to indicate the
Borrower's and each Consolidated Entity's compliance with the financial
covenants set forth in Section 8.1), together with statements in
comparative form for the corresponding date or period in the preceding
Fiscal Year as summarized in the Borrower's Form 10-Q for the
corresponding period, and certified as to fairness, accuracy and
completeness by the chief executive officer, chief financial officer or
Treasurer of the Borrower.
(b) Not later than 100 days after the end of each Fiscal Year,
financial statements (including a balance sheet, a statement of income,
a statement of changes in shareholders' equity and a statement of cash
flow) of the Borrower and its Consolidated Entities on a consolidated
basis for such Fiscal Year (in sufficient detail to indicate the
Borrower's and each Consolidated Entity's compliance with the financial
covenants set forth in Section 8.1), together with statements in
comparative form as of the end of and for the preceding Fiscal Year as
summarized in the Borrower's Form 10-K for the corresponding period,
and accompanied by an opinion of certified public accountants
acceptable to the Agent, which opinion shall state in effect that such
financial statements (A) were audited using generally accepted auditing
standards, (B) were prepared in accordance with generally accepted
accounting principles applied on a Consistent Basis, and (C) present
fairly the financial condition and results of operations of the
Borrower and its Consolidated Entities for the periods covered.
(c) Together with the financial statements required by
subsections (a) and (b) above a compliance certificate duly executed by
the chief executive officer or chief financial officer or Treasurer of
the Borrower in the form of Exhibit I ("Compliance Certificate").
(d) Contemporaneously with the distribution thereof to the
Borrower's or any Consolidated Entity's stockholders or partners or the
filing thereof with the Securities and Exchange Commission, as the case
may be, copies of all statements, reports, notices and filings
distributed by the Borrower or any Consolidated Entity to its
stockholders or partners
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or filed with the Securities and Exchange Commission (including reports
on SEC Forms 10-K, 10-Q and 8-K).
(e) Promptly after the Borrower knows or has reason to know of
the occurrence of any "reportable event" under Section 4043 of ERISA
applicable to the Borrower or any ERISA Affiliate, a certificate of the
president or chief financial officer of the Borrower setting forth the
details as to such "reportable event" and the action that the Borrower
or the ERISA Affiliate has taken or will take with respect thereto, and
promptly after the filing or receiving thereof, copies of all reports
and notices that the Borrower and each Consolidated Entity files under
ERISA with the Internal Revenue Service or the PBGC or the United
States Department of Labor.
(f) Promptly after the Borrower or any of its Consolidated
Entities becomes aware of the commencement thereof, notice of any
investigation, action, suit or proceeding before any Governmental
Authority involving the condemnation or taking under the power of
eminent domain of any of its property or the revocation or suspension
of any permit, license, certificate of need or other governmental
requirement applicable to any Facility.
(g) Within 10 days of the receipt by the Borrower or any of
its Consolidated Entities, copies of all material deficiency notices,
compliance orders or adverse reports issued by any Governmental
Authority or accreditation commission having jurisdiction over
licensing, accreditation or operation of a Facility or by any
Governmental Authority or private insurance company pursuant to a
provider agreement, which, if not promptly complied with or cured,
could result in the suspension or forfeiture of any license,
certification or accreditation necessary in order for such Facility to
carry on its business as then conducted or the termination of any
material insurance or reimbursement program available to such Facility.
(h) Such other information regarding any Facility or the
financial condition or operations of the Borrower or its Consolidated
Entities as the Agent shall reasonably request from time to time or at
any time.
7.2. Maintain Properties. Maintain all properties necessary to its
operations in good working order and condition, make all needed repairs,
replacements and renewals to such properties, and maintain free from Liens all
trademarks, trade names, service marks, patents, copyrights, trade secrets,
know-how, and other intellectual property and proprietary information (or
adequate licenses thereto), in each case as are reasonably necessary to conduct
its business as currently conducted or as contemplated hereby, all in accordance
with customary and prudent business practices.
7.3. Existence, Qualification, Etc. Except as otherwise expressly
permitted under Section 8.4, do or cause to be done all things necessary to
preserve and keep in full force and effect its existence and all material rights
and franchises, and maintain its license or qualification to do business as a
foreign corporation and good standing in each jurisdiction in which its
ownership or lease of property or the nature of its business makes such license
or qualification necessary.
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7.4. Regulations and Taxes. Comply in all material respects with or
contest in good faith all statutes and governmental regulations and pay all
taxes, assessments, governmental charges, claims for labor, supplies, rent and
any other obligation which, if unpaid, would become a Lien against any of its
properties except liabilities being contested in good faith by appropriate
proceedings diligently conducted and against which adequate reserves acceptable
to the Borrower's independent certified public accountants have been established
unless and until any Lien resulting therefrom attaches to any of its property
and becomes enforceable by its creditors.
7.5. Insurance. At all times maintain in force, and pay all premiums
and costs related to, insurance coverages in amounts deemed by the management of
the Borrower to be sufficient in accordance with usual and customary business
practices and any other coverages required under applicable governmental
requirements. The Borrower shall deliver to the Agent annually on or before each
anniversary date of this Agreement, and at such other time or times as the Agent
may request (but not more often than monthly), a certificate of the president or
chief financial officer of the Borrower setting out in such detail as the Agent
may reasonably require a description of all insurance coverages maintained by
the Borrower and each Consolidated Entity. The Agent shall have no obligation to
give the Borrower or any Consolidated Entity notice of any notification received
by the Agent with respect to any insurance policies or take any steps to protect
the Borrower's or any Consolidated Entity's interests under such policies.
7.6. True Books. Keep true books of record and account in which full,
true and correct entries will be made of all of its dealings and transactions,
and set up on its books such reserves as may be required by GAAP with respect to
doubtful accounts and all taxes, assessments, charges, levies and claims and
with respect to its business in general, and include such reserves in interim as
well as year-end financial statements.
7.7. Right of Inspection. Permit any Person designated by the Agent to
visit and inspect any of the properties, corporate books and financial reports
of the Borrower or any Subsidiary and to discuss its affairs, finances and
accounts with its principal officers and independent certified public
accountants, all at reasonable times, at reasonable intervals and with
reasonable prior notice.
7.8. Observe all Laws. Conform to and duly observe, and cause all
Contract Providers to conform to and duly observe, in all material respects all
laws, rules and regulations and all other valid requirements of any regulatory
authority with respect to the conduct of its business, including without
limitation Titles XVIII and XIX of the Social Security Act, Medicare
Regulations, Medicaid Regulations, and all laws, rules and regulations of
Governmental Authorities pertaining to the licensing of professional and other
health care providers, except where the failure to do so could not reasonably be
likely to have a Material Adverse Effect.
7.9. Governmental Licenses. Obtain and maintain, and use reasonable
effort to cause all Contract Providers to obtain and maintain, all licenses,
permits, certifications and approvals of all applicable Governmental Authorities
as are required for the conduct of its business as currently conducted and
herein contemplated, including without limitation professional licenses,
Medicaid Certifications and Medicare Certifications, except where the failure to
do so could not reasonably be likely to have a Material Adverse Effect.
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7.10. Covenants Extending to Other Persons. Cause each of its
Consolidated Entities to do with respect to itself, its business and its assets,
each of the things required of the Borrower in Sections 7.2 through 7.9, 7.15
and 7.16 inclusive.
7.11. Officer's Knowledge of Default. Upon any Executive Officer of the
Borrower obtaining knowledge of any Default or Event of Default or any default
or event of default under any other obligation of the Borrower or any
Consolidated Entity to any Lender, or any event, development or occurrence which
could reasonably be expected to have a Material Adverse Effect, cause such
Executive Officer or an Authorized Representative to promptly notify the Agent
of the nature thereof, the period of existence thereof, and what action the
Borrower or such Consolidated Entity proposes to take with respect thereto. The
Agent shall notify the Lenders of receipt of such notice.
7.12. Suits or Other Proceedings. Upon any Executive Officer of the
Borrower obtaining knowledge of any litigation or other proceedings being
instituted (i) against the Borrower or any Subsidiary, or any attachment, levy,
execution or other process being instituted against any assets of the Borrower
or any Subsidiary or Controlled Partnership, which if adversely determined could
reasonably be likely to have a Material Adverse Effect or (ii) against the
Borrower, any Subsidiary or any Contract Provider (but only with respect to
services provided to the Borrower or any Consolidated Entity) to suspend, revoke
or terminate any Medicaid Provider Agreement, Medicaid Certification, Medicare
Provider Agreement or Medicare Certification, which suspension, revocation or
termination could reasonably be likely to have a Material Adverse Effect, cause
such Executive Officer or an Authorized Representative to promptly deliver to
the Agent written notice thereof stating the nature and status of such
litigation, dispute, proceeding, levy, execution or other process.
7.13. Notice of Discharge of Hazardous Material or Environmental
Complaint. Promptly provide to the Agent true, accurate and complete copies of
any and all notices, complaints, orders, directives, claims, or citations
received by the Borrower or any Consolidated Entity relating to any of the
following which is likely to have a Material Adverse Effect: (a) violation or
alleged violation by the Borrower or any Consolidated Entity of any applicable
Environmental Law; (b) release or threatened release by the Borrower or any
Consolidated Entity, or at any Facility or property owned or leased or operated
by the Borrower or any Consolidated Entity, of any Hazardous Material, except
where occurring legally; or (c) liability or alleged liability of the Borrower
or any Consolidated Entity for the costs of cleaning up, removing, remediating
or responding to a release of Hazardous Materials.
7.14. Environmental Compliance. If the Borrower or any Consolidated
Entity shall receive any letter, notice, complaint, order, directive, claim or
citation from any Governmental Authority alleging that the Borrower or any
Consolidated Entity has violated any Environmental Law or is liable for the
costs of cleaning up, removing, remediating or responding to a release of
Hazardous Materials within the time period permitted by the applicable
Environmental Law or the Governmental Authority responsible for enforcing such
Environmental Law, remove or remedy, or cause the applicable Consolidated Entity
to remove or remedy, such violation or release or satisfy such liability unless
and only during the period that the applicability of such Environmental Law, the
fact of such violation or liability or what is required to remove or remedy such
violation is being
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contested by the Borrower or the applicable Consolidated Entity by appropriate
proceedings diligently conducted and all reserves with respect thereto as may be
required under GAAP, if any, have been made, and no Lien in connection therewith
shall have attached to any property of the Borrower or the applicable
Consolidated Entity which shall have become enforceable against creditors of
such Person.
7.15. Continuation of Current Business. Not engage in any business
other than the business now being conducted by the Borrower (including its
Consolidated Entities) and other businesses directly related to such services.
7.16. Management Contracts. Not enter into any agreement whereby the
management, supervision or control of its business or any Facility shall be
delegated to or placed in any persons other than its governing body and
officers, the Borrower or a Consolidated Entity, except that management of the
Facility owned by Vanderbilt Stallworth Rehabilitation Hospital, L.P. is vested
in part in a Governance Committee and in part in a Subsidiary of the Borrower
pursuant to the applicable limited partnership agreement and a management
agreement.
7.17. Year 2000 Compliance. The Borrower will promptly notify the Agent
in the event the Borrower discovers or determines that any computer application
(including those of its suppliers, vendors, and customers) that is material to
its or any of its Consolidated Entities' business and operations will not be
Year 2000 compliant, except to the extent that such failure could not reasonably
be expected to have a Material Adverse Effect.
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ARTICLE VIII
Negative Covenants
Until the Short Term Credit Termination Date and termination of this
Agreement in accordance with the terms hereof, unless the Required Lenders shall
otherwise consent in writing, the Borrower will not, nor will it permit any
Consolidated Entity to:
8.1. Financial Covenants.
(a) Minimum Net Worth. Permit Consolidated Net Worth to be
less than $2,750,000,000 plus (A) 50% of Consolidated Net Income (if
positive and including for purposes of this Section 8.1(a) only any
extraordinary gain), on an ongoing basis for each fiscal quarter
beginning with the fiscal quarter ended June 30, 1998, plus (B) the
aggregate amount of all increases, if any, in its capital accounts
resulting from the issuance of Capital Stock or conversion of debt into
Capital Stock or other securities properly classified as equity in
accordance with generally accepted accounting principles, or from the
sale or other disposition of treasury shares, from the date of this
Agreement through the date of determination plus (c) without
duplication, any addition to Consolidated Stockholders' Equity
resulting from an Acquisition after the Closing Date which shall be
accounted for on a pooling-of-interests basis.
(b) Consolidated EBITDA to Consolidated Interest Expense
Ratio. Permit the ratio of Consolidated EBITDA to Consolidated Interest
Expense at any time to be less than or equal to 2.50 to 1.00.
(c) Consolidated Indebtedness to Consolidated Total Capital.
Permit the ratio of Consolidated Indebtedness to Consolidated Total
Capital at any time to equal or exceed 0.65 to 1.00.
8.2. Investments and Loans. Purchase or otherwise acquire any stock,
security, obligation or evidence of indebtedness of, make any capital
contribution to, own any equity interest in, or make any loan or advance to, any
other Person; provided, however, that the Borrower and its Consolidated Entities
may (A) continue to hold all stock of and own partnership interests in the
Persons that constitute Consolidated Entities on the Closing Date and Persons
that thereafter become Consolidated Entities as a result of Acquisitions
permitted under Section 8.8; (B) make Permitted Investments; and (C) make other
investments in an amount not exceeding 15% of Consolidated Total Assets.
8.3. Indebtedness. Permit to exist Indebtedness, howsoever evidenced,
of Subsidiaries and Controlled Partnerships (exclusive of Indebtedness to the
Borrower) in an aggregate amount at any time exceeding the greater of
$70,000,000 or 15% of Consolidated Tangible Net Worth, excluding, however,
Indebtedness of Subsidiaries and Controlled Partnerships existing as of the date
hereof and described on Schedule 8.3.
