-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BMo6xL1Rcs5mu6BuV3oSjmibHczbHFnnW2Ifo0YajszTjwKZD2iv2p0LupmukaMB MSbsBexneFGP6fiqew4THg== 0001005150-98-000825.txt : 19980817 0001005150-98-000825.hdr.sgml : 19980817 ACCESSION NUMBER: 0001005150-98-000825 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 15 FILED AS OF DATE: 19980814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEALTHSOUTH CORP CENTRAL INDEX KEY: 0000785161 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SPECIALTY OUTPATIENT FACILITIES, NEC [8093] IRS NUMBER: 630860407 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-61485 FILM NUMBER: 98689442 BUSINESS ADDRESS: STREET 1: ONE HEALTHSOUTH PKWY STREET 2: STE 224W CITY: BIRMINGHAM STATE: AL ZIP: 35243 BUSINESS PHONE: 2059677116 MAIL ADDRESS: STREET 1: ONE HEALTHSOUTH PARKWAY CITY: BIRMINGHAM STATE: AL ZIP: 35243 FORMER COMPANY: FORMER CONFORMED NAME: HEALTHSOUTH REHABILITATION CORP DATE OF NAME CHANGE: 19920703 S-4 1 FORM S-4 REGISTRATION NO. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------- FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 HEALTHSOUTH CORPORATION (Exact Name of Registrant as Specified in its Charter) ----------------- DELAWARE 8062 63-0860407 (State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Incorporation or Organization) Classification Code Number) Identification Number)
----------------- ONE HEALTHSOUTH PARKWAY BIRMINGHAM, ALABAMA 35243 (205) 967-7116 (Address, including Zip Code, and Telephone Number, including Area Code, of Registrant's Principal Executive Offices) ----------------- RICHARD M. SCRUSHY CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER HEALTHSOUTH CORPORATION ONE HEALTHSOUTH PARKWAY BIRMINGHAM, ALABAMA 35243 (205) 967-7116 (Name, Address, including Zip Code, and Telephone Number, including Area Code, of Agent for Service) ----------------- Copies to: MARK E. EZELL, ESQ. WILLIAM W. HORTON, ESQ. NATHANIEL M. CARTMELL III, ESQ. F. HAMPTON MCFADDEN, JR., ESQ. HEALTHSOUTH CORPORATION KAREN A. DEMPSEY, ESQ. HASKELL SLAUGHTER & YOUNG, L.L.C. ONE HEALTHSOUTH PARKWAY PILLSBURY MADISON & SUTRO, LLP 1200 AMSOUTH/HARBERT PLAZA BIRMINGHAM, ALABAMA 35243 235 MONTGOMERY STREET 1901 SIXTH AVENUE NORTH (205) 967-7116 16TH FLOOR BIRMINGHAM, ALABAMA 35203 SAN FRANCISCO, CALIFORNIA 94104 (205) 251-1000
----------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If the securities being registered on this Form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering [ ] ------------- If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] ------------- CALCULATION OF REGISTRATION FEE
===================================================================================================================== TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE (1) FEES (2) - --------------------------------------------------------------------------------------------------------------------- 6.875% Senior Notes due 2005 ......... $250,000,000 100% $250,000,000 $ 73,750.00 - --------------------------------------------------------------------------------------------------------------------- 7.0% Senior Notes due 2008 ........... $250,000,000 100% $250,000,000 $ 73,750.00 - --------------------------------------------------------------------------------------------------------------------- Total ................................ $500,000,000 100% $500,000,000 $ 147,500.00 =====================================================================================================================
(1) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(f)(1) of the Securities Act of 1933, as amended (the "Securities Act"). (2) Calculated pursuant to Section 6(b) and Rule 457 of the Securities Act. ----------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ SUBJECT TO COMPLETION, DATED AUGUST 14, 1998 PROSPECTUS [HEALTHSOUTH LOGO] OFFER TO EXCHANGE THE 6.875% SENIOR NOTES DUE 2005 AND 7.0% SENIOR NOTES DUE 2008 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 FOR ANY AND ALL OUTSTANDING 6.875% SENIOR NOTES DUE 2005 AND 7.0% SENIOR NOTES DUE 2008, RESPECTIVELY ------------------ THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON _____________, 1998, UNLESS EXTENDED. HEALTHSOUTH Corporation, a Delaware corporation (the "Issuer" or "HEALTHSOUTH"), hereby offers, upon the terms and subject to the conditions set forth in this Prospectus and the accompanying letter of transmittal (the "Letter of Transmittal", and, together with this Prospectus, the "Exchange Offer"), to exchange its 6.875% Senior Notes due 2005 (the "New Notes due 2005") and its 7.0% Senior Notes due 2008 (the "New Notes due 2008", and together with the New Notes due 2005, the "New Notes"), which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement of which this Prospectus is a part, for an equal principal amount of the Issuer's outstanding 6.875% Senior Notes due 2005 (the "Old Notes due 2005") and 7.0% Senior Notes due 2008 (the "Old Notes due 2008", and together with the Old Notes due 2005, the "Old Notes"), that were issued in a transaction exempt from registration under the Securities Act. The New Notes and the Old Notes are collectively referred to herein as the "Notes". Any and all Old Notes that are validly tendered and not withdrawn at or prior to 5:00 p.m., New York City time, on the date on which the Exchange Offer expires ("the Expiration Date"), which will be ___________, 1998 (30 calendar days following the commencement of the Exchange Offer) unless the Exchange Offer is extended, will be accepted for exchange. Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. The Exchange Offer is not conditioned upon any minimum principal amount of Old Notes being tendered for exchange. However, the Exchange Offer is subject to certain customary conditions, which may be waived by the Issuer, and to the terms of the Registration Rights Agreement, dated as of June 22, 1998 (the "Registration Rights Agreement"), by and among the Issuer and Salomon Brothers Inc, Goldman, Sachs & Co., J.P. Morgan Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated, NationsBanc Montgomery Securities LLC, Bear, Stearns & Co. Inc., Credit Suisse First Boston Corporation, Deutsche Bank Securities Inc., PaineWebber Incorporated and Scotia Capital Markets (USA) Inc. (the "Initial Purchasers"). Old Notes may only be tendered in integral multiples of $1,000. See "The Exchange Offer". The New Notes will be obligations of the Issuer and will be entitled to the benefits of the same Indenture (as defined herein) that governs the Old Notes. The form and terms of the New Notes are the same in all material respects as the form and terms of the Old Notes, except that (i) the New Notes have been registered under the Securities Act and therefore will not bear legends restricting the transfer thereof and (ii) holders of New Notes will not be entitled to certain rights of holders of the Old Notes under the Registration Rights Agreement, which rights will be terminated upon consummation of the Exchange Offer. See "The Exchange Offer" and "Description of the New Notes". INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. The Old Notes will be redeemable as a whole or in part, at the option of the Issuer, at any time at a redemption price equal to the greater of (i) 100% of their principal amount and (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the date of redemption on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the applicable Treasury Yield (as defined herein) plus 15 basis points in the case of the New Notes due 2005 and 20 basis points in the case of the New Notes due 2008, plus in each case accrued interest to the date of redemption. The New Notes will be represented by permanent global notes in fully registered form which will be deposited with, or on behalf of, The Depository Trust Company ("DTC") and registered in the name of a nominee of DTC. Beneficial interests in the permanent global notes are shown on, and transfers thereof will be effected through, records maintained by DTC and its participants. The New Notes are being offered hereunder to satisfy certain obligations of the Issuer contained in the Registration Rights Agreement. Based on interpretations by the staff of the Securities and Exchange Commission (the "Commission"), as set forth in no-action letters issued to third parties, including Exxon Capital Holdings Corporation (SEC No-Action Letter available April 13, 1988), Morgan Stanley & Co. Incorporated (SEC No-Action Letter available June 5, 1991) and Shearman & Sterling (SEC No-Action Letter available July 2, 1993) (collectively, the "Exchange Offer No-Action Letters"), the Issuer believes that the New Notes issued pursuant to the Exchange Offer may be offered for resale, resold or otherwise transferred by each holder (other than a broker-dealer who acquires such New Notes directly from the Issuer for resale pursuant to Rule 144A under the Securities Act or any other available exemption under the Securities Act and other than any holder that is an "affiliate" (as defined in Rule 405 under the Securities Act) of the Issuer) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such New Notes are acquired in the ordinary course of such holder's business and such holder is not engaged in, and does not intend to engage in, a distribution of such New Notes and has no arrangement with any person to participate in a distribution of such New Notes. By tendering Old Notes in exchange for New Notes, each holder, other than a broker-dealer, will represent to the Issuer that: (i) it is not an affiliate (as defined in Rule 405 under the Securities Act) of the Issuer; (ii) it is not a broker-dealer tendering Old Notes acquired for its own account directly from the Issuer; (iii) any New Notes to be received by it will be acquired in the ordinary course of its business; and (iv) it is not engaged in, and does not intend to engage in, a distribution of such New Notes and has no arrangement or understanding to participate in a distribution of New Notes. If a holder of Old Notes is engaged in or intends to engage in a distribution of New Notes or has any arrangement or understanding with respect to the distribution of New Notes to be acquired pursuant to the Exchange Offer, such holder may not rely on the applicable interpretations of the staff of the Commission and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any secondary resale transaction. (Continued on next page) SEE "RISK FACTORS" BEGINNING AT PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS TO BE CONSIDERED BY EXISTING HOLDERS IN CONNECTION WITH THE EXCHANGE OFFER. ------------------ THE SECURITIES TO BE ISSUED HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------ The date of this Prospectus is August , 1998. 2 (Continued from previous page) Each broker-dealer that receives New Notes for its own account pursuant to the Exchange Offer (a "Participating Broker-Dealer") must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a Participating Broker-Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired by such Participating Broker-Dealer as a result of market-making activities or other trading activities. Pursuant to the Registration Rights Agreement, the Issuer has agreed that it will make this Prospectus available to any Participating Broker-Dealer for a period of time not to exceed six months after the date on which the Exchange Offer is consummated for use in connection with any such resale. See "Plan of Distribution". The Issuer will not receive any proceeds from the Exchange Offer. The Issuer has agreed to pay the expenses of the Exchange Offer. No underwriter is being utilized in connection with the Exchange Offer. THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE ISSUER ACCEPT SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES AND BLUE SKY LAWS OF SUCH JURISDICTION. Prior to this Exchange Offer, there has been no public market for the New Notes. If such a market were to develop, the New Notes could trade at prices that may be higher or lower than their principal amount. The Issuer does not intend to apply for listing of the New Notes on any securities exchange or for quotation of the New Notes on the New York Stock Exchange or otherwise. The Initial Purchasers have previously made a market in the Old Notes, and the Issuer has been advised that the Initial Purchasers currently intend to make a market in the New Notes, as permitted by applicable laws and regulations, after consummation of the Exchange Offer. The Initial Purchasers are not obligated, however, to make a market in the Old Notes or the New Notes and any such market making activity may be discontinued at any time without notice at the sole discretion of the Initial Purchasers. There can be no assurance as to the liquidity of the public market for the New Notes or that any active public market for the New Notes will develop or continue. If an active public market does not develop or continue, the market price and liquidity of the New Notes may be adversely affected. See "Risk Factors -- Absence of a Public Market". 3 AVAILABLE INFORMATION HEALTHSOUTH is subject to the information requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (Commission File No. 1-10315), and in accordance therewith files periodic reports, proxy statements and other information with the SEC relating to its businesses, financial statements and other matters. The Registration Statement, as well as such reports, proxy statements and other information, may be inspected and copied at the public reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and at the public reference facilities maintained by the SEC at its regional offices located at Seven World Trade Center, Suite 1300, New York, New York, 10048; and Citicorp Center, 500 West Madison Street, Room 1400, Chicago, Illinois 60661-2511. Copies of such material can be obtained at prescribed rates by writing to the SEC, Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549. The SEC also maintains a web site that contains reports, proxy and information statements and other information regarding HEALTHSOUTH and the Registration Statement. The address of that web site is http:// www.sec.gov. The HEALTHSOUTH Common Stock is listed on the New York Stock Exchange, and the Registration Statement and other information with respect to HEALTHSOUTH are available for inspection at the library of the New York Stock Exchange, Inc., 20 Broad Street, 7th Floor, New York, New York 10005. INCORPORATION OF CERTAIN INFORMATION BY REFERENCE THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF SUCH REPORTS, PROXY STATEMENTS AND OTHER INFORMATION FILED BY HEALTHSOUTH, OTHER THAN EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED HEREIN BY REFERENCE, ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROM THE SECRETARY OF HEALTHSOUTH CORPORATION, ONE HEALTHSOUTH PARKWAY, BIRMINGHAM, ALABAMA 35243, TELEPHONE (205) 967-7116. There are hereby incorporated by reference into this Prospectus and made a part hereof the following documents filed by HEALTHSOUTH (Commission File No. 1-10315): 1. HEALTHSOUTH's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (the "1997 Form 10-K"). 2. HEALTHSOUTH's Quarterly Reports on Form 10-Q for the quarters ended March 31 and June 30, 1998. 3. HEALTHSOUTH's Proxy Statement on Schedule 14A filed April 17, 1998, in connection with HEALTHSOUTH's 1998 Annual Meeting of Stockholders. 4. HEALTHSOUTH's Current Report on Form 8-K filed May 28, 1998. 5. HEALTHSOUTH's Current Report on Form 8-K filed April 3, 1998. 6. HEALTHSOUTH's Current Report on Form 8-K filed January 15, 1998. All documents filed by HEALTHSOUTH pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus shall be deemed to be incorporated by reference into this Prospectus and to be made a part hereof from the date of the filing of such documents. Any statement contained in a document incorporated by reference herein shall be deemed to be modified or superseded for the purpose hereof to the extent that a statement contained herein (or in any other subsequently filed document which also is incorporated by reference herein) modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed to constitute a part hereof, except as so modified or superseded. FORWARD-LOOKING INFORMATION Statements relating to HEALTHSOUTH contained in this Prospectus that are not historical facts are forward-looking statements. In addition, HEALTHSOUTH, through its senior management, from time to time makes forward-looking public statements concerning its expected future operations and 4 performance and other developments. Such forward-looking statements are necessarily estimates reflecting HEALTHSOUTH's best judgment based upon current information and involve a number of risks and uncertainties, and there can be no assurance that other factors will not affect the accuracy of such forward-looking statements. While it is impossible to identify all such factors, factors which could cause actual results to differ materially from those estimated by HEALTHSOUTH include, but are not limited to, changes in the regulation of the healthcare industry at either or both of the federal and state levels, changes in reimbursement for HEALTHSOUTH's services by government or private payors, competitive pressures in the healthcare industry and HEALTHSOUTH's response thereto, HEALTHSOUTH's ability to obtain and retain favorable arrangements with third-party payors, unanticipated delays in HEALTHSOUTH's implementation of its Integrated Service Model, general conditions in the economy and capital markets, and other factors which may be identified from time to time in HEALTHSOUTH's SEC filings and other public announcements. NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES TO WHICH THIS PROSPECTUS RELATES SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION CONCERNING HEALTHSOUTH CONTAINED IN THIS PROSPECTUS SINCE THE DATE OF SUCH INFORMATION. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES, OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS PROSPECTUS IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT LAWFUL. 5 TABLE OF CONTENTS
PAGE ----- AVAILABLE INFORMATION ................................................. 4 INCORPORATION OF CERTAIN INFORMATION BY REFERENCE ..................... 4 FORWARD-LOOKING INFORMATION ........................................... 4 SUMMARY OF PROSPECTUS ................................................. 8 The Issuer ........................................................... 8 Recent Developments .................................................. 8 Risk Factors ......................................................... 8 The Exchange Offer ................................................... 8 The New Notes ........................................................ 12 Use of Proceeds ...................................................... 13 RISK FACTORS .......................................................... 14 RATIO OF EARNINGS TO FIXED CHARGES .................................... 20 THE EXCHANGE OFFER .................................................... 20 Terms of the Exchange Offer .......................................... 20 Expiration Date; Extensions; Amendments; Termination ................. 22 Interest on the New Notes ............................................ 23 Procedures for Tendering ............................................. 23 Acceptance of Old Notes for Exchange; Delivery of New Notes .......... 24 Book-Entry Transfer .................................................. 25 Guaranteed Delivery Procedures ....................................... 25 Withdrawal of Tenders ................................................ 25 Conditions ........................................................... 26 Accounting Treatment ................................................. 26 Exchange Agent ....................................................... 26 Fees and Expenses .................................................... 27 USE OF PROCEEDS ....................................................... 27 CAPITALIZATION ........................................................ 28 SELECTED CONSOLIDATED FINANCIAL DATA .................................. 29 DESCRIPTION OF THE NEW NOTES .......................................... 31 General .............................................................. 31 Global Securities .................................................... 31 Optional Redemption .................................................. 33 Certain Covenants of the Issuer ...................................... 34 Merger, Consolidation and Sale of Assets ............................. 36 Events of Default .................................................... 36 Discharge, Defeasance and Covenant Defeasance ........................ 37
6
PAGE ----- Modification of the Indenture .............................................. 38 Concerning the Trustee ..................................................... 38 No Personal Liability of Directors, Officers, Stockholders or Incorporators 39 Governing Law .............................................................. 39 Information Concerning the Trustee ......................................... 39 CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS ..................... 40 Exchange of Old Notes for New Notes ........................................ 40 Tax Considerations Applicable to United States Persons ..................... 40 Tax Considerations Applicable to Non-U.S. Holders .......................... 41 Information Reporting and Backup Withholding ............................... 42 BUSINESS OF HEALTHSOUTH ..................................................... 43 General .................................................................... 43 HEALTHSOUTH Strategy ....................................................... 43 Recent Developments ........................................................ 44 Patient Care Services ...................................................... 45 PLAN OF DISTRIBUTION ........................................................ 47 EXPERTS ..................................................................... 48 LEGAL MATTERS ............................................................... 48
7 SUMMARY OF PROSPECTUS The following is a summary of certain information contained elsewhere in this Prospectus. Certain capitalized terms used in this Summary are defined elsewhere in this Prospectus. Reference is made to, and this Summary is qualified in its entirety by, the more detailed information contained in this Prospectus, and the documents incorporated by reference herein. THE ISSUER HEALTHSOUTH. HEALTHSOUTH is the nation's largest provider of outpatient surgery and rehabilitative healthcare services, based upon number of staffed rehabilitation beds, number of facilities and revenues derived from those services. It provides these services through its national network of outpatient and inpatient rehabilitation facilities, outpatient surgery centers, diagnostic centers, occupational medicine centers, medical centers and other healthcare facilities. HEALTHSOUTH believes that it provides patients, physicians and payors with high-quality healthcare services at significantly lower costs than traditional inpatient hospitals. Additionally, HEALTHSOUTH's national network, reputation for quality and focus on outcomes has enabled it to secure contracts with national and regional managed care payors. At June 30, 1998, HEALTHSOUTH had over 1,900 patient care locations in 50 states, the United Kingdom and Australia. See "BUSINESS OF HEALTHSOUTH". At June 30, 1998, HEALTHSOUTH had consolidated assets of approximately $6.113 billion and consolidated stockholders' equity of approximately $3.474 billion and employed approximately 58,500 persons. HEALTHSOUTH was incorporated under the laws of Delaware in 1984. Its principal executive offices are located at One HealthSouth Parkway, Birmingham, Alabama 35243, and its telephone number is (205) 967-7116. RECENT DEVELOPMENTS On July 1, 1998, HEALTHSOUTH acquired 33 ambulatory surgery centers from Columbia/ HCA Healthcare Corporation. The surgery centers are located in Alabama, California, Iowa, Illinois, Kentucky, Louisiana, Minnesota, Mississippi, North Carolina, Nevada, Oregon, Rhode Island and Texas. Effective July 31, 1998, HEALTHSOUTH entered into certain other arrangements to acquire substantially all of the economic benefits of Columbia/HCA's interest in one additional surgery center. The transaction was valued at approximately $550,000,000. On July 22, 1998, HEALTHSOUTH acquired National Surgery Centers, Inc. ("NSC"), adding 40 outpatient surgery centers in 14 states to HEALTHSOUTH's existing network of outpatient surgery and rehabilitative healthcare facilities. The value of the NSC transaction was approximately $590,000,000. Under the terms of the applicable agreement, NSC stockholders received 1.0972 shares of HEALTHSOUTH Common Stock for each share of NSC Common Stock. The NSC transaction is expected to be accounted for as a pooling of interests and is intended to be a tax-free reorganization. RISK FACTORS Existing holders of the Old Notes should pay special attention to the "Risk Factors" section beginning on page 14. THE EXCHANGE OFFER THE EXCHANGE OFFER.... New Notes are being offered in exchange for an equal principal amount of Old Notes of the same maturity. As of the date hereof, Old Notes due 2005 are outstanding in the aggregate 8 principal amount of $250,000,000 and Old Notes due 2008 are outstanding in the aggregate principal amount of $250,000,000. Old Notes may be tendered only in integral multiples of $1,000. RESALE OF NEW NOTES.. Based on interpretations by the staff of the Commission, as set forth in no-action letters issued to third parties, including the Exchange Offer No-Action Letters, the Issuer believes that the New Notes issued pursuant to the Exchange Offer may be offered for resale, resold or otherwise transferred by each holder thereof (other than a broker-dealer who acquires such New Notes directly from the Issuer for resale pursuant to Rule 144A under the Securities Act or any other available exemption under the Securities Act and other than any holder that is an "affiliate" (as defined under Rule 405 of the Securities Act) of the Issuer) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such New Notes are acquired in the ordinary course of such holder's business and such holder is not engaged in, and does not intend to engage in, a distribution of such New Notes and has no arrangement with any person to participate in a distribution of such New Notes. By tendering the Old Notes in exchange for New Notes, each holder, other than a broker-dealer, will represent to the Issuer that: (i) it is not an affiliate (as defined in Rule 405 under the Securities Act) of the Issuer; (ii) it is not a broker-dealer tendering Old Notes acquired for its own account directly from the Issuer; (iii) any New Notes to be received by it will be acquired in the ordinary course of its business; and (iv) it is not engaged in, and does not intend to engage in, a distribution of such New Notes and has no arrangement or understanding to participate in a distribution of the New Notes. If a holder of Old Notes is engaged in or intends to engage in a distribution of the New Notes to be acquired pursuant to the Exchange Offer, such holder may not rely on the applicable interpretations of the staff of the Commission and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any secondary resale transaction. Each Participating Broker-Dealer that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a Participating Broker-Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired by such Participating Broker-Dealer as a result of market-making activities or other trading activities. The Issuer has agreed that it will make this Prospectus available to any Participating Broker-Dealer for a period of time not to exceed one year after the date on which the Exchange Offer is con- 9 summated for use in connection with any such resale. See "Plan of Distribution". To comply with the securities laws of certain jurisdictions, it may be necessary to qualify for sale or register the New Notes prior to offering or selling such New Notes. The Issuer has agreed, pursuant to the Registration Rights Agreement and subject to certain specified limitations therein, to register or qualify the New Notes for offer or sale under the securities or "blue sky" laws of such jurisdictions as may be necessary to permit consummation of the Exchange Offer. REGISTRATION RIGHTS AGREE MENTS .................. The Old Notes were issued on June 22, 1998, to the Initial Purchasers. The Initial Purchasers placed the Old Notes with institutional or overseas investors. In connection therewith, the Issuer and the Initial Purchasers entered into the Registration Rights Agreement, providing, among other things, for the Exchange Offer. See "The Exchange Offer". CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES.... Upon consummation of the Exchange Offer, subject to certain exceptions, holders of Old Notes who do not exchange their Old Notes for New Notes in the Exchange Offer will no longer be entitled to registration rights and will not be able to offer or sell their Old Notes, unless such Old Notes are subsequently registered under the Securities Act (which, subject to certain limited exceptions, the Issuer will have no obligation to do), or pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. See "Risk Factors -- Consequences of Failure to Exchange" and "The Exchange Offer -- Terms of the Exchange Offer". EXPIRATION DATE......... 5:00 p.m., New York City time, on __________, 1998 (30 calendar days following the commencement of the Exchange Offer), unless the Exchange Offer is extended, in which case the term "Expiration Date" means the latest date and time to which the Exchange Offer is extended. INTEREST ON THE NEW NOTES. Interest on the New Notes will accrue from June 22, 1998 and be payable, at the rates of 6.875% per annum on the New Notes due 2005 and 7.0% on the New Notes due 2008, on June 15 and December 15 of each year, commencing December 15, 1998. CONDITIONS TO THE EXCHANGE OFFER................. The Exchange Offer is not conditioned upon any minimum principal amount of Old Notes being tendered for exchange. However, the Exchange Offer is subject to certain customary conditions, which may, under certain circumstances, be waived by the Issuer. See "The Exchange Offer -- Conditions". Except for the requirements of applicable federal and state securities laws, there are no federal or state regulatory requirements to be complied with by the Issuer in connection with the Exchange Offer. 10 PROCEDURES FOR TENDERING OLD NOTES.............. Each holder of Old Notes wishing to accept the Exchange Offer must complete, sign and date the Letter of Transmittal, in accordance with the instructions contained herein and therein, and mail or otherwise deliver such Letter of Transmittal, together with the Old Notes to be exchanged and any other required documentation to the Exchange Agent (as defined herein) at the address set forth herein or effect a tender of Old Notes pursuant to the procedures for book-entry transfer as provided for herein. See "The Exchange Offer -- Procedures for Tendering" and "-- Book Entry Transfer". SPECIAL PROCEDURES FOR BENEFICIAL OWNERS........ Any beneficial owner whose Old Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact such registered holder promptly and insruct such registered holder to tender on his behalf. If such beneficial owner wishes to tender on his own behalf, such beneficial owner must, prior to completing and executing the Letter of Transmittal and delivering his Old Notes, either make appropriate arrangements to register ownership of the Old Notes in such owner's name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time. See "Exchange Offer -- Procedures for Tendering". GUARANTEED DELIVERY PROCEDURES............ Holders of Old Notes who wish to tender their Old Notes and whose Old Notes are not immediately available or who cannot deliver their Old Notes and a properly completed Letter of Transmittal or any other documents required by the Letter of Transmittal to the Exchange Agent prior to the Expiration Date may tender their Old Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer -- Guaranteed Delivery Procedures". WITHDRAWAL RIGHTS...... Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. To withdraw a tender of Old Notes, a written notice of withdrawal must be received by the Exchange Agent at its address set forth herein under "The Exchange Offer -- Exchange Agent" prior to 5:00 p.m., New York City time, on the Expiration Date. ACCEPTANCE OF OLD NOTES AND DELIVERY OF NEW NOTES.. Subject to certain conditions, any and all Old Notes tha are properly tendered in the Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date will be accepted for exchange. The New Notes issued pursuant to the Exchange Offer will be delivered promptly following the Expiration Date. See "The Exchange Offer -- Terms of the Exchange Offer". In all cases, issuance of New Notes for Old Notes that are accepted for exchange pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of cer- 11 tificates for the Old Notes or a timely Book-Entry Confirmation of such Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility, a properly completed and duly executed Letter of Transmittal and all other required documents. If any tendered Old Notes are not accepted for any reason set forth in the terms and conditions of the Exchange Offer or if Old Notes are submitted for a greater principal amount than the holder desires to exchange, such unaccepted or non-exchanged Old Notes will be returned without expense to the tendering holder thereof (or, in the case of Old Notes tendered by book-entry transfer procedures described herein, such non-exchanged Old Notes will be credited to an account maintained with such Book-Entry Transfer Facility) as promptly as practicable after the expiration or termination of the Exchange Offer. CERTAIN TAX CONSIDERATIONS......... The exchange of New Notes for Old Notes will not b considered a sale or exchange or otherwise a taxable event for Federal income tax purposes. See "Certain United States Federal Tax Considerations". EXCHANGE AGENT......... PNC Bank, N.A. is serving as exchange agent (the "Exchange Agent") in connection with the Exchange Offer. FEES AND EXPENSES..... All expenses incident to consummation of the Exchange Offer and compliance with the Registration Rights Agreement will be borne by the Issuer. See "The Exchange Offer -- Fees and Expenses". USE OF PROCEEDS....... There will be no proceeds payable to the Issuer from the issuance of the New Notes pursuant to the Exchange Offer. See "Use of Proceeds". THE NEW NOTES The Exchange Offer relates to (a) the exchange of up to $250,000,000 aggregate principal amount of Old Notes due 2005 for up to an equal aggregate principal amount of New Notes due 2005 and (b) the exchange of up to $250,000,000 aggregate principal amount of Old Notes due 2008 for up to an equal aggregate principal amount of New Notes due 2008. The New Notes will be entitled to the benefits of the same Indenture that governs the Old Notes and that will govern the New Notes. The form and terms of the New Notes are the same in all material respects as the form and terms of the Old Notes, except that (i) the New Notes have been registered under the Securities Act and therefore will not bear legends restricting the transfer thereof and (ii) holders of New Notes will not be entitled to certain rights of holders of the Old Notes under the Registration Rights Agreement, which rights will be terminated upon consummation of the Exchange Offer (e.g. liquidated damages). See "Description of the New Notes". MATURITY DATES......... The New Notes due 2005 will mature on June 15, 2005 and the New Notes due 2008 will mature on June 15, 2008 INTEREST PAYMENT DATES... June 15 and December 15 of each year, commencing December 15, 1998. OPTIONAL REDEMPTION.... The Old Notes will be redeemable as a whole or in part, at the option of the Issuer, at any time at a redemption price equal to the greater of (i) 100% of their principal amount and (ii) the sum 12 of the present values of the remaining scheduled payments of principal and interest thereon discounted to the date of redemption on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the applicable Treasury Yield (as defined herein) plus 15 basis points in the case of the New Notes due 2005 and 20 basis points in the case of the New Notes due 2008, plus in each case accrued interest to the date of redemption. See "Description of the New Notes -- Optional Redemption". RANKING................. The New Notes will constitute unsecured and unsubordinated obligations of the Issuer and will rank pari passu in right of payment with all other unsecured and unsubordinated obligations of the Issuer. See "Description of the New Notes". RESTRICTIVE COVENANTS... The Indenture governing the New Notes contains certain covenants that, among other things, limit the ability of the Issuer to incur liens and engage in mergers and consolidations or sale and lease-back transactions. See "Description of the New Notes". USE OF PROCEEDS There will be no proceeds payable to the Issuer from the issuance of the New Notes pursuant to the Exchange Offer. The proceeds from the sale of the Old Notes were used by HEALTHSOUTH to repay bank debt. See "Use of Proceeds". 13 RISK FACTORS In addition to the other information in this Prospectus, the following should be considered carefully by holders of the Notes. Statements made herein should be considered as "forward-looking information". See "Forward-Looking Information". REIMBURSEMENT BY THIRD-PARTY PAYORS Substantially all of HEALTHSOUTH's revenues are derived from private and governmental third-party payors (in 1997, approximately 36.9% from Medicare and approximately 63.1% from commercial insurers, managed care plans, workers' compensation payors and other private pay revenue sources). There are increasing pressures from many payor sources to control healthcare costs and to limit increases in reimbursement rates for medical services. There can be no assurances that payments under governmental and third-party payor programs will remain at levels comparable to present levels. In attempts to limit the federal budget deficit, there have been, and HEALTHSOUTH expects that there will continue to be, a number of proposals to limit Medicare reimbursements for certain services. HEALTHSOUTH cannot now predict whether any of these pending proposals will be adopted or, if adopted and implemented, what effect such proposals would have on HEALTHSOUTH. REGULATION HEALTHSOUTH is subject to various other types of regulation at the federal and state levels, including licensure and certification laws, Certificate of Need laws and laws relating to financial relationships among providers of healthcare services, Medicare fraud and abuse and physician self-referral. The operation of HEALTHSOUTH's facilities and the provision of healthcare services are subject to federal, state and local licensure and certification laws. These facilities and services are subject to periodic inspection by governmental and other authorities to assure compliance with the various standards established for continued licensure under state law, certification under the Medicare and Medicaid programs and participation in the Veteran's Administration program. Additionally, in many states, Certificates of Need or other similar approvals are required for expansion of HEALTHSOUTH's operations. HEALTHSOUTH could be adversely affected by the failure or inability to obtain such approvals, by changes in the standards applicable to approvals and by possible delays and expenses associated with obtaining approvals. The failure by HEALTHSOUTH to obtain, retain or renew any required regulatory approvals, licenses or certificates could prevent HEALTHSOUTH from being reimbursed for, or from offering, its services, or could adversely affect its results of operations. A wide array of Medicare/Medicaid fraud and abuse provisions apply to the operations of HEALTHSOUTH. HEALTHSOUTH is subject to extensive federal and state regulation with respect to financial relationships among healthcare providers, physician self-referral arrangements and other fraud and abuse issues. Penalties for violation of federal and state laws and regulations include exclusion from participation in the Medicare/Medicaid programs, asset forfeiture, civil penalties and criminal penalties. The Office of Inspector General of the Department of Health and Human Services (the "OIG"), the Department of Justice (the "DOJ") and other federal agencies interpret healthcare fraud and abuse provisions liberally and enforce them aggressively. See "-- Certain Horizon/CMS Litigation". See also "Business -- Regulation" in HEALTHSOUTH's 1997 Form 10-K. HEALTHCARE REFORM In recent years, an increasing number of legislative proposals have been introduced or proposed in Congress and in some state legislatures that would effect major changes in the healthcare system, either nationally or at the state level. Among the proposals which are, or recently have been, under consideration are cost controls on hospitals, insurance market reforms to increase the availability of group health insurance to small businesses, requirements that all businesses offer health insurance coverage to their employees and the creation of a single government health insurance plan that would cover all citizens. The costs of certain proposals would be funded in significant part by reductions in payments by governmental programs, including Medicare and Medicaid, to healthcare providers. There continue to be fed- 14 eral and state proposals that would, and actions that do, impose more limitations on government and private payments to healthcare providers such as HEALTHSOUTH and proposals to increase copayments and deductibles from program and private patients. At the federal level, both Congress and the current Administration have continued to propose healthcare budgets that substantially reduce payments under the Medicare and Medicaid programs. In addition, many states are considering the enactment of initiatives designed to reduce their Medicaid expenditures, to provide universal coverage or additional levels of care and/or to impose additional taxes on healthcare providers to help finance or expand the states' Medicaid systems. There can be no assurance as to the ultimate content, timing or effect of any healthcare reform legislation, nor is it possible at this time to estimate the impact of potential legislation, which may be material, on HEALTHSOUTH. COMPUTER TECHNOLOGIES AND YEAR 2000 COMPLIANCE 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. HEALTHSOUTH 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 HEALTHSOUTH'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 HEALTHSOUTH'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 HEALTHSOUTH's general business systems and its patient billing systems. Most of HEALTHSOUTH'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. HEALTHSOUTH's review of its internally maintained mission-critical applications revealed that such applications contained very few date-sensitive calculations. The revisions to these applications are scheduled to be completed by October 31, 1998, tested during November and December, 1998 and implemented during the first quarter of 1999. The budget for this project is approximately $150,000. The project is currently on schedule, with coding approximately 25% complete at the end of July 1998. HEALTHSOUTH's general business applications are all licensed from and maintained by the same vendor. All such applications are already year 2000 compliant. HEALTHSOUTH has received written confirmation from the vendors of its other externally maintained mission-critical applications that such applications are currently year 2000 compliant or will be made year 2000 compliant by the end of 1998. The cost to be incurred by HEALTHSOUTH related to externally maintained applications is not currently expected to be material. HEALTHSOUTH 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, HEALTHSOUTH 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. HEALTHSOUTH plans to evaluate the effectiveness of the manual systems before any decisions are made on the replacement of the non-compliant applications. HEALTHSOUTH has engaged a consultant to test all of its computer hardware for year 2000 compliance at a cost of approximately $800,000. The results of these tests are expected to be available by November 30, 1998. The Company has regularly upgraded its significant servers and hardware platforms. Therefore, it is expected that the consultant's tests will only reveal that HEALTHSOUTH's older per- 15 sonal computers are not year 2000 compliant. Once the results of the tests are available, HEALTHSOUTH will determine which hardware components are necessary to replace and will develop a plan to do so. The cost of such replacements cannot be estimated until the plan is developed. HEALTHSOUTH has not completed its review of embedded applications which control certain medical and other equipment. HEALTHSOUTH expects to complete this review during the third quarter of 1998. The nature of HEALTHSOUTH's business is such that any failure of these type applications is not expected to have a material adverse effect on its business. HEALTHSOUTH 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 50% of those suppliers, and no significant problems have been identified. Second requests have been mailed to all non-respondents. HEALTHSOUTH has also sent inquiries to its significant third-party payors. Responses have been received from payors representing over 35% of HEALTHSOUTH's revenues. Such responses indicate that these payors' systems will be year 2000 compliant. Second requests will be mailed to all non-respondents during October 1998. HEALTHSOUTH 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 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 access 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 by such payors, 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 supplies, there can be no assurance that HEALTHSOUTH's assessment is correct or as to the materiality or effect of any failure of such assessment to be correct. HEALTHSOUTH will continue with the 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 above. There can, however, be no assurance that such compliance plan, as it may be changed, augmented or modified from the time to time, will be successful. COMPETITION HEALTHSOUTH operates in a highly competitive industry. HEALTHSOUTH generally operates its facilities in communities that also are served by similar facilities operated by others. Although HEALTHSOUTH is the largest provider of outpatient surgery and rehabilitation healthcare services on a nationwide basis, in any particular market it may encounter competition from local or national entities with longer operating histories or other superior competitive advantages. There can be no assurance that such competition, or other competition which HEALTHSOUTH may encounter in the future, will not adversely affect HEALTHSOUTH's results of operations. CERTAIN HORIZON/CMS LITIGATION On October 29, 1997, HEALTHSOUTH acquired Horizon/CMS Healthcare Corporation ("Horizon/ CMS") through the merger of a wholly-owned subsidiary of HEALTHSOUTH with and into Horizon/ CMS. Horizon/CMS is currently a party, or is subject, to certain material litigation matters and disputes, which are described below, as well as various other litigation matters and disputes arising in the ordinary course of its business. HEALTHSOUTH is not itself a party to the litigation described below. SEC and NYSE Investigations The Division of Enforcement of the SEC is conducting a private investigation with respect to trading in the securities of Horizon/CMS and Continental Medical Systems, Inc. ("CMS"), which was acquired by Horizon/CMS in June 1995. In connection with that investigation, Horizon/CMS produced 16 certain documents, and Neal M. Elliott, then Chairman of the Board, President and Chief Executive Officer of Horizon/CMS, and certain other former officers of Horizon/CMS have given testimony to the SEC. Horizon/CMS has also been informed that certain of its division office employees and an individual, affiliates of whom had limited business relationships with Horizon/CMS, have responded to subpoenas from the SEC. Mr. Elliott also produced certain documents in response to a subpoena from the SEC. In addition, Horizon/CMS and Mr. Elliott have responded to separate subpoenas from the SEC pertaining to trading in Horizon/CMS's common stock and various material press releases issued in 1996 by Horizon/CMS; Horizon/CMS's February 18, 1997 announcement that HEALTHSOUTH would acquire Horizon/CMS; and any discussions of proposed business combinations between Horizon/CMS and Medical Innovations and Horizon/CMS and certain other companies. The investigation is, to the knowledge of HEALTHSOUTH and Horizon/CMS, ongoing, and neither Horizon/CMS nor HEALTHSOUTH possesses all the facts with respect to the matters under investigation. Although neither Horizon/CMS nor HEALTHSOUTH has been advised by the SEC that the SEC has concluded that any of Horizon/ CMS, Mr. Elliott or any other current or former officer or director of Horizon/CMS has been involved in any violation of the federal securities laws, there can be no assurance as to the outcome of the investigation or the time of its conclusion. Both Horizon/CMS and HEALTHSOUTH have, to the extent requested to date, cooperated fully with the SEC in connection with the investigation. In March 1995, the New York Stock Exchange (the "NYSE") informed Horizon/CMS that it had initiated a review of trading in The Hillhaven Corporation common stock prior to the announcement of Horizon/CMS's proposed acquisition of Hillhaven. In April 1995, the NYSE extended the review of trading to include all dealings with CMS. On April 3, 1996, the NYSE notified Horizon/CMS that it had initiated a review of trading in its common stock preceding Horizon/CMS's March 1, 1996 press release announcing a revision in Horizon/CMS's third quarter earnings estimate. On February 20, 1997, the NYSE notified Horizon/CMS that it was reviewing trading in Horizon/CMS's securities prior to the February 18, 1997 announcement that HEALTHSOUTH would acquire Horizon/CMS. Horizon/CMS has cooperated with the NYSE in its reviews and, to Horizon/CMS's knowledge, the reviews are ongoing. In February 1997, HEALTHSOUTH received a subpoena from the SEC with respect to its investigation concerning trading in Horizon/CMS common stock prior to the February 18, 1997 announcement that HEALTHSOUTH would acquire Horizon/CMS and a request for information from the NYSE in connection with its review of such trading. HEALTHSOUTH responded to such subpoena and request for information and advised both the SEC and the NYSE that it intended to cooperate fully in any investigations or reviews relating to such trading. HEALTHSOUTH provided certain additional information to the SEC in April 1997. Since that time, HEALTHSOUTH has had no further inquiries from either the SEC or the NYSE with respect to such matters, and is unaware of the current status of such investigations or reviews. Michigan Attorney General Investigation Into Long-Term Care Facility In Michigan Horizon/CMS learned in September 1996 that the Attorney General of the State of Michigan was investigating one of its skilled nursing facilities. The facility, in Howell, Michigan, was owned and operated by Horizon/CMS from February 1994 until December 31, 1997. As widely reported in the press, the Attorney General seized a number of patient, financial and accounting records that were located at this facility. By order of a circuit judge in the county in which the facility is located, the Attorney General was ordered to return patient records to the facility for copying. Horizon/CMS advised the Michigan Attorney General that it was willing to cooperate fully in the investigation. The facility in question was sold by Horizon/CMS to Integrated Health Services, Inc., on December 31, 1997. On February 19, 1998, the State of Michigan filed a criminal complaint against Horizon/CMS, four former employees of the facility and one former Horizon/CMS regional manager, alleging various violations in 1995 and 1996 of certain statutes relating to patient care, patient medical records and the making of false statements with respect to the condition or operations of the facility (State of Michigan v. Horizon/CMS Healthcare Corp., et al., Case No. 98-630-FY, State of Michigan District Court 54B). The maximum fines chargeable against Horizon/CMS under the counts alleged in the complaint (exclusive of charges against the individual defendants, some of which charges may result in indemnification 17 obligations for Horizon/CMS) aggregate $69,000. Horizon/CMS denies the allegations made in the complaint and expects to vigorously defend against the charges. It is not possible to predict at this time the outcome or effect of this litigation or the length of time it will take to resolve this litigation. Lawsuit by Former Shareholders of Communi-Care, Inc. and Pro Rehab, Inc. On May 28, 1997, CMS was served with a lawsuit styled Kenneth Hubbard and Lynn Hubbard v. Rocco Ortenzio, Robert A. Ortenzio and Continental Medical Systems, Inc., No. 3:97 CV294MCK, filed in the United States District Court for the Western District of North Carolina, Charlotte Division, by the former shareholders of Communi-Care, Inc. and Pro Rehab, Inc. seeking damages arising out of certain "earnout" provisions of the definitive purchase agreements under which CMS purchased the outstanding stock of Communi-Care, Inc. and Pro Rehab, Inc. from such shareholders. The plaintiffs allege that the manner in which CMS and the other defendants operated the companies after their acquisition breached its fiduciary duties to the plaintiffs, constituted fraud, gross negligence and bad faith, and breached their employment agreements with the companies. As a result of such alleged conduct, the plaintiffs assert that they are entitled to damages in an amount in excess of $27,000,000 from CMS and the other defendants. Horizon/CMS believes, based upon its evaluation of the legal and factual matters relating to the plaintiffs' assertions, that it has valid defenses to the plaintiffs' claims and, as a result, intends to vigorously contest such claims. Because this litigation remains at an early stage, HEALTHSOUTH cannot now predict the outcome or effect of such litigation or the length of time it will take to resolve such litigation. EEOC Litigation In March 1997, the Equal Employment Opportunity Commission (the "EEOC") filed a complaint against Horizon/CMS alleging that Horizon/CMS had engaged in unlawful employment practices in respect of Horizon/CMS's employment policies related to pregnancies. Specifically, the EEOC asserts that Horizon/CMS's alleged refusal to provide pregnant employees with light-duty assignments to accommodate their temporary disabilities caused by pregnancy violates Sections 701(k) and 703(a) of Title VII, 42 U.S.C. (section)(section) 2000e-(k) and 2000e-2(a). In this lawsuit, the EEOC seeks, among other things, to permanently enjoin Horizon/CMS's employment practices in this regard. Horizon/CMS disputes the factual and legal assertions of the EEOC in this litigation and intends to vigorously contest the EEOC's claims. HEALTHSOUTH cannot predict the length of time it will take to resolve this litigation or the outcome or effect 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 efficacy of the jury's verdict and has appealed the judgment. Horizon/CMS's insurance carrier continues to defend the matter subject to a reservation of rights. 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, Horizon/CMS 18 believes that the entirety of any judgment ultimately entered is covered by and payable from such insurance policy, less Horizon/CMS's self-insured retention of $250,000. On November 19, 1997, the insurance carrier sent Horizon/CMS a letter indicating its belief that certain policy exclusions might apply and requesting additional information which might affect its coverage determination. Horizon/ CMS has retained separate counsel to analyze the coverage issues and advise Horizon/CMS on its position, and Horizon/CMS expects to continue to negotiate any coverage issues with its carrier. Settlement negotiations by Horizon/CMS's insurance carrier, in conjunction with HEALTHSOUTH's retained counsel, continue with the plaintiff. It is not possible at this time to predict the outcome of any post-trial motions or appeals, the resolution of any coverage issues, the outcome of any settlement negotiations or the ultimate amount of any liability which will be borne by Horizon/CMS. PROCEDURES FOR TENDER OF OLD NOTES The New Notes will be issued in exchange for Old Notes only after timely receipt by the Exchange Agent of such Old Notes, a properly completed and duly executed Letter of Transmittal and all other required documents. Therefore, holders of Old Notes desiring to tender such Old Notes in exchange for New Notes should allow sufficient time to ensure timely delivery. Failure by a holder to follow such procedures may result in delay in receiving a New Note on a timely basis. Neither the Exchange Agent nor HEALTHSOUTH is under any duty to give notification of defects or irregularities with respect to tenders of Old Notes for exchange. Any holder of Old Notes who tenders in the Exchange Offer for the purpose of participating in a distribution of the New Notes will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives New Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as a result of market-making activities or any other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of New Notes. See "The Exchange Offer -- Procedures for Tendering" and "Plan of Distribution". CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES Holders of Old Notes who do not exchange their Old Notes for New Notes pursuant to the Exchange Offer will continue to be subject to the restrictions on transfer of such Old Notes as set forth in the legend thereon as a consequence of the issuance of the Old Notes pursuant to exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, the Old Notes may not be offered or sold unless registered under the Securities Act, or pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. HEALTHSOUTH does not currently anticipate that it will register the Old Notes under the Securities Act. To the extent that Old Notes are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted Old Notes could be adversely affected. LACK OF PUBLIC MARKET FOR THE NOTES There can be no assurance that a public market for the New Notes will develop or, if such a market develops, as to the liquidity of such market. If such a market were to develop, the New Notes could trade at prices that may be higher or lower than their principal amount. HEALTHSOUTH does not intend to apply for listing of the New Notes on any securities exchange or for quotation of the New Notes on any automated quotation system. The Initial Purchasers have previously made a market in the Old Notes, and HEALTHSOUTH has been advised that the Initial Purchasers currently intend to make a market in the New Notes, as permitted by applicable laws and regulations, after consummation of the Exchange Offer. The Initial Purchasers are not obligated, however, to make a market in the Old Notes or the New Notes and any such market making activity may be discontinued at any time without notice at the sole discretion of the Initial Purchasers. If an active public market does not develop or continue, the market price and liquidity of the New Notes may be adversely affected. 19 RATIO OF EARNINGS TO FIXED CHARGES The following table sets forth the Issuer's consolidated ratio of earnings to fixed charges for the periods shown.
