<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
SURGICAL CARE AFFILIATES, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
SURGICAL CARE AFFILIATES, INC.
MARCH 31, 1995
TO OUR SHAREHOLDERS:
On behalf of the Board of Directors and management, I invite you to
attend the Annual Meeting of Shareholders of Surgical Care Affiliates, Inc. to
be held on May 11, 1995 at 11:00 A.M., Central Daylight Time, in the Belmont
Ballroom of the Vanderbilt Plaza Hotel, 2100 West End Avenue, Nashville,
Tennessee.
The notice of meeting and proxy statement accompanying this letter
describe the specific business to be acted upon.
In addition to the specific matters to be acted upon, there will be a
report on the progress of the Company and an opportunity for questions of
general interest to the shareholders.
It is important that your shares be represented at the meeting.
Whether or not you plan to attend in person, you are requested to mark, sign,
date and promptly return the enclosed proxy in the envelope provided.
Sincerely yours,
Joel C. Gordon
Chairman of the Board
2
<PAGE> 3
SURGICAL CARE AFFILIATES, INC.
Suite 610, Woodmont Centre
102 Woodmont Boulevard
Nashville, Tennessee 37205
NOTICE OF ANNUAL SHAREHOLDERS' MEETING
May 11, 1995
Notice is hereby given that the Annual Meeting of Shareholders of
Surgical Care Affiliates, Inc. (the "Company") will be held on May 11, 1995, at
11:00 A.M., Central Daylight Time, in the Belmont Ballroom of the Vanderbilt
Plaza Hotel, 2100 West End Avenue, Nashville, Tennessee, for the following
purposes:
1. To elect nine directors to serve during the ensuing
year.
2. To ratify the appointment of Deloitte & Touche as the
independent accountants of the Company.
3. To transact such other business as may properly come
before the meeting or any adjournment thereof.
Shareholders of record at the close of business on March 17, 1995 are
entitled to notice of and to vote at the Annual Shareholders' Meeting.
Dated: March 31, 1995 By order of the Board of Directors
Tarpley B. Jones
(Secretary/Treasurer)
IMPORTANT
WHETHER YOU EXPECT TO ATTEND THE MEETING OR NOT, PLEASE SIGN, DATE AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE ENVELOPE PROVIDED,
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
3
<PAGE> 4
SURGICAL CARE AFFILIATES, INC.
Suite 610, Woodmont Centre
102 Woodmont Boulevard
Nashville, Tennessee 37205
PROXY STATEMENT
INFORMATION CONCERNING THE SOLICITATION
This statement is furnished in connection with the solicitation of
proxies to be used at the Annual Meeting of Shareholders of Surgical Care
Affiliates, Inc. ("SCA" or the "Company") to be held on May 11, 1995 at 11:00
A.M., Central Daylight Time, in the Belmont Ballroom of the Vanderbilt Plaza
Hotel, 2100 West End Avenue, Nashville, Tennessee, and at any adjournment or
adjournments thereof.
At the Annual Meeting, the shareholders will vote on the election of
nine Directors. The shareholders will also be asked to ratify the appointment
of Deloitte & Touche as independent accountants to audit financial statements
of the Company for the current fiscal year. If a quorum exists, the
affirmative vote of a plurality of the shares present or represented at the
meeting and entitled to vote is required to elect the Board of Directors. If a
quorum exists, the affirmative vote of a majority of the shares present or
represented at the meeting and entitled to vote is required to ratify the
appointment of Deloitte & Touche as independent accountants.
Shareholders are urged to sign the enclosed form of proxy and return
it promptly in the envelope enclosed for that purpose. Proxies will be voted in
accordance with the shareholders' directions. If no directions are given,
proxies will be voted for the election of the nominees named herein as
Directors and for the ratification of the appointment of Deloitte & Touche as
independent accountants. With regard to the election of directors, votes may
be cast in favor of or withheld from each nominee; votes that are withheld will
be excluded entirely from the vote and will have no effect. Abstentions may be
specified on all proposals, except for the election of directors, and will be
counted as present for purposes of determining the existence of a quorum
regarding the item on which the abstention is noted. Under the rules of the
New York Stock Exchange, brokers who hold shares in a street name have the
authority to vote on certain items when they have not received instructions
from beneficial owners. Brokers that do not receive instructions are entitled
to vote only upon the election of directors. Under applicable Delaware law, a
broker non-vote on a proxy returned to the Company will be counted as present
for purposes of determining a quorum but will have no effect on the outcome of
the election of directors or the ratification of the appointment of Deloitte &
Touche as independent accountants. The Board of Directors knows of no other
business to be presented at the meeting. If any other business is properly
presented, the persons named in the enclosed proxy have authority to vote in
accordance with the recommendations of the Board of Directors. The proxy may
be revoked at any time prior to the voting thereof by written request to the
Company at Suite 610, Woodmont Centre, 102 Woodmont Boulevard, Nashville,
Tennessee 37205, Attention: Tarpley B. Jones, Secretary-Treasurer. The proxy
may also be revoked by submission to the Company of a more recently dated
proxy. The giving of a proxy will not affect the right of the shareholder to
attend the meeting and vote in person. A shareholder may revoke a proxy and
vote in person at the meeting by delivering an instrument of
<PAGE> 5
revocation to the Secretary no later than 11:00 A.M., Central Daylight Time, on
the date of the meeting.