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8.4. Disposition of Assets. Sell, lease or otherwise dispose of assets
in excess of 15% of Consolidated Total Assets as at the Closing Date plus an
amount equal to 15% of assets acquired following the Closing Date.
8.5. Consolidation or Merger. Merge or consolidate with another Person
unless (i) in the case of a merger or consolidation of the Borrower, the
Borrower is the continuing or surviving entity, (ii) in the case of a merger or
consolidation involving a Consolidated Entity, the continuing or surviving
entity is majority-owned by the Borrower (with such majority ownership
constituting a controlling interest), and (iii) before and after giving effect
to the proposed merger or consolidation, no Default or Event of Default shall
exist.
8.6. Liens. Incur, create, assume or permit to exist any Lien upon any
of its accounts receivable, contract rights, chattel paper, inventory,
equipment, instruments, general intangibles or other personal or real property
of any character, whether now owned or hereafter acquired, other than (i) Liens
that constitute Permitted Encumbrances, and (ii) Liens on assets which at no
time have a book value of greater than 5% of Consolidated Total Assets.
8.7. Dividends and Distributions. Permit any Consolidated Entity to be
or become subject to any restrictions on the ability of such Consolidated Entity
to pay dividends or to make partnership distributions other than as required by
this Agreement or restrictions imposed by applicable law.
8.8. Acquisitions. Enter into any agreement to acquire any Person or
Facility unless (i) the Person or Facility to be acquired is in substantially
the same line of business presently engaged in by the Borrower or its
Consolidated Entities, and (ii) if the Cost of Acquisition exceeds $150,000,000
the Borrower shall have furnished to the Agent (A) pro forma historical
financial statements as of the end of the most recently completed Fiscal Year of
the Borrower and most recent interim fiscal quarter, if applicable, giving
effect to such Acquisition and (B) a Compliance Certificate prepared on an
historical pro forma basis giving effect to such Acquisition, which certificate
shall demonstrate that no Default or Event of Default would exist immediately
after giving effect thereto.
8.9. Restricted Payments. Make any Restricted Payment or apply or set
apart any of their assets therefor or agree to do any of the foregoing;
provided, however, the Borrower may make the Restricted Payments in any Fiscal
Year (on a non-cumulative basis, with the effect that amounts not paid in any
Fiscal Year may not be carried over for payment in a subsequent period) if
immediately prior and immediately after giving effect thereto no Default or
Event of Default shall exist or occur and be continuing.
8.10. Compliance with ERISA. With respect to any Pension Plan, Employee
Benefit Plan or Multiemployer Plan:
(a) permit the occurrence of any Termination Event which would
result in a liability on the part of the Borrower or any ERISA
Affiliate to the PBGC which liability would have a Material Adverse
Effect; or
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(b) permit the present value of all benefit liabilities under
all Pension Plans to exceed the current value of the assets of such
Pension Plans allocable to such benefit liabilities; or
(c) permit any accumulated funding deficiency (as defined in
Section 302 of ERISA and Section 412 of the Code) with respect to any
Pension Plan, whether or not waived; or
(d) fail to make any contribution or payment to any
Multiemployer Plan which the Borrower or any ERISA Affiliate may be
required to make under any agreement relating to such Multiemployer
Plan, or any law pertaining thereto; or
(e) engage, or permit any Subsidiary or any ERISA Affiliate to
engage, in any prohibited transaction under Section 406 of ERISA or
Section 4975 of the Code for which a civil penalty pursuant to Section
502(I) of ERISA or a tax pursuant to Section 4975 of the Code may be
imposed; or
(f) permit the establishment of any Employee Benefit Plan
providing post-retirement welfare benefits or establish or amend any
Employee Benefit Plan which establishment or amendment could result in
liability to the Borrower or any ERISA Affiliate or increase the
obligation of the Borrower or any ERISA Affiliate to a Multiemployer
Plan which liability or increase, individually or together with all
similar liabilities and increases, is in excess of $5,000,000; or
(g) fail, or permit any Subsidiary or any ERISA Affiliate to
fail, to establish, maintain and operate each Employee Benefit Plan in
compliance in all material respects with the provisions of ERISA, the
Code, all applicable Foreign Benefit Laws and all other applicable laws
and the regulations and interpretations thereof.
8.11. Fiscal Year. Change its Fiscal Year (other than a change to
conform the fiscal year of a Consolidated Entity to that of the Borrower).
8.12. Dissolution, etc. Wind up, liquidate or dissolve (voluntarily or
involuntarily) or commence or suffer any proceedings seeking any such winding
up, liquidation or dissolution, except in connection with a merger or
consolidation permitted pursuant to Section 8.5 or where the liquidation or
dissolution of a Consolidated Entity occurs in the ordinary course of business
and does not have a Material Adverse Effect.
8.13. Transactions with Affiliates. Other than transactions permitted
under Sections 8.2 and 8.5, enter into any transaction after the Closing Date,
including, without limitation, the purchase, sale, lease or exchange of
property, real or personal, or the rendering of any service, with any Affiliate
of the Borrower, except (a) that such Persons may render services to the
Borrower for compensation at the same rates generally paid by Persons engaged in
the same or similar businesses for the same or similar services, (b) that the
Borrower may render services to such Persons for compensation at the same rates
generally charged by the Borrower and (c) in either case in the
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ordinary course of business and pursuant to the reasonable requirements of the
Borrower's business consistent with past practice of the Borrower and upon fair
and reasonable terms no less favorable to the Borrower than would be obtained in
a comparable arm's-length transaction with a Person not an Affiliate;
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ARTICLE IX
Events of Default and Acceleration
9.1. Events of Default. If any one or more of the following events
(herein called "Events of Default") shall occur for any reason whatsoever (and
whether such occurrence shall be voluntary or involuntary or come about or be
effected by operation of law or pursuant to or in compliance with any judgment,
decree or order of any court or any order, rule or regulation of any
Governmental Authority), that is to say:
(a) the Borrower shall fail to pay (i) when due any principal
payable under the terms of any Note or any Reimbursement Obligation or
(ii) not later than five Business Days of the date when due any
interest or fees payable under the terms of any Note or any other
amount payable under this Agreement or any other of the other
Obligations or any other amount owed to the Agent or any of the Lenders
under or in connection with the Loan Documents; or
(b) The Borrower or any Material Group shall default in the
performance or observance of any other provision of this Agreement
(other than the provisions of Article VII and Article VIII), except as
covered by clause (a) above, and shall not cure such default within
thirty days after the first to occur of (i) the date the Agent or any
Lender gives written or telephonic notice of such default to the
Borrower or (ii) the date the Borrower otherwise has notice thereof; or
(c) the Borrower or any Material Group shall default in the
observance or performance of any provision in Article VII or Article
VIII; or
(d) the Agent shall reasonably determine that any statement,
certification, representation or warranty contained herein, or in any
of the other Loan Documents or in any report, financial statement,
certificate or other instrument delivered to the Agent or any Lender by
or on behalf of the Borrower or any Consolidated Entity, was misleading
or untrue in any material respect at the time it was made or deemed
made; or
(e) default shall be made (i) in the payment of any
Indebtedness exceeding $5,000,000 (other than the Obligations) of the
Borrower or any Consolidated Entity when due or (ii) in the
performance, observance or fulfillment of any term or covenant
contained in any agreement or instrument under or pursuant to which any
such Indebtedness may have been issued, created, assumed, guaranteed or
secured by Borrower or any Consolidated Entity, if the effect of such
default in the performance, observance or fulfillment is to accelerate
the maturity of such Indebtedness or to permit the holder thereof to
cause such Indebtedness to become due prior to its stated maturity, and
such default shall not be cured within 10 days after the occurrence of
such default, and the amount of the Indebtedness involved exceeds
$5,000,000; or
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(f) the Borrower or any Material Group shall fail to pay or
admit in writing its inability to pay its or their debts generally as
they come due, or a receiver, trustee, liquidator or other custodian
shall be appointed for the Borrower or any Material Group or for any of
the property of the Borrower or any Material Group or a petition in
bankruptcy, or under any insolvency law, shall be filed by or against
the Borrower or any Material Group or the Borrower or any Material
Group shall apply for the benefit of, or take advantage of, any law for
relief of debtors, or enter into an arrangement or composition with, or
make an assignment for the benefit of, creditors; or
(g) final judgment for the payment of money in excess of any
aggregate of $500,000 shall be rendered against the Borrower or any
Material Group, and the same shall remain undischarged for a period of
30 days during which execution shall not be effectively stayed; or
(h) an event of default, as therein defined, shall occur under
any other Loan Document; or
(i) any of the Notes or LC Account Agreement shall be deemed
unenforceable by a court of competent jurisdiction or shall no longer
be effective; or
(j) the Borrower or any Consolidated Entity shall, other than
in the ordinary course of business (as determined by past practices),
suspend all or any part of its operations material to the conduct of
the business of the Borrower and its Consolidated Entities, taken as a
whole, for a period of more than 60 days;
(k) the Borrower or any Consolidated Entity shall breach any
of the material terms or conditions of any agreement under which any
Rate Hedging Obligations are created and such breach shall continue
beyond any grace period, if any, relating thereto pursuant to the terms
of such agreement, or the Borrower or any Consolidated Entity shall
disaffirm or seek to disaffirm any such agreement or any of its
obligations thereunder;
(l) there shall occur (i) any cancellation, revocation,
suspension or termination of any Medicare Certification, Medicare
Provider Agreement, Medicaid Certification or Medicaid Provider
Agreement affecting the Borrower, any Subsidiary or any Contract
Provider, or (ii) the loss of any other permits, licenses,
authorizations, certifications or approvals from any federal, state or
local Governmental Authority or termination of any contract with any
such authority, in either case which cancellation, revocation,
suspension, termination or loss (X) in the case of any suspension or
temporary loss only, continues for a period greater than 60 days and
(Y) results in the suspension or termination of operations of the
Borrower or any Subsidiary or in the failure of the Borrower or any
Subsidiaries or any Contract Provider to be eligible to participate in
Medicare or Medicaid programs or to accept assignments of rights to
reimbursement under Medicaid Regulations or Medicare Regulations, if
and only if such Person, in the ordinary course of business,
participates in the Medicare or Medicare programs or accepts
assignments of rights to reimbursement thereunder; provided that any
such events described in this Section 9.1(l) shall constitute an
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Event of Default only if such event shall result either singly or in
the aggregate in the termination, cancellation, suspension or material
impairment of operations or rights to reimbursement which produce 5% or
more of the Borrower's gross revenues (on an annualized basis); or
(m) there shall occur a Change of Control;
then, and in any such event and at any time thereafter, if such Event of Default
or any other Event of Default shall then be continuing and shall have not been
waived,
(A) either or both of the following actions may be taken: (i)
the Agent, with the consent of the Required Lenders, may, and at the
direction of the Required Lenders shall, declare any obligation of the
Lenders and the Issuing Bank to make further Loans or to issue
additional Letters of Credit terminated, whereupon the obligation of
each Lender to make further Loans and of the Issuing Bank to issue
additional Letters of Credit hereunder shall terminate immediately, and
(ii) the Agent shall at the direction of the Required Lenders, at their
option, declare by notice to the Borrower any or all of the Obligations
to be immediately due and payable, and the same, including all interest
accrued thereon and all other obligations of the Borrower to the Agent
and the Lenders, shall forthwith become immediately due and payable
without presentment, demand, protest, notice or other formality of any
kind, all of which are hereby expressly waived, anything contained
herein or in any instrument evidencing the Obligations to the contrary
notwithstanding; provided, however, that notwithstanding the above, if
there shall occur an Event of Default under clause (f) above, then the
obligation of the Lenders to make Loans and of the Issuing Bank to
issue Letters of Credit hereunder shall automatically terminate and any
and all of the Obligations shall be immediately due and payable without
the necessity of any action by the Agent or the Required Lenders or
notice to the Agent or the Lenders; and
(B) the Borrower shall, upon demand of the Agent or the
Required Lenders, deposit cash with the Agent in an amount equal to the
aggregate amount remaining undrawn under all outstanding Letters of
Credit, as collateral security for the repayment of any future drawings
or payments under such Letters of Credit, and such amounts shall be
held by the Agent pursuant to the terms of the LC Account Agreement;
and
(C) the Agent and each of the Lenders shall have all of the
rights and remedies available under the Loan Documents or under any
applicable law.
9.2. Agent to Act. In case any one or more Events of Default shall
occur and be continuing and not have been waived, the Agent may, and at the
direction of the Required Lenders shall, proceed to protect and enforce their
rights or remedies either by suit in equity or by action at law, or both,
whether for the specific performance of any covenant, agreement or other
provision contained herein or in any other Loan Document, or to enforce the
payment of the Obligations or any other legal or equitable right or remedy.
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9.3. Cumulative Rights. No right or remedy herein conferred upon the
Lenders or the Agent is intended to be exclusive of any other rights or remedies
contained herein or in any other Loan Document, and every such right or remedy
shall be cumulative and shall be in addition to every other such right or remedy
contained herein and therein or now or hereafter existing at law or in equity or
by statute, or otherwise.
9.4. No Waiver. No course of dealing between the Borrower and any
Lender or the Agent or any failure or delay on the part of any Lender or the
Agent in exercising any rights or remedies under any Loan Document or otherwise
available to it shall operate as a waiver of any rights or remedies and no
single or partial exercise of any rights or remedies shall operate as a waiver
or preclude the exercise of any other rights or remedies hereunder or of the
same right or remedy on a future occasion.