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED ------------------------------------------------------ JUNE 30, 1993 1994 1995 1996 1997 1998 ---- ---- ---- ---- ---- ---- Ratio of earnings to fixed charges ......... 5.71x 3.31x 3.27x 4.61x 5.34x 6.59x
For purposes of calculating ratio of earnings to fixed charges, (i) earnings consist of consolidated income (loss) before taxes and nonrecurring charges, plus fixed charges, and (ii) fixed charges consist of interest expense incurred and the portion of rental expense under operating leases deemed by the Issuer to be representative of the interest factor. THE EXCHANGE OFFER The following discussion sets forth or summarizes the material terms of the Exchange Offer, including those set forth in the Letter of Transmittal distributed with this Prospectus. This summary is qualified in its entirety by reference to the full text of the documents underlying the Exchange Offer (including the Indenture and the Registration Rights Agreement), which are exhibits to the registration statement of which this Prospectus is a part. TERMS OF THE EXCHANGE OFFER The Old Notes were sold by the Issuer to the Initial Purchasers on June 22, 1998, the "Closing Date", pursuant to a Purchase Agreement entered into by the Initial Purchasers on June 22, 1998 (the "Purchase Agreement") and were subsequently resold (i) to qualified institutional buyers pursuant to Rule 144A under the Securities Act, and (ii) pursuant to offers and sales that occurred outside the United States within the meaning of Regulation S under the Securities Act. In connection with the issuance of the Old Notes pursuant to the Purchase Agreement, the Initial Purchasers and their respective assignees became entitled to the benefits of the Registration Rights Agreement. Under the Registration Rights Agreement, the Issuer is required to file within 60 days after the Closing Date a registration statement (the "Exchange Offer Registration Statement") for a registered exchange offer with respect to an issue of new notes identical in all material respects to the Old Notes except that the new notes shall contain no restrictive legend thereon. Under the Registration Rights Agreement, the Issuer is required to (i) cause the Exchange Offer Registration Statement to be filed with the Commission no later than 60 days after the Closing Date, (ii) use its best efforts to cause such Exchange Offer Registration Statement to become effective no later than 150 days after the Closing Date, (iii) use its best efforts to keep the Exchange Offer open for at least 30 and not longer than 45 calendar days (or longer if required by applicable law), (iv) use its best efforts to consummate the Exchange Offer as soon as practicable following the date on which the Exchange Offer Registration Statement is declared effective by the Commission, but in no event later than 180 days after the Closing Date and (v) cause the Exchange Offer to comply with all applicable federal and state securities laws. The Exchange Offer being made hereby, if commenced and consummated within the time periods described in this paragraph, will satisfy those requirements under the Registration Rights Agreement. Upon the terms and subject to the conditions set forth in this Prospectus and in the Letter of Transmittal, all Old Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date will be accepted for exchange. New Notes of the same maturity will be issued in exchange for an equal principal amount of outstanding Old Notes accepted in the Exchange Offer. Old Notes may be tendered only in integral multiples of $1,000. This Prospectus, together with the Letter of Transmittal, is being sent to all registered holders on or about ____________, 1998. The Exchange Offer is not conditioned upon any minimum principal amount of Old Notes being tendered in exchange. However, the obligation to accept Old Notes for exchange pursuant to the Exchange Offer is subject to certain conditions as set forth herein under "-- Conditions". 20 Old Notes shall be deemed to have been accepted as validly tendered when, as and if the Trustee has given oral or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering holders of Old Notes for the purposes of receiving the New Notes and delivering New Notes to such holders. Based on interpretations by the staff of the Commission, as set forth in no-action letters issued to third parties, including the Exchange Offer No-Action Letters, the Issuer believes that the New Notes issued pursuant to the Exchange Offer may be offered for resale, resold or otherwise transferred by each holder thereof (other than a broker-dealer who acquires such New Notes directly from the Issuer for resale pursuant to Rule 144A under the Securities Act or any other available exemption under the Securities Act and other than any holder that is an "affiliate" (as defined in Rule 405 under the Securities Act) of the Issuer without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such New Notes are acquired in the ordinary course of such holder's business and such holder is not engaged in, and does not intend to engage in, a distribution of such New Notes and has no arrangement with any person to participate in a distribution of such New Notes. By tendering the Old Notes in exchange for New Notes, each holder, other than a broker-dealer, will represent to the Issuer that: (i) it is not an affiliate (as defined in Rule 405 under the Securities Act) of the Issuer; (ii) it is not a broker-dealer tendering Old Notes acquired for its own account directly from the Issuer; (iii) any New Notes to be received by it will be acquired in the ordinary course of its business; and (iv) it is not engaged in, and does not intend to engage in, a distribution of such New Notes and has no arrangement or understanding to participate in a distribution of the New Notes. If a holder of Old Notes is engaged in or intends to engage in a distribution of the New Notes or has any arrangement or understanding with respect to the distribution of the New Notes to be acquired pursuant to the Exchange Offer, such holder may not rely on the applicable interpretations of the staff of the Commission and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any secondary resale transaction. Each Participating Broker-Dealer that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a Participating Broker-Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired by such Participating Broker-Dealer as a result of market-making activities or other trading activities. The Issuer has agreed that it will make this Prospectus available to any Participating Broker-Dealer for a period of time not to exceed one year after the date on which the Exchange Offer is consummated for use in connection with any such resale. See "Plan of Distribution". In the event that (i) any changes in law or the applicable interpretations of the staff of the Commission do not permit the Issuer to effect the Exchange Offer, or (ii) if any holder of Old Notes shall notify the Issuer within 30 calendar days following the consummation of the Exchange Offer that (A) such holder was prohibited by law or Commission policy from participating in the Exchange Offer or (B) such holder may not resell the New Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and the prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales by such holder or (C) such holder is a broker-dealer and holds Old Notes acquired directly from the Issuer or one of its affiliates, then the Issuer shall (x) cause to be filed a shelf registration statement pursuant to Rule 415 under the Securities Act (the "Shelf Registration Statement") on or prior to 30 days after the date on which the Issuer determines that it is not required to file the Exchange Offer Registration Statement pursuant to clause (i) above or 30 days after the date on which the Issuer receives the notice specified in clause (ii) above and shall (y) use its best efforts to cause such Shelf Registration Statement to become effective within 30 days after the date on which the Issuer becomes obligated to file such Shelf Registration Statement. If, after the Issuer has filed an Exchange Offer Registration Statement, the Issuer is required to file and make effective a Shelf Registration Statement solely because the Exchange Offer is not permitted under applicable federal law, then the filing of the Exchange Offer Registration Statement shall be deemed to satisfy the requirements of clause (x) above. Such an event shall have no effect on the requirements of clause (y) above. The 21 Issuer shall use its best efforts to keep the Shelf Registration Statement continuously effective, supplemented and amended to the extent necessary to ensure that it is available for sales of Transfer Restricted Securities (as defined below) by the holders thereof for a period of at least two years following the date on which such Shelf Registration Statement first becomes effective under the Securities Act. The term "Transfer Restricted Securities" means each Note, until the earliest to occur of (a) the date on which such Note is exchanged in the Exchange Offer and entitled to be resold to the public by the holder thereof without complying with the prospectus delivery requirements of the Act, (b) the date on which such Note has been disposed of in accordance with a Shelf Registration Statement, (c) the date on which such Note is disposed of by a broker-dealer pursuant to the "Plan of Distribution" contemplated by the Exchange Offer Registration Statement (including delivery of the prospectus contained therein) or (d) the date on which such Note is distributed to the public pursuant to Rule 144 under the Act. If (i) the Exchange Offer Registration Statement or the Shelf Registration Statement is not filed with the Commission on or prior to the date specified in the Registration Rights Agreement, (ii) any such Registration Statement has not been declared effective by the Commission on or prior to the date specified for such effectiveness in the Registration Rights Agreement, (iii) the Exchange Offer has not been consummated within 180 days after the Closing Date or (iv) any Registration Statement required by the Registration Rights Agreement is filed and declared effective but shall thereafter cease to be effective or fail to be usable for its intended purpose without being succeeded immediately by a post-effective amendment to such Registration Statement that cures such failure and that is itself declared effective immediately (each such event referred to in clauses (i) through (iv), a "Registration Default"), then the Issuer has agreed to pay liquidated damages to each holder of Transfer Restricted Securities. Liquidated Damages shall accrue on the applicable Old Notes or the applicable New Notes, as the case may be, over and above the applicable interest rate set forth in the title to the applicable Old Notes or the applicable New Notes. Following the occurrence of each such Registration Default mentioned herein from and including the next day following each such Registration Default in each case at a rate equal to 0.25% per annum; provided, however, that in any case, if one or more Registration Defaults occurs and continues for more than 60 days (whether or not consecutive) in any twelve month period (the 61st day being referred to as the "Default Day") then and from the Default Day until the earlier of (i) the date such Shelf Registration Statement is again deemed effective or is useable, (ii) the date that is the second anniversary of the Closing Date (or, if Rule 144(k) of the Securities Act is amended to provide a shorter restrictive period, such shorter period) or (iii) the date on which the Notes are sold pursuant to such Shelf Registration Statement, Liquidated Damages shall accrue at a rate of 0.25% per annum, provided, however, that the aggregate amount of Liquidated Damages payable will in no event exceed 0.25% per annum. The Liquidated Damages attributable to each Registration Default shall cease to accrue from the date such Registration Default is cured. All accrued liquidated damages shall be paid to the holders of record on the preceding June 1 and December 1, respectively, of the global note representing the Old Notes by wire transfer of immediately available funds or by federal funds check and to holders of certificated securities by mailing checks to their registered addresses on each June 15 and December 15. All obligations of the Issuer set forth in the preceding paragraph that are outstanding with respect to any Transfer Restricted Security at the time such security ceases to be a Transfer Restricted Security shall survive until such time as all such obligations with respect to such security shall have been satisfied in full. Upon consummation of the Exchange Offer, subject to certain exceptions, holders of Old Notes who do not exchange their Old Notes for New Notes in the Exchange Offer will no longer be entitled to registration rights and will not be able to offer or sell their Old Notes, unless such Old Notes are subsequently registered under the Securities Act (which, subject to certain limited exceptions, the Issuer will have no obligation to do), except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. See "Risk Factors -- Risk Factors Relating to the Notes -- Consequences of Failure to Exchange". EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION The term "Expiration Date" shall mean ____________, 1998 (30 calendar days following the commencement of the Exchange Offer), unless the Exchange Offer is extended, if and as required by 22 applicable law, in which case the term "Expiration Date" shall mean the latest date to which the Exchange Offer is extended. In order to extend the Expiration Date, the Issuer will notify the Exchange Agent of any extension by oral or written notice and will notify the holders of the Old Notes by means of a press release or other public announcement prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. The Issuer reserves the right (i) to delay acceptance of any Old Notes, to extend the Exchange Offer or to terminate the Exchange Offer and not permit acceptance of Old Notes not previously accepted if any of the conditions set forth herein under "-- Conditions" shall have occurred and shall not have been waived by the Issuer, by giving oral or written notice of such delay, extension or termination to the Exchange Agent, or (ii) to amend the terms of the Exchange Offer in any manner deemed by it to be advantageous to the holders of the Old Notes. Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice thereof to the Exchange Agent. If the Exchange Offer is amended in a manner determined by the Issuer to constitute a material change, the Issuer will promptly disclose such amendment in a manner reasonably calculated to inform the holders of the Old Notes of such amendment. INTEREST ON THE NEW NOTES The New Notes will accrue interest from June 22, 1998, at the rates of 6.875% on the New Notes due 2005 and 7.0% on the New Notes due 2008. Commencing December 15, 1998, cash interest on the New Notes will accrue and be payable, at a per annum rate of 6.875% on the New Notes due 2005 and 7.0% on the New Notes due 2008, semi-annually in arrears on each June 15 and December 15. PROCEDURES FOR TENDERING To tender in the Exchange Offer, a holder must complete, sign and date the Letter of Transmittal, have the signatures thereon guaranteed if required by the Letter of Transmittal, and mail or otherwise deliver such Letter of Transmittal, together with any other required documents, to the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date. In addition, either (i) certificates for such Old Notes must be received by the Exchange Agent along with the Letter of Transmittal, (ii) a timely confirmation of a book entry transfer (a "Book-Entry Confirmation") of such Old Notes, if such procedure is available, into the Exchange Agent's account at DTC (the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry transfer described below, must be received by the Exchange Agent prior to the Expiration Date or (iii) the holder must comply with the guaranteed delivery procedures described below. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS OF THE NOTES. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE ISSUER. Delivery of all documents must be made to the Exchange Agent at its address set forth below. Holders of Notes may also request their respective brokers, dealers, commercial banks, trust companies or nominees to effect such tender for such holders. The tender by a holder of Old Notes will constitute an agreement between such holder and the Issuer in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal. Only a holder of Old Notes may tender such Old Notes in the Exchange Offer. The term "holder" with respect to the Exchange Offer means any person in whose name Old Notes are registered on the books of the Issuer or any other person who has obtained a properly completed bond power from the registered holder. 23 Any beneficial owner whose Old Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact such registered holder promptly and instruct such registered holder to tender on his behalf. If such beneficial owner wishes to tender on his own behalf, such beneficial owner must, prior to completing and executing the Letter of Transmittal and delivering his Old Notes, either make appropriate arrangements to register ownership of the Old Notes in such owner's name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time. Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by any member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or an "eligible guarantor" institution within the meaning of Rule 17Ad-15 under the Exchange Act (each, an "Eligible Institution") unless the Old Notes tendered pursuant thereto are tendered (i) by a registered holder who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. If the Letter of Transmittal is signed by a person other than the registered holder of any Old Notes listed therein, such Old Notes must be endorsed or accompanied by bond powers and a proxy which authorizes such person to tender the Old Notes on behalf of the registered holder, in each case as the name of the registered holder or holders appears on the Old Notes. If the Letter of Transmittal or any Old Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless waived by the Issuer, evidence satisfactory to the Issuer of their authority to so act must be submitted with the Letter of Transmittal. All questions as to the validity, form, eligibility (including time of receipt) and withdrawal of the tendered Old Notes will be determined by the Issuer in its sole discretion, which determination will be final and binding. The Issuer reserves the absolute right to reject any and all Old Notes not properly tendered or any Old Notes which, if accepted, would, in the opinion of counsel for the Issuer, be unlawful. The Issuer also reserves the absolute right to waive any irregularities or conditions of tender as to particular Old Notes. The Issuer's interpretation of the terms and conditions of the Exchange Offer (including the instructions in the Letter of Transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Old Notes must be cured within such time as the Issuer shall determine. Neither the Issuer, the Exchange Agent nor any other person shall be under any duty to give notification of defects or irregularities with respect to tenders of Old Notes, nor shall any of them incur any liability for failure to give such notification. Tenders of Old Notes will not be deemed to have been made until such irregularities have been cured or waived. Any Old Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned without cost to such holder by the Exchange Agent to the tendering holders of Old Notes, unless otherwise provided in the Letter of Transmittal, as soon as practicable following the Expiration Date. In addition, the Issuer reserves the right in its sole discretion, subject to the provisions of the Indenture, to (i) purchase or make offers for any Old Notes that remain outstanding subsequent to the Expiration Date or, as set forth under "-- Conditions", (ii) to terminate the Exchange Offer in accordance with the terms of the Registration Rights Agreement and (iii) to the extent permitted by applicable law, purchase Old Notes in the open market, in privately negotiated transactions or otherwise. The terms of any such purchases or offers could differ from the terms of the Exchange Offer. ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES Upon satisfaction or waiver of all of the conditions to the Exchange Offer, all Old Notes properly tendered will be accepted, promptly after the Expiration Date, and the New Notes will be issued promptly after acceptance of the Old Notes. See "-- Conditions" below. For purposes of the Exchange Offer, Old Notes shall be deemed to have been accepted as validly tendered for exchange when, as and if the Issuer has given oral or written notice thereof to the Exchange Agent. 24 In all cases, issuance of New Notes for Old Notes that are accepted for exchange pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry Confirmation of such Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility, a properly completed and duly executed Letter of Transmittal and all other required documents. If any tendered Old Notes are not accepted for any reason set forth in the terms and conditions of the Exchange Offer or if Old Notes are submitted for a greater principal amount than the holder desires to exchange, such unaccepted or nonexchanged Old Notes will be returned without expense to the tendering holder thereof (or, in the case of Old Notes tendered by book-entry transfer procedures described below, such nonexchanged Old Notes will be credited to an account maintained with such Book-Entry Transfer Facility) as promptly as practicable after the expiration or termination of the Exchange Offer. BOOK-ENTRY TRANSFER The Exchange Agent will make a request to establish an account with respect to the Old Notes at the Book-Entry Transfer Facility for purposes of the Exchange Offer within two business days after the date of this Prospectus. Any financial institution that is a participant in the Book-Entry Transfer Facility's systems may make book-entry delivery of Old Notes by causing the Book-Entry Transfer Facility to transfer such Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility in accordance with such Book-Entry Transfer Facility's procedures for transfer. However, although delivery of Old Notes may be effected through book-entry transfer at the Book-Entry Transfer Facility, the Letter of Transmittal with any required signature guarantees and any other required documents must, in any case, be transmitted to and received by the Exchange Agent at one of the addresses set forth below under "-- Exchange Agent" on or prior to the Expiration Date or the guaranteed delivery procedures described below must be complied with. DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. GUARANTEED DELIVERY PROCEDURES If a registered holder of the Old Notes desires to tender such Old Notes, and the Old Notes are not immediately available, or time will not permit such holder's Old Notes or other required documents to reach the Exchange Agent before the Expiration Date, or the procedures for book-entry transfer cannot be completed on a timely basis, a tender may be effected if (i) the tender is made through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Letter of Transmittal and Notice of Guaranteed Delivery, substantially in the form provided by the Issuer (by mail or hand delivery), setting forth the name and address of the holder of Old Notes and the amount of Old Notes tendered, stating that the tender is being made thereby and guaranteeing that within three New York Stock Exchange ("NYSE") trading days after the date of execution of the Notice of Guaranteed Delivery, the certificates for all physically tendered Old Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and any other documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent and (iii) the certificates for all physically tendered Old Notes, in proper form for transfer, or a Book Entry Confirmation, as the case may be, and all other documents required by the Letter of Transmittal are received by the Exchange Agent within three NYSE trading days after the date of execution of the Notice of Guaranteed Delivery. WITHDRAWAL OF TENDERS Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time on the Expiration Date. For a withdrawal to be effective, a written notice of withdrawal must be received by the Exchange Agent prior to 5:00 p.m., New York City time on the Expiration Date at one of the addresses set forth below under "-- Exchange Agent". Any such notice of withdrawal must specify the name of the person having tendered the Old Notes to be withdrawn, identify the Old Notes to be withdrawn (including the principal amount of such Old Notes) and (where certificates for Old Notes have been transmitted) 25 specify the name in which such Old Notes are registered, if different from that of the withdrawing holder. If certificates for Old Notes have been delivered or otherwise identified to the Exchange Agent, then, prior to the release of such certificates, the withdrawing holder must also submit the serial numbers of the particular certificates to be withdrawn and a signed notice of withdrawal with signatures guaranteed by an Eligible Institution unless such holder is an Eligible Institution. If Old Notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes and otherwise comply with the procedures of such facility. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Issuer, whose determination shall be final and binding on all parties. Any Old Notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer. Any Old Notes which have been tendered for exchange but which are not exchanged for any reason will be returned to the holder thereof without cost to such holder (or, in the case of Old Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures described above, such Old Notes will be credited to an account maintained with such Book-Entry Transfer Facility for the Old Notes) as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Old Notes may be retendered by following one of the procedures described under "-- Procedures for Tendering" and "-- Book-Entry Transfer" above at any time on or prior to the Expiration Date. CONDITIONS Notwithstanding any other term of the Exchange Offer, Old Notes will not be required to be accepted for exchange, nor will New Notes be issued in exchange for any Old Notes, and the Issuer may terminate or amend the Exchange Offer as provided herein before the acceptance of such Old Notes, if because of any change in law, or applicable interpretations thereof by the Commission, the Issuer determines that it is not permitted to effect the Exchange Offer. The Issuer has no obligation to, and will not knowingly, permit acceptance of tenders of Old Notes from affiliates (within the meaning of Rule 405 under the Securities Act) of the Issuer or from any other holder or holders who are not eligible to participate in the Exchange Offer under applicable law or interpretations thereof by the Commission, or if the New Notes to be received by such holder or holders of Old Notes in the Exchange Offer, upon receipt, will not be tradable by such holder without restriction under the Securities Act and the Exchange Act and without material restrictions under the "blue sky" or securities laws of substantially all of the states of the United States. ACCOUNTING TREATMENT The New Notes will be recorded at the same carrying value as the Old Notes, as reflected in the Issuer's accounting records on the date of the exchange. Accordingly, no gain or loss for accounting purposes will be recognized by the Issuer. The costs of the Exchange Offer and the unamortized expenses related to the issuance of the Old Notes will be amortized over the term of the New Notes. EXCHANGE AGENT PNC Bank, N.A. has been appointed as Exchange Agent for the Exchange Offer. Questions and requests for assistance and requests for additional copies of this Prospectus or of the Letter of Transmittal should be directed to the Exchange Agent addressed as follows: BY REGISTERED OR CERTIFIED MAIL: FOR INFORMATION CALL: BY HAND/OVERNIGHT DELIVERY: PNC Bank, N.A. David G. Metcalf PNC Bank, N.A. 500 West Jefferson Street (502) 581-3029 500 West Jefferson Street Louisville, Kentucky 40202 Facsimile (502) 581-2702 Louisville, Kentucky 40202 Attn: Corporate Trust Department Attn: Corporate Trust Department
26 FEES AND EXPENSES The expenses of soliciting tenders pursuant to the Exchange Offer will be borne by the Issuer. The principal solicitation for tenders pursuant to the Exchange Offer is being made by mail; however, additional solicitations may be made by telegraph, telephone, telecopy or in person by officers and regular employees of the Issuer. The Issuer will not make any payments to brokers, dealers or other persons soliciting acceptances of the Exchange Offer. The Issuer, however, will pay the Exchange Agent reasonable and customary fees for its services and will reimburse the Exchange Agent for its reasonable out-of-pocket expenses in connection therewith. The Issuer may also pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding copies of the Prospectus and related documents to the beneficial owners of the Old Notes, and in handling or forwarding tenders for exchange. The expenses to be incurred in connection with the Exchange Offer will be paid by the Issuer, including fees and expenses of the Exchange Agent and Trustee and accounting, legal, printing and related fees and expenses. The Issuer will pay all transfer taxes, if any, applicable to the exchange of Old Notes pursuant to the Exchange Offer. If, however, certificates representing New Notes or Old Notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be registered or issued in the name of, any person other than the registered holder of the Old Notes tendered, or if tendered Old Notes are registered in the name of, any person other than the person signing the Letter of Transmittal, or if a transfer tax is imposed for any reason other than the exchange of Old Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder. USE OF PROCEEDS There will be no cash proceeds payable to HEALTHSOUTH from the issuance of the New Notes pursuant to the Exchange Offer. The proceeds from the sale of the Old Notes were used by HEALTHSOUTH to repay bank debt. In consideration for issuing the New Notes as contemplated in this Prospectus, HEALTHSOUTH will receive in exchange the Old Notes in like principal amount, the terms of which are identical in all material respects to the New Notes. The Old Notes surrendered in exchange for the New Notes will be retired and cancelled and cannot be reissued. Accordingly, the issuance of the New Notes will not result in any increase in the indebtedness of HEALTHSOUTH. 27 CAPITALIZATION The following table sets forth, as of June 30, 1998, the capitalization of the Company, which reflects the sale of the Old Notes and the application of the net proceeds therefrom. See "Selected Consolidated Financial Data" and "Use of Proceeds".
JUNE 30, 1998 ---- (IN THOUSANDS) Current portion of long-term debt .................................. $ 47,600 ========== Long-term debt (net of current maturities): Notes payable ...................................................... 750,000 Other .............................................................. 122,956 9.5% Senior Subordinated Notes due 2001 ............................ 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 ---------- Total long-term debt ............................................ 2,190,706 Stockholders' equity: Preferred Stock, par value $.10 per share, 1,500,000 shares autho- rized; no shares outstanding .................................... -- Common Stock, par value $.01 per share, 600,000,000 shares autho- rized; 401,817,000 shares outstanding (1) ....................... 4,018 Additional paid-in capital ....................................... 2,406,903 Retained earnings ................................................ 1,078,580 Treasury stock ................................................... (323) Receivable from Employee Stock Ownership Plan .................... (10,169) Notes receivable from stockholders ............................... (5,180) ---------- Total stockholders' equity ....................................... 3,473,829 ---------- Total capitalization ............................................ $5,664,535 ==========
- ---------- (1) Outstanding shares do not include a total of 28,406,753 shares of Common Stock subject to options outstanding under the Company's stock option plans. An additional 8,089,191 shares of Common Stock are reserved for future option grants under such plans. Outstanding shares also do not include 980,542 shares of Common Stock reserved for issuance pursuant to outstanding warrants, 15,501,707 shares of Common Stock initially reserved for issuance upon conversion of the Company's 3.25% Convertible Subordinated Debentures due 2003, and 20,482,885 shares of Common Stock issued in connection with acquisitions subsequent to June 30. 28 SELECTED CONSOLIDATED FINANCIAL DATA Set forth below is a summary of selected consolidated financial data for HEALTHSOUTH for the years indicated. All amounts have been restated to reflect the effects of the 1994 acquisition of ReLife, Inc. ("ReLife"), the 1995 acquisition of Surgical Health Corporation ("SHC") and Sutter Surgery Centers, Inc. ("SSCI"), the 1996 acquisition of Surgical Care Affiliates, Inc. ("SCA") and Advantage Health Corporation ("Advantage Health") and the 1997 acquisition of Health Images, Inc. ("Health Images"), each of which was accounted for as a pooling of interests. The data below should be read in conjunction with the consolidated financial statements, related notes and other information included, or incorporated by reference, herein.