The solicitation of proxies in the enclosed form is made on behalf of
the Board of Directors of the Company. The entire cost of soliciting these
proxies will be borne by the Company. In addition to being solicited through
the mails, proxies may be solicited personally or by courier service, telephone
or telegraph by officers, directors and employees of the Company, who will
receive no additional compensation for such activities. Arrangements will also
be made with brokerage houses and other custodians, nominees and fiduciaries to
forward solicitation materials to the beneficial owners of shares held of
record by such persons, who will be reimbursed for their reasonable expenses
incurred in such connection. It is expected that this Proxy Statement will
first be sent to shareholders on March 31, 1995.
SHAREHOLDERS' PROPOSALS FOR 1996 ANNUAL MEETING
Shareholders' proposals intended to be presented at the 1996 Annual
Meeting of Shareholders must be received by the Company no later than December
1, 1995 for inclusion in the Company's proxy statement and form of proxy
relating to that meeting.
OUTSTANDING VOTING SECURITIES
Only shareholders of record on March 17, 1995, are entitled to notice
of and to vote at the Annual Meeting. On March 17, 1995 there were 39,380,655
shares of Common Stock of the Company (the "Shares") issued and outstanding.
Each Share has one vote.
2
<PAGE> 6
ELECTION OF DIRECTORS
Directors hold office until their successors have been duly elected
qualified. The Company's Bylaws provide that the Board shall consist of such
number of Directors as may be fixed by action of the Board of Directors. The
Directors have determined that the Board shall consist of nine members. All of
the nominees are members of the current Board of Directors. If any nominee or
nominees should be unable to accept nomination or election as a Director, which
is not expected, the proxies may be voted with discretionary authority for a
substitute or substitutes designated by the Board of Directors. The election
of a Director requires the affirmative vote of a plurality of shares present or
represented at the meeting and entitled to vote.
MANAGEMENT OF THE COMPANY RECOMMENDS THE ELECTION OF THE FOLLOWING NOMINEES:
<TABLE>
<CAPTION>
Principal Director
Nominee Age Occupation Since
----------- --- ---------- --------
<S> <C> <C> <C>
Joel C. Gordon 66 Chairman of Board and 1982
Chief Executive Officer
William J. Hamburg 45 President and Chief 1991
Operating Officer
Dan E. Bruhl, M.D. 52 Physician 1985
Lucius E. Burch III 53 Chairman of Massey Burch 1982
Investment Group, Inc.
Robert J. Fraiman 66 Private Investor 1986
Kenneth J. Melkus 48 Chairman of the Board, 1987
President and Chief Executive
Officer of HealthWise of
America, Inc.
Andrew W. Miller 51 Private Investor; President of 1982
American HealthMark, Inc. and
Chairman of Omega Health
Systems, Inc.
Edwin J. Nighbert, M.D. 53 Physician 1983
Sister Josepha 62 Vice President of Illinois 1986
Schaeffer, O.S.F. Hospital Sisters Health System
</TABLE>
3
<PAGE> 7
During the last fiscal year, the Board of Directors held five
meetings. No director attended less than 75% of the meetings held during 1994
except for Mr. Fraiman, who attended 60% of the meetings, and Mr. Burch, who
attended 40% of the meetings. Directors not otherwise employed by the Company
received $2,000 for each regular meeting attended and $1,000 for each special
meeting attended. In addition, such directors are eligible to participate in
the 1990 Nonqualified Stock Option Plan for Nonemployee Directors of Surgical
Care Affiliates, Inc. (the "Director Plan").
The Board of Directors has three committees: an Executive Committee,
a Compensation Committee and an Audit Committee. There is no nominating
committee. Members of the Executive Committee are Messrs. Gordon and Hamburg
and Dr. Nighbert. The Executive Committee is authorized by the Board of
Directors to take all action which may be taken by the Board of Directors,
except the power to alter or amend the Bylaws; submit to shareholders any
action that requires shareholders' authorization; fill vacancies on the Board
of Directors or any committee thereof; or declare dividends or make any other
distributions. The Executive Committee is specifically authorized to allocate
funds to the Company's subsidiaries not in excess of $1,000,000 in any single
allocation for the development and/or construction of outpatient surgical care
centers or for such other purposes as the Executive Committee deems
appropriate. During 1994, the Executive Committee took six actions by
unanimous written consent.
Members of the Compensation Committee during 1994 were Messrs. Burch
and Fraiman and Dr. Bruhl. The Compensation Committee was appointed by the
Board of Directors to set compensation of executive officers, determine the
Performance Bonus and administer the Company's employee benefit plans,
including the Incentive Option Plan and the Stock Purchase Plan. During 1994,
the Compensation Committee held one meeting at which Mr. Burch and Dr. Bruhl
were present. No member of the Compensation Committee is eligible to receive
stock options under the plans administered by it.
Members of the Audit Committee during 1994 were Mr. Burch, Dr. Bruhl
and Sister Schaeffer. The Audit Committee was appointed to engage independent
auditors and review audit fees, supervise matters relating to audit functions,
review audit results with the auditors and review the scope and results of the
Company's internal auditing procedures and the adequacy of the internal
controls. During 1994, the Audit Committee held three meetings. All of the
members of the Audit Committee attended two of the meetings. Dr. Nighbert
participated in the third meeting in the absence of Mr. Burch and Dr. Bruhl.
Mr. Gordon has been Chairman of the Board of the Company since its
founding in 1982 and has served as its Chief Executive Officer since 1987. Mr.
Gordon had been in private investing in Nashville, Tennessee prior to his
association with the Company in 1982. Mr. Gordon serves on the Board of
Directors of Genesco, Inc., an apparel manufacturer; HealthWise of America,
Inc., an owner and operator of health maintenance organizations; and Third
National Bank in Nashville, a bank in Nashville, Tennessee.
4
<PAGE> 8
Mr. Hamburg became President and Chief Operating Officer of the
Company in February 1992. He joined the Company as a Vice President in March
1984 and was appointed Executive Vice President in 1986.