9.5. Allocation of Proceeds. If an Event of Default has occurred and
not been waived, and the maturity of the Notes has been accelerated pursuant to
this Article IX, all payments received by the Agent hereunder, in respect of any
principal of or interest on the Obligations or any other amounts payable by the
Borrower hereunder, shall be applied by the Agent in the following order:
(i) amounts due to the Lenders pursuant to Section 2.9 or
Section 11.6;
(ii) amounts due to the Agent and the Issuing Bank pursuant to
Section 10.8, Section 3.3 and Section 3.4;
(iii) payments of interest, to be applied pro rata based on
the proportion which the principal amount of outstanding Loans and
Reimbursement Obligations of each Lender bears to the total of all
outstanding Loans and Reimbursement Obligations;
(iv) payments of principal, to be applied pro rata based on
the proportion which the principal amount of outstanding Loans and
Reimbursement Obligations of each Lender bears to the total of all
outstanding Loans and Reimbursement Obligations;
(v) payment of cash amounts to the Agent pursuant to Section
9.1(B);
(vi) payments of all other amounts due under this Agreement,
if any, to be applied in accordance with each Lender's pro rata share
of all such other amounts due to the Lenders; and
(vii) any surplus remaining after application as provided for
herein, to the Borrower or otherwise as may be required by applicable
law.
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ARTICLE X
The Agent
10.1. Appointment, Powers, and Immunities. Each Lender hereby
irrevocably appoints and authorizes the Agent to act as its agent under this
Agreement and the other Loan Documents with such powers and discretion as are
specifically delegated to the Agent by the terms of this Agreement and the other
Loan Documents, together with such other powers as are reasonably incidental
thereto. The Agent (which term as used in this sentence and in Section 10.5 and
the first sentence of Section 10.6 hereof shall include its affiliates and its
own and its affiliates' officers, directors, employees, and agents): (a) shall
not have any duties or responsibilities except those expressly set forth in this
Agreement and shall not be a trustee or fiduciary for any Lender; (b) shall not
be responsible to the Lenders for any recital, statement, representation, or
warranty (whether written or oral) made in or in connection with any Loan
Document or any certificate or other document referred to or provided for in, or
received by any of them under, any Loan Document, or for the value, validity,
effectiveness, genuineness, enforceability, or sufficiency of any Loan Document,
or any other document referred to or provided for therein or for any failure by
any Person to perform any of its obligations thereunder; (c) shall not be
responsible for or have any duty to ascertain, inquire into, or verify the
performance or observance of any covenants or agreements by any Person or the
satisfaction of any condition or to inspect the property (including the books
and records) of any Person; (d) shall not be required to initiate or conduct any
litigation or collection proceedings under any Loan Document; and (e) shall not
be responsible for any action taken or omitted to be taken by it under or in
connection with any Loan Document, except for its own negligence or willful
misconduct. The Agent may employ agents and attorneys-in-fact and shall not be
responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care.
10.2. Reliance by Agent. The Agent shall be entitled to rely upon any
certification, notice, instrument, writing, or other communication (including,
without limitation, any thereof by telephone or telefacsimile) believed by it to
be genuine and correct and to have been signed, sent or made by or on behalf of
the proper Person or Persons, and upon advice and statements of legal counsel,
independent accountants, and other experts selected by the Agent. The Agent may
deem and treat the payee of any Note as the holder thereof for all purposes
hereof unless and until the Agent receives and accepts an Assignment and
Acceptance executed in accordance with Section 11.1 hereof. As to any matters
not expressly provided for by this Agreement, the Agent shall not be required to
exercise any discretion or take any action, but shall be required to act or to
refrain from acting (and shall be fully protected in so acting or refraining
from acting) upon the instructions of the Required Lenders, and such
instructions shall be binding on all of the Lenders; provided, however, that the
Agent shall not be required to take any action that exposes the Agent to
personal liability or that is contrary to any Loan Document or applicable law or
unless it shall first be indemnified to its satisfaction by the Lenders against
any and all liability and expense which may be incurred by it by reason of
taking any such action.
10.3. Defaults. The Agent shall not be deemed to have knowledge or
notice of the occurrence of a Default or Event of Default unless the Agent has
received written notice from a
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Lender or the Borrower specifying such Default or Event of Default and stating
that such notice is a "Notice of Default". In the event that the Agent receives
such a notice of the occurrence of a Default or Event of Default, the Agent
shall give prompt notice thereof to the Lenders. The Agent shall (subject to
Section 10.2 hereof) take such action with respect to such Default or Event of
Default as shall reasonably be directed by the Required Lenders, provided that,
unless and until the Agent shall have received such directions, the Agent may
(but shall not be obligated to) take such action, or refrain from taking such
action, with respect to such Default or Event of Default as it shall deem
advisable in the best interest of the Lenders.
10.4. Rights as Lender. With respect to its Short Term Credit
Commitment and the Loans made by it, NationsBank (and any successor acting as
Agent) in its capacity as a Lender hereunder shall have the same rights and
powers hereunder as any other Lender and may exercise the same as though it were
not acting as the Agent, and the term "Lender" or "Lenders" shall, unless the
context otherwise indicates, include the Agent in its individual capacity.
NationsBank (and any successor acting as Agent) and its affiliates may (without
having to account therefor to any Lender) accept deposits from, lend money to,
make investments in, provide services to, and generally engage in any kind of
lending, trust, or other business with the Borrower or any of its Subsidiaries
or affiliates as if it were not acting as Agent, and NationsBank (and any
successor acting as Agent) and its affiliates may accept fees and other
consideration from the Borrower or any of its Subsidiaries or affiliates for
services in connection with this Agreement or otherwise without having to
account for the same to the Lenders.
10.5. Indemnification. The Lenders agree to indemnify the Agent (to the
extent not reimbursed under Section 11.12 hereof, but without limiting the
obligations of the Borrower under such Section) ratably in accordance with their
respective Short Term Credit Commitments, for any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, reasonable
costs and expenses (including attorneys' fees), or disbursements of any kind and
nature whatsoever that may be imposed on, incurred by or asserted against the
Agent (including by any Lender) in any way relating to or arising out of any
Loan Document or the transactions contemplated thereby or any action taken or
omitted by the Agent under any Loan Document; provided that no Lender shall be
liable for any of the foregoing to the extent they arise from the gross
negligence or willful misconduct of the Person to be indemnified. Without
limitation of the foregoing, each Lender agrees to reimburse the Agent promptly
upon demand for its ratable share of any costs or expenses payable by the
Borrower under Section 11.6, to the extent that the Agent is not promptly
reimbursed for such costs and expenses by the Borrower. The agreements contained
in this Section shall survive payment in full of the Loans and all other amounts
payable under this Agreement.
10.6.Non-Reliance on Agent and Other Lenders. Each Lender agrees that
it has, independently and without reliance on the Agent or any other Lender, and
based on such documents and information as it has deemed appropriate, made its
own credit analysis of the Borrower and its Subsidiaries and decision to enter
into this Agreement and that it will, independently and without reliance upon
the Agent or any other Lender, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own analysis and
decisions in taking or not taking action under the Loan Documents. Except for
notices, reports, and other documents and information expressly required to be
furnished to the Lenders by the Agent hereunder, the Agent
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shall not have any duty or responsibility to provide any Lender with any credit
or other information concerning the affairs, financial condition, or business of
the Borrower or any of its Subsidiaries or affiliates that may come into the
possession of the Agent or any of its affiliates.
10.7. Resignation of Agent. The Agent may resign at any time by giving
notice thereof to the Lenders and the Borrower. Upon any such resignation, the
Required Lenders shall have the right to appoint a successor Agent subject to
the approval of the Borrower so long as no Default or Event of Default shall
have occurred and be continuing, such approval not to be unreasonably withheld.
If no successor Agent shall have been so appointed by the Required Lenders and
shall have accepted such appointment within thirty (30) days after the retiring
Agent's giving of notice of resignation, then the retiring Agent may, on behalf
of the Lenders, appoint a successor Agent which shall be a commercial bank
organized under the laws of the United States of America having combined capital
and surplus of at least $100,000,000. Upon the acceptance of any appointment as
Agent hereunder by a successor, such successor shall thereupon succeed to and
become vested with all the rights, powers, discretion, privileges, and duties of
the retiring Agent, and the retiring Agent shall be discharged from its duties
and obligations hereunder. After any retiring Agent's resignation hereunder as
Agent, the provisions of this Article X shall continue in effect for its benefit
in respect of any actions taken or omitted to be taken by it while it was acting
as Agent.
10.8. Fees. The Borrower agrees to pay to the Agent, for its individual
account, an annual Administrative Agent's fee as from time to time agreed to by
the Borrower and Agent in writing.
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ARTICLE XI
Miscellaneous
11.1. Assignments and Participations. (a) Each Lender may assign to one
or more Eligible Assignees all or a portion of its rights and obligations under
this Agreement (including, without limitation, all or a portion of its Loans,
its Note, and its Short Term Credit Commitment); provided, however, that
(i) each such assignment shall be to an Eligible Assignee;
(ii) except in the case of an assignment to another Lender or
an assignment of all of a Lender's rights and obligations under this Agreement,
any such partial assignment shall be in an amount at least equal to $5,000,000
or an integral multiple of $1,000,000 in excess thereof;
(iii) each such assignment by a Lender shall be of a constant,
and not varying, percentage of all of its rights and obligations under this
Agreement and the Note; and
(iv) the parties to such assignment shall execute and deliver
to the Agent for its acceptance an Assignment and Acceptance in the form of
Exhibit B hereto, together with any Note subject to such assignment and a
processing fee of $3,000.
Upon execution, delivery, and acceptance of such Assignment and Acceptance, the
assignee thereunder shall be a party hereto and, to the extent of such
assignment, have the obligations, rights, and benefits of a Lender hereunder and
the assigning Lender shall, to the extent of such assignment, relinquish its
rights and be released from its obligations under this Agreement. Upon the
consummation of any assignment pursuant to this Section, the assignor, the Agent
and the Borrower shall make appropriate arrangements so that, if required, new
Notes are issued to the assignor and the assignee. If the assignee is not
incorporated under the laws of the United States of America or a state thereof,
it shall deliver to the Borrower and the Agent certification as to exemption
from deduction or withholding of Taxes in accordance with Section 4.6.
(b) The Agent shall maintain at its address referred to in Section 11.2
a copy of each Assignment and Acceptance delivered to and accepted by it and a
register for the recordation of the names and addresses of the Lenders and the
Short Term Credit Commitment of, and principal amount of the Loans owing to,
each Lender from time to time (the "Register"). The entries in the Register
shall be conclusive and binding for all purposes, absent manifest error, and the
Borrower, the Agent and the Lenders may treat each Person whose name is recorded
in the Register as a Lender hereunder for all purposes of this Agreement. The
Register shall be available for inspection by the Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior notice.
(c) Upon its receipt of an Assignment and Acceptance executed by the
parties thereto, together with any Note subject to such assignment and payment
of the processing fee, the Agent shall, if such Assignment and Acceptance has
been completed and is in substantially the form of
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Exhibit B hereto, (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register and (iii) give prompt notice
thereof to the parties thereto.
(d) Each Lender may sell participations to one or more Persons in all
or a portion of its rights, obligations or rights and obligations under this
Agreement (including all or a portion of its Short Term Credit Commitment or its
Loans); provided, however, that (i) any such participation in a Short Term
Credit Commitment, but not its Loans, shall be in an amount at least equal to
$5,000,000 or an integral multiple of $1,000,000 in excess thereof, (ii) such
Lender's obligations under this Agreement shall remain unchanged, (iii) such
Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, (iv) the participant shall be entitled to the
benefit of the yield protection provisions contained in Article IV and the right
of set-off contained in Section 11.4, and (v) the Borrower shall continue to
deal solely and directly with such Lender in connection with such Lender's
rights and obligations under this Agreement, and such Lender shall retain the
sole right to enforce the obligations of the Borrower relating to its Loans and
its Note and to approve any amendment, modification, or waiver of any provision
of this Agreement (other than amendments, modifications, or waivers decreasing
the amount of principal of or the rate at which interest is payable on such
Loans or Note, extending any scheduled principal payment date or date fixed for
the payment of interest on such Loans or Note, or extending its Short Term
Credit Commitment).
(e) Notwithstanding any other provision set forth in this Agreement,
any Lender may at any time assign and pledge all or any portion of its Loans and
its Note to any Federal Reserve Bank as collateral security pursuant to
Regulation A and any Operating Circular issued by such Federal Reserve Bank. No
such assignment shall release the assigning Lender from its obligations
hereunder.
(f) Any Lender may furnish any information concerning the Borrower or
any of its Subsidiaries in the possession of such Lender from time to time to
assignees and participants (including prospective assignees and participants);
provided, however that such Lender shall (a) take reasonable and customary
measures to safeguard the confidentiality of non-public information, (b) advise
such assignees or participants of the confidentiality of such non-public
information and (c) obtain the agreement of such assignees or participants to
maintain the confidentiality thereof.
11.2. Notices. Any notice shall be conclusively deemed to have been
received by any party hereto and be effective (i) on the day on which delivered
(including hand delivery by commercial courier service) to such party (against
receipt therefor), (ii) on the date of receipt at such address, telefacsimile
number or telex number as may from time to time be specified by such party in
written notice to the other parties hereto or otherwise received), in the case
of notice by telegram, telefacsimile or telex, respectively (where the receipt
of such message is verified by return), or (iii) on the fifth Business Day after
the day on which mailed, if sent prepaid by certified or registered mail, return
receipt requested, in each case delivered, transmitted or mailed, as the case
may be, to the address, telex number or telefacsimile number, as appropriate,
set forth below or such other address or number as such party shall specify by
notice hereunder:
(a) if to the Borrower:
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Michael D. Martin, Executive Vice President, Chief
Financial Officer and Treasurer
HEALTHSOUTH Corporation
One HealthSouth Parkway
Birmingham, Alabama 35243
with a copy to:
William W. Horton
HEALTHSOUTH Corporation
One HealthSouth Parkway
Birmingham, Alabama 35243
(b) if to the Agent at:
One Independence Center, 15th Floor
101 North Tryon Street
Charlotte, North Carolina 28255
Attention: Agency Services
Reference: HEALTHSOUTH Corporation
(c) if to the Lenders:
At the addresses set forth on the signature pages
hereof and on the signature page of each Assignment
and Acceptance.
