-----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, JZiyTk/yu+WEJFyRvFdkjE9RKj8t9J+goctHiJzWmKGkIfKEgVwJii1RYh428H39 XbXdjqXdZofHpDgP84DHdg== 0001005150-98-000565.txt : 19980604 0001005150-98-000565.hdr.sgml : 19980604 ACCESSION NUMBER: 0001005150-98-000565 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19980603 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-3/A SEC ACT: SEC FILE NUMBER: 333-52237 FILM NUMBER: 98641931 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-3/A 1 FORM S-3/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 3, 1998 REGISTRATION NO. 333-52237 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 AMENDMENT NO. 1 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 HEALTHSOUTH CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 63-0860407 (State or Other Jurisdiction of (I.R.S. Employer Identification Incorporation or Organization) Number)
--------------- 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: F. HAMPTON MCFADDEN, JR., ESQ. WILLIAM W. HORTON, ESQ. NATHANIEL M. CARTMELL III, ESQ. GORDON O. JESPERSON, ESQ. Senior Vice President and Corporate Counsel KAREN A. DEMPSEY, ESQ. Haskell Slaughter & Young, L.L.C. HEALTHSOUTH Corporation Pillsbury Madison & Sutro LLP 1200 AmSouth?Harbert Plaza One HealthSouth Parkway Post Office Box 7880 1901 Sixth Avenue North Birmingham, Alabama 35243 San Francisco, California 94120 Birmingham, Alabama 35203
--------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered pursuant to dividend or interest reinvestment plans, check the following box.[ ] If the only securities being registered on this Form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] --------------- 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. ================================================================================ PROSPECTUS HEALTHSOUTH CORPORATION $567,750,000 3.25% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2003 AND 15,501,707 SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION THEREOF -------------- THIS PROSPECTUS RELATES TO $567,750,000 AGGREGATE PRINCIPAL AMOUNT OF 3.25% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2003 (THE "DEBENTURES") OF HEALTHSOUTH CORPORATION ("HEALTHSOUTH" OR THE "COMPANY") AND 15,501,707 SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE (THE "COMMON STOCK"), OF THE COMPANY ISSUABLE UPON THE CONVERSION OF THE DEBENTURES (THE "CONVERSION SHARES"). THE DEBENTURES AND CONVERSION SHARES MAY BE OFFERED FROM TIME TO TIME FOR THE ACCOUNTS OF THE HOLDERS NAMED HEREIN (THE "SELLING SECURITYHOLDERS"). The Debentures are convertible at the option of the holder into shares of Common Stock of the Company, at any time prior to redemption or maturity, at a conversion price of $36.625 per share (equal to a conversion rate of 27.30 shares per $1,000 principal amount of Debentures and representing in the aggregate 15,501,707 shares), subject to adjustment under certain circumstances. Interest on the Debentures is payable semi-annually in arrears on April 1 and October 1 of each year, commencing on October 1, 1998. The Debentures are unsecured general obligations of the Company and are subordinated in right of payment of all existing and future Senior Indebtedness (as defined in the Indenture). See "Description of Debentures--Subordination". The Debentures will mature on October 1, 2003, and may be redeemed, at the option of the Company, in whole or in part, at any time on or after April 5, 2001, at the redemption prices set forth herein plus accrued interest. Each holder of Debentures will have the right to cause the Company to repurchase all of such holder's Debentures, payable in cash or, at the Company's option, in Common Stock, in the event the Common Stock is no longer publicly traded or in certain circumstances involving a Change of Control (as defined in the Indenture). The Debentures and the Conversion Shares may be offered by the Selling Securityholders from time to time in transactions (which may include block transactions in the case of the Conversion Shares) on any exchange or market on which such securities are listed or quoted, as applicable, in negotiated transactions, through a combination of such methods of sale, or otherwise, at sale, at prices related to prevailing market prices, or at negotiated prices. The Selling Securityholders may effect such transactions by selling the Debentures or Conversion Shares directly to or through broker-dealers, who may receive compensation in the form of discounts, concessions or commissions from the Selling Securityholders and/or the purchasers of the Debentures or Conversion Shares for whom such broker-dealers may act as agents or to whom they may sell as principals, or both (which compensation as to a particular broker-dealer might be in excess of customary commissions). The Company will not receive any of the proceeds from the sale of the Debentures or Conversion Shares by the Selling Securityholders. The Company has agreed to pay all expenses incident to the offer and sale of the Debentures and Conversion Shares offered by the Selling Securityholders hereby, except that the Selling Securityholders will pay all underwriting discounts and selling commissions, if any. See "Plan of Distribution". SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS TO BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE DEBENTURES AND THE UNDERLYING CONVERSION SHARES. The Debentures have been designated for trading on the Private Offerings, Resales and Trading through Automated Linkages ("PORTAL") Market. Debentures sold pursuant to this Prospectus are not expected to remain eligible for trading on the PORTAL Market. The Common Stock is listed on the New York Stock Exchange under the symbol HRC. On June 2, 1998, the last sale price for the Common Stock, as reported on the New York Stock Exchange, was $27.75 per share. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR 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 JUNE 3, 1998. AVAILABLE INFORMATION HEALTHSOUTH has filed a Registration Statement on Form S-3 under the Securities Act of 1933, as amended (the "Securities Act"), with the Securities and Exchange Commission (the "SEC") covering the Debentures and the Shares (including exhibits and amendments thereto, the "Registration Statement"). As permitted by the rules and regulations of the SEC, this Prospectus omits certain information contained in the Registration Statement. For further information pertaining to the securities offered hereby, reference is made to the Registration Statement. HEALTHSOUTH is subject to the information requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (Commission File No. 1-10315), and in accordance therewith files periodic reports, proxy statements and other information with the SEC relating to its business, financial statements and other matters. The Registration Statement, as well as such reports, proxy statements and other information, may be inspected at the public reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and should be available for inspection and copying at the regional offices of the SEC located at Seven World Trade Center, Suite 1300, New York, New York 10048, 5670 Wilshire Boulevard, 11th Floor, Los Angeles, California 90036-3648; and Citicorp Center, 500 West Madison Street, Room 1400, Chicago, Illinois 60661-2511. Copies of such material can be obtained at prescribed rates by writing to the SEC, Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549. The SEC also maintains a web site that contains reports, proxy and information statements and other information regarding HEALTHSOUTH and the Registration Statement. The address at that web site is http://www.sec.gov. The HEALTHSOUTH Common Stock is listed on the New York Stock Exchange, and the Registration Statement, reports, proxy statements and certain other information filed by HEALTHSOUTH should be available for inspection at the library of the New York Stock Exchange, Inc., 20 Broad Street, 7th Floor, New York, New York 10005. FORWARD-LOOKING STATEMENTS Statements relating to HEALTHSOUTH contained in this Prospectus that are not historical facts are forward-looking statements. In addition, HEALTHSOUTH, through its senior management, from time to time makes forward-looking public statements concerning its expected future operations and performance and other developments. Such forward-looking statements are necessarily estimates reflecting HEALTHSOUTH's best judgment based upon current information and involve a number of risks and uncertainties, and there can be no assurance that other factors will not affect the accuracy of such forward-looking statements. While it is impossible to identify all such factors, factors which could cause actual results to differ materially from those estimated by HEALTHSOUTH include, but are not limited to, changes in the regulation of the healthcare industry at either or both of the federal and state levels, changes in reimbursement for HEALTHSOUTH's services by government or private payors, competitive pressures in the healthcare industry and HEALTHSOUTH's response thereto, HEALTHSOUTH's ability to obtain and retain favorable arrangements with third-party payors, unanticipated delays in HEALTHSOUTH's implementation of its Integrated Service Model, general conditions in the economy and capital markets, and other factors which may be identified from time to time in HEALTHSOUTH's SEC filings and other public announcements. INCORPORATION OF CERTAIN INFORMATION BY REFERENCE This Prospectus incorporates documents by reference which are not presented herein or delivered herewith. Copies of such reports, proxy statements and other information filed by HEALTHSOUTH, other than exhibits to such documents unless such exhibits are specifically incorporated herein by reference, are available without charge, upon written or oral request, from the Secretary of HEALTHSOUTH Corporation, One HealthSouth Parkway, Birmingham, Alabama 35243, telephone (205) 967-7116. There are hereby incorporated by reference in this Prospectus, and specifically made a part hereof, the following documents heretofore filed by HEALTHSOUTH (Commission File No. 1-10315) with the SEC, pursuant to the Exchange Act: 2 1. HEALTHSOUTH's Annual Report on Form 10-K for the fiscal year ended December 31, 1997. 2. HEALTHSOUTH's Quarterly Report on Form 10-Q for the period ended March 31, 1998. 3. HEALTHSOUTH's definitive proxy statement on Schedule 14A filed on April 17, 1998, in connection with HEALTHSOUTH's 1998 Annual Meeting of Stockholders. 4. HEALTHSOUTH's Current Report on Form 8-K filed January 15, 1998 (reporting the consummation of the sale of the long-term care assets of Horizon/CMS Healthcare Corporation to Integrated Health Services, Inc.). 5. HEALTHSOUTH's Current Report on Form 8-K filed April 3, 1998 (reporting the consummation of the sale of the Debentures to the Initial Purchasers). 6. HEALTHSOUTH's Current Report on Form 8-K filed May 28, 1998. 7. The description of HEALTHSOUTH's capital stock contained in HEALTHSOUTH's Registration Statement on Form 8-A filed August 26, 1989. All documents filed by HEALTHSOUTH pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to the termination of any offering hereunder shall be deemed to be incorporated by reference into this Prospectus and to be made a part hereof from the date of the filing of such documents. Any statement contained in a document incorporated by reference herein shall be deemed to be modified or superseded for the purpose hereof to the extent that a statement contained herein (or in any other subsequently filed document which also is incorporated by reference herein) modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed to constitute a part hereof, except as so modified or superseded. No person is authorized to give any information or to make any representation not contained in this Prospectus, and, if given or made, such information or representation should not be relied upon as having been authorized. Neither the delivery of this Prospectus nor any distribution of the securities to which this Prospectus relates shall, under any circumstances, create any implication that there has been no change in the information concerning HEALTHSOUTH contained in this Prospectus since the date of such information. The principal executive offices of HEALTHSOUTH are located at One HealthSouth Parkway, Birmingham, Alabama 35243 and its telephone number is (205) 967-7116. 3 THE COMPANY HEALTHSOUTH is the nation's largest provider of outpatient surgery and rehabilitative healthcare services. It provides these services through its national network of outpatient and inpatient rehabilitation facilities, outpatient surgery centers, diagnostic centers, occupational medicine centers, medical centers and other healthcare facilities. HEALTHSOUTH believes that it provides patients, physicians and payors with high-quality healthcare services at significantly lower costs than traditional inpatient hospitals. Additionally, HEALTHSOUTH's national network, reputation for quality and focus on outcomes has enabled it to secure contracts with national and regional managed care payors. At March 31, 1998, HEALTHSOUTH had over 1,800 patient care locations in 50 states, the United Kingdom and Australia. In its outpatient rehabilitation facilities, HEALTHSOUTH provides interdisciplinary programs for the rehabilitation of patients experiencing disability due to a wide variety of physical conditions, such as stroke, head injury, orthopaedic problems, neuromuscular disease and sports-related injuries. HEALTHSOUTH's rehabilitation services include physical therapy, sports medicine, work hardening, neurorehabilitation, occupational therapy, respiratory therapy, speech-language pathology and rehabilitation nursing. Independent studies have shown that rehabilitation services like those provided by HEALTHSOUTH can save money for payors and employers. In addition to its rehabilitation facilities, HEALTHSOUTH operates the largest network of freestanding outpatient surgery centers in the United States. HEALTHSOUTH's outpatient surgery centers provide the facilities and medical support staff necessary for physicians to perform non-emergency surgical procedures. While outpatient surgery is widely recognized as generally less expensive than surgery performed in a hospital, HEALTHSOUTH believes that outpatient surgery performed at a freestanding outpatient surgery center is generally less expensive than hospital-based outpatient surgery. Over 80% of HEALTHSOUTH's surgery center facilities are located in markets served by its rehabilitative service facilities, enabling the Company to pursue opportunities for cross-referrals. HEALTHSOUTH is also among the largest operators of outpatient diagnostic centers and occupational medicine centers in the United States. Most of HEALTHSOUTH's diagnostic centers and occupational medicine centers operate in markets where HEALTHSOUTH also provides rehabilitative healthcare and outpatient surgery services. HEALTHSOUTH believes that its ability to offer a comprehensive range of its services in a particular geographic market makes HEALTHSOUTH more attractive to both patients and payors in such market. Over the last three years, HEALTHSOUTH has completed several significant acquisitions in the rehabilitation business and has expanded into the surgery center, diagnostic and occupational medicine businesses. HEALTHSOUTH believes that these acquisitions complement its historical operations and enhance its market position. HEALTHSOUTH further believes that its expansion into the outpatient surgery, diagnostic and occupational medicine businesses provides it with platforms for future growth. HEALTHSOUTH is continually evaluating potential acquisitions in the outpatient and rehabilitative healthcare services industry. HEALTHSOUTH was organized as a Delaware corporation in February 1984. HEALTHSOUTH's principal executive offices are located at One HealthSouth Parkway, Birmingham, Alabama 35243, and its telephone number is (205) 967-7116. RECENT DEVELOPMENTS On April 16, 1998, the Company announced that it had entered into a definitive agreement to acquire 34 outpatient surgery centers from Columbia/HCA Healthcare Corporation for $550,000,000 payable in cash upon closing, which is expected to occur during the third quarter of 1998. The surgery centers are located in Alabama, California, Iowa, Illinois, Kentucky, Louisiana, Minnesota, Mississippi, North Carolina, Nevada, Oregon, Rhode Island and Texas. The transaction remains subject to various regulatory approvals, including clearance under the Hart-Scott-Rodino Antitrust Improvements Act. 4 On May 6, 1998 HEALTHSOUTH announced the signing of a definitive agreement to acquire National Surgery Centers, Inc. ("NSC"). The proposed NSC transaction would add 40 outpatient surgery centers in 14 states to HEALTHSOUTH's existing network of outpatient surgery and rehabilitative healthcare facilities. The value of the NSC transaction is approximately $590 million. Under the terms of the NSC agreement, NSC stockholders will receive shares of HEALTHSOUTH Common Stock valued at $30.50 per share of NSC Common Stock, but not less than .8714 of a share of HEALTHSOUTH Common Stock nor more than 1.1509 shares of HEALTHSOUTH Common Stock. The NSC agreement does not provide for termination based on a change in the stock price of either company. The NSC transaction is expected to be accounted for as a pooling of interests and is intended to be a tax-free reorganization. The NSC transaction is subject to approval by the NSC stockholders and various regulatory approvals, including Hart-Scott-Rodino clearance, as well as the satisfaction of certain other conditions, and also provides for the payment of a break-up fee to HEALTHSOUTH under certain conditions. RISK FACTORS In addition to the other information in this Prospectus, the following should be considered carefully by potential purchasers of the Debentures or the Conversion Shares. Statements made herein should be considered as "forward-looking information". REIMBURSEMENT BY THIRD-PARTY PAYORS Substantially all of HEALTHSOUTH's revenues are derived from private and governmental third- party payors (in 1997, approximately 36.9% from Medicare and approximately 63.1% from commercial insurers, managed care plans, workers' compensation payors and other private pay revenue sources). There are increasing pressures from many payor sources to control healthcare costs and to limit increases in reimbursement rates for medical services. There can be no assurances that payments under governmental and third-party payor programs will remain at levels comparable to present levels. In attempts to limit the federal budget deficit, there have been, and HEALTHSOUTH expects that there will continue to be, a number of proposals to limit Medicare reimbursements for certain services. HEALTHSOUTH cannot now predict whether any of these pending proposals will be adopted or, if adopted and implemented, what effect such proposals would have on HEALTHSOUTH. REGULATION HEALTHSOUTH is subject to various types of regulation at the federal and state levels, including licensure and certification laws, Certificate of Need laws and laws relating to financial relationships among providers of healthcare services, Medicare fraud and abuse and physician self-referral. The operation of HEALTHSOUTH's facilities and the provision of healthcare services are subject to federal, state and local licensure and certification laws. These facilities and services are subject to periodic inspection by governmental and other authorities to assure compliance with the various standards established for continued licensure under state law, certification under the Medicare and Medicaid programs and participation in the Veteran's Administration program. Additionally, in many states, Certificates of Need or other similar approvals are required for expansion of HEALTHSOUTH's operations. HEALTHSOUTH could be adversely affected by the failure or inability to obtain such approvals, by changes in the standards applicable to approvals and by possible delays and expenses associated with obtaining approvals. The failure by HEALTHSOUTH to obtain, retain or renew any required regulatory approvals, licenses or certificates could prevent HEALTHSOUTH from being reimbursed for, or from, offering its services, or could adversely affect its results of operations. A wide array of Medicare/Medicaid fraud and abuse provisions apply to the operations of HEALTHSOUTH. HEALTHSOUTH is subject to extensive federal and state regulation with respect to financial relationships among healthcare providers, physician self-referral arrangements and other fraud and abuse issues. Penalties for violation of federal and state laws and regulations include exclusion from participation in the Medicare/Medicaid programs, asset forfeiture, civil penalties and criminal pen- 5 alties. The Office of Inspector General of the Department of Health and Human Services, the Department of Justice and other federal agencies interpret healthcare fraud and abuse provisions liberally and enforce them aggressively. HEALTHCARE REFORM In recent years, an increasing number of legislative proposals have been introduced or proposed in Congress and in some state legislatures that would effect major changes in the healthcare system, either nationally or at the state level. Among the proposals which are, or recently have been, under consideration are cost controls on hospitals, insurance market reforms to increase that availability of group health insurance to small businesses, requirements that all businesses offer health insurance coverage to their employees and the creation of a single government health insurance plan that would cover all citizens. The costs of certain proposals would be funded in significant part by reductions in payments by governmental programs, including Medicare and Medicaid, to healthcare providers. There continue to be federal and state proposals that would, and actions that do, impose more limitations on government and private payments to healthcare providers such as HEALTHSOUTH and proposals to increase copayments and deductibles from program and private patients. At the federal level, both Congress and the current Administration have continued to propose healthcare budgets that substantially reduce payments under the Medicare and Medicaid programs. In addition, many states are considering the enactment of initiatives designed to reduce their Medicaid expenditures, to provide universal coverage or additional levels of care and/or to impose additional taxes on healthcare providers to help finance or expand the states' Medicaid systems. There can be no assurance as to the ultimate content, timing or effect of any healthcare reform legislation, nor is it possible at this time to estimate the impact of potential legislation, which may be material, on HEALTHSOUTH. COMPUTER TECHNOLOGIES AND YEAR 2000 COMPLIANCE The Company is aware of the issues associated with the programming code in existing computer systems as the year 2000 approaches. Many existing computer programs use only two digits to identify a year in the date field. The issue is whether such code exists in the Company's mission-critical applications and if that code will produce accurate information with relation to date-sensitive calculations after the turn of the century. The Company has completed a thorough review of its material computer applications and determined that such applications contain very few date-sensitive calculations. The Company's computer applications are divided into two categories, those maintained internally by the Company's Information Technology Group and those maintained externally by the applications' vendors. For internally maintained applications, revisions are currently being made and are expected to be implemented by the first quarter of 1999. The Company expects that the total cost associated with these revisions will be less than $1,000,000. These costs will be primarily incurred during 1998 and be charged to expense as incurred. For externally maintained systems, the Company has received written confirmation from the vendors that each system is currently year 2000 compliant or will be made year 2000 compliant during 1998. The cost to be incurred by the Company related to externally maintained systems is expected to be minimal. The Company has initiated a program to determine whether the computer applications of its significant payors and suppliers will be upgraded in a timely manner. The Company has not completed this review; however, initial responses indicate that no significant programs are currently expected to arise. The Company has also initiated a program to determine whether embedded applications which control certain medical and other equipment will be affected. The nature of the Company's business is such that any failure to these type applications is not expected to have a material adverse effect on its business. Because of the many uncertainties associated with year 2000 compliance issues, and because the Company's assessment is necessarily based on information from third party vendors, payors and suppliers, there can be no assurance that the Company's assessment is correct or as to the materiality or effect of any failure to such assessment to be correct. 