<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 9, 1997
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10/A-1
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR 12(G) OF
THE SECURITIES EXCHANGE ACT OF 1934
---------------------
AMSURG CORP.
(Exact name of registrant as specified in its charter)
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<S> <C>
TENNESSEE 62-1493316
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
ONE BURTON HILLS BOULEVARD
SUITE 350
NASHVILLE, TN 37215
(Address of principal executive offices) (Zip code)
</TABLE>
(615) 665-1283
Registrant's telephone number, including area code
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
</TABLE>
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Class A Common Stock, no par value
Class B Common Stock, no par value
================================================================================
<PAGE> 2
AMERICAN HEALTHCORP LOGO
One Burton Hills Boulevard
Nashville, Tennessee 37215
May , 1997
Dear Fellow Stockholder:
This Information Statement contains important information regarding AmSurg
Corp. ("AmSurg"), and how American Healthcorp, Inc. ("AHC") will distribute all
of the AmSurg common stock owned by AHC to the holders of AHC common stock (the
"Distribution"). AHC currently owns approximately 59% of the outstanding AmSurg
common stock.
The Distribution will result in your ownership of shares of two independent
public companies: AHC, which will focus its business strategy on operating
hospital-based diabetes treatment centers and providing diabetes disease
management services for managed care organizations and other third party payors,
and AmSurg, which will focus its business strategy on the acquisition,
development and operation of practice-based ambulatory surgery centers and the
development and operation of start-up specialty physician networks associated
with these centers. We are excited about the prospects of both companies. Your
Board of Directors believes that the Distribution by AHC will enable AHC and
AmSurg to develop, finance and manage their businesses more effectively and
should better position the two companies to provide greater total value to
stockholders.
Prior to the Distribution, AmSurg will effect a recapitalization (the
"Recapitalization"), pursuant to which every three shares of outstanding AmSurg
common stock will be converted into one share of AmSurg Class A common stock, no
par value ("Class A Common Stock"). Immediately following the Recapitalization,
AHC will exchange (the "Exchange") all of its shares of Class A Common Stock for
shares of AmSurg Class B common stock, no par value ("Class B Common Stock").
The sole purposes for the Recapitalization and the Exchange are to reduce the
number of outstanding shares of AmSurg common stock on a one for three basis
through a reverse stock split to permit such shares to trade at proportionally
higher per share prices and to increase the voting power of AHC in AmSurg prior
to the Distribution to the extent required in order for the Distribution to
qualify for substantially tax-free treatment for federal income tax purposes.
The shares of Class A Common Stock will have one vote per share on all
matters, while the shares of Class B Common Stock will have seven votes per
share on the election and removal of directors of AmSurg and one vote per share
on all other matters. The Distribution to AHC stockholders will be of the Class
B Common Stock held by AHC, which shares will convert automatically into shares
of Class A Common Stock on the first transfer of any such shares following the
Distribution. The Class A Common Stock and the Class B Common Stock will be
identical in all other respects. The shares of Class A Common Stock have been
approved for listing on the Nasdaq National Market effective upon the
Distribution.
If you are a holder of AHC common stock on May , 1997, the record date for
the Distribution, you will receive, in the Distribution, 69 shares of Class B
Common Stock for every 100 shares of AHC common stock you own on that date, as
such ratio may be adjusted for issuances of AHC common stock after April 30,
1997. Holders of AHC common stock will receive cash in lieu of any fractional
shares of Class B Common Stock. AHC stockholders will be subject to federal
income taxation with respect to approximately 1.5% of the shares of the Class B
Common Stock received by them in the Distribution, the exact amount of which
will be provided by AHC along with other information concerning this taxable
amount. Receipt of the remaining 98.5% of the shares by the AHC stockholders is
expected to be exempt from federal income taxation. Consummation of the
Distribution is expected to occur on May , 1997. Consummation of the
Distribution is subject to the satisfaction or waiver of various conditions
described in this Information Statement.
This Information Statement also sets forth information about AmSurg and the
rights of the Class A Common Stock and Class B Common Stock, and contains
financial statements and other financial information. Due to the importance of
the information contained in this document, you are urged to read the
Information Statement carefully.
STOCKHOLDERS OF RECORD ON THE RECORD DATE FOR THE DISTRIBUTION WILL BE
ENTITLED AUTOMATICALLY TO PARTICIPATE IN THE DISTRIBUTION AND ARE NOT REQUIRED
TO DO ANYTHING TO BECOME ENTITLED TO SO PARTICIPATE. YOU DO NOT NEED TO TURN IN
YOUR AHC STOCK CERTIFICATE. NO STOCKHOLDER APPROVAL OF THE DISTRIBUTION IS
REQUIRED OR SOUGHT. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE NOT REQUESTED
TO SEND US A PROXY.
SINCERELY,
/S/ THOMAS G. CIGARRAN
--------------------------------------
THOMAS G. CIGARRAN
Chairman and Chief Executive Officer
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AMSURG LETTERHEAD
May , 1997
Dear American Healthcorp, Inc. Stockholder:
Upon the distribution by American Healthcorp, Inc. ("AHC") of the shares of
AmSurg common stock owned by AHC (the "Distribution"), each of you will become
holders of AmSurg Corp. ("AmSurg") Class B common stock, no par value. As an AHC
stockholder you have indirectly owned an interest in AmSurg because it has
operated as a majority-owned subsidiary of AHC since 1992. As a result of the
Distribution, AmSurg will be an independent public company with the ability to
develop, finance and manage its business separately from AHC. We appreciate your
past support of AmSurg and would like to welcome you as a direct stockholder in
AmSurg at this exciting moment in the company's history. We expect to continue
our business as a leader in the development, acquisition and operation of
practice-based ambulatory surgery centers. We believe the Distribution will
position us to maximize our growth potential.
AmSurg was formed in April 1992 for the purpose of developing, acquiring
and operating practice-based ambulatory surgery centers, in partnerships with
physician practice groups, throughout the United States. Each of the surgery
centers provides a narrow range of high volume, lower-risk surgical procedures,
generally in a single specialty, and has been designed with a cost structure
that enables AmSurg to charge fees which management believes are generally less
than those charged by hospitals and freestanding outpatient surgery centers for
similar services performed on an outpatient basis. While the majority of
AmSurg's existing ambulatory surgery centers specialize in gastroenterology,
AmSurg's growth strategy focuses on the development and acquisition of
practice-based ambulatory surgery centers and the development of start-up
specialty physician networks in five specialties: gastroenterology,
ophthalmology, orthopaedic surgery, urology and otolaryngology.
Several trends in the healthcare industry, including the continued
penetration of managed care into the healthcare arena and the importance of
market share growth in maintaining and increasing profits, have led AmSurg to
expand its growth strategy to include the development of specialty physician
networks. AmSurg believes that it can strengthen its position with managed care
organizations through the development of single specialty physician networks in
combination with practice-based ambulatory surgery centers strategically located
throughout a medical market area.
We are excited about operating AmSurg as an independent publicly traded
company and the opportunities for future development and growth of our business.
We expect these opportunities to translate into greater value to you and all
AmSurg stockholders.
Sincerely,
/s/ KEN P. MCDONALD
Ken P. McDonald
President
AMSURG LETTERHEAD
<PAGE> 4
CROSS-REFERENCE SHEET BETWEEN
INFORMATION STATEMENT
AND ITEMS OF FORM 10
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<CAPTION>
FORM 10 ITEM NUMBER AND CAPTION CAPTION IN INFORMATION STATEMENT
- ------------------------------- --------------------------------
<C> <S> <C>
1. Business..................................... Summary; Risk Factors; Selected Historical and Pro Forma
Financial Data of AmSurg; Management's Discussion and
Analysis of Financial Condition and Results of
Operations of AmSurg; Business of AmSurg
2. Financial Information........................ Summary; Risk Factors; Selected Historical and Pro Forma
Financial Data of AmSurg; Management's Discussion and
Analysis of Financial Condition and Results of
Operations of AmSurg; Business of AmSurg
3. Properties................................... Business of AmSurg
4. Security Ownership of Certain Beneficial
Owners and Management...................... Security Ownership of Certain Beneficial Owners and
Management
5. Directors and Executive Officers............. Management of AmSurg
6. Executive Compensation....................... Management of AmSurg
7. Certain Relationships and Related
Transactions............................... The Distribution; Certain Relationships and Related
Transactions
8. Legal Proceedings............................ Business of AmSurg
9. Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters........................ Summary; Description of Capital Stock; Security Ownership
of Certain Beneficial Owners and Management
10. Recent Sales of Unregistered Securities...... Recent Sales of Unregistered Securities
11. Description of Registrant's Securities to be
Registered................................. Description of Capital Stock
12. Indemnification of Directors and Officers.... Management of AmSurg; Description of Capital Stock
13. Financial Statements and Supplementary
Data....................................... Selected Historical and Financial Data of AmSurg;
Management's Discussion and Analysis of Financial
Condition and Results of Operations of AmSurg; Index to
Financial Statements
14. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure..... Not Applicable
15. Financial Statements and Exhibits............ Index to Financial Statements; Index to Exhibits
</TABLE>
<PAGE> 5
INFORMATION STATEMENT
AMSURG LOGO
COMMON STOCK
(NO PAR VALUE)
This Information Statement/Registration Statement (the "Information
Statement") is being furnished to stockholders of American Healthcorp, Inc., a
Delaware corporation ("AHC"), in connection with the pro rata distribution (the
"Distribution") by AHC to its stockholders of all of the common stock of AmSurg
Corp., a Tennessee corporation ("AmSurg"), owned by AHC. The Distribution is
expected to occur on May , 1997.
Prior to the Distribution, AmSurg will effect a recapitalization (the
"Recapitalization"), pursuant to which every three shares of AmSurg common stock
will be converted into one share of AmSurg Class A common stock, no par value
(the "Class A Common Stock"). The Recapitalization will reduce on a one for
three basis the number of outstanding shares of common stock of AmSurg through a
reverse stock split (the "Reverse Stock Split"). The sole purpose of the Reverse
Stock Split is to permit the shares of Class A Common Stock to trade at
proportionately higher per share prices following the Distribution. Immediately
following the Recapitalization, AHC will exchange (the "Exchange") its shares of
Class A Common Stock for shares of AmSurg Class B common stock, no par value
(the "Class B Common Stock" and, together with the Class A Common Stock, the
"AmSurg Common Stock"). The sole purpose for the Exchange is to increase the
voting power of AHC in AmSurg prior to the Distribution to the extent required
in order for the Distribution to qualify for substantially tax-free treatment
for federal income tax purposes. The shares of Class A Common Stock will have
one vote per share on all matters, while the shares of Class B Common Stock will
have seven votes per share on the election and removal of directors of AmSurg
and one vote per share on all other matters. The shares of Class B Common Stock
will convert automatically into shares of Class A Common Stock on the first
transfer following the Distribution. The shares of Class A Common Stock and
Class B Common Stock will be entitled to share ratably in any dividends other
than dividends payable with respect to AmSurg preferred stock. In all other
respects, the Class A Common Stock and Class B Common Stock are expected to be
identical. No further shares of Class B Common Stock will be issued following
the Distribution.
In the Distribution, each holder of shares of AHC common stock, par value
$.001 per share (the "AHC Common Stock"), on May , 1997 (the "Distribution
Record Date") will receive a dividend of 69 shares of Class B Common Stock for
every 100 shares of AHC Common Stock owned by such holder on the Distribution
Record Date, as such ratio may be adjusted for issuances of AHC Common Stock
after April 30, 1997, with cash being paid in lieu of fractional interests in a
share of Class B Common Stock.
No consideration will be paid by AHC stockholders for the shares of AmSurg
Common Stock to be received by them in the Distribution nor will they be
required to surrender or exchange shares of AHC Common Stock in order to receive
Class B Common Stock. There is currently no public trading market for the shares
of AmSurg Common Stock and no trading market will exist for Class B Common Stock
as each share of Class B Common Stock automatically converts to Class A Common
Stock on its first transfer. The Class A Common Stock has been approved for
listing on The Nasdaq Stock Market's National Market (the "Nasdaq National
Market") under the symbol "AMSG."
The Distribution is subject to the satisfaction or waiver of a number of
other conditions, as described in "THE DISTRIBUTION -- Conditions" in this
Information Statement. A copy of the Distribution Agreement is set forth as
Appendix A to this Information Statement.
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR CERTAIN MATTERS THAT SHOULD BE
CONSIDERED WITH RESPECT TO THE SHARES OF AMSURG COMMON STOCK.
---------------------
THIS INFORMATION STATEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES. ANY SUCH OFFERING MAY ONLY BE
MADE BY MEANS OF A SEPARATE PROSPECTUS PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND OTHERWISE IN COMPLIANCE WITH APPLICABLE LAW.
---------------------
THE SECURITIES TO BE ISSUED IN THE DISTRIBUTION HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR BY ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS INFORMATION STATEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Information Statement is May , 1997.
<PAGE> 6
TABLE OF CONTENTS
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PAGE
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AVAILABLE INFORMATION....................................... 1
SUMMARY..................................................... 2
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA OF AMSURG... 9
SUMMARY FINANCIAL DATA OF AHC............................... 10
RISK FACTORS................................................ 11
Prior Reliance on AHC..................................... 11
Dependence on Growth Strategy; Capital Needed for
Growth................................................. 11
Ability to Manage Growth.................................. 11
Relationships with Physician Partners..................... 12
Capitated Payment Arrangements............................ 12
Dependence on Third-Party Reimbursement................... 12
Medicare-Medicaid Illegal Remuneration ("anti-kickback")
Laws................................................... 13
Physician Self-Referral Laws.............................. 13
Other Government Regulation............................... 14
Risks Related to Intangible Assets........................ 14
Competition............................................... 14
Risk Factors Regarding AHC after Distribution............. 14
Effect of the Distribution on the AHC Common Stock........ 15
Certain Federal Income Tax Considerations................. 15
Proposed Treasury Regulation Regarding Tax Deduction for
Amortization of Goodwill............................... 15
No Prior Market for AmSurg Common Stock................... 16
Shares Eligible for Future Sale........................... 16
Dilution and Impact of AmSurg Preferred Stock............. 17
Certain Antitakeover Effects.............................. 17
Risks Associated With Forward-Looking Statements.......... 17
THE DISTRIBUTION............................................ 18
Background and Reasons for the Distribution............... 18
The Recapitalization and Exchange......................... 22
The Distribution Agreement................................ 24
Conditions................................................ 25
Manner of Effecting the Distribution...................... 26
Listing of Class A Common Stock; Restrictions on Resale;
Conversion of Class B Common Stock..................... 26
Interests of Certain Persons in the Distribution.......... 27
The Management Agreement.................................. 27
Adjustment of AHC Stock Options........................... 28
Accounting Treatment...................................... 28
Certain Federal Income Tax Consequences................... 29
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA OF
AMSURG.................................................... 32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF AMSURG....................... 33
Overview.................................................. 33
Results of Operations..................................... 34
Liquidity and Capital Resources........................... 37
Recent Accounting Pronouncements.......................... 38
CAPITALIZATION OF AMSURG.................................... 39
SELECTED FINANCIAL DATA OF AHC.............................. 40
BUSINESS OF AHC AFTER DISTRIBUTION.......................... 41
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<TABLE>
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PAGE
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BUSINESS OF AMSURG.......................................... 42
Industry Overview......................................... 42
Strategy.................................................. 43
Acquisition and Development of Surgery Centers............ 43
Surgery Center Locations.................................. 46
Surgery Center Operations................................. 46
Specialty Physician Networks and Practices................ 47
Revenues.................................................. 48
Competition............................................... 49
Government Regulation..................................... 49
Properties................................................ 52
Employees................................................. 53
Legal Proceedings and Insurance........................... 53
MANAGEMENT OF AMSURG........................................ 54
Directors and Executive Officers.......................... 54
Committees of the Board of Directors...................... 55
Compensation of Directors................................. 56
Director and Officer Indemnification and Limitation of
Liability.............................................. 56
Executive Compensation.................................... 58
Employment Agreements..................................... 59
Stock Incentive Plans..................................... 60
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 66
Management Agreement...................................... 66
Administrative Services Agreement......................... 66
Advisory Agreements....................................... 66
Lease Arrangement......................................... 67
Other Arrangements........................................ 67
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 68
DESCRIPTION OF CAPITAL STOCK................................ 70
Authorized Capital Stock.................................. 70
1992 Stockholders' Agreement.............................. 72
Registration Agreement.................................... 73
Stockholders' Agreements.................................. 73
Certain Provisions of the Charter, Bylaws, and Tennessee
Law.................................................... 73
SHARES ELIGIBLE FOR FUTURE SALE............................. 76
INDEX TO FINANCIAL STATEMENTS............................... F-1
APPENDICES
Appendix A: Distribution Agreement
Appendix B: Opinion of J.C. Bradford & Co.
Appendix C: Opinion of Morgan Keegan & Co., Inc.
</TABLE>
ii
<PAGE> 8
AVAILABLE INFORMATION
AmSurg has filed with the Securities and Exchange Commission (the "SEC") a
registration statement on Form 10 (such registration statement, as it may be
amended or supplemented, the "Registration Statement") under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), with respect to the
shares of Class A Common Stock and Class B Common Stock. This Information
Statement does not contain all of the information which is set forth in the
Registration Statement and the exhibits and schedules thereto. The Registration
Statement and the exhibits thereto are available for inspection and copying
without charge at the Public Reference Section of the SEC at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, as well as the Regional Offices of
the SEC at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, Seven World Trade Center, Suite 1300, New York, New York 10048
and at 5670 Wilshire Boulevard, Suite 1100, Los Angeles, California 90036.
Copies of such information are obtainable by mail from the Public Reference
Section of the SEC at 450 Fifth Street N.W., Washington, D.C. 20549 at
prescribed rates. Copies of such material may also be obtained from the SEC's
web site (http://www.sec.gov).
Following the Distribution, AmSurg will be subject to the informational
requirements of the Exchange Act and, in accordance therewith, will file annual,
quarterly and other reports, proxy statements and other information with the
SEC. The reports, proxy statements and other information which will be filed by
AmSurg with the SEC will be available for inspection and copying at the SEC's
Public Reference Section referred to above. Copies of such material will be
obtainable by mail at prescribed rates by writing the Public Reference Section
of the SEC at the address referred to above and from the SEC's web site
(http://www.sec.gov).
NO PERSON IS AUTHORIZED BY AHC OR AMSURG TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS INFORMATION STATEMENT,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED. NEITHER THE DELIVERY OF THIS INFORMATION
STATEMENT NOR CONSUMMATION OF THE DISTRIBUTION CONTEMPLATED HEREBY SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF AHC OR AMSURG SINCE THE DATE HEREOF, OR THAT THE INFORMATION HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
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<PAGE> 9
SUMMARY
The following summary is not intended to be complete and is qualified in
its entirety by reference to the more detailed information included in this
Information Statement and the Distribution Agreement set forth as Appendix A to
the Information Statement. Stockholders are urged to read this Information
Statement and the Distribution Agreement in their entirety. Unless otherwise
noted, the financial statements and other financial information relating to AHC
and AmSurg and data and information as to the shares of AmSurg Common Stock
included herein give effect to the Recapitalization, the Exchange and the
Distribution. Unless the context otherwise requires, the term "AmSurg" refers to
AmSurg and its subsidiaries and the term "AHC" refers to AHC and its
subsidiaries following the Distribution.
AMSURG
AmSurg was formed in April 1992 for the purpose of developing, acquiring
and operating practice-based ambulatory surgery centers, in partnerships with
physician practice groups, throughout the United States. An AmSurg surgery
center is typically located adjacent to or in the immediate vicinity of the
specialty medical practice of a physician group partner's office. Each of the
surgery centers offers a narrow range of high volume, lower-risk surgical
procedures, generally in a single specialty, and has been designed with a cost
structure that enables AmSurg to charge fees which management believes are
generally less than those charged by hospitals and freestanding outpatient
surgery centers for similar services performed on an outpatient basis. As of
March 31, 1997, AmSurg owned a majority interest in 28 surgery centers in ten
states and the District of Columbia, operated another center pursuant to a
management agreement and owned a majority interest in two physician practice
groups. As of March 31, 1997, AmSurg also had 20 centers under development and
had executed letters of intent to acquire or develop four additional centers.
AmSurg is utilizing selected surgery centers as a base to develop start-up
specialty physician networks that are designed to serve large numbers of covered
lives and thus strengthen AmSurg's position in dealing with managed care
organizations. As of March 31, 1997, AmSurg had established three start-up
specialty physician networks, located in the south Florida market and in
Knoxville, Tennessee and Montgomery, Alabama.
In recent years, government programs, private insurance companies, managed
care organizations and self-insured employers have implemented various
cost-containment measures to limit the growth of healthcare expenditures. These
cost-containment measures, together with technological advances, have resulted
in a significant shift in the delivery of healthcare services away from
traditional inpatient hospitals to more cost-effective alternate sites,
including ambulatory surgery centers. AmSurg believes that it is a leader in the
development, acquisition and operation of practice-based ambulatory surgery
centers.
While the majority of AmSurg's existing ambulatory surgery centers
specialize in gastroenterology, AmSurg's growth strategy focuses on the
development and acquisition of practice-based ambulatory surgery centers,
start-up specialty physician networks and physician practices in five
specialties: gastroenterology, ophthalmology, orthopaedic surgery, urology and
otolaryngology. AmSurg believes that it can strengthen its position with managed
care organizations through the development of single specialty physician
networks in combination with practice-based ambulatory surgery centers
strategically located throughout a medical market area.
AmSurg markets its surgery centers and networks directly to third-party
payors, including health maintenance organizations ("HMOs"), preferred provider
organizations ("PPOs"), other managed care organizations and employers.
Marketing activities emphasize the high quality of care, cost advantages and
convenience of AmSurg's surgery centers and are focused on making each center an
approved provider under local managed care plans. In addition, AmSurg is
developing networks with selected physician groups in order to market to managed
care payors a comprehensive specialty physician network that includes its
surgery centers.
AmSurg ambulatory surgery centers are typically owned through limited and
general partnerships or limited liability companies in which a subsidiary of
AmSurg is a general partner or member and holds a majority interest. The other
partners of the partnerships and members of the limited liability companies are
2
<PAGE> 10
physicians or physician practice groups that generally have offices adjacent to
or in close proximity to the surgery center. In development projects, the
capital contributed by the physicians and AmSurg, together with bank financing,
provide the partnership or limited liability company with the funds necessary to
construct and equip the surgery center and to provide initial working capital.
The start-up specialty physician networks are also owned through limited
partnerships or limited liability companies in which a subsidiary of AmSurg is a
general partner or member and holds a majority interest. The other partners or
members are individual physicians who will provide the medical services to the
patient population covered by contracts which the network will seek to enter
into with managed care payors. These entities are funded by AmSurg and the
physicians on a pro rata basis based on their ownership interests.
AmSurg is incorporated in Tennessee. Its principal executive offices are
located at One Burton Hills Boulevard, Nashville, Tennessee 37215, and its
telephone number is (615) 665-1283.
AN INVESTMENT IN SHARES OF AMSURG COMMON STOCK IS SUBJECT TO VARIOUS RISKS.
SEE "RISK FACTORS."
THE DISTRIBUTION
DISTRIBUTING COMPANY....... The distributing company is AHC. Following
consummation of the Distribution, AHC, through its
wholly-owned subsidiary, Diabetes Treatment Centers
of America, Inc. ("DTCA"), will continue to operate
hospital-based diabetes treatment centers and to
provide diabetes disease management services for
managed care organizations and other third party
payors. DTCA's hospital-based diabetes treatment
centers are designed to create centers of
excellence for the treatment of diabetes in the
community in which they are located and thereby
increase the hospitals' market share of diabetes
patients and lower the hospitals' cost of providing
services to this population. DTCA's disease
management products are designed to assist
healthcare payors in reducing the total cost and
improving the quality of care for individuals with
diabetes through intensive diabetes education,
patient support and treatment regimens, as well as
comprehensive management of all care delivered to
these individuals. AHC, through its wholly-owned
subsidiary, Arthritis and Osteoporosis Care Center,
Inc. ("AOCC"), operates two arthritis and
osteoporosis treatment centers providing
comprehensive treatment to individuals with
arthritis and osteoporosis. On March 10, 1997, the
last full trading day prior to the announcement of
the execution of the Distribution Agreement and the
filing of this Information Statement with the SEC,
the closing sale price per share of AHC Common
Stock was $13.
PURPOSES OF THE
DISTRIBUTION............. The Distribution is designed to separate the two
principal operating businesses of AHC so that each
may maximize its value by adopting strategies and
pursuing objectives appropriate to its specific
needs. The principal purpose of the Distribution
for the AmSurg operating business is to enable it
to have access to debt and equity capital markets
as an independent, publicly traded company in order
to finance the development and acquisition of
ambulatory surgery centers and specialty physician
networks. The principal purpose of the Distribution
for AHC is to enable AHC to focus its capital
resources on the development of DTCA's
comprehensive diabetes disease management services
for managed care organizations and other third
party payors. The Distribution will enable
management of both AHC and AmSurg to focus on each
company's core business, provide liquidity for the
AmSurg minority stockholders and permit AHC
investors to choose more precisely and
3
<PAGE> 11
monitor their investments. See "THE
DISTRIBUTION -- Background and Reasons for the
Distribution."
SECURITIES TO BE
DISTRIBUTED.............. All of the outstanding shares of Class B Common
Stock, which is expected to be 5,530,131 shares of
Class B Common Stock, will be distributed. As of
April 30, 1997, AHC owned 59% of the outstanding
shares of common stock of AmSurg. As of that date,
31% of the remaining shares of AmSurg common stock
were owned by physicians who acquired their shares
in connection with AmSurg's acquisition or
development of ambulatory surgery centers and the
remaining 10% were owned by management and certain
other investors who acquired their shares in
private transactions. See "THE DISTRIBUTION."
DISTRIBUTION AGREEMENT..... The Distribution will be accomplished pursuant to
the terms and conditions of the Distribution
Agreement, dated as of March 7, 1997, by and
between AHC and AmSurg set forth as Appendix A
hereto (the "Distribution Agreement").
DISTRIBUTION RATIO......... 69 shares of Class B Common Stock will be
distributed for each 100 shares of AHC Common Stock
outstanding on the Distribution Record Date, as
such ratio may be adjusted for issuances of AHC
Common Stock after April 30, 1997. Holders of AHC
Common Stock will receive cash in lieu of any
fractional shares of Class B Common Stock that
would otherwise be distributed. No consideration
will be paid by AHC stockholders for the shares of
AmSurg Common Stock to be received by them, nor
will they be required to surrender or exchange
shares of AHC Common Stock in order to receive
shares of AmSurg Common Stock. See "THE
DISTRIBUTION."
AUTOMATIC CONVERSION OF
CLASS B COMMON STOCK UPON
TRANSFER................. Each share of Class B Common Stock will convert
automatically into one share of Class A Common
Stock upon any transfer following the Distribution,
including transfers by gift but excluding transfers
of the Class B Common Stock from the beneficial
owner into street name, from street name to the
beneficial owner and by pledge. Stockholders will
not be required to effect a conversion of their
shares of Class B Common Stock in order to settle
any transfer or to sell their shares on the Nasdaq
National Market. See "DESCRIPTION OF CAPITAL
STOCK."
VOTING AND OTHER RIGHTS OF
CLASS A COMMON STOCK AND
CLASS B COMMON STOCK..... Each share of Class A Common Stock will have one
vote per share on all matters, while each share of
Class B Common Stock will have seven votes per
share in the election and removal of directors of
AmSurg and one vote per share on all other matters.
The Class A Common Stock and Class B Common Stock
will vote together as a single class on all matters
except those that would adversely affect the rights
of either class. The shares of Class A Common Stock
and Class B Common Stock will be entitled to share
ratably in any dividends other than dividends
payable with respect to AmSurg preferred stock.
AmSurg will not have the right to issue any Class B
Common Stock following the Distribution. The Class
A Common Stock and Class B Common Stock will be
identical in all other respects. See "DESCRIPTION
OF CAPITAL STOCK."
4
<PAGE> 12
TRADING MARKET............. The Class A Common Stock has been approved for
listing on the Nasdaq National Market under the
symbol "AMSG." See "THE DISTRIBUTION -- Listing of
Class A Common Stock; Restrictions on Resale;
Conversion of Class B Common Stock." The combined
trading prices of AHC Common Stock and Class A
Common Stock after the Distribution may be less
than, equal to or greater than the trading price of
AHC Common Stock before the Distribution.
DISTRIBUTION RECORD DATE... May , 1997
DISTRIBUTION DATE.......... The Distribution will take place following the
satisfaction or waiver of the conditions set forth
in the Distribution Agreement. It is anticipated
that the Distribution will take place on May ,
1997. Stock certificates representing the shares of
Class B Common Stock to be distributed will be
mailed by the Distribution Agent as soon as
practicable after the Distribution. No action of an
AHC stockholder is necessary to receive the
certificates.
CONDITIONS TO
DISTRIBUTION............. The Distribution is subject to a number of
conditions, including the following: (i) the
receipt of a letter ruling from the Internal
Revenue Service (the "IRS") with respect to the
substantially tax-free status of the Distribution
for federal income tax purposes; (ii) the listing
of the Class A Common Stock on a national
securities exchange or for inclusion in the Nasdaq
National Market or such other trading market as the
parties may agree; (iii) the approval by the AmSurg
stockholders of the amendment and restatement of
AmSurg's Charter (the "AmSurg Charter"), the
amendment and restatement of the AmSurg Bylaws (the
"AmSurg Bylaws") and various other matters; (iv)
the receipt by the Special Committee of the Board
of Directors of AmSurg of the opinion of J.C.
Bradford & Co. ("J.C. Bradford") that the
Recapitalization, Exchange and the Distribution are
fair, from a financial point of view, to the
stockholders of AmSurg, other than AHC, and the
receipt by the Board of Directors of AHC of the
opinion of Morgan Keegan & Co., Inc. ("Morgan
Keegan") that the Distribution, Recapitalization
and Exchange are fair, from a financial point of
view, to the AHC stockholders, and confirmation of
such opinions prior to the Distribution; and (v)
the approval of the Recapitalization and the
Exchange by the holders of at least a majority of
the voting power of the outstanding shares of
capital stock of AmSurg, with the holders of no
more than 5% of the outstanding shares exercising
dissenters' rights of appraisal under Tennessee
law. AHC, as the holder of 59% of the voting power
of the common stock of AmSurg on April 30, 1997,
has agreed to vote in favor of the Recapitalization
and the Exchange and the amendment and restatement
of the AmSurg Charter and AmSurg Bylaws. The
holders of AmSurg preferred stock also must approve
the amendment and restatement of the AmSurg
Charter. See "THE DISTRIBUTION -- Conditions."
RECAPITALIZATION AND
EXCHANGE................. Immediately prior to consummation of the
Distribution, AmSurg will (a) undergo a
Recapitalization, in which AmSurg will convert
every three shares of AmSurg common stock held by
all existing AmSurg stockholders, including AHC,
into one share of Class A Common Stock and
authorize the issuance of Class B Common Stock to
AHC in the Exchange and (b) effect the Exchange by
issuing 5,530,131 shares of Class B Common Stock to
AHC in exchange for the same number of shares of
Class A Common Stock. The Class B Common Stock will
have
5
<PAGE> 13
as of the date of Distribution approximately 90% of
the voting power of the capital stock of AmSurg in
election and removal of directors. As part of the
Recapitalization, AmSurg also will convert every
three shares of Series A Redeemable Preferred
Stock, no par value (the "Series A Preferred
Stock") and Series B Convertible Preferred Stock,
no par value (the "Series B Preferred Stock" and
together with the Series A Preferred Stock, the
"AmSurg Preferred Stock") into one share of Series
A Preferred Stock and Series B Preferred Stock,
respectively. The sole purposes of the
Recapitalization and the Exchange are (a) to reduce
the number of outstanding shares of AmSurg common
stock on a one for three basis through a Reverse
Stock Split so as to permit the shares of AmSurg
Common Stock to trade at proportionately higher per
share prices following the Distribution, and (b) to
increase the voting power of AHC immediately prior
to the Distribution as required in order to effect
the Distribution on a substantially tax-free basis
for federal income tax purposes. See "THE
DISTRIBUTION -- The Recapitalization and Exchange."
DISTRIBUTION AGENT,
TRANSFER AGENT AND
REGISTRAR................ SunTrust Bank, the transfer agent for the AHC
Common Stock, will serve as the distribution agent
(the "Distribution Agent") and as the transfer
agent and registrar for the AmSurg Common Stock.
FEDERAL INCOME TAX
CONSEQUENCES............. It is anticipated that the Distribution will be
substantially tax-free for federal income tax
purposes under Section 355 of the Internal Revenue
Code of 1986, as amended (the "Code"). Receipt of a
ruling from the IRS that the Distribution may be
accomplished on a substantially tax-free basis for
federal income tax purposes is a condition to the
Distribution. Stockholders will be subject to
federal income taxation with respect to
approximately 1.5% of the shares of AmSurg Common
Stock received by them and any cash received in
lieu of fractional shares. AHC will distribute as
soon as practicable to its stockholders information
regarding the taxable amount of ordinary income and
of capital gain attributable to the Distribution.
See "THE DISTRIBUTION -- Certain Federal Income Tax
Consequences." Stockholders are urged to consult
with their personal tax advisors concerning any
state, local or foreign tax consequences of the
Distribution.
DIVIDENDS AFTER THE
DISTRIBUTION............. AmSurg does not currently intend to declare or pay
any cash dividends on the shares of Class A Common
Stock and Class B Common Stock and its ability to
do so will be subject to certain limitations. See
"DESCRIPTION OF CAPITAL STOCK -- Authorized Capital
Stock -- Dividend Policy." AHC does not currently
intend to declare or pay any cash dividends on the
shares of AHC Common Stock and its ability to do so
will be subject to certain limitations.
CERTAIN PROVISIONS OF
AMSURG'S CHARTER, BYLAWS
AND
TENNESSEE LAW............ Certain provisions of AmSurg's Charter and Bylaws
and Tennessee law may have the effect of delaying
or making more difficult an acquisition of control
of AmSurg in a transaction not approved by its
Board of Directors. See "RISK FACTORS -- Certain
Antitakeover Effects,"
6
<PAGE> 14
and "DESCRIPTION OF CAPITAL STOCK -- Certain
Provisions of the Charter, Bylaws and Tennessee
Law."
ARRANGEMENTS BETWEEN AMSURG
AND AHC AND CERTAIN
OFFICERS OF AHC AFTER THE
DISTRIBUTION............. In connection with the Distribution, AHC and AmSurg
have entered into various agreements that will
result in ongoing relationships between AHC and
AmSurg. AmSurg and AHC have entered into a
Management and Human Resources Agreement (the
"Management Agreement"), pursuant to which AHC will
provide certain financial and accounting services
to AmSurg on a transitional basis for a period of
up to one year to enable AmSurg to become
self-sufficient in these areas. Thomas G. Cigarran,
the Chairman and Chief Executive Officer of AHC,
has agreed to serve as Chairman of the Board of
AmSurg following the Distribution. Mr. Cigarran and
Henry D. Herr, the Chief Financial Officer and a
director of AHC, will serve as advisors to AmSurg
for a period of two years following the
Distribution pursuant to separate advisory
agreements. The purpose of these agreements is to
provide advisory services to AmSurg management in
the areas of strategy, operations, management and
organizational development for a two-year period
following the Distribution. Mr. Herr and James A.
Deal, Executive Vice President of AHC and President
of DTCA, also will serve as directors of AmSurg.
The Management Agreement and the advisory
agreements were approved by a committee of
independent directors of AmSurg (the "Special
Committee") and were deemed by the Special
Committee to be fair and in the best interests of
AmSurg. AmSurg will continue to sublease its
corporate headquarters from AHC pursuant to an
existing Sublease Agreement that expires in
December 1999. See "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS."
INTERESTS OF CERTAIN
PERSONS IN THE
DISTRIBUTION............. Certain directors and officers of AHC and AmSurg
will have interests in the Distribution that are in
addition to their interests as AHC stockholders
generally and those interests may create potential
conflicts of interest. These interests include
positions with both companies prior to and after
the Distribution. The terms of the Distribution and
the related Recapitalization and Exchange have been
approved by the Special Committee and the Board of
Directors of AHC. See "THE DISTRIBUTION --
Interests of Certain Persons in the Distribution."
RISK FACTORS............... Holders of AHC Common Stock should be aware that
the Distribution and the ownership of AmSurg Common
Stock involve certain risk factors, including (i)
the risk that AmSurg will no longer be able to rely
upon AHC for certain management, administrative and
accounting services, except for certain financial
and accounting services provided by AHC and for
certain advisory services provided by Mr. Cigarran
and Mr. Herr on a transitional basis; (ii) the risk
that AmSurg may not be able to implement its growth
strategy and to manage the growth it does achieve;
and (iii) the risk that the market trading prices
of AHC Common Stock and AmSurg Common Stock may not
equal or exceed on a combined basis the current
market trading prices of AHC Common Stock. See
"RISK FACTORS."
7
<PAGE> 15
FAIRNESS OPINIONS.......... J.C. Bradford has delivered an opinion to the
Special Committee that the Recapitalization,
Exchange and Distribution are fair, from a
financial point of view, to the stockholders of
AmSurg, other than AHC. The receipt of a
confirmation of that opinion by the Board of
Directors of AmSurg is a condition to the
Distribution. A copy of the opinion is set forth as
Appendix B hereto. Morgan Keegan has delivered an
opinion to the AHC Board of Directors that the
Recapitalization, Exchange and Distribution are
fair, from a financial point of view, to the
stockholders of AHC. The receipt of a confirmation
of that opinion by the Board of Directors of AHC is
a condition to the Distribution. A copy of the
opinion is set forth as Appendix C hereto. See "THE
DISTRIBUTION -- Background and Reasons for the
Distribution; and -- Conditions."
NO HOLDER OF AHC COMMON STOCK WILL BE REQUIRED TO PAY ANY CASH OR OTHER
CONSIDERATION FOR THE SHARES OF AMSURG COMMON STOCK RECEIVED IN THE DISTRIBUTION
OR TO SURRENDER OR EXCHANGE SHARES OF AHC COMMON STOCK OR TO TAKE ANY OTHER
ACTION IN ORDER TO RECEIVE SHARES OF AMSURG COMMON STOCK IN THE DISTRIBUTION.
STOCKHOLDERS WILL BE SUBJECT TO FEDERAL INCOME TAXATION WITH RESPECT TO
APPROXIMATELY 1.5% OF THE SHARES OF THE AMSURG COMMON STOCK RECEIVED BY THEM AND
ANY CASH RECEIVED IN LIEU OF FRACTIONAL SHARES. SEE "THE DISTRIBUTION -- MANNER
OF EFFECTING THE DISTRIBUTION" AND "THE DISTRIBUTION -- CERTAIN FEDERAL INCOME
TAX CONSEQUENCES."
8
<PAGE> 16
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA OF AMSURG
The following table sets forth summary consolidated financial data which
have been derived from the consolidated financial statements of AmSurg. The
financial statements as of and for the periods ended December 31, 1992 through
1996 have been audited. The operating data and balance sheet data as of and for
the three months ended March 31, 1996 and 1997, are derived from unaudited
financial statements which, in the opinion of management, include all
adjustments, consisting only of normal recurring accruals, necessary for a fair
presentation of financial condition and results of operations. Operating results
for the three months ended March 31, 1997 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1997. The pro forma
combined statement of operations data for the year ended December 31, 1996 and
the three months ended March 31, 1997 set forth below reflect the effects of all
acquisitions (five surgery centers and one physician practice in 1996 and two
surgery centers and one physician practice in 1997) completed after the
beginning of the period as if such transactions were completed at January 1,
1996. Except for The Endoscopy Center of Ocala, Inc., which was acquired in
1996, none of the businesses acquired individually exceeded the significant
subsidiary tests requiring separate financial reporting under applicable SEC
regulations. Comparability of data on a year to year basis is affected by the
number of centers acquired in each year. All the information set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations of AmSurg" and the Consolidated
Financial Statements and related notes included elsewhere herein. See "Index to
Financial Statements."