YEAR ENDED DECEMBER 31, ----------------------------------------- 1993 1994 1995 ---- ---- ---- (IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Revenues ......................................................... $1,055,295 $1,726,321 $2,118,681 Operating unit expenses .......................................... 715,189 1,207,707 1,441,059 Corporate general and administrative expenses .................... 43,378 67,798 65,424 Provision for doubtful accounts .................................. 22,677 35,740 42,305 Depreciation and amortization .................................... 75,425 126,148 160,901 Merger and acquisition related expenses (1) ...................... 333 6,520 19,553 Loss on impairment of assets (2) ................................. -- 10,500 53,549 Loss on abandonment of computer project .......................... -- 4,500 -- Loss on disposal of surgery centers .............................. -- 13,197 -- NME Selected Hospitals Acquisition related expense ............... 49,742 -- -- Interest expense ................................................. 25,884 74,895 105,517 Interest income .................................................. (6,179) (6,658) (8,009) Gain on sale of partnership interest ............................. (1,400) -- -- Gain on sale of MCA Stock ........................................ -- (7,727) -- ---------- ---------- ---------- 925,049 1,532,620 1,880,299 ---------- ---------- ---------- Income from continuing operations before income taxes, minority interests and extraordinary item ....................... 130,246 193,701 238,382 Provision for income taxes ....................................... 40,450 68,560 86,161 ---------- ---------- ---------- 89,796 125,141 152,221 Minority interests ............................................... 29,549 31,665 43,753 ---------- ---------- ---------- Income from continuing operations before extraordi- nary item ....................................................... 60,247 93,476 108,468 Income from discontinued operations .............................. 3,986 (6,528) (1,162) Extraordinary item (2) ........................................... -- -- (9,056) ---------- ---------- ---------- Net income ...................................................... $ 64,233 $ 86,948 $ 98,250 ========== ========== ========== Weighted average common shares outstanding (3)(4) ................ 265,502 273,480 289,594 ========== ========== ========== Net income per common share: (3)(4) Continuing operations ........................................... $ 0.23 $ 0.34 $ 0.37 Discontinued operations ......................................... 0.01 (0.02) 0.00 Extraordinary item .............................................. -- -- (0.03) ---------- ---------- ---------- $ 0.24 $ 0.32 $ 0.34 ========== ========== ========== Weighted average common shares outstanding -- as- suming dilution(3)(4)(5) ....................................... 275,366 300,758 320,018 ========== ========== ========== Net income per common share -- assuming dilution: (3)(4)(5) Continuing operations ........................................... $ 0.22 $ 0.32 $ 0.35 Discontinued operations ......................................... 0.01 (0.02) 0.00 Extraordinary item .............................................. -- -- (0.03) ---------- ---------- ---------- $ 0.23 $ 0.30 $ 0.32 ========== ========== ==========
SIX MONTHS YEAR ENDED DECEMBER 31, ENDED JUNE 30, --------------------------- -------------------- 1996 1997 1997 1998 ---- ---- ---- ---- (IN THOUSANDS, EXCEPT PER (UNAUDITED) SHARE DATA) INCOME STATEMENT DATA: Revenues ......................................................... $2,568,155 $3,017,269 $1,414,648 $1,850,145 Operating unit expenses .......................................... 1,667,248 1,888,435 889,939 1,140,128 Corporate general and administrative expenses .................... 79,354 82,757 36,358 52,681 Provision for doubtful accounts .................................. 58,637 71,468 32,788 43,723 Depreciation and amortization .................................... 207,132 250,010 117,516 153,713 Merger and acquisition related expenses (1) ...................... 41,515 15,875 15,875 -- Loss on impairment of assets (2) ................................. 37,390 -- -- -- Loss on abandonment of computer project .......................... -- -- -- -- Loss on disposal of surgery centers .............................. -- -- -- -- NME Selected Hospitals Acquisition related expense ............... -- -- -- -- Interest expense ................................................. 98,751 111,504 53,415 56,918 Interest income .................................................. (6,034) (4,414) (2,322) (4,522) Gain on sale of partnership interest ............................. -- -- -- -- Gain on sale of MCA Stock ........................................ -- -- -- -- ---------- ---------- ---------- ---------- 2,183,993 2,415,635 1,143,569 1,442,641 ---------- ---------- ---------- ---------- Income from continuing operations before income taxes, minority interests and extraordinary item ....................... 384,162 601,634 271,079 407,504 Provision for income taxes ....................................... 143,929 206,153 92,465 145,484 ---------- ---------- ---------- ---------- 240,233 395,481 178,614 262,020 Minority interests ............................................... 50,369 64,873 32,715 35,424 ---------- ---------- ---------- ---------- Income from continuing operations before extraordi- nary item ....................................................... 189,864 330,608 145,899 226,596 Income from discontinued operations .............................. -- -- -- -- Extraordinary item (2) ........................................... -- -- -- -- ---------- ---------- ---------- ---------- Net income ...................................................... $ 189,864 $ 330,608 $ 145,899 $ 226,596 ========== ========== ========== ========== Weighted average common shares outstanding (3)(4) ................ 321,367 346,872 334,233 399,540 ========== ========== ========== ========== Net income per common share: (3)(4) Continuing operations ........................................... $ 0.59 $ 0.95 $ 0.44 $ 0.57 Discontinued operations ......................................... -- -- -- -- Extraordinary item .............................................. -- -- -- -- ---------- ---------- ---------- ---------- $ 0.59 $ 0.95 $ 0.44 $ 0.57 ========== ========== ========== ========== Weighted average common shares outstanding -- as- suming dilution(3)(4)(5) ....................................... 349,033 365,546 355,340 420,248 ========== ========== ========== ========== Net income per common share -- assuming dilution: (3)(4)(5) Continuing operations ........................................... $ 0.55 $ 0.91 $ 0.41 $ 0.55 Discontinued operations ......................................... -- -- -- -- Extraordinary item .............................................. -- -- -- -- ---------- ---------- ---------- ---------- $ 0.55 $ 0.91 $ 0.41 $ 0.55 ========== ========== ========== ==========
29
DECEMBER 31, ---------------------------------------------------------------- JUNE 30, 1993 1994 1995 1996 1997 1998 ------------ ------------ ------------ ------------ ------------ ------------ (IN THOUSANDS) (UNAUDITED) BALANCE SHEET DATA: Cash and marketable securities ......... $ 153,011 $ 134,040 $ 159,793 $ 153,831 $ 152,399 $ 204,546 Working capital ........................ 300,876 308,770 406,601 564,529 566,751 1,046,498 Total assets ........................... 2,000,566 2,355,920 3,107,808 3,529,706 5,401,053 6,112,778 Long-term debt (6) ..................... 1,028,610 1,164,135 1,453,018 1,560,143 1,601,824 2,238,306 Stockholders' equity ................... 727,737 837,160 1,269,686 1,569,101 3,157,428 3,473,829
- ---------- (1) Expenses related to SHC's Ballas Merger in 1993, the ReLife and Heritage Surgical Corporation acquisitions in 1994, the SHC, SSCI and NovaCare, Inc.'s rehabilitation hospitals division acquisitions in 1995, the SCA, Advantage Health, Professional Sports Care Management, Inc. and ReadiCare acquisitions in 1996, and the Health Images acquisition in 1997. (2) See Notes 2 and 13 of "Notes to Consolidated Financial Statements" included in HealthSouth's 1997 Annual Report on Form 10-K incorporated by reference herein. (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) Earnings per share amounts prior to 1997 have been restated as required to comply with Statement of Financial Accounting Standards No. 128, "Earnings Per Share". For further discussion, see Note 1 of "Notes to Consolidated Financial Statements" included in HealthSouth's 1997 Annual Report on Form 10-K incorporated by reference herein. (5) Diluted earnings per share in 1994, 1995, 1996 and 1997 reflect shares reserved for issuance upon conversion of HEALTHSOUTH's 5% Convertible Subordinated Debentures due 2001. Substantially all of such Debentures were converted into shares of HEALTHSOUTH's Common Stock in 1997. Diluted earings per share in 1998 reflect shares reserved for issuance upon conversion of HealthSouth's 3.25% Convertible Subordinated Debentures due 2001. (6) Includes current portion of long-term debt. 30 DESCRIPTION OF THE NEW NOTES The Old Notes were issued, and the New Notes (together with the Old Notes, the "Notes") offered hereby will be issued pursuant to an Indenture, dated as of June 22, 1998 (the "Indenture"), between the Issuer and PNC Bank, N.A., as trustee (the "Trustee"). The following summary does not purport to be complete and such summary is subject to the detailed provisions of the Indenture, to which reference is hereby made for a full description of such provisions, including the definition of certain terms used herein, and for other information regarding the Notes. Wherever particular sections or defined terms of the Indenture are referred to, such sections or defined terms are incorporated herein by reference as part of the statement made, and the statement is qualified in its entirety by such reference. GENERAL The New Notes constitute two series for purposes of the Indenture. The 6.875% Senior Notes due 2005 (the "New Notes due 2005") will be unsecured, unsubordinated obligations of the Issuer limited in aggregate principal amount to $250,000,000 and will mature on June 15, 2005. The 7.0% Senior Notes due 2008 (the "New Notes due 2008") will be unsecured, unsubordinated obligations of the Issuer limited in aggregate principal amount to $250,000,000 and will mature on June 15, 2008. Payment of the principal of and interest on the New Notes will rank pari passu with all other unsecured, unsubordinated debt of the Issuer. The New Notes will be redeemable in whole or in part at any time at the option of the Issuer at a price equal to the greater of (i) 100% of the principal amount thereof and (ii) the sum of the present values of the remaining schedule payments of principal and interest thereon discounted to the date of redemption on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the applicable Treasury Yield plus 15 basis points in the case of the New Notes due 2005 and 20 basis points in the case of the New Notes due 2008, plus, in each case, accrued interest to the date of redemption. See "-- Optional Redemption". The New Notes will not be entitled to the benefit of any mandatory redemption or sinking fund. The Indenture does not limit the amount of additional indebtedness the Issuer or any of its subsidiaries may incur. The Indenture does not limit the amount of notes, debentures or other evidences of indebtedness ("Debt Securities") that the Issuer may issue thereunder and provides that Debt Securities may be issued from time to time in one or more series. As of the date of this Prospectus, no Debt Securities (other than the Old Notes) were outstanding under the Indenture. The New Notes will bear interest from June 22, 1998 at the respective rates per annum set forth on the cover page of this Prospectus, and such interest will be payable semiannually in arrears on June 15 and December 15 of each year, commencing on December 15, 1998 to the persons in whose names the New Notes are registered at the close of business on the immediately preceding June 1 and December 1, respectively. Interest on the New Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of original issuance. Interest on the New Notes will be computed on the basis of a 360-day year consisting of twelve 30-day months. Principal of, premium, if any, and interest on the New Notes will be payable, and the transfer of New Notes will be registrable, at the office or agency of the Issuer to be maintained for such purpose in the Borough of Manhattan, The City of New York, except that, at the option of the Issuer, interest may be paid by mailing a check to the address of the person entitled thereto as it appears on the New Notes register. In the event that any date on which principal, premium, if any, or interest is payable on the New Notes is not a Business Day (as defined in the Indenture), then payment of the principal, premium, if any, or interest payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay). GLOBAL SECURITIES The New Notes will be issued in fully-registered form without coupons. The Old Notes were initially issued in global form and definitive certificated securities were not issued except in the limited circumstances described below. 31 Each series of Notes will be evidenced by one or more global Securities (the "Global Securities"), which will be deposited with, or on behalf of, The Depository Trust Company, New York, New York ("DTC") and registered in the name of Cede & Co. ("Cede"), as DTC's nominee. Persons holding interests in the Global Securities may hold their interests directly through DTC, or indirectly through organizations which are participants in DTC ("Participants"). Transfers between Participants will be effected in the ordinary way in accordance with DTC rules and will be settled in immediately available funds. Holders who are not Participants may beneficially own interests in a Global Security held by DTC only through Participants or certain banks, brokers, dealers, trust companies and other parties that clear through or maintain a custodial relationship with a Participant, either directly or indirectly, and have indirect access to the DTC system ("Indirect Participants"). So long as Cede, as the nominee of DTC, is the registered owner of any Global Security, Cede for all purposes will be considered the sole holder of such Global Security. Except as provided below, owners of beneficial interests in a Global Security will not be entitled to have certificates registered in their names, will not receive or be entitled to receive physical delivery of certificates in definitive form, and will not be considered the holder thereof. Neither HEALTHSOUTH nor the Trustee (nor any registrar or paying agent) will have any responsibility for the performance by DTC or its Participants or Indirect Participants of their respective obligations under the rules and procedures governing their operations. DTC has advised HEALTHSOUTH that it will take any action permitted to be taken by a holder of the Notes only at the direction of one or more Participants whose accounts are credited with DTC interests in a Global Security. DTC has advised HEALTHSOUTH as follows: DTC is a limited purpose trust company organized under the laws of the State of New York, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its Participants and to facilitate the clearance and settlement of securities transactions, such as transfers and pledges, among Participants in deposited securities through electronic book-entry changes to accounts of its Participants, thereby eliminating the need for physical movement of securities certificates. Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. Certain of such Participants (or their representatives), together with other entities, own DTC. The rules applicable to DTC and its Participants are on file with the Commission. Exchanges of the Old Notes for New Notes under the DTC system must be made by or through Participants, which will receive a credit for the New Notes on DTC's records. The ownership interest of actual holders of each New Note (a "Beneficial Owner") is in turn to be recorded on the Participants' and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their exchange, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Participant or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Notes are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the New Notes, except in the event that use of the book-entry system for the New Notes is discontinued. The deposit of New Notes with DTC and their registration in the name of Cede effect no change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the New Notes; DTC's records reflect only the identity of the Participants to whose accounts such New Notes are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. The laws of some jurisdictions require that certain purchasers of securities take physical delivery of securities in definitive form. Such laws may impair the ability to transfer beneficial interests in the Global Securities. 32 Conveyance of notices and other communications by DTC to Participants, by Participants to Indirect Participants and by Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements that may be in effect from time to time. Redemption notices shall be sent to Cede. If less than all of the New Notes due 2005 or the New Notes due 2008, as the case may be, are being redeemed, DTC's practice is to determine by lot the interest of each Participant in such New Notes due 2005 or New Notes due 2008, as the case may be, to be redeemed. Principal and interest payments on the New Notes will be made to DTC by wire transfer of immediately available funds. DTC's practice is to credit Participants' accounts on the payable date in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payment on the payable date. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name", and will be the responsibility of such Participant and not of DTC, or HEALTHSOUTH, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to DTC is the responsibility of HEALTHSOUTH, disbursement of such payments to Participants shall be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners shall be the responsibility of Participants and Indirect Participants. Neither HEALTHSOUTH nor the Trustee will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Global Securities or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. DTC may discontinue providing its services as securities depositary with respect to any series of the New Notes at any time by giving reasonable notice to HEALTHSOUTH. In the event that DTC notifies HEALTHSOUTH that it is unwilling or unable to continue as depositary for any Global Security or if at any time DTC ceases to be a clearing agency registered as such under the Exchange Act when DTC is required to be so registered to act as such depositary and no successor depositary shall have been appointed within 90 days of such notification or of HEALTHSOUTH becoming aware of DTC's ceasing to be so registered, as the case may be, certificates for the applicable New Notes will be printed and delivered in exchange for interests in such Global Security. Any Global Security that is exchangeable pursuant to the preceding sentence shall be exchangeable for New Notes registered in such names as DTC shall direct. It is expected that such instructions will be based upon directions received by DTC from its Participants with respect to ownership of beneficial interests in such Global Security. HEALTHSOUTH may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depositary). In that event, certificates representing each series of the New Notes will be printed and delivered. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that HEALTHSOUTH believes to be reliable, but HEALTHSOUTH does not take responsibility for the accuracy thereof. OPTIONAL REDEMPTION The New Notes will be redeemable as a whole or in part, at the option of the Issuer, at any time at a redemption price equal to the greater of (i) 100% of their principal amount and (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the date of redemption on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the applicable Treasury Yield plus 15 basis points in the case of the New Notes due 2005 and 20 basis points in the case of the New Notes due 2008, plus, in each case, accrued interest to the date of redemption. "Treasury Yield" means, with respect to any redemption date, the rate per annum equal to the semi-annual equivalent yield to maturity of the applicable Comparable Treasury Issue, assuming a price for the applicable Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the applicable Comparable Treasury Price for such redemption date. 33 "Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the New Notes due 2005 or New Notes due 2008, as the case may be, that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the New Notes due 2005 or the New Notes due 2008, as the case may be. "Independent Investment Banker" means Salomon Brothers Inc and its successor or, if such firm is unwilling or unable to select the applicable Comparable Treasury Issue, an independent investment banking institution of national standing appointed by the Trustee. "Comparable Treasury Price" means, with respect to any redemption date, (i) the average of the bid and asked prices for the applicable Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third business day preceding such redemption date, as set forth in the daily statistical release (or any successor release) published by the Federal Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S. Government Securities" or (ii) if such release (or any successor release) is not published or does not contain such prices on such business day, (A) the average of the applicable Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest such Reference Treasury Dealer Quotations, or (B) if the Trustee obtains fewer than four such Reference Treasury Dealer Quotations, the average of all such quotations. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Trustee, of the bid and asked prices of the applicable Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the third business day preceding such redemption date. "Reference Treasury Dealer" means a primary U.S. Government Securities dealer in New York City selected by the Trustee after consultation with the Issuer. On and after the redemption date, interest will cease to accrue on the New Notes or any portion thereof called for redemption. On or before the redemption date, the Issuer shall deposit with a paying agent (or the Trustee) money sufficient to pay the redemption price of and accrued interest on the New Notes to be redeemed on such date. If less than all of the New Notes due 2005 or the New Notes due 2008 are to be redeemed, the New Notes to be redeemed shall be selected by the Trustee by such method as the Trustee shall deem fair and appropriate. Holders of New Notes to be redeemed will receive notice thereof by first-class mail at least 30 and not more than 60 days prior to the date fixed for redemption. CERTAIN COVENANTS OF THE ISSUER Definitions. "Attributable Debt" shall mean, in connection with a sale and lease-back transaction, the lesser of (i) the fair value of the assets subject to such transaction or (ii) the present value of the obligations of the lessee for net rental payments during the term of any lease discounted at the rate of interest set forth or implicit in the terms of such lease or, if not practicable to determine such rate, the weighted average interest rate per annum borne by the Debt Securities of each series outstanding pursuant to the Indenture and subject to the limitation on sale and lease-back transaction provisions of the Indenture, compounded semiannually in either case as determined by the principal accounting or financial officer of the Issuer. "Capital Stock" of any specified person shall mean any and all shares, rights to purchase, warrants or options (whether or not currently exercisable), participation or other equivalents of or interests 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). "Common Equity" of any specified person shall mean all Capital Stock of such person that is generally entitled to (i) vote in the election of directors of such person or (ii) if such person is not a corporation, vote or otherwise participate in the selection of the governing body, partners, managers or others that will control the management and policies of such person. 34 "Consolidated Tangible Assets" with respect to any specified person as of any date shall mean the total assets of such person and its Subsidiaries (excluding any assets that would be classified as "intangible assets" under GAAP) on a consolidated basis at such date, as determined in accordance with GAAP, less all write-ups subsequent to the date of initial issuance of the Notes in the book value of any asset owned by such person or any of its Subsidiaries. "Exempted Debt" shall mean the sum of the following as of the date of determination: (i) Indebtedness of the Issuer and its Subsidiaries incurred after the date of issuance of the New Notes and secured by liens not otherwise permitted by the limitation on liens provisions of the Indenture, and (ii) Attributable Debt of the Issuer and its Subsidiaries in respect of every sale and lease-back transaction entered into after the date of the issuance of the Old Notes, other than leases permitted by the limitation on sale and lease-back provisions of the Indenture. "GAAP" shall mean generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, as from time to time in effect. "Indebtedness" shall mean all items classified as indebtedness on the most recently available consolidated balance sheet of the Issuer and its Subsidiaries, in accordance with GAAP. "Subsidiary" with respect to any specified person shall mean (i) any corporation of which the Common Equity having ordinary voting power to elect a majority of directors of such corporation is owned by such person directly or through one or more Subsidiaries of such person and (ii) any entity other than a corporation in which such person, directly or indirectly, owns at least 50% of the Common Equity of such entity and has the authority to manage such entity on a day-to-day basis. Limitation on Liens. The Issuer covenants that, so long as any of the New Notes remain outstanding, it will not, nor will it permit any Subsidiary to, create or assume any Indebtedness for money borrowed which is secured by a mortgage, security interest, pledge, charge, lien or other similar encumbrance of any kind (collectively, a "lien") upon any assets, whether now owned or hereafter acquired, of the Issuer or any such Subsidiary without equally and ratably securing the New Notes by a lien ranking ratably with and equally to such secured Indebtedness, except that the foregoing restriction shall not apply to (i) liens on assets of any corporation existing at the time such corporation becomes a Subsidiary; (ii) liens on assets existing at the time of acquisition thereof, or to secure the payment of the purchase price of such assets, or to secure indebtedness incurred or guaranteed by the Issuer or a Subsidiary for the purpose of financing the purchase price of such assets or improvements or construction thereon, which indebtedness is incurred or guaranteed prior to, at the time of or within 360 days after such acquisition (or in the case of real property, completion of such improvement or construction or commencement of full operation of such property, whichever is later); (iii) liens securing indebtedness owed by any Subsidiary to the Issuer or another wholly-owned Subsidiary; (iv) liens on any assets of a corporation existing at the time such corporation is merged into or consolidated with the Issuer or a Subsidiary or at the time of a purchase, lease or other acquisition of the assets of a corporation or firm as an entirety or substantially as an entirety by the Issuer or a Subsidiary; (v) liens on any assets of the Issuer or a Subsidiary in favor of the United States of America or any state thereof, or in favor of any other country, or in favor of any political subdivision of any of the foregoing, to secure certain payments pursuant to any contract or statute or to secure any indebtedness incurred or guaranteed for the purpose of financing all or any part of the purchase price (or, in the case of real property, the cost of construction) of the assets subject to such liens (including but not limited to, liens incurred in connection with industrial revenue or similar financing involving a political subdivision, agency or authority thereof); (vi) any extension, renewal or replacement (or successive extensions, renewals or replacements) in whole or in part, of any lien referred to in the foregoing clauses (i) to (v), inclusive; (vii) certain statutory liens or other similar liens arising in the ordinary course of business of the Issuer or a Subsidiary, or certain liens arising out of government contracts; (viii) certain pledges, deposits or liens made or arising under workers compensation or similar legislation or in certain other circumstances; (ix) certain liens in connection 35 with legal proceedings, including certain liens arising out of judgments or awards; (x) liens for certain taxes or assessments, landlord's liens and liens and charges incidental to the conduct of the business or the ownership of the assets of the Issuer or of a Subsidiary, which were not incurred in connection with the borrowing of money and which do not, in the opinion of the Issuer, materially impair the use of such assets in the operation of the business of the Issuer or such Subsidiary or the value of such assets for the purposes thereof or (xi) liens relating to accounts receivable of the Issuer or any of its Subsidiaries which have been sold, assigned or otherwise transferred to another Person in a transaction classified as a sale of accounts receivable in accordance with generally accepted accounting principles (to the extent the sale by the Issuer or the applicable Subsidiary is deemed to give rise to a lien in favor of the purchaser thereof in such accounts receivable or the proceeds thereof). Notwithstanding the above, the Issuer or any Subsidiary may, without securing the New Notes, create or assume any Indebtedness which is secured by a lien which would otherwise be subject to the foregoing restrictions, provided that after giving effect thereto the Exempted Debt then outstanding does not exceed 10% of the total Consolidated Tangible Assets of the Issuer and its Subsidiaries at such time. Limitation on Sale and Lease-Back Transactions. Sale and lease-back transactions (except such transactions involving leases for less than three years) by the Issuer or any Subsidiary of any assets are prohibited unless (i) the Issuer or such Subsidiary would be entitled pursuant to clauses (i) through (xi) contained in the covenant described under "-- Limitations on Liens", to create, incur or permit to exist a lien on the assets to be leased in an amount at least equal to the Attributable Debt in respect of such transaction without equally and ratably securing the New Notes, or (ii) the proceeds from the sale of the assets to be leased are at least equal to their fair market value and the proceeds are applied to the purchase or acquisition (or, in the case of real property, the construction) of assets or to the retirement of indebtedness. MERGER, CONSOLIDATION AND SALE OF ASSETS The Indenture provides that the Issuer shall not consolidate or merge with or into, or transfer or lease its assets substantially as an entirety to any entity unless the Issuer shall be the continuing entity, or the successor entity or entity to which such assets are transferred or leased shall be an entity organized under the laws of the United States, any state thereof or the District of Columbia and shall expressly assume the Issuer's obligations on the Debt Securities and under the Indenture, and immediately after giving effect to such transaction no Event of Default (as defined in the Indenture) shall have occurred and be continuing, and certain other conditions are met. Upon assumption of the Issuer's obligations by an entity to whom such assets are transferred or leased, subject to certain exceptions, the Issuer shall be discharged from all obligations under the New Notes and the Indenture. There are no covenants or other provisions in the Indenture providing for a put at the option of the holders of the New Notes or an increase in the rate of interest borne by the respective New Notes or that would otherwise afford holders of any of New Notes protection in the event of a recapitalization transaction, a change of control of the Issuer or a highly leveraged transaction. EVENTS OF DEFAULT An Event of Default is defined under the Indenture with respect to Debt Securities of each series as being: (i) default in payment of all or any part of the principal of, or premium, if any, on any Debt Securities of such series when due, either at maturity, upon any redemption, by declaration or otherwise; (ii) default for 30 days in payment of any interest on any Debt Securities of such series; (iii) default in payment of any sinking fund installment when due by the terms of the Debt Securities of such series; (iv) default for 60 days after written notice as provided in the Indenture in the observance or performance of any other covenant or agreement in the Debt Securities of such series or in the Indenture, other than a covenant included in the Indenture solely for the benefit of a series of Debt Securities other than such series; (v) acceleration of $25 million or more, individually or in the aggregate, in principal amount of Indebtedness of the Issuer or any Subsidiary under the terms of the instrument under which such Indebtedness is issued or secured if such Indebtedness shall not have been discharged or such acceleration is not annulled within 10 days after written notice; or (vi) certain events of bankruptcy, insolvency or reorganization. 36 The Indenture provides that (a) if an Event of Default due to the default in payment of principal, premium, if any, or interest on any series of Debt Securities, or due to the default in the performance or breach of any other covenant or agreement of the Issuer applicable to the Debt Securities of such series but not applicable to all outstanding Debt Securities, shall have occurred and be continuing, either the Trustee or the holders of not less than 25% in principal amount of the Debt Securities of such series may declare the principal of all Debt Securities of such series and interest accrued thereon to be due and payable immediately and (b) if an Event of Default due to a default in the performance of any other of the covenants or agreements in the Indenture applicable to all Debt Securities then outstanding or due to certain events of bankruptcy, insolvency and reorganization of the Issuer shall have occurred and be continuing, either the Trustee or the holders of not less than 25% in principal amount of the Debt Securities then outstanding (treated as one class) may declare the principal of all such Debt Securities and interest accrued thereon to be due and payable immediately, but upon certain conditions such declarations may be annulled and past defaults may be waived (except a continuing default in payment of principal, premium, if any, or interest on such Debt Securities) by the holders of a majority in principal amount of the Debt Securities of such series (or of all series, as the case may be) then outstanding. The Indenture contains a provision entitling the Trustee, subject to the duty of the Trustee to act with the required standard of care, to be indemnified by the holders of Debt Securities requesting the Trustee to exercise any right or power under the Indenture before proceeding to exercise any such right or power at the request of such holders. The Indenture provides that no holder of Debt Securities of any series may institute any action against the Issuer under the Indenture (except actions for payment of overdue principal, premium, if any, or interest) unless such holder previously shall have given to the Trustee written notice of default and continuance thereof and unless the holders of not less than 25% in principal amount of the Debt Securities of such series then outstanding shall have requested the Trustee to institute such action and shall have offered the Trustee reasonable indemnity, the Trustee shall not have instituted such action within 60 days of such request and the Trustee shall not have received direction inconsistent with such written request by the holders of a majority in principal amount of the Debt Securities of such series then outstanding. The Indenture contains a covenant that the Issuer will file annually with the Trustee a certificate of no default or a certificate specifying any default that exists. DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE Legal Defeasance. The Indenture provides that the Issuer, at the Issuer's option, will be discharged from any and all obligations in respect of the Debt Securities of any series (except for certain obligations to register the transfer or exchange of Debt Securities of any series, to replace stolen, lost or mutilated Debt Securities of such series, to maintain paying agencies and to hold monies for payment in trust) upon the deposit with the Trustee, in trust, of cash and/or U.S. Government Obligations (as defined in the Indenture) which, through the payment of interest and principal in respect thereof in accordance with their terms, will provide money in an amount sufficient to pay and discharge each installment of principal (and premium, if any) and interest, if any, on, and any mandatory sinking fund payments in respect of, the Debt Securities of such series on the stated maturity of such payments in accordance with the terms of the Indenture and such Debt Securities. Such discharge may occur only if, among other things, the Issuer has delivered to the Trustee an opinion of counsel to the effect that the Issuer has received from, or there has been published by, the United States Internal Revenue Service a ruling, or there has been a change in tax law, in either case to the effect that such discharge will not be deemed, or result in, a taxable event with respect to holders of the Debt Securities of such series. Covenant Defeasance. The Indenture provides that upon compliance with certain conditions, the Issuer may omit to comply with the obligations imposed by certain provisions of the Indenture (which contain the covenants described above limiting liens, consolidations, mergers, transfers and leases) and any omission to comply with such sections will not constitute an Event of Default. The Issuer, in order to exercise such option, will be required to deposit with the Trustee cash and/or U.S. Government Obligations which, through the payment of interest and principal in respect thereof in accordance with 37 their terms, will provide money in an amount sufficient to pay and discharge each installment of principal (and premium, if any) and interest, if any, on and any mandatory sinking fund payments in respect of the Debt Securities of such series on the stated maturity of such payments in accordance with the terms of the Indenture and such Debt Securities. The Issuer will also be required to deliver to the Trustee an opinion of counsel to the effect that the deposit and related covenant defeasance will not cause the holders of the Debt Securities of such series to recognize income, gain or loss for federal income tax purposes. MODIFICATION OF THE INDENTURE The Indenture provides that the Issuer and the Trustee may enter into supplemental indentures without the consent of the holders of Debt Securities to: (i) secure any Debt Securities, (ii) evidence the assumption by a successor corporation of the obligations of the Issuer, (iii) add covenants for the protection of the holders of Debt Securities, (iv) cure any ambiguity or correct any inconsistency in the Indenture, provided that such cure or correction does not adversely affect the holders of Debt Securities, (v) establish the forms or terms of Debt Securities of any series and (vi) evidence the acceptance of appointment by a successor trustee. The Indenture also contains provisions permitting the Issuer and the Trustee, with the consent of the holders of not less than a majority in aggregate principal amount of Debt Securities of all series then outstanding and affected (voting as one class), to add any provisions to, or change in any manner or eliminate any of the provisions of, the Indenture or modify in any manner the rights of the holders of the Debt Securities of each series so affected; provided that the Issuer and the Trustee may not, without the consent of the holder of each outstanding Debt Security affected thereby, (a) extend the final maturity of any Debt Security, or reduce the principal amount thereof or premium thereon, if any, or reduce the rate or extend the time of payment of interest thereon, or reduce any amount payable on redemption thereof or change the currency in which the principal thereof, premium, if any, or interest thereon is payable or reduce the amount of the principal of any Debt Security issued with original issue discount that is payable upon acceleration or provable in bankruptcy or alter certain provisions of the Indenture relating to the Debt Securities not denominated in U.S. dollars or impair the right to institute suit for the enforcement of any payment on any Debt Security when due or (b) reduce the aforesaid percentage in principal amount of Debt Securities of any series, the consent of the holders of which is required for any such modification. CONCERNING THE TRUSTEE PNC Bank, N.A., is the Trustee under the Indenture. All payments of principal of, premium, if any, and interest on and all registration, transfer, exchange, authentication and delivery of, the New Notes will be effected by the Trustee at an office designated by the Trustee in New York, New York. The Trustee is one of a number of banks with which the Issuer and its subsidiaries maintain ordinary banking and trust relationships. The Indenture contains certain limitations on the right of the Trustee, should it become a creditor of the Issuer, to obtain payment of claims in certain cases or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict or resign. In case of any conflicting interest relating to the Trustee's duties with respect to the New Notes, the Trustee shall either eliminate such conflicting interest or, except as otherwise provided in the Trust Indenture Act of 1939, as amended, resign. The holders of a majority in principal amount of any series of Debt Securities then outstanding will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee with respect to such series of Debt Securities, provided that such direction would not conflict with any rule of law or with the Indenture, would not be unduly prejudicial to the rights of another holder of the Debt Securities, and would not involve the Trustee in personal liability. The Indenture provides that in case an Event of Default shall occur and be known to the 38 Trustee (and not be cured), the Trustee will be required to use the degree of care of a prudent person in the conduct of his or her own affairs in the exercise of its power. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any of the holders of the Debt Securities, unless they shall have offered to the Trustee security and indemnity satisfactory to it. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, STOCKHOLDERS OR INCORPORATORS The Indenture provides that no past, present or future director, officer, employee, stockholder or incorporator of the Issuer or any successor corporation shall have any liability for any obligations of the Issuer under the New Notes or the Indenture or for any claim based on, in respect of, or by reason of such obligations or their creation, by reason of such person's or entity's status as such director, officer, stockholder or incorporator. GOVERNING LAW The Indenture and New Notes will be governed by and construed in accordance with the laws of the State of New York, without giving effect to such State's conflicts of laws principles. INFORMATION CONCERNING THE TRUSTEE The Issuer and its subsidiaries may maintain deposit accounts and conduct other banking transactions with the Trustee in the ordinary course of business. 39 CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS The following is a general discussion of certain United States federal income tax considerations to holders of the New Notes. This discussion is based upon the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations, Internal Revenue Service ("IRS") rulings, and judicial decisions now in effect, all of which are subject to change (possibly with retroactive effect) or different interpretations. This discussion does not deal with all aspects of United States federal income taxation that may be important to holders of the New Notes and does not deal with tax consequences arising under the laws of any foreign, state or local jurisdiction. This discussion is for general information only, and does not purport to address all tax consequences that may be important to particular holders in light of their personal circumstances, or to certain types of holders (such as certain financial institutions, insurance companies, tax-exempt entities, dealers in securities or persons who hold the New Notes in connection with a straddle) that may be subject to special rules. This discussion assumes that each holder holds the New Notes as capital assets. For the purpose of this discussion, a "Non-U.S. Holder" refers to any holder who is not a United States person. The term "United States person" means a citizen or resident of the United States, a corporation or partnership (including any entity taxed as a partnership for U.S. federal income tax purposes) created or organized in the United States or any state thereof, an estate, the income of which is includible in income for the United States federal income tax purposes regardless of its source, or a trust if (i) a court within the United States is able to exercise primary supervision over the administration of the trust and (ii) one or more United States persons have the authority to control all substantial decisions of the trust. HOLDERS OF THE NOTES ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE EXCHANGE, OWNERSHIP AND DISPOSITION OF THE NEW NOTES AND THE EFFECT THAT THEIR PARTICULAR CIRCUMSTANCES MAY HAVE ON SUCH TAX CONSEQUENCES. EXCHANGE OF OLD NOTES FOR NEW NOTES The terms of the New Notes are identical to those of the Old Notes, except that the New Notes are registered under applicable federal securities laws. Under applicable Treasury Regulations, the exchange of Old Notes for New Notes pursuant to the Exchange Offer should not be treated as an "exchange" for federal income tax purposes. If, however, the exchange of Old Notes for New Notes were treated as an "exchange" for federal income tax purposes, such transactions should constitute a recapitalization for federal income tax purposes and holders of the Old Notes should not recognize any gain or loss on such exchanged. The term "New Notes" utilized in the following sections means, in certain contexts, the Old Notes an New Notes considered as one and the same evidences of indebtedness in applying the federal income tax rule in question. TAX CONSIDERATIONS APPLICABLE TO UNITED STATES PERSONS Interest on New Notes. Interest paid on the New Notes will be taxable to a holder as ordinary interest income in accordance with the holder's method of tax accounting at the time that such interest is accrued or (actually or constructively) received. Sale or Exchange of New Notes. In general, a holder of the New Notes will recognize gain or loss upon the sale, redemption, retirement or other disposition of the New Notes measured by the difference between the amount of cash and the fair market value of any property received (except to the extent attributable to the payment of accrued interest which will be taxable as such) and the holder's adjusted tax basis in the New Notes. A holder's tax basis in the New Notes generally will equal the cost of the Old Notes to the holder increased by the amount of market discount, if any, previously taken into income by the holder or decreased by any bond premium theretofore amortized by the holder with respect to the New Notes. Subject to the market discount rules discussed below, the gain or loss on the 40 disposition of the New Notes will be capital gain or loss and will be long-term gain or loss if the New Notes have been held for more than one year at the time of such disposition. For non-corporate taxpayers, the lower capital gain tax rates enacted as part of the Taxpayer Relief Act of 1997 (the "1997 Act"), do not apply to gains from the sale or exchange of the New Notes held for 18 months or less. The pre-1997 Act 28% maximum tax rate continues to apply to gains from the sale or exchange of capital assets held more than one year but not more than 18 months. Market Discount. The resale of the New Notes may be affected by the "market discount" provisions of the Code. For this purpose, the market discount on a Note will generally be equal to the amount, if any, by which the stated redemption price at maturity of the New Notes immediately after its acquisition exceeds the holder's tax basis in the New Notes. Subject to a de minimis exception, these provisions generally require a holder of a New Note acquired at a market discount to treat as ordinary income any gain recognized on the disposition of such New Notes to the extent of the "accrued market discount" on such New Notes at the time of disposition. In general, market discount on a New Note will be treated as accruing on a straight-line basis over the term of such New Notes, or, at the election of the holder, under a constant yield method. Holders may elect to include accrued market discount in income currently with respect to all market discount bonds acquired on or after the first day of the first taxable year for which the election is effective and for any such bond on either a straight-line or constant yield basis. In the absence of such election, a holder of New Notes acquired at a market discount may be required to defer the deduction of a portion of the interest on any indebtedness incurred or maintained to acquire or carry the New Notes until the New Notes are disposed of in a taxable transaction. TAX CONSIDERATIONS APPLICABLE TO NON-U.S. HOLDERS Interest on New Notes. Generally, interest paid on the New Notes to a Non-U.S. Holder will not be subject to United States federal income tax if: (i) such interest is not effectively connected with the conduct of a trade or business within the United States by such Non-U.S. Holder; (ii) the Non-U.S. Holder does not actually or constructively own 10% or more of the total voting power of all classes of stock of the Issuer entitled to vote and is not a controlled foreign corporation with respect to which the Issuer is a "related person" within the meaning of the Code; and (iii) the beneficial owner, under penalty of perjury, certifies that the owner is not a United States person and provides the owner's name and address. If certain requirements are satisfied, the certification described in clause (iii) above may be provided by a securities clearing organization, a bank, or other financial institution that holds customers' securities in the ordinary course of its trade or business. A holder that is not exempt from tax under these rules will be subject to United States federal income tax withholding at a rate of 30% unless the interest is effectively connected with the conduct of a United States trade or business, in which case the interest will be subject to the United States federal income tax on net income that applies to United States persons generally. Non-U.S. Holders should consult applicable income tax treaties, which may provide different rules. Sales or Exchange of New Notes. A Non-U.S. Holder generally will not be subject to United States federal income tax on gain recognized upon the sale or other disposition of the New Notes unless (i) the gain is effectively connected with the conduct of a trade or business within the United States by the Non-U.S. Holder, or (ii) in the case of a Non-U.S. Holder who is a nonresident alien individual and holds the New Notes as a capital asset, such holder is present in the United States for 183 or more days in the taxable year and certain other circumstances are present. If the Issuer is a "United States real property holding corporation", a Non-U.S. Holder may be subject to federal income tax with respect to gain realized on the disposition of such New Notes as if it were effectively connected with a United States trade or business and the amount realized would then be subject to withholding at the rate of 10%. The amount withheld pursuant to these rules will be creditable against such Non-U.S. Holder's United States federal income tax liability and may entitle such Non-U.S. Holder to a refund upon furnishing the required information to the Internal Revenue Service. Non-U.S. Holders should consult applicable income tax treaties, which may provide different rules. 