6 COMPETITION HEALTHSOUTH operates in a highly competitive industry. HEALTHSOUTH generally operates its facilities in communities that also are served by similar facilities operated by others. Although HEALTHSOUTH is the largest provider of outpatient surgery and rehabilitation healthcare services on a nationwide basis, in any particular market it may encounter competition from local or national entities with longer operating histories or other superior competitive advantages. There can be no assurance that such competition, or other competition which HEALTHSOUTH may encounter in the future, will not adversely affect HEALTHSOUTH's results of operations. FAIR PRICE PROVISION HEALTHSOUTH's Restated Certificate of Incorporation (the "HEALTHSOUTH Certificate") contains certain provisions requiring supermajority stockholder approval to effect specified extraordinary corporate transactions unless certain conditions are met. The HEALTHSOUTH Certificate requires the affirmative vote of 66-2/3% of all shares of HEALTHSOUTH entitled to vote in an election of Directors to approve a "business combination" with any "other entity" that is the beneficial owner, directly or indirectly, of more than 20% of the outstanding shares of HEALTHSOUTH entitled to vote in an election of Directors. The effect of the foregoing provisions is to make it more difficult for a person, entity or group to effect a change in control of HEALTHSOUTH through the acquisition of a large block of HEALTHSOUTH's voting stock, or to effect a merger or other acquisition that is not approved by a majority of HEALTHSOUTH's Directors serving in office prior to the acquisition by the other entity of 5% or more of HEALTHSOUTH's stock. CERTAIN HORIZON/CMS LITIGATION On October 29, 1997, HEALTHSOUTH acquired Horizon/CMS Healthcare Corporation ("Horizon/CMS") through the merger of a wholly-owned subsidiary of HEALTHSOUTH with and into Horizon/CMS. Horizon/CMS is currently a party, or is subject, to certain material litigation matters and disputes, which are described below, as well as various other litigation matters and disputes arising in the ordinary course of its business. HEALTHSOUTH is not itself a party to the litigation described below. SEC and NYSE Investigations The Division of Enforcement of the SEC is conducting a private investigation with respect to trading in the securities of Horizon/CMS and Continental Medical Systems, Inc. ("CMS"), which was acquired by Horizon/CMS in June 1995. In connection with that investigation, Horizon/CMS produced certain documents, and Neal M. Elliott, then Chairman of the Board, President and Chief Executive Officer of Horizon/CMS, and certain other former officers of Horizon/CMS have given testimony to the SEC. Horizon/CMS has also been informed that certain of its division office employees and an individual, affiliates of whom had limited business relationships with Horizon/CMS, have responded to subpoenas from the SEC. Mr. Elliott also produced certain documents in response to a subpoena from the SEC. In addition, Horizon/CMS and Mr. Elliott have responded to separate subpoenas from the SEC pertaining to trading in Horizon/CMS's common stock and various material press releases issued in 1996 by Horizon/CMS; Horizon/CMS's February 18, 1997 announcement that HEALTHSOUTH would acquire Horizon/CMS; and any discussions of proposed business combinations between Horizon/CMS and Medical Innovations and Horizon/CMS and certain other companies. The investigation is, to the knowledge of HEALTHSOUTH and Horizon/CMS, ongoing, and neither Horizon/CMS nor HEALTHSOUTH possesses all the facts with respect to the matters under investigation. Although neither Horizon/CMS nor HEALTHSOUTH has been advised by the SEC that the SEC has concluded that any of Horizon/ CMS, Mr. Elliott or any other current or former officer or director of Horizon/CMS has been involved in any violation of the federal securities law, there can be no assurance as to the outcome of the investigation or the time of its conclusion. Both Horizon/CMS and HEALTHSOUTH have, to the extent requested to date, cooperated fully with the SEC in connection with the investigation. 7 In March 1995, the New York Stock Exchange (the "NYSE") informed Horizon/CMS that it had initiated a review of trading in The Hillhaven Corporation common stock prior to the announcement of Horizon/CMS's proposed acquisition of Hillhaven. In April 1995, the NYSE extended the review of trading to include all dealings with CMS. On April 3, 1996, the NYSE notified Horizon/CMS that it had initiated a review of trading in its common stock preceding Horizon/CMS's March 1, 1996 press release announcing a revision in Horizon/CMS's third quarter earnings estimate. On February 20, 1997, the NYSE notified Horizon/CMS that it was reviewing trading in Horizon/CMS's securities prior to the February 18, 1997 announcement that HEALTHSOUTH would acquire Horizon/CMS. Horizon/CMS has cooperated with the NYSE in its reviews and, to Horizon/CMS's knowledge, the reviews are ongoing. In February 1997, HEALTHSOUTH received a subpoena from the SEC with respect to its investigation concerning trading in Horizon/CMS common stock prior to the February 18, 1997 announcement that HEALTHSOUTH would acquire Horizon/CMS and a request for information from the NYSE in connection with its review of such trading. HEALTHSOUTH responded to such subpoena and request for information and advised both the SEC and the NYSE that it intended to cooperate fully in any investigations or reviews relating to such trading. HEALTHSOUTH provided certain additional information to the SEC in April 1997. Since that time, HEALTHSOUTH has had no further inquiries from either the SEC or the NYSE with respect to such matters, and is unaware of the current status of such investigations or reviews. Michigan Attorney General Investigation Into Long-Term Care Facility In Michigan Horizon/CMS learned in September 1996 that the Attorney General of the State of Michigan was investigating one of its skilled nursing facilities. The facility, in Howell, Michigan, was owned and operated by Horizon/CMS from February 1994 until December 31, 1997. As widely reported in the press, the Attorney General seized a number of patient, financial and accounting records that were located at this facility. By order of a circuit judge in the county in which the facility is located, the Attorney General was ordered to return patient records to the facility for copying. Horizon/CMS advised the Michigan Attorney General that it was willing to cooperate fully in the investigation. The facility in question was sold by Horizon/CMS to Integrated Health Services, Inc. on December 31, 1997. On February 19, 1998, the State of Michigan filed a criminal complaint against Horizon/CMS, four former employees of the facility and one former Horizon/CMS regional manager, alleging various violations in 1995 and 1996 of certain statutes relating to patient care, patient medical records and the making of false statements with respect to the condition or operations of the facility (State of Michigan v. Horizon/CMS Healthcare Corp., et al., Case No. 98-630-FY, State of Michigan District Court 54B). The maximum fines chargeable against Horizon/CMS under the counts alleged in the complaint (exclusive of charges against the individual defendants, some of which charges may result in indemnification of obligations for Horizon/CMS) aggregate $69,000. Horizon/CMS denies the allegations made in the complaint and expects to vigorously defend against the charges. Because such charges have only recently been filed, it is not possible to predict at this time the outcome or effect of this litigation or the length of time it will take to resolve this litigation. Stockholder Derivative Actions Commencing in April and continuing into May 1996, Horizon/CMS was served with nine complaints alleging a class action derivative action brought by stockholders of Horizon/CMS for and on behalf of Horizon/CMS in the Court of Chancery of New Castle County, Delaware, against certain then-current and former directors of Horizon/CMS. The nine lawsuits have been consolidated into one action styled In re Horizon/CMS Healthcare Corporation Shareholders Litigation. The plaintiffs alleged, among other things, that Horizon/CMS's then-current and former directors breached their fiduciary duties to Horizon/CMS and the stockholders as a result of (i) the purported failure to supervise adequately and the purported knowing mismanagement of the operations of Horizon/CMS, and (ii) the purported misuse of inside information in connection with the sale of Horizon/CMS's Common Stock by certain of the then-current and former directors in January and February 1996. To that end, the plaintiffs sought an accounting from the directors for profits to themselves and damages suffered by Horizon/CMS as a 8 result of the transaction complained of in the complaint and attorneys' fees and costs. On June 21, 1996, the individual defendants filed a motion with the Chancery Court seeking to dismiss this matter because, among other things, the plaintiffs failed to make a demand on the board of directors prior to commencing this litigation. In April 1996, Horizon/CMS was served with a complaint in a stockholder's derivative lawsuit styled Lind v. Rocco A. Ortenzio, Neal M. Elliott, Klemett L. Belt, Jr., Robert A. Ortenzio, Russell L. Carson, Bryan C. Cressey, Charles H. Gonzales, Michael A. Jeffries, Gerard M. Martin, frank M. McCord, Raymond N. Noveck, Barry M. Portnoy, LeRoy S. Zimmerman and Horizon/CMS Healthcare Corporation, No. CIV 96-0538-BB, pending in the United States District Court for the District of New Mexico. The claims alleged by the plaintiff, and the relief sought, were substantially identical to those in the Delaware litigation. On February 24, 1998, the plaintiffs in the consolidated Delaware case voluntarily dismissed their action without prejudice. The plaintiff in the New Mexico case has likewise voluntarily dismissed his action in April 1998. Lawsuit by Former Shareholders of Communi-Care, Inc. and Pro Rehab, Inc. On May 28, 1997, CMS was served with a lawsuit styled Kenneth Hubbard and Lynn Hubbard v. Rocco Ortenzio, Robert A. Ortenzio and Continental Medical Systems, Inc., No. 3:97 CV294MCK, filed in the United States District Court for the Western District of North Carolina, Charlotte Division, by the former shareholders of Communi-Care, Inc. and Pro Rehab, Inc. seeking damages arising out of certain "earnout" provisions of the definitive purchase agreements under which CMS purchased the outstanding stock of Communi-Care, Inc. and Pro Rehab, Inc. from such shareholders. The plaintiffs allege that the manner in which CMS and the other defendants operated the companies after their acquisition breached its fiduciary duties to the plaintiffs, constituted fraud, gross negligence and bad faith, and breached of their employment agreements with the companies. As a result of such alleged conduct, the plaintiffs assert that they are entitled to damages in an amount in excess of $27,000,000 from CMS and the other defendants. Horizon/CMS believes, based upon its evaluation of the legal and factual matters relating to the plaintiffs' assertions, that it has valid defenses to the plaintiffs' claims and, as a result, intends to vigorously contest such claims. Because this litigation remains at an early stage, HEALTHSOUTH cannot now predict the outcome or effect of such litigation or the length of time it will take to resolve such litigation. RehabOne Litigation In March 1997, Horizon/CMS was served with a lawsuit filed in the United States District Court for the Middle District of Pennsylvania, styled RehabOne, Inc. v. Horizon/CMS Healthcare Corporation, Continental Medical Systems, Inc., David National and Robert Ortenzio, No. CV-97-0292. In this lawsuit, the plaintiff alleges violations of federal and state securities laws, fraud and negligent misrepresentation by Horizon/CMS and certain former officers of CMS in connection with the issuance of a warrant to purchase 500,000 shares of Horizon/CMS Common Stock (the "Warrant"). The Warrant was issued to the plaintiff in connection with the settlement of certain prior litigation between the plaintiff and CMS. The plaintiff's complaint does not state the amount of damages sought. On April 30, 1998 the court entered an order dismissing the plaintiff's claim under Section 12(2) of the Securities Act of 1933 and denying Horizon/LMS's motion to dismiss certain other claims of the plaintiff. Horizon/CMS disputes the factual and legal assertions of the plaintiff in this litigation and intends to vigorously contest the plaintiff's claims. In May 1998 the parties reached an agreement in principle to settle this litigation by extending the exercise period of the Warrant by two years. The parties are currently in the process of negotiating and implementing definitive settlement documentation. EEOC Litigation In March 1997, the Equal Employment Opportunity Commission (the "EEOC") filed a complaint against Horizon/CMS alleging that Horizon/CMS had engaged in unlawful employment practices in respect of Horizon/CMS's employment policies related to pregnancies. Specifically, the EEOC asserts that Horizon/CMS's alleged refusal to provide pregnant employees with light-duty assignments to ac- 9 commodate their temporary disabilities caused by pregnancy violates Sections 701(k) and 703(a) of Title VII, 42 U.S.C. (section)(section) 2000e-(k) and 2000e-2(a). In this lawsuit, the EEOC seeks, among other things, to permanently enjoin Horizon/CMS's employment practices in this regard. Horizon/CMS disputes the factual and legal assertions of the EEOC in this litigation and intends to vigorously contest the EEOC's claims. Because this litigation has just commenced, HEALTHSOUTH cannot predict the length of time it will take to resolve the litigation or the outcome or effect of the litigation. North Louisiana Rehabilitation Hospital Medicare Billing Investigation In August 1996, the United States Attorney for the Western District of Louisiana, without actually initiating litigation, apprised Horizon/CMS of alleged civil liability under the federal False Claims Act for what the government believes were false or fraudulent Medicare and other federal program claims submitted by Horizon/CMS's North Louisiana Rehabilitation Hospital ("NLRH") during the period from 1989 through 1992, including certain claims submitted by a physician who was a member of the medical staff and under contract to NLRH during the period. Specifically, the government alleges that NLRH facilitated the submission of false claims under Part B of the Medicare program by the physician and that NLRH itself submitted false claims under Part A of the Medicare program for services that were not medically necessary. In August 1996, the U.S. Attorney identified allegedly improper Part A and Part B billings, together with penalty provisions under the False Claims Act, ranging in the aggregate from approximately $1,700,000 to $2,200,000. The government does not dispute that the Medicare Part A services were rendered, but only whether they were medically necessary. Horizon/CMS has vigorously contested the allegation that any cases of disputed medical necessity in this matter constitute false or fraudulent claims under the civil False Claims Act. Moreover, Horizon/CMS denies that NLRH facilitated the submission of false claims under Medicare Part B. In late April 1997, Horizon/CMS received administrative subpoenas relating to the matter and has since then produced extensive materials with respect thereto. Without conceding liability for either the Medicare Part A or Part B claims, in May 1997, Horizon commenced preliminary settlement discussions with the government. In preparation for settlement meetings held in late June and mid-July 1997, Horizon/CMS and the government developed and then refined their respective analyses of any losses the government may have incurred in this regard. Following the July 1997 meetings, the government proposed to Horizon/CMS that the matter be settled by Horizon/CMS's paying the government $4,900,000 with respect to alleged Medicare Part A overpayments and that Horizon/CMS and certain individual physicians pay the government $820,000 with respect to Medicare Part B claims for physician services. In late July 1997, Horizon/CMS responded by offering to settle the matter for $3,700,000 for alleged Medicare Part A overpayments and $445,000 for alleged Medicare Part B claims for which Horizon/CMS potentially could bear any responsibility. The government recently advised Horizon/CMS that it has accepted the latter's settlement offer in this regard, and the parties are currently in the process of negotiating and implementing definitive settlement documentation. Heritage Western Hills Litigation Since July 1996, Horizon/CMS has been a defendant in a lawsuit styled Lexa A. Auld, Administratrix of Martha Hary, Deceased v. Horizon/CMS Healthcare Corporation and Charles T. Maxvill, D.O., No. 48-165121, 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. 10 Horizon/CMS filed the required motions with the court to impose the Punitive Damages Cap. On February 20, 1998, the court reduced the jury's verdict and entered a judgment in the amount of approximately $11,237,000. Horizon/CMS also vigorously disputes the efficacy of the jury's verdict and has appealed the judgment. Horizon/CMS's insurance carrier continues to defend the matter subject to a reservation of rights. Horizon/CMS based upon an evaluation by its then-current internal counsel, after reviewing the findings contained in the jury verdict, the insurance policy at issue and the carrier's handling of the case, believes that the entirety of any judgment ultimately entered is covered by and payable from such insurance policy, less Horizon/CMS's self-insured retention of $250,000. On November 19, 1997, the insurance carrier sent Horizon/CMS a letter indicating its belief that certain policy exclusions might apply and requesting additional information which might affect its coverage determination. Horizon/CMS has retained separate counsel to analyze the coverage issues and advise Horizon/CMS on its position, and Horizon/CMS expects to continue to negotiate any coverage issues with its carrier. Settlement negotiations by Horizon/CMS's insurance carrier, in conjunction with HEALTHSOUTH's retained counsel, continue with the plaintiff. It is not possible at this time to predict the outcome of any post-trial motions or appeals, the resolution of any coverage issues, the outcome of any settlement negotiations or the ultimate amount of any liability which will be borne by Horizon/CMS. SUBORDINATION OF DEBENTURES The Debentures are subordinate in right of payment to all current and future Senior Indebtedness of the Company. Senior Indebtedness includes indebtedness under the Company's bank credit facilities and all other indebtedness of the Company that is not expressly made subordinate to, or pari passu with, the Debentures. At March 31, 1998, the aggregate amount of the Company's Senior Indebtedness was approximately $1,155,999,000. The Indenture does not limit the amount of additional indebtedness, including Senior Indebtedness, which the Company can create, incur, assume or guarantee. By reason of such subordination of the Debentures, in the event of insolvency, bankruptcy, liquidation, reorganization, dissolution or winding up of the business of the Company or upon default in payment with respect to any Senior Indebtedness of the Company or an event of default with respect to such indebtedness resulting in the acceleration thereof, the assets of the Company will be available to pay the amounts due on the Debentures only after all Senior Indebtedness of the Company has been paid in full. The majority of the Company's operations are conducted through subsidiaries or partnerships, which are separate and distinct legal entities and have no obligations, contingent or otherwise, to pay any amounts due pursuant to the Debentures or make any funds available therefor, whether by dividends, loans or other payments. The Debentures will be effectively subordinated to all indebtedness and other liabilities and commitments (including trade payables and lease obligations) of the Company's subsidiaries and partnerships. Any right of the Company to receive assets of any such subsidiary or partnership upon the liquidation or reorganization of any such subsidiary or partnership (and the consequent right of the holders of the Debentures to participate in those assets) will be effectively subordinated to the claims of that subsidiary's or partnership's creditors. LIMITATION ON ABILITY TO REPURCHASE UPON A REPURCHASE EVENT In the event of a Repurchase Event, which includes a Change in Control and a Termination of Trading (each as defined herein), each holder of Debentures will have the right, at the holder's option, to require the Company to repurchase all or a portion of such holder's Debentures at a purchase price equal to 100% of the principal amount thereof plus accrued interest thereon to the repurchase date. The Company's ability to repurchase the Debentures upon a Repurchase Event may be limited by the terms of the Company's Senior Indebtedness and the subordination provisions of the Indenture. Further, the ability of the Company to repurchase Debentures upon a Repurchase Event will be dependent on the availability of sufficient funds and compliance with applicable securities laws. Accordingly, there can be no assurance that the Company will be able to repurchase the Debentures upon a Repurchase Event. The term "Repurchase Event" is limited to certain specified transactions and may not include other events that might adversely affect the financial condition of the Company or result in a downgrade of the 11 credit rating (if any) of the Debentures nor would the requirement that the Company offer to repurchase the Debentures upon a Repurchase Event necessarily afford holders of the Debentures protection in the event of a highly leveraged reorganization, merger or similar transaction involving the Company. See "Description of Debentures". POSSIBILITY VOLATILITY OF STOCK PRICE The stock market, and in particular the healthcare industry segment, has from time to time experienced significant price and volume fluctuations which, in some circumstances, have been unrelated to the operating performance of particular companies. The market price of HEALTHSOUTH Common Stock may be highly volatile depending on various factors, including, but not limited to, the state of the national economy, stock market conditions, industry research reports, actions by governmental agencies, litigation involving the Company, earnings and other announcements by the Company or its competitors and general conditions in the outpatient surgery and rehabilitative healthcare services industries. 12 USE OF PROCEEDS All proceeds from any sales of the Debentures or the Conversion Shares by the Selling Securityholders will inure to the benefit of the Selling Securityholders. The Company will receive none of the proceeds from the sale of the Debentures or the Conversion Shares offered hereby. RATIO OF EARNINGS TO FIXED CHARGES The following table sets forth the Company's consolidated ratio of earnings to fixed charges for the periods shown.
YEAR ENDED DECEMBER 31, MARCH 31, ------------------------------------------------------ --------------------- 1993 1994 1995 1996 1997 1998 ---------- ---------- ---------- ---------- ---------- --------------------- ACTUAL PRO FORMA ---------- ---------- Ratio of earnings to fixed charges ......... 5.71x 3.31x 3.27x 4.61x 5.34x 7.03x 7.98x
For purposes of calculating ratio of earnings to fixed charges, (i) earnings consist of consolidated income (loss) before income taxes and nonrecurring changes, plus fixed charges, and (ii) fixed charges consist of interest expense incurred and the portion of rental expense under operating leases deemed by the Company to be representative of the interest factor. The pro forma ratio reflects the sale of the Debentures and the application of the net proceeds therefrom, assuming such sale and application occurred on January 1, 1998. 13 SELLING SECURITYHOLDERS The Debentures were originally issued by the Company in a private placement and were resold by the initial purchasers thereof to qualified institutional buyers (within the meaning of Rule 144A under the Securities Act) or other institutional accredited investors (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) in transactions exempt from registration under the Securities Act, and in sales outside the United States to persons other than U.S. persons in reliance upon Regulation S under the Securities Act. The Debentures and the Conversion Shares that may be offered pursuant to this Prospectus will be offered by the Selling Securityholders. The following table sets forth certain information as of June 2, 1998, concerning the principal amount of Debentures beneficially owned by each Selling Securityholder and the number of Conversion Shares that may be offered from time to time pursuant to this Prospectus. From time to time, Smith Barney Inc. or its affiliates have provided, and may continue to provide, investment banking services to the Company, for which they received or will receive customary fees. An affiliate of NationsBanc Montgomery Securities LLC provides commercial banking services to the Company, including serving as agent for and a lender under the Company's existing credit facilities, for which such affiliate has received or will receive customary fees. None of the other Selling Securityholders has had any position, office or other material relationship with the Company or its affiliates within the past three years.