Dr. Bruhl has been a practicing physician in Fort Worth, Texas since
1973. Dr. Bruhl is President of Surgery Center of Fort Worth, Inc. and
co-founder of the Fort Worth Surgery Center. He currently serves on the Board
of Directors of Akorn, Inc., a pharmaceutical supply company which specializes
in ophthalmic medical drugs.
Mr. Burch has been Chairman of Massey Burch Investment Group, Inc., a
venture capital company in Nashville, Tennessee, since October 1989. He served
as its President from 1981 until October 1989 and as its Vice President from
1968 until June 1981. He serves on the Board of Directors of QMS Inc., a
producer of intelligent graphic systems and laser printers; Bio Systems, Inc.,
a manufacturer of proprietary health care products; Norrell Corp., a temporary
staffing company; and Titan Holding, Inc., an insurance holding company.
Mr. Fraiman is a private investor. From 1982 until 1987, he was a
limited partner in Spear, Leeds and Kellogg, a specialist firm on the New York
Stock Exchange, prior to which time he was a partner in a specialist firm which
merged into Spear, Leeds and Kellogg. Mr. Fraiman is a former governor of the
New York Stock Exchange.
Mr. Melkus has been Chairman of the Board, President and Chief
Executive Officer of HealthWise of America, Inc. since July 1993. He served
as Vice Chairman of the Board of the Company from February 1992 until July
1993. He joined the Company in September 1984 as Executive Vice President and
became President and Chief Operating Officer in 1987, which position he held
until February 1992. Mr. Melkus serves on the Board of Directors of HealthWise
of America, Inc.; Medalliance, Inc., an owner and operator of outpatient
diagnostic centers; and Quorum Health Group, an owner and operator of acute
care hospitals.
Mr. Miller is a private investor and President of American HealthMark,
Inc., an operator of acute care hospitals. Mr. Miller is also a director and
Chairman of Omega Health Systems, Inc., a company which operates and manages
eye care centers. Mr. Miller served as Vice Chairman of the Board of the
Company from May 1987 until February 1990 and served as President and Chief
Executive Officer from the Company's founding in 1982 until May 1987. Mr.
Miller serves on the Board of Directors of HealthWise of America, Inc.
Dr. Nighbert has been a general and vascular surgeon practicing in
Lexington, Kentucky since 1973 and is a founder and Medical Director of the
Lexington Surgery Center. He serves on the Board of Directors of First
National Bank, a bank in Versailles, Kentucky; and HealthWise of America, Inc.
5
<PAGE> 9
Sister Josepha Schaeffer has been Vice President of Hospital Sisters
Health System, Illinois since 1988, prior to which she had been Corporate
Director of Nursing and Paramedical Services of all hospitals affiliated with
the Hospital Sisters Health System since 1983.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares held beneficially,
directly or indirectly, as of February 21, 1995, by all holders of more than 5%
of the Company's Common Stock, all directors and nominees for director, the
Company's (i) Chief Executive Officer and (ii) two most highly compensated
executive officers other than the Chief Executive Officer (these three
executive officers being hereinafter referred to as the "Named Executive
Officers") and by all directors and executive officers as a group, together
with the percentage of the outstanding shares which such ownership represents.
Applicable rules of the Securities and Exchange Commission (the "SEC") require
disclosure of share ownership and compensation of the Chief Executive Officer
and the four most highly compensated executive officers other than the Chief
Executive Officer; however, during 1994 there were only two executive officers
of the Company other than the Chief Executive Officer.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP(1) CLASS(2)
------------------- ------------ --------
<S> <C> <C>
Joel C. Gordon
102 Woodmont Boulevard, Suite 610
Nashville, Tennessee 37205 1,556,213(3) 4%
William J. Hamburg
102 Woodmont Boulevard, Suite 610
Nashville, Tennessee 37205 153,956(4) *
Dan E. Bruhl, M.D.
1201 Summit Ave.
Fort Worth, Texas 76102 236,265 *
Lucius E. Burch III
Massey Burch Investment Group
310 25th Avenue North
Nashville, Tennessee 37203 109,660 *
Robert J. Fraiman
One Rocky Lane
Rancho Mirage, CA 92270 104,140 *
Kenneth J. Melkus
102 Woodmont Boulevard, Suite 110
Nashville, Tennessee 37205 48,182 *
Andrew W. Miller
210 25th Avenue North
Suite 1200 2,437,889(5) 6%
Nashville, Tennessee 37203
</TABLE>
6
<PAGE> 10
<TABLE>
<CAPTION>
AMOUNT AND
NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP(1) CLASS(2)
------------------- ------------ --------
<S> <C> <C>
Edwin J. Nighbert, M.D.
1725 Harrodsburg Road
Lexington, Kentucky 40504 189,685 *
Sister Josepha Schaeffer, O.S.F.
Hospital Sisters Health System
Box 19431 *
Springfield, Illinois 62794 --
Tarpley B. Jones
102 Woodmont Boulevard, Suite 610
Nashville, Tennessee 37205 2,807 *
The Equitable Companies Incorporated
787 Seventh Avenue South
New York, NY 10019 6,781,866(6) 17%
All directors and executive officers as
a group (10 persons) 4,838,797 12%
</TABLE>
-------------------
* Indicates less than 1% ownership
(1) Beneficial ownership is deemed to include shares of the Company's
Common Stock which an individual has a right to acquire within 60 days
of February 21, 1995 upon the exercise of options or warrants or
conversion of convertible securities. The table includes options
granted under the Company's Incentive Option Plans and the Director
Plan. These shares are deemed to be outstanding for the purposes of
computing the percentage ownership of that individual, but are not
deemed outstanding for the purposes of computing the percentage of any
other person. Unless otherwise noted in the following footnotes, the
persons as to whom information is given had sole voting and investment
power over the shares of Common Stock shown as beneficially owned.