11.3. No Waiver. No failure or delay on the part of the Agent, any
Lender or the Borrower in the exercise of any right, power or privilege
hereunder shall operate as a waiver of any such right, power or privilege nor
shall any such failure or delay preclude any other or further exercise thereof.
The rights and remedies herein provided are cumulative and not exclusive of any
rights or remedies provided by law.
11.4. Rights of Setoff; Adjustments. (a) The Borrower agrees that the
Agent and each Lender shall have a Lien for all the Obligations of the Borrower
upon all deposits or deposit accounts, of any kind, or any interest in any
deposits or deposit accounts thereof, now or hereafter pledged, mortgaged,
transferred or assigned to the Agent or such Lender or otherwise in the
possession or control of the Agent or such Lender (other than for safekeeping)
for any purpose for the account or benefit of the Borrower and including any
balance of any deposit account or of any credit of the Borrower with the Agent
or such Lender, whether now existing or hereafter established, hereby
authorizing the Agent and each Lender at any time or times from and after the
occurrence of a Default or an Event of Default with or without prior notice to
set off against and apply such balances or any part thereof to such of the
Obligations of the Borrower to the Lenders then past due and in such amounts as
they may elect, and whether or not the collateral or the responsibility of other
Person primarily, secondarily or otherwise liable may be deemed adequate. For
the purposes of this
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paragraph, all remittances and property shall be deemed to be in the possession
of the Agent or such Lender as soon as the same may be put in transit to it by
mail or carrier or by other bailee.
(b) If any Lender (a "benefited Lender") shall at any time receive any
payment of all or part of the Loans owing to it, or interest thereon, or receive
any collateral in respect thereof (whether voluntarily or involuntarily, by
set-off, or otherwise), in a greater proportion than any such payment to or
collateral received by any other Lender, if any, in respect of such other
Lender's Loans owing to it, or interest thereon, such benefitted Lender shall
purchase for cash from the other Lenders a participating interest in such
portion of each such other Lender's Loans owing to it, or shall provide such
other Lenders with the benefits of any such collateral, or the proceeds thereof,
as shall be necessary to cause such benefitted Lender to share the excess
payment or benefits of such collateral or proceeds ratably with each of the
Lenders; provided, however, that if all or any portion of such excess payment or
benefits is thereafter recovered from such benefitted Lender, such purchase
shall be rescinded, and the purchase price and benefits returned, to the extent
of such recovery, but without interest. The Borrower agrees that any Lender so
purchasing a participation from a Lender pursuant to this Section 11.4 may, to
the fullest extent permitted by law, exercise all of its rights of payment
(including the right of set-off) with respect to such participation as fully as
if such Person were the direct creditor of the Borrower in the amount of such
participation.
11.5. Survival. All covenants, agreements, representations and
warranties made herein shall survive the making by the Lenders of the Loans and
the issuance of the Letters of Credit and the execution and delivery to the
Lenders of this Agreement and the Notes and shall continue in full force and
effect so long as any of Obligations remain outstanding or any Lender has any
commitment hereunder or the Borrower has continuing obligations hereunder unless
otherwise provided herein. Whenever in this Agreement any of the parties hereto
is referred to, such reference shall be deemed to include the successors and
permitted assigns of such party and all covenants, provisions and agreements by
or on behalf of the Borrower which are contained in the Loan Documents shall
inure to the benefit of the successors and permitted assigns of the Lenders or
any of them.
11.6. Expenses. The Borrower agrees (a) to pay or reimburse the Agent
for all its reasonable and customary out-of-pocket costs and expenses incurred
in connection with the preparation, negotiation and execution of, and any
amendment, supplement or modification to, this Agreement or any of the other
Loan Documents, and the consummation of the transactions contemplated hereby and
thereby, including, without limitation, the reasonable and customary fees and
disbursements of counsel to the Agent, (b) to pay or reimburse the Agent and,
after an Event of Default, each Lender for all their reasonable costs and
expenses incurred in connection with the enforcement or preservation of any
rights under this Agreement, including without limitation, the reasonable fees
and disbursements of their counsel, (c) to pay, indemnify and hold harmless the
Agent and each Lender from any and all recording and filing fees and any and all
liabilities with respect to, or resulting from any failure of Borrower to pay or
delay of Borrower in paying, documentary, stamp, excise, withholding and other
similar taxes, if any, which may be payable or determined to be payable in
connection with the execution and delivery of, or consummation of any amendment,
supplement or modification of, or any waiver or consent under or in respect of,
this Agreement, and (d) from and after the occurrence of any Event of Default to
pay, and indemnify and hold harmless
71
<PAGE>
the Agent and each Lender from and against, any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever with respect to the
execution, delivery, enforcement, performance and administration of this
Agreement or in any respect relating to the transactions contemplated hereby or
thereby, (all the foregoing, collectively, the "indemnified liabilities");
provided, however, that the Borrower shall have no obligation hereunder with
respect to indemnified liabilities arising from (i) the willful misconduct or
negligence of the party seeking indemnification, (ii) legal proceedings
commenced against the Agent or any Lender by any security holder or creditor
thereof arising out of and based upon rights afforded any such security holder
or creditor solely in its capacity as such, (iii) any taxes imposed upon the
Agent or any Lender other than the documentary, stamp, excise, withholding and
similar taxes described in clause (c) above or any tax resulting from any change
described in Section 4.1, which tax would be payable to Lenders by Borrower
pursuant to Article IV, (iv) taxes imposed as a result of a transfer or
assignment of any Note, participation or assignment of a portion of its rights,
(v) any taxes imposed upon any transferee of any Note, or (vi) by reason of the
failure of the Agent or any Lender to perform its or their obligations under
this Agreement. The agreements in this subsection shall survive the Short Term
Credit Termination Date.
11.7. Amendments and Waivers. Any provision of this Agreement or any
other Loan Document may be amended or waived if, but only if, such amendment or
waiver is in writing and is signed by the Borrower and the Required Lenders
(and, if Article X or the rights or duties of the Agent are affected thereby, by
the Agent); provided that no such amendment or waiver shall, unless signed by
all the Lenders, (i) increase the Short Term Credit Commitments or the Letter of
Credit Commitment of the Lenders, (ii) reduce the principal of or rate of
interest on any Loan or any fees or other amounts payable hereunder, (iii)
postpone any date fixed for the payment of any scheduled installment of
principal of or interest on any Loan or any fees or other amounts payable
hereunder or for termination of any Short Term Credit Commitment, (iv) change
the percentage of the Short Term Credit Commitments or of the unpaid principal
amount of the Notes, or the percentage of Lenders that constitute Required
Lenders or (v) amend the definition of "Required Lenders" or amend Section
11.15.
11.8. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one such fully-executed counterpart.
11.9. Waivers by Borrower. IN ANY LITIGATION IN ANY COURT WITH RESPECT
TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT, THE LOANS, ANY OF THE
NOTES, ANY OF THE OTHER LOAN DOCUMENTS, THE OBLIGATIONS, OR ANY INSTRUMENT OR
DOCUMENT DELIVERED PURSUANT TO THIS AGREEMENT, OR THE VALIDITY, PROTECTION,
INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF, OR ANY OTHER CLAIM OR DISPUTE
HOWSOEVER ARISING BETWEEN THE BORROWER AND THE LENDERS OR THE AGENT, THE
BORROWER AND EACH LENDER AND THE AGENT HEREBY WAIVE, TO THE EXTENT PERMITTED BY
LAW, TRIAL BY JURY IN CONNECTION WITH ANY SUCH LITIGATION.
72
<PAGE>
The Borrower, the Agent and the Lenders believe that, inasmuch as this
Agreement and the transactions contemplated hereby have been entered into and
consummated outside the State of Alabama, such transactions constitute
transactions in interstate commerce, so that neither the Agent nor any of the
Lenders is required, solely by entering into this Agreement and consummating the
transactions contemplated hereby, to qualify to do business as a foreign
corporation within the State of Alabama. Notwithstanding the foregoing, however,
the Borrower hereby irrevocably waives all rights that it may have to raise, in
any action brought by any of the Lenders or the Agent to enforce the rights of
the Lenders and the Agent hereunder or under any of the other Loan Documents, or
the obligations of the Borrower hereunder or thereunder, any defense which is
based upon the failure of any of the Lenders or the Agent to qualify to do
business as a foreign corporation in the State of Alabama, including, but not
limited to, any defenses based upon ss. 232 of the Alabama Constitution of 1901,
ss. 10-2B-15.01 of the Code of Alabama (1975) or ss. 40-14-4 of the Code of
Alabama (1975), or any successor provision to any thereof. The foregoing waiver
is made knowingly and voluntarily and is a material inducement for the Agent and
the Lenders to enter into the transactions contemplated by this Agreement or any
of the other Loan Documents.
11.10. Termination. The termination of this Agreement shall not affect
any rights of the Borrower, the Lenders or the Agent or any obligation of the
Borrower, the Lenders or the Agent, arising prior to the effective date of such
termination, and the provisions hereof shall continue to be fully operative
until all transactions entered into or rights created or obligations incurred
prior to such termination have been fully disposed of, concluded or liquidated
and the Obligations arising prior to or after such termination have been
irrevocably paid in full. The rights granted to the Agent for the benefit of the
Lenders hereunder and under the other Loan Documents shall continue in full
force and effect, notwithstanding the termination of this Agreement, until all
of the Obligations have been paid in full after the termination hereof or the
Borrower has furnished the Lenders and the Agent with an indemnification
satisfactory to the Agent and each Lender with respect thereto. All
representations, warranties, covenants, waivers and agreements contained herein
shall survive termination hereof until payment in full of the Obligations unless
otherwise provided herein. Notwithstanding the foregoing, if after receipt of
any payment of all or any part of the Obligations, any Lender is for any reason
compelled to surrender such payment to any Person because such payment is
determined to be void or voidable as a preference, impermissible setoff, a
diversion of trust funds or for any other reason, this Agreement shall continue
in full force and the Borrower shall be liable to, and shall indemnify and hold
such Lender harmless for, the amount of such payment surrendered until such
Lender shall have been finally and irrevocably paid in full. The provisions of
the foregoing sentence shall be and remain effective notwithstanding any
contrary action which may have been taken by the Lenders in reliance upon such
payment, and any such contrary action so taken shall be without prejudice to the
Lenders' rights under this Agreement and shall be deemed to have been
conditioned upon such payment having become final and irrevocable.
11.11. Governing Law. ALL DOCUMENTS EXECUTED PURSUANT TO THE
TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING, WITHOUT LIMITATION, THIS AGREEMENT
AND EACH OF THE OTHER LOAN DOCUMENTS SHALL BE DEEMED TO BE CONTRACTS MADE UNDER,
AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS
AND JUDICIAL DECISIONS OF THE STATE OF NORTH CAROLINA. THE BORROWER HEREBY
SUBMITS TO THE JURISDICTION AND VENUE OF THE STATE AND FEDERAL
73
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COURTS OF NORTH CAROLINA FOR THE PURPOSES OF RESOLVING DISPUTES HEREUNDER OR
ARISING OUT OF THE TRANSACTION CONTEMPLATED HEREBY OR FOR THE PURPOSES OF
COLLECTION.
11.12. Indemnification. In consideration of the execution and delivery
of this Agreement by the Agent and each Lender and the extension of the Short
Term Credit Commitments, and so long as the Agent and Lenders have fulfilled
their obligations hereunder, the Borrower hereby indemnifies, exonerates and
holds free and harmless the Agent and each Lender and each of their respective
officers, directors, employees, affiliates and agents (collectively, the
"Indemnified Parties") from and against any and all actions, causes of action,
claims, suits, losses, costs, liabilities and damages, and expenses incurred in
connection therewith (irrespective of whether any such Indemnified Party is a
party to the action for which indemnification hereunder is sought), including
reasonable attorneys' fees and disbursements (collectively, the "Indemnified
Liabilities"), incurred by the Indemnified Parties or any of them as a result
of, or arising out of, or relating to, any of the following:
(a) any transaction financed or to be financed in whole or in
part, directly or indirectly, with the proceeds of any Loan or
supported by any Letter of Credit;
(b) the entering into and performance of this Agreement and
any other Loan Document by any of the Indemnified Parties;
(c) provided Lenders have no ownership interest in real
property of Borrower, any investigation, litigation or proceeding
related to any environmental cleanup, audit, compliance or other matter
relating to the protection of the environment or the release by the
Borrower or any of its Subsidiaries or Controlled Partnerships of any
hazardous waste material; or
(d) provided Lenders have no ownership interest in real
property of Borrower, the presence on or under, or the escape, seepage,
leakage, spillage, discharge, emission, discharging or releases from
any real property owned or operated by the Borrower or any Subsidiary
or Controlled Partnership of any hazardous waste material (including
any losses, liabilities, damages, injuries, costs, expenses or claims
asserted or arising under any environmental laws), regardless of
whether caused by, or within the control of, the Borrower or such
Subsidiary or Controlled Partnerships,
except for any such Indemnified Liabilities arising for the account of a
particular Indemnified Party by reason of the relevant Indemnified Party's
negligence or willful misconduct, and if and to the extent that the foregoing
undertaking may be unenforceable for any reason, the Borrower hereby agrees to
make the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law. The
agreements in this Section 11.12 shall survive the Short Term Credit Termination
Date.
11.13. Agreement Controls. In the event that any term of any of the
Loan Documents other than this Agreement conflicts with any term of this
Agreement, the terms and provisions of this Agreement shall control.