41 INFORMATION REPORTING AND BACKUP WITHHOLDING U.S. Holders. Information reporting and backup withholding may apply to payments of interest on or the proceeds of the sale or other disposition of the New Notes with respect to certain non-corporate U.S. holders. Such U.S. holders generally will be subject to backup withholding at a rate of 31% unless the recipient of such payment supplies a taxpayer identification number, certified under penalties of perjury, as well as certain other information, or otherwise establishes, in the manner prescribed by law, an exemption from backup withholding. Any amount withheld under backup withholding is allowable as a credit against the U.S. holder's federal income tax liability, upon furnishing the required information. Non-U.S. Holders. Generally, information reporting and backup withholding of United States federal income tax at a rate of 31% may apply to payments of principal, interest and premium (if any) to Non-U.S. Holders if the payee fails to certify that the holder is not a United States person or if the Issuer or its paying agent has actual knowledge that the payee is a United States person. The 31% backup withholding tax generally will not apply to interest paid to foreign holders outside the United States that are subject to 30% withholding as discussed above (see "Tax Considerations Applicable to Non-U.S. Holders -- Interest on New Notes") or that are subject to a tax treaty that reduces such withholding. The payment of the proceeds on the disposition of New Notes to or through the United States office of a United States or foreign broker will be subject to information reporting and backup withholding unless the owner provides the certification described above or otherwise establishes an exemption. The payment of the proceeds of the disposition by a Non-U.S. Holder of New Notes to or through a foreign office of a broker will not be subject to backup withholding. However, if such broker is a U.S. person, a controlled foreign corporation for United States tax purposes, or a foreign person 50% or more of whose gross income from all sources for certain periods is from activities that are effectively connected with a United States trade or business, information reporting will apply unless such broker has documentary evidence in its files of the owner's foreign status and has no actual knowledge to the contrary or unless the owner otherwise establishes an exemption. Both backup withholding and information reporting will apply to the proceeds from such dispositions if the broker has actual knowledge that the payee is a U.S. Holder. The Treasury Department recently promulgated final regulations regarding the withholding and information reporting rules discussed above. In general, the final regulations do not significantly after the substantive withholding and information reporting requirements but rather unify current certification procedures and forms and clarify reliance standards. As originally promulgated, the final regulations were to be generally effective for payments made after December 31, 1998, subject to certain transition rules; however, the Treasury Department and the IRS subsequently announced that the December 31, 1998 date would be extended to December 31, 1999. Non-U.S. Holders should consult their own tax advisors with respect to the impact, if any, of the new final regulations. 42 BUSINESS OF HEALTHSOUTH GENERAL HEALTHSOUTH is the nation's largest provider of outpatient surgery and rehabilitative healthcare services. It provides these services through its national network of outpatient and inpatient rehabilitation facilities, outpatient surgery centers, diagnostic centers, occupational medicine centers, medical centers and other healthcare facilities. HEALTHSOUTH believes that it provides patients, physicians and payors with high-quality healthcare services at significantly lower costs than traditional inpatient hospitals. Additionally, HEALTHSOUTH's national network, reputation for quality and focus on outcomes has enabled it to secure contracts with national and regional managed care payors. At June 30, 1998, HEALTHSOUTH had over 1,900 patient care locations in 50 states, the United Kingdom and Australia. In its outpatient and inpatient rehabilitation facilities, HEALTHSOUTH provides interdisciplinary programs for the rehabilitation of patients experiencing disability due to a wide variety of physical conditions, such as stroke, head injury, orthopaedic problems, neuromuscular disease and sports-related injuries. HEALTHSOUTH's rehabilitation services include physical therapy, sports medicine, work hardening, neurorehabilitation, occupational therapy, respiratory therapy, speech-language pathology and rehabilitation nursing. Independent studies have shown that rehabilitation services like those provided by HEALTHSOUTH can save money for payors and employers. In addition to its rehabilitation facilities, HEALTHSOUTH operates the largest network of freestanding outpatient surgery centers in the United States. HEALTHSOUTH's outpatient surgery centers provide the facilities and medical support staff necessary for physicians to perform non-emergency surgical procedures. While outpatient surgery is widely recognized as generally less expensive than surgery performed in a hospital, HEALTHSOUTH believes that outpatient surgery performed at a freestanding outpatient surgery center is generally less expensive than hospital-based outpatient surgery. Over 80% of HEALTHSOUTH's surgery center facilities are located in markets served by its rehabilitative service facilities, enabling the Issuer to pursue opportunities for cross-referrals. HEALTHSOUTH is also among the largest operators of outpatient diagnostic centers and occupational medicine centers in the United States. Most of HEALTHSOUTH's diagnostic centers and occupational medicine centers operate in markets where HEALTHSOUTH also provides rehabilitative healthcare and outpatient surgery services. HEALTHSOUTH believes that its ability to offer a comprehensive range of its services in a particular geographic market makes HEALTHSOUTH more attractive to both patients and payors in such market. Over the last three years, HEALTHSOUTH has completed several significant acquisitions in the rehabilitation business and has expanded into the surgery center, diagnostic and occupational medicine businesses. HEALTHSOUTH believes that these acquisitions complement its historical operations and enhance its market position. HEALTHSOUTH further believes that its expansion into the outpatient surgery, diagnostic and occupational medicine businesses provides it with platforms for future growth. HEALTHSOUTH is continually evaluating potential acquisitions in the outpatient and rehabilitative healthcare services industry. HEALTHSOUTH was organized as a Delaware corporation in February 1984. HEALTHSOUTH's principal executive offices are located at One HealthSouth Parkway, Birmingham, Alabama 35243, and its telephone number is (205) 967-7116. HEALTHSOUTH STRATEGY HEALTHSOUTH's principal objective is to be the provider of choice for patients, physicians and payors alike for outpatient surgery and rehabilitative healthcare services throughout the United States. HEALTHSOUTH's growth strategy is based upon four primary elements: (i) the implementation of HEALTHSOUTH's integrated service model in appropriate markets, (ii) successful marketing to managed care organizations and other payors, (iii) the provision of high-quality, cost-effective healthcare services, and (iv) the expansion of its national network. 43 o Integrated Service Model. HEALTHSOUTH seeks, where appropriate, to provide an integrated system of healthcare services, including outpatient rehabilitation services, inpatient rehabilitation services, ambulatory surgery services and outpatient diagnostic services. HEALTHSOUTH believes that its integrated system offers payors the convenience of dealing with a single provider for multiple services. Additionally, it believes that its facilities can provide extensive cross-referral opportunities. For example, HEALTHSOUTH estimates that approximately one-third of its outpatient rehabilitation patients have had outpatient surgery, virtually all inpatient rehabilitation patients will require some form of outpatient rehabilitation, and virtually all inpatient rehabilitation patients have had some type of diagnostic procedure. HEALTHSOUTH has implemented its Integrated Service Model in certain of its markets, and intends to expand the model into other appropriate markets. o Marketing to Managed Care Organizations and Other Payors. Since the late 1980s, HEALTHSOUTH has focused on the development of contractual relationships with managed care organizations, major insurance companies, large regional and national employer groups and provider alliances and networks. HEALTHSOUTH's documented outcomes and experience with several hundred thousand patients in delivering quality healthcare services at reasonable prices has enhanced its attractiveness to such entities and has given HEALTHSOUTH a competitive advantage over smaller and regional competitors. These relationships have increased patient flow to HEALTHSOUTH's facilities and contributed to HEALTHSOUTH's same-store growth. o Cost-Effective Services. HEALTHSOUTH's goal is to provide high-quality healthcare services in cost-effective settings. To that end, HEALTHSOUTH has developed standardized clinical protocols for the treatment of its patients. This results in "best practices" techniques being utilized at all of HEALTHSOUTH's facilities, allowing the consistent achievement of demonstrable, cost-effective clinical outcomes. HEALTHSOUTH's reputation for its clinical programs is enhanced through its relationships with major universities throughout the nation, and its support of clinical research in its facilities. Further, independent studies estimate that, for every dollar spent on rehabilitation, $11 to $35 is saved. Finally, surgical procedures typically are less expensive in outpatient surgery centers than in hospital settings. HEALTHSOUTH believes that outpatient and rehabilitative healthcare services will assume increasing importance in the healthcare environment as payors continue to seek to reduce overall costs by shifting patients to more cost-effective treatment settings. o Expansion of National Network. As the largest provider of outpatient surgery and rehabilitative healthcare services in the United States, HEALTHSOUTH is able to realize economies of scale and compete successfully for national contracts with large payors and employers while retaining the flexibility to respond to particular needs of local markets. The national network affords HEALTHSOUTH the opportunity to offer large national and regional employers and payors the convenience of dealing with a single provider, to utilize greater buying power through centralized purchasing, to achieve more efficient costs of capital and labor and to more effectively recruit and retain clinicians. HEALTHSOUTH believes that its recent acquisitions in the outpatient surgery, diagnostic imaging and occupational medicine fields will further enhance its national presence by broadening the scope of its existing services and providing new opportunities for growth. These national benefits are realized without sacrificing local market responsiveness. HEALTHSOUTH's objective is to provide those outpatient and rehabilitative healthcare services needed within each local market by tailoring its services and facilities to that market's needs, thus bringing the benefits of nationally recognized expertise and quality into the local setting. RECENT DEVELOPMENTS On July 1, 1998, HEALTHSOUTH acquired 33 ambulatory surgery centers from Columbia/HCA Healthcare Corporation. The surgery centers are located in Alabama, California, Iowa, Illinois, Kentucky, Louisiana, Minnesota, Mississippi, North Carolina, Nevada, Oregon, Rhode Island and Texas. 44 Effective July 31, 1998, HEALTHSOUTH entered into certain other arrangements to acquire substantially all of the economic benefit of Columbia/HCA's interest in one additional surgery center. The transaction was valued at approximately $550,000,000. On July 22, 1998, HEALTHSOUTH acquired National Surgery Centers, Inc., adding 40 outpatient surgery centers in 14 states to HEALTHSOUTH's existing network of outpatient surgery and rehabilitative healthcare facilities. The value of the NSC transaction is approximately $590,000,000. Under the terms of the NSC agreement, NSC stockholders will receive 1.0972 shares of HEALTHSOUTH Common Stock. The NSC transaction is expected to be accounted for as a pooling of interests and is intended to be a tax-free reorganization. PATIENT CARE SERVICES HEALTHSOUTH began its operations in 1984 with a focus on providing comprehensive orthopaedic and musculoskeletal rehabilitation services on an outpatient basis. Over the succeeding 14 years, HEALTHSOUTH has consistently sought and implemented opportunities to expand its services through acquisitions and de novo development activities that complement its historic focus on orthopaedic, sports medicine and occupational medicine services and that provide independent platforms for growth. HEALTHSOUTH's acquisitions and internal growth have enabled it to become the largest provider of rehabilitative healthcare services, both inpatient and outpatient, in the United States, as well as the largest operator of freestanding outpatient surgery centers. In addition, HEALTHSOUTH has added diagnostic imaging services, occupational medicine services and other outpatient services which provide natural enhancements to its rehabilitative healthcare locations and facilitate the implementation of its Integrated Service Model. HEALTHSOUTH believes that these additional businesses also provide opportunities for growth in other areas not directly related to the rehabilitative business, and HEALTHSOUTH intends to pursue further expansion in those businesses. Outpatient Rehabilitation Services HEALTHSOUTH operates the largest group of affiliated proprietary outpatient rehabilitation facilities in the United States. HEALTHSOUTH's outpatient rehabilitation centers offer a comprehensive range of rehabilitative healthcare services, including physical therapy and occupational therapy, that are tailored to the individual patient's needs, focusing predominantly on orthopaedic injuries, sports injuries, work injuries, hand and upper extremity injuries, back injuries, and various neurological/neuromuscular conditions. As of June 30, 1998, HEALTHSOUTH provided outpatient rehabilitative healthcare services through approximately 1,240 outpatient locations, including freestanding outpatient centers and their satellites, outpatient satellites of inpatient facilities and outpatient facilities managed under contract. Inpatient Services INPATIENT REHABILITATION FACILITIES. At June 30, 1998, HEALTHSOUTH operated 131 inpatient rehabilitation facilities with 7,717 beds in the United States, representing the largest group of affiliated proprietary inpatient rehabilitation facilities in the nation, as well as a 71-bed rehabilitation hospital in Australia. HEALTHSOUTH's inpatient rehabilitation facilities provide high-quality comprehensive services to patients who require intensive institutional rehabilitation care. In certain markets HEALTHSOUTH's rehabilitation hospitals may provide outpatient rehabilitation services as a complement to their inpatient services. MEDICAL CENTERS. At June 30, 1998, HEALTHSOUTH operated four medical centers with 800 licensed beds in four distinct markets. These facilities provide general and specialty medical and surgical healthcare services, emphasizing orthopaedics, sports medicine and rehabilitation. Surgery Centers HEALTHSOUTH is currently the largest operator of outpatient surgery centers in the United States. At June 30, 1998, it operated 176 freestanding surgery centers, including five mobile lithotripsy units, in 36 states. Over 80% of these facilities are located in markets served by HEALTHSOUTH's 45 outpatient and rehabilitative service facilities, enabling HEALTHSOUTH to pursue opportunities for cross-referrals between surgery and rehabilitative facilities as well as to centralize administrative functions. HEALTHSOUTH's surgery centers provide the facilities and medical support staff necessary for physicians to perform non-emergency surgical procedures. Its typical surgery center is a freestanding facility with three to six fully equipped operating and procedure rooms and ancillary areas for reception, preparation, recovery and administration. Each of HEALTHSOUTH's surgery centers is available for use only by licensed physicians, oral surgeons and podiatrists, and the centers do not perform surgery on an emergency basis. Outpatient surgery centers, unlike hospitals, have not historically provided overnight accommodations, food services or other ancillary services. Over the past several years, states have increasingly permitted the use of extended-stay recovery facilities by outpatient surgery centers. As a result, many outpatient surgery centers are adding extended recovery care capabilities where permitted. Most of HEALTHSOUTH's surgery centers currently provide for extended recovery stays. The Issuer's ability to develop such recovery care facilities is dependent upon state regulatory environments in the particular states where its centers are located. Diagnostic Centers At June 30, 1998, HEALTHSOUTH operated 119 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 HEALTHSOUTH's diagnostic centers are multi-modality centers. Because many patients at HEALTHSOUTH's rehabilitative healthcare and outpatient surgery facilities require diagnostic procedures of the type performed at its diagnostic centers, HEALTHSOUTH believes that its diagnostic operations are a natural complement to its other services and enhance its ability to market those services to patients and payors. Occupational Health Services At March 31, 1998, HEALTHSOUTH operated 122 occupational health centers in 33 states. These centers provide cost-effective, outpatient primary medical care and rehabilitation services to individuals for the treatment of work-related medical problems. HEALTHSOUTH's occupational health centers market their services to large and small employers, workers' compensation and health insurers and managed care organizations. The services provided at HEALTHSOUTH's occupational 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 physicians who are employed by or under contract with HEALTHSOUTH or affiliated medical practices. These centers also employ nurses, therapists and other licensed professional staff as necessary for the services provided. HEALTHSOUTH believes that occupational health primary care services are a strategic component of its business, and that the physicians in its occupational medicine centers can, in many cases, serve as "gatekeepers" providing access to the other services offered by HEALTHSOUTH. Other Patient Care Services In certain of its markets, HEALTHSOUTH provides other patient care services, including home healthcare, physician services and contract management of hospital-based rehabilitative healthcare services. HEALTHSOUTH evaluates market opportunities on a case-by-case basis in determining whether to provide additional services of these types, which may be complementary to facility-based services provided by HEALTHSOUTH or stand-alone businesses. 46 PLAN OF DISTRIBUTION Each broker-dealer that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired as a result of market-making activities or other trading activities. HEALTHSOUTH has agreed that it will make this Prospectus, as amended or supplemented, available to any Participating Broker-Dealer for a period of time not to exceed 180 days after the Registration Statement is declared effective (subject to extension under certain circumstances) for use in connection with any such resale. In addition, until such date, all broker-dealers effecting transactions in the New Notes may be required to deliver a prospectus. HEALTHSOUTH will not receive any proceeds from any sale of New Notes by broker-dealers. New Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the New Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer that resells New Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such New Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of New Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Starting on the Expiration Date, and for a period of 180 days thereafter, HEALTHSOUTH will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. HEALTHSOUTH has agreed to pay expenses incident to the Exchange Offer other than commissions or concessions of any brokers or dealers and will indemnify the holders of the New Notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. Based on interpretations by the staff of the Commission, as set forth in no-action letters issued to third parties, including the Exchange Offer No-Action Letters, HEALTHSOUTH believes that the New Notes issued pursuant to the Exchange Offer may be offered for resale, resold or otherwise transferred by each holder thereof (other than a broker-dealer who acquires such New Notes directly from HEALTHSOUTH for resale pursuant to Rule 144A under the Securities Act or any other available exemption under the Securities Act and other than any holder that is an "affiliate" (as defined in Rule 405 under the Securities Act) of HEALTHSOUTH) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such New Notes are acquired in the ordinary course of such holder's business and such holder is not engaged in, and does not intend to engage in, a distribution of such New Notes and has no arrangement with any person to participate in a distribution of such New Notes. 47 EXPERTS The consolidated financial statements and schedule of HEALTHSOUTH at December 31, 1997 and 1996, and for each of the three years in the period ended December 31, 1997, appearing in HEALTHSOUTH's Annual Report on Form 10-K for the year ended December 31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon incorporated herein by reference. Such consolidated financial statements and schedule have been incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. LEGAL MATTERS The validity of the New Notes to be issued pursuant to the Exchange Offer will be passed upon by Haskell Slaughter & Young, L.L.C., Birmingham, Alabama. 48 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 102(b)(7) of the Delaware General Corporation Law ("DGCL") grants corporations the right to limit or eliminate the personal liability of their directors in certain circumstances in accordance with provisions therein set forth. Article NINTH of the HEALTHSOUTH Certificate contains a provision eliminating or limiting director liability to HEALTHSOUTH and its stockholders for monetary damages arising from acts or omissions in the director's capacity as a director. The provision does not, however, eliminate or limit the personal liability of a director (i) for any breach of such director's duty of loyalty to HEALTHSOUTH or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under the Delaware statutory provision making directors personally liable, under a negligence standard, for unlawful dividends or unlawful stock purchases or redemptions, or (iv) for any transaction from which the director derived an improper personal benefit. This provision offers persons who serve on the Board of Directors of HEALTHSOUTH protection against awards of monetary damages resulting from breaches of their duty of care (except as indicated above). As a result of this provision, the ability of HEALTHSOUTH or a stockholder thereof to successfully prosecute an action against a director for a breach of his duty of care is limited. However, the provision does not affect the availability of equitable remedies such as an injunction or rescission based upon a director's breach of his duty of care. The SEC has taken the position that the provision will have no effect on claims arising under the Federal securities laws. Section 145 of the DGCL grants corporations the right to indemnify their directors, officers, employees and agents in accordance with the provisions therein set forth. Article NINTH of the HEALTHSOUTH Certificate and Article IX of the HEALTHSOUTH Bylaws provide for mandatory indemnification rights, subject to limited exceptions, to any director, officer, employee, or agent of HEALTHSOUTH who, by reason of the fact that he or she is a director, officer, employee, or agent of HEALTHSOUTH, is involved in a legal proceeding of any nature. Such indemnification rights include reimbursement for expenses incurred by such director, officer, employee, or agent in advance of the final disposition of such proceeding in accordance with the applicable provisions of the DGCL. HEALTHSOUTH has entered into agreements with all of its directors and its executive officers pursuant to which HEALTHSOUTH has agreed to indemnify such directors and executive officers against liability incurred by them by reason of their services as a director or executive officer to the fullest extent allowable under applicable law. II-1 ITEM 21. EXHIBITS.
EXHIBIT NO. DESCRIPTION --- ----------- (1) Purchase Agreement, dated June 17, 1998, among HEALTHSOUTH Corporation and Salomon Brothers Inc, Goldman, Sachs & Co., J.P. Morgan Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated, NationsBanc Montgomery Securities LLC, Bear, Stearns & Co. Inc., Credit Suisse First Boston Corpora- tion, Deutsche Bank Securities Inc., PaineWebber Incorporated and Scotia Capital Markets (U.S.A.) Inc. relating to the Issuer's 6.875% Senior Notes due 2005 and 7.0% Senior Notes due 2008. (3)-1 Restated Certificate of Incorporation of HEALTHSOUTH Corporation, filed as Exhibit (3)-1 to the Issuer's Current Report on Form 8-K, dated May 28, 1998, is hereby incorporated by reference. (4)-1 Indenture, dated June 22, 1998, between HEALTHSOUTH Corporation and PNC Bank, National Association, as Trustee, filed as Exhibit 4.1 to the Issuer's Quarterly Report on Form 10-Q for the three months ended June 30, 1998, is hereby incorporated herein by reference. (4)-2 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 Issuer's 6.875% Senior Notes due 2005 and 7.0% Senior Notes due 2008, filed as Exhibit 4.2 to the Issuer's Quarterly Report on Form 10-Q for the three months ended June 30, 1998, is hereby incorporated herein by reference. (4)-3 Registration Rights Agreement, dated June 22, 1998, among HEALTHSOUTH Corporation and Salomon Brothers Inc, Goldman, Sachs & Co., J.P. Morgan Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated, NationsBanc Montgomery Securities LLC, Bear, Stearns & Co. Inc., Credit Suisse First Boston Corpora- tion, Deutsche Bank Securities Inc., PaineWebber Incorporated and Scotia Capital Markets (U.S.A.) Inc. relating to the Issuer's 6.875% Senior Notes due 2005 and 7.0% Senior Notes due 2008, filed as Exhibit 4.3 to the Issuer's Quarterly Report on Form 10-Q for the three months ended June 30, 1998, is hereby incorporated herein by reference. (4)-4 Form of 6.875% Senior Notes due 2005. (4)-5 Form of 7.0% Senior Notes due 2008. (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 new 6.875% Senior Notes due 2005 and the new 7.0% Senior Notes due 2008. (5) Opinion of Haskell Slaughter & Young, L.L.C., regarding legality of the New Notes. (12) Computation of Ratio of Earnings to Fixed Charges. (23)-1 Consent of Ernst & Young LLP. (23)-2 Consent of Haskell Slaughter & Young, L.L.C. (included in the opinion filed as Exhibit (5)). (24) Powers of Attorney. See signature pages. (25)-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of a Corporation Designated to Act as Trustee on Form T-1, relating to PNC Bank, National Association. (99)-1 Form of Letter of Transmittal. (99)-2 Form of Notice of Guaranteed Delivery. (99)-3 Form of Letter to Clients. (99)-4 Form of Letter to Depository Trust Company Participants. (99)-5 Instruction to Book-Entry Transfer Participant.
II-2 (99)-6 Form of Exchange Agent Agreement.
ITEM 22. UNDERTAKINGS. The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering prices set forth in the "Calculation of Registration Fee" table in the effective registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling II-3 person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-4 SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Birmingham, State of Alabama, on August 14, 1998. HEALTHSOUTH CORPORATION By RICHARD M. SCRUSHY ------------------------------------ Richard M. Scrushy Chairman of the Board and Chief Executive Officer KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Richard M. Scrushy and Michael D. Martin, and each of them, his attorney-in-fact with powers of substitution for him in any and all capacities, to sign any amendments, supplements, subsequent registration statements relating to the offering to which this Registration Statement relates, or other instruments he deems necessary or appropriate, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact or his substitute may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE --------- -------- ---- RICHARD M. SCRUSHY Chairman of the Board and Chief August 14, 1998 - ------------------------- Executive Officer and Director Richard M. Scrushy MICHAEL D. MARTIN Executive Vice President, August 14, 1998 - ------------------------- Chief Financial Officer, Treasurer Michael D. Martin and Director WILLIAM T. OWENS Group Senior Vice President- August 14, 1998 - ------------------------- Finance and Controller (Principal William T. Owens Accounting Officer) JAMES P. BENNETT Director August 14, 1998 - ------------------------- James P. Bennett ANTHONY J. TANNER Director August 14, 1998 - ------------------------- Anthony J. Tanner P. DARYL BROWN Director August 14, 1998 - ------------------------- P. Daryl Brown PHILLIP C. WATKINS, M.D. Director August 14, 1998 - ------------------------- Phillip C. Watkins, M.D.
II-5
SIGNATURE CAPACITY DATE - --------------------------- ---------- ---------------- GEORGE H. STRONG Director August 14, 1998 - ------------------------- George H. Strong C. SAGE GIVENS Director August 14, 1998 - ------------------------- C. Sage Givens CHARLES W. NEWHALL III Director August 14, 1998 - ------------------------- Charles W. Newhall III JOHN S. CHAMBERLIN Director August 14, 1998 - ------------------------- John S. Chamberlin JOEL C. GORDON Director August 14, 1998 - ------------------------- Joel C. Gordon EDWIN M. CRAWFORD Director August 14, 1998 ------------------------- Edwin M. Crawford
II-6 EX-1 2 EXHIBIT (1) EXHIBIT (1) HEALTHSOUTH CORPORATION $250,000,000 6.875% SENIOR NOTES DUE 2005 $250,000,000 7.0% SENIOR NOTES DUE 2008 PURCHASE AGREEMENT New York, New York June 17, 1998 Salomon Brothers Inc Goldman, Sachs & Co. J.P. Morgan Securities Inc. Merrill Lynch, Pierce, Fenner & Smith Incorporated Morgan Stanley & Co. Incorporated NationsBanc Montgomery Securities LLC Bear, Stearns & Co. Inc. Credit Suisse First Boston Corporation Deutsche Bank Securities Inc. PaineWebber Incorporated Scotia Capital Markets (USA) Inc. c/o Salomon Brothers Inc Seven World Trade Center New York, New York 10048 Ladies and Gentlemen: HEALTHSOUTH Corporation, a Delaware corporation (the "Company"), proposes to issue and sell to you, as the initial purchasers (the "Initial Purchasers"), $250,000,000 principal amount of its 6.875% Senior Notes due 2005 (the "2005 Notes") and $250,000,000 principal amount of its 7.0% Senior Notes due 2008 (the "2008 Notes" and, together with the 2005 Notes, the "Securities"). The Securities are to be issued under that certain Indenture, as supplemented by that certain Officers' Certificate dated June 22, 1998 (the Indenture as supplemented by the Officers' Certificate being herein collectively referred to as the "Indenture"), dated as of June 22, 1998 between the Company and PNC Bank, National Association, as trustee (the "Trustee"). The sale of the Securities to the Initial Purchasers will be made without registration of the Securities under the Securities Act of 1933, as amended (the "Securities 1 Act"), in reliance upon exemptions from the registration requirements of the Securities Act. You have advised the Company that the Initial Purchasers will offer and sell the Securities purchased by them hereunder in accordance with Section 4 hereof as soon as you deem advisable. In connection with the sale of the Securities, the Company has prepared a preliminary offering memorandum as of June 4, 1998 (including any and all exhibits thereto, the "Preliminary Memorandum") and a final offering memorandum, dated June 17, 1998 (including any and all exhibits thereto, the "Final Memorandum"). Each of the Preliminary Memorandum and the Final Memorandum sets forth certain information concerning the Company and the Securities. Any references herein to the Preliminary Memorandum or the Final Memorandum shall be deemed to include all amendments and supplements thereto and any documents filed under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations of the Securities and Exchange Commission (the "Commission") thereunder which are incorporated by reference therein. As used herein, the term "Incorporated Documents" means the documents which at the time are incorporated by reference in the Preliminary Memorandum or the Final Memorandum or any amendment or supplement thereto. The Company hereby confirms that it has authorized the use of the Preliminary Memorandum and the Final Memorandum, and any amendment or supplement thereto, in connection with the offer and sale of the Securities by the Initial Purchasers. Unless stated to the contrary, all references herein to the Final Memorandum are to the Final Memorandum at the Execution Time (as defined below) and are not meant to include any amendment or supplement subsequent to the Execution Time. The Company understands that the Initial Purchasers propose to make offers and sales (the "Exempt Resales") of the Securities purchased by the Initial Purchasers hereunder only on the terms and in the manner set forth in the Preliminary Memorandum, the Final Memorandum and Section 4 hereof. The Initial Purchasers of the Securities and their direct and indirect transferees will be entitled to the benefits of a Registration Rights Agreement, to be dated as of the Closing Date (as defined below) and to be substantially in the form attached hereto as Annex 1 (the "Registration Rights Agreement"), pursuant to which the Company will file one or more registration statements with the Commission registering with the Commission the New Securities (as such term is defined in such Registration Rights Agreement) or the Securities. Capitalized terms used herein without definition have the respective meanings specified therefor in the Indenture, the Preliminary Memorandum or the Final Memorandum. 1. Representations and Warranties. The Company represents and warrants to each Initial Purchaser as set forth below in this Section 1. (a) Each of the Preliminary Memorandum and the Final Memorandum has been prepared by the Company for use by the Initial Purchasers in connection with the Exempt Resales. No order or decree preventing the use of the Preliminary Memorandum or the Final Memorandum or any amendment or supplement thereto, or any order asserting that the transactions contemplated by this Agreement are subject to the registration requirements of the Securities Act has been issued and no proceeding for that purpose has commenced or is pending 2 or, to the knowledge of the Company, is contemplated. (b) The Preliminary Memorandum, at the date thereof, did not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading. The Final Memorandum, at the date hereof and at the Closing Date (as defined below), does not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, except that this representation and warranty does not apply to statements in or omissions from the Preliminary Memorandum or the Final Memorandum made in reliance upon and in conformity with information relating to the Initial Purchasers furnished to the Company in writing by or on behalf of the Initial Purchasers expressly for use therein. (c) The Incorporated Documents heretofore filed were filed in a timely manner and, when they were filed (or, if any amendment with respect to any such document was filed, when such amendment was filed), conformed in all material respects to the requirements of the Exchange Act, and the rules and regulations thereunder and any further Incorporated Documents so filed will, when they are filed, conform in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder; no such document when it was filed (or, if an amendment with respect to any such document was filed, when such amendment was filed), contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and no such further document, when it is filed, will contain an untrue statement of a material fact or will omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading. (d) The Indenture has been duly and validly authorized by the Company and, upon its execution, delivery and performance by the Company and assuming due authorization, execution, delivery and performance by the Trustee, will be a valid and binding agreement of the Company, enforceable in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other similar laws affecting creditors' rights generally, and subject to the applicability of general principles of equity, and conforms in all material respects to the description thereof in the Preliminary Memorandum and the Final Memorandum; no qualification of the Indenture under the Trust Indenture Act of 1939 (the "1939 Act") is required in connection with the offer and sale of the Securities contemplated hereby or in connection with the Exempt Resales. (e) The Securities have been duly authorized by the Company and, when executed by the Company and authenticated by the Trustee in accordance with the Indenture and delivered to the Initial Purchasers against payment therefor in accordance with the terms hereof, will have been validly issued and delivered, and will constitute valid and binding obligations of the Company entitled to the benefits of the Indenture and enforceable in accordance with their terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally, and subject to the applicability of general principles of equity, and the Securities will conform in all material respects to the description thereof in the Preliminary Memorandum and the Final Memorandum. 3 (f) The Securities have been duly authorized and, when issued and delivered to the Initial Purchasers against payment therefor in accordance with the terms hereof, will be validly issued, fully paid and nonassessable and free of any preemptive or similar rights. (g) Each of the Company and its corporate subsidiaries (collectively, the "Subsidiaries") has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation with full power and authority (corporate and other) to own, lease and operate its properties and conduct its business as described in the Preliminary Memorandum and the Final Memorandum; each of the Company's affiliated partnerships (collectively, the "Controlled Entities") is duly formed and validly existing under the laws of the jurisdiction pursuant to which it was organized with full power and authority (partnership and other) to own, lease and operate its properties and conduct its business as described in the Preliminary Memorandum and the Final Memorandum; and each of the Company, the Subsidiaries and the Controlled Entities is duly qualified to do business as a foreign corporation or partnership in good standing in all other jurisdictions, if any, where the ownership or leasing of properties or the conduct of its business requires such qualification, except where the failure to be so qualified would not have a material adverse effect on the business, operations or financial condition of the Company, the Subsidiaries and the Controlled Entities taken as a whole (a "Material Adverse Effect"); all of the issued shares of capital stock of each of the Subsidiaries, and the partnership interests representing ownership in each Controlled Entity held of record or beneficially by the Company, have been duly authorized and validly issued, are fully paid and nonassessable and are owned by the Company free and clear of all liens, security interests, charges or other encumbrances, except for those liens, security interests, charges or other encumbrances that would not have a Material Adverse Effect; and all of the outstanding interests representing ownership in the Controlled Entities have been offered, sold and issued in compliance with applicable state and federal laws related to the issuance of securities. (h) There is no legal or governmental proceeding pending or to the Company's knowledge threatened to which the Company, any Subsidiary or any Controlled Entity is a party or of which the business or property of the Company, any Subsidiary or any Controlled Entity is the subject which is not disclosed in the Preliminary Memorandum and the Final Memorandum and which might result in a judgment or decree having a Material Adverse Effect or which is otherwise of a character that would be required to be described in the Preliminary Memorandum and the Final Memorandum if the Preliminary Memorandum and the Final Memorandum were prospectuses included in a registration statement on Form S-1 under the Securities Act, and there is no contract, license or other document of a character required to be described in the Preliminary Memorandum and the Final Memorandum or to be filed as an exhibit to any Incorporated Document which is not described or filed as required by the Securities Act or the Exchange Act. (i) The Company and its Subsidiaries are not in violation of their respective charters or bylaws, the Controlled Entities are not in violation of their respective agreements of limited partnership, and neither the Company nor any Subsidiary or Controlled Entity is in default in any respect in the performance of any obligation, agreement or condition contained in any bond, debenture, note or any other evidence of indebtedness or in any agreement, indenture or other instrument to which it is a party or by which it is bound, which violation or default would have a Material Adverse Effect; and neither the issuance, offer, sale or delivery of the 4 Securities, the execution, delivery or performance of this Agreement, the Indenture or the Registration Rights Agreement by the Company nor the consummation by the Company of the transactions contemplated hereby or thereby require any consent, approval, authorization or other order of any court, regulatory body, administrative agency or other governmental body (except such as may be required in connection with the registration under the Securities Act of the Securities in accordance with the Registration Rights Agreement and the qualification of the Indenture under the 1939 Act and except for compliance with the securities or Blue Sky laws of various jurisdictions), and will not conflict with or constitute a breach of or default under, or violate, the charter or bylaws of the Company or any Subsidiary, or the agreement of limited partnership of any Controlled Entity, or any agreement, indenture or other instrument to which the Company or any Subsidiary or any Controlled Entity is a party or by which it is bound, or any law, regulations, order or decree applicable to the Company, any Subsidiary or any Controlled Entity. (j) The accountants, Ernst & Young LLP, who have certified or shall certify the financial statements included as part of the Preliminary Memorandum and the Final Memorandum (or any amendment or supplement thereto) or the Incorporated Documents, are independent public accountants as required by the Securities Act. (k) The financial statements, together with related schedules and notes, included or incorporated by reference in the Preliminary Memorandum and the Final Memorandum (and any amendment or supplement thereto), present fairly the consolidated financial position, results of operations and changes in financial position of the Company, the Subsidiaries and the Controlled Entities on the basis stated in the Preliminary Memorandum and the Final Memorandum at the respective dates or for the respective periods to which they apply; such statements and related schedules and notes have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved, except as disclosed therein; and the other financial and statistical information and data included or incorporated by reference in the Preliminary Memorandum and the Final Memorandum (and any amendment or supplement thereto) are accurately presented and prepared on a basis consistent with such financial statements and the books and records of the Company, the Subsidiaries and the Controlled Entities. (l) The Company has all requisite power and authority to execute, deliver and perform its obligations under this Agreement and the Registration Rights Agreement; the execution and delivery of, and the performance by the Company of its obligations under this Agreement and the Registration Rights Agreement have been duly and validly authorized by the Company, and this Agreement and the Registration Rights Agreement have been duly executed and delivered by the Company and constitute the valid and legally binding agreements of the Company, enforceable against the Company in accordance with their terms, except as the enforcement hereof and thereof may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally and subject to the applicability of general principles of equity, and except as rights to indemnity and contribution hereunder and thereunder may be limited by Federal or state securities laws or principles of public policy. (m) Except as disclosed in the Preliminary Memorandum and the Final Memorandum (or any amendment or supplement thereto), subsequent to the dates as of which such information is given in the Preliminary Memorandum and the Final Memorandum (or any 5 amendment or supplement thereto), neither the Company nor any of the Subsidiaries or Controlled Entities has incurred any liability or obligation, direct or contingent, or entered into any transaction, not in the ordinary course of business, that is material to the Company, the Subsidiaries and the Controlled Entities taken as a whole, and there has not been any change in the capital stock, or material increase in the short-term debt or long-term debt, of the Company or any of the Subsidiaries or Controlled Entities, or any material adverse change, or any development involving or which may reasonably be expected to involve a prospective material adverse change in the condition (financial or other), business, net worth or results of operations of the Company, the Subsidiaries and the Controlled Entities taken as a whole. (n) The Company and each Subsidiary and Controlled Entity have good and marketable title to all real and personal property described in the Preliminary Memorandum and the Final Memorandum as being owned respectively by them, in each case free and clear of all liens, claims, security interests or other encumbrances except such as are described in the Preliminary Memorandum and the Final Memorandum or such as are not materially significant or important in relation to the business of the Company, the Subsidiaries and the Controlled Entities taken as a whole; and the real and personal property held under lease by the Company, any Subsidiary or any Controlled Entity is held by such entity under valid, subsisting and enforceable leases with only such exceptions as in the aggregate are not material and do not interfere with the conduct of the business of the Company, the Subsidiaries and the Controlled Entities taken as a whole; provided, however, that no representation is made hereby as to the title of the lessors of such property. (o) Except as permitted by the Securities Act, the Company has not distributed and, prior to the later to occur of the Closing Date and completion of the distribution of the Securities, will not distribute any offering material in connection with the offering and sale of the Securities other than the Preliminary Memorandum and the Final Memorandum. (p) Each of the Company, the Subsidiaries and the Controlled Entities holds and is operating in compliance (in all material respects) with all material franchises, grants, authorizations, licenses, permits, easements, consents, certificates and orders of any governmental or self-regulatory body required for the conduct of its business, and all of such are valid and in full force and effect, and each of the Company, the Subsidiaries and the Controlled Entities is in compliance in all material respects with all laws, regulations, orders and decrees applicable to it which have a material effect on its business, properties or assets. (q) The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that 1) transactions are executed in accordance with management's general or specific authorization; 2) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; 3) access to assets is permitted only in accordance with management's general or specific authorization; and 4) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (r) To the best of the Company's knowledge after reasonable investigation, neither the Company, any Subsidiary or any Controlled Entity, nor any employee or agent thereof, has made any payment of funds of the Company, any Subsidiary or any Controlled 6 Entity or received or retained any funds in violation of any law, rule or regulation, which violation would have a Material Adverse Effect. (s) The Company, each Subsidiary and each Controlled Entity have filed or timely obtained extensions to file all tax returns required to be filed by it, which returns are complete and correct, and are not in default in the payment of any taxes which were payable pursuant to said returns or any assessments with respect thereto, except where the failure to file such returns and make such payments would not have a Material Adverse Effect. (t) No holder of any security of the Company (other than holders of the Securities) has any right to request or demand registration of any security of the Company because of the consummation of the transactions contemplated by this Agreement or the Registration Rights Agreement. (u) Each of the Company, the Subsidiaries and the Controlled Entities own all patents, trademarks, trademark registrations, service marks, service mark registrations, trade names, copyrights, licenses, inventions, trade secrets and rights described in the Preliminary Memorandum and the Final Memorandum as being owned by them or any of them or necessary for the conduct of their respective businesses, and the Company is not aware of any claim to the contrary or any challenge by any other person to the rights of the Company, the Subsidiaries and the Controlled Entities with respect to the foregoing that would have a Material Adverse Effect. (v) When the Securities are issued and delivered pursuant to this Agreement, such Securities will not be of the same class (within the meaning of Rule 144A(d)(3) under the Securities Act) as any security of the Company that is listed on a national securities exchange registered under Section 6 of the Exchange Act or that is quoted in a United States automated inter-dealer quotation system. (w) Neither the Company nor any affiliate (as defined in Rule 501(b) of Regulation D ("Regulation D") under the Securities Act) of the Company has directly, or through any agent (provided that no representation is made as to the Initial Purchasers or any person acting on their behalf), 1) sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security (as defined in the Securities Act) which is or will be integrated with the offering and sale of the Securities in a manner that would require the registration of the Securities under the Securities Act or 2) engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with the offering of the Securities. (x) Except as otherwise provided in the Indenture, the Company is not required to deliver the information specified in Rule 144A(d)(4) in connection with the offering and resale of the Securities by the Initial Purchasers. (y) Neither the Company, nor any of its Affiliates, nor any person acting on its or their behalf has engaged in any directed selling efforts with respect to the Securities, and each of them has complied with the offering restrictions requirement of Regulation S ("Regulation S") under the Securities Act. Terms used in this paragraph have the meanings given to them by Regulation S. 7 (z) Neither the Company, nor any of its Affiliates, nor any person acting on its or their behalf has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with any offer or sale of the Securities in the United States. 