(2) Computation based upon 39,217,724 shares outstanding at February 21,
1995.
(3) Includes 1,186,192 shares with respect to which Mr. Gordon has sole
voting and investment rights. Also includes 174,715 shares held by
his wife, and 35,904 shares held in trust for his grandchildren, as to
which shares Mr. Gordon disclaims beneficial ownership. Also includes
105,305 shares held by a partnership as to which Mr. Gordon has sole
voting and investment power.
(4) Includes 130,224 shares with respect to which Mr. Hamburg has sole
voting and investment rights. Also includes 2,713 shares held for his
children as to which Mr. Hamburg disclaims beneficial ownership.
(5) Includes 2,330,389 shares as to which Mr. Miller has sole voting and
investment rights. Also includes 107,500 shares held in a private
foundation with respect to which Mr. Miller has sole voting and
investment control.
(6) According to a Form 13G filed with the SEC dated February 10, 1995,
AXA, The Equitable Companies Incorporated (through three of its
subsidiaries) and the following five French mutual insurance companies
(as a group): AXA Assurances I.A.R.D. Mutuelle, AXA Assurances Vie
Mutuelle, Alpha Assurances I.A.R.D. Mutuelle, Alpha Assurances Vie
Mutuelle and Uni Europe Assurance Mutuelle (collectively, the "AXA
Companies") reported ownership of the shares listed in the foregoing
table. The AXA Companies own a greater than 50% interest in AXA, and
AXA owns a 49% interest in The Equitable Companies.
7
<PAGE> 11
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
The Company does not believe that any director, officer or beneficial
owner of more than 10% of the Company's Common Stock failed during 1994 to file
on a timely basis any reports required by Section 16(a) of the Securities
Exchange Act of 1934.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
Dan E. Bruhl, M.D., a director of the Company, is a 4.5% shareholder
and president of Surgery Center of Fort Worth, Inc. ("SCFW"). SCFW sold its
operating assets to the Company effective October 1, 1983 in exchange for
shares of the Common Stock of the Company (the "Shares") valued at $220,000.
SCFW leases real estate and equipment to Fort Worth Surgery Center Associates
(the "Fort Worth Center"), a general partnership composed of a subsidiary of
the Company and Surgery S, Inc., for an annual rental equal to $302,000 under a
lease expiring in November 1998. Dr. Bruhl is also a shareholder of Surgery S,
Inc.
Dr. Bruhl was elected to the Board of Directors pursuant to the
Company's agreement with the physicians owning interests in the Fort Worth
Center, which requires the Company to use its best efforts to cause and
maintain the election of a nominee of the physicians to its Board of Directors.
This agreement does not contain a termination provision.
On June 15, 1983, Surgery Property Associates, Ltd. ("Surgery
Property"), a limited partnership with a subsidiary of the Company as its
general partner, purchased the real property on which the Lexington Surgery
Center is located from a general partnership (the "Seller"), in which Edwin J.
Nighbert, M.D., a director of the Company, had an interest, for $1,625,000.
Subsequently, Dr. Nighbert was elected as a director of the Company. The
purchase agreement provides that in the event that the property is ever sold or
50% or more of its ownership otherwise transferred (excluding changes of
ownership resulting from sales of limited partnership interests in Surgery
Property), (a) in a transaction with a party not affiliated with Surgery
Property, the Seller will receive 60% of the difference between $1,625,000 and
the net sales proceeds received by Surgery Property in such transaction, and
(b) in a transaction with a party affiliated with Surgery Property, the Seller
will receive a sum equal to 60% of the difference between $1,625,000 and the
fair market value of the real property as determined by an appraisal by a
mutually agreed upon appraiser. The real estate purchase agreement does not
provide for termination of these provisions.
Dr. Nighbert is a shareholder of EDD, Inc., a corporation which until
March 1994 was the limited partner of Lexington-SC Partners, Ltd., a limited
partnership of which a subsidiary of the Company is the general partner.
Lexington-SC Partners, Ltd. is the general partner of the limited partnership
which operates the Lexington Surgery Center. EDD, Inc. as such limited partner
received 10% of the annual net profits (calculated without deduction for SCA's
management fee, payments to an affiliate under an equipment lease and the
salary of any medical director or administrator) of the Lexington Surgery
Center. The Company had the right to purchase the interest of EDD, Inc. for
$1,000 and exercised such right in March 1994.
8
<PAGE> 12
Sister Josepha Schaeffer, O.S.F., a director of the Company, is the
president of LaSante, Inc., a wholly owned subsidiary of Hospital Sisters
Services Incorporated ("HSSI"). LaSante, Inc. and a subsidiary of the Company
are general partners of Ambulatory Health Services Associates, a general
partnership formed to develop, own and operate outpatient surgical care
centers. SCA's subsidiary and LaSante, Inc. own 51% and 49%, respectively, of
the interests in the partnership. This partnership is the general partner of
and owns a majority interest in the Eau Claire Surgery Center, Limited
Partnership, Eau Claire, Wisconsin.
Each of the transactions referred to above was negotiated at arm's
length in connection with the acquisition of the center prior to the interested
director's assuming his or her position with the Company.
Andrew W. Miller, a director of the Company, is the majority
shareholder, chairman and chief executive officer of American HealthMark, Inc.