74
<PAGE>
11.14. Integration. This Agreement and the other Loan Documents
represent the final agreement between the parties as to the subject matter
hereof or thereof and may not be contradicted by evidence of prior,
contemporaneous, or subsequent oral agreements of the parties. There are no oral
agreements between the parties.
11.15. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that the Borrower may not assign or transfer its
rights or obligations hereunder without the prior written consent of the Agent
and all Lenders. The Agent and the Lenders may assign or transfer their interest
hereunder but only as provided herein.
11.16. Severability. If any provision of this Agreement or the other
Loan Documents shall be determined to be illegal or invalid as to one or more of
the parties hereto, then such provision shall remain in effect with respect to
all parties, if any, as to whom such provision is neither illegal nor invalid,
and in any event all other provisions hereof shall remain effective and binding
on the parties hereto.
11.17. Usury Savings Clause. Notwithstanding any other provision
herein, the aggregate interest rate charged under any of the Notes, including
all charges or fees in connection therewith deemed in the nature of interest
under North Carolina law, shall not exceed the Highest Lawful Rate (as such term
is defined below). If the rate of interest (determined without regard to the
preceding sentence) under this Agreement at any time exceeds the Highest Lawful
Rate (as defined below), the outstanding amount of the Loans made hereunder
shall bear interest at the Highest Lawful Rate until the total amount of
interest due hereunder equals the amount of interest which would have been due
hereunder if the stated rates of interest set forth in this Agreement had at all
times been in effect. In addition, if when the Loans made hereunder are repaid
in full the total interest due hereunder (taking into account the increase
provided for above) is less than the total amount of interest which would have
been due hereunder if the stated rates of interest set forth in this Agreement
had at all times been in effect, then to the extent permitted by law, the
Borrower shall pay to the Agent an amount equal to the difference between the
amount of the interest paid and the amount of interest which would have been
paid if the Highest Lawful Rate had at all times been in effect. Notwithstanding
the foregoing, it is the intention of the Lenders and the Borrower to conform
strictly to any applicable usury laws. Accordingly, if any Lender contracts for,
charges, or receives any consideration which constitutes interest in excess of
the Highest Lawful Rate, then any such excess shall be canceled automatically
and, if previously paid, shall at such Lender's option be applied to the
outstanding amount of the Loans made hereunder or be refunded to the Borrower.
As used in this paragraph, the term "Highest Lawful Rate" means, as to any
Lender, the maximum lawful interest rate, if any, that at any time or from time
to time may be contracted for, charged, or received under the laws applicable to
such Lender which are presently in effect or, to the extent allowed by law,
under such applicable laws which may hereafter be in effect and which allow a
higher maximum nonusurious interest rate than applicable laws now allow.
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IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be made, executed and delivered by their duly authorized officers as of the day
and year first above written.
HEALTHSOUTH CORPORATION
WITNESS:
/s/ William W. Horton
- - - ------------------------
By: /s/ Leif M. Murphy
----------------------
/s/ Stacey S. Fleenor Name: Leif M. Murphy
- - - ------------------------ Title: Vice President - Finance
Signature Page
<PAGE>
NATIONSBANK, N.A.
as Agent for the Lenders
By: /s/ Michael S. Sylvester
--------------------------------
Name: Michael S. Sylvester
Title: Vice President
NATIONSBANK, N.A.
By: /s/ Michael S. Sylvester
--------------------------------
Name: Michael S. Sylvester
Title: Vice President
Applicable Lending Office:
101 North Tryon Street, 15th Floor
Charlotte, North Carolina 28255
Wire Transfer Instructions:
NationsBank, N.A.
Charlotte, North Carolina
ABA #053000196
Account #136621-2250600
Attention: Corporate Credit Services
Reference: HEALTHSOUTH Corporation
Signature Page
<PAGE>
EXHIBIT A
Applicable Commitment Percentages
Applicable
Short Term Credit Commitment
Lender Commitment Percentage
- - - ------ ---------- ----------
NationsBank, N.A. $500,000,000.00 100%
--------------- -------
$500,000,000.00 100%
A-1
AMENDMENT AGREEMENT NO. 1
TO SHORT TERM CREDIT AGREEMENT
THIS AMENDMENT AGREEMENT (this "Amendment Agreement") is made and
entered into as of this 17th day of February, 1999, by and among HEALTHSOUTH
CORPORATION, a Delaware corporation (herein called the "Borrower"), NATIONSBANK
N. A. (the "Agent"), as Agent for the lenders (the "Lenders") party to the Short
Term Credit Agreement dated September 28, 1998, among the Lender, Borrower and
the Agent (the "Agreement") and the Lender whose name is subscribed hereto.
W I T N E S S E T H:
WHEREAS, the Borrower, the Agent and the Lender have entered into the
Agreement pursuant to which the Lender has agreed to make short term revolving
loans to the Borrower in the aggregate principal amount of up to $500,000,000 as
evidenced by the Notes (as defined in the Agreement) and to issue Letters of
Credit for the benefit of the Borrower; and
WHEREAS, the Borrower has requested that the Agreement be amended by
extending the Stated Termination Date and the Agent and the Lender has agreed,
subject to the terms and conditions hereof, to make such amendment, as provided
herein;
NOW, THEREFORE, the Borrower, the Agent and the Lender do hereby agree
as follows:
1. Definitions. The term "Agreement" as used herein and in the Loan
Documents (as defined in the Agreement) shall mean the Agreement as hereinafter
amended and modified. Unless the context otherwise requires, all terms used
herein without definition shall have the definition provided therefor in the
Agreement.
2. Amendment. Subject to the conditions set forth herein, the Agreement
is hereby amended, effective as of the date hereof, as follows:
(a) The following definitions are hereby inserted into
Section 1.1:
"Debt Offering" means the incurrence of any
Indebtedness for Money Borrowed permitted hereunder in
connection with a public offering or private placement of debt
securities of the Borrower.
"Net Proceeds" means cash payments received by the
Borrower from any Debt Offering as and when received, net of
all legal, accounting, banking and underwriting fees and
expenses, commissions, discounts and other issuance expenses
incurred in connection therewith and all taxes required to be
paid or accrued as a consequence of such Debt Offering.
1
<PAGE>
(b) The following definitions are hereby amended in their
entirety so that as amended they read as follows:
"Stated Termination Date" means the earlier to occur
of (i) February 16, 2000 and (ii) the date when cumulative Net
Proceeds from Debt Offerings over the life of the Short Term
Credit Facility equals $500,000,000.
"Total Short Term Credit Commitment" means a
principal amount equal to the difference of (a) $500,000,000
less (b) any amount required to be paid pursuant to Section
2.3(b) hereof.
(c) The letter "(a)" shall be inserted in front of the first
paragraph of Section 2.3 and a new Section 2.3(b) is hereby inserted at
the end of Section 2.3 to read as follows:
"(b) The Borrower shall make a prepayment from the
Net Proceeds of any Debt Offering in an amount equal to one
hundred percent (100%) of such Net Proceeds. Each such
prepayment shall permanently reduce the Total Short Term
Credit Commitment and shall be made within five (5) business
days of receipt of such Net Proceeds and upon not less than
five (5) business days written notice to the Agent and shall
include a certificate of an Authorized Representative setting
forth in reasonable detail the calculations utilized in
computing the amount of Net Proceeds."
3. Representations and Warranties. The Borrower hereby represents and
warrants that:
(a) The representations and warranties made by Borrower in
Article VI of the Agreement are true on and as of the date hereof;
(b) There has been no material adverse change in the
condition, financial or otherwise, of the Borrower and its Consolidated
Entities since the date of the most recent financial reports of the
Borrower received by each Lender under Section 7.1 of the Agreement,
other than changes in the ordinary course of business, none of which
has had a Material Adverse Effect;
(c) The business and properties of the Borrower and its
Consolidated Entities are not and have not been adversely affected in
any substantial way as the result of any fire, explosion, earthquake,
accident, strike, lockout, combination of workers, flood, embargo,
riot, activities of armed forces, war or acts of God or the public
enemy, or cancellation or loss of any major contracts; and
2
<PAGE>
(d) No event has occurred and no condition exists which, upon
the consummation of the transaction contemplated hereby, constitutes a
Default or an Event of Default on the part of the Borrower under the
Agreement, the Notes or any other Loan Document either immediately or
with the lapse of time or the giving of notice, or both.
5. Conditions. This Amendment Agreement shall become effective upon the
Borrower delivering to the Agent of the following:
(a) Four (4) counterparts of this Amendment Agreement duly
executed by the Borrower and receipt by the Agent of all fees and
expenses due in connection with this Amendment Agreement; and
(b) Such other documents and instruments as the Agent may
reasonably require.
6. Entire Agreement. This Amendment Agreement sets forth the entire
understanding and agreement of the parties hereto in relation to the subject
matter hereof and supersedes any prior negotiations and agreements among the
parties relative to such subject matter. No promise, conditions, representation
or warranty, express or implied, not herein set forth shall bind any party
hereto, and no one of them has relied on any such promise, condition,
representation or warranty. Each of the parties hereto acknowledges that, except
as in this Amendment Agreement otherwise expressly stated, no representations,
warranties or commitments, express or implied, have been made by any other party
to the other. None of the terms or conditions of this Amendment Agreement may be
changed, modified, waived or canceled orally or otherwise, except by writing, in
the manner provided in the Agreement, specifying such change, modification,
waiver or cancellation of such terms or conditions, or of any proceeding or
succeeding breach thereof.
7. Full Force and Effect of Agreement. Except as hereby specifically
amended, modified or supplemented, the Agreement and all of the other Loan
Documents are hereby confirmed and ratified in all respects and shall remain in
full force and effect according to their respective terms.
[Remainder of page intentionally left blank.]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
Agreement to be duly executed by their duly authorized officers, all as of the
day and year first above written.
BORROWER:
HEALTHSOUTH CORPORATION
By: /s/ Leif Murphy
-----------------------
Name: Leif Murphy
--------------------
Title: V.P. Finance
----------------------
NATIONSBANK, N. A.,
as Agent for the Lenders
By: /s/ Philip Durand
-----------------------
Name: Philip S. Durand
--------------------
Title: V.P.
--------------------
NATIONSBANK, N. A.,
as sole Lender
By: /s/ Philip Durand
-----------------------
Name: Philip S. Durand
--------------------
Title: V.P.
--------------------
4
EXHIBIT (21)
SUBSIDIARIES OF HEALTHSOUTH CORPORATION
(STATES OF INCORPORATION) (STATES OF QUALIFICATION)
Advantage Health Corporation (DE) (CT)(FL)(MA)(ME)(PA)(VT)
Advantage Health Development Corp. (MA)
Advantage Health Harmarville Rehabilitation Corporation (PA)
Advantage Health Nursing Care, Inc. (MA)
Advantage Rehabilitation Clinics, Inc. (MA) (CT)(DE)(ME)(NJ)(NY)
Advantage Beverly Corporation (MA) (51%)
Advantage Health Eastern Rehabilitation Network, Inc. (CT)
Rehabilitation Institute of Western Massachusetts, Inc. (MA)
Baygan Development Corp. (FL)
HRC Services, Inc. (PA)
LH Real Estate Company, Inc. (MA) (99.5%)
New England Home Health Care, Inc. (MA) (CT) (96.8%)
Special Care Certified of Massachusetts, Inc. (MA) (NH)
Special Care Home Health Services of Connecticut, Inc. (CT)
Special Care Home Health Services of Maine, Inc. (ME)
Special Care Nursing Services, Inc. (MA) (CT)(IL)(KS)(KY)
(ME)(MO)(OH)(OK)(TX)(VT)(WI)
New England Rehabilitation Center of Southern New Hampshire, Inc.