The historical and pro forma financial information may not be indicative of
AmSurg's future performance and does not necessarily reflect the financial
position and results of operations of AmSurg had AmSurg operated as a separate,
stand-alone entity during the periods covered.
<TABLE>
<CAPTION>
HISTORICAL
------------------ PRO FORMA
HISTORICAL PRO FORMA THREE MONTHS ------------
---------------------------------------------- ------------ ENDED THREE MONTHS
YEAR ENDED AND AT DECEMBER 31, YEAR ENDED AND AT MARCH 31, ENDED
---------------------------------------------- DECEMBER 31, ------------------ MARCH 31,
1992(1) 1993 1994 1995 1996 1996 1996 1997 1997
------- ------ ------- ------- ------- ------------ ------- ------- ------------
(IN THOUSANDS EXCEPT PER SHARE AND CENTER DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues...................... $ 576 $6,586 $13,826 $22,489 $35,007 $47,116 $ 7,169 $12,610 $12,884
------ ------ ------- ------- ------- ------- ------- ------- -------
Expenses:
Salaries and benefits....... 456 2,307 4,092 6,243 11,613 14,315 2,247 3,972 4,019
Other operating expenses.... 288 3,002 5,091 7,563 11,547 16,391 2,254 4,451 4,543
Depreciation and
amortization.............. 51 665 1,309 2,397 3,000 3,793 672 1,087 1,102
Interest.................... 3 30 193 722 948 1,642 211 327 341
Impairment loss(2).......... -- -- -- -- -- -- -- 2,321 2,321
------ ------ ------- ------- ------- ------- ------- ------- -------
Total expenses........ 798 6,004 10,685 16,925 27,108 36,141 5,384 12,158 12,326
------ ------ ------- ------- ------- ------- ------- ------- -------
Income (loss) before minority
interest and income taxes... (222) 582 3,141 5,564 7,899 10,975 1,785 452 558
Minority interest in
earnings of consolidated
partnerships.............. 87 1,121 2,464 3,938 5,433 7,779 1,196 1,948 2,019
------ ------ ------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes....................... (309) (539) 677 1,626 2,466 3,196 589 (1,496) (1,461)
Income tax expense.......... -- -- 26 578 985 1,277 236 329 343
------ ------ ------- ------- ------- ------- ------- ------- -------
Net income (loss)............. (309) (539) 651 1,048 1,481 1,919 353 (1,825) (1,804)
Accretion of preferred stock
discount.................. -- -- -- -- 22 22 -- 67 67
------ ------ ------- ------- ------- ------- ------- ------- -------
Net income (loss) attributable
to common stockholders...... $ (309) $ (539) $ 651 $ 1,048 $ 1,459 $ 1,897 $ 353 $(1,892) $(1,871)
====== ====== ======= ======= ======= ======= ======= ======= =======
Net income (loss) per share
attributable to common
stockholders(3)............. $(0.24) $(0.11) $ 0.09 $ 0.12 $ 0.16 $ 0.20 $ 0.04 $ (0.20) $ (0.20)
====== ====== ======= ======= ======= ======= ======= ======= =======
Weighted average common shares
and equivalents -- pro
forma(3).................... 1,302 4,734 7,313 8,581 9,102 9,488 8,778 9,360 9,400
BALANCE SHEET DATA:
Cash and cash equivalents..... $ 583 $ 738 $ 1,750 $ 3,470 $ 3,192 $ 2,181 $ 2,454
Working capital............... 1,166 993 2,557 2,931 4,732 1,604 4,842
Total assets.................. 9,552 14,637 27,065 35,106 54,653 38,676 60,892
Long-term debt................ 214 640 3,520 4,786 9,218 6,560 14,758
Minority interest............. 647 601 2,019 3,010 5,674 3,187 6,418
Preferred stock............... -- -- -- -- 4,982 -- 5,050
Stockholders' equity.......... 8,440 12,055 19,558 22,479 28,374 23,633 27,677
GENERAL CENTER DATA:
Procedures.................... 1,146 16,051 30,922 55,344 71,323 15,441 23,211
Centers at period end......... 4 6 14 18 27 18 29
</TABLE>
- ---------------
(1) Period from April 2, 1992 (inception) through December 31, 1992.
(2) Reflects an impairment loss attributable to one partnership, which had an
impact of $0.24 per share on the historical and pro forma results of
operations for the three months ended March 31, 1997. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation of
AmSurg" and "Notes to the Consolidated Financial Statements of
AmSurg -- Note 10."
(3) Adjusted to give effect to the Recapitalization which includes a one for
three reverse stock split.
9
<PAGE> 17
SUMMARY FINANCIAL DATA OF AHC
The summary unaudited financial data of AHC set forth below reflects
certain adjustments to the previously reported historical consolidated financial
statements of AHC for each of the fiscal years in the five year period ended
August 31, 1996, and the six month periods ended February 29, 1996 and February
28, 1997 to present AmSurg as a discontinued operation.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED AND AT
FOR THE YEAR ENDED AND AT AUGUST 31, FEBRUARY 29/28
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Total revenues............. $37,112 $39,682 $41,144 $36,583 $31,403 $15,714 $15,332
------- ------- ------- ------- ------- ------- -------
Expenses:
Salaries and benefits............ 16,488 16,972 18,699 18,878 19,866 9,738 10,755
Other operating expenses......... 11,860 11,771 12,271 10,865 7,254 3,275 4,123
Depreciation and amortization.... 1,336 1,340 1,293 1,339 1,273 650 675
Interest......................... 12 8 6 7 5 3 2
------- ------- ------- ------- ------- ------- -------
Total expenses............. 29,696 30,091 32,269 31,089 28,398 13,666 15,555
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes
and discontinued operations...... 7,416 9,591 8,875 5,494 3,005 2,048 (223)
Income tax expense(1).............. 3,040 3,884 3,586 2,252 544 889 --
------- ------- ------- ------- ------- ------- -------
Income (loss) from continuing
operations....................... 4,376 5,707 5,289 3,242 2,461 1,159 (223)
Discontinued operations.......... -- (170) 38 674 799 346 492
------- ------- ------- ------- ------- ------- -------
Net income......................... $ 4,376 $ 5,537 $ 5,327 $ 3,916 $ 3,260 $ 1,505 $ 269
======= ======= ======= ======= ======= ======= =======
Income (loss) per share from
continuing operations(2)......... $ 0.52 $ 0.68 $ 0.63 $ 0.40 $ 0.30 $ 0.15 $ (0.03)
Income (loss) per share from
discontinued operations(2)....... -- (0.02) 0.00 0.08 0.10 0.04 0.06
------- ------- ------- ------- ------- ------- -------
Net income per share(2)............ $ 0.52 $ 0.66 $ 0.63 $ 0.48 $ 0.40 $ 0.19 $ 0.03
======= ======= ======= ======= ======= ======= =======
Weighted average common shares and
equivalents...................... 8,370 8,404 8,461 8,211 8,161 8,122 8,229
</TABLE>
<TABLE>
<CAPTION>
AS
ADJUSTED(3)
-----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......... $10,323 $ 9,016 $ 9,909 $11,076 $12,562 $11,665 $10,110 $10,110
Working capital................... 11,961 12,772 11,972 11,089 13,324 12,709 11,652 11,102
Net assets of discontinued
operations...................... -- 5,354 11,475 14,695 16,361 15,293 17,560 --
Total assets...................... 32,203 36,848 43,354 45,863 48,414 46,883 48,618 32,624
Long-term liabilities............. 1,665 1,892 2,138 2,146 2,608 2,576 2,025 2,025
Stockholders' equity.............. 25,158 30,850 36,460 38,299 41,611 39,849 42,124 25,674
</TABLE>
- ---------------
(1) Includes nonrecurring income tax benefit in fourth quarter of fiscal 1996 of
$760,000 or $.09 per share.
(2) Per share information does not give effect to the increase in weighted
average number of shares outstanding that is expected to occur as a result
of the adjustment of AHC stock options in connection with the Distribution.
See "THE DISTRIBUTION -- Adjustments of AHC Stock Options; and -- Accounting
Treatment."
(3) Adjusted to give effect to the Distribution and estimated expenses of
$550,000 related thereto and estimated non-cash compensation expense of
$4,300,000 ($2,640,000 net of income taxes) that is expected to be
recognized as a result of the adjustment of AHC stock options in connection
with the Distribution. See "THE DISTRIBUTION -- Adjustments of AHC Stock
Options; and -- Accounting Treatment."
10
<PAGE> 18
RISK FACTORS
In addition to the other information contained in this Information
Statement, holders of AHC Common Stock should carefully consider the following
information concerning AmSurg, AHC, the Recapitalization, Exchange and
Distribution. In addition to the historical information included herein, this
Information Statement includes certain forward-looking statements that are based
on management's beliefs as well as on assumptions made by and information
currently available to management. These statements, which have been included in
reliance on the "safe harbor" provisions of the Private Litigation Reform Act of
1995, are subject to a number of risks and uncertainties, including but not
limited to the factors identified below. Actual results may differ materially
from those anticipated in any such forward-looking statements.
PRIOR RELIANCE ON AHC. AmSurg has historically relied upon AHC for certain
corporate management, administrative and accounting services. After the
Distribution, AmSurg will be responsible for maintaining its own management,
administrative and accounting functions, except for certain financial and
accounting services provided by AHC on a transitional basis for up to one year
pursuant to the Management Agreement and for certain advisory services provided
by members of AHC senior management pursuant to two-year advisory agreements. In
particular, Thomas G. Cigarran, who was the Chairman and Chief Executive Officer
of AmSurg prior to the Distribution, will no longer serve as an officer of
AmSurg, although he will continue to serve as Chairman of the Board of Directors
and will serve as an advisor to AmSurg. Henry D. Herr, who was Vice President
and Secretary of AmSurg prior to the Distribution, will serve as a director and
an advisor to AmSurg after the Distribution, but will no longer serve as an
officer of AmSurg. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
DEPENDENCE ON GROWTH STRATEGY; CAPITAL NEEDED FOR GROWTH. AmSurg intends
to increase its revenues and earnings, in part, by continuing to develop and to
acquire practice-based ambulatory surgery centers, and by developing specialty
physician networks and, where appropriate, by acquiring ownership interests in
physician practices. There can be no assurance that AmSurg will be able to
acquire or develop additional surgery centers, or develop and place in operation
specialty physician networks. There can also be no assurance that the assets
acquired by AmSurg in the future will ultimately produce returns that justify
their related investment or implementation by AmSurg. None of the start-up
specialty physician networks developed by AmSurg has yet entered into a contract
with a managed care payor and there can be no assurance that AmSurg will be able
to negotiate successfully such contracts.
AmSurg's growth strategy also requires substantial capital investment.
Capital will be needed not only for the acquisition of the assets of surgery
centers and physician practices, but also for their development, effective
integration, operation and expansion. AmSurg may finance future acquisitions by
raising additional capital through debt or equity financings or using shares of
its capital stock for all or a portion of the consideration to be paid in such
acquisitions. In the event that the Class A Common Stock does not maintain a
sufficient valuation, or potential acquisition candidates are unwilling to
accept Class A Common Stock as part of the consideration for the sale of the
assets of their businesses, AmSurg may be required to utilize more of its cash
resources, if available, or rely solely on additional financing arrangements in
order to pursue its acquisition strategy. In such an instance, if AmSurg does
not have sufficient capital resources, its growth could be limited and its
operations impaired. There can be no assurance that AmSurg will be able to
obtain financing or that, if available, such financing will be on terms
acceptable to AmSurg. See "BUSINESS OF AMSURG -- Strategy."
ABILITY TO MANAGE GROWTH. AmSurg has recently experienced rapid growth
that has resulted in new and increased responsibilities for management personnel
and has placed increased demands on AmSurg's management, operational and
financial systems and resources. To accommodate this recent growth and to
compete effectively and manage future growth, AmSurg will be required to
continue to implement and improve its operational, financial and management
information systems and to expand, train, motivate and manage its workforce.
There can be no assurance that AmSurg's personnel, systems, procedures and
controls will be adequate to support AmSurg's operations. Any failure to
implement and improve AmSurg's operational, financial and management systems or
to expand, train, motivate or manage employees could have a material adverse
effect on AmSurg's financial condition and results of operation.
11
<PAGE> 19
RELATIONSHIPS WITH PHYSICIAN PARTNERS. AmSurg's business depends upon,
among other things, the efforts and success of the physicians who provide
medical services at the surgery centers or who are employed by AmSurg physician
practices and the strength of AmSurg's relationship with such physicians.
AmSurg's business could be adversely affected by any failure of these physicians
to maintain the quality of medical care or otherwise adhere to required
professional guidelines at AmSurg surgery centers and physician practices, any
damage to the reputation of a key physician or group of physicians, or the
impairment of AmSurg's relationship with a key physician or group of physicians.
AmSurg's ownership interests in practice-based ambulatory surgery centers and
specialty physician networks generally are structured through limited and
general partnerships or limited liability companies. AmSurg maintains a majority
interest in each partnership or limited liability company, with physicians or
physician practice groups holding minority limited partnership interests or
serving as minority members. AmSurg, as owner of majority interests in such
partnerships and limited liability companies, owes a fiduciary duty to the
minority interest holders in such entities and may encounter conflicts between
the respective interests of AmSurg and the minority holders. In such cases,
AmSurg's directors are obligated to exercise reasonable, good-faith judgment to
resolve the conflicts and may not be free to act solely in the best interest of
AmSurg.
Upon the occurrence of certain fundamental regulatory changes, AmSurg will
be obligated to purchase some or all of the minority interests of the physicians
affiliated with AmSurg in the partnerships or limited liability companies which
own and operate AmSurg's surgery centers. The regulatory changes that could
trigger such an obligation include changes that: (i) make the referral of
Medicare and other patients to AmSurg's surgery centers by physicians affiliated
with AmSurg illegal; (ii) create the substantial likelihood that cash
distributions from the partnership or limited liability company to the
physicians associated therewith will be illegal; or (iii) cause the ownership by
the physicians of interests in the partnerships or limited liability companies
to be illegal. There can be no assurance that AmSurg's existing capital
resources would be sufficient for it to meet the obligation, if it arises, to
purchase minority interests held by physicians in the partnerships or limited
liability companies which own and operate AmSurg's surgery centers. The
determination of whether a triggering event has occurred is made by the
concurrence of counsel for AmSurg and the physician partners or, in the absence
of such concurrence, by independent counsel having an expertise in healthcare
law and who is chosen by both parties. Such determination is therefore not
within the control of AmSurg. While AmSurg has structured the repurchase
obligations to be as favorable as possible to AmSurg, the triggering of these
obligations could have a material adverse effect on the financial condition and
results of operations of AmSurg. See "BUSINESS OF AMSURG -- Acquisition and
Development of Surgery Centers; and -- Government Regulation."
CAPITATED PAYMENT ARRANGEMENTS. In 1996, approximately 10% of AmSurg's
total revenues were derived from capitated payment arrangements. A significant
part of AmSurg's growth strategy involves assisting its surgery centers, owned
physician practices and specialty physician networks in obtaining capitated
managed care contracts and managing the medical risk associated with such
contracts. Such capitated managed care contracts typically are with HMOs. Under
such contracts the provider accepts a pre-determined amount per patient per
month, referred to as a "capitation" payment, and in return is responsible for
providing all necessary specified covered services to the patients covered by
the contract, thus shifting much of the risk of providing care from the payor to
the provider. Such an arrangement results in a greater predictability of
revenue, but exposes the provider to the risk of adequately predicting the costs
of providing the services. To the extent that patients covered by such contracts
require more frequent or extensive care than is anticipated, operating margins
may be reduced and the revenue derived from such contracts may be insufficient
to cover the costs of the services provided. There can be no assurance that
AmSurg will be able to negotiate satisfactory risk-sharing or capitated
arrangements on behalf of its surgery centers, owned physician practices and
specialty physician networks. See "BUSINESS OF AMSURG."
DEPENDENCE ON THIRD-PARTY REIMBURSEMENT. AmSurg is dependent upon private
and governmental third-party sources of reimbursement for services provided to
patients in AmSurg's centers and physician practices. In addition to market and
cost factors affecting the fee structure implemented by centers and practices
operated by AmSurg, numerous Medicare and Medicaid regulations, cost containment
and utilization decisions of third-party payors and other payment factors over
which AmSurg has no control may
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adversely affect the amount of payment a center or practice may receive for its
services. AmSurg derived approximately 39%, 37% and 36% of its revenues in 1994,
1995 and 1996, respectively, from governmental healthcare programs, including
Medicare and Medicaid. The market share growth of managed care has resulted in
some locations in substantial competition among providers of services for
inclusion in managed care contracting. Exclusion from participation in a managed
care contract in a specific location can result in material reductions in
patient volume and reimbursement to a physician practice or to a practice-based
ambulatory surgery center. AmSurg's financial condition and results of
operations may be adversely affected by fixed fee schedules, capitation payment
arrangements, reduced payments to physicians generally, exclusion from
participation in managed care programs or other changes in payments for
healthcare services. See "BUSINESS OF AMSURG -- Government
Regulation -- Reimbursement."
MEDICARE-MEDICAID ILLEGAL REMUNERATION ("ANTI-KICKBACK") LAWS. Federal
anti-kickback laws prohibit the offer, payment, solicitation or receipt of any
form of remuneration in return for the referral of Medicare or state health
program patients or patient care opportunities, or in return for the purchase,
lease or order of items or services that are covered by Medicare or state health
programs. The anti-kickback statute is very broad in scope and its provisions
are not well defined by existing case law or regulation. Violations of the
anti-kickback laws may result in substantial civil or criminal penalties for
individuals or entities. A violation of the anti-kickback law is a felony
punishable by a fine of up to $25,000 or imprisonment for up to five years, or
both. A violation may also result in civil penalties of up to $10,000 for each
violation, plus three times the amount claimed, and exclusion from participation
in the Medicare and Medicaid programs. Such exclusion, if applied to AmSurg's
surgery centers or networks, could result in significant loss of reimbursement
and could have a material adverse effect on AmSurg. In July 1991 and September
1993, the Department of Health and Human Services ("DHHS") Inspector General
issued final regulations identifying various "safe harbors," including two
related to investment interests, which offer exemption from the anti-kickback
laws. The structure of the partnerships and limited liability companies
operating AmSurg centers and physician networks do not satisfy all of the
requirements of either of the "investment interest" safe harbors and therefore
are not immune from government review or prosecution. However, AmSurg believes
that it conducts the operations of the networks and the centers in compliance
with applicable law. Moreover, neither AmSurg nor any affiliated physician
intends for the compensation arrangements or return on investment to constitute
remuneration in exchange for or to induce the referral of business or patients
between or among the parties. Notwithstanding AmSurg's belief that the
relationship of physician partners to the AmSurg surgery centers should not
constitute illegal remuneration under the anti-kickback laws, no assurances can
be given that a federal or state agency charged with enforcement of the
anti-kickback laws and similar laws or a private party might not assert a
contrary position or that new federal or state laws might not be enacted that
would cause the physician partners' relationships with the AmSurg centers to
become illegal, or result in the imposition of penalties on AmSurg or certain of
its facilities. Even the assertion of a violation could have a material adverse
effect upon the financial condition and results of operations of AmSurg. See
"BUSINESS OF AMSURG -- Government Regulation -- Medicare-Medicaid Illegal
Remuneration Provisions."
PHYSICIAN SELF-REFERRAL LAWS. At both the state and federal level, there
are legislative restrictions on the ability of a physician to refer patients to
healthcare entities when the physician (or immediate family member) has a
financial relationship, directly or indirectly, with the entity receiving the
referral. The financial relationship giving rise to prohibition on referrals may
be either an ownership or investment interest or a compensatory arrangement. At
the federal level, this legislation (42 USC sec. 1395nn) is known as the "Stark
bill" because of its sponsor, Representative Pete Stark. Originally, the Stark
bill applied only to entities providing clinical laboratory services. However,
as of January 1, 1995, the ban on physician financial relationships with
healthcare entities extended to entities providing certain defined "designated
health services" ("Stark II"). AmSurg believes physician ownership of
practice-based ambulatory surgery centers to which they refer patients and
physician networks is not prohibited under Stark II or other similar statutes
recently enacted at the state level. However, these statutes are not clearly
written and are therefore subject to different interpretations with respect to
many important provisions. Violations of these "self-referral" laws may result
in substantial civil or criminal penalties for individuals or entities,
including large civil monetary penalties and exclusion from participation in the
Medicare and Medicaid programs. Such exclusion, if applied to AmSurg's surgery
centers, could result in significant loss of reimbursement and could have a
material
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adverse effect on AmSurg. There can be no assurances that further judicial or
agency interpretation of existing law or further legislative restrictions on
physician ownership of healthcare entities will not be issued which may have a
material adverse effect upon the financial condition and results of operations
of AmSurg. See "BUSINESS OF AMSURG -- Government Regulation -- Prohibition on
Physician Ownership of Healthcare Facilities."
OTHER GOVERNMENT REGULATION. All facets of the healthcare industry are
highly regulated at the federal and state levels. AmSurg's ability to be
profitable may be adversely affected by licensing and certification
requirements, reimbursement restrictions or reductions and other governmental
regulatory factors. In addition, AmSurg's ability to expand its services in the
future may be adversely affected by health planning laws, including certificate
of need requirements, at the state and/or federal level. A number of other
initiatives have developed during the past several years to reform various
aspects of the healthcare system in the United States. There can be no assurance
that current or future legislative initiatives or government regulation will not
have a material adverse effect on the financial condition or results of
operations of AmSurg or reduce the demand for its services. See "BUSINESS OF
AMSURG -- Government Regulation -- CONs and State Licensing; -- Corporate
Practice of Medicine; -- Insurance Laws."
RISKS RELATED TO INTANGIBLE ASSETS. As a result of purchase accounting for
AmSurg's various acquisition transactions, AmSurg's balance sheet at March 31,
1997 contains an intangible asset designated as excess of cost over net assets
of purchased operations totaling $34.8 million. Using an amortization period of
25 years, amortization expense relating to this intangible asset will be
approximately $1.5 million per year. Purchases of interests in practice-based
surgery centers or physician practices that result in the recognition of
additional intangible assets would cause amortization expense to increase
further.
On an ongoing basis, AmSurg evaluates, based upon projected undiscounted
cash flows, whether facts and circumstances indicate any impairment of value of
intangible assets and if the amortization period continues to be appropriate. As
the underlying facts and circumstances subsequent to the date of acquisition can
change, there can be no assurance that the value of such intangible assets will
be realized by AmSurg. Any determination that a significant impairment has
occurred would require the write-off of the impaired portion of unamortized
intangible assets, which could have a material adverse effect on AmSurg's
results of operations. In that regard, during the quarter ended March 31, 1997,
AmSurg recorded a $2.3 million impairment loss in connection with one
partnership. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations of AmSurg" and "Notes to the Consolidated Financial
Statements -- Note 10."
COMPETITION. The healthcare business is highly competitive and there are
other companies in the same or similar business of developing, acquiring and
operating practice-based ambulatory surgery centers, specialty physician
networks and physician practices, or who may decide to enter the practice-based
ambulatory surgery center business, the development of specialty physician
networks or the acquisition of physician practices, who have greater financial,
research, marketing and staff resources than AmSurg. In addition, AmSurg
competes with other healthcare providers for contracting with managed care
payors in each of its markets. There is no assurance AmSurg can compete
effectively with such entities. See "BUSINESS OF AMSURG -- Competition."
RISK FACTORS REGARDING AHC AFTER DISTRIBUTION. A material portion of AHC's
operating revenues and revenue growth was generated by AmSurg prior to the
Distribution. After the Distribution, AHC's business will consist of its
hospital-based diabetes treatment services business, the comprehensive
management of diabetes care for managed care organizations and other third-party
payors and the operation of arthritis and osteoporosis treatment centers. In the
last fiscal year, revenues from this business have been adversely affected by
termination of certain hospital contracts and development and implementation
costs applicable to DTCA's development of comprehensive diabetes disease
management products for the managed care industry. AHC's ability to generate
revenues and profits from its diabetes disease management contracts with managed
care organizations and other third-party payors is dependent primarily on its
ability to reduce overall healthcare costs for individuals with diabetes while
improving clinical outcomes for these individuals. While AHC believes that it
can reduce the healthcare costs and improve clinical outcomes for individuals
with diabetes
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through effective management of the disease, AHC's ability to produce the
anticipated improvements in care and cost savings and thus operate these
contracts in a manner that will produce profitability for AHC has not yet been
established, because AHC's comprehensive healthcare management contracts for
people with diabetes are believed to be the first of this type in the industry
and have only been recently implemented or are in the process of being
implemented. During fiscal 1996, 13 DTCA contracts for hospital services were
discontinued or not renewed, and during the six months ended February 28, 1997,
three DTCA contracts were discontinued or not renewed. Certain hospitals faced
with pressures to make immediate cost reductions have decided to eliminate
DTCA's treatment programs. While AHC believes this business is stabilizing, the
general uncertainties associated with changes taking place in the healthcare
industry and DTCA's client hospitals' reactions to the changes in the industry
may continue to adversely affect revenues and contract retention in future
periods. See "BUSINESS OF AHC AFTER DISTRIBUTION."
Other risks associated with the business of AHC include regulatory risks
for the healthcare industry as a whole, efforts by hospitals and third party
payors to reduce costs, unusual and unforeseen patterns of healthcare
utilizations by individuals with diabetes in the managed care organizations with
which DTCA has executed an agreement, the ability or inability of such managed
care organizations to maintain the covered lives in the plans serviced by DTCA
and the ability or inability of DTCA to attract, retain and effectively manage
the employees required to implement the agreements with managed care
organizations.
Following the Distribution, for a period of two years, Thomas G. Cigarran,
the Chairman and Chief Executive Officer of AHC and Henry D. Herr, the Chief
Financial Officer and a director of AHC, will provide advisory services to
AmSurg. The services, while limited in scope, may impact the amount of time
Messrs. Cigarran and Herr are able to devote to the business of AHC during this
period. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -- Advisory
Agreements."
EFFECT OF THE DISTRIBUTION ON THE AHC COMMON STOCK. After the
Distribution, the AHC Common Stock will continue to be traded on the Nasdaq
National Market. As a result of the Distribution, AHC will no longer own any
AmSurg Common Stock and accordingly its balance sheet and income statement will
no longer reflect the assets and operation of AmSurg. AHC will be entirely
dependent upon the operation of DTCA and AOCC for its earnings and, as a result,
the trading prices of AHC Common Stock are expected to be lower than the trading
prices of AHC Common Stock immediately prior to the Distribution and such
trading prices may also be more volatile than they were prior to the
Distribution. The combined trading prices of AHC Common Stock and Class A Common
Stock after the Distribution may be less than, equal to or greater than the
trading prices of AHC Common Stock prior to the Distribution.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS. AHC has conditioned the
Distribution on the receipt of a ruling from the IRS to the effect that, among
other things, the Distribution will be substantially tax-free under Section 355
of the Code. Approximately 1.5% of the shares of AmSurg Common Stock distributed
in the Distribution will be subject to federal income taxation. In addition,
cash received in lieu of fractional share interests in the AmSurg Common Stock
will generally be taxable to recipients. The continuing validity of the IRS
ruling will be subject to certain factual representations and assumptions. If
such factual representations and assumptions were incorrect in a material
respect, the ruling would be jeopardized. AHC is not aware of any facts or
circumstances which should cause the representations and assumptions to be
untrue. If the Distribution were taxable, then (i) corporate level income taxes
would be payable by the consolidated group of which AHC is the common parent,
based upon the amount by which the fair market value of the Class B Common Stock
distributed in the Distribution exceeds AHC's basis therein and (ii) each holder
of AHC Common Stock who received shares of Class B Common Stock in the
Distribution would be treated as if the stockholder received a taxable
distribution, taxed as a dividend to the extent of such stockholder's pro rata
share of AHC's current and accumulated earnings and profits. Each AHC
stockholder should consult his or her own tax advisor with respect to the
specific tax consequences of the Distribution to such stockholder, including the
effect of state, local and foreign tax laws. See "THE DISTRIBUTION -- Certain
Federal Income Tax Consequences."
PROPOSED TREASURY REGULATION REGARDING TAX DEDUCTION FOR AMORTIZATION OF
GOODWILL. Effective on August 10, 1993, Section 197 of the Code was enacted to
allow goodwill and other intangible assets purchased
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after that date to be amortized as a tax deduction. Previously, no tax deduction
was allowed for purchases of goodwill. On January 16, 1997, the IRS published
proposed regulations implementing Section 197 amortization of intangible assets
including goodwill. The proposed regulations contain certain "anti-churning"
provisions which deny a deduction for goodwill amortization expense in several
situations, including when the seller of the goodwill becomes a related party
following the transaction. The intent of this particular portion of the proposed
regulations is explained as preventing sellers from entering into transactions
for the purpose of converting goodwill without tax deductibility (i.e. goodwill
arising prior to the effective date of Section 197) into goodwill pursuant to
Section 197 in which the sellers would then benefit from tax deductible
amortization in future periods. These proposed regulations do not specifically
contain an exception for the form of transaction that AmSurg has utilized in its
acquisitions of interests in practice-based ambulatory surgery centers and
interests in physician practices. However, because the goodwill for which AmSurg
has been claiming amortization deductions was purchased by AmSurg from unrelated
parties after the effective date of Section 197 and, as per agreement with the
sellers, the tax deduction for goodwill amortization is specifically allocated
exclusively to AmSurg, and therefore, the seller receives no tax benefit from
the amortization of the goodwill, AmSurg believes that the proposed regulations
should not be applied to deny a tax deduction to AmSurg. Together with other
taxpayers similarly affected, AmSurg will vigorously attempt to have the
proposed regulations revised in such a way as to recognize the acceptability of
the methodology utilized by AmSurg in accomplishing the purpose as stated in the
legislative record and retaining the tax deductibility of AmSurg's acquired
goodwill. However, there can be no assurance that the proposed regulations will
be amended or modified by the IRS. If the proposed regulations are adopted as
currently written, it will not be clear in these regulations that AmSurg is
entitled to the deduction for the amortization of goodwill associated with the
purchase of interests in practice-based surgery centers and physician practices
and these deductions could be subject to challenge by the IRS. Loss of these tax
deductions would have a material adverse effect on the results of operations of
AmSurg. Due to the lengthy public hearing and adoption process, AmSurg is not
able to estimate a date by which the IRS will take action on the proposed
regulations.
NO PRIOR MARKET FOR AMSURG COMMON STOCK. There has been no prior trading
market for AmSurg Common Stock and there can be no assurance as to the prices at
which the Class A Common Stock will trade after the Distribution. Although it is
anticipated that the Class A Common Stock will be traded on the Nasdaq National
Market, the prices at which Class A Common Stock trades may fluctuate
significantly. Prices for the Class A Common Stock may be influenced by many
factors, including the depth and liquidity of the market for such Class A Common
Stock, investor perceptions of AmSurg and its businesses, and general economic
and market conditions.
SHARES ELIGIBLE FOR FUTURE SALE. AmSurg has a significant number of shares
of AmSurg Common Stock outstanding that were sold in private transactions and
not registered under the Securities Act of 1933, as amended (the "Securities
Act") upon issuance. The unregistered shares ("restricted securities") are
eligible for resale in the public market at prescribed times subject to
compliance with an exemption from the registration requirements of the
Securities Act, such as Rule 144. See "SHARES ELIGIBLE FOR FUTURE SALE." In
addition, certain AmSurg stockholders have certain registration rights with
respect to their shares of Class A Common Stock. See "DESCRIPTION OF CAPITAL
STOCK -- Registration Agreement; and -- Stockholders' Agreement." As of April
30, 1997, AmSurg had issued options to purchase 1,100,816 shares of Class A
Common Stock (of which 721,629 shares are vested) to employees and non-employee
directors who, after the Distribution and following the filing of a registration
statement on Form S-8 by AmSurg, will be able to exercise and immediately sell
shares underlying vested options. Of these options, 194,033 were granted
pursuant to the AmSurg 1997 Stock Incentive Plan and are subject to AmSurg
stockholder approval at the stockholders' meeting scheduled to be held on May
, 1997. Of the 3,887,619 shares of Class A Common Stock that are anticipated
to be "restricted securities" immediately following the Distribution, 3,502,698
will have satisfied a one-year holding period following the Distribution. All
options outstanding after the Distribution will be to purchase shares of Class A
Common Stock. Prior to the Distribution, there has been no market for the Class
A Common Stock and no prediction can be made as to the effect, if any, that the
sale of shares or the availability of shares for sale will have on the market
price prevailing from time to time. Nevertheless, sales of substantial amounts
of Class A Common Stock in the
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public market could adversely affect prevailing market prices and the ability of
AmSurg to raise equity capital in the future.
DILUTION AND IMPACT OF AMSURG PREFERRED STOCK. Certain redemption and
conversion features of the AmSurg Series A Preferred Stock and the Series B
Preferred Stock, the award and exercise of stock options by the management of
AmSurg and the issuance of Class A Common Stock in connection with the
acquisitions of AmSurg surgery centers and equity financings may cause dilution
of the per share value of the AmSurg Common Stock held by AmSurg stockholders.
The conversion of the Series B Preferred Stock into Class A Common Stock will
result in such investors holding between six and eight percent of the AmSurg
Common Stock on a fully diluted basis as of November 20, 1996 depending on the
timing of the conversion. If not redeemed by November 20, 1998, the Series A
Preferred Stock will be entitled to an eight percent annual per share cash
dividend from that date forward. The Series A Preferred Stock is also entitled
to a 14% annual per share cash dividend upon certain events of default by
AmSurg. If certain liquidity events have not occurred prior to November 20,
2002, AmSurg will be required to redeem the Series A Preferred Stock and Series
B Preferred Stock. See "DESCRIPTION OF CAPITAL STOCK."
CERTAIN ANTITAKEOVER EFFECTS. Certain provisions of AmSurg's Charter and
Bylaws and Tennessee statutory law could have the effect of delaying, deferring
or preventing a change in control of AmSurg in a transaction not approved by
AmSurg's Board of Directors. See "DESCRIPTION OF CAPITAL STOCK -- Certain
Provisions of the Charter, Bylaws and Tennessee Law."
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS. This Information
Statement contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, and Section 21E of the Exchange Act ,
which are intended to be covered by the safe harbors created thereby. When used
in this Information Statement, the words "anticipate", "believe", "estimate",
"expect" and similar expressions are intended to identify forward-looking
statements. Investors are cautioned that all forward-looking statements involve
risks and uncertainty. Although AHC and AmSurg believe that the assumptions
underlying the forward-looking statements contained herein are reasonable, any
of the assumptions could be inaccurate, and therefore, there can be no assurance
that the forward-looking statements included in this Information Statement will
prove to be accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, including the risk factors described
herein, the inclusion of such information should not be regarded as a
representation by AHC, AmSurg or any other person that the objectives and plans
of AHC or AmSurg will be achieved. Neither AHC nor AmSurg intends to update any
of these forward-looking statements.
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THE DISTRIBUTION
This section of the Information Statement describes certain aspects of the
Recapitalization, Exchange and Distribution. The following description does not
purport to be complete and is qualified in its entirety by reference to the
Distribution Agreement which is attached as Appendix A to this Information
Statement.
BACKGROUND AND REASONS FOR THE DISTRIBUTION
AmSurg was formed in April 1992 with AHC owning an initial 25% equity
interest. The business strategy of AmSurg was to develop, acquire and operate
practice-based ambulatory surgery centers, in partnerships with physician
practice groups, throughout the United States. The implementation of this
strategy required significant capital resources beyond that which AmSurg could
generate internally and, from 1992 through 1995, AHC provided substantially all
of the needed capital through direct equity investment and guaranties of AmSurg
bank debt. As a result of its investments in AmSurg, as of April 30, 1997, AHC
owned 59% of the outstanding AmSurg common stock. The remaining AmSurg common
stock is owned by physicians who are partners in AmSurg surgery centers (who
collectively owned 31% of the AmSurg common stock) and management and certain
other investors (who collectively owned 10% of the AmSurg common stock).
During 1994, AHC through its wholly-owned subsidiary DTCA began to
implement a business strategy to develop and market new comprehensive diabetes
disease management products for the managed care industry. The development and
marketing of these products have required significant capital and have reduced
the capability of AHC to fund the capital needs of AmSurg. As a result of the
diminished capability of AHC to fund the capital needs of AmSurg, in early 1996,
management of AHC began to consider alternative ways to facilitate AmSurg's
access to capital from sources other than AHC.
As a first step, management of AHC recommended to the AmSurg management
that it address its short-term capital needs by engaging an investment bank to
seek additional capital through a private placement of equity or debt. AmSurg
accepted this recommendation and engaged J.C. Bradford to raise the capital
necessary to meet its short-term needs. As a result of this process, on November
20, 1996, AmSurg raised a net of approximately $5.0 million of additional
capital by issuing to unaffiliated institutional investors a combination of
AmSurg redeemable and convertible preferred stock. Following this transaction,
AmSurg believes that it is adequately funded for its short-term needs but
believes it will need additional debt or equity capital to fund its long-term
growth. See "MANAGEMENT'S DISCUSSION AND ANALYSIS -- Liquidity and Capital
Resources."
Recognizing the need of AmSurg for additional capital, management of AHC
determined that the long-term needs of AmSurg required that AmSurg have access
to the public equity and debt markets and that a public trading market in AmSurg
common stock could be created either through a public offering of a portion of
the AmSurg common stock owned by AHC or through the distribution of the AmSurg
common stock it owned to the stockholders of AHC. In September 1996, management
of AHC determined that it was in the best interests of the stockholders of AHC
to create the public market opportunity for AmSurg through a substantially tax
free spin-off of the AmSurg common stock held by AHC. Management of AHC was
advised that in order for such a spin-off transaction to be substantially tax
free, a recapitalization of AmSurg was necessary to give AHC a class of common
stock with sufficient voting power to be able to distribute "control" of AmSurg
in the Distribution as required for substantially tax free treatment under
Section 355 of the Code. See "-- Certain Federal Income Tax Consequences." As a
result of this determination, in September 1996, AHC proposed to AmSurg the
Distribution and the related Recapitalization and Exchange.
On October 3, 1996, the AmSurg Board of Directors created the Special
Committee to consider whether the proposed Distribution and related
Recapitalization and Exchange would be in the best interests of AmSurg and its
stockholders, including the minority stockholders, and to negotiate the terms
and conditions of any such transaction on behalf of AmSurg. Ken P. McDonald, the
President of AmSurg, as well as a director, and William C. Weaver, III and
Bergein F. Overholt, M.D., both independent directors and AmSurg stockholders,
were appointed to the Special Committee. The Special Committee retained J.C.
Bradford and independent counsel to assist it in its consideration of the
proposed Distribution and the related Recapitalization and Exchange.