("AHM"). A subsidiary of AHM (the "Subsidiary") formed a limited partnership
to develop and operate an outpatient surgery center in Golden, Colorado (the
"Golden Partnership"). On October 22, 1992, AHM and the Company entered into
an agreement for the sale to the Company of stock in the Subsidiary owned by
AHM (the "Subsidiary Stock") for a purchase price of $100,000 in cash and ten
units of limited partnership in the Golden Partnership (the "Golden Stock
Agreement"). The purchase price was paid on March 10, 1993. AHM has the
option to exchange its interest in the Golden Partnership for Shares with a
value equal to 10% of eight times the net income of the Golden Partnership for
the calendar year ending prior to exercise of the option. On or after October
22, 1997, the Company has the right to require AHM to exchange its interest in
the Golden Partnership for Shares with a value equal to 10% of eight times the
net income of the Golden Partnership for the calendar year ending prior to
exercise of such right. The Shares will be registered under the Securities Act
of 1933, as amended. In the event that Sloans Lake Management Corporation
enters into a contract with Aurora Surgery Center Limited Partnership (the
"Aurora Partnership"), an affiliate of the Company which owns and operates an
outpatient surgery center in Aurora, Colorado, on terms and conditions no less
favorable to the Aurora Partnership than those in the Golden Partnership's
contract with the Sloans Lake Management Corporation, then the Company will
cause the Aurora Partnership to offer to AHM for $15,000 per unit five units of
limited interest in the Aurora Partnership, representing an aggregate of a 5%
ownership interest in the Aurora Partnership. AHM may exchange its interest in
the Aurora Partnership for Shares, and the Company may require AHM to exchange
its interest in the Aurora Partnership for Shares, on the same terms as
provided above in respect of AHM's interest in the Golden Partnership, except
the number of Shares to be received by AHM shall be based on 5% of eight times
the net income of the Aurora Partnership. AHM has the right to designate one
or more persons to own its interests in the Golden Partnership and the Aurora
Partnership. In the event of such a designation, such interests as owned by
any designee shall have all the rights and obligations granted to or conferred
upon AHM. The purchase price of the Subsidiary Stock was determined through
negotiations between the Company and AHM. The cost of the Subsidiary Stock to
AHM was $150,000, which equaled AHM's expenses in development of the proposed
center on the date of the Golden Stock Agreement.
9
<PAGE> 13
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation paid or accrued by the
Company during the three fiscal years ended December 31, 1994 to those persons
who, during the fiscal year ended December 31, 1994, were the Named Executive
Officers.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------------------ ----------------------- ----------
OTHER
ANNUAL RESTRICTED SECURITIES
NAME AND COMPENSATION STOCK UNDERLYING LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) ($)(2) AWARDS($) OPTIONS(#) PAYOUTS($) COMPENSATION($)
------------------ ---- --------- ----------- ------------ ---------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Joel C. Gordon 1994 $350,000 $198,710 - - 25,000 - -
Chairman of the 1993 305,000 80,852 - - 75,000(3) - -
Board and Chief 1992 265,000 876,960 - - 50,000 - -
Executive Officer
William J. Hamburg 1994 $280,000 $158,468 - - 25,000 - -
President and Chief 1993 230,000 62,296 $867 - 75,000(3) - -
Operating Officer 1992 200,000 219,840 555 - 50,000 - -
Tarpley B. Jones 1994 $175,000 $ 99,355 $722 - 75,000 - -
Senior Vice 1993 130,000 25,846 - - 54,363(4) - -
President, Chief 1992 100,000 33,386 807 - 25,000 - -
Financial Officer,
Secretary and
Treasurer
</TABLE>
(1) The amounts earned in 1992 were paid in 1992. The amounts earned in
1993 were paid in 1994. The amounts earned in 1994 were paid in 1995.
(2) Represents difference between price paid for shares purchased under
the Employee Stock Purchase Plan and the fair market value on the date
of purchase.
(3) Of this amount, 50,000 of the shares underly options that were granted
in 1992 and repriced in 1993.
(4) Of this amount, 25,000 of the shares underly options that were granted
in 1992 and repriced in 1993 and 4,363 of the shares underly options
that were adjusted to reflect the Company's spin-off of HealthWise of
America, Inc. in December 1993.
10
<PAGE> 14
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding grants of
stock options made to the Named Executive Officers during 1994.
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants Option Term
----------------------------------------------------------- -----------------------------
Percent of
Number of Total Options
Securities Granted to Exercise or
Underlying Employees in Base Price Expiration
Options Granted Fiscal Year ($/Sh) Date 5%($) 10%($)
--------------- ------------- ----------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Joel C. Gordon
25,000(1) 6.2% $18.375 10/27/99 $126,917 $280,453
William J. Hamburg
25,000(1) 6.2% $18.375 10/27/99 $126,917 $280,453
Tarpley B. Jones
50,000(2) 12.4% $14.50 7/22/99 $300,456 $663,929
25,000(1) 6.2% $18.375 10/27/99 $126,917 $280,453
</TABLE>
(1) The Options are exercisable one third beginning October 27, 1996, after
which one-third became exercisable each year.
(2) The Options are exercisable one third beginning July 22, 1996, after
which one-third became exercisable each year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table provides certain information, with respect to the
Named Executive Officers, concerning the exercise of options during 1994 and
with respect to unexercised options at December 31, 1994.