(NH) (91.75%)
New England Rehabilitation Hospital, Inc. (MA)
New England Rehabilitation Hospital of Portland, Inc. (ME)
New England Rehabilitation Management Co., Inc. (NH)(CT)(MA)(ME)(NY)
(PA)(VT)
New England Rehabilitation Services of Central Massachusetts,
Inc. (MA) (33-1/3%)
Winchester Gables, Inc. (MA) (51%)
ASC Network Corporation (DE) (CA)(CT)(FL)(IL)(IN)(NJ)(NY)(PA)(TX)
Castro Valley Surgery Center, Inc. (CA)
Day SurgiCenters, Inc. (IL)
Diversified Health Centers, Inc. (CA)
Fort Wayne Care Center, Inc. (DE) (IN)
Loyola Ambulatory Surgery Center at Oakbrook, Inc. (IL)
Palm Desert Care Center, Inc. (DE) (CA)
Premier Ambulatory Surgery of Austin, Inc. (DE) (TX)
Premier Ambulatory Surgery of Blackhawk, Inc. (CA)
Premier Ambulatory Surgery of Duncanville, Inc. (DE) (TX)
Premier Ambulatory Surgery of Forest Park, Inc. (TX)
Premier Ambulatory Surgery of Garland, Inc. (DE) (TX)
Premier Ambulatory Surgery of Mesquite, Inc. (TX)
Premier Ambulatory Surgery of Tri-Valley, Inc. (CA)
Premier Ambulatory Surgery of Walnut Creek, Inc. (CA)
Premier MSO of Texas, Inc. (TX)
San Diego Outpatient Surgical Center, Inc. (CA)
<PAGE>
SunSurgery Corporation (CT)
Bridgeport Surgical Center, Inc. (CT)
Danbury Surgical Center, Inc. (CT)
Frost Street Outpatient Surgical Center, Inc. (CA) (52.44%)
Hartford Surgical Center, Inc. (CT) (81%)
Medical Surgical Centers of America, Inc. (CA) (95.4%)
d/b/a Grossmont Surgery Center
MMDC of New Jersey, Inc. (NJ)
MMDC of Pennsylvania, Inc. (PA)
Pomerado Outpatient Surgical Center, Inc. (CA)
CMS Capital Ventures, Inc. (DE) (CA)(FL) (15% ownership)
Diagnostic Health Corporation (DE) (AL)(AZ)(CA)(CO)(DC)(FL)(GA)(IL)(IN)(LA)
(MA)(MD)(MO)(NJ)(NM)(NV)(OK)(PA)(SC)(TN)(TX)(UT)(VA)
Health Images Aurora North, Inc. (GA) (Shell)
Health Images Aurora South, Inc. (GA) (Shell)
Health Images Baton Rouge North, Inc. (GA) (Shell)
Health Images Baton Rouge South, Inc. (GA) (Shell)
Health Images Beaumont, Inc. (GA) (Shell)
Health Images Birmingham, Inc. (GA) (Shell)
Health Images Colorado, Inc. (GA) (Shell)
Health Images Columbia, Inc. (GA) (Shell)
Health Images Dallas, Inc. (GA) (Shell)
Health Images Denver, Inc. (GA) (Shell)
Health Images Greenville, Inc. (GA) (Shell)
Health Images Huntsville, Inc. (GA) (Shell)
Health Images Knoxville, Inc. (GA) (Shell)
Health Images Nashville, Inc. (GA) (Shell)
Health Images Orange Park, Inc. (GA) (Shell)
Health Images Port Arthur, Inc. (GA) (Shell)
Health Images Stratford, Inc. (GA) (Shell)
Health Images Tulsa, Inc. (GA) (Shell)
Health Images (UK) plc (UK)
HEALTHSOUTH ASC of Houston, Inc. (DE) (TX)
HEALTHSOUTH Diagnostic Centers, Inc. (AK) (AL)
Disability and Impairment Evaluation Centers of America, Inc. (DE) (TX)(LA)(OK)
DIECA, Inc. (DE) (LA)
Doty-Moore Tower Services, Inc. (TX) (NV)
Encinitas Physical Therapy and Sports Rehabilitation, Inc. (CA)
Flatirons Physical Therapy, Inc. (CO)
HEALTHSOUTH Aviation, Inc. (AL)
HEALTHSOUTH Community Re-Entry Center of Dallas, Inc. (DE) (TX)
HEALTHSOUTH Doctors' Hospital, Inc. (DE) (FL)
Hospital Health Systems, Inc. (FL)
Doctors' Health Service Corporation (FL)
Doctors' Scanning Associates, Inc. (FL)
Doctors' Home Health, Inc. (FL)
Doctors' Medical Equipment Corp. (FL)
2
<PAGE>
HEALTHSOUTH Holdings, Inc. (DE) (AL)(AR)(CT)(DC)(GA)(IL)(IA)(IN)(KY)(LA)
(MA)(MD)(ME)(MS)(MO)(NE)(NH)(NV)(NJ)(NC)(NY)(OK)(PA)(RI)(SC)(SD)
(TN)(VA)(VT)(WA)(WI)(WV)
Delaware Sportscare/Physical Therapy, Inc. (DE)
Johnson Physical Therapy, Inc. (OH)
Madison Rehabilitation Center, Inc. (CT)
Penn-Mar Rehabilitative Services, Inc. (PA)
Physical Therapy Professionals, Inc. (OK)
Professional Therapy & Rehabilitation, Inc. (OK)
HEALTHSOUTH Home Health Services of Connecticut, prn, Inc. (CT)
HEALTHSOUTH International, Inc. (DE) (AL)(AU)
HEALTHSOUTH IMC, Inc. (DE) (AK)(AR)(AZ)(CT)(FL)(IN)(IA)(KS)(LA)(MD)(MO)(NC)
(NJ)(NM)(NY)(OH)(PA)(RI)(TN)(UT)(VA)
HEALTHSOUTH Medical Center, Inc. (AL)
HEALTHSOUTH Medical Clinic, Inc.(DE)(AK)(AL)(FL)(GA)(IA)(IL)(IN)(KY)(LA)(MA)(MD)
(MO)(NE)(NV)(OK)(PA)(SD)(TN)(VA)(VT)
HEALTHSOUTH Network Services, Inc. (DE) (AL)(AZ)(CA)(CO)(CT)(DC)(HI)(IL)(IN)
(LA)(MD)(MO)(NE)(NJ)(NY)(OH)(OR)(PA)(TN)(TX)(VA)(WA)(WY)
HEALTHSOUTH Network Services of New York IPA, Inc. (NY)
HEALTHSOUTH Occupational Health & Injury
Management of Colorado, Inc. (DE) (CO)
HEALTHSOUTH Occupational Health & Rehabilitation Center, Inc. (DE) (FL)
HEALTHSOUTH of Altoona, Inc. (DE) (MD)(PA)(WV)
HEALTHSOUTH of Austin, Inc. (DE) (TX)
HEALTHSOUTH of Birmingham, Inc. (DE) (AL)
HEALTHSOUTH of Charleston, Inc. (DE) (SC)
HEALTHSOUTH of Chesapeake, Inc. (DE) (MD)
HEALTHSOUTH of Columbia, Inc. (DE) (MO)
HEALTHSOUTH of Dallas, Inc. (DE) (TX)
HEALTHSOUTH of Dothan, Inc. (AL)
HEALTHSOUTH of East Tennessee, Inc. (DE) (TN)
HEALTHSOUTH of Erie, Inc. (DE) (OH)(PA)
HEALTHSOUTH of Fort Smith, Inc. (DE) (AR)(OK)
HEALTHSOUTH of Gadsden, Inc. (DE) (AL)
HEALTHSOUTH of Goshen, Inc. (DE)(NY)
HEALTHSOUTH of Houston, Inc. (DE) (TX)
HEALTHSOUTH of Louisiana, Inc. (DE) (LA)
HEALTHSOUTH of Mechanicsburg, Inc. (DE) (PA)
HEALTHSOUTH of Michigan, Inc. (DE) (MI)
HEALTHSOUTH of Middle Tennessee, Inc. (DE) (TN)
HEALTHSOUTH of Midland, Inc. (DE) (TX)
HEALTHSOUTH of Missouri, Inc. (DE) (MO)
HEALTHSOUTH of Montgomery, Inc. (AL)
HEALTHSOUTH of New Hampshire, Inc. (DE) (NH)
HEALTHSOUTH of New Mexico, Inc. (NM)
HEALTHSOUTH of Nittany Valley, Inc. (DE) (PA)
HEALTHSOUTH of Oklahoma, Inc. (DE) (OK)
HEALTHSOUTH of Ontario, Inc. (DE) (Canada) (BC)
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HEALTHSOUTH of Pittsburgh, Inc. (DE) (PA)
HEALTHSOUTH of Reading, Inc. (DE) (PA)
HEALTHSOUTH of Salem, Inc. (DE) (NH)
HEALTHSOUTH of San Antonio, Inc. (DE) (TX)
HEALTHSOUTH of South Carolina, Inc. (DE) (SC)
HEALTHSOUTH of Texarkana, Inc. (DE) (TX)(LA)
HEALTHSOUTH of Texas, Inc. (TX) HEALTHSOUTH of Toms River, Inc. (DE) (NJ)
HEALTHSOUTH of Treasure Coast, Inc. (DE) (FL)
HEALTHSOUTH of Utah, Inc. (DE) (UT)
HEALTHSOUTH of Virginia, Inc. (DE) (VA)
HEALTHSOUTH of Witchita, Inc. (DE) (KS)
HEALTHSOUTH of York, Inc. (DE) (PA)
HEALTHSOUTH Orthopedic Services, Inc. (DE) (AL)(CA)(CO)(FL)(IL)(MD)(MO)(NJ)
(NC)(OH)(OR)(PA)(SC)(TX)(WA)(WI)
Northwestern Memorial/Caremark, Inc. (IL) (50%)
HEALTHSOUTH Properties Corporation (DE) (AL)(AZ)(CA)(FL)(IN)(KY)(NM)(OH)
(TN)(TX)(WV)
HEALTHSOUTH Real Property Holding Corporation (DE) (AL)(AZ)(FL)(TX)
HEALTHSOUTH Rehabilitation Center, Inc. (SC)
HEALTHSOUTH Specialty Hospital, Inc. (TX)
HEALTHSOUTH Sub-Acute Center of Houston, Inc. (DE) (TX)
HEALTHSOUTH Sub-Acute Center of Mechanicsburg, Inc. (DE) (PA)
HEALTHSOUTH Surgery Centers-West, Inc. (DE) (AL)(AZ)(CA)(UT)
HEALTHSOUTH Salt Lake Surgical Center, Inc. (DE) (UT)
HEALTHSOUTH Surgical Center of Tuscaloosa, Inc. (AL)
Horizon/CMS Healthcare Corporation (DE) (CA)(CO)(CT)(FL)(ID)(KS)(LA)(MD)(MA)(MI)
(MT)(NE)(NV)(NM)(NC)(OH)(OK)(PA)(TX)(VA)(WI)
Continental Medical Systems, Inc. (DE) (CA)(MD)(PA)(TX)
Central Arizona Rehabilitation Hospital, Inc. (DE) (AZ)
Central Arkansas Outpatient Centers, Inc. (DE) (AR)
Chandler Rehabilitation Hospital, Inc. (DE) (AZ)
Chico Rehabilitation Hospital, Inc. (DE) (CA)
Clear Lake Rehabilitation Hospital, Inc. (TX)
CMS Administrative Services, Inc. (DE) (CO)
CMS Alexandria Rehabiliation, Inc. (DE) (LA)
CMS Baton Rouge Rehabilitation, Inc. (DE) (LA)
CMS Beaumont Rehabilitation, Inc. (TX)
The Kelton Corporation (MA) (RI)
Braintree Rehabilitation Ventures, Inc. (MA)
KBT Corporation (MA)
CMS Denver Rehabilitation, Inc. (DE) (CO)
CMS Development and Management Company, Inc. (DE) (IN)(KS)(NV)
(PA)(TX)
CMS Elizabethtown, Inc. (DE) (KY)
CMS Fayetteville Rehabilitation, Inc. (DE) (AR)
CMS Fort Worth Rehabilitation, Inc. (TX)
CMS Fresno Rehabilitation, Inc. (DE) (CA)
CMS Houston Rehabilitation, Inc. (TX)
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CMS Jonesboro Rehabilitation, Inc. (DE) (AR)
CMS Kansas City Rehabilitation, Inc. (DE) (KS)
CMS Outpatient Centers of North Texas, Inc. (DE) (TX)
CMS Outpatient Centers of South Texas, Inc. (DE) (TX)
CMS Outpatient Rehabilitation Services, Inc. (DE) (CO)
CMS Pennsylvania, Inc. (DE) (PA)
CMS Physician Services, Inc. (DE)
CMS of Ohio, Inc. (DE) (OH)
CMS Rehab Technologies Corp. (DE) (CA)
CMS Rehabilitation Center of Hialeah, Inc. (DE) (FL)
CMS Ruston Rehabilitation, Inc. (DE) (LA)
CMS San Diego Rehab, Inc. (DE) (CA)
CMS San Diego Surgical, Inc. (DE) (CA)
CMS Sherwood Rehabilitation, Inc. (DE) (AR)
CMS South Miami Rehab, Inc. (DE) (FL)
CMS Sportsmed Clinic, Inc. (DE) (CA)
CMS Topeka Rehabilitation, Inc. (DE) (KS)
CMS Tri-Cities Rehabilitation Hospital, Inc. (DE) (TN)
CMS Wichita Rehabilitation, Inc. (DE) (KS)
CMS WorkAble, Inc. (DE) (AZ)(CA)(LA)(TX)
CMS WorkAble of Paragould, Inc. (DE) (AR)
CMS Worknet of Baton Rouge, Inc. (DE) (LA)
CMSI Systems of Texas, Inc. (TX)
Colorado Outpatient Centers, Inc. (DE) (CO)
Continental Medical of Arizona, Inc. (DE) (AZ)
Continental Medical of Colorado, Inc. (DE) (CO)
Continental Medical Systems of Florida, Inc. (FL)
Continental Medical of Kentucky, Inc. (DE) (KY)
Continental Medical of Palm Beach, Inc. (DE) (FL)
Continental Rehab of W.F., Inc. (TX)
Continental Rehabilitation Hospital of America, Inc. (DE) (AZ)
Contra Costa Rehab Clinic, Inc. (DE)
Fairland Nursing and Retirement Home, Inc. (DE) (MD)
Great Plains Rehabilitation Hospital, Inc. (DE) (KS)
HCA Wesley Rehabilitation Clinic of Liberal, Inc. (DE) (KS)
HCA Wesley Rehabilitation Hospital, Inc. (DE) (KS)
Hialeah Convalescent Centers, Inc. (FL)
Indiana Outpatient Centers, Inc. (DE) (IN)
Innovative Health Alliances, Inc. (DE) (FL)(IN)(KS)(KY)(MO)
(TN)(TX)
K.C. Rehabilitation Hospital, Inc. (DE) (KS)(MO)
Kansas Outpatient Centers, Inc. (DE) (KS)
Kansas Rehabilitation Hospital, Inc. (DE) (KS)
Kentfield Hospital Corporation (CA)
Kokomo Rehabilitation Hospital, Inc. (DE) (IN)
Lafayette Rehabilitation Hospital, Inc. (DE) (LA)
Louisiana Outpatient Centers, Inc. (DE) (LA)
Maryland Rehabilitation Hospital, Inc. (DE)
Medical Management Associates, Inc. (CA)
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Mancor Medical Management Company, Inc. (CA)
Mid-America Outpatient Centers, Inc. (DE) (KS)
National Physicians Equity Corporation (CA)
Nevada Rehabilitation Hospital, Inc. (DE) (NV)
North Louisiana Rehabilitation Center, Inc. (LA)
Northeast Arkansas Rehabilitation Unit, Inc. (AR)
Northeast Oklahoma Rehabilitation Hospital, Inc. (DE) (OK)
Northern Virginia Rehabilitation Hospital, Inc. (DE) (VA)
The Nursing Home at Chevy Chase, Inc. (DE) (MD)
Palm Springs Rehabilitation Hospital, Inc. (DE) (CA)
Park Manor Nursing Home, Inc. (DE) (NJ)
RCM Management Company, Inc. (DE) (MA)
Rehab Concepts Corp. (DE) (CA)(FL)(IN)(LA)(NV)(OK)(TX)
Rehab Resources, Inc. (DE) (CT)(NJ)(NY)
Rehabilitation Hospital of Colorado Springs, Inc. (DE) (CO)
Rehabilitation Hospital of Fort Wayne, Inc. (DE) (IN)
Rehabilitation Hospital of Nevada - Las Vegas, Inc. (DE) (NV)
Rehabilitation Hospital of Plano, Inc. (TX)
Romano Rehabilitation Hospital, Inc. (TX)
SD Acquisition Corporation (DE) (CA)
SD Partners, Inc. (DE)
SelectRehab, Inc. (DE) (AZ)(AR)(CA)(CT)(FL)(IN)(LA)(MD)(MI)
(MS)(NM)(OH)(OK)(PA)(TN)(TX)
Sherwood Rehabilitation Hospital, Inc. (DE) (AR)
Sierra Pain and Occupational Rehabilitation Center, Inc. (DE)
(NV)
Southeast Texas Rehabilitation Hospital, Inc. (TX)
Tarrant County Rehabilitation Hospital, Inc. (TX)
Terre Haute Rehabilitation Hospital, Inc. (DE) (IL)(IN)
Texas Hospital Partners, Inc. (DE)
Tulsa Rehabilitation Hospital, Inc. (DE) (OK)
Tyler Rehabilitation Hospital, Inc. (TX)
Western Neuro Care, Inc. (DE) (CA)
Western Neurologic Residential Centers (CA)
Western Neuro Residential, Inc. (DE) (CA)
Wichita Falls Rehabilitation Hospital, Inc. (TX)
Wilson Lane Holdings, Inc. (DE)
Desert Corporation (NV)
Eagle Rehab Corporation (DE)(AZ)(AR)(CA)(CO)(FL)(IL)(IN)(KS)(LA)(MD)
(MI)(MS)(NV)(OH)(OR)(PA)(TX)(VA)(WA)
Fankhauser Physical Therapy Orthopedic & Sports
Rehabilitation, Inc. (WA)
Northwestern Sports Clinic, Inc. (WA)
Physical Therapy & Athletic Rehabilitation Associates, Inc.