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The Special Committee held numerous meetings to consider the proposed
Distribution and related Recapitalization and Exchange and whether it was in the
best interests of AmSurg and its minority stockholders. On November 1, 1996, the
Special Committee resolved to recommend to the AmSurg Board of Directors that
AmSurg and AHC proceed with the necessary steps to effect the Distribution and
related Recapitalization and Exchange, including the filing with the IRS of a
request for a ruling to the effect that the Distribution could be effected on a
substantially tax free basis for federal income tax purposes. On November 8,
1996, the Board of Directors of AmSurg approved the recommendation of the
Special Committee. In reaching their determination, the Special Committee and
the Board of Directors of AmSurg considered a number of factors, including,
without limitation, the following: (i) the long-term need for AmSurg to have
access to the public equity and debt markets to fund its future growth and the
belief that AmSurg would have superior access to capital markets as an
independent, publicly-held company, (ii) the belief that the Distribution was
the best alternative to create a public market, in part because the public
market for AmSurg Common Stock would not be depressed by the "overhang" that
might be caused by the continuing interest of AHC in AmSurg, which would be the
case if AmSurg issued shares to the public in an initial public offering without
AHC divesting its interest in AmSurg, (iii) the fact that existing AmSurg
minority stockholders would have liquidity for their shares through the ability
to sell under Rule 144 or in secondary public offerings following the
Distribution, (iv) the belief that, because of its high growth rate and need for
capital, AmSurg was not at the point in its development at which stockholder
values might be maximized through the sale of the company, (v) the fact that AHC
needed to focus its capital resources on the development of DTCA's diabetes
disease management services business and would have limited available capital
for investment in AmSurg, (vi) the fact that the Distribution would permit the
development of employee benefit plans and policies and other corporate
initiatives designed to better incentivize and attract employees, (vii) the fact
that AHC would not sell any of its AmSurg common stock in a public offering due
to the fact that AHC stockholders could not benefit from such a sale without
adverse tax consequences, (viii) the belief that the proposed one for three
reverse stock split that is part of the Recapitalization is necessary to
increase the trading price of the AmSurg Common Stock to improve the level of
trading interest, thereby providing greater opportunities to access public
equity capital and for AmSurg stockholder liquidity, (ix) the belief that the
two classes of Common Stock contemplated by the Recapitalizations differed
materially only in voting rights for directors and given the immediate automatic
conversion on the transfer of AmSurg Class B Common Stock the two classes would
not be valued materially differently in the trading marketplace, and (x) the
belief that the Recapitalization and the Exchange necessary to obtain
substantially tax-free treatment of the Distribution would not materially
disadvantage either AmSurg or its minority stockholders.
On October 16, 1996, the Board of Directors of AHC considered the
recommendations of AHC management to pursue the alternative of the Distribution
and authorized proceeding with the necessary steps to effect the Distribution,
including the filing with the IRS of a request for a ruling that the
Distribution could be effected on a substantially tax-free basis. Their
determination was based on a number of factors, including, without limitation,
the following: (i) the fact that AHC could no longer fund the capital needs of
AmSurg and that AmSurg needed access to the public equity and debt markets as an
independent publicly-held company, (ii) the fact that the stockholders of AHC
could not benefit from a public offering of a portion of the AmSurg common stock
held by AHC without adverse tax consequences, (iii) the fact the Distribution
would give the AHC stockholder the ability to share in the growth opportunities
for AmSurg on a substantially tax-free basis, (iv) the fact that there is little
synergy between the businesses of DTCA and AmSurg, (v) the need for AHC
management to increase their focus on the business of DTCA, (vi) the
desirability of permitting investors to choose between the two businesses in
making investment decisions, and (vii) the belief that AmSurg was not at the
point in its development at which AHC stockholder values could be maximized
through the sale of AmSurg.
On November 21, 1996, AHC and AmSurg submitted a ruling request to the IRS
with regard to the federal income tax consequences of the Distribution. Between
November 1996 and March 7, 1997, when the Distribution Agreement was approved,
AHC and AmSurg negotiated the terms of the Distribution and the related
Recapitalization and Exchange, the terms and number of votes per share of the
Class A Common Stock and Class B Common Stock, the terms and conditions of the
Distribution Agreement, the Exchange
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<PAGE> 27
Agreement and the Management Agreement and certain governance issues for AmSurg
following the Distribution. Concurrently, the Board of Directors of AHC and the
Special Committee, together with their financial advisors, considered the
fairness of the Distribution and related Recapitalization and Exchange to the
stockholders of AHC and AmSurg. To provide financial advice to the AHC Board of
Directors, AHC retained Morgan Keegan to consider the fairness, from a financial
point of view, of the Recapitalization, Exchange and Distribution to the
stockholders of AHC.
On March 7, 1997, the Special Committee determined that the Distribution
and the related Recapitalization and Exchange are fair to and in the best
interests of AmSurg and its stockholders, including the minority stockholders,
and recommended that the AmSurg Board of Directors approve the Distribution and
the related Recapitalization and Exchange, subject to the satisfaction of the
conditions set forth in the Distribution Agreement. At the March 7, 1997 Special
Committee meeting, J.C. Bradford delivered its opinion, set forth as Appendix B
hereto, that the Recapitalization, Exchange and Distribution are fair to the
stockholders of AmSurg, other than AHC, from a financial point of view. A
description of this opinion, the methodology employed, the analysis on which it
was based and the nature of this engagement of J.C. Bradford is set forth below.
Based on the recommendations of the Special Committee, the opinion of J.C.
Bradford and other factors considered by the AmSurg Board of Directors, on March
7, 1997, the AmSurg Board determined that the Recapitalization, Exchange and
Distribution are fair to and in the best interests of the stockholders of
AmSurg, including the minority stockholders, and approved the Distribution and
the related Recapitalization and Exchange, subject to the satisfaction or waiver
of the conditions set forth in the Distribution Agreement. The principal factors
considered by the Special Committee and the AmSurg Board of Directors in
reaching this conclusion were the ones set forth above in connection with its
November 8, 1996 decision as well as the financial advice and opinion of J.C.
Bradford.
Opinion of J.C. Bradford. On March 7, 1997, the Special Committee received
a written opinion from J.C. Bradford to the effect that, based upon the factors
set forth in such opinion, the Recapitalization, Exchange and Distribution are
fair to the stockholders of AmSurg, other than AHC, from a financial point of
view. The full text of J.C. Bradford's opinion which sets forth certain
assumptions made, matters considered and limitations on the review undertaken,
is set forth in Appendix B and is incorporated herein by reference and should be
read in its entirety in connection with this Information Statement. This summary
is qualified in its entirety by reference to the full text of such opinion.
In conducting its analyses and arriving at its opinion, J.C. Bradford
considered such financial and other information as it deemed appropriate
including, among other things, the following: (i) the proposed terms of the
Recapitalization, Exchange and Distribution; (ii) the historical and current
financial position and results of operations of AHC as set forth in its periodic
reports and proxy materials filed with the SEC; (iii) the audited financial
statements of AmSurg for the fiscal years ended December 31, 1992, 1993, 1994,
1995 and 1996; (iv) certain internal operating data and financial analyses,
including forecasts of AmSurg for the years beginning January 1, 1996 and ending
December 31, 2001 which assume no future changes in accounting principles which
would have a material effect on AmSurg's financial statements; (v) the past and
current business, financial condition and prospects of AmSurg and AHC as
discussed with certain senior officers of AmSurg and AHC; (vi) certain
financial, operating and securities trading data of certain other public
companies that J.C. Bradford believed to be comparable to AmSurg or relevant to
the transaction, with such information taken from individual companies' annual
reports, SEC Forms 10-K and 10-Q; (vii) the financial terms of certain other
transactions that J.C. Bradford believed to be relevant; (viii) data relating to
public companies with two classes of stock, including an analysis of float of
the classes, historical price and volume data, data relating to voting rights of
the stocks, and data relating to economic differences in the classes, such as
different dividend rights; (ix) reported price and trading activity for the
shares of AHC Common Stock; (x) a draft of the Information Statement included in
the Registration Statement on Form 10 for the AmSurg Common Stock filed with the
SEC; (xi) the tax ruling request, as supplemented, to the IRS from AHC and
AmSurg; and (xii) such other financial studies, analyses, and investigations as
J.C. Bradford deemed appropriate for purposes of its opinion.
In making its analyses, J.C. Bradford considered the financial aspects of
other alternatives available to AmSurg, including the sale of all or a portion
of AmSurg to the public through an initial public offering and
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<PAGE> 28
the continuance of AmSurg as an AHC subsidiary. In arriving at its opinion, J.C.
Bradford has relied upon publicly available information and information provided
by AHC and AmSurg (including information contained in this Information
Statement), has not independently verified the information concerning AHC and
AmSurg or other data considered in its review, and has relied upon the accuracy
and the completeness of all such information. In connection with its opinion
provided to the Special Committee, J.C. Bradford was not asked to, and did not,
provide any opinion as to the valuation, future performance or long-term
viability of AmSurg as an independent public company following the
Recapitalization, Exchange and Distribution. J.C. Bradford's opinion does not
opine as to or give any assurances of the price at which the shares of Class A
Common Stock will trade after the Distribution. The opinion of J.C. Bradford is
addressed to the Special Committee in connection with its consideration of the
Recapitalization, Exchange and Distribution and permits the AmSurg Board of
Directors to rely upon it and addresses only the fairness, from a financial
point of view, of the Recapitalization, Exchange and Distribution to the
stockholders of AmSurg, other than AHC. J.C. Bradford's opinion is not a
recommendation to any current or prospective stockholder of AHC or AmSurg as to
any investment decisions such person may take.
J.C. Bradford was engaged by the Special Committee on October 11, 1996 to
provide financial advisory and investment banking services. In connection with
the services performed and to be performed by J.C. Bradford, including the
rendering of its written opinion and updates thereto, AmSurg has agreed to pay
J.C. Bradford a fee of $125,000. AmSurg has also agreed to reimburse J.C.
Bradford for its reasonable expenses, and to indemnify it against certain
liabilities and expenses, including certain liabilities under the federal
securities laws, in connection with its services as a financial advisor.
J.C. Bradford, as part of its investment banking business, engages in the
valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate,
and other purposes.
At the March 7, 1997 meeting of the AHC Board of Directors, the Board
approved the Distribution and the related Recapitalization and Exchange, subject
to the satisfaction or waiver of the conditions set forth in the Distribution
Agreement. At this meeting, the Board determined that the transactions are fair
to and in the best interests of the AHC stockholders. The principal factors
considered by the AHC Board of Directors in reaching this conclusion were the
ones set forth above in connection with its October 16, 1996 decision as well as
the financial advice and opinion of Morgan Keegan. Morgan Keegan delivered its
opinion, set forth as Appendix C hereto, that the Recapitalization, Exchange and
Distribution are fair to the AHC stockholders from a financial point of view. A
description of this opinion, the methodology employed, the analysis on which it
was based and the nature of this engagement of Morgan Keegan is set forth below.
Opinion of Morgan Keegan. On March 7, 1997, the AHC Board of Directors
received a written opinion from Morgan Keegan to the effect that, based upon the
factors set forth in such opinion the Recapitalization, Exchange and the
Distribution are fair to the stockholders of AHC from a financial point of view.
The full text of Morgan Keegan's opinion which sets forth certain assumptions
made, matters considered and limitations on the review undertaken, is set forth
in Appendix C and is incorporated herein by reference and should be read in its
entirety in connection with this Information Statement. This summary is
qualified in its entirety by reference to the full text of such opinion. It is a
condition to the consummation of the Distribution that Morgan Keegan deliver an
updated opinion to the AHC Board, to be dated the Distribution Date, in
substantially the same form as the opinion set forth in Appendix C. See
" -- Conditions." The opinion of Morgan Keegan assumes that the
Recapitalization, Exchange and Distribution are consummated as described in this
Information Statement.
In its opinion, Morgan Keegan stated that it has, among other things:
<TABLE>
<S> <C>
(i) reviewed the publicly available consolidated financial
statements of AHC and certain other relevant financial and
operating data, including primarily, line of business
operating data, and financial data and projections of AHC
and AmSurg made available to it from published sources and
by officers of AHC;
(ii) reviewed the financial statements of AmSurg contained in the
Information Statement;
(iii) reviewed certain internal financial and operating
information, including primarily projections, relating to
AHC and AmSurg prepared by the managements of AHC and
AmSurg, respectively;
</TABLE>
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<PAGE> 29
(iv) discussed the business, financial condition and prospects of
AHC with the management of AHC;
(v) discussed the business, financial condition and prospects of
AmSurg with the management of AHC and AmSurg;
(vi) reviewed the financial terms of the Recapitalization,
Exchange and Distribution;
(vii) reviewed the financial terms, to the extent publicly
available, of certain spin-off transactions involving other
companies it deemed relevant to the analysis of the
Distribution, and certain merger transactions involving
other companies it deemed relevant to the analysis of the
potential sale of certain of AHC's subsidiaries to an
unaffiliated purchaser;
(viii) reviewed certain publicly available financial data and stock
trading activity relating to certain healthcare companies it
deemed appropriate in analyzing AHC and AmSurg;
(ix) reviewed the Information Statement included in the
Registration Statement on Form 10 for the AmSurg Common
Stock filed with the SEC on March 11, 1997, as amended; and
(x) performed such other analysis and examinations and
considered such other information, financial studies,
analysis and investigations and financial, economic and
market data as it deemed relevant.
In making its analyses, Morgan Keegan considered the financial aspects of
other alternatives available to AHC, including the sale of certain of AHC's
subsidiaries to an unaffiliated purchaser, the sale of all or a portion of
AmSurg to the public through an initial public offering and the continuance of
AmSurg as an AHC subsidiary. The opinion also states that Morgan Keegan has
relied upon publicly available information and information provided by AHC and
AmSurg (including the information contained in this Information Statement), has
not independently verified the information concerning AHC and AmSurg or other
data considered in its review, and has relied upon the accuracy and completeness
of all such information. In connection with its opinion provided to the AHC
Board of Directors, Morgan Keegan was not asked to, and did not, provide any
opinion as to the valuation, future performance or long-term viability of AHC or
AmSurg as independent public companies following the Recapitalization, Exchange
and Distribution. Morgan Keegan's opinion does not opine as to or give any
assurances of the price at which the shares of AHC Common Stock or Class A
Common Stock will trade after the Distribution. The opinion of Morgan Keegan is
addressed to the Board of Directors of AHC in connection with its consideration
of the Recapitalization, Exchange and Distribution and addresses only the
fairness, from a financial point of view, of the Recapitalization, Exchange and
Distribution to the holders of AHC Common Stock. Morgan Keegan's opinion is not
a recommendation to any current or prospective stockholder of AHC or AmSurg, as
to any investment decisions such person may make.
Morgan Keegan was engaged by AHC on December 12, 1996 to provide general
financial advisory and investment banking services. In connection with the
services performed and to be performed by Morgan Keegan regarding the
Distribution, including the rendering of its written opinion and updates
thereto, AHC has agreed to pay Morgan Keegan a fee of $125,000. AHC also has
agreed to reimburse Morgan Keegan for its reasonable expenses, and to indemnify
it against certain liabilities and expenses, including certain liabilities under
the federal securities laws, in connection with its services as financial
advisor.
Morgan Keegan, as part of its investment banking services, regularly
provides financial advisory services in connection with mergers and
acquisitions, corporate restructuring, strategic alliances, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes.
THE RECAPITALIZATION AND EXCHANGE
The Distribution Agreement provides that, on the Distribution Date, AHC and
AmSurg will effect the Recapitalization and Exchange immediately prior to
effecting the Distribution. The sole purposes of these transactions are (i) to
reduce the total number of outstanding shares of AmSurg Common Stock so as to
permit the shares to trade at proportionately higher per share prices following
the Distribution and (ii) to increase the voting power of the shares to be
distributed by AHC as required in order to accomplish the Distribution on a
substantially tax-free basis for federal income tax purposes. The number of
votes per share of Class B Common Stock is required to be sufficient to enable
AHC to distribute, in the Distribution, after
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<PAGE> 30
giving effect to all issuances of stock associated with the exercise of stock
options, the conversion of the AmSurg preferred stock into Class A Common Stock
and any issuances in anticipated equity financing and acquisition transactions,
"control" of the AmSurg Board of Directors as defined in the Code and
regulations thereto. In order to satisfy these requirements, the Class B Common
Stock will be required to have on the date of the Recapitalization and Exchange
approximately 90% of the voting power of the capital stock of AmSurg in election
and removal of directors. In order to satisfy these requirements, it will also
be necessary to amend the AmSurg Charter to modify the existing right of the
Series A Preferred Stock and Series B Preferred Stock to elect one director to
the Board of Directors of AmSurg so that this right would exist only if a public
offering yielding at least $20,000,000 in net proceeds to AmSurg and/or its
stockholders has not occurred by May 31, 2000.
The Recapitalization is subject to the approval of the holders of a
majority of the capital stock of AmSurg. A meeting of the stockholders of AmSurg
to approve the Recapitalization and certain related matters has been scheduled
for May , 1997. AHC, as the holder of 59% of the voting power of AmSurg common
stock, has agreed to vote in favor of the Recapitalization and such other
matters. A separate class vote of the holders of the Series A Preferred Stock
and Series B Preferred Stock will be required for the Charter amendment being
considered at such meeting. Pursuant to the Distribution Agreement, AHC and
AmSurg have conditioned the Distribution (and thus the Recapitalization and
Exchange) on holders of no more than five percent of the outstanding shares of
AmSurg common stock exercising their rights to dissent from the proposed
Recapitalization. AHC and AmSurg may waive such condition in their sole
discretion.
The Recapitalization and Exchange are integral parts of the transactions
contemplated by the Distribution Agreement. The Recapitalization and Exchange
will not be effected unless the Distribution will be effected immediately
thereafter.
The Recapitalization will be effected through an amendment to the Charter
of AmSurg. The Recapitalization will: (i) reduce on a one for three basis the
number of outstanding shares of AmSurg Common Stock through the Reverse Stock
Split, with the intention of permitting the shares of Class A Common Stock
distributed in the Distribution to trade at proportionately higher per share
prices; and (ii) authorize the new Class B Common Stock having seven votes per
share in the election and removal of AmSurg directors and one vote in all other
matters, so that, when exchanged for all of the shares of Class A Common Stock
then owned by AHC, AHC will own shares of AmSurg Common Stock having
approximately 90% of the voting power of all outstanding shares of capital stock
of AmSurg in the election and removal of directors on the date of the
Distribution.
In the Recapitalization, the number of outstanding options to purchase
AmSurg common stock will be adjusted on a one for three basis and such options
will become options to purchase shares of Class A Common Stock. The exercise
price per share will be correspondingly increased to preserve the relative value
of the option.
No fractional shares shall be delivered to the holders of AmSurg Class A
Common Stock in the Recapitalization. The shares that would otherwise be
distributed as fractional shares to holders of AmSurg Class A Common Stock will,
as soon as practicable after the Recapitalization, be aggregated and sold by the
Distribution Agent on behalf of the holders who would otherwise receive
fractional shares and the proceeds of the sale will be paid to the holders of
AmSurg Class A Common Stock in lieu of such fractional shares.
On the Distribution Date, immediately following the Recapitalization and
immediately prior to the Distribution, AHC and AmSurg shall effect the Exchange
in accordance with the terms of the Exchange Agreement. Pursuant to the Exchange
Agreement, AHC will deliver 5,530,131 shares of Class A Common Stock in exchange
for 5,530,131 shares of Class B Common Stock. The sole purpose of the Exchange
is to increase the voting power of AHC immediately prior to the Distribution, to
the extent required in order for the Distribution to qualify for substantially
tax-free treatment, for federal income tax purposes, under Section 355 of the
Code. See "THE DISTRIBUTION -- Certain Federal Income Tax Consequences."
The Recapitalization and Exchange are intended to qualify for substantially
tax-free treatment, for federal income tax purposes, under Section 368(a)(1)(E)
of the Code.
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<PAGE> 31
THE DISTRIBUTION AGREEMENT
On March 7, 1997 AmSurg and AHC entered into the Distribution Agreement
governing the terms and conditions of the Distribution and certain aspects of
the relationship between AmSurg and AHC thereafter. The Distribution Agreement
provides for, among other things, (i) the Recapitalization, Exchange and
Distribution; (ii) cooperation prior to the Distribution between AmSurg and AHC
in order to effectuate the Distribution; and (iii) certain conditions to be
fulfilled or waived prior to the consummation of the Distribution.
The Distribution Agreement also provides that, upon satisfaction or waiver
of certain conditions set forth therein and the completion of the
Recapitalization and Exchange, AHC will, on the Distribution Date, distribute to
the holders of record of shares of AHC Common Stock on the Distribution Record
Date all of the shares of Class B Common Stock owned by AHC by delivering
certificates for such shares to the Distribution Agent for delivery to the
holders of AHC Common Stock. According to the Distribution Agreement, the
Distribution shall be deemed to be effective upon notification by AHC to the
Distribution Agent that the Distribution has been declared and that the
Distribution Agent is authorized to proceed with the Distribution.
Pursuant to the Distribution Agreement, AHC and AmSurg have agreed on (i) a
slate of directors to be elected as the members of the Board of Directors of
AmSurg effective upon the Distribution and any terms and classes for such
directors as may be agreed upon by AHC and AmSurg, (ii) the persons to be the
executive officers of AmSurg effective upon the Distribution, (iii) the terms of
certain amendments to the Bylaws of AmSurg to be effective upon the
Distribution, (iv) the terms of the amendments to the Charter of AmSurg to be
effective upon the Distribution, (v) the terms of a new stock incentive plan to
be effective upon the Distribution, (vi) the terms of the advisory agreements
between each of Henry D. Herr and Thomas G. Cigarran and AmSurg to be effective
for a period of two years following the Distribution and (vii) the terms of
certain arrangements between AmSurg and its directors and officers as described
below under "MANAGEMENT OF AMSURG." In addition, AHC has agreed to vote, in its
capacity as a stockholder of AmSurg, all of its shares of AmSurg common stock in
favor of the Recapitalization, each of the matters referred to in the foregoing
sentence and any other matters requiring the approval of the stockholders of
AmSurg in connection with the transactions contemplated by the Distribution
Agreement.
Pursuant to the Distribution Agreement, AmSurg and AHC have agreed to
cooperate in order to effectuate the Distribution and certain transactions
related thereto, including, among other things, the preparation and filing with
the SEC of this Information Statement, the listing on the Nasdaq National Market
or other national securities exchange of the Class A Common Stock, the request
by AHC from the Division of Corporation Finance of the SEC of a no-action letter
stating that such division will not recommend enforcement action if the
Distribution is effected without registration under the Securities Act, and the
preparation and delivery to AmSurg's stockholders of a proxy statement with
respect to a stockholders' meeting called to approve the terms of the
Recapitalization, the election of the members of AmSurg's Board of Directors
after the Distribution, the amendment and restatement of AmSurg's Charter and
the adoption of the 1997 Stock Incentive Plan and other matters requiring
approval in connection with the transactions contemplated by the Distribution.
AmSurg and AHC also agreed in the Distribution Agreement that (i) none of
the transactions contemplated by the Distribution, including the
Recapitalization and Exchange, will constitute, individually or in the
aggregate, a change in control under the terms of any stock incentive plan,
stock incentive agreement or similar plan or agreement of AmSurg and (ii) in
order to better prepare itself for becoming a publicly traded company, AmSurg
may amend or establish new employee benefit plans and amend or adopt other
corporate documents as the Board of Directors of AmSurg may deem reasonably
necessary or appropriate, subject to stockholder approval if necessary, and that
AHC, as a stockholder of AmSurg, will vote in favor of any such actions
submitted to stockholders of AmSurg to the extent that AHC agrees that such
actions are necessary or appropriate for AmSurg as an independent public
company.
In accordance with the Distribution Agreement, each of AmSurg and AHC will
be granted access to certain records and information in the possession of the
other. In addition, the Distribution Agreement requires the retention by each of
AmSurg and AHC for a period of seven years following the Distribution of all
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<PAGE> 32
such information in its possession, and thereafter requires that each party give
the other prior notice of its intention to dispose of such information.
The Distribution Agreement provides that each of AmSurg and AHC will bear
its own expenses in connection with the transactions contemplated by the
Distribution Agreement, provided, however, that (a) AHC and AmSurg will share
equally the costs of (i) preparing this Information Statement, (ii) preparing
the Distribution Agreement, the Exchange Agreement and the Management Agreement
and (iii) preparing the SEC no-action letter; (b) AmSurg will be responsible for
the costs of (i) preparing and, as required, filing any Charter amendment
required to effect the Recapitalization, (ii) preparing, printing (or
reproducing) and mailing a proxy statement for the purpose of soliciting the
votes of stockholders of AmSurg in order to effect the Recapitalization and to
obtain any other required approvals of the stockholders of AmSurg, (iii) listing
or other inclusion of the shares of Class A Common Stock on the Nasdaq National
Market or other national securities exchange, (iv) any required registration or
qualification of any shares of AmSurg Common Stock under state blue sky and
securities laws, (v) the preparation of stock certificates for the shares of
AmSurg Common Stock to be distributed in connection with the Recapitalization,
the Exchange and the Distribution, (vi) the fees and expenses of J.C. Bradford
as financial advisor to AmSurg, (vii) the fees of counsel to AmSurg and to the
Special Committee, (viii) preparing and auditing the separate financial
statements of AmSurg and its consolidated subsidiaries and (ix) obtaining any
governmental or third party consents or approvals required to be obtained on the
part of AmSurg in connection with the transactions contemplated by this
Agreement; and (c) AHC will be responsible for the costs of (i) preparing the
IRS letter ruling request, (ii) printing (or reproducing) and mailing this
Information Statement, (iii) the fees and expenses of the Distribution Agent in
connection with the Distribution, (iv) the fees and expenses of Morgan Keegan,
as financial advisor to AHC, and the fees of other professional advisors deemed
necessary by AHC, (v) the fees and expenses of counsel to AHC with respect to
services performed on behalf of AHC, (vi) preparing and auditing the financial
statements of AHC and its consolidated subsidiaries (except for the separate
financial statements of AmSurg and its consolidated subsidiaries as provided in
clause (b)(viii) above) and (vii) obtaining any governmental or third party
consents or approvals required to be obtained on the part of AHC in connection
with the transactions contemplated by the Distribution. The expenses of AHC and
AmSurg in connection with the transactions contemplated by the Distribution
Agreement are estimated to be $550,000 and $450,000, respectively.
CONDITIONS
The obligations of AmSurg and AHC to consummate the Distribution (as well
as the Recapitalization and the Exchange) are subject to the fulfillment or
waiver of certain conditions, including the following: (i) the receipt by AHC of
the IRS ruling in form and substance satisfactory to AHC, in its sole
discretion, concerning the treatment of the Distribution under Section 355 of
the Code and the absence of any proposed or pending legislation that would
adversely affect such ruling; (ii) the listing on a national securities exchange
or for inclusion on the Nasdaq National Market of the Class A Common Stock or
such other trading market as the parties may agree; (iii) the approval by the
stockholders of AmSurg of the members of AmSurg's Board of Directors who are to
serve as directors after the Distribution, the amendment and restatement of
AmSurg's Charter and Bylaws in the form to be effective after the Distribution,
for which amendment the Series A Preferred Stock and the Series B Preferred
Stock are entitled to vote as a separate class, and AmSurg's 1997 Stock
Incentive Plan; (iv) the approval of the Recapitalization and Exchange by the
holders of at least a majority of the voting power of the outstanding shares of
capital stock of AmSurg at a meeting of the stockholders of AmSurg, with holders
of no more than 5% of the outstanding shares of AmSurg common stock exercising
their right to seek dissenters' rights of appraisal under Tennessee law; (v) the
receipt by the Special Committee and the Board of Directors of AmSurg of an
opinion of J.C. Bradford acceptable to the Board of Directors of AmSurg as to
the fairness, from a financial point of view, of the Recapitalization, Exchange
and Distribution to the stockholders of AmSurg, other than AHC; and (vi) the
receipt by the Board of Directors of AHC of an opinion from Morgan Keegan as to
the fairness, from a financial point of view, of the Recapitalization, Exchange
and Distribution to the stockholders of AHC and such other opinions as AHC may
deem necessary in its sole discretion. In addition, the obligations of AmSurg
and AHC to effect the Exchange are subject to the completion of the
Recapitalization, and, in turn, the obligations of AHC to effect
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<PAGE> 33
the Distribution in accordance with the Distribution Agreement are conditioned
upon the completion of the Exchange. AHC, as holder of approximately 59% of the
voting power of the common stock of AmSurg on March 31, 1997, has agreed to vote
in favor of such matters.
MANNER OF EFFECTING THE DISTRIBUTION
On the Distribution Date, immediately following consummation of the
Exchange, AHC will deliver all of the shares of Class B Common Stock held by AHC
to SunTrust Bank, the Distribution Agent for the AmSurg Common Stock, for
distribution on a pro rata basis to the holders of AHC Common Stock at the close
of business on the Distribution Record Date. It is expected that the
Distribution Agent will begin mailing share certificates representing the Class
B Common Stock as soon as practicable after the Distribution. The shares will be
distributed to the holders of record of the AHC Common Stock on the basis of 69
shares of Class B Common Stock for each 100 shares of AHC Common Stock
outstanding on the Distribution Record Date, as such ratio may be adjusted for
issuances of AHC Common Stock after April 30, 1997. All such shares of Class B
Common Stock will be fully paid, nonassessable and free of preemptive rights.
No fractional shares shall be delivered to the holders of AHC Common Stock
in the Distribution. The shares that would otherwise be distributed as
fractional shares to holders of the AHC Common Stock will, as soon as
practicable after the Distribution, be aggregated and sold by the Distribution
Agent on behalf of the holders who would otherwise receive fractional shares and
the proceeds of the sale will be paid to the holders of AHC Common Stock in lieu
of such fractional shares. See "-- Certain Federal Income Tax Consequences."
NO HOLDER OF AHC COMMON STOCK WILL BE REQUIRED TO PAY ANY CASH OR OTHER
CONSIDERATION FOR THE SHARES OF AMSURG COMMON STOCK RECEIVED IN THE DISTRIBUTION
OR TO SURRENDER OR EXCHANGE SHARES OF AHC COMMON STOCK OR TO TAKE ANY OTHER
ACTION IN ORDER TO RECEIVE SHARES OF AMSURG COMMON STOCK IN THE DISTRIBUTION.
STOCKHOLDERS WILL BE SUBJECT TO FEDERAL INCOME TAXATION WITH RESPECT TO
APPROXIMATELY 1.5% OF THE SHARES OF AMSURG COMMON STOCK RECEIVED BY THEM AND ANY
CASH RECEIVED IN LIEU OF FRACTIONAL SHARES.
LISTING OF CLASS A COMMON STOCK; RESTRICTIONS ON RESALE; CONVERSION OF CLASS B
COMMON STOCK
The Class A Common Stock has been approved for listing on the Nasdaq
National Market. The Class B Common Stock received in the Distribution will
convert automatically into Class A Common Stock on any transfer occurring after
the Distribution with certain limited exceptions. The Class B Common Stock
received pursuant to the Distribution will be freely transferable under the
Securities Act, except for shares of Class B Common Stock received by any person
who may be deemed to be an "affiliate" of AmSurg within the meaning of Rule 144
under the Securities Act. Persons who may be deemed to be affiliates of AmSurg
after the Distribution generally include individuals or entities that control,
are controlled by, or are under common control with AmSurg, and may include the
directors and executive officers of AmSurg as well as any principal stockholder
of AmSurg. The shares of Class A Common Stock outstanding as of the Distribution
were issued in transactions unrelated to the Distribution. Under current law,
the holders of such shares of Class A Common Stock and persons who are
affiliates of AmSurg will be permitted to sell the Class A Common Stock received
pursuant to the Distribution ("restricted securities") only pursuant to an
effective registration statement under the Securities Act or pursuant to an
exemption therefrom, such as the exemptions afforded by Section 4(1) of the
Securities Act and Rule 144 thereunder. Of the 3,887,619 shares of Class A
Common Stock that are anticipated to be "restricted securities" immediately
following the Distribution, 3,502,698 will have satisfied a one-year holding
period. This Information Statement does not cover resales of AmSurg Common Stock
by existing stockholders of AmSurg. See "RISK FACTORS -- Shares Eligible for
Future Sale," "DESCRIPTION OF CAPITAL STOCK" and "SHARES ELIGIBLE FOR FUTURE
SALE."
A share of Class B Common Stock will convert automatically into a share of
Class A Common Stock upon any transfer occurring following the Distribution,
including a transfer by gift to a family member or other
26
<PAGE> 34
person. However, transfers of the Class B Common Stock held by a beneficial
owner into street name or shares held in street name transferred into the
beneficial owner's name, and transfers by pledge are not transfers which would
convert the shares of Class B Common Stock into Class A Common Stock. Stock
certificates purporting to represent shares of Class B Common Stock will
represent shares of Class A Common Stock following any transfer of such shares.
Stockholders will not be required to effect a conversion of their shares of
Class B Common Stock into shares of Class A Common Stock in order to settle a
transfer or sale of shares received in the Distribution. The transfer agent will
accept a stock certificate purporting to represent shares of Class B Common
Stock as evidence of shares that have been transferred.
INTERESTS OF CERTAIN PERSONS IN THE DISTRIBUTION
Certain directors and executive officers of AHC and AmSurg have interests
in the Distribution that are in addition to their interests as AHC stockholders
generally and may create potential conflicts of interest. Thomas G. Cigarran,
the Chairman, President and Chief Executive Officer of AHC, is currently the
Chairman and Chief Executive Officer of AmSurg and will retain his position as
director and Chairman of the Board of AmSurg following the Distribution, and
also will serve as an advisor to AmSurg although he will no longer serve as an
executive officer of AmSurg. Henry D. Herr, the Executive Vice President and
Chief Financial Officer, as well as a director, of AHC, is currently Vice
President and Secretary, as well as a director, of AmSurg. Following the
Distribution, Mr. Herr will serve as a director of, and as an advisor to AmSurg.
Both Mr. Cigarran and Mr. Herr will enter into advisory agreements with AmSurg
pursuant to which they will receive shares of restricted stock of AmSurg in
compensation for their services. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS -- Advisory Agreements." James A. Deal, a member of the AmSurg
Board of Directors since 1992, is an Executive Vice President of AHC and serves
as President of DTCA. As directors of AmSurg, Messrs. Cigarran, Herr and Deal
will be entitled to receive director's compensation from AmSurg on the same
terms as all other non-employee directors of AmSurg. See "MANAGEMENT OF
AMSURG -- Compensation of Directors." Because these members of the Board of
Directors of AmSurg are affiliated with AHC, the Board of Directors of AmSurg
appointed the Special Committee to consider whether the Recapitalization,
Exchange and Distribution, are fair and in the best interests of the
stockholders of AmSurg, including the minority stockholders, and to negotiate
the terms and conditions of these transactions on behalf of AmSurg. In approving
the Recapitalization, Exchange and Distribution, the Boards of Directors of AHC
and AmSurg were aware of the various interests of the members of each Board and
gave consideration to the potential conflicts raised by such interests.
THE MANAGEMENT AGREEMENT
On the Distribution Date, AmSurg and AHC will enter into the Management
Agreement pursuant to which AHC will provide certain financial and accounting
services to AmSurg and its subsidiaries on a transitional basis, with the intent
that AmSurg acquire the personnel, systems and expertise necessary to become
self-sufficient in the provision of these services during the period beginning
on the date of the Management Agreement and ending one year later (or earlier if
so elected by AmSurg). Pursuant to the Management Agreement, AHC shall provide
AmSurg with services, including processing payroll and associated payroll tax
returns and accounts payable for the AmSurg corporate office, maintaining
general accounting records for the AmSurg corporate operations and operations of
AmSurg's subsidiaries (including the partnerships and limited liability
companies), preparing consolidated AmSurg financial statements, preparing AmSurg
corporate tax returns and tax returns for AmSurg subsidiaries, preparing
estimated tax reports, and preparing financial statements in connection with
periodic reports required to be filed by AmSurg with the SEC. As compensation
for such services, AmSurg shall pay AHC a fixed fee of $4,166.67 per month and a
variable fee of $625 per month for each ambulatory surgery center in operation
and certain multiples thereof for the corporate office and other operations,
subject to increase if AmSurg requests certain additional services. Pursuant to
the Management Agreement, AmSurg shall have sole responsibility for the accuracy
and integrity of the financial statements and tax returns prepared by AHC, and
AmSurg will provide oversight and review on a timely basis of the services
provided by AHC. In addition, in the absence of gross negligence on the part of
AHC, AmSurg will indemnify and hold AHC, its directors, officers, employees and
agents and any person who controls AHC within the meaning of the Securities Act
harmless from and against any and all
27
<PAGE> 35
liabilities, claims or damages (including the cost of investigating any claim
and reasonable attorneys' fees and disbursements) in connection with any
services performed by AHC or any transactions or conduct in connection
therewith.
Pursuant to the Management Agreement, AHC will be responsible for any
claims incurred on or prior to the date of such agreement by AmSurg employees
under any medical or dental plans offered by AHC to AmSurg employees on or prior
to the date of such agreement in accordance with the terms of such plans. AHC
will not be responsible for any claims incurred following the date of the
Management Agreement by any AmSurg employees under any plan.
ADJUSTMENT OF AHC STOCK OPTIONS
As a result of the Distribution and pursuant to the terms of the AHC stock
option plans, the vesting of the unvested portion of the outstanding AHC stock
options will be accelerated and the exercise price per share of outstanding
options to purchase shares of AHC Common Stock will be reduced, and the number
of shares underlying such options will be in certain cases increased, to
maintain the value of AHC stock options following the Distribution at
pre-Distribution levels. Holders of AHC stock options on the Distribution Record
Date will not be entitled to receive shares of AmSurg Common Stock in respect of
such options. The amount by which the options will be adjusted will depend on a
comparison of the market price per share of AHC before and after the
Distribution. For a description of the accounting treatment of the option
adjustment, see "-- Accounting Treatment."
ACCOUNTING TREATMENT
Following the approval of the Distribution by the AHC Board of Directors on
March 7, 1997, AHC will present the business of AmSurg as a discontinued
operation to the extent financial information for periods prior to the
Distribution is required to be included in AHC's historical financial
statements.
The Distribution will be treated as a dividend for accounting purposes and
will consequently reduce stockholders' equity by the book value of AHC's
investment in AmSurg.
Expenses of the Distribution and related transactions are expected to be
approximately $550,000 for AHC and $450,000 for AmSurg, and will be generally
non-deductible for federal income tax purposes. These expenses will be recorded
as operating expenses at the time of the Distribution by AmSurg and expenses
associated with discontinued operations in the case of AHC. For a description of
the allocation of certain expenses between AHC and AmSurg, see "-- The
Distribution Agreement."