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
Fiscal Year End (#) December 31, 1994
----------------------------- -----------------------------
Shares
Acquired Value
Name on Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- -------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joel C. Gordon 58,497 $248,628 -- 100,000 -- $564,488
William J. Hamburg 42,000 610,634 21,019 100,000 $205,355 $421,875
Tarpley B. Jones -- -- -- 154,363 -- $754,051
</TABLE>
11
<PAGE> 15
EMPLOYMENT AGREEMENTS AND CHANGE-IN-CONTROL ARRANGEMENTS
Mr. Gordon and Mr. Hamburg are parties to employment agreements with
the Company, dated January 1, 1990 and January 1, 1992, respectively, as
amended September 1, 1994, each for renewable three year terms, which can be
terminated by the Company upon three years' notice and by the employee upon 30
days notice prior to the expiration of the term. Mr. Jones is a party to an
employment agreement with the Company, dated April 25, 1994, which has a term
ending December 31, 1996. The employment agreements provide that if the
Company merges, consolidates or combines with another business entity (a
"Change in Control"), then, at the employee's option, the new entity will
assume the employment agreement or the Company will pay the employee three
years' compensation. As of the date hereof, the aggregate amount payable to
Messrs. Gordon, Hamburg and Jones in the event of a Change in Control is
$2,790,000.
Under the employment agreements with each of Mr. Gordon, Mr. Hamburg
and Mr. Jones (collectively, the "Employment Agreements"), the initial base
salary of each executive officer was established on the date of his respective
agreement. The Employment Agreements provide that increases in compensation
paid under the agreements will be determined by the Compensation Committee on
an annual basis and that the employee may be granted options, bonuses and other
forms of incentive compensation at the discretion of the Compensation
Committee. The Employment Agreements also provide that the compensation
required to be paid under each Employment Agreement shall not be decreased in
any manner unless the employee fails to perform the duties required for any
reason, other than death or disability, or the Employment Agreement is
terminated pursuant to its terms or by written consent of the employee and the
Company.
Options granted to the Named Executive Officers pursuant to the
Company's Incentive Stock Plan of 1986 are immediately exercisable upon a
change of control of the Company or upon the employee's termination of
employment for a reason other than death, disability or retirement at normal or
early retirement age. Such options are exercisable three months after
termination of employment for disability or retirement at normal or early
retirement age.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1994, the Compensation Committee was comprised of Messrs. Burch
and Fraiman and Dr. Bruhl. No member of the Compensation Committee was, during
the 1994 fiscal year, an officer or employee of the Company or any of its
subsidiaries. Additionally, no member of the Compensation Committee has ever
served as an officer of the Company or any of its subsidiaries. Dan E. Bruhl,
M.D., a Director of the Company, is a 4.5% shareholder and president of Surgery
Center of Fort Worth, Inc. ("SCFW"). SCFW sold its operating assets to SCA
effective October 1, 1983 in exchange for Shares valued at $220,000. SCFW
leases real estate and equipment to Fort Worth Surgery Center Associates (the
"Fort Worth Center"), a general partnership composed of a subsidiary of the
Company and Surgery S, Inc., for an annual
12
<PAGE> 16
rental equal to $302,000 under a lease expiring in November 1998. Dr. Bruhl is
also a shareholder of Surgery S, Inc. Dr. Bruhl was elected to the Board of
Directors pursuant to the Company's agreement with the physicians owning
interests in the Fort Worth Center, which requires the Company to use its best
efforts to cause and maintain the election of a nominee of the physicians to
its Board of Directors. This agreement does not contain a termination
provision. With the exception of Dr. Bruhl's relationship with the Fort Worth
Center, there are no relationships among the Company's executive officers and
any entity affiliated with any of the members of the Compensation Committee
that require disclosure under applicable SEC rules.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This report is submitted by the Compensation Committee pursuant to
rules adopted by the SEC which require disclosure with respect to compensation
policies applicable to the Company's executive officers and with respect to the
basis for Mr. Gordon's compensation, as Chief Executive Officer, for 1994.
The Company's executive compensation policies are designed (1) to
motivate and retain senior management by providing levels of compensation which
relate to past and anticipated individual and Company performance; (2) to align
employee interests with the interests of the stockholders by encouraging
employee stock ownership and (3) to base a significant portion of each
executive officers' compensation package on the financial performance of the
Company. Accordingly, a substantial portion of the compensation package is "at
risk" and includes bonuses tied to financial performance and the granting of
stock options.
The compensation of the Company's executive officers is reviewed and
approved annually by the Compensation Committee of the Board of Directors. All
members of the Compensation Committee are outside directors.
Chief Executive Compensation
Under Mr. Gordon's employment agreement, the Compensation Committee
determines increases in Mr. Gordon's compensation on an annual basis. In
establishing the compensation for Mr. Gordon, the basic approach was that of
the compensation policies applicable to all executive officers. The
Compensation Committee made a subjective determination based upon the Company's
earnings per share, the Company's growth during 1994 and the corresponding
increase in Mr. Gordon's management duties. Mr. Gordon's salary for 1994 was
established at the beginning of the year. It represented a 15% increase over
his salary for 1993. During 1994, the Company added ten surgery centers;
revenues increased 20%; and earnings per share before restructuring charges and
non-recurring gains increased 19%. Mr. Gordon's performance bonus for 1994 was
determined in accordance with the formula set forth under the heading
Performance Bonus.
13
<PAGE> 17
The Compensation Committee believes option grants should be made
annually on a generally consistent basis. In awarding the stock options to Mr.
Gordon in 1994, the Compensation Committee considered the same subjective
factors as set forth above with respect to salary and granted options for
approximately the same number of underlying shares as in previous years.
Salary
Under each executive's employment agreement, the Compensation
Committee determines increases in compensation on an annual basis. The
Compensation Committee's policy in determining the appropriate annual salary
for executives is to consider the executive's contribution to the success of
the Company and the amount of responsibility vested in the executive's
position. In establishing the salary of each executive officer for 1994, the
Compensation Committee made a subjective determination but considered the
Company's earnings per share, the Company's growth during 1994 and the
corresponding increase in the executive's management responsibilities.
