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In its regular meeting held on October 22, the Board approved the general terms of an amendment to the company's bylaws in this regard, with one of the conditions being the Board's determination that reimbursement is consistent with its fiduciary duties.
The Wall Street Journal reported earlier that HealthSouth was planning to unveil a new corporate law, 'to reimburse activist shareholders for the expense of unseating management-backed directors.' The report further said the new corporate bylaw would partly cover those candidates gaining at least 40% of the votes cast.
Proxy fights are extremely expensive, which deters many dissidents from challenging the board. Only 75 shareholder contests for board seats have reportedly occurred so far in 2009, where challengers won at least one seat through votes or settlements in 58 contests.
HealthSouth's Board said today that it expects to adopt the final form of this bylaw amendment this week. The final amendment will be included in a Form 8-K to be filed with the Securities and Exchange Commission when approved.
HealthSouth will become one of first public companies to adopt an alternative to the various initiatives relating to proxy access.
According to Jon Hanson, non-executive chairman of the Board, "HealthSouth believes there is a close correlation between good governance and good performance. By reimbursing shareholders under certain conditions for reasonable expenses relating to director nominations, we believe we will further enhance director accountability and permit shareholders to have a greater say in the running of their company. This far-reaching amendment to our Bylaws will be good for our shareholders, our Board and our company."
The company's board also approved the general terms of an executive compensation recoupment, or clawback, policy. As per this policy, in certain instances, the company can seek return of bonus or incentive compensation paid to a member of senior management after January 1, 2010, if that officer engages in certain misconduct. The final terms of the policy will be included in a Form 8-K to be filed with the SEC when approved.
In June, Richard Scrushy, former chairman and chief executive officer as well as the founder of HealthSouth, was ordered by a federal judge to pay $2.88 billion in damages to shareholders of the company for an accounting scam uncovered in 2003. The shareholders first filed a law suit six years back claiming massive accounting fraud by years of overstating the company's earnings and assets in order to to meet Wall Street expectations and to buoy the stock.
The amendment is expected to increase the power of shareholders and encourage more companies to follow suit.
Meanwhile, the company said in a separate statement that it amended its credit agreement and extended maturity of a portion of its term loan. A segment of the lenders under the term loan that has a current outstanding balance of about $750 million will extend the maturity for $300 million of that loan from March 2013 to September 2015, subject to certain conditions. The portion of the term loan maturing in 2013 will remain at the current interest rate of LIBOR plus 2.25%, while the portion with extended maturity will bear the interest rate of LIBOR plus 3.75%.
The credit agreement has been amended to allow the company, among other things, to issue senior secured and unsecured notes in the bond market and increase the amounts the company is able to spend on acquisitions and selected debt repurchases. The company noted that the $300 million extension was significantly oversubscribed.
According to Ed Fay, Senior Vice President - Finance and Treasurer of HealthSouth, 'The debt profile of the company was greatly improved by the modification, giving the company greater financial flexibility to manage its overall capital structure and liquidity, and greater ability to increase shareholder value."
HLS closed Thursday's regular trade at $15.93, down from the previous close of $16.07, on 1.06 million shares.
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