(WA)
Physical Therapy Specialties, Inc. (WA)
Sampson & Delilah, Inc. (WA)
Spokane Associated Physical Therapists, Inc. (WA)
Spokane Sports & Orthopedic Therapy, Inc. (WA)
Pacific Rehabilitation & Sports Medicine, Inc. (DE) (WA)
Dade Physical Therapy Rehab, Inc. (FL)
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Leeward Back and Neck, Inc. (HI)
Longview Physicians Physical Therapy Service, Inc.
(WA)
Pacific Rehab of Alabama, Inc. (AL)
Pacific Rehab of Maryland, Inc. (MD)
Pacific Rehab of Mississippi, Inc. (MS)
PR Acquisition Corporation (CA) (NV)
The Rehab Group, Inc. (TN) (AL)(AR)(GA)(KY)(MS)(VA)
The Rehab Clinic Richmond, Inc. (VA)
The Rehab Group - Brunswick, Inc. (TN)
Swanson Sports Training & Physical Therapy, Inc. (TN)
Eagle Rehab Corporation (WA) (WA) (ID)
Great Eastern Nursing Corp. (TX) (NJ)
Greenery Securities Corp. (DE) (MA)
HHC Acquisition Corp. (DE) (NM)(TX)
HHC Nursing Facilities, Inc. (DE) (ID)(NM)(OK)(TX)
Home Care Management Corp. (NV)
Home Health Associates, Inc. (NV)
Horizon Assisted Living Services, Inc. (DE) (TX)
Horizon Facilities Management, Inc. (DE) (MI)(OK)(TX)
Horizon Holding, Inc. (DE) (KS)(NM)
Horizon Hospice Care, Inc. (DE)(LA)(MA)(MI)(NV)(NM)(NC)(OH)(OK)(PA)(TX)
Horizon Management Holding, Inc. (DE) (NM)
Horizon Medical Management, Inc. (DE) (FL)
Horizon Medical Specialties, Inc. (DE) (AR)(FL)(KY)(LA)(MA)(MI)(MT)(NV)
(NM)(OH)(TN)(TX)
Horizon MDS Corporation (DE) (NV)(NM)
Horizon Sleep Diagnostics Corporation (DE) (NV)(NM)(TN)(TX)
Horizon Therapy Holdings, Inc. (DE)
CMS Therapies Provider, Inc. (NC) (AL)(AR)(CA)(FL)(GA)(IL)(IN)
(IA)(KS)(KY)(LA)(MD)(MI)(MS)(MO)(OH)(PA)(SC)(TN)(TX)
(VA)(WI)
Baton Rouge Rehab, Inc. (DE) (LA)(MS)
Hospital HomeCare Corporation (TX)
Intra-City Enterprises, Inc. (OH)
Medical Innovations, Inc. (DE) (AL)(AR)(FL)(IL)(LA)(OK)(TX)
Medical Innovations (Texas), Inc. (TX)
Medical Innovations of New Jersey, Inc. (DE) (NJ)
Medical Innovations Hospice, Inc. (TX)
Medical Innovations of Virginia, Inc. (TX) (VA)
PRN Home Health Care, Inc. (NV) (CA)
Midwest Regional Rehabilitation Center, Inc. (DE) (MI)(NM)
Nevada Home Care Partners, Inc. (NV)
Northwest Arkansas Physical Therapy, Inc. (TN) (AR)
Nurses PRN of Virginia, Inc. (TX) (VA)
Nursing Innovations, Inc. (TX)
Orange Rehabilitation Hospital, Inc. (DE) (CA)
Physicians Hospital for Extended Care (NV)
Physician's Visiting Nurses Services, Inc. (TX)
San Jacinto Management Company (TX)
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Southern Nevada Hospice, Inc. (NV)
Vegas Valley Convalescent Center, Inc. (NV)
The Hitchcock Groups, Inc. (IN)
Lakeshore System Services of Florida, Inc. (FL)
MCA Sports of Amarillo, Inc. (TX)
National Imaging Affiliates, Inc. (DE) (TN)
Heritage Medical Services of South Carolina, Inc. (SC)
National Imaging Affiliates of Fayetteville, Inc. (TN) (NC)
(NIA is 80% stockholder)
National Imaging Affiliates of Indian River, Inc. (TN) (FL)
Heritage Medical Services of Florida, Inc. (FL)
National Imaging Affiliates of San Angelo, Inc. (TX)
National Imaging Affiliates of Washington, Inc. (TN) (WA)
NIA Cancer Treatment Center, Inc. (TN) (TX)
Paces Imaging, Inc. (GA)
National Surgery Centers, Inc. (DE) (IL)
Bettom Medical Management, Inc. (CT)
Connecticut Surgical Center, Inc. (CT)
Endoscopy Center Affiliates, Inc. (DE) (CA)(IL)(TX)
Eye Microsurgery Center, Inc. (MT)
KPSC, Inc. (WA)
National Surgery Centers - Bakersfield, Inc. (CA)
National Surgery Centers - Santa Monica, Inc. (CA)
Northern Rockies Surgicenter, Inc. (MT)
NSC Atlanta, Inc. (DE) (GA)
NSC Auburn, Inc. (CA)
NSC Brownsville, Inc. (TX)
NSC Channel Islands, Inc. (CA)
NSC Connecticut, Inc. (CT)
NSC Dallas, Inc. (TX)
NSC Edmond, Inc. (OK)
NSC Elizabethtown, Inc. (KY)
NSC Fayetteville, Inc. (NC)
NSC Greensboro, Inc. (NC)
NSC Greensboro West, Inc. (NC)
NSC Houston, Inc. (TX)
NSC Jacksonville, Inc. (FL)
NSC Kent, Inc. (OH)
NSC Lancaster, Inc. (CA)
NSC Las Vegas, Inc. (NV)
NSC Las Vegas East, Inc. (NV)
NSC Manahawkin, Inc. (NJ)
NSC Miami, Inc. (FL)
NSC Midwest City, Inc. (OK)
NSC Norman, Inc. (OK)
NSC Oklahoma City, Inc. (OK)
NSC Phoenix, Inc. (AZ)
NSC Port St. Lucie, Inc. (FL)
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NSC Provo, Inc. (UT)
NSC Sarasota, Inc. (DE) (FL)
NSC Seattle, Inc. (WA)
NSC St. Augustine, Inc. (FL)
NSC Upland, Inc. (CA)
Walk-In And Out Surgery Center, Inc. (KY)
NovaCare SMC, Inc. (MD)
Physical Therapeutix, Inc. (MI)
Physician Practice Management Corporation (DE) (AL)(FL)(VA)
Professional Sports Care Management, Inc. (DE) (CT)(NJ)(NY)
Ortho Network Services, Inc. (NY)
Professional Therapy Systems, Inc. (TN)
ReadiCare, Inc. (DE) (CA)
CHEC Medical Centers, Inc. (WA)
Rebound, Inc. (DE) (AL)(FL)(GA)(LA)(MO)(OH)(SC)(TN)(TX)(WV)
Rehabilitation Hospital Corporation of America, Inc.(DE)(IN)(MD)(PA)((TX)VA)(WV)
Surgery Center Holding Corporation (DE) (IL)(NC)
Birmingham Outpatient Surgical Center, Inc. (AL)
Chiron, Inc. (NV)
HEALTHSOUTH S.C. of Charlotte, Inc. (DE) (NC)
HEALTHSOUTH S.C. of Greensboro, Inc. (DE) (NC)
HEALTHSOUTH S.C. of Hickory, Inc. (DE) (NC)
HEALTHSOUTH S.C. of Southern Pines, Inc. (DE) (NC)
Lakeland Physicians Medical Building, Inc. (MS)
Northwest Surgicare, Inc. (DE) (IL)
St. Cloud Surgical Center, Inc. (MN)
Surgery Center of Des Moines, Inc. (IA)
Surgicare of Belleville, Inc. (IL)
Surgicare of Gulfport, Inc. (MS)
Surgicare of Jackson, Inc. (MS)
Surgicare of Joliet, Inc. (IL)
Surgicare of Laguna Hills, Inc. (CA)
Surgicare of La Veta, Inc. (CA)
Surgicare of Minneapolis, Inc. (MN)
Surgicare of Mississippi, Inc. (MS)
Surgicare of Mobile, Inc. (AL)
Surgicare of Oceanside, Inc. (CA)
Surgicare of Orange, Inc. (CA)
Surgicare of Owensboro, Inc. (KY)
Surgicare of Reno, Inc. (NV)
Surgicare of Salem, Inc. (OR
Surgicare Outpatient Center of Baton Rouge, Inc. (LA)
SurgiCenters of Southern California, Inc. (CA)
Surgical Center of Wichita Falls, Inc. (TX)
Waco Outpatient Surgical Center, Inc. (TX)
Woodward Park Surgicenter, Inc. (CA)
Surgical Care Affiliates, Inc. (DE) (TN)(PA)
Alaska Surgery Center, Inc. (AK)
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All-Care Surgery Center, Inc. (MD)
Aurora-SC, Inc. (CO)
Bakersfield-SC, Inc. (TN) (CA)
Camp Hill-SCA Centers, Inc. (PA)
The Center for Day Surgery, Inc. (AR)
Charlotte-SC, Inc. (NC)
Chattanooga-SC, Inc. (TN)
Coral Springs-SC, Inc. (TN) (FL)
El Paso-SC, Inc. (TX)
Fort Worth-SC, Inc. (TX)
Glenwood-SC, Inc. (TN) (CA)
Golden-SCA, Inc. (CO)
Greenpark Surgery Center, Inc. (TX)
Greenville Surgery Center, Inc. (TX)
HEALTHSOUTH-Montgomery, Inc. (TN) (OH)
HEALTHSOUTH Oak Leaf Surgery Center, Inc. (DE) (WI)
HEALTHSOUTH of Easton, Inc. (DE) (MD)
HEALTHSOUTH of Whitehall, Inc. (TN) (OH)
HEALTHSOUTH P.M.C. of Sacramento, Inc. (DE) (CA)
HEALTHSOUTH S.C. of Arrowhead Park, Inc. (DE) (OH)
HEALTHSOUTH S.C. of Alhambra, Inc. (DE) (CA)
HEALTHSOUTH S.C. of Cape Girardeau, Inc. (DE) (MO)
Missouri Surgery Center, Inc. (MO)
HEALTHSOUTH S.C. of Cleveland, Inc. (DE) (OH)
HEALTHSOUTH S.C. of Columbus, Inc. (DE) (OH)
HEALTHSOUTH S.C. of D.C., Inc. (DE) (DC)
HEALTHSOUTH S.C. of East Rutherford, Inc. (DE)(NJ)
HEALTHSOUTH S.C. of Eldersburg, Inc. (DE) (MD)
HEALTHSOUTH S.C. of Elliott City, Inc. (DE) (MD)
HEALTHSOUTH S.C. of Kendall, Inc. (DE) (FL)
HEALTHSOUTH S.C. of Montgomery, Inc. (DE) (OH)
HEALTHSOUTH S.C. of Muskogee (DE) (OK)
HEALTHSOUTH S.C. of New Jersey, Inc. (DE) (NJ)
HEALTHSOUTH S.C. of Park City, Inc. (DE) (UT)
HEALTHSOUTH S.C. of Riverside, Inc. (DE) (CA)
HEALTHSOUTH S.C. of Riverton, Inc. (DE) (WY)
HEALTHSOUTH S.C. of San Angelo, Inc. (DE) (TX)
HEALTHSOUTH S.C. of San Marcos, Inc. (DE) (TX)
HEALTHSOUTH S.C. of Santa Monica, Inc. (DE) (CA)
HEALTHSOUTH S.C. of Scottsdale-Bell Road, Inc. (DE) (AZ)
HEALTHSOUTH S.C. of Tampa, Inc. (DE) (FL)
HEALTHSOUTH S.C. of Waco, Inc. (DE) (TX)
HEALTHSOUTH S.C. of Wilkes-Barre, Inc. (DE) (PA)
HEALTHSOUTH S.C. of Ygnacio Valley, Inc. (DE) (CA)
HEALTHSOUTH S.H. of Colorado Springs, Inc. (DE) (CO)
HEALTHSOUTH Surgery Center of Alamo Heights, Inc. (DE) (TX)
HEALTHSOUTH Surgery Center of Baltimore, Inc. (DE) (MD)
HEALTHSOUTH Surgery Center of Baton Rouge, Inc. (DE) (LA)
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HEALTHSOUTH Surgery Center of Clearwater, Inc. (DE) (FL)
HEALTHSOUTH Surgery Center of Columbus, Inc. (DE) (OH)
HEALTHSOUTH Surgery Center of Crestview, Inc. (DE) (FL)
HEALTHSOUTH Surgery Center of Dayton, Inc. (DE) (OH)
HEALTHSOUTH Surgery Center of Fairfield, Inc. (DE)
HEALTHSOUTH Surgery Center of Kenosha, Inc. (DE) (WI)
HEALTHSOUTH Surgery Center of Louisville, Inc. (DE) (KY)
HEALTHSOUTH Surgery Center of Loveland, Inc. (DE) (CO)