As a result of the adjustment of AHC stock options, AHC will record
non-cash compensation expense and an equal increase in stockholders' equity
(additional paid-in capital) in an amount equal to the difference between the
aggregate exercise price of outstanding options to purchase shares of AHC Common
Stock having an exercise price below the market price of AHC Common Stock and
the aggregate market price for such shares immediately prior to the
Distribution. The compensation expense and associated increase in additional
paid-in capital will be recognized because generally accepted accounting
principles require such recognition when an adjustment results in a change in
the ratio of the exercise price to the market price per share even though no
change in the aggregate value of the options will take place. Although it would
be possible to adjust the options without changing this ratio, it could only be
accomplished by issuing a large number of new options which would result in
substantial dilution to AHC stockholders. While the adjustment management
anticipates making will result in additional new option issuances, such new
issuances will be significantly less than those which would be required to avoid
recognition of compensation expense and associated increase to additional
paid-in capital as of the Distribution Date. The option adjustments will reduce
earnings as a result of the recognition of compensation expense less the income
tax benefit associated with the compensation expense deduction and will increase
additional paid-in capital by the amount of compensation expense. The adjustment
will also have the effect of decreasing future earnings per share because of the
impact of the additional options on the calculation of common stock equivalents
used in the calculation of earnings per share. Because the amount of these
adjustments will depend upon the market price of AHC Common Stock prior to and
after the Distribution, it is not possible to predict the impact on weighted
28
<PAGE> 36
average common shares and equivalents. If the Distribution were to have occurred
on March 31, 1997, on which date the closing price of AHC Common Stock was
$11.38, the estimated impact on earnings and stockholders' equity would have
been as follows:
<TABLE>
<CAPTION>
NET INCOME
INCREASE
(DECREASE)
----------
<S> <C>
Compensation expense........................................ $(4,300,000)
Estimated income tax benefit................................ 1,660,000
-----------
Net decrease in net income........................ $(2,640,000)
===========
</TABLE>
<TABLE>
<CAPTION>
STOCKHOLDERS'
EQUITY
INCREASE
(DECREASE)
-------------
<S> <C>
Increase in paid-in capital from stock options.............. $ 4,300,000
Net decrease in net income.................................. (2,640,000)
-----------
Net increase in stockholders' equity.............. $ 1,660,000
===========
</TABLE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary description of the material federal income tax
consequences of the Distribution. This summary is not a complete description of
all the consequences of the Distribution. Moreover, each AHC stockholder's
individual circumstances may affect the tax consequences of the Distribution to
such stockholder.
THE DISCUSSION SET FORTH BELOW DOES NOT ADDRESS THE STATE, LOCAL OR FOREIGN
TAX ASPECTS OF THE DISTRIBUTION. THE DISCUSSION IS BASED ON CURRENTLY EXISTING
PROVISIONS OF THE CODE, EXISTING AND PROPOSED TREASURY REGULATIONS THEREUNDER
AND CURRENT ADMINISTRATIVE RULINGS AND COURT DECISIONS. ALL OF THE FOREGOING ARE
SUBJECT TO CHANGE AND ANY SUCH CHANGES COULD AFFECT THE CONTINUING VALIDITY OF
THIS DISCUSSION. EACH AHC STOCKHOLDER SHOULD CONSULT SUCH STOCKHOLDER'S OWN TAX
ADVISOR WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE DISTRIBUTION TO
SUCH STOCKHOLDER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND
FOREIGN TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL LAWS OR OTHER
TAX LAWS.
Consummation of the Distribution is conditioned upon the receipt of a
ruling or rulings, in form and substance satisfactory to AHC, from the IRS
providing, in substance, that the Distribution will constitute a substantially
tax-free distribution described in Section 355 of the Code, and AHC will not
recognize any income or gain as a result of the Distribution. Accordingly,
AmSurg and AHC have requested the following rulings concerning the Distribution
from the IRS:
a. Assuming that the Recapitalization and the Exchange qualify as a
"reorganization" within the meaning of Section 368(a)(1)(E) of the Code,
such qualification will not be adversely affected by the Distribution;
b. Assuming that the Recapitalization and the Exchange qualify as a
"reorganization" within the meaning of Section 368(a)(1)(E), the
Recapitalization and Exchange will not adversely affect the rulings
requested below;
c. No gain or loss will be recognized to AHC upon the Distribution to
the AHC stockholders of all of its AmSurg Common Stock;
d. No gain or loss will be recognized to (and no amount will be
included in the income of) the AHC stockholders upon receipt of Class B
Common Stock in the Distribution, except with respect to cash
29
<PAGE> 37
received in lieu of fractional shares and the receipt of AmSurg Common
Stock that was originally received in a transaction in which gain was
recognized by AHC, as described below;
e. The aggregate basis of the common stock of AmSurg and of AHC in the
hands of each AHC stockholder after the Distribution will be the same as
the aggregate basis of the AHC Common Stock held by such stockholder
immediately before the Distribution (plus any gain recognized with respect
to the receipt of AmSurg Common Stock as described below), and such
aggregate basis will be allocated between the common stock of AmSurg and of
AHC held by such stockholder in proportion to the fair market value of each
(immediately after the Distribution);
f. The holding period of the AmSurg Common Stock received without the
recognition of any gain by each AHC stockholder pursuant to the
Distribution will include the holding period of the AHC Common Stock with
respect to which such Class B Common Stock was received, provided that such
AHC Common Stock is held as a capital asset on the date of the
Distribution;
g. An AHC stockholder will recognize gain or loss equal to the
difference between the cash received in lieu of a fractional share interest
of Class B Common Stock and such stockholder's basis in the fractional
share interest for which cash is received; and
h. An AHC stockholder will recognize gain or loss equal to the
difference between the fair market value of the Common Class B Stock that
was originally received in a transaction in which gain was recognized by
AHC and such stockholder's tax basis in such shares.
Approximately 1.5% of the outstanding shares of AmSurg Common Stock owned
by AHC prior to the Distribution were acquired by AHC in taxable transactions.
Accordingly, it is anticipated that each AHC stockholder will recognize gain or
loss with respect to 1.5% of the shares of Class B Common Stock received by such
stockholder in the Distribution. Any gain recognized by stockholders on receipt
of such shares will be taxed as ordinary income to the extent of such
stockholder's ratable share of AHC's accumulated earnings and profits (with the
excess, if any, taxable as gain from the sale or exchange of a capital asset).
AHC will notify its stockholders of its determination of their ratable share of
the amount of its accumulated earnings and profits for this purpose. Corporate
stockholders may be eligible for a dividends received deduction to the extent of
the taxable portion of the Distribution.
The ruling request was submitted to the IRS on November 21, 1996. A ruling
from the IRS, while generally binding on the IRS, may under certain
circumstances be retroactively revoked or modified by the IRS. Neither AmSurg
nor AHC is currently aware of any such circumstances that would cause the IRS to
revoke or modify a ruling received by the parties from the IRS as to the federal
income tax consequences of the Distribution as described above.
The ruling is based on certain facts and representations, some of which
will require confirmation prior to the time of the Distribution from each
beneficial owner of 5% or more of the outstanding AHC Common Stock that, in
effect, such beneficial owner has no present plan or intention to sell, exchange
or otherwise dispose of any stock of AHC or AmSurg.
Consummation of the Distribution is also conditioned upon the receipt of an
opinion, in form and substance satisfactory to AHC, of Bass, Berry & Sims PLC,
as counsel to AHC, providing, in substance, that the Recapitalization and
Exchange will constitute a "reorganization" under Section 368(a)(1)(E) of the
Code, that neither AmSurg nor AHC will recognize any income or gain as a result
of the Recapitalization and Exchange and that no gain or loss will be recognized
by the holders of AmSurg Common Stock upon the exchange of their shares solely
for shares of Class A Common Stock and Class B Common Stock in the
Recapitalization and Exchange. The IRS takes the position that the consequences
of a transaction such as the Recapitalization and Exchange are adequately
established in the tax law and, therefore, it will not issue a so-called
"comfort ruling" as to these matters. Accordingly, AHC has not requested a
ruling from the IRS as to
30
<PAGE> 38
those matters. Therefore, AHC has conditioned its obligation upon the receipt of
an opinion from its counsel, Bass, Berry & Sims PLC, to the effect that:
a. The Recapitalization and the Exchange constitute a tax-free
"reorganization" under Section 368(a)(1)(E) of the Code; AmSurg and AHC
will each be a "party to the reorganization" under Section 368(b) of the
Code;
b. No gain or loss will be recognized by AmSurg or AHC as a result of
the Recapitalization and Exchange;
c. An AmSurg stockholder will not recognize any income, gain or loss
as the result of the receipt of AmSurg Common Stock in the Recapitalization
or Exchange;
d. The aggregate tax basis of the shares of AmSurg Common Stock
received in the Recapitalization or the Exchange will equal the aggregate
tax basis of such stockholder's shares of AmSurg Common Stock prior to the
Recapitalization; and
e. An AmSurg stockholder's holding period for the shares of AmSurg
Common Stock received by such stockholder in the Recapitalization or
Exchange will include the holding period of the AmSurg common stock held by
such stockholder immediately prior to the Recapitalization and Exchange,
provided such AmSurg common stock was held as a capital asset as of the
time of the Recapitalization and Exchange.
An opinion of counsel is not binding on the IRS or the courts. Moreover,
the opinion of counsel will be based upon, among other things, current law and
certain representations to counsel for AHC as to factual matters made by, among
others, AHC and AmSurg which, if incorrect in certain material respects, would
jeopardize the conclusions reached by counsel.
Current Treasury regulations require AHC stockholders who receive AmSurg
Common Stock pursuant to the Distribution to attach to their federal income tax
returns for the year in which the Distribution occurs a detailed statement
setting forth such data as may be appropriate in order to show the applicability
of Section 355 of the Code to the Distribution. AHC will provide an appropriate
statement to each AHC stockholder of record as soon as practicable after the
Distribution.
31
<PAGE> 39
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA OF AMSURG
The following table sets forth selected consolidated financial data which
have been derived from the consolidated financial statements of AmSurg. The
financial statements as of and for the periods ended December 31, 1992 through
1996 have been audited. The operating data and balance sheet data as of and for
the three months ended March 31, 1996 and 1997, are derived from unaudited
financial statements which, in the opinion of management, include all
adjustments, consisting only of normal recurring accruals, necessary for a fair
presentation of financial condition and results of operations. Operating results
for the three months ended March 31, 1997 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1997. The pro forma
combined statement of operations data for the year ended December 31, 1996 and
the three months ended March 31, 1997 set forth below reflect the effects of all
acquisitions (five surgery centers and one physician practice in 1996 and two
surgery centers and one physician practice in 1997) completed after the
beginning of the period as if such transactions were completed at January 1,
1996. Except for The Endoscopy Center of Ocala, Inc., which was acquired in
1996, none of the businesses acquired individually exceeded the significant
subsidiary tests requiring separate financial reporting under applicable SEC
regulations. Comparability of data on a year to year basis is affected by the
number of centers acquired in each year. All the information set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations of AmSurg" and the Consolidated
Financial Statements and related notes included elsewhere herein. See "Index to
Financial Statements."
The historical and pro forma financial information may not be indicative of
AmSurg's future performance and does not necessarily reflect the financial
position and results of operations of AmSurg had AmSurg operated as a separate,
stand-alone entity during the periods covered.
<TABLE>
<CAPTION>
HISTORICAL
------------------ PRO FORMA
HISTORICAL PRO FORMA THREE MONTHS ------------
---------------------------------------------- ------------ ENDED THREE MONTHS
YEAR ENDED AND AT DECEMBER 31, YEAR ENDED AND AT MARCH 31, ENDED
---------------------------------------------- DECEMBER 31, ------------------ MARCH 31,
1992(1) 1993 1994 1995 1996 1996 1996 1997 1997
------- ------ ------- ------- ------- ------------ ------- ------- ------------
(IN THOUSANDS EXCEPT PER SHARE AND CENTER DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues...................... $ 576 $6,586 $13,826 $22,489 $35,007 $47,116 $ 7,169 $12,610 $12,884
------ ------ ------- ------- ------- ------- ------- ------- -------
Expenses:
Salaries and benefits....... 456 2,307 4,092 6,243 11,613 14,315 2,247 3,972 4,019
Other operating expenses.... 288 3,002 5,091 7,563 11,547 16,391 2,254 4,451 4,543
Depreciation and
amortization.............. 51 665 1,309 2,397 3,000 3,793 672 1,087 1,102
Interest.................... 3 30 193 722 948 1,642 211 327 341
Impairment loss(2).......... -- -- -- -- -- -- -- 2,321 2,321
------ ------ ------- ------- ------- ------- ------- ------- -------
Total expenses........ 798 6,004 10,685 16,925 27,108 36,141 5,384 12,158 12,326
------ ------ ------- ------- ------- ------- ------- ------- -------
Income (loss) before minority
interest and income taxes... (222) 582 3,141 5,564 7,899 10,975 1,785 452 558
Minority interest in
earnings of consolidated
partnerships.............. 87 1,121 2,464 3,938 5,433 7,779 1,196 1,948 2,019
------ ------ ------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes....................... (309) (539) 677 1,626 2,466 3,196 589 (1,496) (1,461)
Income tax expense.......... -- -- 26 578 985 1,277 236 329 343
------ ------ ------- ------- ------- ------- ------- ------- -------
Net income (loss)............. (309) (539) 651 1,048 1,481 1,919 353 (1,825) (1,804)
Accretion of preferred stock
discount.................. -- -- -- -- 22 22 -- 67 67
------ ------ ------- ------- ------- ------- ------- ------- -------
Net income (loss) attributable
to common stockholders...... $ (309) $ (539) $ 651 $ 1,048 $ 1,459 $ 1,897 $ 353 $(1,892) $(1,871)
====== ====== ======= ======= ======= ======= ======= ======= =======
Net income (loss) per share
attributable to common
stockholders(3)............. $(0.24) $(0.11) $ 0.09 $ 0.12 $ 0.16 $ 0.20 $ 0.04 $ (0.20) $ (0.20)
====== ====== ======= ======= ======= ======= ======= ======= =======
Weighted average common shares
and equivalents -- pro
forma(3).................... 1,302 4,734 7,313 8,581 9,102 9,488 8,778 9,360 9,400
BALANCE SHEET DATA:
Cash and cash equivalents..... $ 583 $ 738 $ 1,750 $ 3,470 $ 3,192 $ 2,181 $ 2,454
Working capital............... 1,166 993 2,557 2,931 4,732 1,604 4,842
Total assets.................. 9,552 14,637 27,065 35,106 54,653 38,676 60,892
Long-term debt................ 214 640 3,520 4,786 9,218 6,560 14,758
Minority interest............. 647 601 2,019 3,010 5,674 3,187 6,418
Preferred stock............... -- -- -- -- 4,982 -- 5,050
Stockholders' equity.......... 8,440 12,055 19,558 22,479 28,374 23,633 27,677
GENERAL CENTER DATA:
Procedures.................... 1,146 16,051 30,922 55,344 71,323 15,441 23,211
Centers at period end......... 4 6 14 18 27 18 29
</TABLE>
- ---------------
(1) Period from April 2, 1992 (inception) through December 31, 1992.
(2) Reflects an impairment loss attributable to one partnership, which had an
impact of $0.24 per share on the historical and pro forma results of
operations for the three months ended March 31, 1997. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation of
AmSurg" and "Notes to the Consolidated Financial Statements of
AmSurg -- Note 10."
(3) Adjusted to give effect to the Recapitalization which includes a one for
three reverse stock split.
32
<PAGE> 40
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF AMSURG
OVERVIEW
AmSurg develops, acquires and operates practice-based ambulatory surgery
centers in partnership with physician practice groups through partnerships and
limited liability companies. As of March 31, 1997, AmSurg owned a majority
interest in 28 surgery centers, operated another center pursuant to a management
agreement, owned a majority interest in two physician practices and had
established and was the majority owner of three start-up specialty physician
networks. As of March 31, 1997, AHC owned 59% of the common stock of AmSurg.
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements which are based upon current
expectations and involve a number of risks and uncertainties. These statements
which have been included in reliance on the "safe harbor" provisions of the
Private Litigation Reform Act of 1995, may be affected by the risk factors set
forth in this Information Statement and by the important factors, among others,
set forth below, and consequently, actual operations and results may differ
materially from those expressed in these forward-looking statements. The
important factors include: AmSurg's ability to enter into partnership or
operating agreements for new practice-based ambulatory surgery centers and new
specialty physician networks; its ability to contract with managed care payors
for its existing centers and its centers that are currently under development;
its ability to obtain and retain appropriate licensing approvals for its
existing centers and centers currently under development; and its ability to
maintain favorable relations with its physician partners. See "RISK
FACTORS -- Risks Associated with Forward-Looking Statements."
The following table presents the components of changes in the number of
surgery centers in operation and centers under development at the end of fiscal
1994, 1995 and 1996 and at March 31, 1997. A center is deemed to be under
development when a partnership or limited liability company has been formed with
the physician group partner to develop the center.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED
------------------ MARCH 31,
1994 1995 1996 1997
---- ---- ---- ------------
<S> <C> <C> <C> <C>
Centers in operation, beginning of period................... 6 14 18 27
New center acquisitions placed in operation................. 3 2 6 2
New development centers placed in operation................. 5 2 3 --
-- -- -- --
Centers in operation, end of period......................... 14 18 27 29
== == == ==
Centers under development, end of period.................... 4 13 20 20
</TABLE>
Twenty-two of the surgery centers in operation as of March 31, 1997 perform
gastrointestinal endoscopy procedures; four centers perform ophthalmology
procedures; one center performs otolaryngology procedures; one center performs
orthopaedic procedures; and one center performs ophthalmology, urology, general
surgery and otolaryngology procedures. In addition, on January 31, 1996, AmSurg
acquired a 70% interest in the assets of a gastroenterology and primary care
physician practice located in Miami, Florida and associated with a surgery
center in which AmSurg already held an ownership interest. On January 1, 1997,
AmSurg acquired a 60% interest in the assets of a urology practice and currently
has a surgery center under development with this same practice. While AmSurg
generally owns 51% to 70% of the entities that own the surgery center or
physician group practice, AmSurg's consolidated statements of operations include
100% of the results of operations of the entities, reduced by the minority
partners' share of the net income or loss of the surgery center/practice
entities.
The limited partnerships and limited liability companies formed by AmSurg
own and operate the AmSurg surgery centers, with the exception of one center in
which AmSurg has no ownership interest but which is operated by AmSurg under a
management agreement. The other partner or member in each partnership and
limited liability company is in each case an entity owned by physicians who
perform procedures at the center.
33
<PAGE> 41
The two physician group practices are also owned through limited
partnerships in which AmSurg is the general partner and owns a majority
interest. The other partner in each partnership is an entity owned by the
principal physicians who provide professional medical services to patients of
the practice.
The start-up specialty physician networks are owned through limited
partnerships and limited liability companies. AmSurg owns a majority interest in
these entities, and the other partners are individual physicians who will
provide the medical services to the patient population covered by the contracts
the network will seek to enter into with managed care payors. It is not expected
that the specialty physician networks in themselves will be a significant source
of income for AmSurg. These networks were and will be formed primarily as a
contracting vehicle to generate revenues for AmSurg's practice-based surgery
centers and physician practices. These networks have not yet generated any
revenues.
AmSurg's sources of revenues are set forth in the table below. The
facilities fees and fees for physician services received by AmSurg surgery
centers and physician practices are generally paid through third party
reimbursement programs, including governmental and private insurance programs.
AmSurg derived approximately 39%, 37% and 36% of its revenues in the year ended
December 31, 1994, 1995 and 1996, respectively, and 36% and 34% in the three
month period ended March 31, 1996 and 1997, respectively, from governmental
healthcare programs including Medicare and Medicaid.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
---------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------- THREE MONTHS ENDED
SOURCE OF REVENUES 1994 1995 1996 MARCH 31, 1997
- ------------------ ----- ----- ----- ------------------
<S> <C> <C> <C> <C>
Surgery center............................... 97% 96% 83% 80%
Physician practice........................... -- -- 15 17
Management fee............................... 1 2 1 2
Interest and other........................... 2 2 1 1
--- --- --- ---
Total.............................. 100% 100% 100% 100%
=== === === ===
</TABLE>
AmSurg intends to expand primarily through the development and acquisition
of additional practice-based ambulatory surgery centers in targeted surgical
specialties. In addition, AmSurg believes that its surgery centers, combined
with AmSurg's relationships with specialty physician practices in the surgery
centers' markets, will provide AmSurg with other opportunities for growth from
specialty network development that if appropriate may include the acquisition of
specialty physician practices. By using its surgery centers as a base to develop
specialty physician networks that are designed to serve large numbers of covered
lives, AmSurg believes that it will strengthen its market position in
contracting with managed care organizations.
RESULTS OF OPERATIONS
Three Month Period ended March 31, 1997 Compared to Three Month Period ended
March 31, 1996
Revenues were $12,610,000 for the three month period ended March 31, 1997,
an increase of $5,441,000, or 76%, over revenues for the comparable period in
1996. The increase resulted primarily from the growth in the number of surgery
centers in operation, the acquisition of a majority interest in a urology
physician practice on January 1, 1997 and an increase of 6% in same-center
revenues at the 18 centers in operation since January 1, 1996. AmSurg
anticipates further revenue growth during the remainder of 1997 as a result of
additional start-up and acquisition centers placed in operation and from
same-center revenue growth. See "BUSINESS OF AMSURG -- Revenues."
Salaries and benefits expense increased by $1,725,000, or 77%, while other
operating expenses increased by $2,197,000, or 97%, for the three month period
ended March 31, 1997 from the comparable period in 1996. These increases
resulted from additional centers in operation, the acquisition of the interest
in the urology physician practice, and an increase in corporate staff primarily
to support growth in the number of centers in operation and anticipated future
growth. Salaries and benefits expense and other operating expenses represented
in the aggregate approximately 67% of revenues for the three month period ended
March 31, 1997 as compared to approximately 63% of revenues for the comparable
period in 1996. The 4% increase is due primarily from the physician group
practices and a start-up center. Physician group practices generally have lower
operating margins than ambulatory surgery centers. Because the two physician
practices in which
34
<PAGE> 42
AmSurg now has a majority ownership have both greater revenues and greater
operating expenses as a percentage of revenues than any single center, the
acquisition of the urology physician practice and the inclusion in operations of
the gastroenterology and primary care physician practice for the full 1997
period compared to two months in the comparable period in 1996 caused the
practices to have a disproportionately large impact on operating margins.
Salaries and benefits expense and other operating expenses as a percentage of
revenues also increased because there existed one newly opened start-up surgery
center in the three month period ended March 31, 1997. Typically start-up
centers initially experience lower operating margins until their respective case
load grows to a more optimal operating level.
Depreciation and amortization expense increased $416,000, or 62%, in the
three month period ended March 31, 1997 over the comparable period in 1996,
primarily due to 11 additional surgery centers and one physician practice in
operation in the 1997 period compared to the 1996 period. The increase of
$116,000, or 55%, in interest expense for the three month period ended March 31,
1997 over the comparable period in 1996 is primarily attributable to debt
assumed or incurred in connection with additional acquisitions of interests in
surgery centers and physician practices plus the interest expense associated
with newly opened start-up surgery centers financed partially with bank debt.
Impairment loss of $2,321,000 in the three month period ended March 31,
1997 represents a charge in accordance with Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of." AmSurg determined that an impairment in
the asset carrying value at one of its partnerships that owns two surgery
centers acquired in 1994, had taken place and as a result it recorded an
impairment of asset carrying value associated with these centers. Various
disagreements with the sole physician partner over the operation of these
centers have adversely impacted the operations of these centers, resulting in
AmSurg's determination in April 1997 that, based on the inability of the
partners to resolve their disagreements, it is likely that the carrying value of
the assets associated with this partnership will not be recovered. In
determining the impairment to be recorded, AmSurg projected the undiscounted
cash flows from these centers and determined these cash flows to be
substantially less than the carrying value of the long-lived assets attributable
to this partnership. While there has been no final decision, AmSurg believes
that the most probable outcome will be the discontinuance of its involvement
with these centers, and accordingly, the fair value of its investment is limited
to its interest in the current net book value of working capital and property
and equipment in the partnership. It is management's intent to pursue a course
of resolution that is as economically favorable as possible to AmSurg. AmSurg
believes it has good relationships with its other physician partners and that
the impairment loss attributable to the partnership discussed above resulted
from a unique set of circumstances. The revenues and the pretax loss after
minority interest for these two centers for the three month period ended March
31, 1997, before consideration of this impairment loss, were $148,000 and
$7,000, respectively. AmSurg does not believe that the operations of these two
centers subsequent to March 31, 1997 will have any significant impact on
AmSurg's future ongoing results of operations. See "RISK FACTORS -- Risks
Related to Intangible Assets."
Minority partners' interest in earnings for the three month period ended
March 31, 1997 rose to $1,948,000 from $1,196,000 for the comparable period in
1996, an increase of 63%, primarily as a result of minority partners' interest
in earnings at surgery centers added to operations and from increased
same-center profitability.
AmSurg recognized tax expense of $329,000 in the three month period ended
March 31, 1997 compared to $236,000 in the comparable period in 1996. Because
the loss incurred associated with the impairment loss discussed above may only
be deducted for tax purposes against future capital gains up to five years,
AmSurg has recognized no tax benefit associated with this loss in the current
period. AmSurg's effective tax rate is 40% of earnings prior to the impairment
loss in both periods, and differs from the federal statutory income tax rate of
34% due primarily to the impact of state income taxes.
Fiscal Year Ended December 31, 1996 Compared to Fiscal Year Ended December 31,
1995
Revenues were $35,007,000 for 1996, an increase of $12,518,000, or 56%,
over revenues for 1995. The increase resulted primarily from the growth in the
number of surgery centers in operation, the acquisition of a
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<PAGE> 43
majority interest in the Florida physician practice as of January 31, 1996 and
an increase of 14% in same-center revenues at the fifteen centers in operation
since January 1, 1995.
Salaries and benefits expense increased by $5,370,000, or 86%, while other
operating expenses increased by $3,984,000, or 53%, for 1996 from 1995. These
increases resulted primarily from the acquisition of the interest in the Florida
physician practice, additional centers in operation and an increase in corporate
staff primarily to support growth in the number of centers in operation and
anticipated future growth. Salaries and benefits expense and other operating
expenses represented in the aggregate approximately 66% of revenues for 1996 as
compared to approximately 61% of revenues for 1995. Physician group practices
generally have lower operating margins than ambulatory surgery centers. Because
the Florida physician practice has both greater revenues and greater operating
expenses as a percentage of revenues than any single center, its acquisition had
a disproportionately large impact on operating margins.
Depreciation and amortization expense increased $603,000, or 25%, in 1996
over 1995, primarily due to the acquisition of majority interests in additional
surgery centers, the acquisition of the interest in the Florida physician
practice and new start-up surgery centers placed in operation. The increase of
$225,000, or 31%, in interest expense for 1996 over 1995 is primarily
attributable to debt assumed or incurred in connection with additional
acquisitions of interests in surgery centers and the Florida physician practice
plus the interest expense associated with newly opened start-up surgery centers
financed partially with bank debt.
Minority partners' interest in center earnings for 1996 rose to $5,434,000
from $3,938,000 for 1995, an increase of 38%, primarily as a result of minority
partners' interest in earnings at surgery centers added to operations and from
increased same-center profitability.
Income tax expense increased 70% in 1996 to $985,000 as a result of
increased income before income taxes and an increase in AmSurg's effective
income tax rate to 40% from 36%. The increase in the effective income tax rate
resulted from the utilization of prior period net operating loss carryforwards
during 1995. The difference between the federal statutory income tax rate of 34%
and AmSurg's effective income tax rates was due primarily to the utilization of
prior period net operating loss carryforwards in 1995 and the impact of state
income taxes.
Fiscal Year Ended December 31, 1995 Compared to Fiscal Year Ended December 31,
1994
Revenues for 1995 were $22,489,000, an increase of $8,663,000, or 63%, over
1994. The increase in revenues resulted primarily from the growth in the number
of surgery centers in operation and from an increase of 9% in same-center
revenues at six centers in operation since January 1, 1994.
Salaries and benefits expense grew by $2,151,000, or 53%, while other
operating expenses grew by $2,472,000, or 49%, from 1994 to 1995. The increases
in salaries and benefits expense and in other operating expenses resulted
primarily from an increased number of centers in operation and from an increase
in corporate staff to support additional centers in operation and anticipated
future growth. Salaries and benefits expense and other operating expenses
represented in the aggregate approximately 61% of revenues in 1995 as compared
to approximately 66% of revenues in 1994 as a result of the margin contribution
of additional centers in operation.
Depreciation and amortization expense increased by $1,088,000, or 83%, for
1995 over 1994, due primarily to the acquisition of majority interests in
additional practice-based ambulatory surgery centers and from new start-up
centers placed in operation. The increase in interest expense from $193,000 in
1994 to $722,000 in 1995 was primarily attributable to debt assumed or incurred
in connection with additional acquisitions of interests in centers plus the
interest expense associated with newly opened start-up centers financed
partially with bank debt.
Minority partners' interest in center earnings for 1995 rose to $3,938,000
from $2,468,000 in 1994, an increase of 60%, primarily as a result of minority
partners' interest in earnings at surgery centers added to operations and from
increased same-center profitability.
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<PAGE> 44
Income tax expense increased to $578,000 in 1995 from $26,000 in 1994 as a
result of increased income before income taxes and an increase in AmSurg's
effective income tax rate to 36% from 4%. The increase in the effective income
tax rate resulted from the utilization of prior period net operating loss
carryforwards to eliminate federal income taxes for 1994 and to reduce federal
income taxes in 1995. The difference between the federal statutory income tax
rate of 34% and AmSurg's effective income tax rates in 1995 and 1994 was due
primarily to the utilization of prior period net operating loss carryforwards
and the impact of state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities for 1996 and the three month period ended March 31,
1997 generated $8,912,000 and $3,281,000, respectively, in cash flow. Investing
activities during 1996 used $16,395,000, including $12,670,000 used to acquire
interests in additional practice-based ambulatory surgery centers and the
interest in the Florida physician practice, and $3,863,000 to acquire property
and equipment for new start-up surgery centers and for new or replacement
property at existing centers. Investing activities during the three month period
ended March 31, 1997 used $7,969,000, including $6,031,000 used to acquire
interests in two additional surgery centers and an interest in the urology
physician practice, and $1,943,000 to acquire property and equipment for new
start-up surgery centers and for new or replacement property at existing
centers. Financing activities for 1996 provided $7,206,000 in cash flow,
primarily as a result of (i) net additions to long-term debt of $3,283,000, (ii)
minority partner capital contributions to AmSurg's partnerships and limited
liability companies of $1,681,000, (iii) $2,366,000 in cash proceeds from the
issuance of common stock, and (iv) net proceeds of $4,960,000 from the issuance
of preferred stock; these financing proceeds were partially offset by $5,084,000
in distributions to surgery center minority partners. Financing activities for
the three month period March 31, 1997 provided $3,949,000 in cash flow,
primarily as a result of (i) net additions to long-term debt of $5,351,000, (ii)
minority partner capital contributions to AmSurg's partnerships and limited
liability companies of $185,000 and (iii) $134,000 in cash proceeds from the
issuance of common stock; these financing proceeds were partially offset by
$1,720,000 in distributions to surgery center minority partners. At March 31,
1997, AmSurg had $4,671,000 in outstanding term loan borrowings under its
amended and restated bank credit agreement which is repayable through June 2000.
AmSurg also had outstanding borrowings of $8,134,000 under a related revolving
credit facility which was amended subsequent to March 31, 1997, and currently
provides up to $15,000,000 in available credit through April 1999 for
acquisition and development projects. Borrowings under the bank credit agreement
and related credit facility bear interest at a rate equal to the prime rate or
1.75% above LIBOR or a combination thereof at AmSurg's option, plus a .35% fee
for unused commitments. At March 31, 1997, AmSurg partnerships and limited
liability companies had unfunded construction and equipment purchase commitments
for centers under development of approximately $5,600,000.
On November 20, 1996, AmSurg issued shares of its Series A Preferred Stock
and Series B Preferred Stock to certain unaffiliated institutional investors for
cash proceeds of approximately $4,960,000, after payment of offering expenses.
The purpose of the offering was to fund the acquisition and development of
surgery centers and to provide other working capital as needed prior to being in
position to access capital markets as an independent public company following
the Distribution. The Series A Preferred Stock, with a liquidation value of
$3,000,000, will accrue dividends of 8% per annum on such liquidation value,
commencing on November 21, 1998. The Series A Preferred Stock is subject to
redemption at any time at the option of AmSurg and is subject to redemption at
the option of the holders on November 20, 2002 and upon the occurrence of
certain events, including a public offering yielding at least $20,000,000 in net
proceeds to AmSurg, and/or its stockholders (or $25,000,000 in net proceeds if
the Distribution does not occur) (a "Qualified IPO"). The Series A Preferred
Stock may also be converted into shares of Class A Common Stock at the option of
the holders following the Distribution or upon a Qualified IPO at the then
current market price of the Class A Common Stock. The Series B Preferred Stock
will be automatically converted into a number of shares of Class A Common Stock
that approximates 6% of the equity of AmSurg determined as of November 20, 1996,
with that percentage being ratably increased to 8% of the equity of AmSurg if a
triggering event has not occurred by November 20, 2000. If a Qualified IPO or
other triggering event does not occur by
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<PAGE> 45
November 20, 2002, the holders of the Series B Preferred Stock will have the
right to sell such stock to AmSurg at a formula price. See "DESCRIPTION OF
CAPITAL STOCK."
Historically AmSurg has depended on AHC for the majority of its equity
financing. A principal purpose of the Distribution is to permit AmSurg to have
access to public debt and equity capital markets as an independent public
company. Management believes that AmSurg will have access to such capital on
more favorable terms as an independent public company than it could have as a
majority-owned subsidiary of AHC, particularly in public equity markets. See
"THE DISTRIBUTION -- Background and Reasons for the Distribution." While AmSurg
anticipates that its operating activities will continue to provide cash flow and
increased revenues, AmSurg will require additional financing in order to fund
its development and acquisition plans and to achieve its long-term strategic
growth plans. This additional financing could take the form of a private or
public offering of debt or equity securities or additional bank financing. No
assurances can be given that the necessary financing will be obtainable on terms
satisfactory to AmSurg.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company will adopt Statement of Financial Accounting Standards No. 128
"Earnings Per Share" for the year ended December 31, 1997. This accounting
pronouncement requires the disclosure of basic and diluted earnings per share.
The Company believes that, upon adoption, diluted earnings (loss) per share will
approximate earnings (loss) per share as previously reported. Because the
concept of basic earnings per share does not include the impact of common stock
equivalents, such as preferred stock and stock options, basic earnings per share
will be higher than diluted earnings per share.
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<PAGE> 46
CAPITALIZATION OF AMSURG
The following table sets forth the capitalization of AmSurg as of March 31,
1997. This table should be read in conjunction with AmSurg's consolidated
financial statements and notes thereto included elsewhere herein. Information
with respect to AmSurg Preferred Stock and common stock has been adjusted to
give effect to the Recapitalization, Exchange and Distribution.
<TABLE>
<CAPTION>
AT MARCH 31, 1997
-------------------------
HISTORICAL PRO FORMA(1)
---------- ------------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt:
$12,000,000 credit agreement(2)........................... $ 8,134 $ 8,134
Term note................................................. 4,671 4,671
Other long-term debt...................................... 4,536 4,536
------- -------
Total debt........................................ 17,341 17,341
------- -------
Minority interest........................................... 6,418 6,418
Preferred stock, no par value, 5,000,000 shares authorized,
916,666 issued
Series A redeemable preferred stock, 500,000 shares
outstanding............................................ 1,842 1,842
Series B convertible preferred stock, 416,666 shares
outstanding............................................ 3,208 3,208
Stockholders' equity
Common stock, no par value, 40,000,000 shares authorized,
9,411,948 shares outstanding........................... 27,259 --
Class A common stock, no par value, 25,000,000 shares
authorized, 3,881,817 shares outstanding............... -- 11,630
Class B common stock, no par value, 5,540,000 shares
authorized, 5,530,131 shares outstanding............... -- 15,629
Retained earnings (deficit)............................... 417 (33)
------- -------
Total capitalization.............................. $56,485 $56,035
======= =======
</TABLE>
- ---------------
(1) Pro forma to give effect to the Recapitalization and Distribution.
(2) The credit agreement was amended subsequent to March 31, 1997 and currently
provides up to $15,000,000 in credit.
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<PAGE> 47
SELECTED FINANCIAL DATA OF AHC
The selected unaudited financial data of AHC set forth below reflects
certain adjustments to the previously reported historical consolidated financial
statements of AHC for each of the fiscal years in the five year period ended
August 31, 1996, and the six month periods ended February 29, 1996 and February
28, 1997 to present AmSurg as a discontinued operation.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED AND AT
FOR THE YEAR ENDED AND AT AUGUST 31, FEBRUARY 29/28
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Total revenues............. $37,112 $39,682 $41,144 $36,583 $31,403 $15,714 $15,332
------- ------- ------- ------- ------- ------- -------
Expenses:
Salaries and benefits............ 16,488 16,972 18,699 18,878 19,866 9,738 10,755
Other operating expenses......... 11,860 11,771 12,271 10,865 7,254 3,275 4,123
Depreciation and amortization.... 1,336 1,340 1,293 1,339 1,273 650 675
Interest......................... 12 8 6 7 5 3 2
------- ------- ------- ------- ------- ------- -------
Total expenses............. 29,696 30,091 32,269 31,089 28,398 13,666 15,555
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes
and discontinued operations...... 7,416 9,591 8,875 5,494 3,005 2,048 (223)
Income tax expense(1).............. 3,040 3,884 3,586 2,252 544 889 --
------- ------- ------- ------- ------- ------- -------
Income (loss) from continuing
operations....................... 4,376 5,707 5,289 3,242 2,461 1,159 (223)
Discontinued operations.......... -- (170) 38 674 799 346 492
------- ------- ------- ------- ------- ------- -------
Net income......................... $ 4,376 $ 5,537 $ 5,327 $ 3,916 $ 3,260 $ 1,505 $ 269
======= ======= ======= ======= ======= ======= =======
Income (loss) per share from
continuing operations(2)......... $ 0.52 $ 0.68 $ 0.63 $ 0.40 $ 0.30 $ 0.15 $ (0.03)
Income (loss) per share from
discontinued operations(2)....... -- (0.02) 0.00 0.08 0.10 0.04 0.06
------- ------- ------- ------- ------- ------- -------
Net income per share(2)............ $ 0.52 $ 0.66 $ 0.63 $ 0.48 $ 0.40 $ 0.19 $ 0.03
======= ======= ======= ======= ======= ======= =======
Weighted average common shares and
equivalents...................... 8,370 8,404 8,461 8,211 8,161 8,122 8,229
</TABLE>
<TABLE>
<CAPTION>
AS
ADJUSTED(3)
-----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......... $10,323 $ 9,016 $ 9,909 $11,076 $12,562 $11,665 $10,110 $10,110
Working capital.................... 11,961 12,772 11,972 11,089 13,324 12,709 11,652 11,102
Net assets of discontinued
operations....................... -- 5,354 11,475 14,695 16,361 15,293 17,560 --
Total assets....................... 32,203 36,848 43,354 45,863 48,414 46,883 48,618 32,624
Long-term liabilities.............. 1,665 1,892 2,138 2,146 2,608 2,576 2,025 2,025
Stockholders' equity............... 25,158 30,850 36,460 38,299 41,611 39,849 42,124 25,674
</TABLE>
- ---------------
(1) Includes nonrecurring income tax benefit in fourth quarter of fiscal 1996 of
$760,000 or $.09 per share.
(2) Per share information does not give effect to the increase in weighted
average number of shares outstanding that is expected to occur as a result
of the adjustment of AHC stock options in connection with the Distribution.
See "THE DISTRIBUTION -- Adjustments of AHC Stock Options; and -- Accounting
Treatment."
(3) Adjusted to give effect to the Distribution and estimated expenses of
$550,000 related thereto and estimated non-cash compensation expense of
$4,300,000 ($2,640,000 net of income taxes) that is expected to be
recognized as a result of the adjustment of AHC stock options in connection
with the Distribution. See "THE DISTRIBUTION -- Adjustments of AHC Stock
Options; and -- Accounting Treatment."