PRINCIPAL AMOUNT NUMBER OF OF DEBENTURES PERCENTAGE OF CONVERSION SHARES PERCENTAGE OF BENEFICIALLY OWNED DEBENTURES THAT COMMON STOCK NAME THAT MAY BE SOLD OUTSTANDING MAY BE SOLD(1) OUTSTANDING(2) - ---------------------------------------------------- -------------------- --------------- ------------------- --------------- Allstate Insurance Company ......................... $ 3,400,000 * 92,833 * Allstate Life Insurance Company .................... $ 6,300,000 1.11% 172,014 * Aloha Airlines Inc. Non-Pilots Pension Trust ....... $ 175,000 * 4,778 * Aloha Airlines Pilots Retirement Trust ............. $ 100,000 * 2,730 * The Americana Fund ................................. $ 110,000 * 3,003 * American Community Mutual Insurance Company. $ 420,000 * 11,468 * American Investors Life Insurance Company, Inc...... $ 1,250,000 * 34,130 * American Pioneer Life Insurance Company of New York .............................................. $ 30,000 * 819 * American Progressive Life & Health Insurance Company of New York ............................... $ 30,000 * 819 * American Public Entity Excess Pool ................. $ 70,000 * 1,911 * American Republic Insurance Company ................ $ 700,000 * 19,113 * Amerisure Companies -- Michigan Mutual Insur- ance Company ...................................... $ 530,000 * 14,471 * AmWest Surety Insurance Company .................... $ 470,000 * 12,833 * Anthracite Mutual Life Insurance Company ........... $ 10,000 * 273 * Arbco Associates, LP ............................... $ 1,000,000 * 27,304 * Argent Classic Convertible Arbitrage Fund (Ber- muda) L.P. ........................................ $12,000,000 2.11% 327,645 * Argent Classic Convertible Arbitrage Fund L.P. ..... $ 2,000,000 * 54,608 * Aristeia International Limited ..................... $ 7,609,000 1.34% 207,754 * Aristeia Trading L.L.C. ............................ $ 2,391,000 * 65,283 * Arkansas PERS ...................................... $ 1,460,000 * 39,863 * Associated Electric & Gas Insurance Services Lim- ited .............................................. $ 300,000 * 8,191 * Associated Physicians Insurance Company ............ $ 40,000 * 1,092 * BCS Life Insurance Company ......................... $ 550,000 * 15,017 * BNP Arbitrage SNC .................................. $ 4,250,000 * 116,041 * BT Holdings (New York) Inc. ........................ $13,500,000 2.38% 368,601 * Baltimore Life Insurance Company ................... $ 45,000 * 1,229 * BancAmerica Robertson Stephens ..................... $ 787,000 * 21,488 * Bancroft Convertible Fund, Inc. .................... $ 1,000,000 * 27,304 * Bank of Montreal Ireland PLC ....................... $10,000,000 1.76% 273,038 *
14
PRINCIPAL AMOUNT NUMBER OF OF DEBENTURES PERCENTAGE OF CONVERSION SHARES PERCENTAGE OF BENEFICIALLY OWNED DEBENTURES THAT COMMON STOCK NAME THAT MAY BE SOLD OUTSTANDING MAY BE SOLD(1) OUTSTANDING(2) - ---------------------------------------------------- -------------------- --------------- ------------------- --------------- Bond Fund Series -- Oppenheimer Bond Fund for Growth ............................................ $ 8,000,000 1.41% 218,430 * Bricklayers Local No. 6 Pension Plan ............... $ 200,000 * 5,461 * CFW-C, L.P. ........................................ $ 3,500,000 * 95,563 * CSA Fraternal Life Insurance Company ............... $ 100,000 * 2,730 * Canadian Imperial Holdings, Inc. ................... $ 6,000,000 1.06% 163,823 * CareAmerica Life Insurance Company ................. $ 100,000 * 2,730 * Catholic Mutual Relief Society of America .......... $ 450,000 * 12,287 * Catholic Mutual Relief Society of America Retire- ment Plan & Trust ................................. $ 230,000 * 6,280 * Catholic Relief Insurance Company of America ....... $ 450,000 * 12,287 * Century National Insurance Company ................. $ 670,000 * 18,294 * Chicago Mutual Company ............................. $ 60,000 * 1,638 * Chrysler Corporation Master Retirement Fund (c/o Glickenhaus & Co.) ................................ $10,000,000 1.76% 273,038 * Chrysler Corporation Master Retirement Trust (c/o Oaktree Capital Management, LLC) .................. $ 3,940,000 * 107,577 * Chrysler Insurance Company ......................... $ 4,500,000 * 122,867 * Combined Insurance Company of America .............. $ 1,460,000 * 39,863 * Commonwealth Dealers Life Insurance Company......... $ 100,000 * 2,730 * Concord Life Insurance Company ..................... $ 180,000 * 4,915 * Condor Insurance Company ........................... $ 40,000 * 1,092 * Dean Witter Convertible Securities Trust ........... $ 2,500,000 * 68,259 * Delaware PERS ...................................... $ 1,000,000 * 27,304 * Deutsche Bank A.G. ................................. $37,850,000 6.67% 1,033,447 * Deutsche Morgan Grenfell, Inc., d/b/a -- Deutshe Bank Securities, Inc. ............ $25,910,000 4.56% 707,470 * Ellsworth Convertible Growth and Income Fund, Inc. .............................................. $ 1,000,000 * 27,304 * Employers Reinsurance Corp. ........................ $ 1,250,000 * 34,130 * Evergreen Balanced Fund ............................ $10,000,000 1.76% 273,038 * Evergreen Fund for Total Return .................... $ 2,000,000 * 54,608 * Farmers Home Mutual Insurance Company .............. $ 280,000 * 7,645 * Federated Rural Electric Insurance Corporation ..... $ 240,000 * 6,553 * Financial American Life Insurance Company .......... $ 40,000 * 1,092 * First Patriot Insurance Company .................... $ 70,000 * 1,911 * Fort Dearborn Life Insurance Company ............... $ 240,000 * 6,553 * Frontier Insurance Company ......................... $ 1,000,000 * 27,304 * General Motors Investment Management Corp. ......... $ 5,000,000 * 136,519 * GLG Global Convertible Fund ........................ $ 3,000,000 * 81,911 * Goodville Mutual Casualty Company .................. $ 40,000 * 1,092 * Gopher State Mutual Insurance Company .............. $ 120,000 * 3,276 * Grain Dealers Mutual Insurance ..................... $ 190,000 * 5,188 * GreatBanc Trust Company ............................ $ 70,000 * 1,911 * Guarantee Trust Life Insurance Company ............. $ 1,000,000 * 27,304 * Guaranty Income Life Insurance Company ............. $ 400,000 * 10,922 * Guardian Life Insurance Company of America ......... $ 9,500,000 1.67% 259,386 * Guardian Master Pension Plan ....................... $ 500,000 * 13,652 * HSBC Securities Inc. ............................... $ 3,700,000 * 101,024 * Hawaiian Airlines Employees Pension Plan - IAM...... $ 75,000 * 2,048 * Hawaiian Airlines Pension Plan for Salaried Em- ployees ........................................... $ 20,000 * 546 * Hawaiian Airlines Pilots' Retirement Plan .......... $ 100,000 * 2,730 * Highbridge Capital Corporation ..................... $13,500,000 2.38% 368,601 * Holy Family Society ................................ $ 50,000 * 1,365 * IBM Retirement Fund ................................ $ 4,000,000 * 109,215 *
15
PRINCIPAL AMOUNT NUMBER OF OF DEBENTURES PERCENTAGE OF CONVERSION SHARES PERCENTAGE OF BENEFICIALLY OWNED DEBENTURES THAT COMMON STOCK NAME THAT MAY BE SOLD OUTSTANDING MAY BE SOLD(1) OUTSTANDING(2) - ------------------------------------------------------- -------------------- --------------- ------------------- --------------- ICI American Holdings Trust ........................... $ 450,000 * 12,287 * ISBA Mutual Insurance Company ......................... $ 190,000 * 5,188 * Illinois Founders Insurance ........................... $ 80,000 * 2,184 * Illinois Health Care Insurance Company ................ $ 90,000 * 2,457 * Indiana Lumbermens Mutual Insurance Company............ $ 460,000 * 12,560 * Iruin Small ........................................... $ 85,000 * 2,321 * Island Insurance Convertible Account .................. $ 120,000 * 3,276 * Jacobs Twin Buick Profit Sharing Plan ................. $ 75,000 * 2,048 * Kanawha Insurance Company ............................. $ 50,000 * 1,365 * Kapiolani Medical Center .............................. $ 150,000 * 4,096 * Kayne Anderson Non-Traditional Investments, LP ........ $ 1,000,000 * 27,304 * Kennilworth Partners LP II ............................ $ 750,000 * 20,478 * Key Asset Management, Inc. as Agent for the Chari- table Securities Fund ................................ $ 987,000 * 26,949 * Key Asset Management, Inc. as Agent for the EB Convertible Securities Fund .......................... $ 1,200,000 * 32,765 * Key Asset Management, Inc. as Agent for the Field Foundation of Illinois ............................... $ 60,000 * 1,638 * Key Asset Management, Inc. as Agent for the GenCorp Foundation ................................... $ 100,000 * 2,730 * Key Asset Management, Inc. as Agent for the Key Trust Convertible Securities Fund .................... $ 288,000 * 7,863 * Key Asset Management, Inc. as Investment Manager for the Health Foundation of Greater Cincinnati (formerly known as The ChoiceCare Foundation) . $ 210,000 * 5,734 * Key Asset Management, Inc. as Investment Manager for the Michigan Mutual Insurance Company ............ $ 530,000 * 14,471 * Key Asset Management, Inc. as Investment Manager for the Potlatch-First Trust Company of St. Paul ..... $ 475,000 * 12,969 * Key Asset Management, Inc. as Investment Manager for the University of South Florida Foundation ....... $ 150,000 * 4,096 * LCMS Foundation ....................................... $ 1,000,000 * 27,304 * Lebanon Mutual Insurance Company ...................... $ 80,000 * 2,184 * Lincoln Mutual Life Insurance Company ................. $ 50,000 * 1,365 * Lincoln National Convertible Securities Fund .......... $ 1,360,000 * 37,133 * Lipper Convertibles, L.P. ............................. $ 3,000,000 * 81,911 * Lipper Offshore Convertibles, L.P. .................... $ 500,000 * 13,652 * Lone Star Life Insurance Company ...................... $ 1,100,000 * 30,034 * MFS Series Trust I -- MFS Convertible Securities Fund ................................................. $ 6,000 * 164 * MFS Series Trust V -- MFS Total Return Fund ........... $ 1,994,000 * 53,078 * McMahan Securities Company, L.P. ...................... $ 85,000 * 2,321 * Medical Liability Mutual Insurance Company ............ $25,000,000 4.40% 682,594 * Medico Life Insurance Company ......................... $ 720,000 * 19,659 * Medmarc Insurance Company ............................. $ 620,000 * 16,928 * Merrill Lynch Pierce Fenner and Smith Inc. ............ $ 8,590,000 1.51% 234,539 * Mid America Life Insurance Company .................... $ 90,000 * 2,457 * Middle Cities Risk Management Trust ................... $ 170,000 * 4,642 * Midwest Security Life ................................. $ 250,000 * 6,826 * Midwestern National Life Insurance Company of Ohio ................................................. $ 400,000 * 10,922 * Millers Casualty Insurance Company of Texas ........... $ 260,000 * 7,099 * Millers Mutual Fire Insurance Company of Texas ........ $ 1,300,000 * 35,495 * Motion Picture Laboratory Pension Plan ................ $ 100,000 * 2,730 * Motors Insurance Corp. ................................ $ 750,000 * 20,478 * Mutual Protective Insurance Company. .................. $ 950,000 * 25,939 *
16
PRINCIPAL AMOUNT NUMBER OF OF DEBENTURES PERCENTAGE OF CONVERSION SHARES PERCENTAGE OF BENEFICIALLY OWNED DEBENTURES THAT COMMON STOCK NAME THAT MAY BE SOLD OUTSTANDING MAY BE SOLD(1) OUTSTANDING(2) - ------------------------------------------------------- -------------------- --------------- ------------------- --------------- NCMIC ................................................. $ 380,000 * 10,375 * NMS Services, Inc. .................................... $10,000,000 1.76% 273,038 * Nalco Chemical Company ................................ $ 225,000 * 6,143 * NationsBanc Montgomery Securities LLC ................. $15,500,000 2.73% 423,208 * Nationwide Acceptance Corporation Employees Profit Sharing Plan & Trust .......................... $ 55,000 * 1,502 * New Castle Mutual Insurance Company ................... $ 30,000 * 819 * New York Life Insurance Company ....................... $10,000,000 1.76% 273,038 * Nomura Securities (Bermuda) Ltd. ...................... $ 6,000,000 1.06% 163,823 * The Northwestern Mutual Life Insurance Company $ 4,000,000 * 109,215 * OCM Convertible Limited Partnership ................... $ 225,000 * 6,143 * OCM Convertible Trust ................................. $ 5,205,000 * 142,116 * Offense Group Associates, LP .......................... $ 1,000,000 * 27,304 * Old Guard Fire Insurance Company ...................... $ 180,000 * 4,915 * Old Guard Insurance Company ........................... $ 420,000 * 11,468 * Oppenheimer Total Return Fund, Inc. ................... $10,000,000 1.76% 273,038 * Ozark National Life Insurance Company ................. $ 1,250,000 * 34,130 * PRIM Board ............................................ $ 1,900,000 * 51,877 * Paloma Securites L.L.C. ............................... $ 8,600,000 1.51% 234,812 * Paramount Insurance Company ........................... $ 200,000 * 5,461 * Partner Reinsurance Company, Ltd. ..................... $ 560,000 * 15,290 * The Paul Revere Life Insurance Company ................ $ 2,500,000 * 68,259 Phico Insurance Company ............................... $ 320,000 * 8,737 * Physicians Mutual Insurance Company ................... $ 210,000 * 5,734 * Pioneer Insurance Company ............................. $ 80,000 * 2,184 * Police & Firemen's Insurance Association .............. $ 90,000 * 2,457 * Provident Life and Accident Insurance Company ......... $ 2,500,000 * 68,259 * Public Employees Retirement Association of Colo- rado. ................................................ $ 1,000,000 * 27,304 * Public Service Mutual Insurance Company ............... $ 800,000 * 21,843 * Queens Healthcare Plan ................................ $ 65,000 * 1,775 * Raytheon Company Master Pension Trust ................. 2,010,000 * 54,881 * Reassurance Company of Hanover ........................ $ 450,000 * 12,287 * Regence Blue Cross/Blue Shield of Idaho ............... $ 120,000 * 3,276 * Regence Blue Cross/Blue Shield of Oregon .............. $ 210,000 * 5,734 * Regence Blue Cross/Blue Shield of Utah ................ $ 75,000 * 2,048 * Regence Blue Cross/Blue Shield of Washington .......... $ 345,000 * 9,420 * SBC Warburg Dillon Read Inc. .......................... $ 6,963,000 1.23% 190,116 * SSIHM Charitable Trust ................................ $ 730,000 * 19,932 * Sage Capital. ......................................... $ 1,500,000 * 40,956 * Salomon Brothers Total Return Fund .................... $ 500,000 * 13,652 * Secura Insurance, A Mutual Company .................... $ 440,000 * 12,014 * Security Mutual Life Insurance ........................ $ 130,000 * 3,549 * Service Life and Casualty Insurance Company ........... $ 60,000 * 1,638 * Service Lloyds Insurance Company ...................... $ 60,000 * 1,638 * Shepherd Investments International Ltd. ............... $ 1,000,000 * 27,304 * Silverton International Fund Limited .................. $ 4,400,000 * 120,137 * Smith Barney Inc. ..................................... $ 6,860,000 * 187,304 * Societe Generale ...................................... $ 5,250 * 93 * Southern Farm Bureau Life Insurance -- FRIC ........... $ 800,000 * 21,843 * Standard Mutual Insurance Company ..................... $ 250,000 * 6,826 * Stark International ................................... $ 1,000,000 * 27,304 * Starvest-- Discretionary .............................. $ 500,000 * 13,652 * Starvest Diversified Fund-- Managed ................... $ 150,000 * 4,096 * Starvest-- Investment Grade ........................... $ 375,000 * 10,239 *
17
PRINCIPAL AMOUNT NUMBER OF OF DEBENTURES PERCENTAGE OF CONVERSION SHARES PERCENTAGE OF BENEFICIALLY OWNED DEBENTURES THAT COMMON STOCK NAME THAT MAY BE SOLD OUTSTANDING MAY BE SOLD(1) OUTSTANDING(2) - --------------------------------------------------- -------------------- --------------- ------------------- --------------- State Employees' Retirement Fund of the State of Delaware ......................................... $ 1,380,000 * 37,679 * State of Connecticut Combined Investment Funds..... $ 4,905,000 * 133,925 * Symphony Asset Management, LLC .................... $13,000,000 2.29 354,948 * State of Oregon Equity. ........................... $ 6,250,000 1.10% 170,648 * State of Oregon/SAIF Corporation. ................. $ 5,250,000 * 143,345 * Teachers Insurance and Annuity Association of America .......................................... $ 5,000,000 * 136,519 * Tennessee Consolidated Retirement System .......... $ 7,000,000 1.23% 191,126 * Texas Builders Insurance Company .................. $ 120,000 * 3,276 * Transguard Insurance of America Inc. .............. $ 830,000 * 22,662 * Twin Life Insurance Company ....................... $ 55,000 * 1,502 * United National Insurance Company. ................ $ 3,000,000 * 81,911 * United Teacher Associates Insurance Company. ...... $ 1,500,000 * 40,956 * Vanguard Convertible Securities Fund, Inc. ........ $ 3,565,000 * 97,338 * Van Kampen American Capital Convertible Securi- ties Fund ........................................ $ 850,000 * 23,208 * Van Kampen American Capital Harbor Fund ........... $ 5,150,000 * 140,614 * Walker Art Center ................................. $ 175,000 * 4,778 * Washington International Insurance Company ........ $ 300,000 * 8,191 * Weirton Trust ..................................... $ 465,000 * 12,696 * Western Home Insurance Company .................... $ 170,000 * 4,642 * Westward Life Insurance Company ................... $ 110,000 * 3,003 * Wisconsin Lawyers Mutual Insurance Company ........ $ 140,000 * 3,823 * Wisconsin Mutual Insurance Company ................ $ 110,000 * 3,003 * World Insurance Company ........................... $ 520,000 * 14,198 * Zeneca Holdings Trust ............................. $ 450,000 * 12,287 *
- ---------- * Less than 1%. (1) Assumes conversion of the full amount of Debentures held by such holder at the initial conversion price of $36.625 per share; such conversion price is subject to adjustment as described under "Description of the Debentures-- Conversion". Accordingly, the number of shares of Common Stock issuable upon conversion of the Debentures may increase or decrease from time to time. Under the terms of the Indenture, fractional shares will not be issued upon conversion of the Debentures; cash will be paid in lieu of fractional shares, if any. (2) Computed in accordance with Rule 13d-3(d)(i) promulgated under the Exchange Act and based upon 399,952,582 shares of Common Stock outstanding as of March 30, 1998, treating as outstanding the number of Conversion Shares shown as being issuable upon the assumed conversion by the named holder of the full amount of such holder's Debentures but not assuming the conversion of the Debentures of any other holder. The preceding table has been prepared based upon the information furnished to the Company by The Bank of Nova Scotia Trust Company of New York, as trustee (the "Trustee") for the Debentures, and by The Depository Trust Company ("DTC"). The Selling Securityholders identified above may have sold, transferred or otherwise disposed of, in transactions exempt from the registration requirements of the Securities Act, all or a portion of their Debentures since the date on which the information in the preceding table is presented. Information concerning the Selling Securityholders may change from time to time and any such changed information will be set forth in supplements to this Prospectus if and when necessary. Because the Selling Securityholders may offer all or some of the Debentures or Conversion Shares that they hold pursuant to the offering contemplated by this Prospectus, no estimate can be given as to the amount of the Debentures or Conversion Shares that will be held by the Selling Securityholders upon the termination of this offering. See "Plan of Distribution". 18 PLAN OF DISTRIBUTION Pursuant to a Registration Rights Agreement dated as of March 17, 1998 (the "Registration Rights Agreement"), between the Company and the initial purchasers named therein (the "Initial Purchasers") entered into in connection with the offering of the Debentures, the Registration Statement of which this Prospectus forms a part was filed with the SEC covering the resale of the Debentures and the Conversion Shares. The Company has agreed to use all reasonable efforts to keep the Registration Statement effective until March 20, 2000 (or such earlier date when the holders of the Conversion Shares are able to sell all such Conversion Shares immediately without restriction pursuant to Rule 144(k) under the Securities Act or any successor rule thereto or otherwise). The Company will be permitted to suspend the use of this Prospectus (which is a part of the Registration Statement) in connection with sales of Conversion Shares by holders during certain periods of time under certain circumstances relating to pending corporate developments and public filings with the SEC and similar events. The specific provisions relating to the registration rights described above are contained in the Registration Rights Agreement, and the foregoing summary is qualified in its entirety by reference to the provisions of such agreement. Sales of the Debentures and the Conversion Shares may be effected by or for the account of the Selling Securityholders from time to time in transactions (which may include block transactions in the case of the Conversion Shares) on any exchange or market on which such securities are listed or quoted, as applicable, in negotiated transactions, through a combination of such methods of sale, or otherwise, at fixed prices that may be changed, at market prices prevailing at the time of sale, at prices related to prevailing market prices, or at negotiated prices. The Selling Securityholders may effect such transactions by selling the Debentures or Conversion Shares directly to purchasers, through broker-dealers acting as agents for the Selling Securityholders, or to broker-dealers who may purchase Debentures or Conversion Shares as principals and thereafter sell the Debentures or Conversion Shares from time to time in transactions (which may include block transactions in the case of the Conversion Shares) on any exchange or market on which such securities are listed or quoted, as applicable, in negotiated transactions, through a combination of such methods of sale, or otherwise. In effecting sales, broker-dealers engaged by Selling Securityholders may arrange for other broker-dealers to participate. Such broker-dealers, if any, may receive compensation in the form of discounts, concessions or commissions from the Selling Securityholders and/or the purchasers of the Debentures or Conversion Shares from whom such broker-dealers may act as agents or to whom they may sell as principals, or both (which compensation as to a particular broker-dealer might be in excess of customary commissions). The Selling Securityholders and any broker-dealers, agents or underwriters that participate with the Selling Securityholders in the distribution of the Debentures or Conversion Shares may be deemed to be "underwriters" within the meaning of the Securities Act. Any commissions paid or any discounts or concessions allowed to any such persons, and any profits received on the resale of the Debentures or Conversion Shares offered hereby and purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. At the time a particular offering of the Debentures or the Conversion Shares is made and to the extent required, the aggregate principal amount of Debentures and number of Conversion Shares being offered, the name or names of the Selling Securityholders, and the terms of the offering, including the name or names of any underwriters, broker-dealers or agents, any discounts, concessions or commissions and other terms constituting compensation from the Selling Securityholders, and any discounts, concessions or commissions allowed or reallowed or paid to broker-dealers, will be set forth in an accompanying Prospectus Supplement. Pursuant to the Registration Rights Agreement, the Company has agreed to pay all expenses incident to the offer and sale of the Debentures and Conversion Shares offered by the Selling Securityholders hereby, except that the Selling Securityholders will pay all underwriting discounts and selling commissions, if any. The Company has agreed to indemnify the Selling Securityholders against certain liabilities, including liabilities under the Securities Act, and to contribute to payments the Selling Securityholders may be required to make in respect thereof. 19 To comply with the securities laws of certain jurisdictions, if applicable, the Debentures and the Conversion Shares offered hereby will be offered or sold in such jurisdictions only through registered or licensed brokers or dealers. Under applicable rules and regulations under the Exchange Act, any person engaged in a distribution of the Debentures or the Conversion Shares may be limited in its ability to engage in market activities with respect to such Debentures or Conversion Shares. In addition and without limiting the foregoing, each Selling Securityholder will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, which provisions may limit the timing of purchase and sales of any of the Debentures and Conversion Shares by the Selling Securityholders. The foregoing may affect the marketability of the Debentures and the Conversion Shares. From time to time, Smith Barney Inc. or its affiliates have provided, and may continue to provide, investment banking services to the Company for which they received or will receive customary fees. See "Selling Securityholders". DESCRIPTION OF DEBENTURES The Debentures were issued under an indenture dated as of March 20, 1998 (the "Indenture") between the Company and the Trustee. The following summaries of certain provisions of the Indenture do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all of the provisions of the Indenture, including the definition therein of certain terms. Wherever particular sections or defined terms of the Indenture are referred to, such sections or defined terms are incorporated herein by reference. Copies of the proposed form of Indenture are available from the Company or the Initial Purchasers upon request. GENERAL The Debentures are unsecured obligations of the Company, are limited to $575,000,000 in aggregate principal amount (including the Initial Purchasers' over-allotment option, which expired on April 20, 1998, with $67,750,000 of such over-allotment option having been exercised) and will mature on April 1, 2003. The Debentures bear interest at the rate of 3.25% per annum from the date of original issuance of Debentures pursuant to the Indenture, or from the most recent Interest Payment Date to which interest has been paid or provided for, payable semiannually on April 1 and October 1 of each year, commencing October 1, 1998, to the Person in whose name the Debenture (or any predecessor Debenture) is registered at the close of business on the preceding March 15 or September 15, as the case may be. Interest on the Debentures will be paid on the basis of a 360-day year of twelve 30-day months. The Debentures are issued in registered form, without coupons and in denominations of $1,000 or any integral multiple thereof. No service charge will be made for any transfer or exchange of the Debentures, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge and any other expenses (including the fees and expenses of the Trustee) payable in connection therewith. The Company is not required (i) to issue, register the transfer of or exchange any Debentures during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption and ending at the close of business on the day of such mailing, or (ii) to register the transfer of or exchange any Debenture selected for redemption in whole or in part, except the unredeemed portion of Debentures being redeemed in part. The Indenture does not contain any provisions that would provide protection to Holders of the Debentures against a sudden and dramatic decline in credit quality of the Company resulting from any takeover, recapitalization or similar restructuring, except as described below under "Certain Rights to Require Repurchase of Debentures". CONVERSION RIGHTS The Debentures are convertible into Common Stock at any time prior to redemption or final maturity, initially at the conversion price of $36.625 per share (resulting in an initial conversion ratio of 27.30 shares per $1,000 principal amount). The right to convert Debentures which have been called for redemption will terminate at the close of business on the second business day preceding the Redemption Date. See "Optional Redemption" below. 20 The conversion price is subject to adjustment upon the occurrence of any of the following events: (i) the subdivision, combination or reclassification of outstanding shares of Common Stock; (ii) the payment in shares of Common Stock of a dividend or distribution on any class of capital stock of the Company; (iii) the issuance of rights or warrants to all holders of Common Stock entitling them to acquire shares of Common Stock at a price per share less than the Current Market Price; (iv) the distribution to holders of Common Stock of shares of capital stock other than Common Stock, evidences of indebtedness, cash or assets (including securities, but excluding dividends or distributions paid exclusively in cash and dividends, distributions, rights and warrants referred to above); (v) a distribution consisting exclusively of cash (excluding any cash distributions referred to in (iv) above) to all holders of Common Stock in an aggregate amount that, together with (A) all other cash distributions (excluding any cash distributions referred to in (iv) above) made within the 12 months preceding such distribution and (B) any cash and the fair market value of other consideration payable in respect of any tender offer by the Company or a subsidiary of the Company for the Common Stock consummated within the 12 months preceding such distribution, exceeds 12.5% of the Company's market capitalization (determined as provided in the Indenture) on the date fixed for determining the stockholders entitled to such distribution; and (vi) the consummation of a tender offer made by the Company or any subsidiary of the Company for the Common Stock which involves an aggregate consideration that, together with (X) any cash and other consideration payable in respect of any tender offer by the Company or a subsidiary of the Company for the Common Stock consummated within the 12 months preceding the consummation of such tender offer and (Y) the aggregate amount of all cash distributions (excluding any cash distributions referred to in (iv) above) to all holders of the Common Stock within the 12 months preceding the consummation of such tender offer, exceeds 12.5% of the Company's market capitalization at the date of consummation of such tender offer. No adjustment of the conversion price is required to be made until cumulative adjustments amount to at least one percent of the conversion price, as last adjusted. Any adjustment that would otherwise be required to be made shall be carried forward and taken into account in any subsequent adjustment. In addition to the foregoing adjustments, the Company from time to time may, to the extent permitted by law, reduce the conversion price of the Debentures by any amount for any period of at least 20 days, in which case the Company shall give at least 15 days notice of such decrease. The Company will also be permitted to reduce the conversion price to such extent as it considers to be advisable in order that any event treated for federal income tax purposes as a dividend of stock or stock rights will not be taxable to the holders of the Common Stock or, if that is not possible, to diminish any income taxes that are otherwise payable because of such event. In the case of any consolidation or merger of the Company with any other corporation (other than one in which no change is made in the Common Stock), or any sale or transfer of all or substantially all of the assets of the Company, the Holder of any Debenture then outstanding will, with certain exceptions, have the right thereafter to convert such Debenture only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer by a holder of the number of shares of Common Stock into which such Debenture might have been converted immediately prior to such consolidation, merger, sale or transfer; and adjustments will be provided for events subsequent thereto that are as nearly equivalent as practical to the conversion price adjustments described above. Fractional shares of Common Stock will not be issued upon conversion, but, in lieu thereof, the Company will pay a cash adjustment based upon the then Closing Price at the close of business on the day of conversion. If any Debentures are surrendered for conversion during the period from the close of business on any Regular Record Date through and including the next succeeding Interest Payment Date (except any such Debentures called for redemption on a redemption date occurring on or before such Interest Payment Date), such Debentures when surrendered for conversion must be accompanied by payment in next day funds of an amount equal to the interest thereon which the registered Holder on such Regular Record Date is to receive. Except as described in the preceding sentence, no interest will be payable by the Company on converted Debentures with respect to any Interest Payment Date subsequent to the date of conversion. No other payment or adjustment for interest or dividends is to be made upon conversion. 21 SUBORDINATION No payment or distribution of any assets of the Company of any kind or character (other than payments of amounts already deposited in accordance with the defeasance provisions of the Indenture) will be made on account of Subordinated Obligations or on account of the purchase, redemption or other acquisition of the Debentures upon the occurrence of any default in the payment of any Senior Indebtedness in excess of $5,000,000 beyond any applicable grace period, unless and until such default is cured or waived or ceases to exist or such Senior Indebtedness is discharged. During the continuance of any non-payment event of default with respect to any Designated Senior Indebtedness pursuant to which the maturity thereof may be accelerated, no payment or distribution of any assets of the Company of any kind or character may be made by the Company on account of Subordinated Obligations or on account of the purchase, redemption or other acquisition of the Debentures for the period specified below (the "Payment Blockage Period"). The Payment Blockage Period shall commence upon the receipt of notice by the Company and the Trustee from any representative of a holder of Designated Senior Indebtedness and shall end on the earlier of (i) 179 days thereafter, (ii) the date on which such event is cured or waived or ceases to exist or on which such Designated Senior Indebtedness is discharged, (iii) the date on which the maturity of any Indebtedness (other than Senior Indebtedness) shall have been accelerated by virtue of such event, or (iv) the date on which such Payment Blockage Period shall have been terminated by notice to the Company or the Trustee from the representative of holders of the Designated Senior Indebtedness initiating such Payment Blockage Period, after which the Company shall resume making any and all required payments in respect of the Debentures, including any missed payments. Only one Payment Blockage Period may be commenced during any period of 365 consecutive days. No event of default with respect to Designated Senior Indebtedness that existed or was continuing on the date of the commencement of any Payment Blockage Period with respect to the Designated Senior Indebtedness initiating such Payment Blockage Period will be, or can be, made the basis for the commencement of a second Payment Blockage Period whether or not within a period of 365 consecutive days, unless such event of default has been cured or waived for a period of not less than 90 consecutive days. In no event will a Payment Blockage Period extend beyond 179 days. The payment of the principal of and premium, if any, and interest on the Debentures will, to the extent set forth in the Indenture, be subordinated in right of payment to the prior payment in full of all Senior Indebtedness. If there is a payment or distribution of assets to creditors upon any liquidation, dissolution, winding up, reorganization, assignment for the benefit of creditors, marshalling of assets or any bankruptcy, insolvency or similar proceedings of the Company, the holders of all Senior Indebtedness will be entitled to receive payment in full of all amounts due or to become due thereon or provision for such payment in money or money's worth before the Holders of the Debentures will be entitled to receive any payment in respect to the principal of or premium, if any, or interest on the Debentures. In the event of the acceleration of the maturity of the Debentures, the holders of all Senior Indebtedness will first be entitled to receive payment in full in cash of all amounts due thereon or provision for such payment in money or money's worth before the Holders of the Debentures will be entitled to receive any payment for the principal of or premium, if any, or interest on the Debentures. No payments on account of principal of or premium, if any, or interest on the Debentures or on account of the purchase or acquisition of Debentures may be made if there has occurred and is continuing a default in any payment with respect to Senior Indebtedness, any acceleration of the maturity of any Senior Indebtedness or if any judicial proceeding is pending with respect to any such default. Senior Indebtedness is defined in the Indenture as all indebtedness, liabilities and other obligations of the Company, other than the Debentures, whether existing on the date of execution of the Indenture or thereafter created, incurred or assumed, except any such other indebtedness, liabilities or other obligations that by their terms or by operation of law are subordinated to, or subordinated on a parity with, the Debentures. The Debentures will rank pari passu with the Company's 9.5% Senior Subordinated Notes due 2001 (the "Notes") and any securities which may be issued in the future on a parity with the Notes. 22 Designated Senior Indebtedness is defined in the Indenture as (i) amounts now or hereafter outstanding under the Company's existing bank credit facilities or indebtedness incurred to extend, refund or refinance such amounts and (ii) any Senior Indebtedness which, at the time of determination, has an aggregate principal amount outstanding of at least $20,000,000 and is specifically designated in the instrument evidencing such Senior Indebtedness as "Designated Senior Indebtedness" by the Company. The Indenture does not limit or prohibit the incurrence of Senior Indebtedness by the Company or the Subsidiaries. After giving effect to the sale of the Debentures and the application of the net proceeds therefrom as though it had occurred on March 31, 1998, the amount of Senior Indebtedness was approximately $1,155,999,000. The Indenture provides that the Company shall not create, incur, assume or suffer to exist any indebtedness that is subordinate in right of payment to any Senior Indebtedness unless such indebtedness is subordinate in right of payment to, or ranks pari passu with, the Debentures. OPTIONAL REDEMPTION The Debentures are redeemable, at the Company's option, in whole or from time to time in part, at any time on or after April 5, 2001, upon not less than 30 nor more than 60 days' notice mailed to each Holder of Debentures to be redeemed at its address appearing in the Security Register and prior to Maturity at the following Redemption Prices (expressed as percentages of the principal amount) plus accrued interest to the Redemption Date (subject to the right of Holders of record on the relevant Regular Record Date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date). If redeemed during the 12-month period beginning April 1 in the year indicated (April 5, in the case of 2001), the redemption price shall be:
YEAR REDEMPTION PRICE --------------------------- ----------------- 2001 .................... 101.30% 2002 .................... 100.65%
No sinking fund is provided for the Debentures. CONSOLIDATION, MERGER AND SALE OF ASSETS The Indenture provides that the Company will not consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entity to any Person, or permit any Person to consolidate with or merge into the Company or convey, transfer or lease its properties substantially as all entirely to the Company, unless (a) if applicable, the Person formed by such consolidation or into which the Company is merged or the Person or corporation which acquires the properties and assets of the Company substantially as an entirely is a corporation, partnership or trust organized and validly existing under the laws of the United States or any state thereof or the District of Columbia and expressly assumes payment of the principal of and premium, if any, and interest on the Debentures and performance and observance of each obligation of the Company under the Indenture, (b) after consummating such consolidation, merger, transfer or lease, no Default or Event of Default will occur and be continuing, (c) such consolidation, merger or acquisition does not adversely affect the validity or enforceability of the Debentures and (d) the Company has delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease complies with the provisions of the Indenture. CERTAIN RIGHTS TO REQUIRE REPURCHASE OF DEBENTURES In the event of any Repurchase Event (as defined below) occurring after the date of issuance of the Debentures and on or prior to Maturity, each Holder of Debentures will have the right, at the Holder's option, to require the Company to repurchase all or any part of the Holder's Debentures on the date (the "Repurchase Date") that is 30 days after the date the Company gives notice of the Repurchase 23 Event as described below at a price (the "Repurchase Price") equal to 100% of the principal amount thereof, together with accrued and unpaid interest to the Repurchase Date. On or prior to the Repurchase Date, the Company shall deposit with the Trustee or a Paying Agent an amount of money sufficient to pay the Repurchase Price of the Debentures which are to be repaid on or promptly following the Repurchase Date. Failure by the Company to provide timely notice of a Repurchase Event, as provided for below, or to repurchase the Debentures when required under the preceding paragraph will result in an Event of Default under the Indenture whether or not such repurchase is permitted by the subordination provisions of the Indenture. On or before the 15th day after the occurrence of a Repurchase Event, the Company is obligated to mail to all Holders of Debentures a notice of the occurrence of such Repurchase Event and identifying the Repurchase Date, the date by which the repurchase right must be exercised, the Repurchase Price for Debentures and the procedures which the Holder must follow to exercise this right. To exercise the repurchase right, the Holder of a Debenture must deliver, on or before the close of business on the Repurchase Date, written notice to the Company (or an agent designated by the Company for such purpose) and to the Trustee of the Holder's exercise of such right, together with the certificates evidencing the Debentures with respect to which the right is being exercised, duly endorsed for transfer. A "Repurchase Event" shall have occurred upon the occurrence of a Change in Control or a Termination of Trading (each as defined below). A "Change in Control" shall occur when: (i) all or substantially all of the Company's assets are sold as an entirety to any person or related group of persons; (ii) there shall be consummated any consolidation or merger of the Company (A) in which the Company is not the continuing or surviving corporation (other than a consolidation or merger with a wholly owned subsidiary of the Company in which all shares of Common Stock outstanding immediately prior to the effectiveness thereof are changed into or exchanged for the same consideration) or (B) pursuant to which the Common Stock would be converted into cash, securities or other property, in each case other than a consolidation or merger of the Company in which the holders of the Common Stock immediately prior to the consolidation or merger have, directly or indirectly, at least a majority of the total voting power of all classes of capital stock entitled to vote generally in the election of directors of the continuing or surviving corporation immediately after such consolidation or merger in substantially the same proportion as their ownership of Common Stock immediately before such transaction; (iii) any person, or any persons acting together which would constitute a "group" for purposes of Section 13(d) of the Exchange Act, together with any affiliates thereof, shall beneficially own (as defined in Rule 13d-3 under the Exchange Act) at least 50% of the total voting power of all classes of capital stock of the Company entitled to vote generally in the election of directors of the Company; (iv) at any time during any consecutive two-year period, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election by such Board of Directors or whose nomination for election by the stockholders of the Company was approved by a vote of 66-2/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office; or (v) the Company is liquidated or dissolved or adopts a plan of liquidation or dissolution. A "Termination of Trading" shall occur if the Common Stock (or other common stock into which the Debentures are then convertible) is neither listed for trading on a U.S. national securities exchange nor approved for trading on an established automated over-the-counter trading market in the United States. The right to require the Company to repurchase Debentures as a result of the occurrence of a Repurchase Event could create an event of default under Senior Indebtedness as a result of which any repurchase could, absent a waiver, be blocked by the subordination provisions of the Debentures. See "Subordination". Contractual limitations imposed by other indebtedness may also, absent a waiver, restrict or prohibit repurchases under certain circumstances. 24 In the event a Repurchase Event occurs and the Holders exercise their rights to require the Company to repurchase Debentures, the Company intends to comply with applicable tender offer rules under the Exchange Act, including Rules 13e-4 and 14e-1, as then in effect, with respect to any such purchase. The foregoing provisions would not necessarily afford Holders of the Debentures protection in the event of highly leveraged or other transactions involving the Company that may adversely affect Holders. In addition, the foregoing provisions may discourage open market purchases of the Common Stock or a non-negotiated tender or exchange offer for such stock and, accordingly, may limit a stockholder's ability to realize a premium over the market price of the Common Stock in connection with any such transaction. EVENTS OF DEFAULT The following are Events of Default under the Indenture with respect to the Debentures: (a) default in the payment of principal of or any premium on any Debenture when due; (b) default in the payment of any interest on any Debenture when due, which default continues for 30 days; (c) failure to provide timely notice of a Repurchase Event as required by the Indenture; (d) default in the payment of the Repurchase Price in respect of any Debenture on the Repurchase Date therefor; (e) default in the performance of any other covenant of the Company in the Indenture which continues for 60 days after written notice as provided in the Indenture; (f) default under any bond, debenture, note or other evidence of indebtedness for money borrowed by the Company or any subsidiary of the Company or under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed by the Company or any subsidiary of the Company, whether such indebtedness now exists or shall hereafter be created, which default shall constitute a failure to pay the principal of indebtedness in excess of $25,000,000 when due and payable after the expiration of any applicable grace period with respect thereto or shall have resulted in indebtedness in excess of $25,000,000 becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable, without such indebtedness having been discharged, or such acceleration having been rescinded or annulled, within a period of 10 days after there shall have been given to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in aggregate principal amount of the Outstanding Debentures a written notice specifying such default and requiring the Company to cause such indebtedness to be discharged or cause such acceleration to be rescinded or annulled; and (g) certain events of bankruptcy, insolvency or reorganization of the Company or any Significant Subsidiary of the Company. The Events of Default described in clauses (a), (b) and (d) of the preceding sentence are without regard to whether the respective payments are prohibited by the subordination provisions of the Indenture. If an Event of Default with respect to the Debentures shall occur and be continuing, the Trustee or the Holders of not less than 25% in aggregate principal amount of the Outstanding Debentures may declare the principal of and premium, if any, on all such Debentures to be due and payable immediately, but if the Company cures all Events of Default (except the nonpayment of interest on, premium, if any, and principal of any Debentures) and certain other conditions are met, such declaration may be canceled and past defaults may be waived by the holders of a majority in principal amount of Outstanding Debentures. If an Event of Default shall occur as a result of an event of bankruptcy, insolvency or reorganization of the Company or any Significant Subsidiary of the Company, the aggregate principal amount of the Debentures shall automatically become due and payable. The Company is required to furnish to the Trustee annually a statement as to the performance by the Company of certain of its obligations under the Indenture and as to any default in such performance. The Indenture provides that the Trustee may withhold notice to the Holders of the Debentures of any continuing default (except in the payment of the principal of or premium, if any, or interest on any Debentures) if the Trustee considers it in the interest of Holders of the Debentures to do so. MODIFICATION, AMENDMENTS AND WAIVERS The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than a majority of the aggregate principal amount of the Outstanding Debentures, to execute a supplemental indenture to add provisions to, or change in any manner or eliminate any 25 provisions of, the Indenture or modify in any manner the rights of Holders of the Debentures, provided that without the consent of each holder of Outstanding Debentures, no supplemental indenture may (i) change the stated maturity of the principal of, or any installment of interest on, any Debenture, or reduce the principal amount thereof or the rate of interest thereon or any premium payable upon the redemption thereof, or change the place of payment where, or the coin or currency in which, any Debenture or any premium or interest thereon is payable, or impair the right to institute suit for enforcement of any such payment on or after the stated maturity thereof (or, in the case of redemption, on or after the redemption date) or modify the provisions of the Indenture with respect to the subordination of the Debentures in a manner adverse to the Holders, (ii) adversely affect the right to convert the Debentures as provided in the Indenture, (iii) impair the right of Holders of Debentures to require the Company to repurchase Debentures upon the occurrence of a Repurchase Event or (iv) reduce the percentage in principal amount of Outstanding Debentures, the consent of whose Holders is required for any waiver of compliance with certain provisions of the Indenture or certain defaults thereunder. Modifications and amendments of the Indenture may be made by the Company and the Trustee without the consent of the Holders to: (a) cause the Indenture to be qualified under the Trust Indenture Act; (b) evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company herein and in the Debentures; (c) add to the covenants of the Company for the benefit of the Holders or an additional Event of Default, or surrender any right or power conferred upon the Company; (d) secure the Debentures; (e) make provision with respect to the conversion rights of Holders in the event of a consolidation, merger or sale of assets involving the Company, as required by the Indenture; (f) evidence and provide for the acceptance of appointment by a successor Trustee with respect to the Debentures; or (g) cure any ambiguity, correct or supplement any provision which may be defective or inconsistent with any other provision, or make any other provisions with respect to matters or questions arising under the Indenture which shall not be inconsistent with the provisions of the Indenture; provided, however, that no such modifications or amendment may adversely affect the interest of Holders in any material respect. SATISFACTION AND DISCHARGE The Company may discharge its obligations under the Indenture while Debentures remain Outstanding if (a) all Outstanding Debentures will become due and payable at their scheduled maturity within one year or (b) all Outstanding Debentures are scheduled for redemption within one year, and in either case the Company has deposited with the Trustee an amount sufficient to pay and discharge all Outstanding Debentures on the date of their scheduled maturity or the scheduled date of redemption. FORM, DENOMINATION AND REGISTRATION The Debentures are issued in fully registered form, without coupons, in denominations of $1,000 in principal amount and integral multiples thereof. Global Debentures; Book-Entry Form. Debentures offered in reliance on Rule 144A are evidenced by a global debenture (hereinafter referred to as the "Rule 144A Global Debenture") and Debentures offered in reliance on Regulation S are evidenced by a global debenture (hereinafter referred to as the "Regulation S Global Debenture", and together with the Rule 144A Global Debenture, the "Global Debentures"). The Global Debentures are deposited with, or on behalf of, the DTC and registered in the name of Cede & Co. ("Cede") as DTC's nominee. Beneficial interests in the Regulation S Global Debenture may only be held through the Euroclear System or Cede. Except as set forth below, the Global Debentures may be transferred, in whole or in part, only to another nominee of DTC or to a successor of DTC or its nominee. The Rule 144A Global Debenture will be (i) reduced in principal amount to reflect the subsequent transfer by owners of beneficial interests in the Rule 144A Global Debenture to persons other than Qualified Institutional Buyers pursuant to Rule 144A under the Securities Act and (ii) increased in principal amount to reflect the subsequent transfer of Debentures to Qualified Institutional Buyers pursuant to Rule 144A. The Regulation S Global Debenture will be (i) reduced in principal amount to reflect the subsequent transfer by owners of beneficial interests in the 26 Regulation S Global Debenture to persons other than persons acquiring such Debentures in compliance with Regulation S under the Securities Act and (ii) increased in principal amount to reflect the subsequent transfer of Debentures to persons acquiring such Debentures in compliance with Regulation S under the Securities Act. The Holders of Debentures may hold their interests in the Global Debentures directly through DTC if such Holder is a participant in DTC, or indirectly through organizations which are participants in DTC (the "Participants"). Transfers between Participants will be effected in the ordinary way in accordance with DTC rules and will be settled in same day funds. The laws of some states require that certain persons take physical delivery of securities in definitive form. Consequently, the ability to transfer beneficial interests in the Global Debentures to such persons may be limited. The Holders of Debentures who are not Participants may beneficially own interests in the Global Debentures held by DTC only through Participants or certain banks, brokers, dealers, trust companies and other parties that clear through or maintain a custodial relationship with a Participant, either directly or indirectly ("Indirect Participants"). So long as Cede, as the nominee of DTC, is the registered owner of the Global Debentures, Cede for all purposes will be considered the sole holder of the Global Debentures. Payment of interest on and the redemption price (upon redemption at the option of the Company or at the option of the Holder upon a Repurchase Event) of the Global Debentures will be made to Cede, the nominee for DTC, as the registered owner of the Global Debentures, by wire transfer of immediately available funds. Neither the Company, the Trustee nor any paying agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Global Debentures or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. With respect to any payment of interest on and the redemption price (upon redemption at the option of the Company or at the option of the Holder upon a Repurchase Event) of the Global Debentures, DTC's practice is to credit Participants' accounts on the payment date therefor with payments in amounts proportionate to their respective beneficial interests in the Debentures represented by the Global Debentures as shown on the records of DTC, unless DTC has reason to believe that it will not receive payment on such payment date. Payments by Participants to owners of beneficial interests in Debentures represented by the Global Debentures held through such Participants will be the responsibility of such Participants, as is now the case with securities held for the accounts of customers registered in "street name". Because DTC can only act on behalf of Participants, who in turn act on behalf of Indirect Participants and certain banks, the ability of a person having a beneficial interest in Debentures represented by the Global Debentures to pledge such interest to persons or entities that do not participate in the DTC system, or otherwise take actions in respect of such interest, may be affected by the lack of a physical certificate evidencing such interest. Neither the Company nor the Trustee (or any registrar, paying agent or conversion agent under the Indenture) has any responsibility for the performance by DTC or its Participants or Indirect Participants of their respective obligations under the rules and procedures governing their operations. DTC has advised the Company that it will take any action permitted to be taken by a holder of Debentures only at the direction of one or more Participants whose accounts are credited with DTC interests in a Global Debenture. DTC has advised the Company as follows: DTC is a limited purpose trust company organized under the laws of the State of New York, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its Participants and to facilitate the clearance and settlement of securities transactions, such as transfers and pledges, among Participants in deposited securities through electronic book-entry changes to accounts of its Participants, 27 thereby eliminating the need for physical movement of securities certificates. Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. Certain of such Participants (or their representatives), together with other entities, own DTC. The rules applicable to DTC and its Participants are on file with the SEC. Purchases of Debentures under the DTC system must be made by or through Participants which will receive a credit for the Debentures on DTC's records. The ownership interest of each actual purchaser of each Debenture (a "Beneficial Owner") is in turn to be recorded on the Participants' and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Participant or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Debentures are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Debentures, except in the event that use of the book-entry system for the Debentures is discontinued. The deposit of Debentures with DTC and their registration in the name of Cede effect no change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Debentures; DTC's records reflect only the identity of the Participants to whose accounts such Debentures are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Participants, by Participants to Indirect Participants and by Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements that may be in effect from time to time. Redemption notices shall be sent to Cede. If less than all of the Debentures due are being redeemed, DTC's practice is to determine by lot the interest of each Participant in such Debentures due to be redeemed. DTC may discontinue providing its services as securities depositary with respect to the Debentures at any time by giving reasonable notice to the Company. In the event that DTC notifies the Company that it is unwilling or unable to continue as depositary for any Global Debenture or if at any time DTC ceases to be a clearing agency registered as such under the Exchange Act when DTC is required to be so registered to act as such depositary and no successor depositary shall have been appointed within 90 days of such notification or of the Company becoming aware of DTC's ceasing to be so registered, as the case may be, certificates for the Debentures will be printed and delivered in exchange for interests in such Global Debenture. Any Global Debenture that is exchangeable pursuant to the preceding sentence shall be exchangeable for Debentures registered in such names as DTC shall direct. It is expected that such instructions will be based upon directions received by DTC from its Participants with respect to ownership of beneficial interests in such Global Debenture. The Company may decide to discontinue use of the system of book-entry transfers thorough DTC (or a successor securities depository). In that event, certificates representing the Debentures will be printed and delivered. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that the Company believes to be reliable, but the Company does not take responsibility for the accuracy thereof. Certificated Debentures. Debentures sold to investors that are neither Qualified Institutional Buyers nor persons acquiring such Debentures in compliance with Regulation S under the Securities Act will be issued in definitive registered form and may not be evidenced by a Global Debenture. Qualified Institutional Buyers may request that their Debentures be issued in definitive registered form. In addition, certificated Debentures may be issued in exchange for Debentures represented by the Global Debentures if no successor depositary is appointed by the Company as set forth above under the paragraph entitled "Global Debentures; Book-Entry Form". Restrictions on Transfer; Legends. The Debentures, and the Common Stock into which they may be converted, will be subject to certain transfer restrictions as described below under the caption "Notice to Investors", and certificates evidencing the Debentures will bear a legend to such effect. 28 PAYMENTS OF PRINCIPAL AND INTEREST; TRANSFER, EXCHANGE OR CONVERSION The Indenture will require that payments in respect of the Debentures (including principal, premium, if any, and interest) held of record by DTC (including Debentures evidenced by the Rule 144A Global Debenture) be made in same day funds. Payments in respect of the Debentures held of record by holders other than DTC may, at the option of the Company, be made by check and mailed to such holders of record as shown on the register for the Debentures. The Debentures may be surrendered for transfer, exchange or conversion at the office of the Trustee in New York, New York. GOVERNING LAW The Indenture and Debentures will be governed by and construed in accordance with the laws of the State of New York, without giving effect to such State's conflicts of laws principles. INFORMATION CONCERNING THE TRUSTEE The Company and its subsidiaries may maintain deposit accounts and conduct other banking transactions with the Trustee in the ordinary course of business. EXPERTS The consolidated financial statements and schedules of HEALTHSOUTH at December 31, 1997 and 1996, and for each of the three years in the period ended December 31, 1997, appearing in HEALTHSOUTH's Annual Report (Form 10-K) for the year ended December 31, 1997, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon incorporated herein by reference. Such consolidated financial statements and schedule are incorporated herein by reference in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. LEGAL MATTERS Certain legal matters with respect to the validity of the Debentures and the Conversion shares offered hereby have been passed upon by Haskell Slaughter & Young, L.L.C. 29 ================================================================================ No dealer, salesperson or other person has been authorized to give any information or to make any representations other than as contained herein, and if given or made, such information or representations must not be relied upon as having been authorized by the Company. This Prospectus does not constitute an offer to sell or a solicitation of an offer to purchase any securities other than those to which it relates or an offer to, or solicitation of, any person in any jurisdiction where such an offer or solicitation would be unlawful. Neither the delivery of this Prospectus nor any sale hereunder shall under any circumstances create any implication that there has been no change in the affairs of the Company or that information provided herein is correct at any time subsequent to its date. ----------------------------------- TABLE OF CONTENTS
PAGE ----- Available Information ............... 2 Forward-Looking Statements .......... 2 Incorporation of Certain Informa- tion by Reference ................ 2 The Company ......................... 4 Recent Developments ................. 4 Risk Factors ........................ 5 Use of Proceeds ..................... 13 Ratio of Earnings to Fixed Charges 13 Selling Securityholders ............. 14 Plan of Distribution ................ 19 Description of Debentures ........... 20 Experts ............................. 29 Legal Matters ....................... 29
================================================================================ ================================================================================ $567,750,000 3.25% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2003 15,501,707 SHARES COMMON STOCK HEALTHSOUTH CORPORATION ----------------------------------- P R O S P E C T U S JUNE 3, 1998 ================================================================================ PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the estimated expenses to be incurred in connection with the distribution of the securities registered hereby. All such expenses shall be borne by the Company. Registration fee under the Securities Act of 1933. $ 167,486.25 Printing expenses ................................ 95,000.00 Legal fees and expenses .......................... 100,000.00 Accounting services .............................. 80,000.00 Miscellaneous .................................... 7,513.75 ------------- Total ............................................ $ 450,000.00 =============
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 102(b)(7) of the Delaware General Corporation Law ("DGCL") grants corporations the right to limit or eliminate the personal liability of their directors in certain circumstances in accordance with provisions therein set forth. Article Nine of the HEALTHSOUTH Restated Certificate of Incorporation filed in the Office of the Secretary of the State of Delaware on March 13, 1997 (the "HEALTHSOUTH Certificate"), contains a provision eliminating or limiting director liability to HEALTHSOUTH and its stockholders for monetary damages arising from acts or omissions in the director's capacity as a director. The provision does not, however, eliminate or limit the personal liability of a director (i) for any breach of such director's duty of loyalty to HEALTHSOUTH or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under the Delaware statutory provision making directors personally liable, under a negligence standard, for unlawful dividends or unlawful stock purchases or redemptions, or (iv) for any transaction from which the director derived an improper personal benefit. This provision offers persons who serve on the Board of Directors of HEALTHSOUTH protection against awards of monetary damages resulting from breaches of their duty of care (except as indicated above). As a result of this provision, the ability of HEALTHSOUTH or a stockholder thereof to successfully prosecute an action against a director for a breach of his duty of care is limited. However, the provision does not affect the availability of equitable remedies such as an injunction or rescission based upon a director's breach of his duty of care. The SEC has taken the position that the provision will have no effect on claims arising under the Federal securities laws. Section 145 of the DGCL grants corporations the right to indemnify their directors, officers, employees and agents in accordance with the provisions therein set forth. Article Nine of the HEALTHSOUTH Certificate and Article IX of the HEALTHSOUTH Bylaws provide for mandatory indemnification rights, subject to limited exceptions, to any director, officer, employee, or agent of HEALTHSOUTH who, by reason of the fact that he or she is a director, officer, employee, or agent of HEALTHSOUTH, is involved in a legal proceeding of any nature. Such indemnification rights include reimbursement for expenses incurred by such director, officer, employee, or agent in advance of the final disposition of such proceeding in accordance with the applicable provisions of the DGCL. HEALTHSOUTH has entered into agreements with all of its Directors and its executive officers pursuant to which HEALTHSOUTH has agreed to indemnify such Directors and executive officers against liability incurred by them by reason of their services of a Director to the fullest extent allowable under applicable law. II-1 ITEM 16. EXHIBITS. Exhibits:
EXHIBIT NO. DESCRIPTION - ------------- ---------------------------------------------------------------- (1) Purchase Agreement, dated March 17, 1998, among HEALTHSOUTH Corporation and Smith Barney Inc., Bear, Stearns & Co. Inc., Cowen & Company, Credit Suisse First Boston Corporation, J.P. Morgan Securities Inc., Morgan Stanley & Co. Incorporated, NationsBanc Montgomery Securities LLC and PaineWebber Incorporated relating to the Company's 3.25% Convertible Subordinated Debentures due 2003. (3)-1 Restated Certificate of Incorporation of HEALTHSOUTH Corporation, filed as Exhibit (3)-1 to the Company's Current Report on Form 8-K, dated May 28, 1998, is hereby incorporated by reference. (4)-2 Subordinated Indenture, dated March 20, 1998, between HEALTHSOUTH Corporation and The Bank of Nova Scotia Trust Company of New York, as Trustee, filed as Exhibit (4)-2 to the Company's Annual Report on Form 10-K for the Fiscal Year ended December 31, 1997, is hereby incorporated by reference. (4)-3 Officer's Certificate pursuant to Sections 2.3 and 11.5 of the Subordinated Indenture, dated March 20, 1998, between HEALTHSOUTH and The Bank of Nova Scotia Trust Company of New York, as Trustee, relating to the Company's 3.25% Convertible Subordinated Debentures due 2003, filed as Exhibit (4)-3 to the Company's Annual Report on Form 10-K for the Fiscal Year ended December 31, 1997, is hereby incorporated by reference. (4)-4 Registration Rights Agreement, dated March 17, 1998, among HEALTHSOUTH Corporation and Smith Barney Inc., Bear Stearns & Co. Inc., Cowen & Company, Credit Suisse First Boston Corporation, J.P. Morgan Securities Inc., Morgan Stanley & Co. Incorporated, relating to the Company's 3.25% Convertible Subordinated Debentures due 2003, filed as Exhibit (4)-4 to the Company's Annual Report on Form 10-K for the Fiscal Year ended Decem- ber 31, 1997, is hereby incorporated by reference. (5) Opinion of Haskell Slaughter & Young, L.L.C., as to the legality of the shares of HEALTHSOUTH Common Stock issued in connection herewith. (12) Statements re Computation of Ratios. (23)-1 Consent of Ernst & Young LLP. (23)-2 Consent of Haskell Slaughter & Young, L.L.C. (included in the opinion filed as Exhibit (5)). (24) Powers of Attorney (included on the Signature Page of the Registration Statement on Form S-3 filed on May 8, 1998.) (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.