Performance Bonus
The Compensation Committee's policy is that a substantial portion of
executive compensation should be "at risk." Accordingly, the executive
performance bonus is awarded only to the extent that the Company's pre-tax net
income exceeds 100% of the previous year's pre-tax income. For each percentage
by which pre-tax net income exceeds 100% of the previous year's, executive
officers receive a bonus equal to 2% of salary. For each percentage increase
in excess of 115% up to and including 120%, the bonus equals 3% of base salary.
For each percentage increase in excess of 120%, the bonus equals 4% of base
salary.
In the years ending December 31, 1994, 1993 and 1992, the Company's
pre-tax net income before restructuring charges and non-recurring gains
increased by 23%, 28% and 38%, respectively. The Compensation Committee
believes that the performance bonus motivates the executives to increase the
income of the Company, which should then maximize shareholder value.
The amount earned under the performance bonus by each executive in
1992, 1993 and 1994, is as follows:
<TABLE>
<CAPTION>
1992 (1) 1993 (2) 1994 (3)
---- ---- ----
<S> <C> <C> <C>
Joel C. Gordon $117,963 $80,852 198,710
William J. Hamburg 89,029 62,296 158,968
Tarpley B. Jones 33,386 25,846 99,355
</TABLE>
------------------------
14
<PAGE> 18
(1) The amounts earned in 1992 were paid in 1992.
(2) The amounts earned in 1993 were paid in 1994.
(3) The amounts earned in 1994 were paid in 1995.
Special Bonus
In the fiscal years 1991 through 1993, executive officers were also
eligible to earn bonuses based on the performance of the Company's stock over a
five year period. The bonus paid was at the discretion of the Compensation
Committee, and there was no set formula which determined the amount of the
bonus. When determining the special bonus in prior years, the Compensation
Committee made a subjective determination based upon the appreciation in the
value of the Company's common stock.
The amount earned under the special bonus by each executive in 1992
and 1993 is set forth below:
<TABLE>
<CAPTION>
1992 (1) 1993 (2)
---- ----
<S> <C> <C>
Joel C. Gordon $758,997 --
William J. Hamburg 130,811 --
Tarpley B. Jones -- --
</TABLE>
--------------
(1) The amounts earned in 1992 were paid in 1992.
(2) Because the value of the Company's stock did not appreciate in 1993,
the Compensation Committee did not award any bonuses in 1993.
Stock Options
The Compensation Committee believes that stock options reward the
long-term performance of executives. The Compensation Committee believes that
stock options provide financial incentives for management because the option
exercise price for the employee is the price of stock on the date of grant.
Accordingly, executives recognize a gain only if the value of the Company's
stock increases. Thus, executives with stock options are rewarded for their
efforts to improve long-term stock market performance. In this way, the
financial interests of management are aligned with those of the Company's
shareholders.
Each year the executive officers receive a grant of incentive stock
options. The exercise price of these options is equal to the market value of
the stock on the date of grant. The Compensation Committee believes option
grants should be made annually on a generally consistent basis. In awarding
the stock options to the executives in 1994, the Compensation Committee
considered the same subjective factors as set forth above with respect to
salary.
Compensation Committee:
Lucius E. Burch III
Dan E. Bruhl, M.D.
Robert J. Fraiman
15
<PAGE> 19
COMPARATIVE PERFORMANCE GRAPH
The Company is required to include in this Proxy Statement a line
graph which compares the yearly percentage change in cumulative total
shareholder return on the Company's Common Stock with (a) the performance of a
broad equity market indicator, and (b) the performance of a published industry
index or peer group. The following graph compares the yearly percentage change
in the return on the Company's Common Stock for the last five years with the
cumulative total return on the Dow Jones Health Care Providers Index and the
Dow Jones Equity Market Index. The graph assumes the investment on December
31, 1989, of $100 in the Company's Common Stock and that all dividends were
reinvested at the time they were paid.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
Among Surgical Care Affiliates, Inc., Dow Jones Equity Market Index
and Dow Jones Health Care Providers Indes
Fiscal Year Ending December 31
(GRAPH)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Surgical Care Affiliates, Inc. 100 230 687 436 288 382
------------------------------------------------------------------------------
Dow Jones Equity Market Index 100 96 127 138 152 153
------------------------------------------------------------------------------
Dow Jones Health Care Providers 100 108 118 124 194 212
------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 20
COMPENSATION OF DIRECTORS
Directors not otherwise employed by the Company receive $2,000 for
each regular board meeting attended and $1,000 for each special board meeting
attended. In addition, nonemployee directors are entitled to receive options
pursuant to the 1990 Non-Qualified Stock Option Plan for Non-Employee Directors
of Surgical Care Affiliates, Inc. (the "Director Plan"). The Board of
Directors unanimously approved the Director Plan in May 1990 and the
shareholders approved the Director Plan in May 1991. The Director Plan
provides for the grant of non-qualified stock options to each director of the
Company who is not also either an employee or officer of the Company or a
holder of more than 5% of the outstanding Common Stock of the Company (a
"Non-Employee Director"). The material features of the Director Plan are
described below.
The Director Plan authorizes the issuance of options for the purchase
of up to 150,000 shares of Common Stock as well as the issuance of the
underlying shares. Any shares of Common Stock allocable to the unexercised
portion of an option that expires or terminates will again be available for the
purposes of the Director Plan. The Director Plan contains provisions providing
for adjustment of the number of shares available for option and subject to
unexercised options in the event of stock splits, dividends payable in Common
Stock, business combinations or certain other events.