40
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BUSINESS OF AHC AFTER DISTRIBUTION
After the Distribution, AHC will no longer own any AmSurg Common Stock and
accordingly its principal business operations will be conducted through DTCA,
which is the leading provider of diabetes management services. The principal
source of revenues for DTCA historically have been its operating contracts for
hospital-based diabetes treatment centers. While during the last several fiscal
years, revenues from this business have been adversely affected by termination
and renegotiation of certain hospital contracts, AHC believes this business is
stabilizing and expects it to be a source of steady revenue for AHC.
During 1994 AHC began to implement a business strategy in DTCA to develop
comprehensive diabetes disease management products for a new customer group, the
managed care industry, and AHC believes that the substantial portion of its
future revenue growth will result from comprehensive healthcare management
contracts with managed care payors for their enrollees with diabetes. In
furtherance of this strategy, during the last two fiscal years, AHC has incurred
substantial expenditures associated with these comprehensive diabetes disease
management efforts.
AHC's growth strategy is primarily to develop new relationships directly
with payors and others who are ultimately responsible for the healthcare costs
of individuals with diabetes and to further develop its hospital-based diabetes
treatment center business. Pursuant to the strategy with payors, DTCA is
expected to provide management services designed to improve the quality of care
for individuals with diabetes while lowering the overall cost of care. DTCA fees
under these agreements with payors may take the form of shared savings of
overall diabetes enrolled healthcare costs, capitated payments to DTCA that
cover DTCA's services to enrollees but do not include responsibility for
enrolled healthcare claims or some combination of these arrangements. AHC
believes that its current position as the leading provider of diabetes treatment
services to hospitals and physicians will be an advantage in comparison with
other potential competitors or with the payors considering initiating such
services themselves, most of whom have no such actual diabetes treatment or
comprehensive diabetes population management experience.
Since January 1996, DTCA has entered into ten managed care contracts
primarily with Principal Healthcare, Inc. and Health Options, Inc., an HMO
subsidiary of Blue Cross Blue Shield of Florida. DTCA is in the process of
implementing its diabetes disease management products pursuant to these
agreements and through its implementation expects to produce cost savings which
will be shared by DTCA and the HMOs. While DTCA believes that these agreements
will provide substantial revenue and profit opportunities for DTCA over the five
year term of these agreements, it cannot accurately predict the amount or timing
of these revenues or profits or assure that any such revenue or profits will be
obtained. See "RISK FACTORS -- Risk Factors Regarding AHC After Distribution."
41
<PAGE> 49
BUSINESS OF AMSURG
AmSurg was formed in April 1992 for the purpose of developing, acquiring
and operating practice-based ambulatory surgery centers, in partnerships with
physician practice groups, throughout the United States. An AmSurg surgery
center is typically located adjacent to or in the immediate vicinity of the
specialty medical practice of a physician group partner's office. Each of the
surgery centers provides a narrow range of high volume, lower-risk surgical
procedures, generally in a single specialty, and has been designed with a cost
structure that enables AmSurg to charge fees which management believes are
generally less than those charged by hospitals and freestanding outpatient
surgery centers for similar services performed on an outpatient basis. As of
March 31, 1997, AmSurg owned a majority interest in 28 surgery centers in ten
states and the District of Columbia, operated another center pursuant to a
management agreement and owned a majority interest in two physician practice
groups. As of March 31, 1997, AmSurg also had 20 centers under development and
had executed letters of intent to acquire or develop four additional centers.
AmSurg is utilizing selected surgery centers as a base to develop start-up
specialty physician networks that are designed to serve large numbers of covered
lives and thus strengthen AmSurg's position in dealing with managed care
organizations. As of March 31, 1997, AmSurg had established three start-up
specialty physician networks, located in the south Florida market and in
Knoxville, Tennessee and Montgomery, Alabama.
AmSurg was organized as a Tennessee corporation in 1992. AmSurg's principal
executive offices are located at One Burton Hills Boulevard, Suite 350,
Nashville, Tennessee 37215, and its telephone number is 615-665-1283.
INDUSTRY OVERVIEW
In recent years, government programs, private insurance companies, managed
care organizations and self-insured employers have implemented various
cost-containment measures to limit the growth of healthcare expenditures. These
cost containment measures, together with technological advances, have resulted
in a significant shift in the delivery of healthcare services away from
traditional inpatient hospitals to more cost-effective alternate sites,
including ambulatory surgery centers.
Industry sources estimate that in 1995, outpatient surgical procedures
represented approximately 60% of all surgical procedures performed in the United
States. As of December 31, 1995, there were approximately 2,300 freestanding
ambulatory surgery centers in the U.S., of which approximately 130 were owned by
hospitals and approximately 505 were owned by corporate entities. The remaining
approximately 1,665 centers were independently owned, primarily by physicians.
Managed care organizations with significant numbers of covered lives are
seeking to direct large numbers of patients to high-quality, low-cost providers
and provider groups. In order to compete for the growing number of managed care
patients, hospitals, physicians and other providers, including alternate site
outpatient providers, are forming specialty physician networks and other
provider joint ventures.
AmSurg believes that the following factors have contributed to the growth
of ambulatory surgery:
Cost-Effective Alternative. Ambulatory surgery is generally less expensive
than hospital inpatient surgery. In addition, AmSurg believes that surgery
performed at a practice-based ambulatory surgery center is generally less
expensive than hospital-based ambulatory surgery for a number of reasons,
including lower facility development costs, more efficient staffing and space
utilization and a specialized operating environment focused on cost containment.
Interest in ambulatory surgery centers has grown as managed care organizations
have sought a cost-effective alternative to inpatient services.
Physician and Patient Preference. AmSurg believes that many physicians
prefer practice-based ambulatory surgery centers. AmSurg believes that such
centers enhance physicians' productivity by providing them with greater
scheduling flexibility, more consistent nurse staffing and faster turnaround
time between cases, allowing them to perform more surgeries in a defined period
of time. In contrast, hospitals and freestanding ambulatory surgery centers
generally serve a broader group of physicians, including those involved with
emergency procedures, resulting in postponed or delayed surgeries. Additionally,
many physicians choose to
42
<PAGE> 50
perform surgery in a practice-based ambulatory surgery center because their
patients prefer the simplified admissions and discharge procedures and the less
institutional atmosphere.
New Technology. New technology and advances in anesthesia, which have been
increasingly accepted by physicians, have significantly expanded the types of
surgical procedures that are being performed in ambulatory surgery centers.
Lasers, enhanced endoscopic techniques and fiber optics have reduced the trauma
and recovery time. Improved anesthesia has shortened recovery time by minimizing
post-operative side effects such as nausea and drowsiness, thereby avoiding, in
some cases, overnight hospitalization.
STRATEGY
AmSurg believes it is a leading provider of high-quality, lower-cost
outpatient surgery services to managed care payors through AmSurg's
practice-based ambulatory surgery centers. The key components of AmSurg's
strategy are:
Provide Lower-Risk, High Volume Ambulatory Surgery Services. AmSurg's
surgery centers currently focus on providing lower-risk surgical procedures in
five surgical subspecialties: gastroenterology, ophthalmology, orthopaedic
surgery, urology and otolaryngology. The AmSurg single specialty practice-based
surgery center is designed, built, equipped and staffed for the needs of a
single specialty, which AmSurg believes creates efficiencies in operations.
AmSurg believes that as a result, the single specialty surgery center is a lower
cost unit to build, equip and operate, is more convenient for the physician and
patient, and therefore is potentially more attractive to managed care payors
than hospital-based or freestanding multi-specialty centers. AmSurg believes
through the combination of a network of geographically dispersed physician
groups and ambulatory surgery centers in a specific market, it can establish a
high quality, cost efficient service delivery system for a specific individual
specialty that is attractive to managed care payors.
Develop and Acquire Practice-Based Ambulatory Surgery Centers. Although
AmSurg has historically grown primarily by acquisition of existing centers, it
anticipates that its future growth in the surgery center business will come
increasingly from development of new practice-based ambulatory surgery centers.
In order to continue the acquisition and development of ambulatory surgery
centers, AmSurg will require additional capital resources in the form of debt or
equity financing. See "MANAGEMENT'S DISCUSSION AND ANALYSIS -- Liquidity and
Capital Resources."
Develop Specialty Networks. Utilizing single specialty ambulatory surgery
centers to provide a cost advantage, AmSurg's strategy has evolved to include
the development and ownership of specialty physician networks which will offer
specialty physician services, as well as outpatient surgery procedures with wide
geographic coverage to managed care payors. The specialty networks will be
developed to provide broad geographic patient access points in the market
through the network participation of high quality and strategically located
practices, some of which may be acquired or managed by AmSurg.
AmSurg has acquired two physician practices, a urology specialty group and
a gastrointestinal and primary care specialty group, in Miami, Florida, one of
which is a partner with AmSurg in a practice-based ambulatory surgery center.
The other physician practice is developing an ambulatory center with AmSurg.
AmSurg has established and is the majority owner of three start-up specialty
physician networks. By establishing these networks, AmSurg believes it will be
able to obtain additional contracts with managed care payors and increase the
profitability of its surgery centers and associated physician practices.
ACQUISITION AND DEVELOPMENT OF SURGERY CENTERS
Practice-based ambulatory surgery centers are licensed outpatient surgery
centers generally equipped and staffed for a single medical specialty and are
generally located in or adjacent to a physician group practice. AmSurg has
targeted ownership in centers that perform gastrointestinal endoscopy,
ophthalmology, urology, orthopaedics or otolaryngology procedures. These
specialties perform many high volume, lower-risk procedures that are appropriate
for the practice-based setting. The focus at each center on only the procedures
in a single specialty results in these centers generally having significantly
lower capital and operating costs than the costs of hospital and freestanding
ambulatory surgery center alternatives that are designed to provide more
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intensive services in a broader array of surgical specialties. In addition, the
practice-based surgery center, which is located in or adjacent to the group
practice, provides a more convenient setting for the patient and for the
physician performing the procedure. Improvements in technology are also enabling
additional types of procedures to be performed in the practice-based setting.
The AmSurg development staff identifies existing centers that are potential
acquisition candidates and identifies physician practices that are potential
partners for new center development in the medical specialties which AmSurg has
targeted for development. These candidates are then evaluated against AmSurg's
project criteria which include several factors such as number of procedures
currently being performed by the practice, competition from and the fees being
charged by other surgical providers, relative competitive market position of the
physician practice under consideration, and state certificate of need ("CON")
requirements for development of a new center.
In presenting the advantages to physicians of developing a new
practice-based ambulatory surgery center in partnership with AmSurg, the AmSurg
development staff emphasizes the proximity of a practice-based surgery center to
a physician's office, the simplified administrative procedures, the ability to
schedule consecutive cases without preemption by inpatient or emergency
procedures, the rapid turnaround time between cases, the high technical
competency of the center's clinical staff that performs only a limited number of
specialized procedures, and state-of-the-art surgical equipment. AmSurg also
focuses on its expertise in developing and operating centers. In addition, as
part of AmSurg's role as the general partner or manager of the partnerships and
limited liability companies, AmSurg markets the centers to third party payors.
In a development project, AmSurg, among other things, provides the
following services:
- Financial feasibility pro forma analysis;
- Assistance in state CON approval process;
- Site selection;
- Assistance in space analysis and schematic floor plan design;
- Analysis of local, state, and federal building codes;
- Negotiation of equipment financing with lenders;
- Equipment budgeting, specification, bidding, and purchasing;
- Construction financing;
- Architectural oversight;
- Contractor bidding;
- Construction management; and
- Assistance with licensing, Medicare certification and third party payor
contracts.
AmSurg's ownership interests in practice-based ambulatory surgery centers
generally are structured through limited and general partnerships or limited
liability companies. AmSurg generally owns 51% to 70% of the partnerships or
limited liability companies and acts as the general partner in each limited
partnership. In development transactions, capital contributed by the physicians
and AmSurg plus bank financing provides the partnership or limited liability
company with the funds necessary to construct and equip a new surgery center and
to provide initial working capital.
As part of each development and acquisition transaction, AmSurg enters into
a partnership agreement or, in the case of a limited liability company, an
operating agreement with its physician group partner. Under these agreements,
AmSurg receives a percentage of the net income and cash distributions of the
entity equal to its percentage interest in the entity and has the right to the
same percentage of the proceeds of a sale or liquidation of the entity. As sole
general partner, AmSurg is generally liable for the debts of the partnership.
These agreements generally provide that AmSurg will oversee the business
and administrative operations of the surgery center, and that the physician
group partner will provide the center with a medical director, and with certain
specified services such as billing and collections, transcription, and accounts
payable processing. In connection with AmSurg's management of the business
operations at each center, AmSurg historically received a management fee paid by
the partnership or limited liability company. The partnership or limited
liability company also paid a physician group partner a medical director fee and
a fee for providing certain
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administrative services to the center. Because the management fee usually
approximates the value of services provided to the center by the physician
practice, on an ongoing basis, AmSurg has structured its agreements so that
AmSurg generally no longer provides for any of such fees in its partnerships or
limited liability companies and instead the respective parties are required to
provide the services pursuant to the terms of the partnership or operating
agreement. For start-up centers that are being developed, a fee is generally
paid by the partnership or limited liability company to AmSurg for management of
the planning, construction and opening of the center.
In addition, these agreements typically provide that the limited
partnership or limited liability company will lease certain non-physician
personnel from the physician practice, who will provide services at the center.
The cost of the salary and benefits of these personnel are reimbursed to the
practice by the limited partnership or limited liability company. Certain
significant aspects of the limited partnership's or limited liability company's
governance are overseen by an operating board, which is comprised of equal
representation by AmSurg and the physician partners. See Note 8 of the Notes to
the Consolidated Financial Statements of AmSurg for a discussion of AmSurg's
funding obligations under the partnership and operating agreements.
The partnership and operating agreements provide that under certain
circumstances AmSurg will be obligated to purchase some or all of the minority
interests of the physicians affiliated with AmSurg in the partnerships or
limited liability companies which own and operate AmSurg's surgery centers. The
regulatory changes that could trigger such an obligation include changes that:
(i) make the referral of Medicare and other patients to AmSurg's surgery centers
by physicians affiliated with AmSurg illegal; (ii) create the substantial
likelihood that cash distributions from the partnership or limited liability
company to the physicians associated therewith will be illegal; or (iii) cause
the ownership by the physicians of interests in the partnerships or limited
liability companies to be illegal. There can be no assurance that AmSurg's
existing capital resources would be sufficient for it to meet the obligation, if
it arises, to purchase minority interests held by physicians in the partnerships
or limited liability companies which own and operate AmSurg's surgery centers.
The determination of whether a triggering event has occurred is made by the
concurrence of counsel for AmSurg and the physician partners or, in the absence
of such concurrence, by independent counsel having an expertise in healthcare
law and who is chosen by both parties. Determination is therefore not within the
control of AmSurg. While AmSurg has structured the repurchase obligations to be
as favorable as possible to AmSurg, the triggering of these obligations could
have a material adverse effect on the financial condition and results of
operations of AmSurg. See "-- Government Regulation."
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SURGERY CENTER LOCATIONS
AmSurg partnerships and limited liability companies lease certain of the
real property in which its centers operate and the equipment used in certain of
its centers, either from the physician partners or from an unaffiliated party.
The following table sets forth certain information relating to centers in
operation as of March 31, 1997:
<TABLE>
<CAPTION>
YEAR
OR DATE OPERATING OR AMSURG
ORIGINALLY ACQUISITION PROCEDURE OWNERSHIP
LOCATION SPECIALTY PRACTICE OPENED DATE ROOMS PERCENTAGE
-------- ------------------ ---------- ----------- --------------- ----------
<S> <C> <C> <C> <C> <C>
ACQUIRED CENTERS
Knoxville, Tennessee.......... Gastroenterology 1987 Nov. 1992 7 51%
Topeka, Kansas................ Gastroenterology 1990 Nov. 1992 4 60
Nashville, Tennessee.......... Gastroenterology 1989 Nov. 1992 3 60
Nashville, Tennessee.......... Gastroenterology 1988 Dec. 1992 3 60
Washington, D.C............... Gastroenterology 1990 Nov. 1993 3 60
Melbourne, Florida............ Ophthalmology 1986 Nov. 1993 3 51
Torrance, California.......... Gastroenterology 1990 Feb. 1994 2 51
Sebastopol, California........ Ophthalmology 1988 Apr. 1994 2 60
Fort Myers, Florida........... Gastroenterology 1990 Oct. 1994 1 60
Maryville, Tennessee.......... Gastroenterology 1992 Jan. 1995 3 51
Miami, Florida................ Gastroenterology 1995 April 1995 7 70
Panama City, Florida.......... Gastroenterology 1993 July 1996 3 51
Ocala, Florida................ Gastroenterology 1993 Aug. 1996 3 51
Columbia, South Carolina...... Gastroenterology 1988 Oct. 1996 3 51
Wichita, Kansas............... Orthopaedics 1991 Nov. 1996 3 51
Minneapolis, Minnesota........ Gastroenterology 1993 Nov. 1996 2 51
Crystal River, Florida........ Gastroenterology 1994 Jan. 1997 3 51
Abilene, Texas................ Ophthalmology 1987 Mar. 1997 2 51
DEVELOPED CENTERS
Santa Fe, New Mexico.......... Gastroenterology May 1994 -- 3 60
Tarzana, California........... Gastroenterology July 1994 -- 3 51
Jackson, Tennessee............ Gastroenterology Sept. 1994 -- 6 --(1)
Beaumont, Texas............... Gastroenterology Oct. 1994 -- 3 51
Abilene, Texas................ Gastroenterology Dec. 1994 -- 3 60
Cape Coral, Florida........... Gastroenterology Jan. 1995 -- 2 60
Melbourne, Florida............ Otolaryngology March 1995 -- 2 51
Knoxville, Tennessee.......... Ophthalmology June 1996 -- 2 60
West Monroe, Louisiana........ Gastroenterology June 1996 -- 2 51
Miami, Florida................ Gastroenterology Sept. 1996 -- 3 60
Sidney, Ohio.................. Ophthalmology Dec. 1996 -- 3 51
Urology
General Surgery
Otolaryngology
</TABLE>
- ---------------
(1) This center is currently being operated by AmSurg pursuant to a management
agreement and is not consolidated by AmSurg. AmSurg has an option to
purchase 51% of this center.
SURGERY CENTER OPERATIONS
Each AmSurg facility is generally designed, built, staffed and equipped to
meet the specific needs of a single specialty physician practice group. AmSurg's
typical ambulatory surgery center averages 3,000 square feet and is located
adjacent to or in the immediate vicinity of the specialty physicians' offices.
Each center developed by AmSurg typically has two to four operating or procedure
rooms with areas for reception, preparation, recovery and administration. Each
surgery center is developed to perform an average of 2,500 procedures per year.
As of March 31, 1997, 22 of the AmSurg centers in operation performed
gastrointestinal
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endoscopy procedures, four centers performed ophthalmology procedures, one
center performed orthopaedic procedures, one center performed otolaryngology
procedures, and one center performed ophthalmology, urology, general surgery and
otolaryngology procedures. The procedures performed at the AmSurg centers
generally do not require an extended recovery period following the procedures.
AmSurg centers are typically staffed with three to five clinical professionals
and administrative personnel who are shared with the physician practice group.
The clinical staff includes nurses and surgical technicians.
The types of procedures performed at each center depend on the specialty of
the practicing physicians. The typical procedures performed or to be performed
most commonly at AmSurg centers in operation or under development within each
specialty are:
- Gastroenterology -- colonoscopy and endoscopy procedures
- Ophthalmology -- cataracts and retinal laser surgery
- Orthopaedics -- knee arthroscopy and carpal tunnel repair
- Urology -- cystoscopy and biopsy
- Otolaryngology -- myringotomy and tonsillectomy
AmSurg markets its surgery centers and networks directly to third-party
payors, including HMOs, PPOs, other managed care organizations and employers.
Payor-group marketing activities conducted by AmSurg's management and center
administrators emphasize the high quality of care, cost advantages and
convenience of AmSurg's surgery centers and are focused on making each center an
approved provider under local managed care plans. In addition, AmSurg is
pursuing relationships with selected physician groups in its markets in order to
market a comprehensive specialty physician network that includes its surgery
centers to managed care payors.
SPECIALTY PHYSICIAN NETWORKS AND PRACTICES
Provider networks are primarily oriented to local markets. Physician groups
may be members of several networks in a locale. Most networks are either
multi-specialty or primary care based. AmSurg believes that its single specialty
networks, designed around the ambulatory surgery centers and designed to match
the membership base geography of the managed care payors, will be a more
competitive model than networks that do not have those advantages. AmSurg also
has the advantage of being introduced to prospective network members by its
existing practice partners who have already had a positive experience working
with AmSurg in joint ownership of the surgery centers. Pursuant to agreements
with the network, the physicians in these networks also will have the
opportunity to perform their surgical procedures in AmSurg's surgery centers or
develop additional centers with AmSurg as needed. Following the establishment of
a network, AmSurg will provide management services and marketing services to the
network to secure patient service contracts with managed care payors. Fees paid
by these networks to AmSurg are nominal and generally are intended to cover
AmSurg's cost in providing such services.
AmSurg further believes that the specialty physician network development
will expand services available to managed care organizations. AmSurg believes
that the specialty physician networks with practice-based surgery centers are
attractive to managed care organizations because of the geographic coverage of
the network, the lower costs associated with treatment, the availability of the
complete delivery system for a specific specialty and high levels of patient
satisfaction. As a result, AmSurg believes the development of such networks will
capture an increased volume of managed care contracts, including capitated
contracts, and will increase the market share and profitability of the practices
and the AmSurg surgery centers.
It is not expected that the specialty physician networks in themselves will
be a significant source of income for AmSurg. These networks were and will be
formed primarily as a contracting vehicle to generate revenues for AmSurg's
practice-based surgery centers and physician practices.
As of March 31, 1997, AmSurg had established and was the majority owner and
operator of three start-up specialty physician networks. These networks have not
yet generated any revenues. Each specialty physician network is formed as either
a limited partnership or limited liability company in which AmSurg
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owns a majority interest. Individual physicians who practice in the medical
specialty on which the network is focused own the minority interests in the
network. These minority physician owners, who may or may not be affiliated with
an AmSurg surgery center or physician practice, will provide the medical
services to the patient population covered by the contracts the network will
enter into with managed care payors.
As part of its network development strategy, in January 1996 AmSurg
acquired, a 70% ownership interest in the assets of Gastroenterology Group of
South Florida ("GGSF") in Miami, Florida, a gastroenterology and primary care
practice currently comprised of seven gastroenterologists and five primary care
physicians that provides gastroenterology physician and outpatient endoscopy
services under a contract with a large managed care payor which covers
approximately 120,000 lives. AmSurg and certain GGSF physicians have been
partners in a practice-based endoscopy center that provides outpatient endoscopy
services to this base of covered lives and to other patients. Using GGSF as a
base, AmSurg has developed a gastroenterology physician network in south Florida
and expects to add additional surgery centers and covered lives as a result of
this expansion. In addition, AmSurg has established two ophthalmology/eye care
networks located in Knoxville, Tennessee and Montgomery, Alabama.
Also as part of its network development strategy, in January 1997 AmSurg
acquired a 60% ownership interest in the assets of Miami Urological Associates,
a urology practice comprised of three urologists and seven additional contract
physicians in Miami, Florida. The practice has contracts with two managed care
payors to provide physician and certain outpatient procedures for approximately
170,000 covered lives. AmSurg and Miami Urological Associates have entered into
a partnership to develop an ambulatory surgery center for the urology practice.
REVENUES
AmSurg's principal source of revenues is a facility fee charged for
surgical procedures performed in its surgery centers. This fee varies depending
on the procedure, but usually includes all charges for operating room usage,
special equipment usage, supplies, recovery room usage, nursing staff and
medications. Facility fees do not include the charges of the patient's surgeon,
anesthesiologist or other attending physicians, which are billed directly to
third-party payors by such physicians. AmSurg's other significant source of
revenues is the fees for physician services performed by the two physician group
practices in which AmSurg owns a majority interest.
Practice-based ambulatory surgery centers and physician practices such as
those in which AmSurg owns a majority interest depend upon third-party
reimbursement programs, including governmental and private insurance programs,
to pay for services rendered to patients. AmSurg derived approximately 36% of
its net revenues from governmental healthcare programs including Medicare and
Medicaid in 1996. The Medicare program presently pays ambulatory surgery centers
and physicians in accordance with fee schedules which are prospectively
determined. There may be continuing legislative and regulatory initiatives to
limit the rate of increase in expenditures under the Medicare and Medicaid
programs in an effort to curtail or reduce the federal budget deficit. These
limitations, if enacted, may negatively impact AmSurg's revenues and operations.
In addition to payment from governmental programs, ambulatory surgery
centers derive a significant portion of their net revenues from private
healthcare reimbursement plans. These plans include both standard indemnity
insurance programs as well as managed care structures such as PPOs, HMOs and
other similar structures. The strengthening of managed care systems nationally
has resulted in substantial competition among providers of services, including
providers of surgery center services with greater financial resources and market
penetration than AmSurg, to contract with these systems. AmSurg believes that
all payors, both governmental and private, will continue their efforts over the
next several years to reduce healthcare costs and that their efforts will
generally result in a less stable market for healthcare services. While no
assurances can be given concerning the ultimate success of AmSurg's efforts to
contract with healthcare payors, AmSurg believes that AmSurg's position as a
low-cost alternative for certain surgical procedures should enable AmSurg
centers to compete effectively in the evolving healthcare marketplace.
Approximately 10% of AmSurg's revenues for 1996 were generated by capitated
payment contracts with HMOs. These revenues were attributable to contracts held
by a physician practice in which AmSurg holds a
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majority interest. In addition, the physician practice in which AmSurg acquired
a majority interest in January 1997, had capitated payment contracts which are
expected to generate approximately $2.2 million in annual revenues during 1997.
These contracts require the practices to provide specialty physician and certain
outpatient surgery services for the HMO members on an exclusive basis. These
contracts do not require the practices to provide or to be at risk for hospital
or other ancillary services such as lab or imaging. The services required by
these contracts are provided almost solely by surgery centers and the physician
practices in which AmSurg owns a majority interest. Because AmSurg is only at
risk for the cost of providing relatively limited healthcare services to these
HMO members, AmSurg's risk of overutilization by HMO members is limited to the
cost of the physician's time and the supply, drug and nursing staff expense
required for outpatient surgery.
COMPETITION
AmSurg encounters competition in two separate areas: competition with other
companies for its physician partnership relationships, and competition with
other providers for patients and for contracting with managed care payors in
each of its markets.
Competition for Partnership Relationships. AmSurg believes that it does
not have a direct competitor in the development of practice-based ambulatory
surgery centers across the specialties of gastroenterology, ophthalmology,
otolaryngology, urology, and orthopaedic surgery. There are, however, several
large, publicly held companies, or divisions or subsidiaries of large publicly
held companies, that develop freestanding multi-specialty surgery centers, and
these companies may compete with AmSurg in the development of centers.
Many physician groups develop surgery centers without a corporate partner.
It is generally difficult, however, in the rapidly evolving healthcare industry,
for a single practice to create effectively the efficient operations and
marketing programs necessary to compete with other provider networks and
companies. Because of this, as well as the financial investment necessary to
develop surgery centers, physician groups are attracted to corporate partners,
such as AmSurg. Other factors that may influence the physicians' decisions
concerning the choice of a corporate partner are the potential corporate
partner's experience, reputation and access to capital.
There are several companies, many in niche markets, that acquire existing
practice-based ambulatory surgery centers and specialty physician practices.
Many of these competitors have greater resources than AmSurg. Most of AmSurg's
competitors acquire centers through the acquisition of the related physician
practice. The principal competitive factors that affect the ability of AmSurg
and its competitors to acquire surgery centers are price, experience and
reputation, access to capital and willingness to acquire a surgery center
without acquiring the physician practice.
Most networks are either multi-specialty or primary care based. There are a
few national networking companies that specialize in the establishment and
operation of networks. The primary competitive factors AmSurg experiences in the
development of specialty networks include the attraction of physician practice
groups to the network, market penetration and geographic coverage.
Competition for Patients and Managed Care Contracts. AmSurg believes that
its surgery centers can provide lower-cost, high quality surgery in a more
comfortable environment for the patient in comparison to hospitals and to
freestanding surgery centers with which AmSurg competes for managed care
contracts. In addition, the existence of the AmSurg specialty physician networks
provide the geographic access that managed care companies desire. Competition
for managed care contracts with other providers is focused on pricing of
services, quality of services, and affiliation with key physician groups in a
particular market.
GOVERNMENT REGULATION
The healthcare industry is subject to extensive regulation by a number of
governmental entities at the federal, state and local level. Regulatory
activities affect the business activities of AmSurg, by controlling AmSurg's
growth, requiring licensure and certification for its facilities, regulating the
use of AmSurg's properties, and controlling reimbursement to AmSurg for the
services AmSurg provides.
CONs and State Licensing. CON regulations control the development of
ambulatory surgery centers in certain states. CONs generally provide that prior
to the expansion of existing centers, the construction of new centers, the
acquisition of major items of equipment or the introduction of certain new
services, approval must be obtained from the designated state health planning
agency. State CON statutes generally provide that,
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<PAGE> 57
prior to the construction of new facilities or the introduction of new services,
a designated state health planning agency must determine that a need exists for
those facilities or services. AmSurg's development of ambulatory surgery centers
generally focuses on states that do not require CONs. However, acquisitions of
existing surgery centers, even in states that require CONs for new centers,
generally do not require CON regulatory approval.
State licensing of ambulatory surgery centers is generally a prerequisite
to the operation of each center and to participation in federally funded
programs, such as Medicare and Medicaid. Once a center becomes licensed and
operational, it must continue to comply with federal, state and local licensing
and certification requirements in addition to local building and life safety
codes. In addition, every state imposes licensing requirements on individual
physicians, and facilities and services operated and owned by physicians.
Physician practices are also subject to federal, state and local laws dealing
with issues such as occupational safety, employment, medical leave, insurance
regulations, civil rights and discrimination, and medical waste and other
environmental issues.
Corporate Practice of Medicine. AmSurg is not required to obtain a license
to practice medicine in any jurisdiction in which it owns and operates an
ambulatory surgery center, because the surgery centers are not engaged in the
practice of medicine. The physicians are licensed to practice medicine through
their group practices, which with the exception of the two physician practices
majority owned by AmSurg, are not affiliated with AmSurg other than through the
physicians' ownership in the partnerships and limited liability companies that
own the surgery centers. AmSurg owns a majority interest in two group practices
in Florida, a state which permits physicians to practice medicine through an
entity that is not wholly owned by physicians. All third party payor contracts
are in the name of the group practice entities in which AmSurg owns a majority
interest. The physicians associated with these group practices provide medical
services to the patients of the practice entities and are compensated for these
services pursuant to either an employment contract or an independent contractor
arrangement with the practice entity. AmSurg's operations do not require AmSurg
to otherwise obtain any license to practice medicine in any other jurisdiction.
Insurance Laws. Laws in all states regulate the business of insurance and
the operation of HMOs. Many states also regulate the establishment and operation
of networks of healthcare providers. AmSurg believes that its operations are in
compliance with these laws in the states in which it currently does business.
The National Association of Insurance Commissioners ("NAIC") recently endorsed a
policy proposing the state regulation of risk assumption by healthcare
providers. The policy proposes prohibiting providers from entering into
capitated payment or other risk sharing contracts except through HMOs or
insurance companies. Several states have adopted regulations implementing the
NAIC policy in some form. In states where such regulations have been adopted
practices affiliated with AmSurg will be precluded from entering into capitated
contracts directly with employers, individuals and benefit plans unless they
qualify to do business as HMOs or insurance companies.
AmSurg and its affiliated groups may in the future enter into contracts
with managed care organizations, such as HMOs, whereby AmSurg and its affiliated
groups would assume risk in connection with providing healthcare services under
capitation arrangements. If AmSurg or its affiliated groups are considered to be
in the business of insurance as a result of entering into such risk sharing
arrangements, they could become subject to a variety of regulatory and licensing
requirements applicable to insurance companies or HMOs, which could have a
material adverse effect upon AmSurg.
Reimbursement. AmSurg depends upon third-party programs, including
governmental and private health insurance programs, to reimburse it for services
rendered to patients in its ambulatory surgery centers. In order to receive
Medicare reimbursement, each ambulatory surgery center must meet the applicable
conditions of participation set forth by the Department of Health and Human
Services ("DHHS") relating to the type of facility, its equipment, personnel and
standard of medical care, as well as compliance with state and local laws and
regulations, all of which are subject to change from time to time. Ambulatory
surgery centers undergo periodic on-site Medicare certification surveys. Each of
the existing AmSurg centers is certified as a Medicare provider. Although AmSurg
intends for its centers to participate in Medicare and other government
reimbursement programs, there can be no assurance that these centers will
continue to qualify for participation.
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Medicare-Medicaid Illegal Remuneration Provisions. The anti-kickback
statute makes unlawful knowingly and willfully soliciting, receiving, offering
or paying any remuneration (including any kickback, bribe, or rebate) directly
or indirectly to induce or in return for referring an individual to a person for
the furnishing or arranging for the furnishing of any item or service for which
payment may be made in whole or in part under Medicare or Medicaid. Violation is
a felony punishable by a fine of up to $25,000 or imprisonment for up to five
years, or both. The Medicare and Medicaid Patient Program Protection Act of 1987
(the "1987 Act") provides administrative penalties for healthcare practices
which encourage overutilization or illegal remuneration when the costs of
services are reimbursed under the Medicare program. Loss of Medicare
certification and severe financial penalties are included among the 1987 Act's
sanctions. The 1987 Act, which adds to the criminal penalties under preexisting
law, also directs the Inspector General of the DHHS to investigate practices
which may constitute overutilization, including investments by healthcare
providers in medical diagnostic facilities, and to promulgate regulations
establishing exemptions or "safe harbors" for investments by medical service
providers in legitimate business ventures that will be deemed not to violate the
law even though those providers may also refer patients to such a venture.
Regulations identifying safe harbors were published in final form in July 1991
(the "Regulations").
The Regulations set forth two specific exemptions or "safe harbors" related
to "investment interests": the first concerning investment interests in large
publicly traded companies ($50,000,000 in net tangible assets) and the second
for investments in smaller entities. The partnerships and limited liability
companies that own the AmSurg centers do not meet all of the criteria of either
existing "investment interests" safe harbor as announced in the Regulations.
While several federal court decisions have aggressively applied the
restrictions of the anti-kickback statute, they provide little guidance as to
the application of the anti-kickback statute to AmSurg's partnerships and
limited liability companies. AmSurg believes that it is in compliance with the
current requirements of applicable federal and state law because among other
factors:
i. the partnerships and limited liability companies exist to effect
legitimate business purposes, including the ownership, operation and
continued improvement of quality, cost effective and efficient services to
their patients;
ii. the partnerships and limited liability companies function as an
extension of the group practices of physicians who are affiliated with the
surgery centers and the surgical procedures are performed personally by
these physicians without referring the patients outside of their practice;
iii. the physician partners have a substantial investment at risk in
the partnership or limited liability company;
iv. terms of the investment do not take into account volume of the
physician partner's past or anticipated future services provided to
patients of the centers;
v. the physician partners are not required or encouraged as a
condition of the investment to treat Medicare or Medicaid patients at the
centers or to influence others to refer such patients to the centers for
treatment;
vi. neither the partnership, limited liability company, the AmSurg
subsidiary, nor any of their affiliates will loan any funds or guarantee
any debt on behalf of the physician partners; and
vii. distributions are allocated uniformly by and among all partners
in proportion to their ownership interests.
Notwithstanding AmSurg's belief that the relationship of physician partners
to the AmSurg surgery centers should not constitute illegal remuneration under
the anti-kickback statute, no assurances can be given that a federal or state
agency charged with enforcement of the anti-kickback statute and similar laws
might not assert a contrary position or that new federal or state laws might not
be enacted that would cause the physician partners' ownership interest in the
AmSurg centers to become illegal, or result in the imposition of penalties on
AmSurg or certain of its facilities. Even the assertion of a violation could
have a material adverse
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<PAGE> 59
effect upon AmSurg. See "RISK FACTORS -- Medicare-Medicaid Illegal Remuneration
("anti-kickback") Laws."
Prohibition on Physician Ownership of Healthcare Facilities. The so-called
"Stark II" provisions of the Omnibus Budget Reconciliation Act of 1993 ("OBRA
93") amend the federal Medicare statute to prohibit the making by a physician of
referrals for "designated health services" to an entity in which the physician
has an investment interest or other financial relationship, subject to certain
exceptions. A referral under Stark II that does not fall within an exception is
strictly prohibited. This prohibition took effect on January 1, 1995. Sanctions
for violating Stark II can include civil monetary penalties and exclusion from
Medicare and Medicaid.
Ambulatory surgery is not identified as a "designated health service", and
AmSurg, therefore, does not believe that ambulatory surgery is otherwise subject
to the restrictions set forth in Stark II. However, unfavorable regulations yet
to be promulgated pursuant to Stark II or subsequent adverse court
interpretations concerning similar provisions found in recently enacted state
statutes could prohibit reimbursement for treatment provided by the physicians
affiliated with the AmSurg centers to their patients. AmSurg cannot predict
whether other regulatory or statutory provisions will be enacted by federal or
state authorities which would prohibit or otherwise regulate relationships which
AmSurg has established or may establish with other healthcare providers or the
possibility of material adverse effects on its business or revenues arising from
such future actions. AmSurg management believes, however, that AmSurg will be
able to adjust its operations so as to be in compliance with any regulatory or
statutory provision, as may be applicable.
AmSurg is subject to state and federal laws that govern the submission of
claims for reimbursement. These laws generally prohibit an individual or entity
from knowingly and willfully presenting a claim (or causing a claim to be
presented) for payment from Medicare, Medicaid or other third party payors that
is false or fraudulent. The standard for "knowing and willful" often includes
conduct that amounts to a reckless disregard for whether accurate information is
presented by claims processors. Penalties under these statutes include
substantial civil and criminal fines, exclusion from the Medicare program, and
imprisonment. One of the most prominent of these laws is the federal False
Claims Act, which may be enforced by the federal government directly, or by a
qui tam plaintiff on the government's behalf. Under the False Claims Act, both
the government and the private plaintiff, if successful, are permitted to
recover substantial monetary penalties, as well as an amount equal to three
times actual damages. In recent cases, some qui tam plaintiffs have taken the
position that violations of the anti-kickback statute and Stark II should also
be prosecuted as violations of the federal False Claims Act. AmSurg believes
that it has procedures in place to ensure the accurate completion of claims
forms and requests for payment.
Under its agreements with its physician partners, AmSurg is obligated to
purchase the interests of the physicians in the event that their continued
ownership of interests in the partnerships and limited liability companies
becomes prohibited by the statutes or regulations described above. The
determination of such a prohibition is required to be made by counsel of AmSurg
in concurrence with counsel of the physician partners, or if they cannot concur,
by a nationally recognized law firm with an expertise in healthcare law jointly
selected by AmSurg and the physician partners. The interest required to be
purchased by AmSurg will not exceed the minimum interest required as a result of
the change in the statute or regulation causing such prohibition. See "RISK
FACTORS -- Relationships with Physician Partners."
PROPERTIES
AmSurg's principal executive offices are located in Nashville, Tennessee
and contain an aggregate of approximately 15,000 square feet of office space,
which AmSurg subleases from AHC pursuant to an agreement that expires in
December 1999. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -- Lease
Arrangement." AmSurg partnerships and limited liability companies generally
lease space for their surgery centers. Twenty-six of the centers and the
physician practices in operation at March 31, 1997 lease space ranging from
1,200 to 7,800 square feet with remaining lease terms ranging from two to
eighteen years. Three centers in operation at March 31, 1997 are located in
buildings owned directly or indirectly by AmSurg.