HEALTHSOUTH Surgery Center of New Jersey, Inc. (DE) (NJ)
HEALTHSOUTH Surgery Center of Pecan Valley, Inc. (DE) (TX)
HEALTHSOUTH Surgery Center of Pinellas Park, Inc. (DE) (FL)
HEALTHSOUTH Surgery Center of Reading, Inc. (DE) (PA)
HEALTHSOUTH Surgery Center of San Buenaventura, Inc. (DE) (CA)
HEALTHSOUTH Surgery Center of Scottsdale, Inc. (DE) (AZ)
HEALTHSOUTH Surgery Center of Spokane, Inc. (DE) (WA)
HEALTHSOUTH Surgery Center of Springfield, Inc. (DE) (OH)
HEALTHSOUTH Surgery Center of Summerlin, Inc. (DE) (NV)
HEALTHSOUTH Surgery Center of Toledo, Inc. (DE) (OH)
HEALTHSOUTH Surgery Center of West Columbus, Inc. (DE)
HEALTHSOUTH Surgery Center of Westerville, Inc. (DE)
HEALTHSOUTH Surgery Center of Westlake, Inc. (DE) (OH)
HEALTHSOUTH Surgery Center of Wilmington, Inc. (DE)
Knoxville-SCA Surgery Center, Inc. (TN)
Lancaster Medical Centre, Inc. (PA)
Lancaster Surgical Center, Inc. (PA)
Lexington-SC, Inc. d/b/a Lexington-SC Partners, Ltd. (KY)
Lexington-SC Properties, Inc. (KY)
Little Rock-SC, Inc. (AR)
Louisville-SC Properties, Inc. (KY)
Maryland-SCA Centers, Inc. (MD)
Nashville-SCA Surgery Centers, Inc. (TN)
Oshkosh-SCA Surgery Center, Inc. (WI)
Pueblo-SCA Surgery Center, Inc. (CO)
Redlands-SCA Surgery Centers, Inc. (CA)
San Antonio Surgery Center, Inc. (TX)
San Luis Obispo-SC, Inc. (TN)
SC-Wilson, Inc. (NC)
SCA-Albuquerque, Inc. (NM)
SCA-Albuquerque Surgery Properties, Inc. (NM)
SCA-Arlington Surgery, Inc. (TX)
SCA-Blue Ridge, Inc. (TN) (NC)
SCA Cabell Development Corporation (WV)
SCA Cabell, Inc. (WV)
SCA-Charleston, Inc. (SC)
SCA-Citrus, Inc. (TN) (FL)
SCA-Colorado Springs, Inc. (CO)
SCA-Conroe, Inc. (TN) (TX)
SCA-Dalton, Inc. (TN)
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SCA-Development, Inc. (TN)
SCA-Dothan, Inc. (TN) (AL)
SCA-Dover, Inc. (DE)
SCA-Eugene, Inc. (TN) (OR)
SCA-Evansville, Inc. (IN)
SCA-Florence, Inc. (TN) (AL)
SCA-Fort Collins, Inc. (CO)
SCA-Fort Walton, Inc. (TN) (FL)
SCA-Ft. Myers, Inc. (FL)
SCA-Gadsden, Inc. (AL)
Gadsden Surgery Center, Inc. (AL)
SCA-Gainesville, Inc. (TN) (GA)
SCA-Green River, Inc. (TN) (WA)
SCA-Hamilton Development Corp. (TN)
SCA-HHI, Inc. (TN)
Health Horizons of San Francisco, Inc. (TN) (CA)
SCA-Greenville East, Inc. (TN) (SC)
SCA-Honolulu, Inc. (TN) (HI)
SCA-Indianapolis, Inc. (IN)
SCA Investment Company (NV)
SCA-JV, Inc. (IL) WI)
SCA-Knoxville/St. Mary's, Inc. (TN)
SCA-Lake Forest, Inc. (TN) (LA)
SCA-Little Rock Development Corp. (AR)
SCA-Marquette, Inc. (TN) (MI)
SCA-Mecklenberg Development Corp. (NC)
SCA-Mobile, Inc. (AL)
SCA-Mobile Properties, Inc. (AL)
SCA-Mt. Pleasant, Inc. (TN) (PA)
SCA-North Indianapolis, Inc. (IN)
SCA-Ohio Valley, Inc. (TN)
SCA-Paoli, Inc. (TN) (PA)
SCA-Plano, Inc. (TX)
SCA-Roseland, Inc. (NJ)
SCA-San Jose, Inc. (CA)
SCA-San Luis Obispo, Inc. (CA)
SCA-Santa Rosa, Inc. (TN) (CA)(NV)
SCA-Sarasota, Inc. (FL)
SCA-Shelby Development Corp. (TN)
SCA-South Jersey, Inc. (NJ)
SCA-St. Joseph Missouri, Inc. (TN) (MO)
SCA-St. Petersburg, Inc. (FL)
SCA-Tampa, Inc. (FL)
SCA-Ukiah, Inc. (TN) (CA)
SCA-Wausau, Inc. (TN) (WI)
SCA-Winter Park, Inc. (TN) (FL)
SCA-Yuma, Inc. (TN) (AZ)
Scranton-SC, Inc. (PA)
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<PAGE>
Shelby Surgery Properties, Inc. (TN)
Springfield-SC, Inc. (MA)
Surgery Center of Louisville, Inc. (KY)
Surgical Services of Sarasota, Inc. (FL)
Wauwatosa Outpatient Surgery Center, Inc. (WI)
Surgical Health Corporation (DE) (AL)(ID)
Healthcare Real Estate Holdings II, Inc. (GA) (MO)
HEALTHSOUTH Salt Lake Surgical Center, Inc. (DE) (UT)
Heritage Medical Services of Maryland, Inc. (TN) (MD)
Heritage Medical Services of Texas, Inc. (TX)
Heritage Surgical Associates of Chula Vista, Inc. (CA)
HSC of Beaumont, Inc. (TN) (TX)
HSC of Boca Raton, Inc. (FL)
HSC of Bradenton, Inc. (TN) (FL)
HSC of Chesapeake, Inc. (TN)
HSC of Cincinnati, Inc. (TN) (OH)
HSC of Clarksville, Inc. (TN)
HSC of Ft. Pierce, Inc. (GA) (FL)
HSC of Gulf Coast, Inc. (TN)
HSC of Houston, Inc. (TN) (TX)
HSC of Nashville, Inc. (TN)
HSC of Southwest Houston, Inc. (TN) (TX)
HSC of Vero Beach, Inc. (TN) (FL)
HVPG of California, Inc. (CA)
La Jolla Health Systems, Inc. (CA)
Midwest Anesthesia, Inc. (MO) (IL)
Newport Beach Health Systems, Inc. (CA)
North County Outpatient Management, Inc. (GA)
Outpatient Surgery Center, Inc. (MO)
SHC Amarillo, Inc. (GA)
SHC Atlanta, Inc. (GA)
SHC Austin, Inc. (GA)
SHC Boca Raton Laser, Inc. (GA) (FL)
SHC Central Florida, Inc. (GA) (FL)
SHC Chattanooga, Inc. (GA) (TN)
SHC Gwinnett, Inc. (GA)
SHC Hawthorn, Inc. (GA) (IL)
SHC Management Corporation (GA) (AZ)(FL)(IL)(MO)(OK)(TX)
SHC Melbourne, Inc. (GA) (FL)
SHC Midwest City, Inc. (GA) (OK)
SHC Naples, Inc. (FL)
SHC North Dade, Inc. (GA) (FL)
SHC North Shore, Inc. (GA) (IL)
SHC Northlake, Inc. (GA)
SHC Oakwater, Inc. (GA) (FL)
SHC Oklahoma City, Inc. (GA) (OK)
SHC Palms Wellington, Inc. (GA) (FL)
SHC Phoenix, Inc. (GA) (AZ)
13
<PAGE>
SHC San Diego, Inc. (GA) (CA)
SHC Tri-County, Inc. (GA)(MO)
SHC West County, Inc. (GA)
South County Outpatient Management, Inc. (MO)
Surgical Health of Orlando, Inc. (FL)
Surgical Health of of San Antonio, Inc. (TX)
Tesson Ferry Anesthesia, Inc. (MO)
Tesson Ferry Recovery, Inc. (MO)
Tesson Ferry Medical Management, Inc. (MO)
The Woodlands Surgery Systems, Inc. (DE) (TX)
Sigma Health Properties, Inc. (FL)
The Company Doctor (DE) (AR)
Emergency Occupational Physician's Services, Inc. (TX)
Andicare, Inc. (LA)
Tuckahoe Surgery Center, Inc. (VA)
West Virginia Rehabilitation Hospital, Inc. (WV)
14
Exhibit (23) - CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-13489) pertaining to the 1984 Incentive Stock Option Plan, in the
Registration Statement (Form S-8 No. 33-23642) pertaining to the 1988
Non-Qualified Stock Option Plan, in the Registration Statement (Form S-8 No.
33-34908) pertaining to the 1989 Stock Option Plan, in the Registration
Statement (Form S-8 No. 33-40798) pertaining to the 1990 Stock Option Plan, in
the Registration Statement (Form S-8 No. 33-50440) pertaining to the 1991 Stock
Option Plan, in the Registration Statement (Form S-8 No. 33-64308) pertaining to
the 1992 Stock Option Plan, in the Registration Statement (Form S-8 No.
33-64316) pertaining to the 1993 Consultants' Stock Option Plan, in the
Registration Statement (Form S-8 No. 33-55303) pertaining to the 1993 Stock
Option Plan, in the Registration Statements (Form S-8 No. 333-02221 and
333-49345) pertaining to the 1995 Stock Option Plan, in the Registration
Statement (Form S-8 33-60231) pertaining to the Surgical Health Corporation and
Heritage Surgical Corporation Stock Option Plans, in the Registration Statement
(Form S-8 No. 33-64615) pertaining to the Sutter Surgery Centers, Inc. Stock
Option Plans, in the Registration Statement (Form S-8 No. 333-00565) pertaining
to the Surgical Care Affiliates Stock Option Plans, in the Registration
Statement (Form S-8 No. 333-12111) pertaining to the Professional Sports Care
Management, Inc. Stock Option Plans, in the Registration Statement (Form S-8 No.
333-18035) pertaining to the ReadiCare Stock Option Plans, in the Registration
Statement (Form S-3 No. 333-25921) pertaining to the stock purchase warrant
issued to Robert D. Carl, III, in the Registration Statement (Form S-8 No.
333-24429) pertaining to the Health Images, Inc. Stock Option Plans, in the
Registration Statement (Form S-3 No. 333-39825) pertaining to the resale of
shares of Common Stock issued to the stockholders of National Imaging
Affiliates, Inc., in the Registration Statement (Form S-8 No. 333-42307)
pertaining to the 1997 Stock Option Plan, in the Registration Statement (Form
S-8 No. 333-42305) pertaining to the Amended and Restated 1993 Consultants'
Stock Option Plan, in the Registration Statement (Form S-8 No. 333-42301)
pertaining to the Horizon/CMS Healthcare Corporation Stock Option Plans, in the
Registration Statement (Form S-8 No. 333-59887) pertaining to the National
Surgery Centers, Inc. Stock Option Plans, in the Registration Statement (Form
S-8 No. 333-59895) pertaining to The Company Doctor Amended and Restated Omnibus
Stock Plan of 1995, and the Registration Statement (Form S-3 No. 333-52237)
pertaining to the 3.25% Convertible Subordinated Debentures due 2003 of our
report, dated March 19, 1999, with respect to the consolidated financial
statements and financial statement schedule of HEALTHSOUTH Corporation and
subsidiaries included in the Annual Report (Form 10-K) for the year ended
December 31, 1998.
ERNST & YOUNG LLP
Birmingham, Alabama
March 26, 1999
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