2. Purchase and Sale. Subject to the terms and conditions and in reliance upon the representations and warranties herein set forth, the Company agrees to sell to each Initial Purchaser, and each Initial Purchaser agrees, severally and not jointly, to purchase from the Company, at a purchase price of 99.104% of the principal amount of the 2005 Notes and 98.4% of the principal amount of the 2008 Notes, plus accrued interest in each case, if any, from June 22, 1998 to the Closing Date, the principal amount of Securities set forth opposite such Initial Purchaser's name in Schedule I hereto. 3. Delivery and Payment. Delivery of and payment for the Securities shall be made at 9:00 AM, New York City time, on June 22, 1998, or such later date (not later than June 29,1998) as the Initial Purchasers shall designate, which date and time may be postponed by agreement between the Initial Purchasers and the Company or as provided in Section 9 hereof (such date and time of delivery and payment for the Securities being herein called the "Closing Date"). Delivery of the Securities shall be made to the Initial Purchasers for their respective accounts against payment by the Initial Purchasers of the purchase price thereof to or upon the order of the Company by federal or other immediately available funds or such other manner of payment as may be agreed by the Company and the Initial Purchasers. Delivery of the Securities shall be made at such location as the Initial Purchasers shall reasonably designate at least one business day in advance of the Closing Date and payment for the Securities shall be made at the office of Salomon Brothers Inc, Seven World Trade Center, New York, New York. Certificates for the Securities shall be registered in such names and in such denominations as the Initial Purchasers may request not less than three full business days in advance of the Closing Date. The 144A Global Securities will be represented by one or more global securities registered in the name of Cede & Co. as nominee of The Depository Trust Company ("DTC"). The Regulation S Global Securities will be represented by one or more global securities registered in the name of Cede & Co. as nominee of DTC, for the accounts of Euroclear and Cedel Bank. The Company agrees to have the Securities available for inspection, checking and packaging by the Initial Purchasers in New York, New York, not later than 1:00 PM on the business day prior to the Closing Date. 4. Offering of Securities. Each Initial Purchaser, severally and not jointly, represents and warrants to and agrees with the Company that: (a) It has not offered or sold, and will not offer or sell, any Securities except (i) to those it reasonably believes to be qualified institutional buyers (as defined in Rule 144A under the Securities Act) and that, in connection with each such sale, it has taken or will take reasonable steps to ensure that the purchaser of such Securities is aware that such sale is being made in reliance on Rule 144A, or (ii) to other institutional "accredited investors" (as defined in Rule 501(a)(1),(2), (3) or (7) of Regulation D) who provide to it and to the Company a letter in the form of Exhibit A hereto, or (iii) to persons other than U.S. persons in accordance with the 8 restrictions set forth in Exhibit B hereto (such persons specified in clauses (i), (ii) and (iii) being referred to herein as "Eligible Purchasers"). As used herein, the term "U.S. persons" has the meaning given it in Regulation S. (b) Neither it nor any person acting on its behalf has made or will make offers or sales of the Securities in the United States by means of any form of general solicitation or general advertising (within the meaning of Regulation D) in the United States. 5. Agreements. The Company agrees with each Initial Purchaser that: (a) The Company will advise the Initial Purchasers promptly and, if requested by them, will confirm such advice in writing, within the period of time referred to in paragraph (e) below, of any change in the Company's condition (financial or other), business, prospects, properties, net worth or results of operations, or of the happening of any event which makes any statement made in the Preliminary Memorandum or the Final Memorandum (as then amended or supplemented) untrue or which requires the making of any additions to or changes in the Preliminary Memorandum or the Final Memorandum (as then amended or supplemented) in order to make the statements therein not misleading, or of the necessity to amend or supplement the Final Memorandum (as then amended or supplemented) to comply with any law. (b) The Company will furnish to the Initial Purchasers, without charge, as of the date of the Preliminary Memorandum and the Final Memorandum, such number of copies of the Preliminary Memorandum and the Final Memorandum, as it may then be amended or supplemented, as they may reasonably request. (c) The Company will not make any amendment or supplement to the Final Memorandum of which the Initial Purchasers shall not previously have been advised or to which they shall reasonably object after being so advised or file any document which upon filing becomes an Incorporated Document, without delivering a copy of such document to the Initial Purchasers, prior to or concurrently with such filing. (d) The Company consents to the use of the Preliminary Memorandum and the Final Memorandum (and of any amendment or supplement thereto) in accordance with the securities or Blue Sky laws of the jurisdictions in which the Securities are offered by the Initial Purchasers and by all dealers to whom Securities may be sold, in connection with the offering and sale of the Securities. (e) If, at any time prior to completion of the distribution of the Securities by the Initial Purchasers to Eligible Purchasers, any event shall occur that in the judgment of the Company or in the opinion of counsel for the Initial Purchasers should be set forth in the Final Memorandum (as then amended or supplemented) in order to make the statements therein not misleading, or if it is necessary to supplement or amend the Final Memorandum, or to file under the Exchange Act any document which upon filing becomes an Incorporated Document, to comply with any law, the Company will forthwith prepare an appropriate supplement or amendment thereto or such document, and will expeditiously furnish to the Initial Purchasers and dealers a reasonable number of copies thereof. In the event that the Company and the Initial Purchasers agree that the Final Memorandum should be amended or supplemented, or that a document should be filed under the Exchange Act which upon filing becomes an 9 Incorporated Document, the Company, if requested by the Initial Purchasers, will promptly issue a press release announcing or disclosing the matters to be covered by the proposed amendment or supplement or such document. (f) The Company will cooperate with the Initial Purchasers and with their counsel in connection with the qualification of the Securities for offering and sale by the Initial Purchasers and by dealers under the securities or Blue Sky laws of such jurisdictions as the Initial Purchasers may designate and will file such consents to service of process or other documents necessary or appropriate in order to effect such qualification; provided that in no event shall the Company be obligated to qualify to do business in any jurisdiction where it is not now so qualified or to take any action which would subject it to service of process in suits, other than those arising out of the offering or sale of the Securities, in any jurisdiction where it is not now so subject. (g) So long as any of the Securities are outstanding, the Company will furnish to the Initial Purchasers 1) as soon as available, a copy of each report of the Company mailed to stockholders or filed with the Commission, and 2) from time to time such other information concerning the Company as the Initial Purchasers may reasonably request. (h) If this Agreement shall terminate or shall be terminated after execution and delivery pursuant to any provisions hereof (otherwise than by notice given by the Initial Purchasers terminating this Agreement pursuant to Section 10 hereof) or if this Agreement shall be terminated by the Initial Purchasers because of any failure or refusal on the part of the Company to comply with the terms or fulfill any of the conditions of this Agreement, the Company agrees to reimburse the Initial Purchasers for all out-of-pocket expenses (including fees and expenses of its counsel) reasonably incurred by them in connection herewith, but without any further obligation on the part of the Company for loss of profits or otherwise. (i) The Company will apply the net proceeds from the sale of the Securities to be sold by it hereunder substantially in accordance with the description set forth in the Preliminary Memorandum and the Final Memorandum. (j) Except as stated in this Agreement and in the Preliminary Memorandum and the Final Memorandum, the Company has not taken, nor will it take, directly or indirectly, any action designed to or that might reasonably be expected to cause or result in stabilization or manipulation of the price of the Securities to facilitate the sale or resale of the Securities. Except as permitted by the Securities Act, the Company will not distribute any offering material in connection with the Exempt Resales. (k) From and after the Closing Date, so long as any of the Securities are outstanding and are "Restricted Securities" within the meaning of the Rule 144(a)(3) under the Securities Act or, if earlier, until two years after the Closing Date, and during any period in which the Company is not subject to Section 13 or 15(d) of the Exchange Act, the Company will furnish to holders of the Securities and prospective purchasers of the Securities designated by such holders, upon request of such holders or such prospective purchasers, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act to permit compliance with Rule 144A in connection with resale of the Securities. 10 (l) The Company agrees not to sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in the Securities Act) that would be integrated with the sale of the Securities in a manner that would require the registration under the Securities Act of the sale to the Initial Purchasers or the Eligible Purchasers of the Securities. (m) The Company agrees to comply with all of the terms and conditions of the Registration Rights Agreement, and all agreements set forth in the representation letters of the Company to DTC relating to the approval of the Securities by DTC for "book entry" transfer. (n) The Company agrees that prior to any registration of the Securities pursuant to the Registration Rights Agreement, or at such earlier time as may be so required, the Indenture shall be qualified under the 1939 Act and will cause to be entered into any necessary supplemental indentures in connection therewith. (o) Neither the Company, nor any of its Affiliates, nor any person acting on its or their behalf will engage in any directed selling efforts with respect to the Securities, and each of them will comply with the offering restrictions requirement of Regulation S. Terms used in this paragraph have the meanings given to them by Regulation S. (p) The Company will not, until 60 days following the Closing Date, without the prior written consent of the Initial Purchasers, offer, sell or contract to sell, or otherwise dispose of, directly or indirectly, or announce the offering of, any debt securities issued or guaranteed by the Company (other than the Securities). (q) The Company will not, and will not permit any of its Affiliates to, resell any Securities that have been acquired by any of them unless and until a registration statement with respect to such Securities filed pursuant to the Securities Act has been declared effective. 6. Conditions to the Obligations of the Initial Purchasers. The obligations of the Initial Purchasers to purchase the Securities shall be subject to the accuracy of the representations and warranties on the part of the Company contained herein at the date and time that this Agreement is executed and delivered by the parties hereto (the "Execution Time") and the Closing Date, to the accuracy of the statements of the Company made in any certificates pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder and to the following additional conditions: (a) At the time of execution of this Agreement and on the Closing Date, no order or decree preventing the use of the Final Memorandum or any amendment or supplement thereto, or any order asserting that the transactions contemplated by this Agreement are subject to the registration requirements of the Securities Act shall have been issued and no proceedings for that purpose shall have been commenced or shall be pending or, to the knowledge of the Company, be contemplated. No stop order suspending the sale of the Securities in any jurisdiction designated by the Initial Purchasers shall have been issued and no proceedings for that purpose shall have been commenced or shall be pending or, to the knowledge of the Company, shall be contemplated. (b) Subsequent to the effective date of this Agreement, there shall not have 11 occurred 1) any change, or any development involving a prospective change, in or affecting the condition (financial or other), business, properties, net worth, or results of operations of the Company, the Subsidiaries or the Controlled Entities not contemplated by the Preliminary Memorandum and the Final Memorandum, which in the opinion of the Initial Purchasers, would materially adversely affect the market for the Securities, or 2) any event or development relating to or involving the Company or any officer or director of the Company which makes any statement made in the Preliminary Memorandum or the Final Memorandum untrue or which, in the opinion of the Company and its counsel or the Initial Purchasers and their counsel, requires the making of any addition to or change in the Final Memorandum in order to state a material fact required by any law to be stated therein or necessary in order to make the statements therein not misleading, if amending or supplementing the Final Memorandum to reflect such event or development would, in the opinion of the Initial Purchasers, materially adversely affect the market for the Securities. (c) The Company shall have furnished to the Initial Purchasers the opinion of Haskell Slaughter & Young L.L.C., counsel for the Company, dated the Closing Date, to the effect that: (i) Each of the Company and those subsidiaries that constitute "significant subsidiaries" under Rule 1-02(w) of Regulation S-X (the "Significant Subsidiaries") has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation. (ii) Each of the Preliminary Memorandum and the Final Memorandum has been prepared by the Company solely for use by the Initial Purchasers in connection with the Exempt Resales. To the best of such Counsel's knowledge, no order or decree preventing the use of the Preliminary Memorandum or the Final Memorandum or any amendment or supplement thereto, or any order asserting that the transactions contemplated by this Agreement are subject to the registration requirements of the Securities Act has been issued and no proceeding for that purpose has commenced or is pending or, to the knowledge of such Counsel, is contemplated. (iii) The Incorporated Documents heretofore filed were filed in a timely manner and, when they were filed (or, if any amendment with respect to any such document was filed, when such amendment was filed), conformed in all material respects to the requirements of the Exchange Act. (iv) The Indenture has been duly and validly authorized by the Company and, upon its execution and delivery by the Company and assuming due authorization, execution, delivery and performance by the Trustee, will be a valid and binding agreement of the Company, enforceable in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other similar laws affecting creditors' rights generally, and subject to the applicability of general principles of equity, and conforms in all material respects to the description thereof in the Preliminary Memorandum and the Final Memorandum. 12 (v) The Securities have been duly authorized by the Company and, when executed by the Company and authenticated by the Trustee in accordance with the Indenture and delivered to the Initial Purchasers against payment therefor in accordance with the terms hereof, will have been validly issued and delivered, and will constitute valid and binding obligations of the Company entitled to the benefits of the Indenture and enforceable in accordance with their terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally, and subject to the applicability of general principles of equity, and the Securities will conform in all material respects to the description thereof in the Preliminary Memorandum and the Final Memorandum. (vi) All of the issued and outstanding shares of capital stock of each of the Significant Subsidiaries have been duly authorized and validly issued, are fully paid and nonassessable and are owned by the Company, free and clear of any adverse claim; all of the issued and outstanding partnership interests representing ownership in the Controlled Entities have been duly authorized and, to the extent material to the business, operations or financial condition of the Company, the Significant Subsidiaries and the Controlled Entities taken as a whole, validly issued; and all such partnership interests held of record by the Company are owned free and clear of any adverse claim, except such claims that would not have a Material Adverse Effect on the business, operations or financial condition of the Company, the Significant Subsidiaries and Controlled Entities taken as a whole. (vii) Each of the Company and the Significant Subsidiaries has full corporate power and authority to own, lease and operate its properties and conduct its business as described in the Preliminary Memorandum and the Final Memorandum; and each of the Company and the Significant Subsidiaries is duly qualified to do business as a foreign corporation, and is in good standing, in all jurisdictions in the United States, if any, in which it is required to be so qualified and in which the failure so to qualify would have a Materially Adverse Effect on the Company, the Subsidiaries and Controlled Entities, taken as a whole. (viii) To the best of such Counsel's knowledge, there are no legal or governmental proceedings pending or threatened against the Company, any Significant Subsidiary or any Controlled Entity, or to which the Company, any Significant Subsidiary or any Controlled Entity, or any of their property, is subject, which would be required to be disclosed in the Preliminary Memorandum or the Final Memorandum or both (or any amendment or supplement thereto) if the Preliminary Memorandum and the Final Memorandum were prospectuses included in a registration statement on Form S-1 under the Securities Act, other than those disclosed therein; and to the best knowledge of such Counsel after reasonable inquiry, neither the Company, any Significant Subsidiary or any Controlled Entity is in violation of any law, ordinance, administrative or governmental rule or regulation applicable to the Company, any Significant Subsidiary or any Controlled Entity, except for violations, if any, which in the aggregate do not have a Material Adverse Effect. 13 (ix) Neither the Company, any Significant Subsidiary or any Controlled Entity is in violation of its respective certificate or articles of incorporation or bylaws, or other organizational documents, or to the best knowledge of such Counsel after reasonable inquiry, is in default in the performance of any material obligation, agreement or condition contained in any bond, debenture, note or other evidence of indebtedness, which default could have a Material Adverse Effect, except as may be disclosed in the Preliminary Memorandum or Final Memorandum (or any amendment or supplement thereto). (x) This Agreement and the Registration Rights Agreement have been duly authorized, executed and delivered by the Company and, assuming due authorization, execution and delivery by you, are valid, legal and binding agreements of the Company, enforceable against the Company in accordance with their respective terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other similar laws affecting creditors' rights generally and subject to the applicability of general principles of equity, and except as enforcement of rights to indemnity and contribution hereunder or under the Registration Rights Agreement may be limited by applicable law. (xi) Each of the Company, the Significant Subsidiaries and the Controlled Entities holds all material permits, licenses, certificates of need and other approvals or authorizations of and from governmental regulatory officials and bodies necessary to entitle it to own its properties and conduct its business as described in the Preliminary Memorandum and the Final Memorandum, or to receive reimbursement under Medicare (if represented in the Preliminary Memorandum or Final Memorandum as being Medicare-certified, except where the lack of such approval or authorization would not have a Material Adverse Effect). (xii) No holder of any security of the Company (other than holders of the Securities) has any right to request or demand registration of any security of the Company because of the consummation of the transactions contemplated by this Agreement or the Registration Rights Agreement. (xiii) When the Securities are issued and delivered pursuant to this Agreement, such Securities will not be of the same class (within the meaning of Rule 144A(d)(3) under the Securities Act) as any security of the Company that is listed on a national securities exchange registered under Section 6 of the Exchange Act or that is quoted in a United States automated inter-dealer quotation system. (xiv) To the best of such Counsel's knowledge after reasonable inquiry, neither the Company nor any affiliate (as defined in Rule 501(b) of Regulation D ("Regulation D") under the Securities Act) of the Company has directly, or through any agent (provided that no representation is made as to the Initial Purchasers or any person acting on their behalf), a) sold, offered for sale, 14 solicited offers to buy or otherwise negotiated in respect of, any security (as defined in the Securities Act) which is or will be integrated with the offering and sale of the Securities in a manner that would require the registration of the Securities under the Securities Act or b) engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with the offering of the Securities. (xv) Except as otherwise provided in the Indenture, the Company is not required to deliver the information specified in Rule 144A(d)(4) in connection with the offering and resale of the Securities by the Initial Purchasers. (xvi) No registration of the Securities under the Securities Act is required for the sale of the Securities to the Initial Purchasers as contemplated in this Agreement or for the Exempt Resales and no qualification of the Indenture under the 1939 Act is required in connection with the offer and sale of the Securities contemplated by this Agreement or in connection with the Exempt Resales (assuming (A) that any Eligible Purchaser who buys the Securities in the Exempt Resales is a Qualified Institutional Buyer, Accredited Investor or a person other than a U.S. person outside the United States in reliance on Regulation S, (B) the accuracy of the Initial Purchasers' representations and those of the Company in this Agreement regarding the absence of general solicitation in connection with the Exempt Resales and (C) the accuracy of the representations made by each Accredited Investor who purchases Securities pursuant to an Exempt Resale as set forth in the letter of representation executed by such Accredited Investor in the form of Exhibit A hereto and Annex A to the Preliminary Memorandum and the Final Memorandum). (xvii) The descriptions in the Preliminary Memorandum and Final Memorandum of statutes, governmental regulations, agreements, contracts, leases and other documents are accurate and fairly present the information that would be required to be presented therein if the Preliminary Memorandum and the Final Memorandum were prospectuses included in a registration statement on Form S-1 under the Securities Act; and, to the best of such Counsel's knowledge, there are no statutes, governmental regulations, agreements, contracts, leases or documents of a character that would be required to be described or referred to in the Preliminary Memorandum and the Final Memorandum (or any amendment or supplement thereto) or to be filed as an exhibit to the Preliminary Memorandum and the Final Memorandum if the Preliminary Memorandum and the Final Memorandum were prospectuses included in a registration statement on Form S-1 under the Securities Act that are not described or referred to therein and filed as would be required; (xviii) Neither the offer, sale or delivery of the Securities, the execution, delivery or performance of this Agreement and the Indenture, compliance by the Company with the provisions hereof and thereof, nor consummation by the Company of the transactions contemplated hereby and thereby, conflicts or will conflict with or constitutes or will constitute a breach of, or a default under, the certificate or articles of incorporation or bylaws, or other organizational documents, of the Company, any 15 Significant Subsidiary or any Controlled Entity or any agreement, indenture, lease or other instrument to which the Company, any Significant Subsidiary or any Controlled Entity is a party or by which any of them or any of their respective properties is bound, which is known to such Counsel after reasonable inquiry, or will result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company, any Significant Subsidiary or any Controlled Entity. (xix) A New York court would apply the substantive law of the State of New York in construing the Securities and the Indenture and in ascertaining the validity of the payment of interest and the permissible rate of interest on the Securities, and would hold that New York law governs the rights and obligations of the parties to the Securities and the Indenture. (xx) A New York court applying the substantive law of the State of New York would hold that the payment of interest on the Securities and the rate of interest provided pursuant to the Indenture with respect to the Securities are not subject to the usury laws of the State of New York. (xxi) An Alabama court should apply the substantive law of the State of New York in construing the Indenture and the Securities and in ascertaining the validity of the payment of interest and the rate of interest provided pursuant to the Indenture with respect to the Securities, and should hold that New York law governs the rights and obligations of the parties to the Securities and the Indenture. (xxii) No consent, approval, authorization or order of any court or governmental agency or body is required for the consummation of the transactions contemplated herein, except such as may be required under the Blue Sky or securities laws of any jurisdiction in connection with the purchase and sale of the Securities by the Initial Purchasers and such other approvals as have been obtained. Such Counsel may state that they have participated in conferences with officers and representatives of the Company and with its independent public accountants regarding the contents of the Preliminary Memorandum and the Final Memorandum, but have not independently verified the statements made in the Preliminary Memorandum and the Final Memorandum; and such Counsel will state that nothing has come to their attention which has caused them to believe that the Preliminary Memorandum, as of its date, or the Final Memorandum (including the Incorporated Documents) as of its date and as of the Closing Date, including, without limitation, all descriptions of statutes, governmental regulations, agreements, contracts, leases and other documents contained in the Preliminary Memorandum and the Final Memorandum (including the Incorporated Documents but not including the financial statements and supporting schedules, upon which such counsel need express no opinion), contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading or that any amendment or supplement to the Final Memorandum, as 16 of its respective date, and as of the Closing Date, contained any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. In rendering the enforceability opinions in paragraph (iv), the opinion concerning the valid and binding obligations of the Company in paragraph (v) and the opinions set forth in paragraphs (xix) and (xx) above, such Counsel shall rely upon an opinion or opinions, each dated the Closing Date, of Cleary, Gottlieb, Steen & Hamilton as to laws of any jurisdiction other than the United States or the State of Alabama, provided that (1) such reliance is expressly authorized by each opinion so relied upon and a copy of each such opinion is delivered to each of the Initial Purchasers, in form and substance satisfactory to them and their counsel, and (2) Counsel shall state in their opinion that they believe that they and the Initial Purchasers are justified in relying thereon. In addition, with the approval of counsel to the Initial Purchasers, certain of the foregoing matters may be addressed in an opinion of William W. Horton, Senior Vice President of the Company, dated the Closing Date and addressed to the Initial Purchasers. (d) The Initial Purchasers shall have received from Pillsbury Madison & Sutro LLP, counsel for the Initial Purchasers ("Counsel for the Initial Purchasers"), such opinion or opinions, dated the Closing Date, with respect to the issuance and sale of the Securities, the Final Memorandum (as amended or supplemented at the Closing Date) and other related matters as the Initial Purchasers may reasonably require, and the Company shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters. (e) The Company shall have furnished to the Initial Purchasers a certificate of the Company, signed by the Chief Executive Officer of the Company and the principal financial or accounting officer of the Company, dated the Closing Date, to the effect that the signers of such certificate have carefully examined the Final Memorandum, any amendment or supplement to the Final Memorandum and this Agreement and that: (i) There has not been any material change in the capital stock of the Company or material increase in the short-term or long-term debt of the Company, the Subsidiaries or the Controlled Entities, from that set forth or contemplated in the Final Memorandum; (ii) There has not been any material adverse change, financial or otherwise, in the condition, business, prospects, properties, net worth or results of operations of the Company, the Subsidiaries or the Controlled Entities, taken as a whole, from that set forth in the Final Memorandum; (iii) The Company, the Subsidiaries and the Controlled Entities do not have any liabilities or obligations, direct or contingent (whether or not in the ordinary course of business), that are material to the Company, the Subsidiaries and the Controlled Entities, taken as a whole, other than those reflected in the Final Memorandum; 17 (iv) All of the representations and warranties of the Company contained in this Purchase Agreement are true and correct on and as of the date hereof, as if made on and as of the date hereof; and (v) The Company has not failed at or prior to the date hereof to perform or comply with any of the agreements contained in this Purchase Agreement and required to be performed or complied with by the Company at or prior to the date hereof. (f) At the Execution Time and at the Closing Date, Ernst & Young, LLP, independent certified public accountants, shall have furnished to the Initial Purchasers a letter or letters, dated respectively as of the Execution Time and as of the Closing Date, in form and substance satisfactory to the Initial Purchasers. (g) Subsequent to the Execution Time, there shall not have been any decrease in the rating of any of the Company's debt securities by any "nationally recognized statistical rating organization" (as defined for purposes of Rule 436(g) under the Securities Act) or any notice given of any intended or potential decrease in any such rating or of a possible change in any such rating that does not indicate the direction of the possible change. (h) Prior to the Closing Date, the Company shall have furnished to the Initial Purchasers such further information, certificates and documents as the Initial Purchasers may reasonably request. If any of the conditions specified in this Section 6 shall not have been fulfilled in all material respects when and as provided in this Agreement, or if any of the opinions and certificates mentioned above or elsewhere in this Agreement shall not be in all material respects reasonably satisfactory in form and substance to the Initial Purchasers and Counsel for the Initial Purchasers, this Agreement and all obligations of the Initial Purchasers hereunder may be canceled at, or at any time prior to, the Closing Date by the Initial Purchasers. Notice of such cancellation shall be given to the Company in writing or by telephone or telegraph confirmed in writing. The documents required to be delivered by this Section 6 will be delivered at the offices of Salomon Brothers Inc, at 388 Greenwich Street in New York, New York on the Closing Date. 7. Expenses; Reimbursements. (a) The Company agrees to pay the following costs and expenses and all other costs and expenses incident to the performance by it of its obligations hereunder: (i) the preparation, printing or reproduction of the Preliminary Memorandum and the Final Memorandum, this Agreement and the Indenture; (ii) the printing (or reproduction) and delivery (including postage, air freight charges and charges for counting and packaging) of such copies of the Preliminary Memorandum and the Final Memorandum, the Incorporated Documents, and all amendments or supplements to any of them as may be reasonably requested for use in connection with the offering and sale of the Securities; (iii) the preparation, printing, authentication, issuance and delivery of certificates for the Securities, including any stamp taxes in connection with the original issuance and sale of the Securities; 18 (iv) the printing (or reproduction) and delivery of this Agreement, the preliminary and supplemental Blue Sky Memoranda, if any, and all other agreements or documents printed (or reproduced) and delivered in connection with the offering of the Securities; (v) the qualification of the Securities for offer and sale under the securities or Blue Sky laws of the several states of the United States (including the reasonable fees, expenses and disbursements of counsel for the Initial Purchasers relating to the preparation, printing or reproduction, and delivery of the preliminary and supplemental Blue Sky Memoranda, if any, and such qualification); (vi) the performance by the Company of its obligations under the Registration Rights Agreement; and (vii) the fees and expenses of the Company's accountants and the fees and expenses of counsel (including local and special counsel) for the Company. The Company hereby agrees that it will pay in full on the Closing Date the fees and expenses referred to in clause (v) of this Section 7(a) by delivering to counsel for the Initial Purchasers on such date a check payable to such counsel in the requisite amount. (b) If the sale of the Securities provided for herein is not consummated because any condition to the obligations of the Initial Purchasers set forth in Section 6 hereof is not satisfied, because of any termination pursuant to Section 10 hereof or because of any refusal, inability or failure on the part of the Company to perform any agreement herein or comply with any provision hereof other than by reason of a default by any of the Initial Purchasers in payment for the Securities on the Closing Date, the Company will reimburse the Initial Purchasers severally upon demand for all out-of-pocket expenses (including reasonable fees and disbursements of counsel) that shall have been incurred by them in connection with the proposed purchase and sale of the Securities. 8. Indemnification and Contribution. (a) The Company agrees to indemnify and hold harmless each Initial Purchaser, the directors, officers, employees and agents of each Initial Purchaser, any affiliate of each Initial Purchaser and each person who controls any Initial Purchaser within the meaning of either the Securities Act or the Exchange Act against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Securities Act, the Exchange Act or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Preliminary Memorandum, the Final Memorandum or any information provided by the Company to any holder or prospective purchaser of Securities pursuant to Section 5(g), or in any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and agrees to reimburse each such indemnified party, as incurred, for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made in the Preliminary Memorandum or the Final Memorandum, or in any amendment thereof or supplement thereto, in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Initial Purchasers specifically for inclusion therein. This indemnity agreement will be in addition to any liability which the Company may otherwise have. 19 (b) Each Initial Purchaser severally agrees to indemnify and hold harmless the Company, its directors, its officers, and each person who controls the Company within the meaning of either the Securities Act or the Exchange Act, to the same extent as the foregoing indemnity from the Company to each Initial Purchaser, but only with reference to written information relating to such Initial Purchaser furnished to the Company by or on behalf of such Initial Purchaser specifically for inclusion in the Preliminary Memorandum or the Final Memorandum (or in any amendment or supplement thereto). This indemnity agreement will be in addition to any liability which any Initial Purchaser may otherwise have. (c) Promptly after receipt by an indemnified party under this Section 8 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 8, notify the indemnifying party in writing of the commencement thereof; but the failure so to notify the indemnifying party (i) will not relieve it from liability under paragraph (a) or (b) above unless and to the extent it did not otherwise learn of such action and such failure results in the forfeiture by the indemnifying party of substantial rights and defenses and (ii) will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraph (a) or (b) above. The indemnifying party shall be entitled to appoint counsel of the indemnifying party's choice at the indemnifying party's expense to represent the indemnified party in any action for which indemnification is sought (in which case the indemnifying party shall not thereafter be responsible for the fees and expenses of any separate counsel retained by the indemnified party or parties except as set forth below); provided, however, that such counsel shall be satisfactory to the indemnified party. Notwithstanding the indemnifying party's election to appoint counsel to represent the indemnified party in an action, the indemnified party shall have the right to employ separate counsel (including local counsel), and the indemnifying party shall bear the reasonable fees, costs and expenses of such separate counsel if (i) the use of counsel chosen by the indemnifying party to represent the indemnified party would present such counsel with a conflict of interest, (ii) the actual or potential defendants in, or targets of, any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, (iii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of the institution of such action or (iv) the indemnifying party shall authorize the indemnified party to employ separate counsel at the expense of the indemnifying party. An indemnifying party will not, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding. (d) In the event that the indemnity provided in paragraph (a) or (b) of this Section 8 is unavailable to or insufficient to hold harmless an indemnified party for any reason, the Company and the Initial Purchasers agree to contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection 20 with investigating or defending same) (collectively "Losses") to which the Company and one or more of the Initial Purchasers may be subject in such proportion as is appropriate to reflect the relative benefits received by the Company and by the Initial Purchasers from the offering of the Securities; provided, however, that in no case shall any Initial Purchaser (except as may be provided in any agreement among the Initial Purchasers relating to the offering of the Securities) be responsible for any amount in excess of the purchase discount or commission applicable to the Securities purchased by such Initial Purchaser hereunder. If the allocation provided by the immediately preceding sentence is unavailable for any reason, the Company and the Initial Purchasers shall contribute in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company and of the Initial Purchasers in connection with the statements or omissions which resulted in such Losses as well as any other relevant equitable considerations. Benefits received by the Company shall be deemed to be equal to the total net proceeds from the offering (before deducting expenses), and benefits received by the Initial Purchasers shall be deemed to be equal to the total purchase discounts and commissions received by the Initial Purchasers from the Company in connection with the purchase of the Securities hereunder. Relative fault shall be determined by reference to whether any alleged untrue statement or omission relates to information provided by the Company or the Initial Purchasers. The Company and the Initial Purchasers agree that it would not be just and equitable if contribution were determined by pro rata allocation or any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this paragraph (d), no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 8, each person who controls an Initial Purchaser within the meaning of either the Securities Act or the Exchange Act and each director, officer, employee and agent of an Initial Purchaser shall have the same rights to contribution as such Initial Purchaser, and each person who controls the Company within the meaning of either the Securities Act or the Exchange Act and each officer and director of the Company shall have the same rights to contribution as the Company, subject in each case to the applicable terms and conditions of this paragraph (d). 9. Default by an Initial Purchaser. If any one or more Initial Purchasers shall fail to purchase and pay for any of the Securities agreed to be purchased by such Initial Purchaser hereunder and such failure to purchase shall constitute a default in the performance of its or their obligations under this Agreement, the remaining Initial Purchasers shall be obligated severally to take up and pay for (in the respective proportions, for each maturity of the Securities, which the principal amount of Securities of such maturity set forth opposite their names in Schedule I hereto bears to the aggregate principal amount of Securities of such maturity set forth opposite the names of all the remaining Initial Purchasers) the Securities which the defaulting Initial Purchaser or Initial Purchasers agreed but failed to purchase; provided, however, that in the event that the aggregate principal amount of Securities which the defaulting Initial Purchaser or Initial Purchasers agreed but failed to purchase shall exceed 10% of the aggregate principal amount of Securities set forth in Schedule I hereto, the remaining Initial Purchasers shall have the right to purchase all, but shall not be under any obligation to purchase any, of the Securities, and if such non-defaulting Initial Purchasers do not purchase all the Securities, this Agreement will terminate without liability to any non-defaulting Initial Purchaser or the Company. In the event of a default by any Initial Purchaser as set forth in this Section 9, the Closing Date shall be postponed for such period, not exceeding seven days, as 21 the Initial Purchasers shall determine in order that the required changes in the Final Memorandum or in any other documents or arrangements may be effected. Nothing contained in this Agreement shall relieve any defaulting Initial Purchaser of its liability, if any, to the Company or any non-defaulting Initial Purchaser for damages occasioned by its default hereunder. 10. Termination. This Agreement shall be subject to termination in the absolute discretion of the Initial Purchasers, by notice given to the Company prior to delivery of and payment for the Securities, if prior to such time (i) trading in securities generally on the New York Stock Exchange shall have been suspended or limited or minimum prices shall have been established on such Exchange, (ii) trading in securities of the Company listed on the New York Stock Exchange shall have been suspended or limited or minimum prices shall have been established for such securities on such Exchange, (iii) a banking moratorium shall have been declared either by Federal or New York State authorities or (iv) there shall have occurred any outbreak or escalation of hostilities, declaration by the United States of a national emergency or war or other calamity or crisis the effect of which on financial markets is such as to make it, in the judgment of the Initial Purchasers, impracticable or inadvisable to proceed with the offering or delivery of the Securities as contemplated by the Final Memorandum. 11. Representations and Indemnities to Survive. The respective agreements, representations, warranties, indemnities and other statements of the Company or its officers and of the Initial Purchasers set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of the Initial Purchasers or the Company or any of the officers, directors or controlling persons referred to in Section 8 hereof, and will survive delivery of and payment for the Securities. The provisions of Sections 7 and 8 hereof shall survive the termination or cancellation of this Agreement. 12. Notices. All communications hereunder will be in writing and effective only on receipt, and, if sent to the Initial Purchasers, will be mailed, delivered or telegraphed and confirmed to them, care of Salomon Brothers Inc, at Seven World Trade Center, New York, New York, 10048; or, if sent to the Company, will be mailed, delivered or telegraphed and confirmed to it at HEALTHSOUTH Corporation, One HealthSouth Parkway, Birmingham, Alabama 35243, attention: Michael D. Martin. 13. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and the officers and directors and controlling persons referred to in Section 8 hereof, and no other person will have any right or obligation hereunder. 14. Applicable Law. This Agreement will be governed by and construed in accordance with the laws of the State of New York. 15. Business Day. For purposes of this Agreement, "business day" means each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which banking institutions in The City of New York, New York are authorized or obligated by law, executive order or regulation to close. 16. Counterparts. This Agreement may be executed in one or more 22 counterparts, each of which will be deemed to be an original, but all such counterparts will together constitute one and the same instrument. 23 If the foregoing is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicate hereof, whereupon this Agreement and your acceptance shall represent a binding agreement between the Company and the Initial Purchasers. Very truly yours, HEALTHSOUTH CORPORATION By /s/ WILLIAM W. HORTON ------------------------ Name: William W. Horton Title: Senior Vice President The foregoing Agreement is hereby confirmed and accepted as of the date first above written. Salomon Brothers Inc Goldman, Sachs & Co. J.P. Morgan Securities Inc. Merrill Lynch, Pierce, Fenner & Smith Incorporated Morgan Stanley & Co. Incorporated NationsBanc Montgomery Securities LLC Bear, Stearns & Co. Inc. Credit Suisse First Boston Corporation Deutsche Bank Securities Inc. PaineWebber Incorporated Scotia Capital Markets (USA) Inc. By: Salomon Brothers Inc By /s/ WILLIAM C. MCGAHAN ------------------------- Name: Title: For itself and the other Initial Purchasers named in Schedule I to the foregoing Agreement 24 SCHEDULE I HEALTHSOUTH CORPORATION