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<PAGE> 60
EMPLOYEES
As of March 31, 1997, AmSurg and its affiliated entities employed 178
persons, 154 of whom were full-time employees and 24 of whom were part-time
employees. Of the above, 44 were employed at AmSurg's headquarters in Nashville,
Tennessee. In addition, approximately 108 employees are leased on a part-time
basis and 152 are leased on a full-time basis from the associated physician
practices. None of these employees is represented by a union. AmSurg believes
its relationship with its employees to be excellent.
LEGAL PROCEEDINGS AND INSURANCE
From time to time, AmSurg may be named a party to legal claims and
proceedings in the ordinary course of business. Management is not aware of any
claims or proceedings against it or its partnerships that might have a material
financial impact on AmSurg.
Each of AmSurg's surgery centers and physician practices maintains separate
medical malpractice insurance in amounts it deems adequate for its business.
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<PAGE> 61
MANAGEMENT OF AMSURG
DIRECTORS AND EXECUTIVE OFFICERS
Certain information with respect to the directors and executive officers of
AmSurg following the Distribution is set forth below. Following the
Distribution, the Board of Directors will be composed of seven persons who will
be divided into three classes, designated Class I, Class II and Class III. Each
class shall consist, as nearly as possible, of one-third of the total number of
directors constituting the entire Board of Directors. Each class of directors
shall be elected for a three-year term, except that the initial term will be for
one year in the case of the Class I directors and two years in the case of the
Class II directors. All executive officers are elected by the Board of Directors
and serve until their successors are duly elected by the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH AMSURG
- ---- --- --------------------
<S> <C> <C>
Ken P. McDonald................................. 56 President, Chief Executive Officer and
Director (Class II director with term
expiring in 1999)
Claire M. Gulmi................................. 43 Senior Vice President, Chief Financial
Officer and Secretary
Royce D. Harrell................................ 50 Senior Vice President, Operations, and
Assistant Secretary
Rodney H. Lunn.................................. 46 Senior Vice President, Center Development
David L. Manning................................ 46 Senior Vice President, Development
Thomas G. Cigarran.............................. 54 Chairman of the Board (Class III director
with term expiring in 2000)
James A. Deal................................... 46 Director (Class I director with term
expiring in 1998)
Steven I. Geringer.............................. 51 Director (Class I director with term
expiring in 1998)
Debora A. Guthrie............................... 41 Director (Class III director with term
expiring in 2000)
Henry D. Herr................................... 50 Director (Class II director with term
expiring in 1999)
Bergein F. Overholt, M.D........................ 59 Director (Class III director with term
expiring in 2000)
</TABLE>
KEN P. MCDONALD joined AmSurg in 1993 as a Vice President. Mr. McDonald
became Executive Vice President and Chief Operating Officer in December 1994,
President and a director in July 1996, and will become Chief Executive Officer
effective upon the Distribution. Mr. McDonald was President of NASCO Data
Systems, Inc., a distributor of IBM micro computer products to the value-added
reseller community, from 1988 until he joined AmSurg in 1993.
CLAIRE M. GULMI joined AmSurg in September 1994 as Vice President and Chief
Financial Officer. Ms. Gulmi became Senior Vice President in March 1997.
Following the Distribution, Ms. Gulmi will additionally become the Secretary of
AmSurg. From 1991 to 1994, Ms. Gulmi served as Chief Financial Officer of Music
Holdings, Inc., a music publishing and video distribution company.
ROYCE D. HARRELL joined AmSurg in October 1992 as Senior Vice President,
Operations. Mr. Harrell served, in successive order from 1982 to 1992, as a Vice
President of Development, Senior Vice President of Development and Senior Vice
President, Operations of Forum Group, Inc., an owner and operator of retirement
and healthcare communities and primary care facilities.
RODNEY H. LUNN has been Senior Vice President of Center Development since
1992 and was a director from 1992 until February 1997. Mr. Lunn was a principal
of Practice Development Associates, Inc. ("PDA"),
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<PAGE> 62
a company specializing in developing practice-based surgery centers, from March
1987 until it was acquired by AmSurg in 1992.
DAVID L. MANNING has served as Senior Vice President of Development and
Assistant Secretary of AmSurg since April 1992. Mr. Manning co-founded and was a
principal of PDA from March 1987 until its acquisition by AmSurg in 1992.
THOMAS G. CIGARRAN has served as Chairman of the Board of AmSurg since
1992. Mr. Cigarran served as Chief Executive Officer of AmSurg from January 1993
until the Distribution, and President from January 1993 to July 1996. Following
the Distribution, Mr. Cigarran will serve as an advisor to AmSurg. Mr. Cigarran
is a co-founder of AHC and has served as Chairman of the Board, President and
Chief Executive Officer thereof since 1988. Mr. Cigarran serves as a member of
the Board of Directors of ClinTrials Research, Inc.
JAMES A. DEAL, a director of AmSurg since 1992, has served as Executive
Vice President of AHC since May 1991 and as President of DTCA since 1985.
STEVEN I. GERINGER, a director of AmSurg since March 1997, was President
and Chief Executive Officer of PCS Health Systems, Inc., a unit of Eli Lilly &
Company ("PCS"), and one of the nation's largest providers of managed
pharmaceutical services to managed care organizations and health insurers, from
June 1995 until June 1996, and President and Chief Operating Officer of PCS from
May 1993 through May 1995. Prior to joining PCS, Mr. Geringer was the founder,
Chairman and Chief Executive Officer of Clinical Pharmaceuticals, Inc. of
Nashville, Tennessee.
DEBORA A. GUTHRIE, a director of AmSurg since November 1996, has been
President and Chief Executive Officer of the general partner of Capitol Health
Partners, L.P., a Washington, D.C.-based venture fund specializing in healthcare
industries since October 1995. Prior to forming Capitol Health Partners in 1995,
Ms. Guthrie was President and Chief Executive Officer of Guthrie Capital
Corporation, a venture management company providing financial advisory and
investment banking services to healthcare companies in the Mid-Atlantic and
Southeastern United States.
HENRY D. HERR, a director of AmSurg since 1992, has served as Executive
Vice President of Finance and Administration and Chief Financial Officer of AHC
since 1986 and a director of AHC since 1988. Following the Distribution, Mr.
Herr will serve as an advisor to AmSurg. Mr. Herr served as Chief Financial
Officer of AmSurg from April 1992 until September 1994, and as Secretary from
April 1992 until the effective date of the Distribution.
BERGEIN F. OVERHOLT, M.D., a director of AmSurg since November 1992, is
President of Gastrointestinal Associates, P.C. a gastrointestinal specialty
group, and a partner in The Endoscopy Center, Knoxville, Tennessee, which owns a
limited partnership interest in an ambulatory surgery center that is
majority-owned and managed by AmSurg. Dr. Overholt also serves as Chairman,
Laser/Hyperthermia Department, Thompson Cancer Survival Center in Knoxville,
Tennessee and is an Associate Professor of Clinic Medicine, University of
Tennessee in Knoxville, Tennessee.
There are no family relationships, by blood, marriage or adoption, between
or among any of the individuals listed above as directors or executive officers.
Ms. Guthrie, an affiliate of Capitol Health Partners, L.P., was appointed to the
AmSurg Board of Directors in connection with the preferred stock equity
financing in November 1996, in which Capitol Health Partners, L.P. purchased
18.2% of the Series A Preferred Stock and Series B Preferred Stock. See
"DESCRIPTION OF CAPITAL STOCK." Pursuant to the Distribution Agreement, AHC
agreed to the nomination of each of the persons who will be members of the Board
of Directors and agreed to vote for such persons at the next meeting of AmSurg
stockholders occurring prior to the Distribution.
COMMITTEES OF THE BOARD OF DIRECTORS
In order to facilitate the various functions of the AmSurg Board of
Directors following the Distribution, the Board intends to create several
standing committees, including a Nominating Committee, a Compensation Committee,
and an Audit Committee.
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<PAGE> 63
The members of the Nominating Committee will be Ken P. McDonald and Thomas
G. Cigarran. The principal function of the Nominating Committee will be to
recommend to the Board of Directors nominees for election to the Board.
The members of the Compensation Committee will be Bergein F. Overholt,
M.D., Debora A. Guthrie and Steven I. Geringer. No member of this committee will
be a former or current officer or employee of AmSurg. The functions of the
Compensation Committee include recommending to the full Board of Directors the
compensation arrangements for senior management and directors and the adoption
of compensation and benefit plans in which officers and directors are eligible
to participate, and granting options or other benefits under (and otherwise
administering) certain of such plans.
The members of the Audit Committee will be Debora A. Guthrie, James A. Deal
and Henry D. Herr. The principal functions of the Audit Committee will be to
recommend to the full Board of Directors the engagement or discharge of AmSurg's
independent auditors; to review the nature and scope of the audit, including but
not limited to a determination of the effectiveness of the audit effort through
meetings held at least annually with the independent and internal auditors of
AmSurg (collectively, the "auditors") and a determination through discussion
with the auditors that no unreasonable restrictions were placed on the scope or
implementation of their examinations; to review the qualifications and
performance of the auditors, including but not limited to review of the plans
and results of the auditing engagement and each professional service provided by
the independent auditors; to review the financial organization and accounting
practices of AmSurg, including but not limited to review of AmSurg's financial
statements with the auditors and inquiry into the effectiveness of AmSurg's
financial and accounting functions and internal controls through discussions
with the auditors and the officers of AmSurg; and to recommend to the full Board
of Directors policies concerning avoidance of employee conflicts of interest and
to review the administration of such policies.
COMPENSATION OF DIRECTORS
Members of the Board of Directors of AmSurg, other than those who are
employees of AmSurg, receive an annual fee of $10,000, adjusted annually to
reflect changes in the Consumer Price Index, U.S. All City Average Report, of
the U.S. Bureau of Labor Statistics (the "CPI") for their services as directors
and as members of any committees of the Board of Directors on which they serve.
In addition, each non-employee director is reimbursed for out-of-pocket expenses
incurred in attending Board of Directors and committee meetings. Non-employee
directors also are eligible to receive restricted stock awards pursuant to the
1997 Stock Incentive Plan. Under this plan, each non-employee director will
receive an award of restricted stock of a number of shares of Class A Common
Stock equal in value to $10,000, effective upon the Distribution. Thereafter,
each non-employee director who is elected or reelected to the Board of Directors
or who otherwise continues as a director shall automatically, on the date of the
annual meeting of stockholders of AmSurg, be granted and receive an award of
restricted stock of a number of shares of AmSurg Class A Common Stock equal in
value to $10,000, adjusted annually for changes in the CPI. Members of the Board
of Directors of AmSurg who are employees of AmSurg will not receive any
additional compensation for their services as directors or as members of
committees. See "MANAGEMENT OF AMSURG -- Stock Incentive Plans -- 1997 Stock
Incentive Plan."
DIRECTOR AND OFFICER INDEMNIFICATION AND LIMITATION OF LIABILITY
The Tennessee Business Corporation Act (the "TBCA") provides that a
corporation may indemnify any of its directors and officers against liability
incurred in connection with a proceeding if: (a) such person acted in good
faith; (b) in the case of conduct in an official capacity with the corporation,
he reasonably believed such conduct was in the corporation's best interests; (c)
in all other cases, he reasonably believed that his conduct was at least not
opposed to the best interests of the corporation; and (d) in connection with any
criminal proceeding, such person had no reasonable cause to believe his conduct
was unlawful. In actions brought by or in the right of the corporation, however,
the TBCA provides that no indemnification may be made if the director or officer
was adjudged to be liable to the corporation. The TBCA also provides that in
connection with any proceeding charging improper personal benefit to an officer
or director, no indemnification may be made if such officer or director is
adjudged liable on the basis that such personal benefit was
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<PAGE> 64
improperly received. Notwithstanding the foregoing, the TBCA provides that a
court of competent jurisdiction, unless the corporation's charter provides
otherwise, upon application, may order that an officer or director be
indemnified for reasonable expenses if, in consideration of all relevant
circumstances, the court determines that such individual is fairly and
reasonably entitled to indemnification, notwithstanding the fact that: (a) such
officer or director was adjudged liable to the corporation in a proceeding by or
in the right of the corporation; (b) such officer or director was adjudged
liable on the basis that personal benefit was improperly received by him; or (c)
such officer or director breached his duty of care to the corporation.
AmSurg's Charter and Bylaws require AmSurg to indemnify its directors and
officers to the fullest extent permitted by law with respect to all liability
and loss suffered and expense reasonably incurred by such person in any action,
suit or proceeding in which such person was or is made, or threatened to be
made, a party, or is otherwise involved by reason of the fact that such person
is or was a director or officer of AmSurg.
In addition, AmSurg's Charter provides that AmSurg's directors shall not be
personally liable to AmSurg or its stockholders for monetary damages for breach
of any fiduciary duty as a director of AmSurg except to the extent such
exemption from liability or limitation thereof is not permitted under the TBCA.
Under the TBCA, this provision does not relieve AmSurg's directors from personal
liability to AmSurg or its stockholders for monetary damages for breach of
fiduciary duty as a director, to the extent such liability arises from a
judgment or other final adjudication establishing: (a) any breach of the
director's duty of loyalty; (b) acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law; or (c) any
unlawful distributions. Nor does this provision eliminate the duty of care and,
in appropriate circumstances, equitable remedies such as injunctive or other
forms of non-monetary relief will remain available under Tennessee law. Finally,
this provision does not affect a director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental laws.
AmSurg has entered into indemnification agreements with all of its
directors and executive officers providing that it will indemnify those persons
to the fullest extent permitted by law against claims arising out of their
actions as officers or directors of AmSurg and will advance expenses of
defending claims against them. AmSurg believes that indemnification under these
agreements covers at least negligence and gross negligence by the directors and
officers, and requires AmSurg to advance litigation expenses in the case of
actions, including stockholder derivative actions, against an undertaking by the
officer or director to repay any advances if it is ultimately determined that
the officer or director is not entitled to indemnification.
AmSurg believes that its Charter and Bylaw provisions and indemnification
agreements are necessary to attract and retain qualified persons as directors
and officers.
At present, there is no litigation or proceeding involving a director or
officer of AmSurg as to which indemnification is being sought, nor is AmSurg
aware of any threatened litigation that may result in claims for indemnification
by any officer or director.
Pursuant to the Management Agreement, AmSurg will indemnify and hold AHC,
its directors, officers, employees and agents and any person who controls AHC
within the meaning of the Securities Act in the absence of gross negligence,
harmless from and against any and all liabilities, claims or damages (including
the cost of investigating any claim and reasonable attorneys' fees and
disbursements) in connection with any services performed by AHC pursuant to the
Management Agreement or any transactions or conduct in connection therewith. See
"THE DISTRIBUTION -- The Management Agreement."
Following the Distribution, AmSurg will have in effect an executive
liability insurance policy which will provide coverage for its directors and
officers. See "THE DISTRIBUTION -- Indemnification." Under this policy, the
insurer will agree to pay, subject to certain exclusions (including violations
of securities laws), for any claim made against a director or officer of AmSurg
for a wrongful act by such director or officer, but only if and to the extent
such director or officer becomes legally obligated to pay such claim or AmSurg
is required to indemnify the director or officer for such claim.
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<PAGE> 65
EXECUTIVE COMPENSATION
The following table provides information as to annual, long-term or other
compensation during fiscal years 1996, 1995 and 1994 for the person who will be,
effective as of the Distribution, the Chief Executive Officer and the persons
who, at the end of fiscal 1996, were the other four most highly compensated
executive officers of AmSurg (collectively, the "Named Executive Officers").
Prior to the Distribution, Thomas G. Cigarran served as Chief Executive Officer
of AmSurg but received no compensation from or with respect to AmSurg.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-----------------
ANNUAL COMPENSATION AWARDS/SECURITIES
---------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION ($)
--------------------------- ---- ---------- --------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
Ken P. McDonald....................... 1996 $139,050 $ 41,905 68,333 $4,000(1)
President and Chief Executive
Officer 1995 $125,050 $ 25,386 -- $4,000
1994 $ 98,208 $ 9,000 23,333 $4,000
Claire M. Gulmi....................... 1996 $100,000 $ 28,292 6,667 --
Senior Vice President and Chief 1995 $ 86,292 $ 22,652 -- --
Financial Officer(2) 1994 $ 25,000 $ 4,833 16,667 --
Royce D. Harrell...................... 1996 $130,788 $ 38,471 8,333 --
Senior Vice President, 1995 $124,538 $ 36,708 -- --
Operations 1994 $118,500 $ 19,185 6,667 $6,352
Rodney H. Lunn........................ 1996 $132,108 $ 29,169 5,000 $4,320(3)
Senior Vice President, Center 1995 $125,818 $ 18,205 -- $4,320
Development 1994 $119,831 $ 6,000 3,333 $4,320
David L. Manning...................... 1996 $132,108 $106,460 8,333 $4,320(3)
Senior Vice President, 1995 $125,818 $ 26,384 -- $4,320
Development 1994 $119,831 $ 6,000 5,000 $4,320
</TABLE>
- ---------------
(1) Forgiveness of debt.
(2) Ms. Gulmi became Senior Vice President in March 1997.
(3) Automobile allowance.
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<PAGE> 66
OPTION/STOCK APPRECIATION RIGHTS GRANTS IN LAST FISCAL YEAR
The following table provides information as to options granted to the Named
Executive Officers during fiscal 1996. No Stock Appreciation Rights ("SARs")
were awarded in fiscal 1996.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------- VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
NUMBERS OF TOTAL STOCK PRICE
SECURITIES OPTIONS/SARS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED (#)(1) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ---- -------------- -------------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Ken P. McDonald.............. 11,667 5.08% $4.68 01/08/06 34,338 87,018
58,333 25.39 5.37 06/21/06 197,001 499,240
Claire M. Gulmi.............. 6,667 2.90 4.68 01/08/06 19,622 49,725
Royce D. Harrell............. 8,333 3.63 4.68 01/08/06 24,527 62,156
Rodney H. Lunn............... 5,000 2.18 4.68 01/08/06 14,716 37,294
David L. Manning............. 8,333 3.63 4.68 01/08/06 24,527 62,156
</TABLE>
- ---------------
(1) All options were granted on January 8, 1996 except for the grant of 58,333
options to Mr. McDonald on June 21, 1996. All options will vest over four
years.
The following table provides information as to options exercised by the
Named Executive Officers during fiscal 1996. None of the Named Executive
Officers has exercised separate SARs. In addition, this table includes the
number of shares covered by both exercisable and unexercisable stock options as
of the record date. Also reported are the values for "in-the-money" options,
which represent the positive spread between the exercise price of any existing
stock options and the year-end price.
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
NUMBER OF UNDERLYING UNEXERCISED THE-MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END(1)($)
ACQUIRED ON VALUE ---------------------------- ---------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ ------------ ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ken P. McDonald........... -- -- 25,417 86,250 66,750 62,500
Claire M. Gulmi........... -- -- 8,333 15,000 19,550 25,550
Royce D. Harrell.......... -- -- 79,625 14,875 244,910 23,470
Rodney H. Lunn............ -- -- 178,667 8,333 847,710 12,650
David L. Manning.......... -- -- 179,500 12,500 849,585 17,525
</TABLE>
- ---------------
(1) Based on an assumed value of $5.58 at year end, which represents the value
determined by the AmSurg Board of Directors for purposes of acquisition
transactions and option grants based on an independent valuation.
EMPLOYMENT AGREEMENTS
AmSurg has employment agreements with each of Mr. McDonald, Ms. Gulmi, Mr.
Harrell, Mr. Lunn and Mr. Manning (the "Employment Agreements"). The Employment
Agreements have an initial one-year term, but contain a provision that
automatically extends the term for an additional one year on the first and each
successive anniversary date of the Employment Agreements until Messrs. McDonald,
Harrell, Lunn and Manning and Ms. Gulmi, respectively, reach age 65 after which
term shall not be automatically extended. The automatic renewal provision can be
canceled by AmSurg prior to each anniversary date of the Employment Agreements.
The Employment Agreements provide that if AmSurg elects not to extend the
executive's employment, the executive will be considered to have been terminated
without cause and will receive his or her base salary, reduced by any salary
earned by the executive from another employer, plus certain benefits for a
period of one year. The executive will also receive the same compensation as
provided above if the executive terminates his or her employment with AmSurg
under certain circumstances at any time within twelve
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<PAGE> 67
months following a Change In Control (as defined in the Employment Agreements).
The Employment Agreements also contain a restrictive covenant pursuant to which
each executive has agreed not to compete with AmSurg during the time AmSurg is
obligated to compensate him or her pursuant to the Employment Agreement.
STOCK INCENTIVE PLANS
1992 Stock Option Plan
AmSurg approved the 1992 Stock Option Plan (the "1992 Plan") in April 1992
to provide key employees with an additional incentive to contribute to the best
interests of AmSurg. The 1992 Plan may be administered by the Board of Directors
or a committee appointed by the Board. The Board or such designated committee
has the power, among other things, (i) to determine which of the eligible
persons shall be granted options to purchase shares of Class A Common Stock,
(ii) to determine whether such options shall be incentive or non-statutory stock
options, (iii) to determine the number of shares for which each option shall be
granted, (iv) to construe, interpret and administer the 1992 Plan, (v) to
prescribe the terms and provisions of each option granted, (vi) to amend the
1992 Plan, and (vii) generally, to exercise such powers and to perform such acts
as are deemed necessary or expedient to promote the best interests of AmSurg.
There are 927,333 shares of Class A Common Stock reserved for issuance upon
exercise of options granted under the 1992 Plan. The price per share under each
option granted shall be determined by the Board or the committee, but in the
case of incentive stock options, shall be no less than 100% of the fair market
value of the Class A Common Stock on the date of grant, and, in the case of
non-statutory options, shall in no event be less than 85% of the fair market
value of the Class A Common Stock on the date of grant.
The option exercise period shall be determined by the Board or committee;
however, incentive stock options shall not be exercisable more than 10 years
from the date of grant (and five years for any individual who, at the time of
grant, owns more than 10% of the total combined voting power of all classes of
stock of AmSurg). No option shall be transferable otherwise than by will or the
laws of descent and distribution and an option is exercisable during the
lifetime of the optionee only by such optionee.
As of the date hereof, non-qualified stock options for the purchase of
888,783 shares of Class A Common Stock have been granted to certain management
employees. The options granted will generally vest in four equal annual
installments. The options are subject to the terms of the 1992 Plan, will expire
10 years from the date of grant, and are exercisable at an average exercise
price of approximately $2.55 per share. In the event of certain fundamental
changes to AmSurg (including liquidation, dissolution, merger, reorganization or
sale of all or substantially all of the assets of AmSurg), the stock options
shall immediately vest and be fully exercisable by the optionees. If shares
subject to an option or stock appreciation right under the 1992 Plan cease to be
subject to such option or stock appreciation right without the exercise of such
option or stock appreciation right, or if shares of restricted stock or shares
underlying other stock-based awards under the 1992 Plan are forfeited or
otherwise terminate without a payment being made in the form of Class A Common
Stock and without the payment of any dividends thereon, such shares will again
be available for future distribution under the 1992 Plan.
1997 Stock Incentive Plan
The AmSurg Board of Directors has adopted a 1997 Stock Incentive Plan (the
"1997 Incentive Plan") pursuant to which AmSurg may grant options and other
rights with respect to the AmSurg Common Stock to officers, non-employee
directors of AmSurg and key employees following the Distribution. On February 7,
1997, March 7, 1997 and April 11, 1997 the Board of Directors approved grants of
options for the purchase of 191,366 shares of Class A Common Stock to various
employees pursuant to the 1997 Incentive Plan for an average per share exercise
price of $6.00. The 1997 Incentive Plan and any stock-based awards made by
AmSurg pursuant to the 1997 Incentive Plan are subject to AmSurg stockholder
approval at the special meeting of stockholders scheduled to be held on May ,
1997.
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A total of 650,000 shares of Class A Common Stock will be reserved and
available under the 1997 Incentive Plan. An "Outside Director" is a member of
the Board of Directors who is not an officer or employee of AmSurg, its
subsidiaries or affiliates. A director serving as medical director of AmSurg but
not as an employee of AmSurg will be treated as an Outside Director for purposes
of the 1997 Incentive Plan. Following the Distribution, the number of Outside
Directors will be six. The aggregate number of shares of Class A Common Stock
that may be granted to any individual pursuant to any award under the 1997
Incentive Plan is up to 200,000 in any one year. Section 162(m) of the Code
requires the 1997 Incentive Plan to provide a maximum number of shares that may
be granted to any individual in any one year. The maximum amounts provided in
the 1997 Incentive Plan do not reflect the size of awards expected to be made by
AmSurg. If shares subject to an option or stock appreciation right under the
1997 Incentive Plan cease to be subject to such option or stock appreciation
right without the exercise of such option or stock appreciation right, or if
shares of restricted stock or shares underlying other stock-based awards under
the 1997 Incentive Plan are forfeited or otherwise terminate without a payment
being made in the form of Class A Common Stock and without the payment of any
dividends thereon, such shares will again be available for future distribution
under the 1997 Incentive Plan.
In the case of a stock split, stock dividend, reclassification,
recapitalization, merger, reorganization, extraordinary cash dividend, or other
changes in AmSurg's capital structure affecting the Class A Common Stock,
appropriate adjustments or other substitutions will be made in the number of
shares reserved under the 1997 Incentive Plan, the number of shares that may be
issued to any individual and the number of shares and the exercise price of
options and other awards then outstanding under the 1997 Incentive Plan.
The 1997 Incentive Plan will be administered by a committee (the "Plan
Committee") of no less than two non-employee directors appointed to serve on
such committee by the Board. It is expected that such Plan Committee will be the
Compensation Committee.
Awards under the 1997 Incentive Plan may be made to key employees,
including officers, of AmSurg and any subsidiaries or affiliates of AmSurg, to
advisors to AmSurg, its subsidiaries or affiliates and non-employee directors of
AmSurg. The approximate number of employees who would potentially be eligible
for awards under the 1997 Incentive Plan is 35, based on the number of employees
of AmSurg at April 30, 1997, but actual awards will be made only at the
discretion of the Plan Committee.
The Plan Committee will have the authority to grant the following type of
awards under the 1997 Incentive Plan: (1) stock options; (2) stock appreciation
rights; (3) restricted stock and (4) other stock-based awards; provided,
however, that the power to grant and establish the terms and conditions of
awards to Outside Directors under the 1997 Incentive Plan other than pursuant to
Section 9 of the 1997 Incentive Plan, as discussed below, shall be reserved to
the Board of Directors. The decisions of the Plan Committee are subject to
ratification by the full Board of Directors of AmSurg.
1. Stock Options. Incentive stock options ("ISOs") and non-qualified stock
options may be granted for such number of shares as the Plan Committee will
determine and may be granted alone, in conjunction with, or in tandem with,
other awards under the 1997 Incentive Plan, but subject to the per person
limitation on awards.
A stock option will be exercisable at such times and subject to such terms
and conditions as the Plan Committee may determine and over a term to be
determined by the Plan Committee, which term will be no more than 10 years after
the date of grant, or no more than five years in the case of an ISO awarded to
certain 10% stockholders. The option price for any ISO will not be less than
100% (110% in the case of certain 10% stockholders) of the fair market value of
the Class A Common Stock as of the date of grant and for any non-qualified stock
option will be not less than 50% of the fair market value as of the date of
grant. Payment of the option price may be in cash, or, in the case of a
non-qualified stock option, as determined by the Plan Committee, in shares of
Class A Common Stock having a fair market value equal to the option price.
Upon termination of an optionholder's employment for cause, such employee's
stock options will terminate. If an optionholder's employment is involuntarily
terminated without cause, stock options will be exercisable for three months
following termination or until the end of the option period, whichever is
shorter.
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On the disability of an employee, stock options will be exercisable within the
lesser of the remainder of the option period or, in the case of a non-qualified
stock option, three years and, in the case of an ISO, one year from the date of
disability. Upon the retirement of an employee, stock options will be
exercisable within the lesser of the remainder of the option period or, in the
case of a non-qualified stock option, three years and, in the case of an ISO,
three months from the date of retirement. Upon the death of an employee, stock
options will be exercisable by the deceased employee's representative within the
lesser of the remainder of the option period or one year from the date of the
employee's death. Unless otherwise determined by the Plan Committee, only
options which are exercisable on the date of termination, death, disability, or
retirement may be subsequently exercised.
2. SARs. SARs may be granted alone or in conjunction with all or part of a
stock option. Once an SAR has been exercised, the related portion of the stock
option, if any, underlying the SAR will terminate. Upon the exercise of an SAR,
the Plan Committee will pay to the employee in cash, Class A Common Stock or a
combination thereof (the method of payment to be at the discretion of the Plan
Committee), an amount of money equal to the excess between the fair market value
of the stock on the exercise date and the SAR exercise price, multiplied by the
number of SARs being exercised. An SAR granted in tandem with all or part of a
stock option will be exercisable only when the underlying option is exercisable,
subject to any conditions specified by the Plan Committee at the time of grant.
3. Restricted Stock. Restricted stock may be granted alone, in conjunction
with, or in tandem with, other awards under the 1997 Incentive Plan and may be
conditioned upon the attainment of specific performance goals or such other
factors as the Plan Committee may determine. Upon the termination of the
employee's employment for any reason during the restriction period, all
restricted stock either will vest or be subject to forfeiture, in accordance
with the terms and conditions of the initial award. During the restriction
period, the employee will have the right to vote the restricted stock and to
receive any cash dividends. At the time of award, the Plan Committee may require
the deferral and reinvestment of any cash dividends in the form of additional
shares of restricted stock. Stock dividends will be treated as additional shares
of restricted stock and will be subject to the same terms and conditions as the
initial grant.
4. Other Stock-Based Awards. The Plan Committee may also grant other types
of awards that are valued, in whole or in part, by reference to or otherwise
based on the Class A Common Stock. These awards may be granted alone, in
addition to, or in tandem with, stock options, SARs and restricted stock. Such
awards will be made upon terms and conditions as the Plan Committee may in its
discretion provide.
5. Awards to Outside Directors. Pursuant to Section 9 of the 1997
Incentive Plan, effective as of the Distribution each Outside Director will
receive a grant of a number of shares of Class A Common Stock having an
aggregate fair market value on such date equal in value to $10,000, adjusted for
changes in the CPI, which shares shall be restricted as provided in Section 9 of
the 1997 Incentive Plan (the "Outside Director Restricted Stock"). On the date
of each annual meeting of stockholders of AmSurg occurring after the
Distribution, each Outside Director will receive an automatic grant of a number
of shares of Outside Director Restricted Stock having an aggregate fair market
value on such date equal to $10,000 adjusted annually for changes in the CPI.
Each grant of Outside Director Restricted Stock shall vest in increments of
one-third of the shares of Class A Common Stock subject to such grant with the
first one-third increment vesting on the date of grant, the second one-third
increment vesting on the first anniversary of the date of grant and the final
one-third increment vesting on the second anniversary of the date of grant, if
the grantee is still a member of the Board on each of such dates. Until the
earlier of (i) five years from the date of grant and (ii) the date on which the
Outside Director ceases to serve as a director of AmSurg, no Outside Director
Restricted Stock may be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated, otherwise than by will or by the laws of descent and
distribution. Upon termination of an Outside Director's service as a member of
the Board for any reason other than death, disability or retirement, all shares
of Outside Director Restricted Stock not theretofore vested will be forfeited.
Upon termination of an Outside Director's service as a member of the Board due
to death, disability or retirement, all shares of Outside Director Restricted
Stock will immediately vest.
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Federal Income Tax Aspects of the 1997 Incentive Plan. The following is a
brief summary of the federal income tax aspects of awards made under the 1997
Incentive Plan based upon the federal income tax laws in effect on the date
hereof. This summary is not intended to be exhaustive, and does not describe
state or local tax consequences.
1. Incentive Stock Options. No taxable income is realized by the
participant upon the grant or exercise of an ISO. If Class A Common Stock is
issued to a participant pursuant to the exercise of an ISO, and if no
disqualifying disposition of the shares is made by the participant within two
years of the date of grant or within one year after the transfer of the shares
to the participant, then: (a) upon the sale of the shares, any amount realized
in excess of the option price will be taxed to the participant as a long-term
capital gain, and any loss sustained will be a capital loss, and (b) no
deduction will be allowed to AmSurg for federal income tax purposes. The
exercise of an ISO will give rise to an item of tax preference that may result
in an alternative minimum tax liability for the participant unless the
participant makes a disqualifying disposition of the shares received upon
exercise.
If Class A Common Stock acquired upon the exercise of an ISO is disposed of
prior to the expiration of the holding periods described above, then
generally: (a) the participant will realize ordinary income in the year of
disposition in an amount equal to the excess, if any, of the fair market value
of the shares at exercise (or, if less, the amount realized on the disposition
of the shares) over the option price paid for such shares, and (b) AmSurg will
be entitled to deduct any such recognized amount. Any further gain or loss
realized by the participant will be taxed as short-term or long-term capital
gain or loss, as the case may be, and will not result in any deduction by
AmSurg.
Subject to certain exceptions for disability or death, if an ISO is
exercised more than three months following the termination of the participant's
employment, the option will generally be taxed as a non-qualified stock option.
2. Non-Qualified Stock Options. Except as noted below, with respect to
non-qualified stock options: (a) no income is realized by the participant at the
time the option is granted; (b) generally upon exercise of the option, the
participant realizes ordinary income in an amount equal to the difference
between the option price paid for the shares and the fair market value of the
shares on the date of exercise and AmSurg will be entitled to a tax deduction in
the same amount; and (c) at disposition, any appreciation (or depreciation)
after date of exercise is treated either as short-term or long-term capital gain
or loss, depending upon the length of time that the participant has held the
shares. See "Restricted Stock" for tax rules applicable where the spread value
of an option is settled in an award of restricted stock.
3. SARs. No income will be realized by a participant in connection with
the grant of an SAR. When the SAR is exercised, the participant will generally
be required to include as taxable ordinary income in the year of exercise an
amount equal to the amount of cash and the fair market value of any shares
received. AmSurg will be entitled to a deduction at the time and in the amount
included in the participant's income by reason of the exercise. If the
participant receives Class A Common Stock upon exercise of an SAR, the post-
exercise appreciation or depreciation will be treated in the same manner
discussed above under "Non-Qualified Stock Options."
4. Restricted Stock. A participant receiving restricted stock generally
will recognize ordinary income in the amount of the fair market value of the
restricted stock at the time the stock is no longer subject to forfeiture, less
the consideration paid for the stock. However, a participant may elect, under
Section 83(b) of the Code within 30 days of the grant of the stock, to recognize
taxable ordinary income on the date of grant equal to the excess of the fair
market value of the shares of restricted stock (determined without regard to the
restrictions) over the purchase price of the restricted stock. Thereafter, if
the shares are forfeited, the participant will be entitled to a deduction,
refund, or loss, for tax purposes only, in an amount equal to the purchase price
of the forfeited shares regardless of whether he made a Section 83(b) election.
With respect to the sale of shares after the forfeiture period has expired, the
holding period to determine whether the participant has long-term or short-term
capital gain or loss generally begins when the restriction period expires and
the tax basis for such shares will generally be based on the fair market value
of such shares on such date. However, if the participant makes an election under
Section 83(b), the holding period will commence on the
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date of grant, the tax basis will be equal to the fair market value of shares on
such date (determined without regard to restrictions), and AmSurg generally will
be entitled to a deduction equal to the amount that is taxable as ordinary
income to the participant in the year that such income is taxable.
5. Dividends and Dividend Equivalents. Dividends paid on restricted stock
generally will be treated as compensation that is taxable as ordinary income to
the participant, and will be deductible by AmSurg. If, however, the participant
makes a Section 83(b) election, the dividends will be taxable as ordinary income
to the participant but will not be deductible by AmSurg.
6. Other Stock-Based Awards. The federal income tax treatment of other
stock-based awards will depend on the nature of any such award and the
restrictions applicable to such award. Such an award may, depending on the
conditions applicable to the award, be taxable as an option, an award of
restricted stock, or in a manner not described herein.
Section 162(m) Provisions. Section 162(m) of the Code imposes a limitation
on the deductibility of certain compensation paid to the chief executive officer
and certain other executive officers of publicly traded companies. Compensation
paid to these officers in excess of $1,000,000 cannot be claimed as a tax
deduction by such companies unless such compensation qualifies for an exemption
as performance-based compensation under Section 162(m) of the Code. It is
anticipated that compensation in respect of stock options and SARs granted under
the 1997 Incentive Plan will qualify for an exemption as performance-based
compensation under Section 162(m) of the Code, if the exercise price per share
for such options and SARs is at least equal to the fair market value per share
of Class A Common Stock on the date of grant. Other awards (if any) granted
under the 1997 Incentive Plan are not expected to qualify for an exemption as
performance-based compensation.
Other Provisions of the 1997 Incentive Plan. Options and other rights that
may be granted under the 1997 Incentive Plan following the Distribution will
vest and become immediately exercisable (to the extent not theretofore vested
and exercisable and the restrictions and forfeiture provisions applicable to
restricted stock and other stock-based awards will lapse) if:
a. any person or entity (including a "group" as defined in Section
13(d) (3) of the Exchange Act), other than AmSurg or a wholly owned
subsidiary of AmSurg or an employee benefit plan of AmSurg or any of its
subsidiaries, becomes the beneficial owner of AmSurg securities having 35%
or more of the combined voting power of all AmSurg securities that may be
cast in the election of directors of AmSurg;
b. as a result of or in connection with a cash tender or exchange
offer, merger or other business combination, sale of assets or contested
election, or any combination of the foregoing transactions, less than a
majority of the combined voting power of the then outstanding securities of
AmSurg or any successor entity entitled to vote generally in the election
of directors of AmSurg or any such successor are held in the aggregate by
holders of AmSurg securities entitled to vote generally in the election of
directors of AmSurg immediately prior to such transaction;
c. during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors cease for any
reason to constitute the majority thereof, unless the election or
nomination for election of such individuals was approved by a vote of at
least two-thirds of the directors then still in office who were directors
at the beginning of such period;
d. the Plan Committee determines that a potential change in control
has occurred as a result of either (i) shareholder approval of an agreement
that would result in one of the events described above or (ii) the
acquisition of beneficial ownership by any person, entity or group (other
than AmSurg, any of its subsidiaries or any AmSurg employee benefit plan)
of AmSurg securities representing 5% or more of the combined voting power
of the outstanding AmSurg securities;
e. in addition to any other restrictions on transfer that may be
applicable under the terms of the 1997 Incentive Plan or the applicable
award agreement, no stock option, SAR, restricted stock award, other
stock-based award or Outside Director Restricted Stock award or other right
issued under the 1997 Incentive Plan is transferable by the participant
without the prior written consent of the Plan Committee,
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or, in the case of an Outside Director, the Board, other than (i) transfers
by a participant to a member of his or her Immediate Family (as that term
is defined in the 1997 Incentive Plan) or a trust for the benefit of the
participant or a member of his or her Immediate Family or (ii) transfers by
will or by the laws of descent and distribution (the designation of a
beneficiary will not constitute a transfer); or
f. the Plan Committee may, at or after grant, condition the receipt of
any payment in respect of any award or the transfer of any shares subject
to an award on the satisfaction of a six-month holding period, if such
holding period is required for compliance with Section 16 under the
Exchange Act.