II-2 ITEM 17. UNDERTAKINGS. The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (a) To include any prospectus required by Section 10(a)(3) of this Act; (b) To reflect in the prospectus any facts or events arising after the effective date of this Registration Statement (or the most recent post-effective amendment thereof) which, individually or in aggregate, represent a fundamental change in the information set forth in this Registration Statement; and (c) To include any material information with respect to the plan of distribution not previously disclosed in this Registration Statement or any material change to such information in this Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) That, for the purpose of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (5) The undersigned registrant hereby undertakes to deliver or cause to be delivered with the prospectus, to each person to whom the prospectus is sent or given, the latest annual report, to security holders that is incorporated by reference in the prospectus and furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where interim financial information required to be presented by Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or cause to be delivered to each person to whom the prospectus is sent or given, the latest quarterly report that is specifically incorporated by reference in the prospectus to provide such interim financial information. (6) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Birmingham, State of Alabama, on June 3, 1998. HEALTHSOUTH CORPORATION By /s/ Richard M. Scrushy ----------------------------------- Richard M. Scrushy, Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ---------------------------- --------------------------------- ------------- /s/ Richard M. Scrushy Chairman of the Board and Chief June 3, 1998 - ------------------------- Executive Officer and Director Richard M. Scrushy * Executive Vice President, Chief June 3, 1998 - ------------------------- Financial Officer and Treasurer Michael D. Martin and Director * Group Senior Vice President and June 3, 1998 - ------------------------- Controller (Principal Accounting William T. Owens Officer) * Director June 3, 1998 - ------------------------- C. Sage Givens * Director June 3, 1998 - ------------------------- Charles W. Newhall III * Director June 3, 1998 - ------------------------- George H. Strong * Director June 3, 1998 - ------------------------- Phillip C. Watkins, M.D. * Director June 3, 1998 - ------------------------- John S. Chamberlin * Director June 3, 1998 - ------------------------- Anthony J. Tanner
II-4
SIGNATURE TITLE DATE - ---------------------------- --------------------------------- ------------- * Director June 3, 1998 - ------------------------- James P. Bennett * Director June 3, 1998 - ------------------------- P. Daryl Brown /s/ Joel C. Gordon Director June 3, 1998 - ------------------------- Joel C. Gordon * /s/ Richard M. Scrushy - ------------------------- Richard M. Scrushy Attorney-in-fact
II-5 EXHIBITS
EXHIBIT NO. DESCRIPTION - ------------- ---------------------------------------------------------------- (1) Purchase Agreement, dated March 17, 1998, among HEALTHSOUTH Corporation and Smith Barney Inc., Bear, Stearns & Co. Inc., Cowen & Company, Credit Suisse First Boston Corporation, J.P. Morgan Securities Inc., Morgan Stanley & Co. Incorporated, NationsBanc Montgomery Securities LLC and PaineWebber Incorporated relating to the Company's 3.25% Convertible Subordinated Debentures due 2003. (3)-1 Restated Certificate of Incorporation of HEALTHSOUTH Corporation, filed as Exhibit (3)-1 to the Company's Current Report on Form 8-K filed May 28, 1998, is hereby incorporated by reference. (4)-2 Subordinated Indenture, dated March 20, 1998, between HEALTHSOUTH Corporation and The Bank of Nova Scotia Trust Company of New York, as Trustee, filed as Exhibit (4)-2 to the Company's Annual Report on Form 10-K for the Fiscal Year ended December 31, 1997, is hereby incorporated by reference. (4)-3 Officer's Certificate pursuant to Sections 2.3 and 11.5 of the Subordinated Indenture, dated March 20, 1998, between HEALTHSOUTH and The Bank of Nova Scotia Trust Company of New York, as Trustee, relating to the Company's 3.25% Convertible Subordinated Debentures due 2003, filed as Exhibit (4)-3 to the Company's Annual Report on Form 10-K for the Fiscal Year ended December 31, 1997, is hereby incorporated by reference. (4)-4 Registration Rights Agreement, dated March 17, 1998, among HEALTHSOUTH Corporation and Smith Barney Inc., Bear Stearns & Co. Inc., Cowen & Company, Credit Suisse First Boston Corporation, J.P. Morgan Securities Inc., Morgan Stanley & Co. Incorporated, relating to the Company's 3.25% Convertible Subordinated Debentures due 2003, filed as Exhibit (4)-4 to the Company's Annual Report on Form 10-K for the Fiscal Year ended Decem- ber 31, 1997, is hereby incorporated by reference. (5) Opinion of Haskell Slaughter & Young, L.L.C., as to the legality of the shares of HEALTHSOUTH Common Stock issued in connection herewith. (12) Statements re Computation of Ratios. (23)-1 Consent of Ernst & Young LLP. (23)-2 Consent of Haskell Slaughter & Young, L.L.C. (included in the opinion filed as Exhibit (5)). (24) Powers of Attorney (included on the Signature Page of the Registration Statement on Form S-3 filed on May 8, 1998.) (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.
EX-1 2 EXHIBIT 1 EXHIBIT 1 $500,000,000 HEALTHSOUTH CORPORATION 3.25% Convertible Subordinated Debentures due 2003 PURCHASE AGREEMENT ------------------ March 17, 1998 SMITH BARNEY INC. BEAR, STEARNS & CO. INC. COWEN & COMPANY CREDIT SUISSE FIRST BOSTON CORPORATION J.P. MORGAN SECURITIES INC. MORGAN STANLEY & CO. INCORPORATED NATIONSBANC MONTGOMERY SECURITIES LLC PAINEWEBBER INCORPORATED c/o SMITH BARNEY INC. 388 Greenwich Street New York, New York 10013 Dear Sirs: HEALTHSOUTH Corporation, a Delaware corporation (the "Company"), proposes, upon the terms and conditions set forth herein, to issue and sell to you, as the initial purchasers (the "Initial Purchasers"), $500,000,000 aggregate principal amount of its 3.25% Convertible Subordinated Debentures due 2003 (the "Firm Debentures"). The Company also proposes, upon the terms and conditions set forth herein, to issue and sell to the Initial Purchasers up to an additional $75,000,000 aggregate principal amount of its 3.25% Convertible Subordinated Debentures due 2003 (the "Additional Debentures"). The Firm Debentures and the Additional Debentures are hereinafter collectively referred to as the "Debentures". The Debentures will be issued pursuant to the provisions of an Indenture, to be dated as of March 20, 1998 (the "Indenture"), between the Company and The Bank of Nova Scotia Trust Company of New York, as Trustee (the "Trustee"). The Company's common stock, par value $0.01 per share, is hereinafter referred to as the "Common Stock." The Company wishes to confirm as follows its agreement with the Initial Purchasers in connection with the purchase and resale of the Debentures. -1- 1. Offering Memorandum. The Debentures will be offered and sold to the Initial Purchasers without registration under the Securities Act of 1933, as amended (the "Act"), in reliance on an exemption pursuant to Section 4(2) under the Act. The Company has prepared an offering memorandum, dated March 17, 1998 (the "Offering Memorandum"), setting forth information regarding the Company and the Debentures. Any references herein to the Offering Memorandum shall be deemed to include all amendments and supplements thereto and any documents filed under the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Securities and Exchange Commission (the "Commission") thereunder (collectively, the "Exchange Act") 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 Offering Memorandum or any amendment or supplement thereto. The Company hereby confirms that it has authorized the use of the Offering Memorandum in connection with the offering and resale of the Debentures by the Initial Purchasers. The Company understands that the Initial Purchasers propose to make offers and sales (the "Exempt Resales") of the Debentures purchased by the Initial Purchasers hereunder only on the terms and in the manner set forth in the Offering Memorandum and Section 2 hereof, as soon as the Initial Purchasers deem advisable after this Agreement has been executed and delivered, (i) to persons in the United States whom the Initial Purchasers reasonably believe to be qualified institutional buyers ("Qualified Institutional Buyers") as defined in Rule 144A under the Act, as such rule may be amended from time to time ("Rule 144A"), in transactions under Rule 144A, (ii) to a limited number of other institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) and (7) under Regulation D of the Act) ("Accredited Investors") in private sales exempt from registration under the Act and (iii) outside the United States to persons other than U.S. persons in reliance upon Regulation S ("Regulation S") under the Act (such persons specified in clauses (i), (ii) and (iii) being referred to herein as the "Eligible Purchasers"). As used herein the terms "United States" and "U.S. persons" have the meaning given them in Regulation S. It is understood and acknowledged that upon original issuance thereof, and until such time as the same is no longer required under the applicable requirements of the Act, the Debentures (and all securities issued in exchange therefor, in substitution thereof or upon conversion thereof (including the Common Stock)) shall bear the following legend: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. -2- THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES NOT TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATED PERSON OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY) UNLESS SUCH OFFER, SALE OR OTHER TRANSFER IS (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON THE HOLDER REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1), (A)(2), (A)(3) OR (A)(7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR", FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S [TRANSFER AGENT'S] RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN EACH OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE [TRANSFER AGENT]. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE THEN HOLDER OF THIS SECURITY AFTER THE RESALE RESTRICTION TERMINATION DATE. It is also understood and acknowledged that holders (including subsequent transferees) of the Debentures and, if such Debentures are subsequently converted into Common Stock, the Common Stock, will have the registration rights set forth in the registration rights -3- agreement (the "Registration Rights Agreement"), to be dated the date hereof, in substantially the form of Exhibit A hereto, for so long as such Debentures and Common Stock constitute "Transfer Restricted Securities" (as defined in the Registration Rights Agreement). Pursuant to the Registration Rights Agreement, the Company will agree (i) to file with the Commission under the circumstances set forth therein, a registration statement on the appropriate form under the Act relating to the resale of the Debentures and the Common Stock by certain holders thereof from time to time in accordance with the methods of distribution set forth in such registration statement and Rule 415 under the Act (the "Shelf Registration Statement") and (ii) to use its reasonable best efforts to cause such Shelf Registration Statement to be declared effective. This Agreement, the Indenture and the Registration Rights Agreement are hereinafter referred to collectively as the "Operative Documents". Capitalized terms used herein without definition have the respective meanings specified therefor in the Indenture or the Offering Memorandum. 2. Agreements to Sell, Purchase and Resell. (a) The Company hereby agrees, subject to all the terms and conditions set forth herein, to issue and sell to the Initial Purchasers and, upon the basis of the representations, warranties and agreements of the Company herein contained and subject to all the terms and conditions set forth herein, the Initial Purchasers agree to purchase from the Company, at a purchase price of 98.25% of the principal amount thereof, the principal amount of Firm Debentures set forth opposite the name of the Initial Purchasers in Schedule I hereto. (b) The Company also agrees, subject to all the terms and conditions set forth herein, to sell to the Initial Purchasers, and, upon the basis of the representations, warranties and agreements of the Company herein contained and subject to all the terms and conditions set forth herein, the Initial Purchasers shall have the right to purchase from the Company pursuant to an option (the "over-allotment option") which may be exercised at any time and from time to time prior to 9:00 P.M., New York City time, on the 30th day after the date of the Offering Memorandum (or, if such 30th day shall be a Saturday or Sunday or a holiday, on the next business day thereafter when the New York Stock Exchange is open for trading), up to $75,000,000 principal amount of Additional Debentures at the same purchase price as the Firm Debentures, plus accrued interest, if any, from the date of issuance of the Firm Debentures to the date of delivery and payment. (c) The Initial Purchasers have advised the Company that they propose to offer the Debentures for sale upon the terms and conditions set forth in this Agreement and in the Offering Memorandum. The Initial Purchasers hereby represent and warrant to, and agree with, the Company that the Initial Purchasers (i) are purchasing the Debentures pursuant to a private sale exempt from registration under the Act, (ii) will not solicit offers for, or offer or sell, the Debentures by means of any form of general solicitation or general advertising or in any manner involving a public offering within the meaning of Section 4(2) of the Act, and (iii) will solicit offers for the Debentures only from, and will offer, sell or deliver the Debentures as part of its initial offering, only to (A) persons in the United States whom the -4- Initial Purchasers reasonably believe to be Qualified Institutional Buyers, or if any such person is buying for one or more institutional accounts for which such person is acting as fiduciary or agent, only when such person has represented to the Initial Purchasers that each such account is a Qualified Institutional Buyer, to whom notice has been given that such sale or delivery is being made in reliance on Rule 144A, in each case, in transactions under Rule 144A, (B) to a limited number of Accredited Investors that make the representations to and agreements with the Company specified in Annex A to the Offering Memorandum in private sales exempt from registration under the Act and (C) outside the United States to persons other than U.S. persons in reliance on Regulation S. The Initial Purchasers have advised the Company that they will offer the Debentures to Eligible Purchasers at a price initially equal to 100% of the principal amount thereof, plus accrued interest, if any, from the date of issuance of the Firm Debentures. Such price may be changed by the Initial Purchasers at any time thereafter without notice. (d) The Initial Purchasers represent and warrant that (i) they have not offered or sold, and will not offer or sell, directly or indirectly, any of the Debentures in the United Kingdom by means of any document, other than to persons whose ordinary business it is to buy or sell shares or debentures whether as principal or agent (except in circumstances which do not constitute an offer to the public within the meaning of the Companies Act 1985), (ii) they have complied with and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by such Initial Purchasers in relation to the Debentures in, from or otherwise involving the United Kingdom and (iii) they have only issued or passed on and will only issue or pass on in or from the United Kingdom to any person any document received by such Initial Purchasers in connection with the issue of the Debentures if the recipient is of a kind described in Article 9(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1988, as amended. (e) The Initial Purchasers represent and warrant that they have offered and sold the Debentures and agree that they will offer and sell the Debentures (i) as part of their distribution at any time, and (ii) otherwise until 40 days after the later of the commencement of the offering of the Debentures and the Closing Date, only in accordance with Rule 903 of Regulation S or as otherwise permitted pursuant to paragraph (c) above. Accordingly, the Initial Purchasers represent and agree that neither such Initial Purchasers, their affiliates nor any persons acting on their behalf has engaged or will engage in any directed selling efforts with respect to the Debentures, and they have complied and will comply with the offering restrictions requirement of Regulation S. Such Initial Purchasers agree that, at or prior to confirmation of the sale of Debentures other than a sale pursuant to Rule 144A, they will have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases Debentures from such Initial Purchasers 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, as amended (the "Securities Act"), and may not be offered and 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 40 days after the later of the commencement of -5- 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 meaning given to them by Regulation S." The Initial Purchasers understand that the Company and, for purposes of the opinions to be delivered to the Initial Purchasers pursuant to Sections 7(c)(xxiv) and 7(d) hereof, counsel to the Company and counsel to the Initial Purchasers, will rely upon the accuracy and truth of the foregoing representations and agreements, and the Initial Purchasers hereby consent to such reliance. 3. Delivery of the Debentures and Payment Therefor. Delivery to the Initial Purchasers of and payment for the Firm Debentures shall be made at the office of Smith Barney Inc., 388 Greenwich Street, New York, New York 10013, at 10:00 A.M., New York City time, on March 20, 1998 (the "Closing Date"). The place of closing for the Firm Debentures and the Closing Date may be varied by agreement between the Initial Purchasers and the Company. Delivery to the Initial Purchasers of and payment for any Additional Debentures to be purchased by the Initial Purchasers shall be made at the aforementioned office of Smith Barney Inc. at such time on such date (the "Option Closing Date"), which may be the same as the Closing Date but shall in no event be earlier than the Closing Date nor earlier than three nor later than ten business days after the giving of the notice hereinafter referred to, as shall be specified in a written notice from the Initial Purchasers to the Company of the Initial Purchasers' determination to purchase the principal amount of Additional Debentures specified in such notice. The place of closing for any Additional Debentures and the Option Closing Date for such Additional Debentures may be varied by agreement between the Initial Purchasers and the Company. The Firm Debentures and any Additional Debentures which the Initial Purchasers may elect to purchase will be delivered to the Initial Purchasers against payment of the purchase price therefor by federal or other immediately available funds. The Debentures will be evidenced by a single global security in definitive form (the "Global Debenture") and/or by additional definitive securities, and will be registered, in the case of the Global Debenture, in the name of Cede & Co. as nominee of The Depository Trust Company ("DTC"), and in the other cases, in such names and in such denominations as the Initial Purchasers shall request prior to 1:00 p.m., New York City time, on the third business day preceding the Closing Date or any Option Closing Date, as the case may be. The Debentures to be delivered to the Initial Purchasers shall be made available to the Initial Purchasers in New York City for inspection and packaging not later than 9:30 a.m., New York City time, on the business day next preceding the Closing Date or the Option Closing Date, as the case may be. 4. Agreements of the Company. The Company agrees with the Initial Purchasers as follows: -6- (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 Offering Memorandum (as then amended or supplemented) untrue or which requires the making of any additions to or changes in the Offering Memorandum (as then amended or supplemented) in order to make the statements therein not misleading, or of the necessity to amend or supplement the Offering 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 Offering Memorandum, such number of copies of the Offering 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 Offering 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 Offering Memorandum (and of any amendment or supplement thereto) in accordance with the securities or Blue Sky laws of the jurisdictions in which the Debentures are offered by the Initial Purchasers and by all dealers to whom Debentures may be sold, in connection with the offering and sale of the Debentures. (e) If, at any time prior to completion of the distribution of the Debentures 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 Offering Memorandum (as then amended or supplemented) in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary to supplement or amend the Offering 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 Offering Memorandum should be amended or supplemented, or that a document should be filed under the Exchange Act which upon filing becomes an 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 Debentures and the Common Stock issuable upon conversion of the Debentures 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 -7- 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 Debentures, in any jurisdiction where it is not now so subject. (g) So long as any of the Debentures are outstanding, the Company will furnish to the Initial Purchasers (i) as soon as available, a copy of each report of the Company mailed to stockholders or filed with the Commission, and (ii) from time to time such other information concerning the Company as the Initial Purchasers may 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 9 or 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 Debentures to be sold by it hereunder substantially in accordance with the description set forth in the Offering Memorandum. (j) Without the prior consent of Smith Barney Inc., prior to the expiration of 90 days after the date of the Offering Memorandum the Company will not offer, sell, contract to sell or otherwise dispose of any Common Stock (or any securities convertible into or exercisable or exchangeable for Common Stock) or grant any options or warrants to purchase Common Stock, except for (i) the sale of the Debentures to the Initial Purchasers pursuant to this Agreement and issuances of Common Stock upon conversion of Debentures, (ii) grants of options pursuant to the Company's stock option plans existing on the date hereof, (iii) issuances of Common Stock upon exercise of options and warrants outstanding at the date hereof or issued in accordance with the foregoing clause (ii), and (iv) issuances of an aggregate of up to four million shares of Common Stock in connection with acquisitions. The Company has caused or will cause its Chief Executive Officer to furnish a letter, in form and substance satisfactory to Smith Barney Inc., pursuant to which such person shall agree not to offer, sell, contract to sell or otherwise dispose of any Common Stock (or any securities convertible into or exercisable or exchangeable for Common Stock) for a period of 90 days after the date of the Offering Memorandum without the prior written consent of Smith Barney Inc. (k) Except as stated in this Agreement and in the Offering Memorandum, the Company has not taken, nor will it take, directly or indirectly, any action designed to or that -8- might reasonably be expected to cause or result in stabilization or manipulation of the price of the Debentures to facilitate the sale or resale of the Debentures. Except as permitted by the Act, the Company will not distribute any offering material in connection with the Exempt Resales. (l) The Company will use its best efforts to cause the Debentures to be eligible for trading on The PORTAL Market. (m) From and after the Closing Date, so long as any of the Debentures are outstanding and are "Restricted Securities" within the meaning of the Rule 144(a)(3) under the 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 Debentures and prospective purchasers of Debentures 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 Act to permit compliance with Rule 144A in connection with resale of the Debentures. (n) 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 Act) that would be integrated with the sale of the Debentures in a manner that would require the registration under the Act of the sale to the Initial Purchasers or the Eligible Purchasers of the Debentures. (o) 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 Debentures by DTC for "book entry" transfer. (p) The Company agrees that prior to any registration of the Debentures pursuant to the Registration Rights Agreement, or at such earlier time as may be so required, the Indenture shall be qualified under the Trust Indenture Act of 1939 (the "1939 Act") and will cause to be entered into any necessary supplemental indentures in connection therewith. 5. Representations and Warranties of the Company. The Company represents and warrants to the Initial Purchasers that: (a) The Offering Memorandum with respect to the Debentures 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 Offering 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 Act has been issued and no proceeding for that purpose has commenced or is pending or, to the knowledge of the Company, is contemplated. (b) The Offering Memorandum, as of its date and as of the Closing Date, did not or will not at any time contain an untrue statement of a material fact or omit to state a material -9- 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 Offering 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 document 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 conforms in all material respects to the description thereof in the Offering Memorandum; no qualification of the Indenture under the 1939 Act is required in connection with the offer and sale of the Debentures contemplated hereby or in connection with the Exempt Resales. (e) The Debentures 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 the Debentures will conform in all material respects to the description thereof in the Offering Memorandum. (f) The authorized, issued and outstanding capital stock of the Company is as set forth under the caption "Capitalization" in the Offering Memorandum as of the date indicated therein; all the outstanding shares of Common Stock of the Company have been duly authorized and validly issued, are fully paid and nonassessable and are free of any preemptive or similar rights; the Debentures 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; the -10- capital stock of the Company conforms to the description thereof in the Offering Memorandum; and the shares of Common Stock issuable upon conversion of the Debentures have been duly authorized and reserved for issuance and, when delivered upon conversion of the Debentures, will have been validly issued and fully paid and will be 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 Offering 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 Offering 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 Offering Memorandum and which might result in a judgment or decree having a Material Adverse Effect or which is otherwise of a character required to be described in the Offering Memorandum, and there is no contract, license or other document of a character required to be described in the Offering Memorandum or to be filed as an exhibit to any Incorporated Document which is not described or filed as required by the 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 -11- or default would have a Material Adverse Effect; and neither the issuance, offer, sale or delivery of the Debentures, the issuance of Common Stock upon conversion of the Debentures or the payment to holders of Debentures of an amount of cash equal to the market price of the underlying Common Stock in lieu of conversion into Common Stock in accordance with the terms of the Indenture, 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 Act of the Debentures and the Common Stock in accordance with the Registration Rights Agreement, 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 Offering Memorandum (or any amendment or supplement thereto) or the Incorporated Documents, are independent public accountants as required by the Act. (k) The financial statements, together with related schedules and notes, included or incorporated by reference in the Offering 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 Offering 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 Offering 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 -12- 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 Offering Memorandum (or any amendment or supplement thereto), subsequent to the dates as of which such information is given in the Offering Memorandum (or any 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 Offering 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 Offering 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 Act, the Company has not distributed and, prior to the later to occur of the Closing Date and completion of the distribution of the Debentures, will not distribute any offering material in connection with the offering and sale of the Debentures other than the Offering 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 (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to -13- permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) 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 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 Debentures and holders of shares of Common Stock received upon conversion thereof) has any right to request or demand registration of shares of Common Stock or any other 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 Offering 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 Debentures are issued and delivered pursuant to this Agreement, such Debentures will not be of the same class (within the meaning of Rule 144A(d)(3) under the 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 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), (i) sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security (as defined in the Act) which is or will be integrated with the offering and sale of the Debentures in a manner that would require the registration of the Debentures under the -14- Act or (ii) engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with the offering of the Debentures. (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 Debentures by the Initial Purchasers. (y) The Company is not required to obtain stockholder consent or approval pursuant to the rules of the New York Stock Exchange in connection with the offering and sale of the Debentures. 