Principal Principal Amount of Amount of 2005 Notes 2008 Notes to be to be Initial Purchasers Purchased Purchased ------------------ --------- --------- Salomon Brothers Inc $ 75,000,000 $ 75,000,000 Goldman, Sachs & Co. $ 23,750,000 $ 23,750,000 J.P. Morgan Securities Inc. $ 23,750,000 $ 23,750,000 Merrill Lynch, Pierce, Fenner & Smith $ 23,750,000 $ 23,750,000 Incorporated Morgan Stanley & Co. Incorporated $ 23,750,000 $ 23,750,000 NationsBanc Montgomery Securities LLC $ 23,750,000 $ 23,750,000 Bear, Stearns & Co. Inc. $ 11,250,000 $ 11,250,000 Credit Suisse First Boston Corporation $ 11,250,000 $ 11,250,000 Deutsche Bank Securities Inc. $ 11,250,000 $ 11,250,000 PaineWebber Incorporated $ 11,250,000 $ 11,250,000 Scotia Capital Markets (USA ) Inc. $ 11,250,000 $ 11,250,000 ----------------- ----------------- TOTAL $ 250,000,000 $ 250,000,000
25 EXHIBIT A Form of Purchaser Letter for Institutional Accredited Investors __________, 1998 HEALTHSOUTH CORPORATION One HealthSouth Parkway Birmingham, Alabama 35243 Salomon Brothers Inc Goldman, Sachs & Co. J.P. Morgan Securities Inc. Merrill Lynch, Pierce, Fenner & Smith Incorporated Morgan Stanley & Co. Incorporated NationsBanc Montgomery Securities LLC Bear, Stearns & Co. Inc. Credit Suisse First Boston Corporation Deutsche Bank Securities Inc. PaineWebber Incorporated Scotia Capital Markets (USA) Inc. c/o Salomon Brothers Inc Seven World Trade Center New York, New York 10048 Dear Sirs: We are delivering this letter in connection with an offering by HEALTHSOUTH Corporation, a Delaware corporation (the "Company"), of its 6.875% Senior Notes due 2005 and 7.0% Senior Notes due 2008 (collectively, the "Securities"). We understand that the Securities are being offered in a transaction not involving any public offering within the United States within the meaning of the Securities Act of 1933, as amended (the "Securities Act"), and that the Securities have not been registered under the Securities Act, and we agree, on our own behalf and on behalf of each account for which we acquire any Securities, that if in the future we decide to resell or otherwise transfer any Securities, such Securities may be resold or otherwise transferred only (i) to the Company or any subsidiary thereof, (ii) pursuant to an effective registration statement under the Securities Act, (iii) to a person who is a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act) in a transaction meeting the requirements of Rule 144A, (iv) to an Institutional Accredited Investor (as defined below) that, prior to such transfer, furnishes to PNC Bank, National Association, as trustee (the "Trustee"), a signed letter containing certain representations and agreements relating to the restrictions on transfer of such Securities (the 1 form of which letter can be obtained from the Trustee), (v) outside the United States in a transaction meeting the requirements of Rule 904 under the Securities Act, (vi) pursuant to the exemption from registration provided by Rule 144 under the Securities Act (if applicable) and (vii) in each case, in accordance with any applicable securities laws of the United States or any other applicable jurisdiction and in accordance with the legends set forth on the Securities. We further agree to provide any person purchasing any of the Securities from us a notice advising such purchaser that resales of such Securities are restricted as stated herein. We understand that the registrar for the Securities will not be required to accept for registration of transfer any Securities, except upon presentation of evidence satisfactory to the Company that the foregoing restrictions on transfer have been complied with. We further understand that any Securities will be in the form of definitive physical certificates and that such certificates will bear a legend reflecting the substance of this paragraph. We confirm that: (i) we are an "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act (an "Institutional Accredited Investor"); (ii) any purchase of Securities by us will be for our own account or for the account of one or more Institutional Accredited Investors or as fiduciary for the account of one or more trusts, each of which is an "accredited investor" within the meaning of Rule 501(a)(7) under the Securities Act and for each of which we exercise sole investment discretion; (iii) in the event that we purchase any Securities, we will acquire Securities having a minimum purchase price of not less than $250,000 for our own account or for any separate account for which we are acting; (iv) we have such knowledge and experience in financial and business matters that we are capable of evaluating the merits and risks of purchasing Securities; (v) we are not acquiring Securities with a view to distribution thereof or with any present intention of offering or selling Securities, except as permitted above; provided that the disposition of our property and property of any accounts for which we are acting as fiduciary shall remain at all times within our control; and (vi) we have received a copy of the Offering Memorandum relating to the Securities and acknowledge that we have had access to such financial and other information, and have been afforded the opportunity to ask such questions of representatives of the Company and receive answers thereto, as we deem necessary in connection with our decision to purchase Securities. We acknowledge that the Company, others and you will rely upon our confirmations, acknowledgments and agreements set forth herein, and we agree to notify you promptly in writing if any of our representations or warranties herein ceases to be accurate and complete. (Name of Purchaser) 2 By ---------------------------------- Name: Title: 3 EXHIBIT B Selling Restrictions for Offers and Sales outside the United States (1)(a) The Securities have not been registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in accordance with Regulation S under the Securities Act or pursuant to an exemption from the registration requirements of the Securities Act. Each Initial Purchaser represents and agrees that, except as otherwise permitted by Section 4(a)(i) or (ii) of the Agreement to which this is an exhibit, it has offered and sold the Securities, and will offer and sell the Securities, (i) as part of their distribution at any time and (ii) otherwise until forty (40) days after the later of the commencement of the offering and the Closing Date, only in accordance with Rule 903 of Regulation S under the Securities Act. Accordingly, each Initial Purchaser represents and agrees that neither it, nor any of its affiliates nor any person acting on its or their behalf has engaged or will engage in any directed selling efforts with respect to the Securities, and that it and they have complied and will comply with the offering restrictions requirement of Regulation S. Each Initial Purchaser agrees that, at or prior to the confirmation of sale of Securities (other than a sale of Securities pursuant to Section 4(a)(i) or (ii) of the Agreement to which this is an exhibit), it shall have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases Securities from it during the restricted period a confirmation or notice to substantially the following effect: "The Securities covered hereby have not been registered under the U.S. Securities Act of 1933 (the "Securities Act") and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of their distribution at any time or (ii) otherwise until forty (40) days after the later of the commencement of the offering and the Closing Date, except in either case in accordance with Regulation S or Rule 144A under the Securities Act. Terms used above have the meanings given to them by Regulation S." (b) Each Initial Purchaser also represents and agrees that it has not entered and will not enter into any contractual arrangement with any distributor with respect to the distribution of the Securities, except with its affiliates or with the prior written consent of the Company. (c) Terms used in this section have the meanings given to them by Regulation S. (2) Each Initial Purchaser represents and agrees that (i) it has not offered or sold, and will not offer or sell, in the United Kingdom, by means of any document, any Securities other than to persons whose ordinary business it is to buy or sell shares or debentures, whether as principal or as agent (except in circumstances which do not constitute an offer to the public within the meaning of the Companies Act 1985 of Great Britain), (ii) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 of the United Kingdom with respect to anything done by it in relation to the Securities in, from or otherwise involving the United Kingdom, and (iii) it has only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the 1 issue of the Securities to a person who is of a kind described in Article 9(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1988 or is a person to whom the document may otherwise lawfully be issued or passed on. 2 EX-4.4 3 EXHIBIT (4)-4 EXHIBIT (4)-4 THIS NOTE IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDEN TURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY. THIS NOTE IS EXCHANGEABLE FOR NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS NOTE (OTHER THAN A TRANSFER OF THIS NOTE AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED EXCEPT IN SUCH LIMITED CIRCUMSTANCES. UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REP RESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT THEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. HEALTHSOUTH CORPORATION 6.875% SENIOR NOTE DUE 2005 No. ____ CUSIP NO. _____________ $_____________ HEALTHSOUTH CORPORATION, a Delaware corporation (the "Company," which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to Cede & Co., the principal sum of Fifty Million Dollars on June 15, 2005, and to pay interest on said principal sum from June 22, 1998, or from the most recent interest payment date to which interest has been paid or duly provided for, semiannually in arrears on June 15 and December 15 (each such date, an "Interest Payment Date") of each year commencing on December 15, 1998, at the rate of 6.875% per annum until the principal hereof shall have become due and payable. 1 The amount of interest payable on any Interest Payment Date shall be computed on the basis of a 360 day year comprised of twelve 30 day months. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture (as defined below) be paid to the person in whose name this Note (or one or more predecessor Notes) is registered at the close of business on the record date for such interest install ment, which shall be the close of business on the immediately preceding June 1 and December 1 prior to such Interest Payment Date, as applicable. The principal of, premium, if any, and the interest on this Note will be payable at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York in any coin or currency of the United States of America that at the time of payment is legal tender for payment of public and private debts; provided, however, that payment of interest may be made at the option of the Company by check mailed to the person entitled thereto at such address as shall appear in the registry books of the Company; provided, further that for so long as this Note is represented by a Registered Global Security, payment of principal, premium, if any, or interest on this Note may be made by wire transfer to the account of the Depositary or its nominee. In the event that any date on which the principal, premium, if any, or interest on this Note is payable is not a Business Day, then payment of principal, premium, if any, or interest payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of such delay). Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee (as defined below) under the Indenture (as defined below), by the manual signature of one of its authorized officers, this Note shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. Capitalized terms used in this Note which are defined in the Indenture shall have the respective meanings assigned to them in the Indenture. 2 Reference is hereby made to the further provisions of this Note hereinafter set forth, which further provisions shall for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed, manually or in facsimile, and an imprint or facsimile of its corporate seal to be imprinted hereon. HEALTHSOUTH Corporation By ------------------------------------------ Michael D. Martin Executive Vice President, Chief Financial Officer and Treasurer ATTEST: - --------------------------------------------- William W. Horton Senior Vice President, Corporate Counsel and Assistant Secretary CERTIFICATE OF AUTHENTICATION This is one of the Securities referred to in the within-mentioned Indenture. PNC BANK, NATIONAL ASSOCIATION, as Trustee By ------------------------------------------ Authorized Officer Dated: --------------------------------------- 3 REVERSE SIDE OF NOTE This Note is one of a duly authorized series of securities (the "Securities") of the Company designated as its 6.875% Senior Notes due 2005 limited in aggregate principal amount to $250,000,000 (the "Notes"). The Securities are all issued or to be issued under and pursuant to an Indenture, dated as of June 22, 1998, as supplemented by that certain Officers' Certificate dated August ____, 1998 (the Indenture as supplemented by the Officers' Certificate being herein collectively referred to as the "Indenture"), duly executed and delivered between the Company and PNC Bank, National Association (the "Trustee," which term includes any successor Trustee with respect to the Notes under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights thereunder of the Company, the Trustee and the holders of the Securities and the terms upon which the Notes are to be authenticated and delivered. The terms of individual series of Securities may vary with respect to interest rate or interest rate formulas, issue dates, maturity, redemption, repayment, currency of payment and otherwise. Reference is hereby made to the Indenture for a description of the terms of the Notes, to all of the provisions of which Indenture the holder of this Note, by acceptance hereof, assents and agrees. Except as set forth below, this Note is not redeemable and is not entitled to the benefit of a sinking fund or any analogous provision. This Note is redeemable as a whole or in part, at the option of the Company, at any time at a redemption price equal to the greater of (i) 100% of its principal amount and (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon dis counted to the date of redemption on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Yield plus 15 basis points, plus, in each case, accrued interest to the date of redemption. On and after the redemption date, interest will cease to accrue on the Notes or any portion thereof called for redemption. On or before the redemption date, the Company shall deposit with a paying agent (or the Trustee) money sufficient to pay the redemption price of and accrued interest on the Notes to be redeemed on such date. If less than all of the Notes are to be redeemed, the Notes to be redeemed shall be selected by the Trustee by such method as the Trustee shall deem fair and appropriate. The Holder of this Note will receive notice thereof by first-class mail at least 30 and not more than 60 days prior to the date fixed for redemption. "Treasury Yield" means, with respect to any redemption date, the rate per annum equal to the semi-annual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date. "Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the Note that would be utilized, at the time of selection and in 4 accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Note. "Independent Investment Banker" means Salomon Brothers Inc and its successor or, if such firm is unwilling or unable to select the Comparable Treasury Issue, an independent investment banking institution of national standing appointed by the Trustee. "Comparable Treasury Price" means, with respect to any redemption date, (i) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third business day preceding such redemption date, as set forth in the daily statistical release (or any successor release) published by the Federal Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S. Government Securities" or (ii) if such release (or any successor release) is not published or does not contain such prices on such business day, (A) the average of the Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest such Reference Treasury Dealer Quotations, or (B) if the Trustee obtains fewer than four such Reference Treasury Dealer Quotations, the average of all such quotations. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Trustee, of the bid and asked prices of the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the third business day preceding such redemp tion date. "Reference Treasury Dealer" means a primary U.S. Government Securities dealer in New York City selected by the Trustee after consultation with the Company. If an Event of Default with respect to the Notes shall occur and be continuing, the principal of all the Notes may be declared due and payable in the manner and with the effect provided in the Indenture. The Indenture contains provisions permitting the Company and the Trustee, with the con sent of the holders of not less than a majority in aggregate principal amount of the Securities of all series issued under such Indenture then outstanding and affected (voting as one class) to add any provisions to, or change in any manner or eliminate any of the provisions of, such Indenture or modify in any manner the rights of the holders of the Securities of each series or Coupons so affected; provided that the Company and the Trustee may not, without the consent of the holder of each Outstanding Note affected thereby, (i) extend the final maturity of the principal of any Note, or reduce the principal amount thereof, or premium thereon, if any, or reduce the rate or extend the time of payment of interest thereon, or reduce any amount payable on redemption thereof or make the principal thereof (including any amount in respect of original issue discount), or interest thereon payable in any coin or currency other than that provided in the Securities or Coupons or in accordance with the terms thereof, or reduce the amount of principal of an Original Issue Discount Security that would be due and payable upon an acceleration of the maturity thereof or the amount thereof provable in bankruptcy or alter certain provisions of the Indenture relating to Securities not denominated in Dollars or the Judgment Currency of such Securities or impair or affect the right of any Securityholder to institute suit for the enforcement of any payment thereof when due or, if the Securities provide therefor, any right of repayment at the option of the Securityholder or (ii) reduce the aforesaid percentage in principal amount of Securities of any series issued under such Indenture, 5 the consent of the holders of which is required for any such modification. It is also provided in the Indenture that, with respect to certain defaults or Events of Default regarding the Securities of any series, the holders of a majority in aggregate principal amount Outstanding of the Securities of each such series, each such series voting as a separate class (or, of all Securities, as the case may be, voting as a single class) may under certain circum stances waive all defaults with respect to each such series (or with respect to all the Securities, as the case may be) and rescind and annul a declaration of default and its consequences, but no such waiver or rescission and annulment shall extend to or affect any subsequent default or shall impair any right consequent/hereto. The preceding sentence shall not, however, apply to a default in the payment of the principal of or interest on any of the Securities. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Note at the time, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Note may be registered on the registry books of the Company, upon surrender of this Note for registration of transfer at the office or agency of the Company maintained by the Company for such purpose in the Borough of Manhattan, The City of New York, duly endorsed by, or accom panied by a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the holder hereof or by its attorney duly authorized in writing, and thereupon one or more new Notes of authorized denominations and for the same aggregate principal amount will be issued to the designated transferee or transferees. The Notes are issuable only in registered form in minimum denominations of $1,000 and integral multiples of $1,000 in excess thereof. As provided in the Indenture and subject to certain limitations therein set forth, the Notes are exchangeable for a like aggregate principal amount of Notes as requested by the holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Prior to due presentment of this Note for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the person in whose name this Note is registered as the owner hereof for all purposes, whether or not this Note be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. The Indenture contains provisions for defeasance of (i) the entire indebtedness of the Notes or (ii) certain covenants and Events of Default with respect to the Notes, in each case upon compli ance with certain conditions set forth therein. 6 The Indenture contains covenants which impose certain limitations on the Company's and its Subsidiaries' ability to create or incur certain liens on any of their respective properties or assets and to enter into certain sale and lease-back transactions and on the Company's ability to engage in mergers or consolidations or the conveyance, transfer or lease of all or substantially all of its properties and assets. These limitations are subject to a number of important qualifications and exceptions and reference is made to the Indenture for a description thereof. No recourse shall be had for the payment of the principal of or the interest on this Note or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Inden ture or any indenture supplemental thereto against any incorporator, stockholder, officer or direc tor, as such, past or present or future of the Company or of any successor thereof, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the con sideration for the issue hereof, expressly waived and released. THE INDENTURE AND THIS NOTE SHALL BE DEEMED TO BE A CONTRACT UNDER THE LAWS OF THE STATE OF NEW YORK, AND FOR ALL PURPOSES SMALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF SUCH STATE, WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES THEREOF. ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this Note, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - ______ CUSTODIAN ______ TEN ENT - as tenants by the entireties (Cust) (Cust) JT TEN - as joint tenants with right of under Uniform Gifts to Minors Act _______________ survivorship and not as tenants in (State) common
Additional abbreviations may also be used though not in the above list. 7 ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - -------------------------------------------------------------------------------- (Please print or typewrite name and address including postal zip code of assignee) - -------------------------------------------------------------------------------- this Note and all rights thereunder hereby irrevocably constituting and appointing _____________________________________________, Attorney, to transfer this security on the books of the Trustee, with full power of substitution in the premises. 8 SCHEDULE FOR ENDORSEMENTS ON GLOBAL SECURITIES TO REFLECT CHANGES IN PRINCIPAL AMOUNT Schedule A Changes to Principal Amount of Global Securities
Principal Amount of Notes by which this Global Security is to be Remaining Reduced or Increased, Principal and Reason for Amount of this Date Reduction or Increase Global Security Notation Made By ---- --------------------- --------------- ----------------
9 EX-4.5 4 EXHIBIT (4)-5 EXHIBIT (4)-5 THIS NOTE IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY. THIS NOTE IS EXCHANGEABLE FOR NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS NOTE (OTHER THAN A TRANSFER OF THIS NOTE AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED EXCEPT IN SUCH LIMITED CIRCUMSTANCES. UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT THEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. HEALTHSOUTH CORPORATION 7.0% SENIOR NOTE DUE 2008 No. ____ CUSIP NO. ____________ $____________ HEALTHSOUTH CORPORATION, a Delaware corporation (the "Company," which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to Cede & Co., the principal sum of Two Hundred Million Dollars on June 15, 2008, and to pay interest on said principal sum from June 22, 1998, or from the most recent interest payment date to which interest has been paid or duly provided for, semiannually in arrears on June 15 and December 15 (each such date, an "Interest Payment Date") of each year commencing on December 15, 1998,at the rate of 7.0% per annum until the principal hereof shall have become due and payable. 1 The amount of interest payable on any Interest Payment Date shall be computed on the basis of a 360 day year comprised of twelve 30 day months. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture (as defined below) be paid to the person in whose name this Note (or one or more predecessor Notes) is registered at the close of business on the record date for such interest installment, which shall be the close of business on the immediately preceding June 1 and December 1 prior to such Interest Payment Date, as applicable. The principal of, premium, if any, and the interest on this Note will be payable at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York in any coin or currency of the United States of America that at the time of payment is legal tender for payment of public and private debts; provided, however, that payment of interest may be made at the option of the Company by check mailed to the person entitled thereto at such address as shall appear in the registry books of the Company; provided, further that for so long as this Note is represented by a Registered Global Security, payment of principal, premium, if any, or interest on this Note may be made by wire transfer to the account of the Depositary or its nominee. In the event that any date on which the principal, premium, if any, or interest on this Note is payable is not a Business Day, then payment of principal, premium, if any, or interest payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of such delay). Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee (as defined below) under the Indenture (as defined below), by the manual signature of one of its authorized officers, this Note shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. Capitalized terms used in this Note which are defined in the Indenture shall have the respective meanings assigned to them in the Indenture. 2 Reference is hereby made to the further provisions of this Note hereinafter set forth, which further provisions shall for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed, manually or in facsimile, and an imprint or facsimile of its corporate seal to be imprinted hereon. HEALTHSOUTH Corporation By ----------------------------------- Michael D. Martin Executive Vice President, Chief Financial Officer and Treasurer ATTEST: - ---------------------------------------------- William W. Horton Senior Vice President, Corporate Counsel and Assistant Secretary CERTIFICATE OF AUTHENTICATION This is one of the Securities referred to in the within-mentioned Indenture. PNC BANK, NATIONAL ASSOCIATION, as Trustee By ---------------------------------------------- Authorized Officer Dated: ------------------------------------------ REVERSE SIDE OF NOTE This Note is one of a duly authorized series of securities (the "Securities") of the Company designated as its 7.0% Senior Notes due 2008 limited in aggregate principal amount to $250,000,000 (the "Notes"). The Securities are all issued or to be issued under and pursuant to an Indenture, dated as of June 22, 1998, as supplemented by that certain Officers' Certificate dated August ____, 1998 (the Indenture as supplemented by the Officers' Certificate being herein collectively referred to as the "Indenture"), duly executed and delivered between the Company and PNC Bank, National Association (the "Trustee," which term includes any successor Trustee with respect to the Notes under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights thereunder of the Company, the Trustee and the holders of the Securities and the terms upon which the Notes are to be authenticated and delivered. The terms of individual series of Securities may vary with respect to interest rate or interest rate formulas, issue dates, maturity, redemption, repayment, currency of payment and otherwise. Reference is hereby made to the Indenture for a description of the terms of the Notes, to all of the provisions of which Indenture the holder of this Note, by acceptance hereof, assents and agrees. Except as set forth below, this Note is not redeemable and is not entitled to the benefit of a sinking fund or any analogous provision. This Note is redeemable as a whole or in part, at the option of the Company, at any time at a redemption price equal to the greater of (i) 100% of its principal amount and (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the date of redemption on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Yield plus 20 basis points, plus, in each case, accrued interest to the date of redemption. On and after the redemption date, interest will cease to accrue on the Notes or any portion thereof called for redemption. On or before the redemption date, the Company shall deposit with a paying agent (or the Trustee) money sufficient to pay the redemption price of and accrued interest on the Notes to be redeemed on such date. If less than all of the Notes are to be redeemed, the Notes to be redeemed shall be selected by the Trustee by such method as the Trustee shall deem fair and appropriate. The Holder of this Note will receive notice thereof by first-class mail at least 30 and not more than 60 days prior to the date fixed for redemption. "Treasury Yield" means, with respect to any redemption date, the rate per annum equal to the semi-annual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date. "Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the Note that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Note. "Independent Investment Banker" means 4 Salomon Brothers Inc and its successor or, if such firm is unwilling or unable to select the Comparable Treasury Issue, an independent investment banking institution of national standing appointed by the Trustee. "Comparable Treasury Price" means, with respect to any redemption date, (i) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third business day preceding such redemption date, as set forth in the daily statistical release (or any successor release) published by the Federal Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S. Government Securities" or (ii) if such release (or any successor release) is not published or does not contain such prices on such business day, (A) the average of the Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest such Reference Treasury Dealer Quotations, or (B) if the Trustee obtains fewer than four such Reference Treasury Dealer Quotations, the average of all such quotations. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Trustee, of the bid and asked prices of the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the third business day preceding such redemption date. "Reference Treasury Dealer" means a primary U.S. Government Securities dealer in New York City selected by the Trustee after consultation with the Company. If an Event of Default with respect to the Notes shall occur and be continuing, the principal of all the Notes may be declared due and payable in the manner and with the effect provided in the Indenture. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than a majority in aggregate principal amount of the Securities of all series issued under such Indenture then outstanding and affected (voting as one class) to add any provisions to, or change in any manner or eliminate any of the provisions of, such Indenture or modify in any manner the rights of the holders of the Securities of each series or Coupons so affected; provided that the Company and the Trustee may not, without the consent of the holder of each Outstanding Note affected thereby, (i) extend the final maturity of the principal of any Note, or reduce the principal amount thereof, or premium thereon, if any, or reduce the rate or extend the time of payment of interest thereon, or reduce any amount payable on redemption thereof or make the principal thereof (including any amount in respect of original issue discount), or interest thereon payable in any coin or currency other than that provided in the Securities or Coupons or in accordance with the terms thereof, or reduce the amount of principal of an Original Issue Discount Security that would be due and payable upon an acceleration of the maturity thereof or the amount thereof provable in bankruptcy or alter certain provisions of the Indenture relating to Securities not denominated in Dollars or the Judgment Currency of such Securities or impair or affect the right of any Securityholder to institute suit for the enforcement of any payment thereof when due or, if the Securities provide therefor, any right of repayment at the option of the Securityholder or (ii) reduce the aforesaid percentage in principal amount of Securities of any series issued under such Indenture, the consent of the holders of which is required for any such modification. It is also provided in the Indenture that, with respect to certain defaults or Events of Default regarding the Securities of any 5 series, the holders of a majority in aggregate principal amount Outstanding of the Securities of each such series, each such series voting as a separate class (or, of all Securities, as the case may be, voting as a single class) may under certain circumstances waive all defaults with respect to each such series (or with respect to all the Securities, as the case may be) and rescind and annul a declaration of default and its consequences, but no such waiver or rescission and annulment shall extend to or affect any subsequent default or shall impair any right consequent/hereto. The preceding sentence shall not, however, apply to a default in the payment of the principal of or interest on any of the Securities. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Note at the time, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Note may be registered on the registry books of the Company, upon surrender of this Note for registration of transfer at the office or agency of the Company maintained by the Company for such purpose in the Borough of Manhattan, The City of New York, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the holder hereof or by its attorney duly authorized in writing, and thereupon one or more new Notes of authorized denominations and for the same aggregate principal amount will be issued to the designated transferee or transferees. The Notes are issuable only in registered form in minimum denominations of $1,000 and integral multiples of $1,000 in excess thereof. As provided in the Indenture and subject to certain limitations therein set forth, the Notes are exchangeable for a like aggregate principal amount of Notes as requested by the holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Prior to due presentment of this Note for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the person in whose name this Note is registered as the owner hereof for all purposes, whether or not this Note be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. The Indenture contains provisions for defeasance of (i) the entire indebtedness of the Notes or (ii) certain covenants and Events of Default with respect to the Notes, in each case upon compliance with certain conditions set forth therein. The Indenture contains covenants which impose certain limitations on the Company's and its Subsidiaries' ability to create or incur certain liens on any of their respective properties or assets 6 and to enter into certain sale and lease-back transactions and on the Company's ability to engage in mergers or consolidations or the conveyance, transfer or lease of all or substantially all of its properties and assets. These limitations are subject to a number of important qualifications and exceptions and reference is made to the Indenture for a description thereof. No recourse shall be had for the payment of the principal of or the interest on this Note or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture or any indenture supplemental thereto against any incorporator, stockholder, officer or director, as such, past or present or future of the Company or of any successor thereof, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. THE INDENTURE AND THIS NOTE SHALL BE DEEMED TO BE A CONTRACT UNDER THE LAWS OF THE STATE OF NEW YORK, AND FOR ALL PURPOSES SMALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF SUCH STATE, WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES THEREOF. ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this Note, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - ______ CUSTODIAN ______ TEN ENT - as tenants by the entireties (Cust) (Cust) JT TEN - as joint tenants with right of under Uniform Gifts to Minors Act ____________ survivorship and not tenants in (State) common
Additional abbreviations may also be used though not in the above list. 7 ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - -------------------------------------------------------------------------------- (Please print or typewrite name and address including postal zip code of assignee) - -------------------------------------------------------------------------------- this Note and all rights thereunder hereby irrevocably constituting and appointing _____________________________________________, Attorney, to transfer this security on the books of the Trustee, with full power of substitution in the premises. 8 SCHEDULE FOR ENDORSEMENTS ON GLOBAL SECURITIES TO REFLECT CHANGES IN PRINCIPAL AMOUNT
Schedule A Changes to Principal Amount of Global Securities Principal Amount of Notes by which this Global Security is to be Remaining Reduced or Increased, Principal and Reason for Amount of this Date Reduction or Increase Global Security Notation Made By ---- --------------------- --------------- ----------------
9 EX-4.6 5 EXHIBIT (4)-6 EXHIBIT (4)-6 HEALTHSOUTH CORPORATION OFFICERS' CERTIFICATE PURSUANT TO SECTIONS 2.3 AND 11.5 OF THE INDENTURE Michael D. Martin and William W. Horton do hereby certify that they are the Executive Vice President, Chief Financial Officer and Treasurer and Senior Vice President, Corporate Counsel and Assistant Secretary, respectively, of HEALTHSOUTH Corporation, a Delaware corporation (the "Company") and do further certify, pursuant to resolutions of the Board of Directors of the Company adopted on May 21, 1998 and resolutions of the Pricing Committee of said Board of Directors adopted on June 17, 1998 (collectively, the "Resolutions"), and in accordance with Sections 2.3 and 11.5 of the Indenture (the Indenture as amended and supplemented by the Resolutions is herein referred to as the "Indenture") dated as of June 22, 1998 between the Company and PNC Bank, National Association, as trustee (the "Trustee"), as follows: 1. Two series of securities to be issued under the Indenture and designated as the Company's 6.875% Senior Notes due 2005 (the "2005 Notes"), and 7.0% Senior Notes due 2008 (the "2008 Notes") have been authorized. Each of the 2005 Notes and the 2008 Notes are a separate series of securities under the Indenture and are referred to herein collectively as the "Securities." Attached hereto as Annex A is a true and correct copy of a specimen 2005 Note (the "Form of 2005 Note") and attached hereto as Annex B is a true and correct copy of a specimen 2008 Note (the "Form of 2008 Note"). The Form of 2005 Note and the Form of 2008 Note are herein collectively referred to as the "Forms of Securities." 2. The 2005 Notes shall be limited to $250,000,000 in aggregate principal amount and shall mature on June 15, 2005. The 2005 Notes shall bear interest at the rate of 6.875% per annum from June 22, 1998, payable semiannually on each June 15 and December 15 commencing December 15, 1998. The 2005 Notes were issued at the initial offering price of 99.729% of principal amount. The 2005 Notes shall be redeemable as provided in the Form of 2005 Note attached hereto as Annex A. 3. The 2008 Notes shall be limited to $250,000,000 in aggregate principal amount and shall mature on June 15, 2008. The 2008 Notes shall bear interest at the rate of 7.0% per annum from June 22, 1998, payable semiannually on each June 15 and December 15 commencing December 15, 1998. The 2008 Notes were issued at the initial offering price of 99.050% of principal amount. The 2008 Notes shall be redeemable as provided in the Form of 2008 Note attached hereto as Annex B. 4. The following terms shall apply to each of the Securities: -1- (a) The Securities shall be issued initially in minimum denominations of $1,000 and integral multiples of $1,000; (b) The Securities shall be issued initially in part as global securities in registered form in the name of the Depositary (hereinafter defined) or its nominee in such denominations as shall be specified in a Company Order delivered in accordance with the Indenture and otherwise as provided in the Forms of Securities with such changes thereto as may be required in the process of printing or otherwise producing the Securities and which will not affect the substance thereof; (c) The Depositary for the global Securities shall be The Depository Trust Company; (d) The global Securities shall be exchangeable for definitive Securities in registered form substantially the same as the global Securities in denominations of $1,000 or any integral multiple thereof upon the terms and in accordance with the provisions of the Indenture; (e) The Securities shall be payable (as to both principal and interest) when and as the same shall become due at the office of the Trustee, PNC Bank, National Association, provided that, as long as any part of the Securities are in the form of one or more global Securities, payments of interest with respect thereto may be made by wire transfer, and provided further that, with respect to Securities issued in definitive form, the Company may elect to exercise its option to have interest paid by check mailed to the registered owners' address as they appear on the Register, as kept by the Trustee on each Record Date; and (f) The defeasance and covenant defeasance provisions of Article 10 of the Indenture shall be applicable to the Securities. 5. The Forms of Securities set forth certain of the terms required to be set forth in this certificate pursuant to Section 2.3 of the Indenture, and said terms are incorporated herein by reference. 6. In addition to the covenants set forth in Article 3 of the Indenture, the Securities shall include the following additional covenants: -2- "Section 3.10 Limitation on Liens. The Company shall not, nor will it permit any Subsidiary to, create or assume any Indebtedness for money borrowed which is secured by a mortgage, security interest, pledge, charge, lien or other similar encumbrance of any kind (collectively, a "lien") upon any assets, whether now owned or hereafter acquired, of the Company or any such Subsidiary without equally and ratably securing the Securities by a lien ranking ratably with and equally to such secured Indebtedness, except that the foregoing restriction shall not apply to (i) liens on assets of any corporation existing at the time such corporation becomes a Subsidiary; (ii) liens on assets existing at the time of acquisition thereof, or to secure the payment of the purchase price of such assets, or to secure indebtedness incurred or guaranteed by the Company or a Subsidiary for the purpose of financing the purchase price of such assets or improvements or construction thereon, which indebtedness is incurred or guaranteed prior to, at the time of or within 360 days after such acquisition (or in the case of real property, completion of such improvement or construction or commencement of full operation of such property, whichever is later); (iii) liens securing indebtedness owed by any Subsidiary to the Company or another wholly-owned Subsidiary; (iv) liens on any assets of a corporation existing at the time such corporation is merged into or consolidated with the Company or a Subsidiary or at the time of a purchase, lease or other acquisition of the assets of a corporation or firm as an entirety or substantially as an entirety by the Company or a Subsidiary; (v) liens on any assets of the Company or a Subsidiary in favor of the United States of America or any state thereof, or in favor of any other country, or in favor of any political subdivision of any of the foregoing, to secure certain payments pursuant to any contract or statute or to secure any indebtedness incurred or guaranteed for the purpose of financing all or any part of the purchase price (or, in the case of real property, the cost of construction) of the assets subject to such liens (including but not limited to, liens incurred in connection with industrial revenue or similar financing involving a political subdivision, agency or authority thereof); (vi) any extension, renewal or replacement (or successive extensions, renewals or replacements) in whole or in part, of any lien referred to in the foregoing clauses (i) to (v), inclusive; (vii) certain statutory liens or other similar liens arising in the ordinary course of business of the Company or a Subsidiary, or certain liens arising out of government contracts; (viii) certain pledges, deposits or liens made or arising under workers compensation or similar legislation or in certain other circumstances; (ix) certain liens in connection with legal proceedings, including certain liens arising out of judgments or awards; (x) liens for certain taxes or assessments, landlord's liens and liens and charges incidental to the conduct of the business or the ownership of the assets of the Company or of a Subsidiary, which were not incurred in connection with the borrowing of money and which do not, in the opinion of the -3- Company, materially impair the use of such assets in the operation of the business of the Company or such Subsidiary or the value of such assets for the purposes thereof or (xi) liens relating to accounts receivable of the Company or any of its Subsidiaries which have been sold, assigned or otherwise transferred to another Person in a transaction classified as a sale of accounts receivable in accordance with generally accepted accounting principles (to the extent the sale by the Company or the applicable Subsidiary is deemed to give rise to a lien in favor of the purchaser thereof in such accounts receivable or the proceeds thereof). Notwithstanding the above, the Company or any Subsidiary may, without securing the Securities, create or assume any Indebtedness which is secured by a lien which would otherwise be subject to the foregoing restrictions, provided that after giving effect thereto the Exempted Debt then outstanding does not exceed 10% of the total Consolidated Tangible Assets of the Company and its Subsidiaries at such time. Section 3.11 Limitations on Sale and Lease-Back Transactions. The Company shall not, nor shall it permit any of its Subsidiaries to, enter into any sale and lease-back transaction (except such transactions involving leases for less than three years) for the sale and leasing back of any property or asset unless (i) the Company or such Subsidiary would be entitled pursuant to clauses (i) through (xi) of Section 3.10 to create, incur or permit to exist a lien on the assets to be leased in an amount at least equal to the Attributable Debt in respect of such transaction without equally and ratably securing the Securities, or (ii) the proceeds of the sale of the assets to be leased are at least equal to their fair market value and the proceeds are applied to the purchase or acquisition (or, in the case of real property, the construction) of assets or to the retirement of indebtedness." 7. In addition to the definitions set forth in Article 1 of the Indenture, the following additional definitions shall apply with respect to the 2005 Notes and the 2008 Notes and, in the event of a conflict with the definition of terms in the Indenture, such additional definitions shall control: "Attributable Debt" means, in connection with a sale and lease-back transaction, the lesser of (i) the fair value of the assets subject to such transaction or (ii) the present value of the obligations of the lessee for net rental payments during the term of any lease discounted at the rate of interest set forth or implicit in the terms of such lease or, if not practicable to determine such rate, the weighted average interest rate per annum borne by the Securities of each series outstanding pursuant to this Indenture and subject to the limitation on sale and lease-back transactions provisions contained in Section 3.11, compounded semiannually in either case as determined by the principal accounting or financial officer of the Company. -4- "Consolidated Tangible Assets" of any Person as of any date means the total assets of such Person and its Subsidiaries (excluding any assets that would be classified as "intangible assets" under GAAP) on a consolidated basis at such date, as determined in accordance with GAAP, less all write-ups subsequent to the date of initial issuance of the Securities in the book value of any asset owned by such Person or any of its Subsidiaries. "Exempted Debt" means the sum of the following as of the date of determination: (i) Indebtedness of the Company and its Subsidiaries incurred after the date of issuance of the Securities and secured by liens not otherwise permitted by the limitation on liens provisions of the Indenture, and (ii) Attributable Debt of the Company and its Subsidiaries in respect of every sale and lease-back transaction entered into after the date of the issuance of the Securities, other than leases permitted by Section 3.11. "GAAP" shall mean generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, as from time to time in effect. "Indebtedness" shall mean all items classified as indebtedness on the most recently available consolidated balance sheet of the Company and its Subsidiaries, in accordance with GAAP. 8. Each of the undersigned is authorized to approve the form, terms and conditions of the Securities pursuant to the Resolutions. 9. Attached hereto as Annex D is a true and correct copy of the Resolutions. 10. Attached hereto as Annex E are true and correct copies of the letter addressed to the Trustee entitling the Trustee to rely on the Opinion of Counsel attached thereto, which Opinion relates to the Securities and complies with Section 11.5 of the Indenture. 11. Each of the undersigned has reviewed the provisions of the Indenture, including the covenants and conditions precedent pertaining to the issuance of the Securities. 12. In connection with this certificate each of the undersigned has examined documents, corporate records and certificates and has spoken with other officers of the Company. -5- 13. Each of the undersigned has made such examination and investigation as is necessary to enable him to express an informed opinion as to whether or not the covenants and conditions precedent of the Indenture pertaining to the issuance of the Securities have been satisfied. 14. In our opinion all of the covenants and conditions precedent provided for in the Indenture for the issuance of the Securities have been satisfied. 15. If and to the extent that any provision of this certificate qualifies or conflicts with any provision of the Indenture, the provisions of this certificate shall control. Capitalized terms used herein that are not otherwise defined shall have the meanings ascribed thereto in the Indenture or the Securities, as the case may be. IN WITNESS WHEREOF, each of the undersigned officers has executed this certificate this ____ day of August, 1998. ---------------------------------------- Michael D. Martin Executive Vice President, Chief Financial Officer and Treasurer ---------------------------------------- William W. Horton Senior Vice President, Corporate Counsel and Assistant Secretary -6- EX-5 6 EXHIBIT 5 EXHIBIT 5 [HASKELL SLAUGHTER & YOUNG, L.L.C. LETTERHEAD] August 14, 1998 HEALTHSOUTH Corporation One HealthSouth Parkway Birmingham, Alabama 35243 Attention: Legal Department RE: REGISTRATION STATEMENT ON FORM S-4 Gentlemen: We have served as counsel to HEALTHSOUTH Corporation, a Delaware corporation (the "Company"), in connection with the proposed exchange offer (the "Exchange Offer") which is more fully described in the Registration Statement on Form S-4 (Commission File No. 333- ) filed under the Securities Act of 1933, as amended with the Securities and Exchange Commission on August 14, 1998 (the "Registration Statement"), to exchange its 6.875% Senior Notes due 2005 (the "New Notes due 2005") and its 7.0% Senior Notes due 2008 (the "New Notes due 2008", and together with the New Notes due 2005, the "New Notes"), for an equal principal amount of the Company's outstanding 6.875% Senior Notes due 2005 (the "Old Notes due 2005") and 7.0% Senior Notes due 2008 (the "Old Notes due 2008", and together with the Old Notes due 2005, the "Old Notes"). This opinion is furnished to you pursuant to the requirements of Form S-4. In connection with this opinion, we have examined and are familiar with originals or copies (certified or otherwise identified to our satisfaction) of such documents, corporate records and other instruments relating to the formation of the Company and the authorization and issuance of the New Notes as we have deemed necessary and appropriate. HEALTHSOUTH Corporation August 14, 1998 Page 2 Based upon the foregoing, and having regard for such legal considerations as we have deemed relevant, it is our opinion that: 1. The New Notes have been duly authorized; and 2. Upon issuance, exchange and delivery of the New Notes as contemplated in the Registration Statement, the New Notes will be legally issued, fully paid and nonassessable and will constitute the valid and binding obligations of the Issuer. We do hereby consent to the reference to our Firm in the Prospectus which forms a part of the Registration Statement, and to the filing of this opinion as an Exhibit thereto. Very truly yours, Haskell Slaughter & Young, L.L.C. By /s/ F. Hampton McFadden, Jr. ----------------------------- F. Hampton McFadden, Jr. EX-12 7 EXHIBIT 12 EXHIBIT 12 Computation of Ratio of Earnings to Fixed Charges