Following the occurrence of any event that would result in the acceleration
of vesting and exercisability as described above, the holders of stock options
and other rights (to the extent that they have been held for any required
holding period pursuant to Section 16 of the Exchange Act in the case of options
and other rights held by executive officers and directors or other persons
subject to such Section) will, unless otherwise determined by the Plan
Committee, receive cash equal to the difference between the highest price paid
per share of Class A Common Stock in any transaction during the 60 days prior to
the change in control or potential change in control event and the exercise
price of the option or other right.
The 1997 Incentive Plan may be amended, altered or discontinued by the
Board of Directors of AmSurg to the fullest extent permitted by the Exchange Act
and the rules and regulations promulgated thereunder; provided, however, that no
amendment, alteration or discontinuation may be made which would (a) impair the
rights of an optionee or participant without the optionee's or participant's
consent or (b) require shareholder approval pursuant to any other applicable law
or regulation. The Board of Directors may not, without the approval of the
stockholders of AmSurg, make any amendment to or alteration of the 1997
Incentive Plan which would (a) except as a result of the provisions of Section
3(c) of the 1997 Incentive Plan, increase the maximum number of shares that may
be issued under the 1997 Incentive Plan or increase the Section 162(m) Maximum
(as defined in the 1997 Incentive Plan), (b) change the provisions governing
incentive stock options except as required or permitted under the provisions
governing incentive stock options under the Code, or (c) make any change for
which applicable law or regulatory authority would require stockholder approval
or for which stockholder approval would be required to secure full deductibility
of compensation received under the 1997 Incentive Plan under Section 162(m) of
the Code.
The 1997 Incentive Plan will expire on the tenth anniversary of its
effective date.
Other Stock Options
AmSurg also has granted non-qualified stock options for the purchase of
20,667 shares of Class A Common Stock to certain non-employee directors of
AmSurg and to AmSurg's Medical Director and Associate Medical Director. The
options granted will vest in four equal annual installments, will expire 10
years from the date of grant, and are exercisable at an average exercise price
of approximately $4.79 per share. In the event of certain fundamental changes to
AmSurg (including liquidation, dissolution, merger, reorganization or sale of
all or substantially all of the assets of AmSurg), the stock options shall
immediately vest and be fully exercisable by the optionees.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT AGREEMENT
On the Distribution Date, AmSurg and AHC will enter into the Management
Agreement pursuant to which AHC will provide certain financial and accounting
services to AmSurg and its subsidiaries on a transitional basis, with the intent
that AmSurg is to acquire the personnel, systems and expertise necessary to
become self-sufficient in the provision of these services during the period
beginning on the date of the Management Agreement and ending one year later (or
earlier if so elected by AmSurg). For a detailed summary of the Management
Agreement see "THE DISTRIBUTION -- The Management Agreement." The terms of the
Management Agreement were reviewed and approved by the Special Committee.
ADMINISTRATIVE SERVICES AGREEMENT
Until December 31, 1996, AmSurg and AHC were parties to a letter agreement
dated November 30, 1992 (the "1992 Letter Agreement"), pursuant to which Henry
D. Herr and Thomas G. Cigarran provided general supervision and business
management services to AmSurg, and AHC provided accounting, financial and
administrative services for the operations of AmSurg and each of the ambulatory
surgery centers managed by AmSurg. For these services, AmSurg paid AHC an annual
fee of approximately $100,000, plus $8,000 per year for administrative,
accounting and financial services relating to the AmSurg corporate operations
and $4,000 per year for services related to each ambulatory surgery center in
operation. Such fees were subject to adjustment as mutually agreed by the
parties, but such adjustment would not be less than a minimum increase equal to
the annual change in the CPI. The actual amounts paid by AmSurg to AHC under the
1992 Letter Agreement for the years ended December 31, 1994, 1995 and 1996 were
$151,846, $186,215 and $213,820, respectively. The annual fees paid to AHC were
not inclusive of costs associated with outside professional tax advisors or
independent accountants. By letter agreement dated January 1, 1997 (the "1997
Letter Agreement"), AHC and AmSurg agreed to continue, on a modified basis, the
administrative services arrangements provided under the 1992 Letter Agreement.
Under the 1997 Letter Agreement, AmSurg has agreed to pay AHC an annual fee of
$85,000 plus out of pocket expenses for services provided by Messrs. Cigarran
and Herr. The services provided by Messrs. Cigarran and Herr are the general
supervision of the business of AmSurg and the provision of advice and
consultation regarding the financial, accounting and administration aspects of
AmSurg's business. The new arrangement also provides that AHC will provide the
services it provided under the 1992 Letter Agreement to each AmSurg ambulatory
surgery center, physician practice and specialty physician network. The fixed
fee for such services is $4,166.67 per month plus $625 per month for each
ambulatory surgery center in operation and $1,250 per month for the corporate
office and each physician practice. The amount paid per month for the specialty
physician networks will be mutually agreed upon by AHC and AmSurg. The 1997
Letter Agreement shall terminate upon the earlier to occur of (i) the mutual
agreement of the parties; (ii) the date on which Class A Common Stock begins to
trade publicly; or (iii) December 31, 1997.
ADVISORY AGREEMENTS
On the Distribution Date, AmSurg and each of Thomas G. Cigarran and Henry
D. Herr will be subject to an Advisory Agreement (the "Advisory Agreements"),
pursuant to which Messrs. Cigarran and Herr will provide certain continuing
services to AmSurg for two years following the Distribution Date. Immediately
prior to the Distribution Date, Mr. Cigarran served as Chairman of the Board of
AmSurg, and Mr. Herr served as Vice President and Secretary of AmSurg. Pursuant
to the Advisory Agreements, Messrs. Cigarran and Herr will provide advisory
services to the senior management of AmSurg in the areas of strategy,
operations, management and organizational development. As compensation for these
services, AmSurg will pay compensation of $200,000 to Mr. Cigarran and $150,000
to Mr. Herr during the two-year term of the Advisory Agreements. The
compensation will be payable in shares of Class A Common Stock, which shares
will be issued as restricted stock pursuant to the terms of the 1997 Incentive
Plan. One-third of the shares to be paid as compensation will vest immediately,
one-third will vest upon the first anniversary of the Distribution and the
remaining one-third of the shares will vest on the second anniversary of the
Distribution.
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The Advisory Agreements provide that Messrs. Cigarran and Herr will not sell the
shares of AmSurg Common Stock received pursuant to the agreement until the
second anniversary of the Distribution, subject to certain limited exceptions.
The Advisory Agreements also contain certain non-compete and confidentiality
provisions. In addition, Messrs. Cigarran and Herr will be eligible to receive
compensation as Outside Directors. Messrs. Cigarran and Herr will also be
entitled to indemnification as provided in the Indemnification Agreement that
each will enter into with AmSurg on the Distribution Date. The terms of the
Advisory Agreements were reviewed and approved by the Special Committee.
LEASE ARRANGEMENT
Pursuant to a sublease dated June 9, 1996 between AHC and AmSurg (the
"Sublease"), AmSurg leases approximately 15,417 square feet of space from AHC in
Nashville, Tennessee where AmSurg's corporate headquarters are located. AHC
passes through the cost of such leased space to AmSurg, and AmSurg is required
to make an aggregate of $960,820 in rental payments to AHC over the term of the
Sublease which expires December 31, 1999.
OTHER ARRANGEMENTS
Bergein F. Overholt, M.D. is a director of AmSurg, and President and a 14%
owner of The Endoscopy Center. The Endoscopy Center is a limited partner and
AmSurg is the general partner and majority owner of The Endoscopy Center of
Knoxville, L.P., which owns and operates an ambulatory surgery center. The
aggregate amount of distributions made by The Endoscopy Center of Knoxville,
L.P. to The Endoscopy Center in 1996 was $1,028,000, of which Dr. Overholt
received his pro rata ownership percentage.
On March 7, 1997, the AmSurg Board of Directors approved the sale to Steven
Geringer of 8,460 shares of AmSurg common stock for an aggregate purchase price
of $50,000 in connection with his joining the AmSurg Board of Directors.
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth the "beneficial ownership" (as that term is
defined in the rules of the SEC) of the capital stock of AmSurg immediately
after the Distribution of (a) each director and Named Executive Officer of
AmSurg, both individually and as a group, and (b) each other person expected to
be a "beneficial owner" of more than five percent (5%) of any class of capital
stock of AmSurg immediately after the Distribution, based in each case on
information available to AmSurg and AHC as to ownership of capital stock of
AmSurg and AHC on April 30, 1997. Except as otherwise indicated, AmSurg
stockholders after the Distribution listed in the table have (or will have) sole
voting and investment power with respect to the stock owned (or to be owned) by
them. Pursuant to the SEC's beneficial ownership rules, a person is treated as
the beneficial owner of shares that may be acquired under options that are
exercisable within 60 days as of April 30, 1997.
COMMON STOCK
<TABLE>
<CAPTION>
CLASS A PERCENT CLASS B(2) PERCENT
NAME COMMON STOCK(1) OF CLASS COMMON STOCK OF CLASS
- ---- --------------- -------- ------------ --------
<S> <C> <C> <C> <C>
Pioneering Management Corp.(3)............. 0 -- 542,271 9.8%
Waddell & Reed, Inc.(4).................... 0 -- 363,630 6.6
William C. Weaver, III(5).................. 490,519(6) 12.6% 18,344 *
Ken P. McDonald............................ 31,666(7) * 0 --
Claire M. Gulmi............................ 10,000(8) * 0 --
Royce D. Harrell........................... 81,708(9) 2.1 0 --
Rodney H. Lunn............................. 286,097(10) 7.0 69 *
David L. Manning........................... 287,333(11) 7.0 0 --
Thomas G. Cigarran(12)..................... 0 -- 424,566 7.7
James A. Deal.............................. 0 -- 208,901 3.8
Steven I. Geringer......................... 0 -- 0 --
Debora A. Guthrie.......................... 0 -- 1,035 *
Henry D. Herr(13).......................... 0 -- 263,659 4.8
Bergein F. Overholt, M.D................... 119,760(14) 3.1 396 *
All directors and executive officers as a
group (11 persons)....................... 816,564 18.3% 898,626 16.2%
</TABLE>
- ---------------
* Less than 1%.
(1) Includes shares issuable within 60 days of April 30, 1997 upon the exercise
of presently outstanding options.
(2) Does not include shares of Class B Common Stock which would be received in
the Distribution in respect of additional shares of AHC Common Stock that
would be issued if AHC options exercisable within 60 days of April 30, 1997
are exercised prior to the Distribution.
(3) The address of Pioneering Management Corp. is 60 State Street, Boston, MA
02109. Information with respect to stock ownership of Pioneering Management
Corp. is based upon the Schedule 13G dated January 3, 1996 filed with the
SEC with respect to ownership of AHC stock.
(4) The address of Waddell & Reed, Inc. is 6300 Lamar Avenue, P.O. Box 29217,
Shawnee Mission, KS 66201-9217. Information with respect to stock ownership
of Waddell & Reed, Inc. is based upon the Schedule 13G dated February 14,
1996 filed with the SEC with respect to ownership of AHC stock.
(5) The address of Mr. Weaver is 4406 Chickering Lane, Nashville, TN 37215.
(6) Includes 200,000 shares held in trust for the benefit of Mr. Weaver's three
children and currently exercisable options for the purchase of 1,500 shares
of Class A Common Stock.
(7) Represents currently exercisable options for the purchase of 31,666 shares
of Class A Common Stock.
(8) Represents currently exercisable options for the purchase of 10,000 shares
of Class A Common Stock.
(9) Represents currently exercisable options for the purchase of 81,708 shares
of Class A Common Stock.
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(10) Includes 1,000 shares held in trust for the benefit of Mr. Lunn's children
and currently exercisable options for the purchase of 225,333 shares of
Class A Common Stock.
(11) Includes currently exercisable options for the purchase of 235,333 shares
of Class A Common Stock.
(12) The address of Mr. Cigarran is One Burton Hills Blvd., Nashville, TN 37215.
(13) The address of Mr. Herr is One Burton Hills Blvd., Nashville, TN 37215.
(14) Includes 4,333 shares owned by The Endoscopy Center, Knoxville, Tennessee,
and 10,000 shares owned by Gastrointestinal Associates, P.C. Dr. Overholt
is a partner of the Endoscopy Center and President of Gastrointestinal
Associates, P.C. Also, includes currently exercisable options for the
purchase of 2,500 shares of Class A Common Stock, 20,100 shares held in
trust for Dr. Overholt's grandchildren, and 2,924 shares for which Dr.
Overholt is custodian on behalf of a minor.
PREFERRED STOCK
<TABLE>
<CAPTION>
SERIES A SERIES B
REDEEMABLE PERCENT CONVERTIBLE PERCENT
NAME AND ADDRESS PREFERRED STOCK OF CLASS PREFERRED STOCK OF CLASS
- ---------------- --------------- -------- --------------- --------
<S> <C> <C> <C> <C>
Electra Investment Trust P.L.C.(1)........... 363,637 72.7% 303,030 72.7%
Capitol Health Partners, L.P.(2)(3).......... 90,909 18.2 75,757 18.2
Michael E. Stephens(4)....................... 45,454 9.1 37,879 9.1
Ken P. McDonald.............................. 0 -- 0 --
Claire M. Gulmi.............................. 0 -- 0 --
Royce D. Harrell............................. 0 -- 0 --
Rodney H. Lunn............................... 0 -- 0 --
David L. Manning............................. 0 -- 0 --
Thomas G. Cigarran........................... 0 -- 0 --
James A. Deal................................ 0 -- 0 --
Steven I. Geringer........................... 0 -- 0 --
Debora A. Guthrie(5)......................... 0 -- 0 --
Henry D. Herr................................ 0 -- 0 --
Bergein F. Overholt, M.D..................... 0 -- 0 --
All directors and executive officers as a
group (11 persons)(3)...................... 90,909 18.2% 75,757 18.2%
</TABLE>
- ---------------
(1) The address of Electra Investment Trust PLC is 65 Kingsway, London, England
WC 2B6QT.
(2) The address of Capitol Health Partners, L.P. is 3000 P Street, N.W.,
Washington, D.C. 20005.
(3) Shares beneficially owned by Capitol Health Partners, L.P. are attributable
to Ms. Guthrie, who is President and Chief Executive Officer of the general
partner of Capitol Health Partners, L.P., and are included in the shares
beneficially held by directors and executive officers as a group.
(4) The address for Michael E. Stephens is One Perimeter Park South, Suite 100N,
Birmingham, AL 35243.
(5) Ms. Guthrie disclaims beneficial ownership of the shares held by Capitol
Health Partners, L.P.
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<PAGE> 77
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Upon the Distribution Date, AmSurg will be authorized to issue 25,000,000
shares of its Class A Common Stock, 5,540,000 shares of its Class B Common Stock
and 5,000,000 shares of preferred stock, no par value. Based on ownership of
AmSurg and AHC Common Stock as of April 30, 1997, 3,887,619 shares of AmSurg
Class A Common Stock and 5,530,131 shares of AmSurg Class B Common Stock are
expected to be outstanding immediately following the Distribution, all of which
will be validly issued, fully paid and nonassessable. Based on ownership of
AmSurg and AHC Common Stock as of April 30, 1997, there are expected to be
approximately 201 holders of record of Class A Common Stock and approximately
135 holders of record and 2,550 beneficial owners of Class B Common Stock
immediately following the Distribution. As of April 30, 1997, 500,000 shares of
Series A Preferred Stock and 416,666 shares of Series B Preferred Stock were
outstanding, all of which were validly issued, fully paid and non-assessable.
There are three holders of the Series A Preferred Stock and three holders of the
Series B Preferred Stock. AmSurg may issue preferred stock from time to time in
one or more series, each such series to be so designated as to distinguish the
shares thereof from the shares of all other series and classes. The Board of
Directors is vested with the authority to divide any or all classes of
authorized but unissued preferred stock into series and to fix and determine the
relative rights and preferences of the shares of any series so established.
Based on options to purchase AmSurg Common Stock as of April 30, 1997, stock
options for the purchase of 1,100,816 shares of Class A Common Stock are
expected to be outstanding immediately following the Distribution, of which
options to purchase 721,629 shares of Class A Common Stock having an average
exercise price of $3.20 per share are expected to be currently exercisable. The
options granted generally will vest in four equal annual installments, and will
expire 10 years from the date of grant. In the event of certain fundamental
changes to AmSurg (including liquidation, dissolution, merger, reorganization or
sale of all or substantially all of the assets of AmSurg), the stock options
shall immediately vest and be fully exercisable by the optionees. Of these
options, 194,033 were granted pursuant to the 1997 Stock Incentive Plan and are
subject to stockholder approval at the stockholders meeting scheduled to be held
on May , 1997.
Based on ownership of AmSurg and AHC Common Stock as of April 30, 1997, the
AmSurg executive officers and directors or their affiliates are expected to
beneficially own approximately 18.3% of the outstanding Class A Common Stock and
16.2% of the Class B Common Stock immediately following the Distribution. The
holders of Class A Common Stock and the Class B Common Stock are entitled to
receive such dividends, if any, as may be declared from time to time by the
Board of Directors in its discretion from funds legally available therefor. No
dividends have been paid to date and the management of AmSurg does not
anticipate dividends being paid in the foreseeable future.
The following summary of certain terms of AmSurg's capital stock describes
material provisions of, but does not purport to be complete and is subject to
and qualified in its entirety by, the AmSurg Charter, the AmSurg Bylaws, and
applicable provisions of Tennessee corporate law (including but not limited to
the TBCA) and assumes the approval of the Amended and Restated Charter by the
AmSurg stockholders.
Class A Common Stock. The holders of Class A Common Stock are entitled to
one vote per share on all matters to be submitted to a vote of the stockholders
and are not entitled to cumulative voting in the election of directors. Subject
to prior dividend rights and sinking fund or redemption or purchase rights which
may be applicable to any outstanding preferred stock, the holders of Class A
Common Stock are entitled to share ratably with the shares of Class B Common
Stock in such dividends, if any, as may be declared from time to time by the
Board of Directors in its discretion out of funds legally available therefor.
The holders of Class A Common Stock are entitled to share ratably with the
shares of Class B Common Stock in any assets remaining after satisfaction of all
prior claims upon liquidation of AmSurg, including prior claims of any
outstanding preferred stock. AmSurg's Charter does not give holders of Class A
Common Stock any preemptive or other subscription rights, and Class A Common
Stock is not redeemable at the option of the holders, does not have any
conversion rights, and is not subject to call. The rights, preferences and
privileges of holders of Class A Common Stock are subject to, and may be
adversely affected by, the rights of holders of shares of the Series A
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Preferred Stock and Series B Preferred Stock and any other series of preferred
stock that AmSurg may designate and issue in the future.
Class B Common Stock. The holders of Class B Common Stock are entitled to
seven votes per share in the election of the Board of Directors of AmSurg and
are not entitled to cumulative voting in the election of such directors. The
holders of Class B Common Stock are entitled to one vote per share on all other
matters to be submitted to a vote of the stockholders. The holders of Class B
Common Stock are entitled to vote separately as a group with respect to (i)
amendments to AmSurg's Charter that alter or change the powers, preferences or
special rights of the holders of Class B Common Stock so as to affect them
adversely and (ii) such other matters as may require separate group voting under
the TBCA. Following the Distribution, upon the sale or transfer of any share of
Class B Common Stock, including transfers by gift, such share will automatically
convert into a newly-issued share of Class A Common Stock. However, transfers of
the Class B Common Stock by pledge or from a beneficial owner into a street name
for such beneficial owner, from a street name to the beneficial owner and from
one street name to another street name for the same beneficial owner will not
constitute a transfer which would cause the conversion of the Class B Common
Stock into Class A Common Stock. Subject to prior dividend rights and sinking
fund or redemption or purchase rights which may be applicable to any outstanding
preferred stock, the holders of Class B Common Stock are entitled to share
ratably with the shares of Class A Common Stock in such dividends, if any, as
may be declared from time to time by the Board of Directors in its discretion
out of funds legally available therefor. The holders of Class B Common Stock are
entitled to share ratably with the shares of Class A Common Stock in any assets
remaining after satisfaction of all prior claims upon liquidation of AmSurg,
including prior claims of any outstanding preferred stock. AmSurg's Charter does
not give holders of Class B Common Stock preemptive or other subscription
rights, and Class B Common Stock is not redeemable at the option of the holders,
and is not subject to call. The rights, preferences and privileges of holders of
AmSurg Class B Common Stock are subject to, and may be adversely affected by,
the rights of holders of shares of any series of preferred stock that AmSurg may
designate and issue in the future.
Dividend Policy. AmSurg has not declared a cash dividend on the shares of
AmSurg common stock during its two most recent fiscal years. AmSurg does not
currently intend to declare or pay a cash dividend on the shares of Class A
Common Stock or the Class B Common Stock. In addition, the payment of cash
dividends in the future will depend on AmSurg's earnings, financial condition,
capital needs and other factors deemed relevant by the AmSurg Board of
Directors, including corporate law restrictions on the availability of capital
for the payment of dividends, the rights of holders of any series of preferred
stock that may hereafter be issued and the limitations, if any, on the payment
of dividends under any documents relating to equity investments, then-existing
credit facilities or other indebtedness. Pursuant to the Second Amended and
Restated Loan Agreement dated as of April 15, 1997 among AmSurg, SunTrust Bank
and NationsBank of Tennessee, as amended (the "Loan Agreement"), AmSurg is
prohibited from declaring or paying any dividend to any person other than itself
or a subsidiary. It is the current intention of the Board of Directors to retain
earnings, if any, in order to finance the operations and expansion of AmSurg's
business.
Preferred Stock. AmSurg is authorized to issue 5,000,000 shares of
undesignated preferred stock, no par value. AmSurg has established and
designated two series of shares out of the 5,000,000 authorized shares. On
November 20, 1996, AmSurg issued 500,000 shares of Series A Preferred Stock for
a purchase price of $6.00 per share and 416,666 shares of Series B Preferred
Stock for a purchase price of $6.00 per share.
Series A Redeemable Preferred Stock. The holders of Series A Preferred
Stock are entitled to .25 votes per share on all matters to be voted on by
stockholders. The holders of Series A Preferred Stock and Series B Preferred
Stock vote as a separate class on certain matters, and together are entitled to
elect and remove one director to the Board of Directors, in the event that there
has not been a Qualified IPO (as defined in the AmSurg Charter) by May 31, 2000.
The holders of Series A Preferred Stock and Series B Preferred Stock are each
entitled to vote as a separate class, and the affirmative vote of two-thirds of
the outstanding shares of each separate class is required, for any amendment,
modification or waiver with respect to the designation of the Series A Preferred
Stock and Series B Preferred Stock and with respect to any changes in the
capitalization and number of shares of any class of capital stock. The holders
of Series A Preferred Stock have the right to receive annually, beginning after
November 20, 1998, cash dividends of $0.48 per share. In
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<PAGE> 79
addition, upon certain events of default by AmSurg, the holders of the Series A
Preferred Stock have the right to a cash dividend of $0.84 per share until such
default has been cured. All dividends are cumulative. Upon any voluntary or
involuntary liquidation, dissolution or winding up of AmSurg, the holders of the
Series A Preferred Stock will be entitled to be paid in cash the purchase price
of their shares plus any accrued and unpaid dividends (the "Liquidation Value"),
before any distribution or payment is made upon any other junior securities,
including the Series B Preferred Stock. In the event AmSurg subdivides or
combines the outstanding shares of any class of AmSurg common stock, the Series
A Preferred Stock shall automatically be combined or subdivided so that
following such an event, the conversion rate, ownership interests and voting
interests of the Series A Preferred Stock are equitably preserved. The holders
of the Series A Preferred Stock are entitled to convert, at the then current
market price per share of the Class A Common Stock, into shares of Class A
Common Stock for a period of 30 days, any or all of their shares of Series A
Preferred Stock into Class A Common Stock upon the earlier to occur of (a) 60
days after a Spin-off and (b) a Qualified IPO, as those terms are defined in the
AmSurg Charter. The Distribution will constitute a Spin-off. The outstanding
shares of Series A Preferred Stock are mandatorily redeemable at a price equal
to the Liquidation Value on the earliest to occur of (a) the sale, lease or
disposition by AmSurg of all or substantially all of its assets (an "AmSurg
Sale"); (b) a merger or consolidation of AmSurg with or into another entity; (c)
the sale, transfer or other disposition of all or substantially all of the
capital stock of AmSurg; (d) a Qualified IPO; or (e) November 20, 2002. In
addition, AmSurg may redeem, at any time upon 45 days written notice, all or
part of the outstanding shares of Series A Preferred Stock at a price equal to
the Liquidation Value.
Series B Convertible Preferred Stock. The holders of the Series B
Preferred Stock initially are entitled to 1.05 votes per share on all matters to
be voted on by stockholders. In the event the aggregate number of fully diluted
shares of Class A Common Stock into which the Series B Preferred Stock is
convertible increases above 599,215, the aggregate voting rights of the holders
of the Series B Preferred Stock will be increased by one vote for each
additional fully diluted share over 599,215. The holders of the Series B
Preferred Stock have the right to receive such dividends as may be declared from
time to time by the Board of Directors from funds legally available therefor. In
the event AmSurg subdivides or combines the outstanding shares of any class of
AmSurg common stock, the Series B Preferred Stock shall automatically be
combined or subdivided so that following such an event, the conversion rate,
ownership interests and voting interests of the Series B Preferred Stock are
equitably preserved. The Series B Preferred Stock is junior to the Series A
Preferred Stock and senior to the Class A Common Stock and Class B Common Stock
with respect to the liquidation preference. In the event of an AmSurg Sale or a
Qualified IPO, all of the issued and outstanding shares of Series B Preferred
Stock shall automatically convert into Class A Common Stock at a rate that will
result in the holders of the Series B Preferred Stock holding that number of
shares of Class A Common Stock that approximates 6% of the equity of AmSurg
determined as of November 20, 1996, with that percentage being ratably increased
to 8% of the equity of AmSurg if a triggering event has not occurred by November
20, 2000. In the event that AmSurg reorganizes pursuant to a Spin-off or
otherwise, reclassifies its capital stock, consolidates or merges with or into
another corporation, or sells, transfers or otherwise disposes of all of its
property, assets or business to another corporation other than in an AmSurg
Sale, all of the issued and outstanding shares of Series B Preferred Stock may
be converted into shares of Class A Common Stock. If by November 20, 2002 there
shall not have occurred an AmSurg Sale or a Qualified IPO, then the holders of
Series B Preferred Stock shall have the right to require AmSurg to purchase all
of the issued and outstanding shares of Series B Preferred Stock on an as if
converted basis at the current market price of the underlying Class A Common
Stock.
Transfer Agent and Registrar. SunTrust Bank, Atlanta will be the transfer
agent and registrar for the AmSurg Common Stock.
1992 STOCKHOLDERS' AGREEMENT
AHC, as a founding stockholder of AmSurg, along with certain private
investors, are parties to a stockholders' agreement dated as of April 2, 1992
(the "1992 Stockholders' Agreement"). In connection with an equity financing of
AmSurg Preferred Stock in November 1996, the 1992 Stockholders' Agreement was
amended to include the purchasers of AmSurg Preferred Stock. The 1992
Stockholders' Agreement provides
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for certain rights of first refusal with respect to any shares that AmSurg
proposes to issue and co-sale rights among the stockholders subject thereto.
These stockholders also have a right of first refusal, subject to certain
exceptions, to acquire shares of another stockholder, on a pro rata basis, on
the same terms and conditions as are set forth in a proposed sale transaction
with a third party. If a Qualified IPO does not occur by May 31, 2000, the
stockholders have also agreed to vote for a director selected by the holders of
AmSurg Preferred Stock. The 1992 Stockholders' Agreement, other than certain
provisions with respect to the election of directors after May 31, 2000, will be
terminated on the effective date of the Distribution.
REGISTRATION AGREEMENT
AHC and certain private investors entered into a Registration Agreement
dated April 2, 1992, as amended (the "Registration Agreement"). Pursuant
thereto, the holders of at least 66 2/3% of certain of the Registrable Shares
after a Qualified Initial Public Offering (as those terms are defined in the
Registration Agreement), may by written notice demand registration on Form S-1
or any similar long-form registration under the Securities Act of up to all of
the Registrable Shares owned by such holders. These holders of Registrable
Shares are entitled to only one such long-form demand registration. In
connection with an equity financing of AmSurg Preferred Stock in November 1996,
the purchasers of the AmSurg Preferred Stock became parties to the Registration
Agreement. As a result, shares of Class A Common Stock issued upon conversion of
the Series A Preferred Stock and the Series B Preferred Stock have been included
in the definition of Registrable Shares, and as such, have certain registration
rights. The holders of the Series A Preferred Stock and Series B Preferred Stock
are entitled to two long-form demand registrations. In addition, any holder or
holders of Registrable Shares may demand registration of any or all of their
Registrable Shares on or after the date upon which AmSurg has become entitled as
a registrant to use Form S-3 or any similar short-form registration. This
short-form demand registration right may be invoked on unlimited occasions,
provided the aggregate offering value of the Registrable Shares requested to be
registered is at least $1,000,000. The stockholders are also entitled to
unlimited "piggyback" registration rights whenever AmSurg proposes to register
any of its securities under the Securities Act (other than on Forms S-4 or S-8
or any successor forms). These "piggyback" registration rights entitle these
stockholders to include any of their Registrable Shares in any registration
statement which AmSurg proposes to file, subject to certain limitations
generally imposed by the managing underwriter regarding the number of shares to
be included in the offering.
STOCKHOLDERS' AGREEMENTS
Substantially all stockholders who purchased common stock of AmSurg in
connection with AmSurg's acquisitions of ambulatory surgery centers and other
investments have entered into stockholders' agreements with AmSurg. These
stockholders' agreements limit the ability of the stockholders to dispose of the
AmSurg Common Stock that they own without obtaining the prior written consent of
AmSurg. The stockholders' agreements also prohibit the stockholders from
effecting any public sale or distribution of the AmSurg Common Stock for 180
days following the effective date of any underwritten sale registered under the
Securities Act by AmSurg of its securities for its own account. The AmSurg Board
of Directors waived the 180 day holdback provision at its March 7, 1997 meeting,
subject to completion of the Distribution. In addition, the stockholders'
agreements provide for "piggyback" registration rights. See "SHARES ELIGIBLE FOR
FUTURE SALE." Except with respect to the registration rights of such
stockholders, the stockholders' agreements terminate on the earlier of the
closing of an Initial Public Offering or an Approved Sale of AmSurg (as those
terms are defined in the stockholders' agreements) or 10 years from the date of
such agreements. The registration rights granted pursuant to the stockholders'
agreements terminate upon the later of three years after the date of the
stockholders' agreement or six months following the closing of an Initial Public
Offering.
CERTAIN PROVISIONS OF THE CHARTER, BYLAWS, AND TENNESSEE LAW
General. The provisions of the Charter, the Bylaws, and Tennessee
statutory law described in this section may delay or make more difficult
acquisitions or changes of control of AmSurg that are not approved by the Board
of Directors. Such provisions have been implemented to enable AmSurg,
particularly (but not
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exclusively) in the initial years of its existence as an independent,
publicly-owned company, to develop its business in a manner that will foster its
long-term growth without the disruption of the threat of a takeover not deemed
by the Board of Directors to be in the best interests of AmSurg and its
stockholders.
Classified Board of Directors. The Bylaws provide that the number of
directors shall be no fewer than three or more than nine, with the exact number
to be established by the Board of Directors and subject to change from time to
time as determined by the Board of Directors. The AmSurg Charter provides for
the classification of the Board of Directors. Under the terms of the AmSurg
Charter, the members of the Board of Directors are divided into three classes,
serving staggered three-year terms. As a result, one-third of AmSurg's Board of
Directors will be elected each year. See "MANAGEMENT OF AMSURG." This provision
could prevent a party who acquires control of a majority of the outstanding
voting stock from obtaining control of AmSurg's Board of Directors until the
second annual shareholders' meeting following the date the acquiror obtains the
controlling stock interest. This provision may have the effect of discouraging a
potential acquiror from making a tender offer or otherwise attempting to obtain
control of AmSurg, and could also increase the likelihood that incumbent
directors will retain their positions.
The Charter provides that directors may be removed only for "cause" and
only by the affirmative vote of the holders of a majority of the voting power of
all the shares of AmSurg's capital stock then entitled to vote in the election
of directors, voting together as a single class, unless the vote of a special
voting group is otherwise required by law. "Cause" is defined in the Charter as:
(i) a felony conviction of a director or the failure of a director to contest
prosecution for a felony; (ii) conviction of a crime involving moral turpitude;
or (iii) willful and continued misconduct or gross negligence by a director in
the performance of his or her duties as a director. This provision, in
conjunction with the provision of the Bylaws authorizing the Board of Directors
to fill vacant directorships, may prevent stockholders from removing incumbent
directors without cause and filling the resulting vacancies with their own
nominees.
Advance Notice for Stockholder Proposals or Making Nominations at
Meetings. The Bylaws establish an advance notice procedure for stockholder
proposals to be brought before a meeting of stockholders of AmSurg and for
nominations by stockholders of candidates for election as directors at an annual
meeting or a special meeting at which directors are to be elected. Subject to
any other applicable requirements, only such business may be conducted at a
meeting of stockholders as has been brought before the meeting by, or at the
direction of, the Board of Directors, or by a stockholder who has given to the
Secretary of AmSurg timely written notice in proper form, of the stockholder's
intention to bring that business before the meeting. The presiding officer at
such meeting has the authority to make such determinations. Only persons who are
selected and recommended by the Board of Directors, or the committee of the
Board of Directors designated to make nominations, or who are nominated by a
shareholder who has given timely written notice, in proper form, to the
Secretary prior to a meeting at which directors are to be elected will be
eligible for election as directors of AmSurg.
To be timely, notice of nominations or other business to be brought before
any meeting must be received by the Secretary of AmSurg not later than 120 days
in advance of the anniversary date of AmSurg's proxy statement for the previous
year's annual meeting or, in the case of special meetings, at the close of
business on the tenth day following the date on which notice of such meeting is
first given to shareholders.
The notice of any shareholder proposal or nomination for election as
director must set forth various information required under the Bylaws. The
person submitting the notice of nomination and any person acting in concert with
such person must provide, among other things, the name and address under which
they appear on AmSurg's books (if they so appear) and the class and number of
shares of AmSurg's capital stock that are beneficially owned by them.
Amendment of the Bylaws and Charter. Except with respect to amendments to
the Bylaws or Charter relating to the classified structure of the Board of
Directors which are required to be approved by the affirmative vote of
two-thirds of the voting power of the shares entitled to vote in the election of
directors, the Bylaws provide that a majority of the members of the Board of
Directors who are present at any regular or special meeting or the holders of a
majority of the voting power of all shares of AmSurg's capital stock
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represented at a regular or special meeting have the power to amend, alter,
change, repeal, or restate the Bylaws.
Except as may be set forth in resolutions providing for any class or series
of preferred stock, any proposal to amend, alter, change, or repeal any
provision of the Charter requires approval by the affirmative vote of both a
majority of the members of the Board of Directors then in office and the holders
of a majority of the voting power of all of the shares of AmSurg's capital stock
entitled to vote on the amendments, with stockholders entitled to dissenters'
rights as a result of the Charter amendment voting together as a single class.
The Series A Preferred Stock and Series B Preferred Stock are each entitled to
vote as a separate class in connection with the approval of any amendment to the
Charter which would amend, modify or waive the rights of the holders of the
Series A Preferred Stock or Series B Preferred Stock and any such amendment is
required to be approved by the affirmative vote of at least two-thirds of the
outstanding shares of each class of preferred stock. Stockholders entitled to
dissenters' rights as a result of a Charter amendment are those whose rights
would be materially and adversely affected because the amendment (i) alters or
abolishes a preferential right of the shares; (ii) creates, alters, or abolishes
a right in respect of redemption; (iii) alters or abolishes a preemptive right;
(iv) excludes or limits the right of the shares to vote on any matter, or to
cumulate votes other than a limitation by dilution through issuance of shares or
other securities with similar voting rights; or (v) reduces the number of shares
held by such holder to a fraction if the fractional share is to be acquired for
cash. In general, however, no stockholder is entitled to dissenters' rights if
the security he or she holds is listed on a national securities exchange or the
Nasdaq National Market.
Tennessee Law. The Tennessee Business Combination Act (the "Combination
Act") provides, among other things, that any corporation to which the
Combination Act applies, including AmSurg, shall not engage in any "business
combination" with an "interested stockholder" for a period of five years
following the date that such stockholder became an interested stockholder unless
prior to such date the board of directors of the corporation approved either the
business combination or the transaction which resulted in the stockholder
becoming an interested stockholder.
The Combination Act defines "business combination," generally, to mean any:
(i) merger or consolidation; (ii) share exchange; (iii) sale, lease, exchange,
mortgage, pledge, or other transfer (in one transaction or a series of
transactions) of assets representing 10% or more of (A) the market value of
consolidated assets, (B) the market value of the corporation's outstanding
shares or (C) the corporation's consolidated net income; (iv) issuance or
transfer of shares from the corporation to the interested stockholder; (v) plan
of liquidation; (vi) transaction in which the interested stockholder's
proportionate share of the outstanding shares of any class of securities is
increased; or (vii) financing arrangements pursuant to which the interested
stockholder, directly or indirectly, receives a benefit except proportionately
as a stockholder.
The Combination Act defines "interested stockholder," generally, to mean
any person who is the beneficial owner, either directly or indirectly, of 10% or
more of any class or series of the outstanding voting stock, or any affiliate or
associate of the corporation who has been the beneficial owner, either directly
or indirectly, of 10% or more of the voting power of any class or series of the
corporation's stock at any time within the five year period preceding the date
in question. Consummation of a business combination that is subject to the
five-year moratorium is permitted after such period if the transaction (i)
complies with all applicable charter and bylaw requirements and applicable
Tennessee law and (ii) is approved by at least two-thirds of the outstanding
voting stock not beneficially owned by the interested stockholder, or when the
transaction meets certain fair price criteria. The fair price criteria include,
among others, the requirement that the per share consideration received in any
such business combination by each of the stockholders is equal to the highest of
(i) the highest per share price paid by the interested stockholder during the
preceding five-year period for shares of the same class or series plus interest
thereon from such date at a treasury bill rate less the aggregate amount of any
cash dividends paid and the market value of any dividends paid other than in
cash since such earliest date, up to the amount of such interest, (ii) the
highest preferential amount, if any, such class or series is entitled to receive
on liquidation, or (iii) the market value of the shares on either the date the
business combination is announced or the date when the interested stockholder
reaches the 10% threshold, whichever is higher, plus interest thereon less
dividends as noted above.
75
<PAGE> 83
The Tennessee Control Share Acquisition Act (the "Acquisition Act")
prohibits certain stockholders from exercising in excess of 20% of the voting
power in a corporation acquired in a "control share acquisition," as defined in
the Acquisition Act, unless such voting rights have been previously approved by
the disinterested stockholders of the corporation. AmSurg has not elected to
make the Acquisition Act applicable to AmSurg. No assurance can be given that
such election, which must be expressed in a charter or bylaw amendment, will or
will not be made in the future.
The Tennessee Greenmail Act (the "Greenmail Act") prohibits AmSurg from
purchasing or agreeing to purchase any of its securities, at a price in excess
of fair market value, from a holder of 3% or more of any class of such
securities who has beneficially owned such securities for less than two years,
unless such purchase has been approved by the affirmative vote of a majority of
the outstanding shares of each class of voting stock issued by AmSurg or AmSurg
makes an offer of at least equal value per share to all holders of shares of
such class.