6. Indemnification and Contribution. (a) The Company agrees to indemnify and hold harmless the Initial Purchasers and each person, if any, who controls the Initial Purchasers within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages, liabilities and expenses (including reasonable costs of investigation) arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the Offering Memorandum or in any amendment or supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or expenses arise out of or are based upon any untrue statement or omission or alleged untrue statement or omission which has been made therein or omitted therefrom in reliance upon and in conformity with the information relating to the Initial Purchasers furnished in writing to the Company by or on behalf of the Initial Purchasers expressly for use in connection therewith. The foregoing indemnity agreement shall be in addition to any liability which the Company may otherwise have. (b) If any action, suit or proceeding shall be brought against the Initial Purchasers or any persons controlling the Initial Purchasers in respect of which indemnity may be sought against the Company, the Initial Purchasers or such controlling persons shall promptly notify the parties against whom indemnification is being sought (the "indemnifying parties"), and such indemnifying parties shall assume the defense thereof, including the employment of counsel and payment of all fees and expenses. The Initial Purchasers or any such controlling persons shall have the right to employ separate counsel in any such action, suit or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the Initial Purchasers or such controlling persons unless (i) the indemnifying parties have agreed in writing to pay such fees and expenses, (ii) the indemnifying parties have failed to assume the defense and employ counsel, or (iii) the named parties to any such action, suit or proceeding (including any impleaded parties) include both the Initial Purchasers or such controlling persons and the indemnifying parties and the Initial Purchasers or such controlling persons shall have been advised by its counsel that representation of such indemnified party and any indemnifying party by the same counsel would be inappropriate under applicable standards of professional conduct (whether or not such representation by the same counsel has been proposed) due to actual or potential differing interests between them -15- (in which case the indemnifying party shall not have the right to assume the defense of such action, suit or proceeding on behalf of the Initial Purchasers or such controlling persons). It is understood, however, that the indemnifying parties shall, in connection with any one such action, suit or proceeding or separate but substantially similar or related actions, suits or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of only one separate firm of attorneys (in addition to any local counsel) at any time for the Initial Purchasers and controlling persons not having actual or potential differing interests with the Initial Purchasers or among themselves, which firm shall be designated in writing by Smith Barney Inc., and that all such fees and expenses shall be reimbursed on a monthly basis as provided in paragraph (a) hereof. The indemnifying parties shall not be liable for any settlement of any such action, suit or proceeding effected without their written consent, but if settled with such written consent, or if there be a final judgment for the plaintiff in any such action, suit or proceeding, the indemnifying parties agree to indemnify and hold harmless the Initial Purchasers, to the extent provided in paragraph (a), and any such controlling persons from and against any loss, claim, damage, liability or expense by reason of such settlement or judgment. (c) The Initial Purchasers agree to indemnify and hold harmless the Company, and its directors and officers, and any person who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act to the same extent as the indemnity from the Company to the Initial Purchasers set forth in paragraph (a) hereof, but only with respect to information relating to the Initial Purchasers furnished in writing by or on behalf of the Initial Purchasers expressly for use in the Offering Memorandum or any amendment or supplement thereto. If any action, suit or proceeding shall be brought against the Company, any of its directors or officers, or any such controlling person based on the Offering Memorandum, or any amendment or supplement thereto, and in respect of which indemnity may be sought against the Initial Purchasers pursuant to this paragraph (c), the Initial Purchasers shall have the rights and duties given to the Company by paragraph (b) above (except that if the Company shall have assumed the defense thereof the Initial Purchasers shall not be required to do so, but may employ separate counsel therein and participate in the defense thereof, but the fees and expenses of such counsel shall be at the Initial Purchasers' expense), and the Company, its directors and officers, and any such controlling person shall have the rights and duties given to the Initial Purchasers by paragraph (b) above. The foregoing indemnity agreement shall be in addition to any liability which the Initial Purchasers may otherwise have. (d) If the indemnification provided for in this Section 6 is unavailable to an indemnified party under paragraphs (a) or (c) hereof in respect of any losses, claims, damages, liabilities or expenses referred to therein, then an indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Initial Purchasers on the other hand from the offering of the Debentures, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in -16- such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Initial Purchasers on the other in connection with the statements or omissions that resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Initial Purchasers on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Initial Purchasers, in each case as set forth in the table on the cover page of the Offering Memorandum; provided that, in the event that the Initial Purchasers shall have purchased any Additional Debentures hereunder, any determination of the relative benefits received by the Company or the Initial Purchasers from the offering of the Debentures shall include the net proceeds (before deducting expenses) received by the Company, and the underwriting discounts and commissions received by the Initial Purchasers, from the sale of such Additional Debentures, in each case computed on the basis of the respective amounts set forth in the notes to the table on the cover page of the Offering Memorandum. The relative fault of the Company on the one hand and the Initial Purchasers on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or by the Initial Purchasers on the other hand and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. (e) The Company and the Initial Purchasers agree that it would not be just and equitable if contribution pursuant to this Section 6 were determined by a pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in paragraph (d) above. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities and expenses referred to in paragraph (d) above shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating any claim or defending any such action, suit or proceeding. Notwithstanding the provisions of this Section 6, the Initial Purchasers shall not be required to contribute any amount in excess of the amount by which the total price of the Debentures underwritten by them and distributed to the public exceeds the amount of any damages which the Initial Purchasers have otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (f) Any losses, claims, damages, liabilities or expenses for which an indemnified party is entitled to indemnification or contribution under this Section 6 shall be paid by the indemnifying party to the indemnified party as such losses, claims, damages, liabilities or expenses are incurred. The indemnity and contribution agreements contained in this Section 6 and the representations and warranties of the Company set forth in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of the Initial Purchasers or any persons controlling the Initial Purchasers, the -17- Company, its directors or officers or any person controlling the Company, (ii) acceptance of any Debentures and payment therefor hereunder, and (iii) any termination of this Agreement. A successor to the Initial Purchasers or any persons controlling the Initial Purchaser, or to the Company, its directors or officers or any person controlling the Company, shall be entitled to the benefits of the indemnity, contribution and reimbursement agreements contained in this Section 6. (g) No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action, suit or proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such action, suit or proceeding. 7. Conditions of the Initial Purchasers' Obligations. The obligations of the Initial Purchasers to purchase the Firm Debentures hereunder are subject to the following conditions: (a) At the time of execution of this Agreement and on the Closing Date, no order or decree preventing the use of the Offering 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 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 Debentures 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 occurred (i) 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 Offering Memorandum, which in the opinion of the Initial Purchasers, would materially adversely affect the market for the Debentures, or (ii) 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 Offering 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 Offering 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 Offering Memorandum to reflect such event or development would, in the opinion of the Initial Purchasers, materially adversely affect the market for the Debentures. (c) The Initial Purchasers shall have received on the Closing Date an opinion of Haskell Slaughter & Young, L.L.C., counsel for the Company, dated the Closing Date and addressed to the Initial Purchasers, to the effect that: -18- (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) The Offering Memorandum with respect to the Debentures 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 Offering 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 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 document 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, 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 conforms in all material respects to the description thereof in the Offering Memorandum; no qualification of the Indenture under the 1939 Act is required in connection with the offer and sale of the Debentures contemplated hereby or in connection with the Exempt Resales. (v) The Debentures 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 the Debentures will conform in all material respects to the description thereof in the Offering Memorandum. (vi) The authorized, issued and outstanding capital stock of the Company is as set forth under the caption "Capitalization" in the Offering Memorandum as of the date indicated therein; all of the issued and outstanding shares of capital stock of the Company have been duly authorized and validly -19- issued, are fully paid and nonassessable, and have not been issued in violation of any preemptive right or, to the best of such Counsel's knowledge, other similar right; 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; and 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, the 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; the authorized capital stock of the Company conforms in all material respects as to legal matters to the description thereof contained in the Offering Memorandum under the caption "Description of Capital Stock"; and the shares of Common Stock issuable upon conversion of the Debentures have been validly authorized and reserved for issuance and, when delivered upon conversion of the Debentures, will have been validly issued and fully paid and will be nonassessable and free of preemptive or similar rights; (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 Offering 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 are required to be disclosed in the Offering Memorandum (or any amendment or supplement thereto) by the 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; -20- (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 Offering 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, is a valid, legal and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as enforcement of rights to indemnity and contribution hereunder 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 Offering Memorandum, or to receive reimbursement under Medicare (if represented in the Offering 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 Debentures and holders of shares of Common Stock received upon conversion thereof) has any right to request or demand registration of shares of Common Stock or any other security of the Company because of the consummation of the transactions contemplated by this Agreement or the Registration Rights Agreement. (xiii) When the Debentures are issued and delivered pursuant to this Agreement, such Debentures will not be of the same class (within the meaning of Rule 144A(d)(3) under the 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) Neither the Company nor any affiliate (as defined in Rule 501(b) of Regulation D ("Regulation D") under the 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, solicited offers to buy or otherwise negotiated in respect of, any security (as defined in the Act) which is or will be integrated with the offering and sale of -21- the Debentures in a manner that would require the registration of the Debentures under the 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 Debentures. (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 Debentures by the Initial Purchasers. (xvi) No registration of the Debentures under the Act is required for the sale of the Debentures to the Initial Purchasers as contemplated in this Agreement or for the Exempt Resales (assuming (A) that any Eligible Purchaser who buys the Debentures 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 Debentures pursuant to an Exempt Resale as set forth in the letter of representation executed by such Accredited Investor in the form of Annex A to the Offering Memorandum). (xvii) The Company is not required to obtain stockholder consent or approval pursuant to the rules of the New York Stock Exchange in connection with the offering and sale of the Debentures. (xviii) The descriptions in the Offering Memorandum of statutes, governmental regulations, agreements, contracts, leases and other documents are accurate and fairly present the information required to be presented by the Act; and, to the best of such Counsel's knowledge, there are no statutes, governmental regulations, agreements, contracts, leases or documents of a character required to be described or referred to in the Offering Memorandum (or any amendment or supplement thereto) or to be filed as an exhibit to the Offering Memorandum that are not described or referred to therein and filed as required; (xix) Neither the offer, sale or delivery of the Debentures, 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 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 or is known to such Counsel after reasonable inquiry, or will result in the -22- creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company, any Significant Subsidiary or any Controlled Entity. (xx) A New York court would apply the substantive law of the State of New York in construing the Debentures and the Indenture and in ascertaining the validity of the payment of interest and the permissible rate of interest on the Debentures, and would hold that New York law governs the rights and obligations of the parties to the Debentures and the Indenture; (xxi) A New York court applying the substantive law of the State of New York would hold that the payment of interest on the Debentures and the rate of interest provided pursuant to the Indenture with respect to the Debentures are not subject to the usury laws of the State of New York; (xxii) An Alabama court should apply the substantive law of the State of New York in construing the Indenture and the Debentures and in ascertaining the validity of the payment of interest and the rate of interest provided pursuant to the Indenture with respect to the Debentures, and should hold that New York law governs the rights and obligations of the parties to the Debentures and the Indenture. 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 Offering Memorandum, but have not independently verified the statements made in the Offering Memorandum; and such Counsel will state that nothing has come to their attention which has caused them to believe that the Offering 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 Offering 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 Offering Memorandum, as 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 paragraphs (iv), the opinion concerning the valid and binding obligations of the Company in paragraph (v) and the opinions set forth in paragraphs (xx) and (xxi) 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 -23- 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, Group Vice President of the Company, dated the closing date and addressed to the Initial Purchasers. (d) The Initial Purchasers shall have received on the Closing Date an opinion of Pillsbury Madison & Sutro LLP, counsel for the Initial Purchasers, dated the Closing Date, and addressed to the Initial Purchasers, with respect to such matters as the Initial Purchasers may request. (e) The Initial Purchasers shall have received letters addressed to the Initial Purchasers, and dated the date hereof and the Closing Date from Ernst & Young, LLP, independent certified public accountants, substantially in the forms heretofore approved by the Initial Purchasers. (f) (i) There shall not have been any change in the capital stock of the Company nor any material increase in the short-term or long-term debt of the Company (other than in the ordinary course of business) from that set forth or contemplated in the Offering Memorandum (or any amendment or supplement thereto); (ii) there shall not have been, since the respective dates as of which information is given in the Offering Memorandum (or any amendment or supplement thereto), except as may otherwise be stated in the Offering Memorandum (or any amendment or supplement thereto), any material adverse change in the condition (financial or other), business, prospects, properties, net worth or results of operations of the Company and the Significant Subsidiaries taken as a whole; (iii) the Company, the Significant Subsidiaries and the Controlled Entities shall 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 Significant Subsidiaries and the Controlled Entities, taken as a whole, other than those reflected in the Offering Memorandum (or any amendment or supplement thereto); and (iv) all the representations and warranties of the Company contained in this Agreement shall be true and correct in all material respects on and as of the date hereof and on and as of the Closing Date as if made on and as of the Closing Date, and the Initial Purchasers shall have received a certificate, dated the Closing Date and signed by the chief executive officer and the chief accounting officer of the Company (or such other officers as are acceptable to the Initial Purchasers), to the effect set forth in this Section 7(f) and in Section 7(g) hereof. (g) The Company shall not have failed at or prior to the Closing Date to have performed or complied with any of its agreements herein contained and required to be performed or complied with by it hereunder at or prior to the Closing Date. (h) There shall not have been any announcement by any "nationally recognized statistical rating organization", as defined for purposes of Rule 436(g) under the Act, that -24- (i) it is downgrading its rating assigned to any class of securities of the Company, or (ii) it is reviewing its ratings assigned to any class of securities of the Company with a view to possible downgrading, or with negative implications, or direction not determined. (i) The Debentures shall have been approved for trading on PORTAL. (j) The Company shall have furnished or caused to be furnished to the Initial Purchasers such further certificates and documents as the Initial Purchasers shall have reasonably requested. All such opinions, certificates, letters and other documents will be in compliance with the provisions hereof only if they are reasonably satisfactory in form and substance to the Initial Purchasers and counsel for the Initial Purchasers. Any certificate or document signed by any officer of the Company and delivered to the Initial Purchasers, or to counsel for the Initial Purchasers, shall be deemed a representation and warranty by the Company to the Initial Purchasers as to the statements of fact made therein. The obligations of the Initial Purchasers to purchase any Additional Debentures hereunder are subject to the satisfaction on and as of any Option Closing Date of the conditions set forth in this Section 7, except that, if any Option Closing Date is other than the Closing Date, the certificates, opinions and letters referred to in paragraphs (c) through (f) and paragraph (j) shall be dated the Option Closing Date in question and the opinions called for by paragraphs (c) and (d) shall be revised to reflect the sale of Additional Debentures. 8. Expenses. 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 Offering Memorandum (including financial statements thereto), and each amendment or supplement to any of them, 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 Offering 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 Debentures; (iii) the preparation, printing, authentication, issuance and delivery of certificates for the Debentures, including any stamp taxes in connection with the original issuance and sale of the Debentures; (iv) the printing (or reproduction) and delivery of this Agreement, the preliminary and supplemental Blue Sky Memoranda and all other agreements or documents printed (or reproduced) and delivered in connection with the offering of the Debentures; (v) the application for quotation of the Debentures on PORTAL; (vi) the qualification of the Debentures and the shares of Common Stock issuable upon conversion of the Debentures for offer and sale under the securities or Blue Sky laws of the several states as provided in Section 4(f) hereof (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 and such qualification); (vii) the -25- performance by the Company of its obligations under the Registration Rights Agreement; and (viii) 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 (vi) of this Section 8 by delivering to counsel for the Initial Purchasers on such date a check payable to such counsel in the requisite amount. 9. Effective Date of Agreement. This Agreement shall become effective upon the execution and delivery hereof by all the parties hereto. Until such time as this Agreement shall have become effective, it may be terminated by the Company, by notifying the Initial Purchasers, or by the Initial Purchasers, by notifying the Company. Any notice under this Section 9 may be given by telegram, telecopy or telephone but shall be subsequently confirmed by letter. 10. Termination of Agreement. This Agreement shall be subject to termination in the absolute discretion of the Initial Purchasers, without liability on the part of the Initial Purchasers to the Company, by notice to the Company, if prior to the Closing Date or any Option Closing Date (if different from the Closing Date and then only as to the Additional Debentures), as the case may be, (i) trading in securities generally on the New York Stock Exchange, American Stock Exchange or the Nasdaq National Market shall have been suspended or materially limited, (ii) a general moratorium on commercial banking activities in New York shall have been declared by either Federal or state authorities, or (iii) there shall have occurred any outbreak or escalation of hostilities or other international or domestic calamity, crisis or change in political, financial or economic conditions, the effect of which on the financial markets of the United States is such as to make it, in the judgment of the initial purchaser, impracticable or inadvisable to commence or continue the offering of the Debentures on the terms set forth on the cover page of the Offering Memorandum or to enforce contracts for the resale of the Debentures by the Initial Purchasers. Notice of such termination may be given to the Company by telegram, telecopy or telephone and shall be subsequently confirmed by letter. 11. Information Furnished by the Initial Purchasers. The statements set forth in the stabilization legend on the inside front cover, the last paragraph on the cover page and in the third, fourth and sixth paragraphs under the caption "Plan of Distribution" in the Offering Memorandum, constitute the only information furnished by or on behalf of the Initial Purchasers as such information is referred to in Sections 5(b) and 6 hereof. 12. Miscellaneous. Except as otherwise provided in Sections 4, 9 and 10 hereof, notice given pursuant to any provision of this Agreement shall be in writing and shall be delivered (i) if to the Company, at the office of the Company at One HealthSouth Parkway, Birmingham, AL 35243, Attention: Michael D. Martin, Chief Financial Officer, or (ii) if to the Initial Purchasers, to Smith Barney Inc., 388 Greenwich Street, New York, NY 10013, Attention: Manager, Investment Banking Division. -26- This Agreement has been and is made solely for the benefit of the Initial Purchasers, the Company, its directors, its officers and the controlling persons referred to in Section 6 hereof and their respective successors and assigns, to the extent provided herein, and no other person shall acquire or have any right under or by virtue of this Agreement. Neither the term "successor" nor the term "successors and assigns" as used in this Agreement shall include a purchaser from the Initial Purchasers of any of the Debentures in his status as such purchaser. 13. Applicable Law; Counterparts. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed within the State of New York. This Agreement may be signed in various counterparts which together constitute one and the same instrument. If signed in counterparts, this Agreement shall not become effective unless at least one counterpart hereof shall have been executed and delivered on behalf of each party hereto. -27- Please confirm that the foregoing correctly sets forth the agreement between the Company and the Initial Purchasers. Very truly yours, HEALTHSOUTH CORPORATION By --------------------------- Chief Financial Officer SMITH BARNEY INC. BEAR, STEARNS & CO. INC. COWEN & COMPANY CREDIT SUISSE FIRST BOSTON CORPORATION J.P. MORGAN SECURITIES INC. MORGAN STANLEY & CO. INCORPORATED NATIONSBANC MONTGOMERY SECURITIES LLC PAINEWEBBER INCORPORATED By SMITH BARNEY INC. By -------------------------- Managing Director -28- SCHEDULE I ---------- HEALTHSOUTH CORPORATION Principal Amount Initial Purchasers of Firm Debentures - ------------------ ------------------ Smith Barney Inc. $459,750,000 Bear, Stearns & Co. Inc. 5,750,000 Cowen & Company 5,750,000 Credit Suisse First Boston Corporation 5,750,000 J.P. Morgan Securities Inc. 5,750,000 Morgan Stanley & Co. Incorporated 5,750,000 NationsBanc Montgomery Securities LLC 5,750,000 PaineWebber Incorporated 5,750,000 ------------ Total $500,000,000 I-1 REGISTRATION RIGHTS AGREEMENT Dated as of March 17, 1998 relating to $500,000,000 Aggregate Principal Amount of 3.25% Convertible Subordinated Debentures due 2003 by and among HEALTHSOUTH CORPORATION and SMITH BARNEY INC., BEAR, STEARNS & CO. INC., COWEN & COMPANY, CREDIT SUISSE FIRST BOSTON CORPORATION, J.P. MORGAN SECURITIES INC., MORGAN STANLEY & CO. INCORPORATED, NATIONSBANC MONTGOMERY SECURITIES LLC PAINEWEBBER INCORPORATED THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered into as of March 17, 1998 by and among HEALTHSOUTH CORPORATION, a Delaware corporation (the "Company") and SMITH BARNEY INC., BEAR, STEARNS & CO. INC., COWEN & COMPANY, CREDIT SUISSE FIRST BOSTON CORPORATION, J.P. MORGAN SECURITIES INC., MORGAN STANLEY & CO. INCORPORATED, NATIONSBANC MONTGOMERY SECURITIES LLC, and PAINEWEBBER INCORPORATED (together, the "Initial Purchasers"), who have purchased $500,000,000 aggregate principal amount of 3.25% Convertible Subordinated Debentures due 2003 (the "Debentures") of the Company pursuant to the Purchase Agreement (as defined below). -1- This Agreement is made pursuant to a Purchase Agreement, dated March 17, 1998 (the "Purchase Agreement"), between the Company and the Initial Purchasers. In order to induce the Initial Purchasers to enter into the Purchase Agreement, the Company has agreed to provide the registration rights set forth in this Agreement. The execution and delivery of this Agreement is a condition to closing under the Purchase Agreement. All defined terms used but not defined herein shall have the meanings ascribed to them in the Indenture (as defined herein). The parties hereby agree as follows: 1. Definitions. As used in this Agreement, the following capitalized terms shall have the following meanings: (a) Act. The Securities Act of 1933, as amended. (b) Closing Date. The date on which all the Debentures are sold by the Company to the Initial Purchasers. (c) Commission. The Securities and Exchange Commission. (d) Common Stock. The Common Stock, par value $0.01 per share, of the Company. (e) Damages Payment Date. With respect to the Debentures or the Common Stock, as applicable, each Interest Payment Date as defined in the Indenture. (f) Effectiveness Target Date. As defined in Section 4. (g) Exchange Act. The Securities Exchange Act of 1934, as amended. (h) Exempt Resales. The transactions in which the Initial Purchasers propose to sell the Debentures inside the United States to (i) certain "qualified institutional buyers" (as such term is defined in Rule 144A under the Act) and (ii) certain "accredited investors," as defined in Rule 501 of Regulation D under the Act, and outside the United States in reliance on Regulation S under the Act. (i) Holders. As defined in Section 2(b) hereof. (j) Indenture. The Indenture, dated as of March 20, 1998, between the Company and The Bank of Nova Scotia Trust Company of New York, as trustee (the "Trustee"), pursuant to which the Debentures are to be issued, as such Indenture is amended or supplemented from time to time in accordance with the terms thereof. (k) Interest Payment Date. As defined in the Indenture. (l) NASD. National Association of Securities Dealers, Inc. -2- (m) Offering Memorandum. The Offering Memorandum, dated March 17, 1998, and all amendments and supplements thereto, relating to the Debentures and prepared by the Company pursuant to the Purchase Agreement. (n) Person. An individual, partnership, corporation, trust or unincorporated organization, or a government or agency or political subdivision thereof. (o) Preliminary Prospectus. As defined in Section 3(g). (p) Prospectus. The prospectus included in the Shelf Registration Statement (as defined herein), as amended or supplemented by any Prospectus Supplement with respect to the terms of the offering of any portion of the Transfer Restricted Securities (as defined herein) covered by the Shelf Registration Statement and by all other amendments and supplements to the prospectus, including post-effective amendments, and all material which may be incorporated by reference into such prospectus. (q) Prospectus Supplement. As defined in Section 5(b). (r) Record Holder. (i) With respect to any Damages Payment Date relating to the Debentures, each Person who is registered on the books of the Registrar as the holder of Debentures on the record date with respect to the Interest Payment Date on which such Damages Payment Date shall occur and (ii) with respect to any Damages Payment Date relating to the Common Stock, each Person who is a holder of record of such Common Stock fifteen days prior to the Damages Payment Date. (s) Shelf Registration Statement. As defined in Section 3(a) hereof. (t) TIA. The Trust Indenture Act of 1939, as amended, as in effect on the date of the Indenture. (u) Transfer Restricted Securities. Each Debenture and share of Common Stock of the Company issuable upon conversion of a Debenture, until each such Debenture or share (i) has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement covering it, (ii) is distributed to the public pursuant to Rule 144 or (iii) may be sold or transferred pursuant to Rule 144(k) (or any similar provisions then in force) under the Securities Act or otherwise. (v) Underwriter. Any Underwriter, placement agent, selling broker, dealer manager, qualified independent Underwriter or similar securities industry professional. (w) Underwritten Registration or Underwritten Offering. An offering in which securities of the Company are sold to an Underwriter or with the assistance of such Underwriter for reoffering to the public on a firm commitment or best efforts basis. -3- 2. Securities Subject to This Agreement. (a) Transfer Restricted Securities. The securities entitled to the benefits of this Agreement are the Transfer Restricted Securities. (b) Holders of Transfer Restricted Securities. A Person is deemed to be a holder of Transfer Restricted Securities (each, a "Holder") whenever such Person owns Transfer Restricted Securities. 3. Shelf Registration. (a) The Company shall cause to be filed with the Commission on or prior to 60 days after the Closing Date, a shelf registration statement pursuant to Rule 415 under the Act (as may then be amended, the "Shelf Registration Statement") on Form S-1, or Form S-3 if the use of such form is then available, to cover resales of Transfer Restricted Securities by the Holders thereof who satisfy certain conditions relating to the provision of information in connection with the Shelf Registration Statement. The Holders of such Transfer Restricted Securities shall have provided the representations required pursuant to Section 3(g) hereof. The Company shall use its reasonable best efforts to cause such Shelf Registration Statement to be declared effective by the Commission on or prior to 150 days after the Closing Date. The Company shall use its reasonable best efforts to keep such Shelf Registration Statement continuously effective for a period ending two years following the Closing Date or such shorter period that will terminate when each of the Transfer Restricted Securities covered by the Shelf Registration Statement shall cease to be a Transfer Restricted Security. The Company further agrees to use its reasonable best efforts to prevent the happening of any event that would cause the Shelf Registration Statement to contain any 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 or to be not effective and usable for resale of the Transfer Restricted Securities during the period that such Shelf Registration Statement is required to be effective and usable. Upon the occurrence of any event that would cause the Shelf Registration Statement (i) to contain any 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 or (ii) to be not effective and usable for resale of Transfer Restricted Securities during the period that such Shelf Registration Statement is required to be effective and usable, the Company shall as promptly as reasonably practicable file an amendment to the Shelf Registration Statement, in the case of clause (i), correcting any such misstatement or omission, and in the case of either clause (i) or (ii), use its reasonable best efforts to cause such amendment to be declared effective and such Shelf Registration Statement to become usable as soon as reasonably practicable thereafter. Notwithstanding anything to the contrary in this Section 3, subject to compliance with Sections 4 and 5(b), if applicable, the Company may prohibit offers and sales of Transfer Restricted Securities pursuant to the Shelf Registration Statement at any time if (A) (i) it is in possession of material non-public information, (ii) the Board of Directors of the Company determines (based on advice of counsel) that such prohibition is necessary in order to avoid a -4- requirement to disclose such material non-public information and (iii) the Board of Directors of the Company determines in good faith that disclosure of such material non-public information would not be in the best interests of the Company and its shareholders or (B) the Company has made a public announcement relating to an acquisition or business combination transaction including the Company and/or one or more of its subsidiaries (i) that is material to the Company and its subsidiaries taken as a whole and (ii) the Board of Directors of the Company determines in good faith that offers and sales of Transfer Restricted Securities pursuant to the Shelf Registration Statement prior to the consummation of such transaction (or such earlier date as the Board of Directors shall determine) is not in the best interests of the Company and its shareholders (the period during which any such prohibition of offers and sales of Transfer Restricted Securities pursuant to the Shelf Registration Statement is in effect pursuant to clause (A) or (B) of this subparagraph (a) is referred to herein as a "Suspension Period"). A Suspension Period shall commence on and include the date on which the Company provides written notice pursuant to Section 5(d) hereof to Holders of Transfer Restricted Securities covered by the Shelf Registration Statement that offers and sales of Transfer Restricted Securities cannot be made thereunder in accordance with this Section 3 and shall end on the date on which each Holder of Transfer Restricted Securities covered by the Shelf Registration Statement either receives copies of a Prospectus Supplement contemplated by Section 5(b) or is advised in writing by the Company that offers and sales of Transfer Restricted Securities pursuant to the Shelf Registration Statement and use of the Prospectus may be resumed. (b) None of the Company nor any of its security holders (other than the Holders of Transfer Restricted Securities in such capacity) shall have the right to include any of the Company's securities in the Shelf Registration Statement. (c) If (i) only Debentures are to be registered in the Shelf Registration Statement and the Holders of a majority in aggregate principal amount of the Debentures to be registered in the Shelf Registration Statement so elect, or (ii) any shares of Common Stock issued upon conversion of Debentures are to be included in the Shelf Registration Statement and the Holders of a majority of the shares of Common Stock to be registered in the Shelf Registration Statement so elect, an offering of Transfer Restricted Securities pursuant to the Shelf Registration Statement may by effected in the form of an Underwritten Offering. In such event, and if the Underwriter advises the Company and the Holders of such Transfer Restricted Securities in writing that in their opinion the amount of Transfer Restricted Securities proposed to be sold in such offering exceeds the amount of Transfer Restricted Securities which can be sold in such offering, there shall be included in such Underwritten Offering the amount of such Transfer Restricted Securities which in the opinion of such Underwriters can be sold, and such amount or number of shares shall be allocated pro rata among the Holders of such Transfer Restricted Securities on the basis of the principal amount or number of shares of Transfer Restricted Securities requested to be included by such Holders. The Holders of the Transfer Restricted Securities to be registered shall pay all underwriting discounts and commissions of such Underwriters. (d) If any of the Transfer Restricted Securities covered by the Shelf Registration Statement are to be sold in an Underwritten Offering, the Underwriter(s) that will administer the -5- offering will be selected by the Holders of a majority of the aggregate principal amount of Debentures included in the Registration Statement and/or the Holders of a majority of shares of Common Stock included in the Shelf Registration Statement and issued upon conversion of the Debentures; provided, however, that such Underwriter(s) shall be reasonably satisfactory to the Company. (e) Each Holder whose Transfer Restricted Securities are covered by a Shelf Registration Statement filed pursuant to this Section 3 agrees, upon the request of the Underwriter(s) in any Underwritten Offering, not to effect any public sale or distribution of securities of the Company of the same class as the securities included in such Shelf Registration Statement, including a sale pursuant to Rule 144 under the Act (except as part of such registration), during the 10-day period prior to, and during the 90-day period beginning on, the closing date of any such Underwritten Offering made pursuant to such Shelf Registration Statement, to the extent timely notified in writing by such Underwriter(s). The foregoing provisions of this Section 3(e) shall not apply to any Holder of Transfer Restricted Securities if such Holder is prevented by applicable statute or regulation from entering into any such agreement; provided, however, that any such Holder shall undertake, in its request to participate in any such Underwritten Offering, not to effect any public sale or distribution of any of its Transfer Restricted Securities commencing on the date of sale of such Transfer Restricted Securities unless it has provided 90 days prior written notice of such sale or distribution to the Underwriter(s). (f) The Company agrees not to effect any public or private offer, sale or distribution of Securities of the same quality and nature as the Transfer Restricted Securities to be registered in an Underwritten Offering, including a sale pursuant to Regulation D under the Act, during the 10-day period prior to, and during the 90-day period beginning on, the closing date of each Underwritten Offering made pursuant to the Shelf Registration Statement, to the extent timely notified in writing by the Underwriter(s) (except as part of such registration, if permitted, or pursuant to registrations on Forms S-4 or S-8 or any successor form to such Forms), unless the Underwriter(s) shall consent in writing to a shorter period of time; provided, however, that any such agreement shall permit (A) the issuance by the Company of any shares of Common Stock issued to employees of the Company or to any other eligible person pursuant to any employee stock option plan, stock ownership plan, stock bonus plan or stock compensation plan of the Company in effect on the date of such Underwritten Offering, (B) the issuance by the Company of Common Stock upon the conversion of securities, or the exercise of options or warrants, outstanding at the date of such Underwritten Offering and (C) issuances of Common Stock (or any securities convertible into or exercisable for Common Stock, in connection with the acquisition of any related business. (g) No Holder of Transfer Restricted Securities may include any of its Transfer Restricted Securities in any Shelf Registration Statement pursuant to this Agreement unless such Holder furnishes to the Company in writing, within 10 business days after receipt of a request therefor, such information as the Company may reasonably request for use in connection with -6- any Shelf Registration Statement or Prospectus or preliminary Prospectus (a "Preliminary Prospectus") included therein. 4. Liquidated Damages. If (i) the Shelf Registration Statement is not filed with the Commission on or prior to 60 days after the Closing Date, (ii) the Shelf Registration Statement has not been declared effective by the Commission within 150 days after the Closing Date (the "Effectiveness Target Date"), or (iii) the Shelf Registration Statement is filed and declared effective but shall thereafter cease to be effective (without being succeeded immediately by any additional Shelf Registration Statement filed and declared effective) or usable for the offer and sale of Transfer Restricted Securities for a period of time (including any Suspension Period) which shall exceed 60 days in the aggregate in any 12-month period during the period beginning on the Closing Date and ending on or prior to the second anniversary of the Closing Date (each such event referred to in clauses (i) through (iii), a "Registration Default"), the Company will pay liquidated damages to each Holder of Transfer Restricted Securities who has complied with such Holder's obligations under this Agreement, during the first 90-day period immediately following the occurrence of such Registration Default in an amount equal to one quarter of one percent (25 basis points) per annum per $1,000 principal amount of Debentures and, if applicable, $2.50 per annum per 27.30 shares (subject to adjustment in the event of stock splits, stock recombinations, stock dividends and the like) of Common Stock constituting Transfer Restricted Securities held by such Holder. The amount of the liquidated damages will increase to one half of one percent (50 basis points) per annum per $1,000 principal amount of Debentures or $5.00 per annum per 27.30 shares (subject to adjustment as set forth above) of Common Stock constituting Transfer Restricted Securities for any additional days during which a Registration Default has occurred and is continuing, it being understood that all calculations pursuant to this and the preceding sentence shall be carried out to four decimals. All accrued liquidated damages shall be paid to Record Holders by wire transfer of immediately available funds or by federal funds check by the Company on each Damages Payment Date. Following the cure of all Registration Defaults, liquidated damages will cease to accrue with respect to such Registration Default. All of the Company's obligations set forth in the preceding paragraph which 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. 5. Registration Procedures. In connection with the Shelf Registration Statement, the Company will use its reasonable best efforts to effect such registration to permit the sale of the Transfer Restricted Securities being sold in accordance with the intended method or methods of distribution or disposition thereof, and pursuant thereto the Company will as expeditiously as possible after the Closing Date: (a) prepare and file with the Commission a Shelf Registration Statement relating to the registration on Form S-1, or Form S-3 if the use of such form is then available, for the sale of the Transfer Restricted Securities in accordance with the intended method or methods of distribution thereof and shall include all financial statements required to be included or -7- incorporated by reference therein; cooperate and assist in any filings required to be made with the NASD and use its reasonable best efforts to cause such Shelf Registration Statement to become effective and approved by such governmental agencies or authorities as may be necessary to enable the selling Holders to consummate the disposition of such Transfer Restricted Securities; provided, however, that before filing a Shelf Registration Statement or any Prospectus, or any amendments or supplements thereto, the Company will furnish to the Holders and the Underwriter(s), if any, copies of all such documents proposed to be filed (except that the Company shall not be required to furnish any exhibits to such documents, including those incorporated by reference, unless so requested by a Holder in writing), and the Company will not file any Shelf Registration Statement or amendment thereto or any Prospectus or any supplement thereto to which (i) the Underwriter(s), if any, shall reasonably object or (ii) if there are no Underwriters and if (A) only Debentures are to be registered in the Shelf Registration Statement and the Holders of a majority in aggregate principal amount of the Debentures registered in the Shelf Registration Statement shall reasonably object, or (B) any shares of Common Stock issued upon conversion of the Debentures are included in the Shelf Registration Statement and the Holders of a majority of the shares of Common Stock so registered in the Shelf Registration Statement shall reasonably object, in each such case within five business days after the receipt thereof. A Holder or Underwriter, if any, shall be deemed to have reasonably objected to such filing if the Shelf Registration Statement, amendment, Prospectus or supplement, as applicable, as proposed to be filed contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading which misstatement or omission is specifically identified to the Company in writing within such five business days; (b) prepare and file with the Commission such amendments and post-effective amendments to the Shelf Registration Statement as may be necessary to keep the Shelf Registration Statement effective for the applicable period set forth in Section 3(a) hereof, or such shorter period as will terminate when all Transfer Restricted Securities covered by such Shelf Registration Statement have been sold; cause the Prospectus to be supplemented by any required supplement thereto (a "Prospectus Supplement"), and as so supplemented to be filed pursuant to Rule 424 under the Act, and to comply fully with the applicable provisions of Rules 424 and 430A under the Act in a timely manner; and comply with the provisions of the Act with respect to the disposition of all securities covered by such Shelf Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the sellers thereof set forth in such Shelf Registration Statement, Prospectus or Prospectus Supplement; (c) if requested by the Holders of Transfer Restricted Securities, or if the Transfer Restricted Securities are being sold in an Underwritten Offering, the Underwriter(s) of such Underwritten Offering, promptly incorporate in the Prospectus, any Prospectus Supplement or post-effective amendment to the Shelf Registration Statement such information as the Underwriters and/or the Holders of Transfer Restricted Securities being sold agree should be included therein relating to the plan of distribution of the Transfer Restricted Securities, including, without limitation, information with respect to the principal amount of Transfer Restricted Securities being sold to such Underwriter(s), the purchase price being paid therefor -8- and any other terms with respect to the offering of the Transfer Restricted Securities to be sold in such offering; and make all required filings of such Prospectus, Prospectus Supplement or post-effective amendment as soon as practicable after the Company is notified of the matters to be incorporated in such Prospectus, Prospectus Supplement or post-effective amendment; (d) advise the Underwriter(s), if any, and selling Holders promptly and, if requested by such Persons, to confirm such advice in writing, (i) when the Prospectus or any Prospectus Supplement or post-effective amendment to the Shelf Registration Statement has been filed, and, with respect to the Shelf Registration Statement or any post-effective amendment thereto, when the same has become effective, (ii) of any request by the Commission for amendments to the Shelf Registration Statement or amendments or supplements to the Prospectus or for additional information relating thereto, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Shelf Registration Statement under the Act or of the suspension by any state securities commission of the qualification of the Transfer Restricted Securities for offering or sale in any jurisdiction, or the initiation of any proceeding for any of the preceding purposes, (iv) if at any time the representations and warranties of the Company contemplated by paragraph (m)(i) below cease to be true and correct, and (v) of any Suspension Period or of the existence of any fact and the happening of any event that makes any statement of a material fact made in the Shelf Registration Statement, the Prospectus, any amendment or supplement thereto, or any document incorporated by reference therein untrue, or that requires the making of any additions to or changes in the Shelf Registration Statement or the Prospectus in order to make the statements therein not misleading. If at any time the Commission shall issue any stop order suspending the effectiveness of the Shelf Registration Statement, or any state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption from qualification of the Transfer Restricted Securities under state securities or Blue Sky laws, the Company shall use its reasonable best efforts to obtain the withdrawal or lifting of such order at the earliest possible time; (e) promptly following the filing of any document that is to be incorporated by reference into the Shelf Registration Statement or the Prospectus subsequent to the initial filing of the Shelf Registration Statement, provide copies of such document (excluding exhibits, unless requested by a Holder in writing) to the Holders; (f) furnish to each Holder and each of the Underwriter(s), if any, without charge, at least one copy of the Shelf Registration Statement, as first filed with the Commission, and of each amendment thereto, including all documents incorporated by reference therein and all exhibits (excluding exhibits to documents incorporated by reference therein unless requested by such Holder); (g) deliver to each selling Holder and each of the Underwriter(s), if any, without charge, as many copies of any Preliminary Prospectus and the Prospectus and any amendments or supplements thereto as such Persons may reasonably request; the Company consents to the use of any Preliminary Prospectus and the Prospectus and any amendments or supplements thereto by each of the selling Holders and each of the Underwriter(s), if any, in connection with the -9- public offering and the sale of the Transfer Restricted Securities covered by any Preliminary Prospectus and the Prospectus or any amendments or supplements thereto; (h) prior to any public offering of Transfer Restricted Securities, cooperate with the selling Holders, the Underwriter(s), if any, and their respective counsel in connection with the registration and qualification of the Transfer Restricted Securities under the securities or Blue Sky laws of such jurisdictions as the selling Holders or Underwriter(s) may request and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdiction of the Transfer Restricted Securities covered by the Shelf Registration Statement; provided, however, that the Company shall not be required (i) to register or qualify as a foreign corporation where it is not now so qualified, (ii) to take any action that would subject it to the service of process in suits, other than as to matters and transactions relating to the Shelf Registration Statement, in any jurisdiction where it is not now so subject, or (iii) to take any action that would subject it to taxation in any jurisdiction in an amount greater than it would be so subject without having taken such action; (i) cooperate with the selling Holders and the Underwriter(s), if any, to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold and not bearing any restrictive legends; and enable such Transfer Restricted Securities to be in such denominations and registered in such names as the Holders or the Underwriter(s), if any, may request at least two business days prior to any sale of Transfer Restricted Securities; (j) use its reasonable best efforts to cause the Transfer Restricted Securities covered by the Shelf Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof or the Underwriter(s), if any, to consummate the disposition of such Transfer Restricted Securities, subject to the proviso contained in clause (h) above; (k) if any fact or event contemplated by clause (d)(v) above shall exist or have occurred, prepare a post-effective amendment or supplement to the Shelf Registration Statement or related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of Transfer Restricted Securities, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading; (l) provide a CUSIP number for all Transfer Restricted Securities not later than the effective date of the Shelf Registration Statement and provide the Trustee under the Indenture and/or the transfer agent for the Common Stock with printed certificates for the Transfer Restricted Securities which are in a form eligible for deposit with the Depository Trust Company; (m) enter into such agreements (including an underwriting agreement) and take all such other actions in connection therewith as may reasonably be required in order to expedite or facilitate the disposition of the Transfer Restricted Securities pursuant to the Shelf Registration Agreement, in connection with an Underwritten Registration, and (i) make such representations -10- and warranties to the Holders and the Underwriter(s), in form, substance and scope as they may reasonably request and as are customarily made by issuers to Underwriters in primary Underwritten Offerings and covering matters including, but not limited to, those set forth in the Purchase Agreement; (ii) obtain opinions of counsel to the Company and updates thereof in customary form and covering matters reasonably requested by the Underwriter(s) of the type customarily covered in legal opinions to Underwriters in connection with primary Underwritten Offerings addressed to each selling Holder and the Underwriter requesting the same and covering the matters as may be reasonably requested by such Holders and Underwriters; (iii) obtain, to the extent permitted by Statement on Auditing Standards No. 72 or any successor Statement thereto, "cold comfort" letters and updates thereof from the Company's independent certified public accountants addressed to the selling Holders of Transfer Restricted Securities and the Underwriters requesting the same, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters to Underwriters in connection with primary Underwritten Offerings; (iv) set forth in full or incorporate by reference in the underwriting agreement the indemnification provisions and procedures of Section 7 hereof with respect to all parties to be indemnified pursuant to said Section; and (v) deliver such documents and certificates as may be reasonably requested by the Holders of the Transfer Restricted Securities being sold or the Underwriter(s) of such Underwritten Offering to evidence compliance with clause (i) above and with any customary conditions contained in the underwriting agreement entered into by the Company pursuant to this clause (m). The above shall be done at or prior to each closing under such underwriting agreement, as and to the extent required thereunder; (n) make available at reasonable times and in a reasonable manner for inspection by a representative of the Holders of the Transfer Restricted Securities, any Underwriter participating in any disposition pursuant to such Shelf Registration Statement, and any attorney or accountant retained by such selling Holders or any of the Underwriters, all financial and other records, pertinent corporate documents and properties of the Company and cause the Company's officers, directors and employees to supply all information reasonably requested by any such Holder, Underwriter, attorney or accountant in connection with such Shelf Registration Statement prior to its effectiveness, provided, however, that such representatives, attorneys or accountants shall agree to keep confidential (which agreement shall be confirmed in writing in advance to the Company if the Company shall so request) all information, records or documents made available to such persons which are not otherwise available to the general public unless disclosure of such records, information or documents is required by court or administrative order (of which the Company shall have been given prior notice and an opportunity to defend) after the exhaustion of all appeals therefrom, and to use such information obtained pursuant to this provision only in connection with the transaction for which such information was obtained, and not for any other purpose; (o) otherwise use its reasonable best efforts to comply with all applicable rules and regulations of the Commission, and make generally available to its security holders, as soon as practicable, a consolidated earnings statement, which consolidated earnings statement shall satisfy the provisions of Section 11(a) of the Act, for the twelve-month period (i) commencing at the end of any fiscal quarter in which Transfer Restricted Securities are sold to Underwriters in a -11- firm commitment or best efforts Underwritten Offering or (ii) if not sold to Underwriters in such an offering, beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the Shelf Registration Statement; (p) cause the Indenture to be qualified under the TIA, and, in connection therewith, cooperate with the Trustee and the Holders to effect such changes to the Indenture as may be required for such Indenture to be so qualified in accordance with the terms of the TIA; and execute and use its best efforts to cause the Trustee to execute all documents as may be required to effect such changes and all other forms and documents required to be filed with the Commission to enable such Indenture to be so qualified in a timely manner; (q) make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of the Shelf Registration Statement as promptly as practicable. (r) cause all Transfer Restricted Securities covered by the Shelf Registration Statement to be listed on each securities exchange or quotation system on which similar securities issued by the Company are then listed if requested by the Holders of a majority in aggregate principal amount and/or number of shares of such Transfer Restricted Securities or the Underwriters, if any; cause the Debentures covered by the Shelf Registration Statement to be rated with the appropriate rating agencies, if so requested by the Holders of a majority in aggregate principal amount of such Debentures or the Underwriters; and (s) cooperate and assist in any filings required to be made with the NASD and in the performance of any due diligence investigation by any Underwriter (including any "qualified independent Underwriter" that is required to be retained in accordance with the rules and regulations of the NASD). Each Holder as to which any Shelf Registration Statement is being effected agrees to furnish promptly to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such Holder not materially misleading or necessary to cause such Shelf Registration Statement not to omit a material fact with respect to such Holder necessary in order to make the statements therein not misleading. Each Holder agrees by acquisition of such Transfer Restricted Securities that, upon receipt of any notice from the Company of the existence of any fact of the kind described in Section 5(d)(v) hereof, such Holder will forthwith discontinue disposition of Transfer Restricted Securities until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 5(k) hereof, or until it is advised in writing (the "Advice") by the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings with respect to the Prospectus. If so directed by the Company, each Holder will deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Transfer Restricted Securities current at the time of receipt of such notice. In the event the Company shall give any such notice, the time period regarding the effectiveness of Shelf Registration Statement set forth in Section 3(a) hereof shall be extended by the number of days during the -12- period from and including the date of the giving of such notice pursuant to Section 5(d)(v) hereof to and including the date when each selling Holder covered by such Shelf Registration Statement shall have received the copies of the supplemented or amended Prospectus contemplated by Section 5(k) hereof or shall have received the Advice. 