Six Months Ended Year Ended December 31, June 30, --------------------------------------------------- ----------------- 1993 1994 1995 1996 1997 1998 ---- ---- ---- ---- ---- ---- (In thousands, except ratio data) EARNINGS: Income from continuing operations before income taxes, Minority interest and extraordinary items $ 130,246 $ 193,701 $ 238,382 $ 384,162 $ 601,634 $ 407,504 Less: Minority interest 29,549 31,655 43,753 50,369 64,873 35,424 ------------------------------------------------------- -------------- Income from continuing operations before income taxes and extraordinary items 100,697 162,036 194,629 333,793 536,761 372,080 Adjustments: Non-recurring charges 50,075 34,717 73,102 78,905 15,875 - Fixed charges 31,413 83,942 116,647 113,254 126,827 66,466 Capitalized interest expense (2,664) (2,869) (2,865) (3,943) (2,491) (523) ------------------------------------------------------- -------------- Numerator - earnings available for fixed charges $ 179,521 $ 277,826 $ 381,513 $ 522,009 $ 676,972 $ 438,023 ======================================================= ============== FIXED CHARGES: Interest expense $ 25,884 $ 74,895 $ 105,517 $ 98,751 $ 111,504 $ 56,918 Capitalized interest expense 2,664 2,869 2,865 3,943 2,491 523 Interest component of rental expense 2,865 6,178 8,265 10,560 12,832 9,025 ------------------------------------------------------- -------------- Denominator - fixed charges $ 31,413 $ 83,942 $ 116,647 $ 113,254 $ 126,827 $ 66,466 ======================================================= ============== Ratio of earnings to fixed charges 5.71x 3.31x 3.27x 4.61x 5.34x 6.59x ======================================================= ==============
EX-23.1 8 EXHIBIT 23.1 EXHIBIT (23)-1 Consent of Ernst & Young LLP Independent Auditors We consent to the reference to our firm under the caption "Experts" in the Registration Statement (Form S-4, No. 333- ) and to the incorporation by reference therein of our report dated February 25, 1998, except Note 14, as to which the date is March 20, 1998, with respect to the consolidated financial statements and schedule of HEALTHSOUTH Corporation included in its Annual Report (Form 10-K) for the year ended December 31, 1997, filed with the Securities and Exchange Commission. ERNST & YOUNG LLP Birmingham, Alabama August 14, 1998 EX-25.1 9 EXHIBIT 25.1 SECURITIES ACT OF 1933 FILE NO. 333-___ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM T-1 --------------- STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE --------------- CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2) [ ] --------------- PNC BANK, NATIONAL ASSOCIATION --------------------------------------------------- (Exact name of trustee as specified in its charter) NATIONAL BANKING ASSOCIATION 22-1146430 -------------------------------- ------------------- (State of Incorporation If Not a (I.R.S. Employer National Bank) Identification No.) 500 W. Jefferson Street Louisville, Kentucky 40202 - ---------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) --------------- Martha A. Ziskind Vice President PNC Bank, N.A. 500 W. Jefferson Street Louisville, Kentucky 40202 (502) 581-3231 (Name, address, and telephone number of agent for service) --------------- HEALTHSOUTH CORPORATION --------------------------------------------------- (Exact Name of Obligor as Specified in its Charter) DELAWARE 63-08604407 - ------------------------ ------------------------------------ (State of Incorporation) (I.R.S. Employer Identification No.) ONE HEALTHSOUTH PARKWAY, BIRMINGHAM, AL 35243 - ---------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) 6.875% SENIOR NOTES DUE 2005 AND 7.00% SENIOR NOTES DUE 2008 ------------------------------------------------------------ (Title of the Indenture Securities) 1. General information. Furnish the following information as Trustee: (a) Name and address of each examining or supervising authority to which it is subject. Comptroller of the Currency Washington, D.C. Federal Deposit Insurance Corp. Washington, D.C. Federal Reserve Bank of Cleveland Cleveland, OH (b) Whether it is authorized to exercise corporate trust powers. Yes, the Trustee is authorized to exercise corporate trust powers. 2. Affiliations with obligor and underwriters. If the obligor or any underwriters for the obligor is an affiliate of the Trustee, describe each such affiliation. Neither the obligor nor any underwriter for the obligor is an affiliate of the trustee. 3. Voting Securities of the trustee. Furnish the following information as to each class of voting securities of the trustee. Col. A Col. B ------ ------ (Title of Class) Amount Outstanding ---------------- ------------------ PNC Bank Corp. Common Stock, par value $5 per share 300,807,500 shares 4. Trusteeships under other indentures. If the trustee is a trustee under another indenture under which any other securities, or certificates of interest or participation in any other securities, of the obligor are outstanding, furnish the following information: (a) Title of the securities outstanding under each such other indenture. Not applicable. (b) A brief statement of the facts relied upon as a basis for the claim that no conflict of interest within the meaning of Section 310(b)(1) of the Act arises as a result of the trusteeship under any such other indenture, including a statement as to how the indenture securities will rank as compared with the securities issued under other such other indenture. Not applicable. 5. Interlocking directorates and similar relationships with the obligor or underwriters. If the trustee or any of the directors or executive officers of the trustee is a director, officer, partner, employee, appointee, or representative of the obligor or of any underwriter for the obligor, identify each such person having any such connection and state the nature of each such connection. Not applicable. 6. Voting securities of the trustee owned by the obligor or its officials. Furnish the following information as to the voting securities of the trustee owned beneficially by the obligor and each director, partner and executive officer of the obligor:
COLUMN A COLUMN B COLUMN C COLUMN D PERCENTAGE OF VOTING SECURITIES REPRESENTED BY AMOUNT OWNED AMOUNT GIVEN NAME OF OWNER TITLE OF CLASS BENEFICIALLY IN COLUMN C - --------------- ---------------- -------------- ------------------
Not applicable. 7. Voting securities of the trustee owned by underwriter or their officials. Furnish the following information as to the voting securities of the trustee owned beneficially by each underwriter for the obligor and each director, partner, executive officer of each such underwriter:
COLUMN A COLUMN B COLUMN C COLUMN D PERCENTAGE OF VOTING SECURITIES REPRESENTED BY AMOUNT OWNED AMOUNT GIVEN NAME OF OWNER TITLE OF CLASS BENEFICIALLY IN COLUMN C - --------------- ---------------- -------------- ------------------
Not applicable. 8. Securities of the obligor owned or held by the trustee. Furnish the following information as to securities of the obligor owned beneficially or held as collateral security for obligations in default by the trustee. COLUMN A COLUMN B COLUMN C COLUMN D AMOUNT OWNED BENEFICIALLY WHETHER THE OR HELD AS SECURITIES ARE COLLATERAL PERCENT OF VOTING OR SECURITY FOR CLASS REPRESENTED NONVOTING OBLIGATIONS IN BY AMOUNT GIVEN TITLE OF CLASS SECURITIES DEFAULT IN COLUMN C - ---------------- ---------------- ---------------- ------------------ Not applicable. 9. Securities of the underwriters owned or held by the trustee. If the trustee owns beneficially of holds as collateral security for obligations in default any securities of an underwriter for the obligor, furnish the following information as to each class of securities of such underwriter any of which are so owned or held by the trustee:
COLUMN A COLUMN B COLUMN C COLUMN D AMOUNT OWNED BENEFICIALLY OR HELD AS COLLATERAL PERCENT OF SECURITY FOR CLASS REPRESENTED TITLE OF ISSUER AMOUNT OBLIGATIONS BY AMOUNT GIVEN TITLE OF CLASS OUTSTANDING IN DEFAULT IN COLUMN C - ----------------- ------------- -------------- ------------------
Not applicable. 10. Ownership or holdings by the trustee of voting securities of certain affiliates or security holders of the obligor. If the trustee owns beneficially or holds collateral security for obligations in default voting securities of a person who, to the knowledge of the trustee (1) owns 10% or more of the voting securities of the obligor or (2) is an affiliate, other than a subsidiary, of the obligor, furnish the following information as to the voting securities of such person:
COLUMN A COLUMN B COLUMN C COLUMN D AMOUNT OWNED BENEFICIALLY OR HELD AS COLLATERAL PERCENT OF SECURITY FOR CLASS REPRESENTED TITLE OF ISSUER AMOUNT OBLIGATIONS BY AMOUNT GIVEN TITLE OF CLASS OUTSTANDING IN DEFAULT IN COLUMN C - ----------------- ------------- -------------- ------------------
Not applicable. 11. Ownership or holdings by the trustee of any securities of a person owning 50 percent or more of the voting securities of the obligor. If the trustee owns beneficially or holds as collateral security for obligations in default any securities of a person who, to the knowledge of the trustee, owns 50 percent or more of the voting securities of the obligor, furnish the following information as to each class of securities of such person any of which are so owned or held by the trustee:
COLUMN A COLUMN B COLUMN C COLUMN D AMOUNT OWNED BENEFICIALLY OR HELD AS COLLATERAL PERCENT OF SECURITY FOR CLASS REPRESENTED TITLE OF ISSUER AMOUNT OBLIGATIONS BY AMOUNT GIVEN TITLE OF CLASS OUTSTANDING IN DEFAULT IN COLUMN C - ----------------- ------------- -------------- ------------------
Not applicable. 12. Indebtedness of the obligor to the trustee. Except as noted in the instructions, if the obligor is indebted to the trustee, furnish the following information:
COLUMN A COLUMN B COLUMN C -------------- ------------- --------- NATURE OF AMOUNT INDEBTEDNESS OUTSTANDING DUE DATE -------------- ------------- --------- 1) Revolving Credit ......... $77,909,000 6/2003 2) Term Loan ................ $ 8,800,000 10/2000
13. Defaults by the obligor. (a) State whether there is or has been a default with respect to the securities under this indenture. Explain the nature of any such default. None. (b) If the trustee is a trustee under another indenture under which any other securities, or certificates of interest or participation in any other securities, of the obligor are outstanding, or is the trustee for more than one outstanding series of securities under the indenture, state whether there has been a default under any such indenture or series, identify the indenture or series affected, and explain the nature of any such default. Not applicable. 14. Affiliation with the Underwriters. If any underwriter is an affiliate of the trustee, describe each such affiliation. Not applicable. 15. Foreign Trustee. Identify the order or rule pursuant to which the foreign trustee is authorized to act as sole trustee under indentures qualified or to be qualified under the Act. Not applicable. 16. List of Exhibits. List below all exhibits filed as part of this statement of eligibility. 1. Articles of Association of the Trustee, with all amendments thereto, as presently in effect, filed as Exhibit 1 to Trustee's Statement of Eligibility and Qualification, Registration Statement No. 33-58107 and incorporated herein by reference. 2. Copy of Certificate of the Authority of the Trustee to commence business, filed as Exhibit 2 to Trustee's Statement of Eligibility and Qualification, Registration No. 2-58789 and incorporated herein by reference. 3. Copy of Certificate as to Authority of the Trustee to exercise trust powers, filed as Exhibit 3 to Trustee's Statement of Eligibility and Qualification, Registration No. 2-58789 and incorporated herein by reference. The By-Laws of the trustee, filed as Exhibit 4 to Trustee's Statement of Eligibility and Qualification, Registration No. 333-28711 and incorporated herein by reference. 5. Copy of each indenture referred to in Item 4, if the obligor is in default. Not applicable. 6. The consent of United States institutional trustees required by Section 321(b) of the Act. 7. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority is hereby incorporated by reference to its Annual Report on Form 10-K for the fiscal year ended December 31, 1997 and Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 which were previously filed with the Commission. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee, PNC Bank, National Association, a national banking association, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Louisville and Commonwealth of Kentucky on the 14th day of August, 1998. PNC BANK, NATIONAL ASSOCIATION By: /s/ DAVID G. METCALF ---------------------------------------- David G. Metcalf Vice President EXHIBIT 6 THE CONSENT OF THE TRUSTEE REQUIRED BY SECTION 321(B) OF THE ACT PNC Bank, National Association, the Trustee executing the statement of eligibility and qualification to which this Exhibit is attached does hereby consent that reports of examinations of the undersigned by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefore in accordance with the provisions of Section 321(b) of the Trust Indenture Act of 1939. PNC BANK, NATIONAL ASSOCIATION By: /s/ DAVID G. METCALF ---------------------------------------- David G. Metcalf Vice President DATE: August 14, 1998 EX-99.1 10 EXHIBIT 99.1 EXHIBIT (99)-1 LETTER OF TRANSMITTAL HEALTHSOUTH CORPORATION OFFER TO EXCHANGE ALL OUTSTANDING 6.875% SENIOR NOTES DUE 2005 AND 7.0% SENIOR NOTES DUE 2008 FOR 6.875% SENIOR NOTES DUE 2005 AND 7.0% SENIOR NOTES DUE 2008 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 PURSUANT TO THE PROSPECTUS DATED AUGUST , 1998 THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1998 OR SUCH LATER DATE AND TIME TO WHICH THE EXCHANGE OFFER MAY BE EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO THE EXPIRATION DATE. PNC BANK, N.A. By Registered or Certified Mail: Facsimile Transmission Number: By Hand/Overnight Delivery: 500 West Jefferson Street (502) 581-2705 500 West Jefferson Street Louisville, Kentucky 40202 Louisville, Kentucky 40202 Attn: Corporate Trust Department Attn: Corporate Trust Department
For Information Call: David G. Metcalf (502) 581-3029 Delivery of this letter of transmittal to an address other than as set forth above, or transmission of instructions via facsimile other than as set forth above, does not constitute a valid delivery. The undersigned acknowledges that the undersigned has received the Prospectus dated August , 1998 (as amended or supplemented from time to time, the "Prospectus") of HEALTHSOUTH Corporation, a Delaware corporation (the "Issuer"), and this Letter of Transmittal (as amended or supplemented from time to time, the "Letter of Transmittal"), which together constitute the Issuer's offer (the "Exchange Offer") to exchange up to $250,000,000 aggregate principal amount of 6.875% Senior Notes due 2005 and up to $250,000,000 aggregate principal amount of 7.0% Senior Notes due 2008 (the "New Notes") of the Issuer, for an equal principal amount of the Issuer's issued and outstanding 6.875% Senior Notes due 2005 and 7.0% Senior Notes due 2008, respectively (collectively, the "Old Notes"). The terms of the New Notes are identical in all material respects (including principal amount, interest rate and maturity) to those of the Old Notes, except that the New Notes will be registered under the Securities Act of 1933, as amended (the "Securities Act"). Holders of New Notes will not be entitled to certain rights of Holders of the Old Notes under the Registration Rights Agreement, which rights will be terminated upon consummation of the Exchange Offer. THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. Capitalized terms used but not defined herein have the meanings given to such terms in the Prospectus. This Letter of Transmittal is to be completed by holders of Old Notes (a) if Old Notes are to be forwarded herewith or (b) if tenders of Old Notes are to be made by book-entry transfer to an account maintained by PNC Bank, N.A. (the "Exchange Agent") at The Depository Trust Company ("DTC") pursuant to the procedures set forth in the Prospectus under "The Exchange Offer--Procedures for Tendering". Delivery of this Letter of Transmittal and any other required documents should be made to the Exchange Agent. If a Holder desires to tender Old Notes pursuant to the Exchange Offer but time will not permit this Letter of Transmittal, the certificates representing Old Notes or other required documents to reach the Exchange Agent on or before the Expiration Date, or the procedure for book-entry transfer cannot be completed on a timely basis, such Holder may effect a tender of such Notes in accordance with the guaranteed delivery procedures set forth in the Prospectus under "Exchange Offer--Guaranteed Delivery Procedures". DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY The undersigned has completed the appropriate boxes below and signed this Letter of Transmittal to indicate the action the undersigned desires to take with respect to the Exchange Offer. List below the Old Notes to which the Letter of Transmittal relates. If the space provided below is inadequate, the certificate numbers and principal amount of Old Notes should be listed on a separate schedule affixed hereto.
DESCRIPTION OF OLD NOTES (1) (2) (3) (4) - ------------------------------------------------- ------------- ---------- ----------- --------------------- Name(s) and Address(es) of Registered Holder(s) Principal Amount (Please fill in, if blank) Aggregate of Old Principal Notes Certificate Maturity Amount of Tendered Number(s)* Date Old Notes (if less than all)** ------------- ---------- ----------- --------------------- ------------- ---------- ----------- --------------------- ------------- ---------- ----------- --------------------- ------------- ---------- ----------- ---------------------
- -------------------------------------------------------------------------------- * Need not be completed if Old Notes are being tendered by book-entry holders. ** Old Notes may be tendered in whole or in part in integral multiples of $1,000. Unless this column is completed, a holder will be deemed to have tendered the full aggregate principal amount of the Old Notes represented by the Old Notes indicated in column 3. - -------------------------------------------------------------------------------- (BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTRUCTIONS ONLY) [ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE THE FOLLOWING: Name of Tendering Institution ---------------------------------------------- Account Number ---------------------------------------------- Transaction Code Number ---------------------------------------------- [ ] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING: Name(s) of Registered Holder(s) --------------------------------------------- Window Ticket Number (if any) --------------------------------------------- Name of Eligible Institution that Guaranteed Delivery ---------------------- Date of Execution of Notice of Guaranteed Delivery -------------------------- If Guaranteed Delivery is to be made by Book-Entry Transfer: Name of Tendering Institution ---------------------------------------------- Account Number ---------------------------------------------- Transaction Code Number ---------------------------------------------- [ ] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD NOTES ARE TO BE RETURNED BY CREDITING DTC ACCOUNT NUMBER SET FORTH ABOVE. [ ] CHECK HERE IF YOU ARE A BROKER-DEALER THAT ACQUIRED THE OLD NOTES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: ------------------------------------------------------------------------ Address: ---------------------------------------------------------------------- Ladies and Gentlemen: Upon the terms and subject to the conditions of the Exchange Offer, the undersigned hereby tenders to the Issuer the aggregate principal amount of Old Notes indicated above in exchange for a like aggregate principal amount of New Notes of the same maturity. Subject to, and effective upon, the acceptance for exchange of the Old Notes tendered hereby, the undersigned hereby exchanges, assigns and transfers to, or upon the order of, the Issuer all right, title and interest in and to such Old Notes. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent its agent and attorney-in-fact (with full knowledge that the Exchange Agent also acts as the agent of the Issuer) with respect to the tendered Old Notes with the full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (i) deliver certificates for such Old Notes to the Issuer and deliver all accompanying evidences of transfer and authenticity to, or upon the order of, the Issuer, (ii) present such Old Notes for transfer on the books of the Issuer, and (iii) receive all benefits and otherwise exercise all rights of beneficial ownership of such Old Notes, all in accordance with the terms of the Exchange Offer. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, exchange, assign and transfer the Old Notes tendered hereby and that, when the same are accepted for exchange, the Issuer will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claims or proxies. The undersigned will, upon request, execute and deliver any additional documents deemed by the Exchange Agent or the Issuer to be necessary or desirable to complete the exchange, assignment and transfer of the Old Notes tendered hereby, and the undersigned will comply with its obligations under the Registration Rights Agreement. The undersigned has read and agreed to all of the terms of the Exchange Offer. The undersigned agrees that acceptance of any tendered Old Notes by the Issuer and the issuance of New Notes in exchange therefor will constitute performance in full by the Issuer of its obligations under the Registration Rights Agreement and that the Issuer will have no further obligations or liabilities thereunder. The name(s) and address(es) of the registered holders of the Old Notes tendered hereby should be printed above, if they are not already set forth above, as they appear on the Old Notes. The Certificate number(s) and the principal amount(s) of the Old Notes that the undersigned wishes to tender should be indicated in the appropriate boxes above. The undersigned also acknowledges that this Exchange Offer is being made in reliance on certain interpretive letters by the staff of the Securities and Exchange Commission (the "SEC") to third parties in unrelated transactions. On the basis thereof, the New Notes issued in exchange for the Old Notes pursuant to the Exchange Offer may be offered for resale, resold and otherwise transferred by holders thereof (other than any such holder that is an "affiliate" of the Issuer within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such New Notes are acquired in the ordinary course of such holders' business and such holders are not participating in, and have no arrangement or understanding with any person to participate in, the distribution of such New Notes. THE UNDERSIGNED ACKNOWLEDGES THAT ANY HOLDER OF OLD NOTES USING THE EXCHANGE OFFER TO PARTICIPATE IN A DISTRIBUTION OF THE NEW NOTES (I) CANNOT RELY ON THE POSITION OF THE STAFF OF THE SEC ENUNCIATED IN ITS INTERPRETIVE LETTERS AND (II) MUST COMPLY WITH THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH A SECONDARY RESALE TRANSACTION. If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of New Notes. If the undersigned is a broker-dealer that will receive New Notes for its own account in exchange for Old Notes that were acquired as a result of marketing-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such New Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The undersigned represents that (i) it is not an affiliate (as defined in Rule 405 under the Securities Act) of the Issuer; (ii) it is not a broker-dealer tendering Old Notes acquired for its own account directly from the Issuer; (iii) any New Notes to be received by it will be acquired in the ordinary course of its business; and (iv) it is not engaged in, and does not intend to engage in, a distribution of such new Notes and has no arrangement or understanding to participate in a distribution of New Notes. If a holder of Old Notes is engaged in or intends to engage in a distribution of New Notes or has any arrangement or understanding with respect to the distribution of New Notes to be acquired pursuant to the Exchange Offer, such holder may not rely on the applicable interpretations of the staff of the Commission and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any secondary resale transaction. The Issuer agrees that, subject to the provisions of the Registration Rights Agreement, the Prospectus may be used by a Participating Broker-Dealer (as defined below) in connection with resales of New Notes received in exchange for Old Notes, where such Old Notes were acquired by such Participating Broker-Dealer for its own account as a result of market-making activities or other trading activities, for a period ending one year after the Expiration Date (subject to extension under certain limited circumstances described in the Prospectus) or, if earlier, when all such New Notes have been disposed of by such Participating Broker-Dealer. In that regard, each broker-dealer who acquired Old Notes for its own account as a result of market-making or other trading activities (a "Participating Broker-Dealer"), by tendering such Old Notes and executing this Letter of Transmittal, agrees that, upon receipt of notice from the Issuer of the occurrence of any event or the discovery of any fact which makes any statement contained or incorporated by reference in the Prospectus untrue in any material respect or which causes the Prospectus to omit to state a material fact necessary in order to make the statements contained or incorporated by reference therein, in light of the circumstances under which they were made, not misleading or of the occurrence of certain other events specified in the Registration Rights Agreement, such Participating Broker-Dealer will suspend the sale of New Notes pursuant to the Prospectus until the Issuer has amended or supplemented the Prospectus to correct such misstatement or omission and has furnished copies of the amended or supplemented Prospectus to the Participating Broker-Dealer or the Issuer has given notice that the sale of the New Notes may be resumed, as the case may be. If the Issuer gives such notice to suspend the sale of the New Notes, the one-year period referred to above during which Participating Broker-Dealers are entitled to use the Prospectus in connection with the resale of New Notes shall be extended by the number of days during the period from and including the date of the giving of such notice to and including the date when Participating Broker-Dealers shall have received copies of the supplemented or amended Prospectus necessary to permit resales of the New Notes or to and including the date on which the Issuer has given notice that the sale of New Notes may be resumed, as the case may be. The undersigned understands that tenders of the Old Notes pursuant to any one of the procedures described under "The Exchange Offer--Procedures for Tendering" in the Prospectus and in the instructions hereto will constitute a binding agreement between the undersigned and the Issuer in accordance with the terms and subject to the conditions set forth herein and in the Prospectus. The undersigned recognizes that under certain circumstances set forth in the Prospectus under "The Exchange Offer--Conditions" the Issuer will not be required to accept for exchange any of the Old Notes tendered. Old Notes not accepted for exchange or withdrawn will be returned to the undersigned at the address set forth below unless otherwise indicated under "Special Delivery Instructions" below (or, in the case of Old Notes tendered by book-entry transfer, credited to an account maintained by the tendering holder at DTC). Unless otherwise indicated herein in the box entitled "Special Issuance Instructions" below, the undersigned hereby directs that the New Notes (and, if applicable, any substitute certificates representing Old Notes not exchanged or not accepted for exchange) be issued in the name(s) of the undersigned and be delivered to the undersigned at the address, or, in the case of book-entry transfer of Old Notes, be credited to the account at DTC shown above in the box entitled "Description of Old Notes". Holders of the Old Notes whose Old Notes are accepted for exchange will not receive accrued interest on such Old Notes for any period from and after the last Interest Payment Date to which interest has been paid or duly provided for on such Old Notes prior to the original issue date of the New Notes or, if no such interest has been paid or duly provided for, will not receive any accrued interest on such Old Notes, and the undersigned waives the right to receive any interest on such Old Notes accrued from and after such Interest Payment Date or, if no such interest has been paid or duly provided for, from and after the original issue date of the New Notes. The undersigned will, upon request, execute and deliver any additional documents deemed by the Issuer to be necessary or desirable to complete the sale, assignment and transfer of the Old Notes tendered hereby. All authority herein conferred or agreed to be conferred in this Letter of Transmittal shall survive the death or incapacity of the undersigned and any obligation of the undersigned hereunder shall be binding upon the heirs, executors, administrators, personal representatives, trustees in bankruptcy, legal representatives, successors and assigns of the undersigned. This tender may be withdrawn only in accordance with the procedures set forth in the Prospectus and in the instructions contained in this Letter of Transmittal. THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES" ABOVE AND SIGNING THIS LETTER OF TRANSMITTAL AND DELIVERING SUCH NOTES AND THIS LETTER OF TRANSMITTAL TO THE EXCHANGE AGENT, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS SET FORTH IN SUCH BOX ABOVE. ANY FINANCIAL INSTITUTION THAT IS A PARTICIPANT IN THE BOOK-ENTRY TRANSFER FACILITY'S SYSTEMS MAY MAKE BOOK-ENTRY DELIVERY OF OLD NOTES BY CAUSING THE BOOK-ENTRY TRANSFER FACILITY TO TRANSFER SUCH OLD NOTES INTO THE EXCHANGE AGENT'S ACCOUNT AT THE BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH SUCH BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES. ALTHOUGH DELIVERY OF OLD NOTES MAY BE EFFECTED THROUGH BOOK-ENTRY TRANSFER AT THE BOOK-ENTRY TRANSFER FACILITY, THIS LETTER OF TRANSMITTAL WITH ALL REQUIRED SIGNATURE GUARANTEES AND ALL OTHER REQUIRED DOCUMENTS MUST BE TRANSMITTED TO AND RECEIVED BY THE EXCHANGE AGENT. PLEASE SIGN HERE (TO BE COMPLETED BY ALL TENDERING HOLDERS) (Complete accompanying Substitute Form W-9) X Date: , 1998 ------------------------------------- ---------- X Date: , 1998 ------------------------------------- ---------- Signature(s) of Owner The above lines must be signed by the registered holder(s) exactly as their name(s) appear(s) on the Old Notes, or by person(s) authorized to become registered holder(s) by a properly completed bond power from the registered holder(s), a copy of which must be transmitted with this Letter of Transmittal. If Old Notes to which this Letter of Transmittal relate are held of record by two or more joint holders, then all such holders must sign this. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, then please set forth full title. See Instruction 4. Name(s): ---------------------------------------------------------------------- ------------------------------------------------------------------------------ (Please Type or Print) Capacity: ---------------------------------------------------------------------- Address: ---------------------------------------------------------------------- ------------------------------------------------------------------------------- (Including Zip Code) Area Code and Telephone Number: ------------------------------------------------ Tax Identification or Social Security Number(s): ------------------------------------------------------ SIGNATURE GUARANTEED (If required by Instruction 4) Signatures Guaranteed by an Eligible Institution: ---------------------------------------------------- (Authorized Signature) ------------------------------------------------------------------------------- (Title) ------------------------------------------------------------------------------- (Name of Firm) ------------------------------------------------------------------------------- (Address and Telephone Number) Dated: , 1998 -------------------
- ------------------------------------- ------------------------------------- SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 4 AND 5) (SEE INSTRUCTIONS 4 AND 5) To be completed ONLY if certificates for Old Notes To be completed ONLY if certificates for Old Notes not not exchanged and/or New Notes are to be issued in the exchanged and/or New Notes are to be sent to someone other name of and sent to someone other than the person or per than the person or persons whose signature(s) appear(s) on sons whose signature(s) appear(s) on the Letter of Trans this Letter of Transmittal above or to such person or persons mittal above. at an address other than that shown in the box above entitled "Description of Old Notes". Issue New Notes and/or Old Notes to: Deliver New Notes and/or Old Notes to: Name(s): Name(s): -------------------------------------------- ------------------------------------------------------ (Please Type or Print) (Please Type or Print) - ------------------------------------------------------ -------------------------------------------------------------- (Please Type or Print) (Please Type or Print) Address: ---------------------------------------------- -------------------------------------------------------------- - ------------------------------------------------------ Address: (Zip Code) ------------------------------------------------------ (Zip Code) Telephone Number: ------------------------------------- Telephone Number: --------------------------------------------- Tax Identification or Social Security Number(s): ---------------------------- Tax Identification or Social Security Number(s): (Complete Substitute Form W-9) ------------------------------------- - ------------------------------------------------------ --------------------------------------------------------------
IMPORTANT: UNLESS GUARANTEED DELIVERY PROCEDURES ARE COMPLIED WITH, THIS LETTER OF TRANSMITTAL OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATE(S) FOR OLD NOTES AND ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND OLD NOTES. This Letter of Transmittal must accompany, (i) all certificates representing Old Notes tendered pursuant to the Exchange Offer and (ii) all tenders of Old Notes made pursuant to the procedures for book-entry transfer set forth in the Prospectus under "The Exchange Offer--Procedures for Tendering". Certificates representing the Old Notes in proper form for transfer, or a timely confirmation of a book-entry transfer of such Old Notes into the Exchange Agent's account at DTC, as well as a properly completed and duly executed copy of this Letter of Transmittal (or facsimile thereof), with any required signature guarantees, a Substitute Form W-9 (or facsimile thereof) and any other documents required by this Letter of Transmittal must be received by the Exchange Agent at its address set forth herein on or before the Expiration Date. The method of delivery of this Letter of Transmittal, the Old Notes and all other required documents is at the election and risk of the tendering holders, but delivery will be deemed made only when actually received or confirmed by the Exchange Agent. If such delivery is by mail, it is recommended that registered mail properly insured, with return receipt requested, be used. In all cases, sufficient time should be allowed to permit timely delivery. The Issuer will not accept any alternative, conditional or contingent tenders. Each tendering holder, by execution of a Letter of Transmittal (or facsimile thereof), waives any right to receive any notice of the acceptance of such tender. 2. GUARANTEED DELIVERY PROCEDURES. If a holder desires to tender Old Notes, but time will not permit a Letter of Transmittal, certificates representing the Old Notes to be tendered or other required documents to reach the Exchange Agent on or before the Expiration Date, or it the procedure for book-entry transfer cannot be completed on or prior to the Expiration Date, such holder's tender may be effected if: (a) such tender is made by or through an Eligible Institution (as defined below); (b) on or before the Expiration Date, the Exchange Agent has received a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form made available by the Issuer (or a facsimile thereof with receipt confirmed by telephone and an original delivered by guaranteed overnight courier) from such Eligible Institution setting forth the name and address of the holder of such Old Notes, the name(s) in which the Old Notes are registered and the principal amount of Old Notes tendered and stating that the tender is being made thereby and guaranteeing that, within three New York Stock Exchange trading days after the Expiration Date, certificates representing Old Notes to be tendered, in proper form for transfer, or a Book-Entry confirmation, as the case may be, together with a duly executed Letter of Transmittal and any other documents required by this Letter of Transmittal and the instructions hereto, will be deposited by such Eligible Institution with the Exchange Agent; and (c) a Letter of Transmittal (or a facsimile thereof) and certificates representing the Old Notes to be tendered, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and all other required documents are received by the Exchange Agent within three New York Stock Exchange trading days after the Expiration Date. 3. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tenders of Old Notes will be accepted only in integral multiples of $1,000. If less than all the Old Notes evidenced by any Certificate submitted are to be tendered, fill in the principal amount of Old Notes which are to be tendered in the box entitled "Principal Amount of Old Notes Tendered (if less than all)". In such case, new certificate(s) for the remainder of the Old Notes that were evidenced by your old certificate(s) will only be sent to the holder of the Old Notes (or, in the case of Old Notes tendered pursuant to book-entry transfer, will only be credited to the account at DTC maintained by the holder of the Old Notes) promptly after the Expiration Date. All Old Notes represented by certificates or subject to a Book-Entry Confirmation delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. Any holder who has tendered Old Notes may withdraw the tender by delivering written notice of withdrawal (which may be sent by facsimile) to the Exchange Agent at its address set forth herein prior to the Expiration Date. Any such notice of withdrawal must specify the name of the person having tendered the Old Notes to be withdrawn, identify the Old Notes to be withdrawn (including the principal amount of such Old Notes) and (where certificates for Old Notes have been transmitted) specify the name in which such Old Notes are registered, if different from that of the withdrawing holder. If certificates for Old Notes have been delivered or otherwise identified to the Exchange Agent, then, prior to the withdrawal of such certificates, the withdrawing holder must also submit the serial numbers of the particular certificates to be withdrawn and a signed notice of withdrawal with signatures guaranteed by an Eligible Institution unless such holder is an Eligible Institution. If Old Notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes and otherwise comply with the procedures of such facility. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Issuer, whose determination shall be final and binding on all parties. Any Old Notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer. Any Old Notes which have been tendered for exchange but which are not exchanged for any reason will be returned to the holder thereof without cost to such holder (or, in the case of Old Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures described above, such Old Notes will be credited to an account maintained with such Book-Entry Transfer Facility for the Old Notes) as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Old Notes may be retendered following one of the procedures described in the Prospectus under "The Exchange Offer--Procedures for Tendering". 4. SIGNATURES ON THIS LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed by the registered holder of the Old Notes tendered herewith, the signature must correspond exactly with the name as written on the face of the certificates without any alteration, enlargement or change whatsoever. If any tendered Old Notes are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any tendered Old Notes are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate copies of this Letter of Transmittal as there are names in which tendered Old Notes are registered. If this Letter of Transmittal is signed by the registered holder, and New Notes are to be issued and any untendered or unaccepted principal amount of Old Notes are to be reissued or returned to the registered holder, then the registered holder need not and should not endorse any tendered Old Notes nor provide a separate bond power. In any other case, the registered holder must either properly endorse the Old Notes tendered or transmit a properly completed separate bond power with this Letter of Transmittal (in either case, executed exactly as the name of the registered holder appears on such Old Notes), with the signature on the endorseement or bond power guaranteed by an Eligible Institution, unless such certificates or bond powers are signed by an Eligible Institution. If this Letter of Transmittal or any Old Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, offers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing and submit with this Letter of Transmittal evidence satisfactory to the Issuer of their authority to so act. The signatures on this Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed unless the Old Notes surrendered for exchange pursuant thereto are tendered (i) by a registered holder (which term, for purposes of this document, shall include any participant in DTC whose name appears on the register of holders maintained by the Issuer as owner of the Old Notes) who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" in this Letter of Transmittal or (ii) for the account of an Eligible Institution. In the event that the signatures in this Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantees must be by a commercial bank or trust company located or having an office or correspondent in the United States, or by a member firm of a national securities exchange or the National Association of Securities Dealers, Inc., or by a member of a signature medallion program such as "STAMP" (any of the foregoing being referred to herein as an "Eligible Institution"). If Old Notes are registered in the name of a person other than the signer of this Letter of Transmittal, the Old Notes surrendered for exchange must be endorsed by, or be accompanied by a written instrument or instruments of transfer or exchange, in satisfactory form as determined by the Issuer in its sole discretion, duly executed by the registered holder with the signature thereon guaranteed by an Eligible Institution. 5. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders of Old Notes should indicate in the applicable box the name and address or account at DTC to which New Notes issued pursuant to the Exchange Offer and/or substitute Old Notes for principal amounts not tendered or not accepted for exchange are to be issued, sent or deposited if different from the name and address or account of the person signing this Letter of Transmittal. In the case of issuance in a different name, the employer identification or Social Security number of the person named must also be indicated. If no such instructions are given, any New Notes will be issued in the name of, and delivered to, the name and address (or account at DTC, in the case of any tender by book-entry transfer) of the person signing this Letter of Transmittal, and any Old Notes not accepted for exchange will be returned to the name and address (or account at DTC, in the case of any tender by book-entry transfer) of the person signing this Letter of Transmittal. 6. BACKUP FEDERAL INCOME TAX WITHHOLDING AND SUBSTITUTE FORM W-9. Under the federal income tax laws, payments that may be made by the Issuer on account of New Notes issued pursuant to the Exchange Offer may be subject to backup withholding at the rate of 31%. In order to avoid such backup withholding, each tendering holder should complete and sign the Substitute Form W-9 included in this Letter of Transmittal and either (a) provide the correct taxpayer identification number ("TIN") and certify, under penalties of perjury, that the TIN provided is correct and that (i) the holder has not been notified by the Internal Revenue Service (the "IRS") that the holder is subject to backup withholding as a result of failure to report all interest or dividends or (ii) the IRS has notified the holder that the holder is no longer subject to backup withholding; or (b) provide an adequate basis for exemption. If the tendering holder has not been issued a TIN and has applied for one, or intends to apply for one in the near future, such holder should write "Applied for" in the space provided for the TIN in Part I of the Substitute Form W-9, sign and date the Substitute Form W-9 and sign the Certificate of Payee Awaiting Taxpayer Identification Number. If "Applied For" is written in Part I, the Issuer (or the Paying Agent under the Indenture governing the New Notes) will retain 31% of payments made to the tendering holder during the 60-day period following the date of the Substitute Form W-9. If the holder furnishes the Exchange Agent or the Issuer with its TIN within 60-days after the date of the Substitute Form W-9, the Issuer (or Paying Agent) will remit such amounts retained during the 60-day period to the holder and no further amounts shall be retained or withheld from payments made to the holder thereafter. If, however, the holder has not provided the Exchange Agent or the Issuer with its TIN within such 60-day period, the Issuer (or the Paying Agent) will remit such previously retained amounts to the IRS as backup withholding. In general, if a holder is an individual, the taxpayer identification number is the Social Security Number of such individual. If the Exchange Agent or the Issuer is not provided with the correct taxpayer identification number, the holder may be subject to a U.S. $50 penalty imposed by the IRS. Certain holders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, such holder must submit a statement (generally, IRS Form W-8), signed under penalties of perjury, attesting to that individual's exempt status. Such statements can be obtained from the Exchange Agent. For further information concerning backup withholding and instructions for completing the Substitute Form W-9 (including how to obtain a taxpayer identification number if you do not have one and how to complete the Substitute Form W-9 if Old Notes are registered in more than one name), consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. Failure to complete the Substitute Form W-9 will not, by itself, cause Old Notes to be deemed invalidly tendered, but may require the Issuer (or the Paying Agent) to withhold 31% of the amount of any payments made on account of the New Notes. Backup withholding is not an additional federal income tax. Rather, the federal income tax liability of a person subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained. 7. TRANSFER TAXES. The Issuer will pay all transfer taxes, if any, applicable to the transfer of Old Notes to it or its order pursuant to the Exchange Offer. If, however, New Notes and/or substitute Old Notes not exchanged are to be delivered to, or are to be registered or issued in the name of, any person other than the registered holder of the Old Notes tendered herewith, or if tendered Old Notes are registered in the name of any person other than the person signing this Letter of Transmittal, or if a transfer tax is imposed for any reason other than the transfer of Old Notes to the Issuer or its order pursuant to the Exchange Offer, the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted herewith, the amount of such transfer taxes will be billed directly to such tendering holder. Except as provided in this Instruction 7, it will not be necessary for transfer tax stamps to be affixed to the Old Notes specified in this Letter of Transmittal. 8. WAIVER OF CONDITIONS. The Issuer reserves the absolute right to waive, in whole or in part, any of the conditions to the Exchange Offer set forth in the Prospectus. 9. NO CONDITIONAL TENDERS. No alternative, conditional, irregular or contingent tenders of Old Notes or transmittals of this Letter of Transmittal will be accepted. All tendering holders of Old Notes, by execution of this Letter of Transmittal, shall waive any right to receive notice of the acceptance of their Old Notes for exchange. Neither the Issuer, the Exchange Agent nor any other person is obligated to give notice of defects or irregularities in any tender, nor shall any of them incur any liability for failure to give any such notice. 10. INADEQUATE SPACE. If the space provided herein is inadequate, the aggregate principal amount of Old Notes being tendered and the certificate number or numbers (if applicable) should be listed on a separate schedule attached hereto and separately signed by all parties required to sign this Letter of Transmittal. 11. MUTILATED, LOST, STOKEN OR DESTROYED OLD NOTES. If any certificate has been lost, mutilated, destroyed or stolen, the holder should promptly notify David G. Metcalf at PNC Bank, N.A., telephone (502) 581-3029. The holder will then be instructed as to the steps that must be taken to replace the certificate. This Letter of Transmittal and related documents cannot be processed until the Old Notes have been replaced. 12. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the procedure for tendering, as well as requests for additional copies of the Prospectus and this Letter of Transmittal, may be directed to the Exchange Agent at the address and telephone number indicated above. 13. VALIDITY OF TENDERS. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of tendered Old Notes will be determined by the Issuer, in its sole discretion, which determination will be final and binding. The Issuer reserves the right to reject any and all Old Notes not validly tendered or any Old Notes, the Issuer's acceptance of which may, in the opinion of the Issuer or counsel to the Issuer, be unlawful. The Issuer also reserves the right to waive any conditions of the Exchange Offer or defects or irregularities in tenders of Old Notes as to any ineligibility of any holder who seeks to tender Old Notes in the Exchange Offer, whether or not similar conditions or irregularities are waived in the case of other holders. Any such waiver shall not constitute a general waiver of the conditions of the Exchange Offer by the Issuer. The interpretation of the terms and conditions of the Exchange Offer (including this Letter of Transmittal and the instructions hereto) by the Issuer shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Old Notes must be cured within such time as the Issuer shall determine. The Issuer will use reasonable efforts to give notification of defects or irregularities with respect to tenders of Old Notes, but neither the Issuer nor the Exchange Agent shall incur any liability for failure to give such notification. 14. ACCEPTANCE OF TENDERED OLD NOTES AND ISSUANCE OF NEW NOTES; RETURN OF OLD NOTES. Subject to the terms and conditions of the Exchange Offer, the Issuer will accept for exchange all validly tendered Old Notes as soon as practicable after the Expiration Date and will issue New Notes therefor as soon as practicable thereafter. For purposes of the Exchange Offer, the Issuer shall be deemed to have accepted tendered Old Notes when, as and if the Issuer has given written and oral notice thereof to the Exchange Agent. If any tendered Old Notes are not exchanged pursuant to the Exchange Offer for any reason, such unexchanged Old Notes will be returned, without expense, to the name and address shown above or, if Old Notes have been tendered by book-entry transfer, to the account at DTC shown above, or at a different address or account at DTC as may be indicated under "Special Delivery Instructions". TO BE COMPLETED BY ALL TENDERING HOLDERS (See Instruction 6) PAYOR's NAME: - -------------------------------------------------------------------------------- SUBSTITUTE FORM W-9 PART I--TAXPAYER IDENTIFICATION NUMBER Department of the Treasury ------------------ Internal Revenue Service Enter your taxpayer identification Social Security Number number in the appropriate box. For most individuals, this is your social security number. If you do not have a OR number, see how to obtain a "TIN" in the enclosed Guidelines. ------------------ Employer Identification Number NOTE: If the account is in more than one name, see the chart on page 2 of the enclosed Guidelines to determine what number to give. ---------------------------------------------------------------- PART II--FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING (SEE ENCLOSED GUIDELINES) ---------------------------------------------------------------- Payor's Request for Taxpayer CERTIFICATION--UNDER THE PENALTIES OF PERJURY, Identification Number (TIN) and I CERTIFY THAT: Certification (1) the number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued to me), and (2) I am not subject to backup withholding either because I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends or the IRS has notified me that I am no longer subject to backup withholding. SIGNATURE DATE ----------------------- -----------