The Director Plan provides that, on each May 15 during the term of the
Director Plan, options shall be granted automatically to the Non-Employee
Directors serving the Company on such date in accordance with the following
formula: 30,000 divided by the number of Non-Employee Directors serving the
Company in such capacity on such date; provided, however, no Non-Employee
Director will be granted an option to purchase more than 3,000 shares. The
date of an option pursuant to the Director Plan shall be referred to
hereinafter as the "Grant Date" of such option. The Board of Directors may
revoke, on or prior to each May 15, the next automatic grant of options
otherwise provided for by the Director Plan if no options have been granted to
employees since the preceding May 15 under the Company's 1986 Employee Stock
Purchase Plan or any other employee stock option plan that the Company might
adopt hereafter. The formula set forth above will not be affected by any
decision of the Board of Directors to revoke an automatic grant.
The price at which each share of Common Stock covered by an option may
be purchased upon exercise of such option pursuant to the Director Plan is the
fair market value of the share on the Grant Date of such option. Fair market
value is defined as the closing sales price on the date in question (or, if
there was no reported sale on such date, on the last preceding day on which any
reported sale occurred) of the Common Stock as reported on the New York Stock
Exchange. On February 21, 1995, the fair market value of a share of Common
Stock subject to the options was $22.00.
On May 15, 1994, the Company granted options to purchase an aggregate
of 12,000 shares of Common Stock under the Director Plan at an exercise price
per share of $12.375, the fair market value, as described above, of the Common
Stock on such date. Each Non-Employee Director other than Sister Schaeffer was
granted options to purchase 3,000 shares, these directors being as follows:
Messrs. Burch and Fraiman and Drs. Bruhl and Nighbert.
17
<PAGE> 21
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Deloitte & Touche has served as the Company's independent accountants
since October 20, 1987. Subject to ratification by the shareholders, the Board
of Directors has appointed Deloitte & Touche as the Company's independent
accountants for the current fiscal year. MANAGEMENT OF THE COMPANY RECOMMENDS
RATIFICATION OF DELOITTE & TOUCHE AS INDEPENDENT ACCOUNTANTS OF THE COMPANY.
Representatives of Deloitte & Touche are expected to be present at the
Annual Meeting of Shareholders. Such representatives will have the opportunity
to make a statement if they desire and will be available to respond to
appropriate questions.
18
<PAGE> 22
OTHER MATTERS
The Board of Directors, at the time of the preparation of this Proxy
Statement, knows of no business to come before the meeting other than that
referred to herein. If any other business should come before the meeting, the
persons named in the enclosed Proxy will have discretionary authority to vote
all proxies in accordance with the recommendation of the Board of Directors.
UPON THE WRITTEN REQUEST OF ANY RECORD HOLDER OR BENEFICIAL OWNER OF
COMMON STOCK ENTITLED TO VOTE AT THE ANNUAL MEETING, THE COMPANY, WITHOUT
CHARGE, WILL PROVIDE A COPY OF ITS ANNUAL REPORT ON FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 1994, TOGETHER WITH THE FINANCIAL STATEMENT SCHEDULES, AS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. REQUESTS SHOULD BE DIRECTED
TO TARPLEY B. JONES, SECRETARY-TREASURER, SURGICAL CARE AFFILIATES, INC., SUITE
610, 102 WOODMONT BOULEVARD, NASHVILLE, TENNESSEE 37205.
BY ORDER OF THE BOARD OF DIRECTORS
Nashville, Tennessee Tarpley B. Jones
March 31, 1995 Secretary/Treasurer
19
<PAGE> 23
APPENDIX A
PROXY
SURGICAL CARE AFFILIATES, INC.
ANNUAL MEETING OF SHAREHOLDERS
MAY 11, 1995
The undersigned hereby appoints Joel C. Gordon or Tarpley B. Jones, or
either of them, with power of substitution, as Proxies to vote all stock of
Surgical Care Affiliates, Inc. owned by the undersigned at the Annual Meeting
of Shareholders to be held in the Belmont Room of the Vanderbilt Plaza Hotel,
2100 West End Avenue, Nashville, Tennessee, at 11:00 A.M. on May 11, 1995, and
any adjournment thereof, on the following items of business and such other
business as may properly come before the meeting.
1. ________FOR THE ELECTION AS DIRECTOR OF ALL NOMINEES LISTED
BELOW (EXCEPT AS MARKED TO THE CONTRARY BELOW)
________WITHHOLD AUTHORITY TO VOTE FOR ALL NOMINEES LISTED BELOW
Joel C. Gordon, William J. Hamburg, Dan E. Bruhl, M.D., Lucius
E. Burch III, Robert J. Fraiman, Kenneth J. Melkus, Andrew W.
Miller, Edwin J. Nighbert, M.D. and Sister Josepha Schaeffer.
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEES,
WRITE THEIR NAMES IN THE SPACE PROVIDED BELOW.
________________________________________________________________________________
2. Proposal to ratify the appointment of Deloitte & touche as
independent accountants of the Company.
_____ FOR _____ AGAINST ____ ABSTAIN
3. In their discretion, upon such other matters as may properly
come before the meeting or any adjournment thereof.
<PAGE> 24
SURGICAL CARE AFFILIATES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE COMPANY'S BOARD OF DIRECTORS.
This proxy, when properly executed, will be voted in the manner
directed herein by the undersigned shareholder. If no direction is made, this
proxy will be voted for all nominees and for all Proposals.
Please sign exactly as name appears below. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such.
If a corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
Dated: _____________, 1995 ___________________________
Signature of Shareholder
___________________________
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN
THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