6. Registration Expenses. (a) All expenses incident to the Company's performance of or compliance with this Agreement (the "Registration Expenses") will be borne by the Company, regardless whether a Shelf Registration Statement becomes effective, including without limitation: (i) all registration and filing fees and expenses (including filings made with the NASD); (ii) fees and expenses of compliance with federal securities or state blue sky laws; (iii) expenses of printing (including, without limitation, expenses of printing or engraving certificates for the Transfer Restricted Securities in a form eligible for deposit with Depository Trust Company and of printing the Prospectus and any Preliminary Prospectus), messenger and delivery services and telephone; (iv) reasonable fees and disbursements of counsel for the Company and for the Holders of the Transfer Restricted Securities (subject to the provisions of Section 6(b) hereof); (v) fees and disbursements of all independent certified public accountants of the Company (including the expenses of any special audit and "cold comfort" letters required by or incidental to the preparation and filing of a Shelf Registration Statement and Prospectus and the disposition of Transfer Restricted Securities); (vi) fees and expenses associated with any NASD filing required to be made in connection with the Shelf Registration Statement, including, if applicable, the fees and expenses of any "qualified independent Underwriter" (and its counsel) that is required to be retained in accordance with the rules and regulations of the NASD; and (vii) fees and expenses of listing the Transfer Restricted Securities on any securities exchange or quotation system in accordance with Section 5(r) hereof. The Company will, in any event, bear its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit, rating agency fees and the fees and expenses of any Person, -13- including special experts, retained by the Company. The Holders of Transfer Restricted Securities shall bear the expense of any broker's commission or Underwriters' discount or commission. (b) In connection with the Shelf Registration Statement, the Company will reimburse the Holders of Transfer Restricted Securities being registered pursuant to such Shelf Registration Statement for the fees and disbursements of not more than one counsel chosen by the Holders of a majority of the principal amount of the Debentures to be included in the Shelf Registration Statement, provided, however, that in the case of an Underwritten Offering which includes shares of Common Stock, such counsel shall be chosen by the Holders of a majority of the shares of Common Stock to be included in such Underwritten Offering. Notwithstanding the provisions of this Section 6(b), each Holder of Transfer Restricted Securities shall pay all Registration Expenses to the extent required by applicable law. 7. Indemnification. (a) The Company agrees to indemnity and hold harmless each Holder (each such Holder an "Indemnified Holder"), each agent, employee, officer and director of any Indemnified Holder and each person that controls each Indemnified Holder within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, and agents, employees, officers and directors or any such controlling person of any Indemnified Holder from and against any and all losses, claims, damages, judgments, liabilities and expenses (including the reasonable fees and expenses of counsel and other expenses in connection with investigating, defending or settling any such action or claim) as they are incurred which arise out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the Shelf Registration Statement or the Prospectus or any amendment or supplement thereto or any Preliminary Prospectus or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except (i) the Company shall not be liable to any Indemnified Holder in any such case insofar as such losses, claims, damages, judgments, liabilities or expenses arise out of, or are based upon, any such untrue statement or omission or alleged untrue statement or omission based upon information relating to such Indemnified Holder or Indemnified Underwriter furnished in writing by such Indemnified Holder to the Company expressly for use therein and (ii) the Company shall not be liable to any Indemnified Holder under the indemnity agreement in this Section 7(a) with respect to any Preliminary Prospectus to the extent that any such loss, claim, damage, judgment, liability or expense results solely from the fact that any Indemnified Holder sold Transfer Restricted Securities to a person to whom there was not sent or given, at or prior to the written confirmation of such sale, a copy of the Prospectus as then amended or supplemented, if the Company has previously furnished sufficient copies thereof to the Indemnified Holder. (b) If any action or proceeding (including any governmental or regulatory investigation or proceeding) shall be brought or asserted against any Indemnified Holder with respect to which indemnity may be sought against the Company pursuant to this Section 7, such Indemnified Holder shall promptly notify the Company in writing, and the Company shall have the right to -14- assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Holder and payment of all fees and expenses; provided, however, that the omission so to notify the Company shall not relieve the Company from any liability that they may have to any Indemnified Holder (except to the extent that the Company is materially prejudiced or otherwise forfeits substantive rights or defenses by reason of such failure). An Indemnified Holder shall have the right to employ separate counsel in any such action or proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Holder unless (i) the Company agrees in writing to pay such fees and expenses, (ii) the Company has failed promptly to assume the defense and employ counsel satisfactory to the Indemnified Holder or (iii) the named parties to any such action or proceeding (including any unpleaded parties) include both the Indemnified Holder and the Company and such Indemnified Holder shall have been advised in writing by its counsel that representation of them and the Company by the same counsel would be inappropriate under applicable standards of professional conduct (whether or not such representation has been proposed) due to actual or potential differing interests between them (in which case the Company shall not have the right to assume the defense of such action on behalf of such Indemnified Holder). It is understood that the Company shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) at any time for such Indemnified Holders, which firm shall be designated in writing by the Holders of the majority of the aggregate principal amount of Debentures and/or the number of shares of Common Stock on behalf of such Indemnified Holders, and that all such fees and expenses shall be reimbursed as they are incurred. The Company shall not be liable for any settlement of any such action effected without the written consent of the Company, but if settled with the written consent of the Company, or if there is a final judgment with respect thereto, the Company agrees to indemnify and hold harmless each Indemnified Holder from and against any loss or liability by reason of such settlement or judgment. The Company shall not, without the prior written consent of each Indemnified Holder affected thereby, effect any settlement of any pending or threatened proceeding in which such Indemnified Holder has sought indemnity hereunder, unless such settlement includes an unconditional release of such Indemnified Holder from all liability arising out of such action, claim, litigation or proceeding. (c) Each Indemnified Holder agrees to indemnify and hold harmless the Company, its directors, its officers who sign the Registration Statement and any person controlling the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act (collectively, the "Company Indemnified Parties") to the same extent as the foregoing indemnity from the Company to any Indemnified Holder, but only with respect to information relating to each Indemnified Holder furnished to the Company in writing by each Indemnified Holder, expressly for use in the Registration Statement, Prospectus (or any amendment or supplement thereto), or any Preliminary Prospectus. In case any action shall be brought against any Company Indemnified Party based on the Registration Statement, Prospectus (or any amendment or supplement thereto), or any Preliminary Prospectus and in respect of which indemnification may be sought against each Indemnified Holder pursuant to this Section 7(c), each Indemnified Holder shall have the rights and duties given to the Company by Section 7(a) (except that if the -15- Company shall have assumed the defense thereof, each Indemnified Holder may, but shall not be required to, employ separate counsel therein and participate in the defense thereof and the fees and expenses of such counsel shall be at the expense of the Indemnified Holder) and the Company Indemnified Parties shall have the rights and duties given to the Indemnified Holders by Section 7(b). (d) If the indemnification provided for in this Section 7 is unavailable to any party entitled to indemnification pursuant to Section 7(a) or 7(c), then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, judgments, liabilities and expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and each Indemnified Holder on the other from the offering of the Transfer Restricted Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and each Indemnified Holder on the other in connection with the statements or omissions which resulted in such losses, claims, damages, judgments, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and each Indemnified Holder on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total net proceeds from the offering (before deducting expenses) received by each Indemnified Holder, as set forth in the table on the cover page of the Prospectus. The relative fault of the Company on the one hand and each Indemnified Holder on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or by the Indemnified Holder on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. (e) The Company and each Indemnified Holder agree that it would not be just and equitable if contribution pursuant to Section 7(d) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in Section 7(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or expenses referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. No person found guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not found guilty of such fraudulent misrepresentation. (f) The Company shall also indemnify each Underwriter participating in the distribution (as described in such registration statement), their officers and directors and each person who controls such persons (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) to the same extent as provided above with respect to the indemnification of the Holders. -16- (g) The indemnity and contribution agreements contained in this Section 7 are in addition to any liability that any indemnifying party may otherwise have to any indemnified party. 8. Rule 144A. The Company hereby agrees with each Holder, for so long as any of the Debentures or shares of Common Stock that are Transfer Restricted Securities remain outstanding or, if earlier, two years from the Closing Date, and during any such period in which the Company is not subject to Section 13 or 15(d) of the Exchange Act, to make available to the Initial Purchasers or any beneficial owner of the Debentures or shares of such Common Stock in connection with any sale thereof and any prospective purchaser of such Debentures or Common Stock from such Initial Purchasers or beneficial owner, the information required by Rule 144A(d)(4) under the Act in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144A. 9. Participation in Underwritten Registrations. No Holder may participate in any Underwritten Offering hereunder unless such Holder (a) agrees to sell such Holder's Transfer Restricted Securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements, (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements and (c) furnishes the Company in writing information in accordance with Section 3(g) and agrees to indemnify and hold harmless the Company, its directors, its officers who sign the Registration Statement and any person controlling the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act to the extent contemplated by Section 7(c). 10. Selection of Underwriters. The Holders of Transfer Restricted Securities covered by the Shelf Registration Statement who desire to do so may sell such Transfer Restricted Securities in an Underwritten Offering. In any such Underwritten Offering, the Underwriter(s) that will administer the offering will be selected by the Holders of the Transfer Restricted Securities included in such offering in the manner specified in Section 3(c); provided, however, that such Underwriters must be reasonably satisfactory to the Company. 11. Miscellaneous. (a) Remedies. Each Holder of Transfer Restricted Securities, in addition to being entitled to exercise all rights provided herein, and as provided in the Purchase Agreement and granted by law, including recovery of damages, will be entitled to specific performance of such Holder's rights under this Agreement. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. (b) No Inconsistent Agreements. The Company will not on or after the date of this Agreement enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders of Transfer Restricted Securities in this Agreement or otherwise -17- conflicts with the provisions hereof. The rights granted to the Holders of Transfer Restricted Securities hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's securities under any other agreements. (c) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company has obtained the written consent of Holders of a majority in aggregate principal amount of the Debentures constituting Transfer Restricted Securities affected by such amendment, modification, supplement, waiver or departure (provided that, if any such Transfer Restricted Securities are shares of Common Stock issued upon conversion of Debentures, consents by Holders of such shares shall be calculated as if such conversions had not taken place). Notwithstanding the foregoing, a waiver or consent to departure from the provisions hereof that relates exclusively to the rights of Holders of Transfer Restricted Securities whose securities are being sold pursuant to such Shelf Registration Statement and that does not directly or indirectly affect the rights of other Holders of Transfer Restricted Securities shall be valid only with the written consent of Holders of at least 66-2/3% of the Transfer Restricted Securities being sold, in each case calculated in accordance with the provisions of Section 3(c). (d) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail (registered or certified, return receipt requested), telex, telecopier, or air courier guaranteeing overnight delivery: (i) if to a Holder of Transfer Restricted Securities, at the address set forth on the records of the Registrar under the Indenture, with a copy to the Registrar; and (ii) if to the Company or an Initial Purchaser, initially at its address set forth in the Purchase Agreement and thereafter at such other address, notice of which is given in accordance with the provisions of this Section. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied; and on the next business day, if timely delivered to an air courier guaranteeing overnight delivery. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee under the Indenture at the address specified in the Indenture. (e) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including without limitation and without the need for an express assignment, subsequent Holders of Transfer Restricted Securities; provided, however, that this Agreement shall not inure to the benefit of or be binding upon a -18- successor or assign of a Holder of Transfer Restricted Securities unless and to the extent such successor or assign acquired Transfer Restricted Securities from such Holder; and provided further that nothing herein shall be deemed to permit any assignment, transfer or any disposition of Transfer Restricted Securities in violation of the terms of the Purchase Agreement. If any transferee of any Holder shall acquire Transfer Restricted Securities, in any manner, whether by operation of law or otherwise, such Transfer Restricted Securities shall be held subject to all of the terms of this Agreement and by taking and holding such Transfer Restricted Securities such person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement and such Person shall be entitled to receive the benefits hereof. (f) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (g) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (h) Governing Law. This agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contacts made and to be performed within the State of New York. (i) Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (j) Entire Agreement. This Agreement together with the other Operative Documents (as defined in the Purchase Agreement) is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the registration rights granted by the Company with respect to the -19- securities sold pursuant to the Purchase Agreement. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. HEALTHSOUTH CORPORATION By ---------------------------------- Title ------------------------------- SMITH BARNEY INC. BEAR, STEARNS & CO. INC. COWEN & COMPANY CREDIT SUISSE FIRST BOSTON CORPORATION J.P. MORGAN SECURITIES INC. MORGAN STANLEY & CO. INCORPORATED NATIONSBANC MONTGOMERY SECURITIES LLC PAINEWEBBER INCORPORATED By SMITH BARNEY INC. By ---------------------------------- Title ------------------------------- -20- EX-5 3 EXHIBIT 5 EXHIBIT 5 June 2, 1998 HEALTHSOUTH Corporation One HealthSouth Parkway Birmingham, Alabama 35243 Re: Registration Statement on Form S-3 Our File No. 29075-414 Ladies and Gentlemen: We are acting as counsel for HEALTHSOUTH Corporation, a Delaware corporation (the "Company"), in connection with the registration under the Securities Act of 1933, as amended, of $567,750,000 aggregate principal amount of 3.25% Convertible Subordinated Notes due 2003 (the "Notes"), and up to 15,501,707 shares of Common Stock, $.01 par value (the "Common Stock"), of the Company, as may be required for issuance upon conversion of the Notes (the "Conversion Shares"). The Notes and the Conversion Shares are to be offered and sold by certain securityholders of the Company (the "Selling Securityholders"). In this regard we have participated in the preparation of a Registration Statement on Form S-3 relating to the Notes and the Conversion Shares. (Such Registration Statement, as it may be amended from time to time, is herein referred to as the "Registration Statement.") We are of the opinion that the Notes have been duly authorized and are binding obligations of the Company entitled to the benefits of the Indenture dated as of March 20, 1998, between the Company and The Bank of Nova Scotia Trust Company of New York, as Trustee. We are of the further opinion that the Conversion Shares have been duly authorized and, when issued by the Company upon conversion of the Notes in accordance with the Indenture, will be legally issued, fully paid and nonassessable. We hereby consent to the filing of this opinion as Exhibit 5.1 to the Registration Statement and to the use of our name under the caption "Legal Matters" in the Registration Statement and in the Prospectus included therein. Very truly yours, HASKELL, SLAUGHTER & YOUNG, LLC F. Hampton McFadden, Jr. EX-12 4 EXHIBIT 12 EXHIBIT 12 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------------ 1997 1993 1994 1995 1996 1997 PRO FORMA ------------ ------------ ------------ ------------ ------------- ------------ (IN THOUSANDS, EXCEPT RATIO DATA) EARNINGS: Income from continuing operations be- fore income taxes, minority interests and extraordinary items ................ $ 130,246 $193,701 $238,382 $384,162 $ 601,634 $616,249 Less: Minority interest ................. 29,549 31,665 43,753 50,369 64,873 64,873 --------- -------- -------- -------- --------- -------- Income from continuing operations be- fore income taxes and extraordinary items .................................. 100,697 162,036 194,629 333,793 536,761 551,376 ADJUSTMENTS: Note recurring changes .................. 50,075 34,717 73,102 78,905 15,875 15,875 Fixed charges ........................... 31,413 83,942 116,647 113,254 126,827 112,213 Capitalized interest expense ............ (2,664) (2,869) (2,865) (3,943) (2,491) (2,491) --------- -------- -------- -------- --------- -------- Numerator -- earnings available for fixed charges .......................... $ 179,521 $277,826 $381,513 $522,009 $ 676,972 $676,972 ========= ======== ======== ======== ========= ======== FIXED CHARGES: Interest expense ........................ $ 25,884 74,895 $105,517 98,751 $ 111,504 $ 96,889 Capitalized expense ..................... 2,664 2,869 2,865 3,943 2,491 2,491 Interest component of rental expense..... 2,865 6,178 8,265 10,560 12,832 12,832 --------- -------- -------- -------- --------- -------- Denominator - fixed charges ............. $ 31,413 $ 83,942 $ 16,647 $113,254 $ 126,827 $112,213 Ratio of earnings to fixed charges ...... 5.71x 3.31x 3.27x 4.61x 5.34x 6.03x ========= ======== ======== ======== ========= ======== THREE MONTHS ENDED MARCH 31, 1998 ------------------------- ACTUAL PRO FORMA ------------ ------------ EARNINGS: Income from continuing operations be- fore income taxes, minority interests and extraordinary items ................ $197,918 $201,468 Less: Minority interest ................. 18,331 18,331 -------- -------- Income from continuing operations be- fore income taxes and extraordinary items .................................. 179,987 183,137 ADJUSTMENTS: Note recurring changes .................. -- -- Fixed charges ........................... 29,733 26,183 Capitalized interest expense ............ (267) (267) -------- -------- Numerator -- earnings available for fixed charges .......................... $209,053 $209,053 ======== ======== FIXED CHARGES: Interest expense ........................ $ 28,336 $ 24,786 Capitalized expense ..................... 267 267 Interest component of rental expense..... 1,130 1,130 -------- -------- Denominator - fixed charges ............. $ 29,733 $ 26,183 Ratio of earnings to fixed charges ...... 7.03x 7.98x ======== ========
EX-23.1 5 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-3, No. 333-52237) and related Prospectus of HEALTHSOUTH Corporation for the registration of 15,501,707 shares of its common stock and to the incorporation by reference therein of our report dated February 25, 1998, except for Note 14, as to which the date is March 20, 1998, with respect to the consolidated financial statements and schedule of HEALTHSOUTH Corporation included in its Annual Report (Form 10-K) for the year ended December 31, 1997, filed with the Securities and Exchange Commission. ERNST & YOUNG LLP Birmingham, Alabama June 1, 1998 EX-25.1 6 EXHIBIT 25.1 EXHIBIT 25.1 ================================================================================ 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)__________________ THE BANK OF NOVA SCOTIA TRUST COMPANY OF NEW YORK (Exact name of trustee as specified in its charter) New York 13-5691211 (State of Incorporation (I.R.S. employer If not a U.S. national bank) Identification number) One Liberty Plaza New York, N.Y. 10006 (Address of principal (Zip Code) Executive office) ------------------------ HEALTHSOUTH CORPORATION (Exact name of obligor as specified in its charter) DELAWARE (State or other jurisdiction of incorporation or organization) 63-0860407 (I.R.S. employer identification no.) One HealthSouth Parkway Birmingham, Alabama 35243 (Address of principal executive offices)(Postal Code) CONVERTIBLE SUBORDINATED DEBT SECURITIES (Title of the indenture securities) -2- Item 1. General Information Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. Federal Reserve Bank of New York 33 Liberty Street New York, N.Y. 10045 State of New York Banking Department State House, Albany, N.Y. (b) Whether it is authorized to exercise corporate trust powers. The Trustee is authorized to exercise corporate trust powers. Item 2. Affiliation with the Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. The obligor is not an affiliate of the Trustee. Item 16. List of Exhibits. List below all exhibits filed as part of this statement of eligibility. Exhibit 1 - Copy of the Organization Certificate of the Trustee as now in effect. (Exhibit 1 to T-1 to Registration Statement No. 333-6688). Exhibit 2 - Copy of the Certificate of Authority of the Trustee to commerce business. (Exhibit 2 to T-1 to Registration Statement No. 333-6688). Exhibit 3 - None; authorization to exercise corporate trust powers is contained in the documents identified above as Exhibit 1 and 2. Exhibit 4 - Copy of the existing By-Laws of the Trustee. (Exhibit 4 to T-1 to Registration Statement No. 333-6688). Exhibit 5 - No Indenture referred to in Item 4. Exhibit 6 - The consent of the Trustee required by Section 321 (b) of the Trust Indenture Act of 1939. (Exhibit 6 to T-1 to Registration Statement No. 333-27685). Exhibit 7 - Copy of the latest Report of Condition of the Trustee as of March 1, 1998. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee, The Bank of Nova Scotia Trust Company of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York, and State of New York, on the 3rd day of June, 1998. THE BANK OF NOVA SCOTIA TRUST COMPANY OF NEW YORK By: /S/ George E. Timmes ------------------------------ George E. Timmes Vice President -----END PRIVACY-ENHANCED MESSAGE-----