- -------------------------------------------------------------------------------- Certificate Guidelines--You must cross out Item (2) of the above certification if you have been notified by the IRS that you are subject to backup withholding because of underreporting of interest on dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding, you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out Item 2. - -------------------------------------------------------------------------------- CERTIFICATION OF PAYEE AWAITING TAXPAYER IDENTIFICATION NUMBER I certify, under penalties of perjury, that a Taxpayer Identification Number has not been issued to me and that I mailed or delivered an application to receive a Taxpayer Identification Number to the appropriate Internal Revenue Service Center or Social Security Administration Office (or I intend to mail or deliver an application in the near future). I understand that if I do not provide a Taxpayer Identification Number to the payor, 31% of all payments made to me on account of the New Notes shall be retained until I provide a Taxpayer Identification Number to the payor and that, if I do not provide my Taxpayer Identification Number within 60 days, such retained amounts shall be remitted to the Internal Revenue Service as a backup withholding and 31% of all reportable payments made to me thereafter will be withheld and remitted to the Internal Revenue Service until I provide a Taxpayer Identification Number. SIGNATURE DATE ------------------------------- ---------------- NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU ON ACCOUNT OF THE NEW NOTES. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. EX-99.2 11 EXHIBIT 99.2 EXHIBIT (99)-2 HEALTHSOUTH CORPORATION NOTICE OF GUARANTEED DELIVERY FOR TENDER OF ANY AND ALL OUTSTANDING 6.875% SENIOR NOTES DUE 2005 AND 7.0% SENIOR NOTES DUE 2008 IN EXCHANGE FOR NEW 6.875% SENIOR NOTES DUE 2005 AND 7.0% SENIOR NOTES DUE 2008, RESPECTIVELY This Notice of Guaranteed Delivery, or one substantially equivalent to this form, must be used by registered holders of outstanding 6.875% Senior Notes due 2005 and/or 7.0% Senior Notes due 2008 (collectively the "Old Notes") of HEALTHSOUTH Corporation, a Delaware corporation (the "Issuer"), who wish to tender their Old Notes for an equal principal amount of new 6.875% Senior Notes due 2005 and 7.0% Senior Notes due 2008 (the "New Notes") of the same maturity that have been registered under the Securities Act of 1933, as amended (the "Securities Act") if (i) the Old Notes, a duly completed and executed Letter of Transmittal (as defined in the Prospectus) and all other required documents cannot be delivered to PNC Bank, N.A. (the "Exchange Agent") prior to 5:00 P.M., New York City time, on the Expiration Date (as defined in the Prospectus referred to below) or (ii) the procedures for delivery of the Old Notes being tendered by book-entry transfer, together with a duly completed and executed Letter of Transmittal, cannot be completed on or prior to 5:00 P.M., New York City time, on the Expiration Date. This Notice of Guaranteed Delivery may be delivered by hand, overnight courier or mail, or transmitted by facsimile transmission (receipt confirmed by telephone and an original delivered by guaranteed overnight delivery), to the Exchange Agent. See "The Exchange Offer - -- Procedures for Tendering" in the Prospectus. The Issuer has the right to reject a tender of Old Notes made pursuant to the guaranteed delivery procedures unless the registered holder using the guaranteed delivery procedure submits either (a) the Old Notes tendered thereby, in proper form for transfer, or (b) confirmation of book-entry transfer in the manner set forth in the Prospectus, in either case together with one or more properly completed and duly executed Letter(s) of Transmittal (or facsimile thereof) and any other required documents by 5:00 P.M., New York City time, on the third New York Stock Exchange trading day following the Expiration Date. Capitalized terms not defined herein have the meanings assigned to them in the Prospectus. The Exchange Agent for The Exchange Offer is: PNC BANK, N.A. By Registered or Certified Mail Facsimile Transmissions: By Hand Or Overnight Delivery: (Eligible Institutions Only) 500 Wet Jefferson Street (502) 581-2705 500 West Jefferson Street Louisville, Kentucky 40202 Louisville, Kentucky 40202 Attn: Corporate Trust Department Attn: Corporate Trust Department Confirm By Telephone: (502) 581-3029 For Information Call: (502) 581-3029
Delivery of this Notice of Guaranteed Delivery to an address other than as set forth above or transmission of this Notice of Guaranteed Delivery via facsimile to a number other than as set forth above will not constitute a valid delivery. THIS NOTICE OF GUARANTEED DELIVERY IS NOT BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX ON THE LETTER OF TRANSMITTAL. Ladies and Gentlemen: The undersigned hereby tenders to the Issuer, upon the terms and subject to the conditions set forth in Prospectus dated August , 1998 (as the same may be amended or supplemented from time to time, the "Prospectus"), and the related Letter of Transmittal (which together constitute the "Exchange Offer"), receipt of which is hereby acknowledged, the aggregate principal amount of the Old Notes set forth below pursuant to the guaranteed delivery procedures set forth in the Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery Procedures" and in instruction 2 to the Letter of Transmittal. DESCRIPTION OF SECURITIES TENDERED
NAME AND ADDRESS OF CERTIFICATE REGISTERED HOLDER AS IT NUMBER(S) MATURITY OF AGGREGATE PRINCIPAL PRINCIPAL AMOUNT OF APPEARS ON THE OLD OF OLD NOTES OLD NOTES AMOUNT REPRESENTED OLD NOTES NOTES (PLEASE PRINT) TENDERED TENDERED BY OLD NOTES* TENDERED - -------------------------- -------------- ------------- --------------------- -------------------- - ------------------------- -------------- ------------- --------------------- -------------------- - ------------------------- -------------- ------------- --------------------- -------------------- - ------------------------- -------------- ------------- --------------------- -------------------- - ------------------------- -------------- ------------- --------------------- -------------------- - ------------------------- -------------- ------------- --------------------- --------------------
* Must be tendered only in integral multiples of $1,000. If the Old Notes will be tendered by book-entry transfer, provide the following information: DTC Account Number: ------------------ All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned and every obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. PLEASE SIGN HERE X Date: , 1998 -------------------------- -------------- X Date: , 1998 -------------------------- -------------- Signature(s) of Owner(s) or Authorized Signatory Area Code and Telephone Number: -------------------- Must be signed by the holder(s) of the Old Notes as their name(s) appear(s) on certificates of the Old Notes or on a security position listing, or by person(s) authorized to become registered holder(s) by endorsement and documents transmitted with this Notice of Guaranteed Delivery. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must be set forth his or her full title below. Please print name(s) and address(es) Name(s): -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- Capacity: ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- Address(es): ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- THE FOLLOWING GUARANTEE MUST BE COMPLETED GUARANTEE OF DELIVERY (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a firm or other entity identified in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, as an "eligible guarantor institution", including (as such terms are defined therein): (i) a bank; (ii) a broker, dealer, municipal securities broker, municipal securities dealer, government securities broker, government securities dealer; (iii) a credit union; (iv) a national securities exchange, registered securities association or clearing agency; or (v) a savings association that is a participant in a Securities Transfer Association recognized program (each of the foregoing being referred to as an "Eligible Institution"), hereby guarantees to deliver to the Exchange Agent, at one of its addresses set forth above, either (a) the Old Notes tendered hereby, in proper form for transfer, or (b) confirmation of the book-entry transfer of such Old Notes to the Exchange Agent's account at the Depository Trust Company ("DTC") maintained for such purpose, pursuant to the procedures for book-entry transfer set forth in the Prospectus, in either case together with one or more properly completed and duly executed Letter(s) of Transmittal (or facsimile thereof) and any other required documents by 5:00 P.M., New York City time, on the third New York Stock Exchange trading day following the Expiration Date. The undersigned acknowledges that it must deliver the Letter(s) of Transmittal and the Old Notes tendered hereby to the Exchange Agent within the time period set forth above and that failure to do so could result in a financial loss to the undersigned. Name of Firm: --------------------- --------------------------------------- (Authorized Signature) Address: Title: ------------------------- ------------------------------- Name: ------------------------- ------------------------------- (zip code) (Please type or print) Area Code and Telephone Number: Date: -------------- ---------------------------------
NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM. CERTIFICATES FOR OLD NOTES SHOULD ONLY BE SENT WITH YOUR LETTER OF TRANSMITTAL. EX-99.3 12 EXHIBIT 99-3 EXHIBIT (99)-3 HEALTHSOUTH CORPORATION OFFER TO EXCHANGE ALL OUTSTANDING 6.875% SENIOR NOTES DUE 2005 AND 7.0% SENIOR NOTES DUE 2008 FOR 6.875% SENIOR NOTES DUE 2005 AND 7.0% SENIOR NOTES DUE 2008 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 PURSUANT TO THE PROSPECTUS DATED AUGUST , 1998 To Our Clients: We are enclosing herewith a Prospectus dated August , 1998 (the "Prospectus") of HEALTHSOUTH Corporation (the "Issuer") and a Letter of Transmittal (which together constitute the "Exchange Offer") relating to the offer by the Issuer to exchange up to $250,000,000 aggregate principal amount of the Issuer's 6.875% Senior Notes due 2005 and up to $250,000,000 aggregate principal amount of the Issuer's 7.0% Senior Notes due 2008 (the "New Notes"), pursuant to an offering registered under the Securities Act of 1933, as amended (the "Securities Act"), for a corresponding principal amount of the Issuer's issued and outstanding 6.875% Senior Notes due 2005 and 7.0% Senior Notes due 2008, respectively (the "Old Notes"), upon the terms and subject to the conditions set forth in the Exchange Offer. Capitalized terms used but not defined herein have the meaning given to such terms in the Prospectus. PLEASE NOTE THAT THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1998, UNLESS EXTENDED. The Exchange Offer is not conditioned upon any minimum number of Old Notes being tendered. We are the participants in the book-entry transfer facility for Old Notes held by us for your account. A tender of such Old Notes can be made only by us as the participant in the book-entry transfer facility and pursuant to your instructions. The Letter of Transmittal is furnished to you for your information only and cannot be used by you to tender Old Notes held by us for your account. We request instructions as to whether you wish to tender any or all of the Old Notes held by us for your account (you may tender less than all of such Old Notes and/or tender less than the full principal amount of any given Old Note, provided that the amount tendered is in integral multiples of $1,000) pursuant to the terms and conditions of the Exchange Offer. We also request that you confirm that we may on your behalf make the representations contained in the Letter of Transmittal that are to be made with respect to you as beneficial owner. Pursuant to the Letter of Transmittal, each holder (a "Holder") of Old Notes will represent to the Issuer that (i) it is not an affiliate (as defined in Rule 405 under the Securities Act) of the Issuer; (ii) it is not a broker-dealer tendering Old Notes acquired for its own account directly from the Issuer; (iii) any New Notes to be received by it will be acquired in the ordinary course of its business; and (iv) it is not engaged in, and does not intend to engage in, a distribution of such New Notes and has no arrangement or understanding to participate in a distribution of New Notes. If a Holder of Old Notes is engaged in or intends to engage in a distribution of New Notes or has any arrangement or understanding with respect to the distribution of New Notes to be acquired pursuant to the Exchange Offer, such Holder may not rely on the applicable interpretations of the staff of the Commission and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any secondary resale transaction. Very truly yours, EX-99.4 13 EXHIBIT 99-4 EXHIBIT (99)-4 HEALTHSOUTH CORPORATION OFFER TO EXCHANGE ALL OUTSTANDING 6.875% SENIOR NOTES DUE 2005 AND 7.0% SENIOR NOTES DUE 2008 FOR 6.875% SENIOR NOTES DUE 2005 AND 7.0% SENIOR NOTES DUE 2008 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 PURSUANT TO THE PROSPECTUS DATED AUGUST , 1998 To Depository Trust Company Participants: We are enclosing herewith the materials listed below relating to the offer by HEALTHSOUTH Corporation (the "Issuer") to exchange up to $250,000,000 aggregate principal amount of the Issuer's 6.875% Senior Notes due 2005 and up to $250,000,000 aggregate principal amount of the Issuer's 7.0% Senior Notes due 2008 (the "New Notes"), pursuant to an offering registered under the Securities Act of 1933, as amended (the "Securities Act"), for a corresponding principal amount of the Issuer's issued and outstanding 6.875% Senior Notes due 2005 and 7.0% Senior Notes due 2008, respectively (the "Old Notes"), upon the terms and subject to the conditions set forth in the Prospectus dated August , 1998 (the "Prospectus") of the Issuer and the related Letter of Transmittal (the "Letter of Transmittal"), in each case as amended or supplemented from time to time (which together constitute the "Exchange Offer"). Capitalized terms used but not defined herein have the meaning given to such terms in the Prospectus. Enclosed herewith are copes of the following documents; 1. Prospectus dated August , 1998; 2. Letter of Transmittal; 3. Notice of Guaranteed Delivery; 4. Instruction to Book-Entry Transfer Participant from Owner; and 5. Letter which may be sent to your clients for whose account you hold Old Notes in your name or in the name of your nominee, to accompany the instruction form referred to above, for obtaining such client's instruction with regard to the Exchange Offer. WE URGE YOU TO CONTACT YOUR CLIENTS PROMPTLY. PLEASE NOTE THAT THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1998, UNLESS EXTENDED. The Exchange Offer is not conditioned upon any minimum number of Old Notes being tendered. To participate in the Exchange Offer, a beneficial holder (a "Holder") of Old Notes must cause a DTC Participant to tender such Holder's Old Notes to the account of PNC Bank, N.A. (the "Exchange Agent") maintained at the Depository Trust Company ("DTC") for the benefit of the Exchange Agent through DTC's Automated Tender Offer Program ("ATOP"), including transmission of a computer-generated message that acknowledges and agrees, on behalf of the DTC Participant and the beneficial owners of tendered Old Notes, to be bound by the terms of the Letter of Transmittal. By complying with DTC's ATOP procedures with respect to the Exchange Offer, the DTC Participant confirms, on behalf of itself and the beneficial owners of tendered Old Notes, all provisions of the Letter of Transmittal applicable to it and such beneficial owners as fully as if it had completed, executed and returned the Letter of Transmittal to the Exchange Agent. Pursuant to the Letter of Transmittal, each Holder of Old Notes will represent to the Issuer that (i) it is not an affiliate (as defined in Rule 405 under the Securities Act) of the Issuer; (ii) it is not a broker-dealer tendering Old Notes acquired for its own account directly from the Issuer; (iii) any New Notes to be received by it will be acquired in the ordinary course of its business; and (iv) it is not engaged in, and does not intend to engage in, a distribution of such New Notes and has no arrangement or understanding to participate in a distribution of New Notes. If a holder of Old Notes is engaged in or intends to engage in a distribution of New Notes or has any arrangement or understanding with respect to the distribution of New Notes to be acquired pursuant to the Exchange Offer, such holder may not rely on the applicable interpretations of the staff of the Commission and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any secondary resale transaction. The enclosed Instruction to the Book-Entry Transfer Participant from Owner contains an authorization by the beneficial owners of the Old Notes for you to make the foregoing representations. The Issuer will not pay any fee or commission to any broker or dealer or to any other persons (other than the Exchange Agent) in connection with the solicitation of tenders of Old Notes pursuant to the Exchange Offer. The Issuer will pay or cause to be paid any transfer taxes payable on the transfer of Old Notes to it, except as otherwise provided in Instruction 7 of the enclosed Letter of Transmittal. Additional copies of the enclosed material may be obtained form PNC Bank, N.A., Attention: David G. Metcalf. HEALTHSOUTH CORPORATION By: ------------------------------------ Michael D. Martin Executive Vice President, Chief Financial Officer and Treasurer NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU THE AGENT OF HEALTHSOUTH CORPORATION OR AUTHORIZE YOU TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON ITS BEHALF IN CONNECTION THE EXCHANGE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN. EX-99.5 14 EXHIBIT 99.5 EXHIBIT (99)-5 INSTRUCTION TO BOOK-ENTRY TRANSFER PARTICIPANT FROM OWNER OF HEALTHSOUTH CORPORATION 6.875% SENIOR NOTES DUE 2005 AND 7.0% SENIOR NOTES DUE 2008 To Participant of the Book-Entry Transfer Facility: The undersigned hereby acknowledges receipt of the Prospectus dated August , 1998 (the "Prospectus") of HEALTHSOUTH Corporation (the "Issuer") and a related Letter of Transmittal (which together constitute the "Exchange Offer"). Capitalized terms used but not defined herein have the meaning given to such terms in the Prospectus. This will instruct you, the book-entry transfer facility participant, as to the action to be taken by you relating to the Exchange Offer with respect to the Old Notes held by you for the account of the undersigned. The aggregate fact amount of the Old Notes held by you for the account of the undersigned is (fill in amount): $ of the 6.875% Senior Notes due 2005 ---------- $ of the 7.0% Senior Notes due 2008 ---------- With respect to the Exchange Offer, the undersigned hereby instructs you (check appropriate statement): A. ___________ To TENDER the following Old Notes held by you for the account of the undersigned (insert principal amount of Old Notes to be tendered); $ ---------- of the 6.875% Senior Notes due 2005, and not to tender other Old Notes of such maturity, if any, held by you for the account of the undersigned; $ ---------- of the 7.0% Senior Notes due 2008, and not to tender other Old Notes of such maturity, if any, held by you for the account of the undersigned; OR B. __________ NOT to tender any Old Notes held by you for the account of the undersigned. - ---------- 1 Must be in integral multiples of $1,000. If the undersigned instructs you to tender the Old Notes held by you for the account of the undersigned, it is understood that you are authorized to make, on behalf of the undersigned (and the undersigned by its signature below, hereby authorizes you to make), the representations and warranties contained in the Letter of Transmittal that are to be made with respect to the undersigned as a beneficial owner, including but not limited to the representations that (i) it is not an affiliate of the Issuer or any of its subsidiaries, or, if the undersigned is an affiliate of the Issuer or any of its subsidiaries, it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable, (ii) the New Notes are being acquired in the ordinary course of business of the person receiving such New Notes, whether or not such person is the holder, (iii) the undersigned has not entered into an arrangement or understanding with any other person to participate in the distribution (within the meaning of the Securities Act) of the New Notes, (iv) the undersigned is not a broker-dealer who purchased the Old Notes for resale pursuant to an exemption under the Securities Act, and (v) the undersigned will be able to trade New Notes acquired in the Exchange Offer without restriction under the Securities Act. If the undersigned is a broker-dealer (whether or not it is also an "affiliate") that will receive New Notes for its own account pursuant to the Exchange Offer, it represents that such Old Notes to be exchanged were acquired by it as a result of market-making activities or other trading activities, and it acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Notes. By acknowledging that it will deliver and by delivering a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Notes, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. SIGN HERE Name of beneficial owner(s): ---------------------------------------------------- Signature(s): ------------------------------------------------------------------- Name(s) (please print): --------------------------------------------------------- Address: ------------------------------------------------------------------------ (zip code) Telephone Number: --------------------------------------------------------------- (area code) Taxpayer Identification or Social Security Number: - ------------------------------------ Date: ------------------------------- EX-99.6 15 EXHIBIT (99)-6 EXHIBIT (99)-6 EXCHANGE AGENT AGREEMENT August ___, 1998 PNC Bank, N.A. Corporate Trust Department 500 West Jefferson Street Louisville, Kentucky 40202 Attention: David Metcalf Ladies and Gentlemen: HEALTHSOUTH Corporation (the "Company"), is offering to exchange (the "Exchange Offer") its 6.875% Senior Notes due 2005 (the "New Notes due 2005") and 7.0% Senior Notes due 2008 (the "New Notes due 2008" and, together with the New Notes due 2005, the "New Notes"), which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement on Form S-4 (File No. 333-____) for an equal principal amount of the Company's outstanding 6.875% Senior Notes due 2005 (the "Old Notes due 2005") and 7.0% Senior Notes due 2008 (the "Old Notes due 2008" and, together with the Old Notes due 2005, the "Old Notes"), which were issued in a transaction exempt from registration under the Securities Act. The New Notes and the Old Notes are collectively referred to herein as the "Notes". The Term "Expiration Date" shall mean 5:00 p.m., New York City time, on __________, 1998, unless the Exchange Offer is extended as provided in the Prospectus included in such Registration Statement (the "Prospectus"), in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended. Upon execution of this Agreement, PNC Bank, N.A. will act as the Exchange Agent for the Exchange Offer (the "Exchange Agent"). A copy of the Prospectus is attached hereto as EXHIBIT A. Capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed thereto in the Prospectus. A copy of each of the form of the letter of transmittal (the "Letter of Transmittal"), the form of the notice of guaranteed delivery (the "Notice of Guaranteed Delivery"), the form of letter to brokers and the form of letter of clients (collectively, the "Tender Documents") to be used by holders of Old Notes ("Holders") in order to receive New Notes pursuant to the Exchange Offer is attached hereto as EXHIBIT B. The Company hereby appoints you to act as Exchange Agent in connection with the Exchange Offer. In carrying out your duties as Exchange Agent, you are to act in accordance with the following provisions of this Agreement: 1. You are to mail the Prospectus and the Tender Documents to all of the Holders and participants on the day that you are notified by the Company that the Registration Statement has become effective under the Securities Act of 1933, as amended, or as soon as practicable thereafter, and to make subsequent mailings thereof to any persons who become Holders prior to the Expiration Date and to any persons as may from time to time be requested by the Company. All mailings pursuant to this Section 1 shall be by first-class mail, postage prepaid, unless otherwise specified by the Company. You shall also accept and comply with telephone requests for information relating to the Exchange Offer, provided that such information shall relate only to the procedures for tendering Old Notes in (or withdrawing tenders of Old Notes from) the Exchange Offer. All other requests for information relating to the Exchange Offer shall be directed to the Company, Attention: Leif Murphy, One HealthSouth Parkway, Birmingham, Alabama 35243; Telephone (205) 969-6056; Facsimile (205) 969-6837. 2. You are to examine the Letters of Transmittal and the Old Notes and other documents delivered or mailed to you, by or for the Holders, prior to the Expiration Date, to ascertain whether (i) each Letter of Transmittal is properly executed and completed in accordance with the instructions set forth therein, (ii) the Old Notes are in proper form for transfer and (iii) any other document required by the instructions accompanying the Letters of Transmittal is completed and duly executed in accordance with such instructions. In each case where a Letter of Transmittal or other document has been improperly executed or completed or, for any other reason, is not in proper form, or some other irregularity exists, you are authorized to endeavor to take such action as you consider appropriate to notify the tendering Holder of such irregularity and as to the appropriate means of resolving the same. Determination of questions as to the proper completion or execution of the Letters of Transmittal, or as to the proper form for transfer of the Old Notes or as to any other irregularity in connection with the submission of Letters of Transmittal and/or Old Notes and other documents in connection with the Exchange Offer, shall be made by the officers of, or counsel for, the Company at their written instructions or oral direction confirmed by facsimile. Any determination made by the Company on such questions shall be final and binding. 3. At the written request of the Company or its counsel, Haskell Slaughter & Young, L.L.C., you shall notify tendering Holders in the event of any extension, termination or amendment of the Exchange Offer. In the event of any such termination, you will return all tendered Old Notes to the persons entitled thereto, at the request and expense of the Company. 4. Tender of the Old Notes may be made only as set forth in the Letter of Transmittal. Notwithstanding the foregoing, tenders which the Company shall approve in writing as having been properly tendered shall be considered to be properly tendered. Letters of Transmittal and Notices of Guaranteed Delivery shall be recorded by you as to the date and time of receipt and 2 shall be preserved and retained by you at the Company's expense for six years. New Notes are to be issued in exchange for Old Notes pursuant to the Exchange Offer only in accordance with the provisions of Section 8 hereof and only (i) against deposit with you prior to the Expiration Date or, in the case of a tender in accordance with the guaranteed delivery procedures outlined in the Letter of Transmittal, within three New York Stock Exchange trading days after the Expiration Date of the Exchange Offer, together with executed Letters of Transmittal and other documents required by the Exchange Offer or (ii) in the event that the Holder is a participant in The Depository Trust Company ("DTC") system, by the utilization of DTC's Automated Tender Offer Program ("ATOP") and any evidence required by the Exchange Offer. You are hereby directed to establish an account with respect to the Old Notes at DTC (the "Book Entry Transfer Facility") within two business days after the date of the Prospectus. Any financial institution that is a participant in the Book Entry Transfer Facility system may, until the Expiration Date, make book-entry delivery of the Shares by causing the Book Entry Transfer Facility to transfer such Notes into your account in accordance with the procedure for such transfer established by the Book Entry Transfer Facility. In every case, however, a Letter of Transmittal (or a manually executed facsimile thereof), or an Agent's Message, properly completed and duly executed with any required signature guarantees and any other required documents must be transmitted to and received by you prior to the Expiration Date or the guaranteed delivery procedures described in the Prospectus must be complied with. The term "Agent's Message" means a message transmitted by a participant of the Book Entry Transfer Facility to and received by DTC and forming a part of a Book Entry Confirmation, which states that such Book Entry Transfer Facility has received an express acknowledgment from the participant in such Book Entry Transfer Facility tendering the Old Notes that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that the Company may enforce such agreement against such participant. 5. Upon the oral or written request of the Company (with written confirmation of any such oral request thereafter), you will transmit by telephone, and promptly thereafter confirm in writing to Leif Murphy, One HealthSouth Parkway, Birmingham, Alabama 35243; Telephone (205) 969-6056; Facsimile (205) 969-6837, or such other persons as the Company may reasonably request the aggregate number and principal amount of Old Notes tendered to you and the number and principal amount of Old Notes properly tendered that day. In addition, you will also inform the aforementioned persons, upon oral request made from time to time (with written confirmation of such request thereafter) prior to the Expiration Date, of such information as they or any of them may reasonably request. 6. Upon the terms and subject to the conditions of the Exchange Offer, delivery of New Notes will be made by you promptly after acceptance of the tendered Old Notes in accordance with Section 8 hereof. You will hold all items which are deposited for tender with you after 5:00 p.m., New York City time, on the Expiration Date pending further instructions from an officer of the Company or its counsel. 3 7. If any Holder shall report to you that his or her failure to surrender Old Notes registered in his or her name is due to the loss or destruction of a certificate or certificates, you shall request such Holder (i) to furnish to you an affidavit of loss and, if required by the Company, a bond of indemnity in an amount and evidenced by such certificate or certificates of a surety, as may be satisfactory to you and the Company, and (ii) to execute and deliver an agreement to indemnify the Company and you in such form as is acceptable to you and the Company. The obligees to be named in each such indemnity bond shall include the Company and you. You shall report to the Company the names of all Holders who claim that their Old Notes have been lost or destroyed and the principal amount of such Old Notes. 8. Upon the expiration of the Exchange Offer, Michael D. Martin, William W. Horton or Leif Murphy, or another designated officer or agent of the Company, will confirm to you orally (oral notice to be promptly confirmed in writing) or in writing the aggregate principal amount of Old Notes being exchanged for New Notes pursuant to the Exchange Offer. The Old Notes accepted for exchange are to be delivered to the Trustee with instructions to cancel such Old Notes and unless otherwise instructed by the Company to destroy such canceled Old Notes and furnish the Company with a certificate evidencing such destruction. As soon as practicable after the Company notifies you of its election to exchange Old Notes pursuant to the preceding paragraph, you shall either (i) cause an aggregate principal amount of New Notes equal to the aggregate principal amount of Old Notes surrendered with and tendered by each Letter of Transmittal or Agent's Message and accepted for exchange to be reflected, as directed in such Letter of Transmittal or Agent's Message, on records maintained by DTC, or, as applicable, (ii) at the request of the tendering Holder contained in a Letter of Transmittal which is tendering Old Notes in definitive form, cause to be delivered as directed in such Letter of Transmittal New Notes registered in the name or names specified in such Letter of Transmittal evidencing an aggregate principal amount equal to the aggregate principal amount of Old Notes surrendered with and tendered by such Letter of Transmittal. Tenders pursuant to the Exchange Offer are irrevocable, except that Old Notes tendered pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date as described in the Prospectus. If, pursuant to the terms of the Exchange Offer, the Company does not accept and exchange all or any part of the Old Notes, or Old Notes are tendered but withdrawn prior to the Expiration Date, or partial tenders are made, you shall promptly return to, or, upon the order of, the tendering Holder, certificates for Old Notes not exchanged. Any certificates for unexchanged Notes forwarded by first-class mail shall be so forwarded under an existing insurance policy protecting you and the Company from loss or liability arising out of the non-receipt or non-delivery of such certificates or by registered mail insured separately for the replacement value of such certificates. 4 9. For your services as the Exchange Agent hereunder, the Company shall pay you in accordance with the schedule of fees attached hereto as EXHIBIT C. The Company also will reimburse you, for your reasonable out-of-pocket expenses (including, but not limited to, reason able attorneys' fees and expenses not previously paid to you) in connection with your services promptly after submission to the Company of itemized statements. 10. You are not authorized to pay any concessions, commissions or solicitation fees to any broker, dealer, bank or other person or to engage or utilize any person to solicit tenders. 11. As the Exchange Agent hereunder you: (a) shall have no duties or obligations other than those specifically set forth herein or in the Exhibits attached hereto or as may be subsequently requested in writing of you by the Company and agreed to by you in writing with respect to the Exchange Offer; (b) will be regarded as making no representations and having no responsibilities as to the validity, accuracy, sufficiency, value or genuineness of any Old Notes deposited with you hereunder of any New Notes, any tender Documents or other documents prepared by the Company in connection with the Exchange Offer; (c) shall not be obligated to take any legal action hereunder which might in your judgment involve any expense or liability unless you shall have been furnished with an indemnity reasonably satisfactory to you; (d) may rely on, and shall be fully protected and indemnified as pro vided in Section 12 hereof in acting upon, the written or oral instructions with respect to any matter relating to your acting as Exchange Agent specifically cov ered by this Agreement or supplementing or qualifying any such action of any officer or agent of such other person or persons as may be designated or whom you reasonably believe have been designated by the Company; (e) may consult with counsel satisfactory to you, including counsel for the Company, and the advice of such counsel shall be full and complete authoriza tion and protection in respect in good faith and in accordance with such advice of such counsel; (f) shall not at any time advise any person as to the wisdom of the Exchange Offer or as to the market value or decline or appreciation in market value of any Old Notes or New Notes; 5 (g) shall not be liable for any action which you may do or refrain from doing in connection with this Agreement except for your gross negligence, willful misconduct or bad faith; (h) shall not be required to expend or risk your own funds or otherwise to incur any liability, financial or otherwise, in the performance of any of your duties hereunder or in the exercise of any of your rights or powers if you shall have reasonable grounds for believing that repayment of such funds or indemnity satisfactory to you against such risk or liability is not assured to you; (i) may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval or other paper or docu ment believed by you to be genuine and to have been signed or presented by the proper party or parties; (j) shall be entitled, if in the administration of the provisions of this Agreement you shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action to be taken hereunder, to receive, and such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of gross negligence, willful misconduct or bad faith on your part be deemed to be conclusively proved and established, by a certificate signed by one of the Company's authorized officers and delivered to you, and such certificate, in the absence of gross negligence, willful misconduct or bad faith on your part, shall be full warrant to you for any action taken, suffered or omitted by it under the provisions of this Agreement upon the faith thereof; (k) may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, attorneys, custodians or nominees appointed with due care; and (l) may at any time resign by giving 30 days' written notice of resigna tion to the Company. Upon receiving such notice of resignation, the Company shall promptly appoint a successor and, upon the acceptance by the successor of such appointment, release you from your obligations hereunder by written instrument, a copy of which instrument shall be delivered to each of you and your successor. If no successor shall have been so appointed and have accepted appointment within 45 days after the giving of such notice of resignation, you may petition any court of competent jurisdiction for the appointment of a successor. 12. The Company covenants and agrees to indemnify and hold harmless you and your officers, directors, employees, agents and affiliates (collectively, the "Indemnified Parties" and each an "Indemnified Party") against any loss, liability or reasonable expense of any nature 6 (including reasonable attorneys' and other fees and expenses) incurred without gross negligence, willful misconduct or bad faith on an Indemnified Party's part, in connection with the admin istration of the duties of the Indemnified Parties hereunder in accordance with this Agreement; provided, however, such Indemnified Party shall use its best effort to notify the Company by letter, or by cable, telex or facsimile confirmed by letter, of the written assertion of a claim against such Indemnified Party, or of any action commenced against such Indemnified Party, promptly after but in any event within 10 days of the date such Indemnified Party shall have received any such written assertion of a claim or shall have been served with a summons, or other legal process, giving information as to the nature and basis of the claim; provided, however, that failure to so notify the Company shall not relieve the Company of any liability which it may otherwise have hereunder except such liability that is a direct result of such Indemnified Party's failure to so notify the Company. The Company shall be entitled to participate at its own expense in the defense of any such claim or legal action, and if the Company so elects or if the Indemnified Party in such notice to the Company so directs, the Company shall assume the defense of any suit brought to enforce any such claim. In the event the Company assumes such defense, the Company shall not be liable for any fees and expenses thereafter incurred by such Indemnified Party which is incurred as a result of the need to have separate representation because of a conflict of interest between such Indemnified Party and the Company. No Indemnified Party shall enter into a settlement or other compromise with respect to any indemnified loss, liability or expense without the prior written consent or the Company, which shall not be unreasonably withheld or delayed if not adverse to the Company's interests. Obligations under this Section 12 shall survive the termination of this Agreement or the earlier resignation or termination of the Exchange Agent. 13. This Agreement and your appointment as the Exchange Agent shall be construed and enforced in accordance with the laws of the State of New York (without regard to its conflicts of law principles) and shall inure to the benefit of, and the obligations created hereby shall be binding upon the successors and assigns of, the parties hereto. No other person shall acquire or have any rights under or by virtue of this Agreement. 14. This Agreement may not be modified, amended or supplemented without an express written agreement executed by the parties hereto. Any inconsistency between this Agreement and the Tender Documents, as they may from time to time be supplemented or amended, shall be resolved in favor of the latter, except with respect to the duties, liabilities and indemnification of you as Exchange 0Agent. 15. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 16. In case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or unpaired thereby. 7 17. Unless terminated earlier by the parties hereto, this Agreement shall terminate 90 days following the Expiration Date. Notwithstanding the foregoing, Sections 9 and 12 shall sur vive the termination of this Agreement. Upon any termination of this Agreement, you shall promptly deliver to the Trustee any certificates for Old Notes or New Notes, funds or property then held by you as Exchange Agent under this Agreement. 18. All notices and communications hereunder shall be in writing and shall be deemed to be duly given on the date received if delivered by reputable overnight courier or registered mail, postage prepaid, or sent by facsimile as follows: If to Company: HEALTHSOUTH Corporation One HealthSouth Parkway Birmingham, Alabama 35243 Attention: William W. Horton Telephone: (205) 969-4977 Facsimile: (205) 969-4730 and a copy to: Haskell Slaughter & Young, L.L.C. 1200 AmSouth/Harbert Plaza 1901 Sixth Avenue North Birmingham, Alabama 35203 Attention: F. Hampton McFadden, Jr. Telephone: (205) 251-1000 Facsimile: (205) 324-1133 If to you: PNC Bank, N.A. 500 West Jefferson Street Louisville, Kentucky 40202 Attention: David G. Metcalf Telephone: (502) 581-3029 Facsimile: (502) 581-2705 or such other address or telecopy number as any of the above may have finished to the other parties in writing for such purposes 19. This Agreement and all of the obligations hereunder shall be assumed by any and all successors and assigns of the Company. 8 If the foregoing is in accordance with your understanding, please indicate your agreement by signing and returning the enclosed copy of this Agreement to the Company. Very truly yours, HEALTHSOUTH Corporation By --------------------------------------- William W. Horton Senior Vice President and Corporate Counsel Agreed to this ______ day of August, 1998. PNC Bank, N.A., as Exchange Agent By ------------------------------------------ David G. Metcalf Vice President 9 EXHIBIT C SCHEDULE OF FEES FOR SERVICES AS EXCHANGE AGENT FOR HEALTHSOUTH CORPORATION SENIOR NOTES DUE 2005 & 2008 EXCHANGE AGENT FEE ------------------ To cover the acceptance of the appointment, the review and consideration of the documentation, communication with the working parties, normal functions of the Exchange Agent including the establishment and maintenance of required records and accounts, distribution of tender documentation, and receipt of tendered Notes and supporting documentation. Initial Fee of $850 Transaction Fee of $5.00 per tendered note OUT-OF-POCKET EXPENSES, DTC SERVICE CHARGES AND EXPENSES, LEGAL FEES AND EXPENSES, IF AND WHEN INCURRED, FEES AND DISBURSEMENTS AND SERVICES OF AN UNANTICIPATED OR EXTRAORDINARY NATURE WILL BE CHARGED WHEN OR IF INCURRED. 10 -----END PRIVACY-ENHANCED MESSAGE-----