The effect of the Greenmail Act may be to render more difficult a change of
control of AmSurg.
Other Change-of-Control Provisions. For a description of certain other
change-of-control provisions, see "MANAGEMENT OF AMSURG -- Employment
Agreements;" and" -- Stock Incentive Plans."
SHARES ELIGIBLE FOR FUTURE SALE
Following the Distribution, AmSurg will have outstanding an aggregate of
3,887,619 shares of Class A Common Stock and 5,530,131 shares of Class B Common
Stock based on the number of outstanding shares of AmSurg Common Stock on April
30, 1997. Of the total outstanding shares of Common Stock, the shares of Class B
Common Stock issued to holders of AHC Common Stock in the Distribution will be
freely tradable without restriction or further registration under the Securities
Act, unless held by "affiliates" of AmSurg, as that term is defined in Rule 144
under the Securities Act (which sales would be subject to certain volume
limitations and other restrictions described below).
The shares of Class A Common Stock issued and outstanding as of the
Distribution were issued in transactions unrelated to the Distribution. Under
current law, absent registration or an exemption from registration other than
Rule 144, such shares will be "restricted securities" as that term is defined in
Rule 144 under the Securities Act and will be eligible for sale or transfer only
in accordance with Rule 144. All of the shares of Class A Common Stock expected
to be outstanding as of the Distribution will be "restricted securities."
The Series A Preferred Stock is convertible into Class A Common Stock upon
the earlier to occur of (a) 60 days following a Spin-off (the Distribution will
constitute a Spin-off) or (b) a Qualified IPO. A Qualified IPO, prior to a
Spin-off, means a public offering of Class A Common Stock yielding net cash
proceeds of at least $25,000,000. The Series B Preferred Stock is automatically
convertible in the event of an AmSurg Sale or Qualified IPO, as those terms are
defined in the AmSurg Charter. In addition, the Series B Preferred Stock may be
converted upon the Distribution and certain other events specified in the AmSurg
Charter. The shares of Class A Common Stock issued upon conversion of the Series
A Preferred Stock and Series B Preferred Stock will be "restricted securities"
as that term is defined in Rule 144 under the Securities Act and will be
eligible for sale or transfer only in accordance with Rule 144 absent
registration or an exemption from registration.
In general, under Rule 144 as currently in effect, a person (or persons
whose share are aggregated), including an affiliate, who has beneficially owned
shares for at least one year (including, if the shares are transferred, the
holding period of any prior owner except an affiliate) is entitled to sell in
"broker's transactions" or to market makers, within any three-month period
commencing 90 days after the date of this Information Statement, a number of
shares that does not exceed the greater of (i) 1% of the then outstanding shares
of the Class A Common Stock (approximately 38,876 shares immediately after the
Distribution) or (ii) generally, the average weekly trading volume in such class
of the Class A Common Stock during the four calendar weeks preceding the filing
of a Form 144 with respect to such sale, and subject to certain other
limitations and restrictions. In addition, a person who is not deemed to have
been an affiliate of AmSurg at any
76
<PAGE> 84
time during the three months preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years, would be entitled to sell
such shares under Rule 144(k) without regard to the volume and other
requirements described above. Shares of Class A Common Stock that would
otherwise be deemed "restricted securities" could be sold at any time through an
effective registration statement relating to such shares of Class A Common
Stock. Of the 3,887,619 shares of Class A Common Stock that are anticipated to
be "restricted securities" immediately following the Distribution, 3,502,698
will have satisfied a one-year holding period.
Pursuant to the Registration Agreement, certain stockholders of AmSurg and
the holders of the Series A Preferred Stock and the Series B Preferred Stock
have several demand and unlimited "piggyback" registration rights. In addition,
the other AmSurg stockholders are entitled to unlimited "piggyback" registration
rights in connection with any proposed registration of equity securities by
AmSurg (with certain specified exceptions) pursuant to stockholders' agreements
entered into between AmSurg and these stockholders. All of the outstanding
shares of AmSurg Common Stock are subject to registration rights. For a more
complete description of such registration rights see "DESCRIPTION OF CAPITAL
STOCK."
Immediately following the Distribution, there will be outstanding options
for approximately 1,100,816 shares of AmSurg Class A Common Stock, including
options granted to non-employee directors of AmSurg. Of such options,
approximately 721,629 of these options will be exercisable for shares of Class A
Common Stock and such shares will immediately be able to be sold by the holders
following the Distribution and the filing of a registration statement on Form
S-8 by AmSurg. See "MANAGEMENT OF AMSURG -- Stock Incentive Plans."
Prior to the Distribution, there has not been any public market for either
class of the AmSurg Common Stock. No prediction can be made as to the effect, if
any, that market sales of shares or the availability of shares for sale will
have on the market price prevailing from time to time. Sales of substantial
additional amounts of Class A Common Stock in the public market, or the
perception that such sales could occur, could adversely affect the prevailing
market price of the Class A Common Stock.
77
<PAGE> 85
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AmSurg Corp.
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheets as of December 31, 1995 and
1996 and March 31, 1997................................ F-3
Consolidated Statements of Operations for each of the
three years in the period ended December 31, 1996 and
the three months ended March 31, 1996 and 1997......... F-4
Consolidated Statements of Changes in Stockholders' Equity
for each of the three years in the period ended
December 31, 1996 and the three months ended March 31,
1997................................................... F-5
Consolidated Statements of Cash Flows for each of the
three years in the period ended December 31, 1996 and
the three months ended March 31, 1996 and 1997......... F-6
Notes to the Consolidated Financial Statements............ F-7
Unaudited Pro Forma Financial Information
Introduction.............................................. F-17
Pro Forma Combined Statement of Operations for the year
ended December 31, 1996................................ F-17
Pro Forma Combined Statement of Operations for the three
months ended March 31, 1997............................ F-18
Notes to the Pro Forma Combined Statements of
Operations............................................. F-19
Endoscopy Center Operations of the Endoscopy Center of
Ocala, Inc.
Independent Auditors' Report.............................. F-20
Statement of Income for the period from January 1, 1996
through August 21, 1996................................ F-21
Statement of Cash Flows for the period from January 1,
1996 through August 21, 1996........................... F-22
Notes to the Financial Statements......................... F-23
Financial Statement Schedule -- AmSurg Corp.
Independent Auditors' Report.............................. S-1
Schedule II -- Valuation and Qualifying Accounts.......... S-2
Financial Statement Schedule -- Endoscopy Center Operations
of the Endoscopy Center of Ocala, Inc.
Independent Auditors' Report.............................. S-3
Schedule II -- Valuation and Qualifying Accounts.......... S-4
</TABLE>
F-1
<PAGE> 86
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
AmSurg Corp.
Nashville, Tennessee
We have audited the accompanying consolidated balance sheets of AmSurg
Corp. and subsidiaries as of December 31, 1995 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of AmSurg Corp. and subsidiaries
as of December 31, 1995 and 1996 and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Nashville, Tennessee
February 21, 1997
F-2
<PAGE> 87
AMSURG CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents (Note 1).................... $ 3,469,661 $ 3,192,408 $ 2,453,835
Accounts receivable, net of allowance for
uncollectible accounts of $455,628, $1,272,651 and
$1,418,860......................................... 2,878,840 5,640,946 6,770,831
Supplies inventory.................................... 248,002 554,839 674,794
Other current assets (Note 1)......................... 466,922 680,761 864,464
Deferred tax asset (Notes 1 and 4).................... 243,000 303,000 303,000
----------- ----------- -----------
Total current assets.......................... 7,306,425 10,371,954 11,066,924
----------- ----------- -----------
Long-term receivables and deposits (Note 2)............. 133,930 643,516 638,431
----------- ----------- -----------
Property and equipment (Note 1)
Land and improvements................................. -- 98,540 98,540
Buildings and improvements............................ 4,578,990 7,017,163 7,396,804
Moveable equipment.................................... 5,848,399 8,725,140 10,128,066
Construction in progress.............................. 97,165 316,384 674,380
----------- ----------- -----------
10,524,554 16,157,227 18,297,790
Accumulated depreciation.............................. (2,366,560) (3,821,335) (4,444,937)
----------- ----------- -----------
Property and equipment, net........................... 8,157,994 12,335,892 13,852,853
----------- ----------- -----------
Other assets, net (Note 1).............................. 391,179 530,312 552,967
----------- ----------- -----------
Excess of cost over net assets of purchased operations,
net (Notes 1, 2, 9 and 10)............................ 19,116,909 30,771,784 34,780,997
----------- ----------- -----------
$35,106,437 $54,653,458 $60,892,172
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable...................................... $ 562,961 $ 982,547 $ 1,587,119
Accrued salaries and benefits......................... 516,383 829,582 571,751
Accrued liabilities................................... 740,888 1,128,856 1,216,471
Current income taxes payable (Notes 1 and 4).......... 316,895 82,586 266,695
Current portion of long-term debt (Notes 5 and 10).... 2,238,496 2,616,714 2,583,308
----------- ----------- -----------
Total current liabilities..................... 4,375,623 5,640,285 6,225,344
----------- ----------- -----------
Deferred income taxes (Notes 1 and 4)................... 456,000 765,000 765,000
----------- ----------- -----------
Long-term debt (Notes 5 and 10)......................... 4,785,552 9,218,281 14,757,986
----------- ----------- -----------
Minority interest (Note 1).............................. 3,010,070 5,673,960 6,417,617
----------- ----------- -----------
Commitments and contingencies (Note 8)
Preferred stock (Note 6)
No par value, 5,000,000 shares authorized, 2,750,000
shares outstanding................................. -- 4,982,057 5,049,622
----------- ----------- -----------
Stockholders' equity (Note 7)
Common stock
No par value, 40,000,000 shares authorized,
24,907,430, 27,598,577 and 28,235,844 shares
outstanding...................................... 21,627,861 26,064,085 27,259,208
Retained earnings..................................... 851,331 2,309,790 417,395
----------- ----------- -----------
Total stockholders' equity.................... 22,479,192 28,373,875 27,676,603
----------- ----------- -----------
$35,106,437 $54,653,458 $60,892,172
=========== =========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-3
<PAGE> 88
AMSURG CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
--------------------------------------- -----------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues (Note 1)............... $13,826,566 $22,489,379 $35,007,216 $ 7,169,227 $12,609,924
----------- ----------- ----------- ----------- -----------
Expenses:
Salaries and benefits......... 4,091,996 6,243,134 11,613,504 2,247,075 3,971,664
Other operating expenses (Note
3)......................... 5,091,110 7,562,655 11,546,562 2,254,177 4,450,793
Depreciation and amortization
(Note 1)................... 1,309,054 2,396,796 3,000,183 671,626 1,087,263
Interest...................... 193,047 722,390 947,863 211,397 326,955
Impairment loss (Note 10)..... -- -- -- -- 2,321,168
----------- ----------- ----------- ----------- -----------
Total expenses........ 10,685,207 16,924,975 27,108,112 5,384,275 12,157,843
----------- ----------- ----------- ----------- -----------
Income before minority interest
and income taxes.............. 3,141,359 5,564,404 7,899,104 1,784,952 452,081
Minority interest (Note 1).... 2,464,105 3,938,364 5,433,588 1,195,777 1,947,911
----------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes......................... 677,254 1,626,040 2,465,516 589,175 (1,495,830)
Income tax expense (Notes 1
and 4)..................... 26,000 578,000 985,000 236,000 329,000
----------- ----------- ----------- ----------- -----------
Net income (loss)............... 651,254 1,048,040 1,480,516 353,175 (1,824,830)
Accretion of preferred stock
discount (Note 6).......... -- -- 22,057 -- 67,565
----------- ----------- ----------- ----------- -----------
Net income (loss) attributable
to common stockholders........ $ 651,254 $ 1,048,040 $ 1,458,459 $ 353,175 $(1,892,395)
=========== =========== =========== =========== ===========
Net income (loss) per share
attributable to common
stockholders (Note 1)......... $ 0.03 $ 0.04 $ 0.05 $ 0.01 $ (0.07)
=========== =========== =========== =========== ===========
Weighted average common shares
and equivalents (Note 1)...... 21,937,814 25,742,923 27,306,780 26,334,770 28,080,719
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE> 89
AMSURG CORP.
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
COMMON EARNINGS
STOCK (DEFICIT) TOTAL
----------- ---------- -----------
<S> <C> <C> <C>
Balance, December 31, 1993........................... $12,903,385 $ (847,963) $12,055,422
Issuance of stock.................................. 5,592,561 -- 5,592,561
Issuance of stock in conjunction with acquisitions
(Note 2)........................................ 997,649 -- 997,649
Issuance of stock warrant (Note 7)................. 260,787 -- 260,787
Net income......................................... -- 651,254 651,254
----------- ---------- -----------
Balance, December 31, 1994........................... 19,754,382 (196,709) 19,557,673
Issuance of stock.................................. 1,197,279 -- 1,197,279
Issuance of stock in conjunction with acquisitions
(Note 2)........................................ 676,200 -- 676,200
Net income......................................... -- 1,048,040 1,048,040
----------- ---------- -----------
Balance, December 31, 1995........................... 21,627,861 851,331 22,479,192
Issuance of stock.................................. 2,366,262 -- 2,366,262
Issuance of stock in conjunction with acquisitions
(Note 2)........................................ 2,069,962 -- 2,069,962
Net income attributable to common stockholders..... -- 1,458,459 1,458,459
----------- ---------- -----------
Balance, December 31, 1996........................... 26,064,085 2,309,790 28,373,875
Issuance of stock (unaudited)...................... 133,776 -- 133,776
Issuance of stock in conjunction with acquisitions
(unaudited)..................................... 1,061,347 -- 1,061,347
Net loss attributable to common stockholders
(unaudited)..................................... -- (1,892,395) (1,892,395)
----------- ---------- -----------
Balance, March 31, 1997 (unaudited).................. $27,259,208 $ 417,395 $27,676,603
=========== ========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE> 90
AMSURG CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------- --------------------------
1994 1995 1996 1996 1997
----------- ----------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................. $ 651,254 $ 1,048,040 $ 1,480,516 $ 353,175 $(1,824,830)
Income tax expense (Note 1 and 4)............... 26,000 578,000 985,000 236,000 329,000
Minority interest (Note 1)...................... 2,464,105 3,938,364 5,433,588 1,195,777 1,947,911
----------- ----------- ------------ ----------- -----------
Income before minority interest and income
taxes........................................... 3,141,359 5,564,404 7,899,104 1,784,952 452,081
Noncash expenses, revenues, losses and gains
included in income:
Depreciation and amortization (Note 1).......... 1,309,054 2,396,796 3,000,183 671,626 1,087,263
Impairment loss (Note 10)....................... -- -- -- -- 2,321,168
Increase in working capital items............... (285,015) (132,418) (856,584) (164,196) (335,832)
Other noncash transactions...................... 59,926 106,220 125,190 33,760 12,555
----------- ----------- ------------ ----------- -----------
4,225,324 7,935,002 10,167,893 2,326,142 3,537,235
Increase in other assets.......................... (373,201) (120,705) (286,031) (20,148) (111,475)
Income taxes paid................................. -- (74,105) (970,309) (303,100) (144,891)
----------- ----------- ------------ ----------- -----------
Net cash flows provided by operating
activities................................ 3,852,123 7,740,192 8,911,553 2,002,894 3,280,869
----------- ----------- ------------ ----------- -----------
Cash flows from investing activities:
Acquisition of majority interest in surgery
centers (Notes 2 and 10)........................ (4,537,780) (3,186,512) (12,669,794) (3,543,842) (6,030,569)
Acquisition of property and equipment............. (4,777,563) (2,138,075) (3,863,052) (382,086) (1,943,151)
Decrease (increase) in long-term receivables...... (116,683) (846) 137,582 35,607 5,085
----------- ----------- ------------ ----------- -----------
Net cash flows used in investing
activities................................ (9,432,026) (5,325,433) (16,395,264) (3,890,321) (7,968,635)
----------- ----------- ------------ ----------- -----------
Cash flows from financing activities:
Additions to long-term debt (Notes 5 and 10)...... 3,163,300 2,471,579 10,544,700 2,150,000 6,176,000
Payments on long-term debt (Notes 5 and 10)....... (516,007) (999,929) (7,261,534) (907,358) (825,267)
Distributions to minority partners................ (2,327,128) (3,840,787) (5,084,294) (997,742) (1,719,822)
Issuance of preferred stock (net of issuance
costs).......................................... -- -- 4,960,000 -- --
Issuance of common stock (net of issuance
costs).......................................... 5,592,561 1,197,279 2,366,262 311,231 133,776
Capital contributions by minority partners........ 679,486 476,693 1,681,324 42,630 184,506
----------- ----------- ------------ ----------- -----------
Net cash flows provided by (used in)
financing activities...................... 6,592,212 (695,165) 7,206,458 598,761 3,949,193
----------- ----------- ------------ ----------- -----------
Net increase (decrease) in cash and cash
equivalents....................................... 1,012,309 1,719,594 (277,253) (1,288,666) (738,573)
Cash and cash equivalents, beginning of period...... 737,758 1,750,067 3,469,661 3,469,661 3,192,408
----------- ----------- ------------ ----------- -----------
Cash and cash equivalents, end of period............ $ 1,750,067 $ 3,469,661 $ 3,192,408 $ 2,180,995 $ 2,453,835
=========== =========== ============ =========== ===========
(Increase) decrease in working capital items
excluding income taxes:
Accounts receivable, net.......................... $ (605,969) $ (467,620) $ (1,353,365) $ (171,358) $ (611,293)
Other current assets.............................. (114,893) (183,856) (342,086) 20,427 (148,658)
Accounts payable.................................. 28,959 145,612 419,586 527,563 604,572
Accrued expenses.................................. 406,888 373,446 419,281 (540,828) (180,453)
----------- ----------- ------------ ----------- -----------
$ (285,015) $ (132,418) $ (856,584) $ (164,196) $ (335,832)
=========== =========== ============ =========== ===========
</TABLE>
SUPPLEMENTAL NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
1. Interest payments of $159,534, $550,725 and $909,884 were made during the
years ended December 31, 1994, 1995 and 1996, respectively and $205,342 and
$312,915 during the three months ended March 31, 1996 and 1997, respectively.
2. Shares of stock valued at $997,649, $676,200 and $2,069,962 were issued in
conjunction with the acquisition of majority interests in various surgery
centers during the years ended December 31, 1994, 1995 and 1996,
respectively, and $489,200 and $1,061,347 during the three months ended March
31, 1996 and 1997, respectively. (See Notes 2 and 10.)
See accompanying notes to the consolidated financial statements.
F-6
<PAGE> 91
AMSURG CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation
AmSurg Corp. (the "Company"), through its wholly-owned subsidiaries, owns
majority interests primarily between 51% and 70% in limited partnerships and
limited liability companies ("LLCs") which own and operate practice-based
ambulatory surgery centers and physician practices. The Company also has
majority ownership interests in other partnerships and LLCs formed to develop
additional centers. The consolidated financial statements include the accounts
of the Company and its subsidiaries and the majority-owned limited partnerships
and LLCs in which the Company is the general partner or member. Consolidation of
such partnerships and LLCs is necessary as the Company has 51% or more of the
financial interest, is the general partner or majority member with all the
duties, rights and responsibilities thereof and is responsible for the day to
day management of the partnership or LLC. The limited partner or minority member
responsibilities are to provide the delivery of medical services with their
rights being restricted to those which protect their financial interests, such
as approval of the acquisition of significant assets or incurring debt which
they, as physician limited partners or members, are required to guarantee. All
material intercompany profits, transactions and balances have been eliminated.
All subsidiaries and minority owners are herein referred to as partnerships and
partners, respectively.
At December 31, 1996, approximately 60% of the outstanding common shares of
the Company were owned by American Healthcorp, Inc. ("AHC").
b. Cash and Cash Equivalents
Cash and cash equivalents are comprised principally of demand deposits at
banks, and other highly liquid short-term investments with maturities less than
three months when purchased.
c. Other Current Assets
Other current assets are comprised of prepaid expenses and other
receivables.
d. Property and Equipment
Property and equipment costs include expenditures which increase value or
extend useful lives. Depreciation for buildings and improvements is recognized
under the straight line method over 20 years, or for leasehold improvements,
over the remaining term of the lease plus renewal options. Depreciation for
moveable equipment is recognized over useful lives of five to ten years.
e. Other Assets
Other assets consist of deferred pre-opening costs, deferred organization
costs and deferred financing costs of the Company and the entities included in
the Company's consolidated financial statements. Deferred pre-opening costs are
being amortized over one year, deferred organization costs are being amortized
over five years, and deferred financing costs are being amortized over the term
of the related debt. Accumulated amortization of other assets at December 31,
1995 and 1996 was $325,528 and $402,402, respectively.
f. Excess of Cost over Net Assets of Purchased Operations
Excess of cost over net assets of purchased operations are being amortized
over 25 years. Accumulated amortization at December 31, 1995 and 1996 was
$1,705,157 and $2,757,394, respectively. The Company has consistently assessed
impairment of the excess of cost over net assets of purchased operations and
other long-lived assets in accordance with criteria consistent with the
provisions of Financial Accounting Standard No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
F-7
<PAGE> 92
AMSURG CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Of." (See Notes 2, 9 and 10). Whenever events or changes in circumstances
indicate that the carrying amount of long-term assets may not be recoverable,
management assesses whether or not an impairment loss should be recorded by
comparing estimated undiscounted future cash flows with the assets' carrying
amount at the partnership level. If the assets' carrying amount is in excess of
the estimated undiscounted future cash flows, an impairment loss is recognized
as the excess of the carrying amount over estimated future cash flows discounted
at an applicable rate. Intangibles and other long-lived assets to be disposed of
are reported at the lower of the carrying amount or fair value less cost to
sell.
g. Income Taxes
The Company files a consolidated tax return which includes all of its
subsidiary corporations and computes its tax provision under Financial
Accounting Standard No. 109 "Accounting for Income Taxes."
h. Revenue Recognition
Revenues are comprised of the following:
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Surgery center revenues....................... $13,460,072 $21,641,743 $28,950,498
Physician practice revenues................... -- -- 5,155,148
Management fees............................... 168,089 424,202 456,574
Interest and other............................ 198,405 423,434 444,996
----------- ----------- -----------
$13,826,566 $22,489,379 $35,007,216
=========== =========== ===========
</TABLE>
Surgery center revenues consist of the billing for the use of the Centers'
facilities (the "usage fee") directly to the patient or third party payor. The
usage fee does not include any amounts billed for physicians' services which are
billed separately by the physicians to the patient or third party payor.
Physician practice revenues consist of the billing for physician services
of the Company's one majority owned physician practice in 1996. The billings are
made by the practice directly to the patient or third party payor.
Revenues from surgery centers and physician practices are recognized on the
date of service, net of estimated contractual allowances from third party
medical service payors including Medicare and Medicaid. During the years ended
December 31, 1994, 1995 and 1996 approximately 39%, 37%, and 36%, respectively,
of the Company's revenues were derived from the provision of services to
patients covered under Medicare and Medicaid. Concentration of credit risk with
respect to other payors is limited due to the large number of such payors.
Management fees revenue is derived from providing management services to
one surgery center in which the Company has no ownership interest and is
recognized as the services are provided.
i. Net Income Per Share
Net income per share is computed by dividing net income by the weighted
average number of common shares and equivalents outstanding.
j. Fair Value of Financial Instruments
Financial Accounting Standard No. 107, "Disclosures About Fair Value of
Financial Instruments," requires disclosure of the fair value of certain
financial instruments. Cash and cash equivalents, receivables and payables are
reflected in the financial statements at cost which approximates fair value.
Management
F-8
<PAGE> 93
AMSURG CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
believes that the carrying amounts of long-term debt approximate market value,
because it believes the terms of its borrowings approximate terms which it would
incur currently.
k. Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. ACQUISITIONS
In three separate transactions during 1994, the Company acquired a majority
interest in three physician practice-based surgery centers. The purchase price
paid for the assets acquired was $5,966,759 which consisted of cash of
$4,481,730, AmSurg common stock valued at $1,102,649 and a note payable of
$382,380.
In two separate transactions during 1995, the Company acquired a majority
interest in two physician practice-based surgery centers. The purchase price
paid for the interests acquired was $4,415,000 which consisted of cash of
$3,108,800, AmSurg common stock valued at $676,200 and a note payable of
$630,000.
In five separate transactions during 1996, the Company acquired a majority
interest in four physician practice-based surgery centers and a physician
practice and related entities. The purchase price paid for the interests
acquired was $10,214,040 which consisted of cash of $8,646,220 and AmSurg common
stock valued at $1,567,820.
On August 22, 1996, the Company acquired a majority interest in the
Endoscopy Center of Ocala, Inc. which is a physician practice-based surgery
center. The purchase price paid for the interest acquired was $3,347,621 which
consisted of cash of $2,845,479 and AmSurg common stock valued at $502,142. With
this transaction, the Company acquired current assets of $249,810, property and
equipment of $85,333, excess of cost over net assets of purchased operations of
$3,178,304 and assumed liabilities of $165,827.
The approximate purchase price of the aforementioned acquisitions,
including the Endoscopy Center of Ocala, Inc., was assigned as follows:
<TABLE>
<CAPTION>
ACQUISITIONS IN
---------------------------------------
1994 1995 1996
---------- ---------- -----------
<S> <C> <C> <C>
Current assets................................ $ 361,153 $ 166,996 $ 1,206,033
Property and equipment........................ 664,881 1,459,196 2,508,191
Excess of cost over net assets of purchased
operations.................................. 5,409,025 3,976,358 12,289,386
Liabilities assumed........................... (468,300) (1,187,550) (2,441,949)
---------- ---------- -----------
Net acquisition purchase price...... $5,966,759 $4,415,000 $13,561,661
========== ========== ===========
</TABLE>
Had these transactions occurred January 1, 1994, unaudited pro forma
revenues for the years ended December 31, 1994, 1995 and 1996 would have been
approximately $25,129,000, $33,692,000 and $40,620,000, respectively. Unaudited
pro forma net income for the years ended December 31, 1994, 1995 and 1996 would
have been approximately $538,000, $1,187,000 and $1,645,000, respectively, and
pro forma earnings per share would be $.02, $.04 and $.06, respectively.
An acquisition which occurred in 1995 was structured such that if certain
operating results were not achieved, the then agreed upon purchase price would
be adjusted. Subsequent operations of the center did not meet the predefined
levels. The purchase price adjustment, which is reflected as a long-term
receivable in the
F-9
<PAGE> 94
AMSURG CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accompanying consolidated balance sheet at December 31, 1996, is being repaid to
the Company over a thirty month period.
3. RELATED PARTY TRANSACTIONS
Included in accounts payable at December 31, 1995 and 1996 is $16,066 and
$20,493, respectively, and included in other operating expenses for the years
ended December 31, 1994, 1995 and 1996 is $151,846, $186,215 and $213,820,
respectively, due/paid to AHC for management and financial services provided by
AHC to the Company. These payables/expenses were incurred pursuant to an
agreement effective December 1, 1992, under which AHC was paid $100,000 a year
for the services of AHC's chief executive officer and chief financial officer.
Also under the agreement, AHC was paid approximately $4,000 per year for each
ambulatory surgery center partnership and $8,000 per year for the Company's
corporate operations to provide certain partnership and Company accounting and
income tax services. The Company entered into a new agreement with AHC effective
January 1, 1997 by which the Company will pay AHC an annual fee of $85,000 for
the services of AHC's chief executive officer and chief financial officer. Also,
AHC will be paid an annual fixed fee of $50,000 plus an annual fee of $7,500 for
each ambulatory surgery center and an annual fee of $15,000 for each physician
practice and the Company's corporate operations to provide certain
administrative accounting and financial services. This agreement terminates upon
the earlier of (i) the mutual agreement of the parties, (ii) the date which
AmSurg begins to trade as a separate public company or (iii) December 31, 1997.
The Company also rents approximately 15,000 square feet of office space
from AHC pursuant to a sublease which expires December 1999. Included in other
operating expenses for the year ended December 31, 1996 is $163,212 related to
this sublease.
The Company also leases space for certain surgery centers at rates the
Company believes approximate fair market value from its physician partners
affiliated with its centers. Payments on these leases were $519,768, $871,054
and $1,205,849 for the years ended December 31, 1994, 1995 and 1996,
respectively.
The Company believes that the foregoing transactions are in its best
interests. It is the Company's current policy that all transactions by the
Company with officers, directors, five percent stockholders and their affiliates
will be entered into only if such transactions are on terms no less favorable to
the Company than could be obtained from unaffiliated parties, are reasonably
expected to benefit the Company and are approved by a majority of the
disinterested independent members of the Company's Board of Directors.
F-10
<PAGE> 95
AMSURG CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INCOME TAXES
Income tax expense is comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
Current
Federal........................................... $ -- $301,000 $593,000
State............................................. 26,000 64,000 143,000
Deferred............................................ -- 213,000 249,000
------- -------- --------
$26,000 $578,000 $985,000
======= ======== ========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's net deferred liability are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
-------- --------
<S> <C> <C>
Deferred tax asset:
Allowance for uncollectible accounts...................... $228,000 $297,000
State operating losses.................................... 26,000 60,000
Valuation allowance on state net operating losses......... (11,000) (60,000)
Other..................................................... -- 6,000
-------- --------
243,000 303,000
-------- --------
Deferred tax liability:
Tax over book depreciation................................ 37,000 66,000
Tax over book amortization................................ 419,000 699,000
-------- --------
456,000 765,000
-------- --------
Net deferred tax liability.................................. $213,000 $462,000
======== ========
Net current deferred tax asset.............................. $243,000 $303,000
Net long-term deferred tax liability........................ 456,000 765,000
-------- --------
$213,000 $462,000
======== ========
</TABLE>
The Company has provided a valuation allowance on its deferred tax asset
related to state net operating losses to the extent that management does not
believe that it is more likely than not that such asset will be realized.
The difference between income tax expense computed using the effective tax
rate and the statutory Federal income tax rate follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
--------- --------- --------
<S> <C> <C> <C>
Statutory Federal income tax..................... $ 230,000 $ 553,000 $838,000
State income taxes, less Federal income tax
benefit........................................ 19,000 60,000 132,000
Increase (decrease) in valuation allowance....... (199,000) (124,000) 49,000
Other............................................ (24,000) 89,000 (34,000)
--------- --------- --------
$ 26,000 $ 578,000 $985,000
========= ========= ========
</TABLE>
F-11
<PAGE> 96
AMSURG CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1996
---------- -----------
<S> <C> <C>
$12,000,000 credit agreement at prime or 1.75% above LIBOR
(average rate of 7.3% at December 31, 1996) due through
June 10, 2002............................................ $ -- $ 3,157,657
Term loan at prime or 1.75% above LIBOR (7.25% at December
31, 1996) due through June 10, 2000...................... 3,347,493 5,030,590
Other debt at an average rate of 8.5% due through September
23, 2003................................................. 2,986,281 2,508,828
Capitalized lease arrangements at an average rate of 10.0%
due through December 1, 2000............................. 690,274 1,137,920
---------- -----------
7,024,048 11,834,995
Less current portion....................................... 2,238,496 2,616,714
---------- -----------
$4,785,552 $ 9,218,281
========== ===========
</TABLE>
On September 29, 1993, AmSurg entered into a credit agreement with a
lending institution. The credit agreement was amended and restated June 25,
1996. Under the terms of the new agreement, all borrowings outstanding under the
previous credit agreement were converted to a term loan that bears interest at
the prime rate or 1.75% above LIBOR or a combination thereof and is being repaid
on an installment basis through June 10, 2000. The borrowings under the term
loan are secured by $9,842,914 of assets financed by these borrowings.
Borrowings under the term loan totaled $5,030,590 at December 31, 1996 of which
payment of $497,449 was guaranteed by certain partners of AmSurg centers. In
addition, the credit agreement permits AmSurg to borrow up to an additional
$12,000,000 to finance AmSurg acquisition and development projects. New
borrowings under this agreement bear interest at prime or 1.75% above LIBOR or a
combination thereof. AmSurg may borrow under this credit agreement through June
10, 1998. The agreement provides for a fee of .35% on unused commitments and all
additional borrowings are to be repaid on an installment basis through June 10,
2002. The agreement contains covenants relating to the ratio of debt to net
worth, operating performance and minimum net worth and prohibits the payment of
dividends. The Company is in compliance with all related covenants at December
31, 1996. Borrowings under the $12,000,000 credit agreement totaled $3,157,657
at December 31, 1996.
Various of the AmSurg centers included in the Company's consolidated
financial statements have loans with local lending institutions. All the loans
are secured by assets of the centers totaling $3,874,816 and both AmSurg and the
partners have guaranteed payment of the loans. In addition, AmSurg has unsecured
notes payable of $389,222 issued in connection with the acquisition of two
physician practice-based surgery centers during the years ended December 31,
1994 and 1995 (see Note 2).
Four of the AmSurg centers have capitalized lease arrangements on equipment
with a cost of $777,327 and $1,264,598 at December 31, 1995 and 1996,
respectively. The equipment is being amortized over the terms of the related
leases (generally four to five years). Accumulated amortization at December 31,
1995 and 1996 was $97,983 and $328,618, respectively. Both AmSurg and the
partners have guaranteed payment of the leases. Total future minimum lease
payments due in the five years subsequent to December 31, 1996 are $450,395,
$418,416, $319,964, $138,071, and -0- including imputed interest of $96,069,
$61,310, $27,056, $4,491 and -0-, respectively.
Principal payments required on long-term debt in the five years subsequent
to December 31, 1996 are $2,616,714, $2,824,276, $2,987,788, $1,855,064 and
$995,777.
F-12
<PAGE> 97
AMSURG CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. PREFERRED STOCK
Preferred stock, net of issuance costs, is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
---- ----------
<S> <C> <C>
Series A redeemable preferred stock, 1,500,000 shares
outstanding............................................... $-- $1,774,290
Series B convertible preferred stock, 1,250,000 shares
outstanding............................................... -- 3,207,767
--- ----------
$-- $4,982,057
=== ==========
</TABLE>
On November 20, 1996, the Company issued to unaffiliated institutional
investors a combination of redeemable and convertible preferred stock for net
proceeds totaling $4,960,000. The convertible preferred stock, with a stated
amount of $2.5 million, is convertible into that number of shares of Class A
Common Stock that approximates 6% of the equity of AmSurg determined as of
November 20, 1996, with that percentage being ratably increased to 8% of the
equity of AmSurg if an event of liquidity has not occurred by November 20, 2000.
An event of liquidity is defined as an initial public offering of common stock
or sale of the Company yielding net cash proceeds to the Company of at least
$25,000,000, or in the event the Company has completed a spin-off, yielding net
proceeds of $20,000,000 to the Company and/or its shareholders. If such events
of liquidity do not occur by November 20, 2002, the holders of the convertible
preferred stock have the right to require the Company to redeem the stock at
current market price as defined. The redeemable preferred stock, with a stated
amount of $3 million, pays a cumulative dividend of 8% commencing November 21,
1998 and requires the Company to redeem them at the stated amount plus accrued
but unpaid dividends upon the earlier of an event of liquidity or November 20,
2002. The Company may redeem the redeemable preferred stock at any time. The
redeemable holders can convert to common stock of the Company upon the
occurrence of certain events, including the spin-off of the Company from AHC, at
the then current market price of the common stock. The preferred stock was
recorded at its fair market value, net of issuance costs. The Series A Preferred
Stock is being accreted to its redemption value including potential dividends.
The Series B Preferred Stock is not being accreted because management expects a
conversion upon an event of liquidity.
7. STOCK OPTIONS
The Company has a stock option plan under which it has granted incentive
and non-qualified options to purchase its common stock to employees and outside
directors. Options are granted at market value on the date of the grant and vest
over 4 years at the rate of 25% per year. Options have a term of 10 years from
the date of grant. As of December 31, 1996, 106,900 shares were reserved for
future options.
F-13
<PAGE> 98
AMSURG CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock option activity for the three years ended December 31, 1996 is
summarized below:
<TABLE>
<CAPTION>
AVERAGE
NUMBER OF PRICE PER
SHARES SHARE
--------- ---------
<S> <C> <C>
Outstanding at December 31, 1993............................ 1,666,600 $0.48
Options granted........................................... 286,000 1.09
---------
Outstanding at December 31, 1994............................ 1,952,600 0.57
Options granted........................................... 105,000 1.12
---------
Outstanding at December 31, 1995............................ 2,057,600 0.60
Options granted........................................... 689,250 1.67
Options exercised......................................... (8,750) 0.90
Options terminated........................................ (17,750) 1.07
---------
Outstanding at December 31, 1996............................ 2,720,350 $0.87
=========
</TABLE>
The following table summarizes information concerning outstanding and
exercisable options at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF NUMBER REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YRS.) PRICE EXERCISABLE PRICE
--------------- ----------- ----------- -------- ----------- --------
<C> <C> <C> <C> <C> <C>
$ .25 -- $ .50 1,032,000 5.3 $ .25 1,032,000 $ .25
.50 -- 1.00 652,600 6.3 .86 553,200 .85
1.00 -- 1.50 346,500 8.1 1.11 147,000 1.11
1.50 -- 1.79 689,250 9.3 1.67 -- N/A
--------- ---------
.25 -- 1.79 2,720,350 6.9 .87 1,732,200 .52
========= =========
</TABLE>
The Company accounts for its stock options issued to employees and outside
directors pursuant to Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees." Accordingly, no compensation expense has been
recognized in connection with the issuance of stock options. The estimated
weighted average fair values of the options at the date of grant using the
Black-Scholes option pricing model as promulgated by Financial Accounting
Standard No. 123, "Accounting for Stock Based Compensation" in 1995 and 1996
were $.60 and $.91 per share, respectively. In applying the Black-Scholes model,
the Company assumed no dividends, an expected life for the options of seven
years and a forfeiture rate of 3% in both 1995 and 1996 and an average risk free
interest rate of 6.6% in 1995 and 6.2% in 1996. The Company also assumed a
volatility rate based upon an average of comparable companies of 46% and 49% in
1995 and 1996, respectively. Had the Company used the Black-Scholes estimates to
determine compensation expense for the options granted in 1995 and 1996, net
income and net income per share attributable to common shareholders would have
been reduced to the following pro forma amounts.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1996
---------- ----------
<S> <C> <C>
Net income attributable to common shareholders
As reported............................................... $1,048,040 $1,453,874
Pro forma................................................. 1,028,040 1,241,874
Net income per share attributable to common shareholders
As reported............................................... .04 .05
Pro forma................................................. .04 .05
</TABLE>
F-14
<PAGE> 99
AMSURG CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 1994, the Company issued warrants to purchase its common stock to AHC.
These warrants were exercised February 26, 1996 for 257,720 shares at $.90 per
share. The warrants were issued in return for AHC's prior guaranty of Company
debt.
8. COMMITMENTS AND CONTINGENCIES
The Company has various lease agreements for its surgery centers in
operation and under development and for office space including a sublease with
AHC (see Note 3). Rent expense under such lease agreements for the years ended
December 31, 1994, 1995 and 1996 was approximately $772,000, $1,201,000 and
$1,775,000, respectively.
The future minimum lease commitments at December 31, 1996 for all
noncancelable operating leases are as follows:
<TABLE>
<S> <C>
Year ended December 31:
1997.............................................. $ 2,390,577
1998.............................................. 2,330,537
1999.............................................. 2,086,174
2000.............................................. 1,700,772
2001.............................................. 1,310,453
Thereafter........................................ 3,522,570
-----------
$13,341,083
===========
</TABLE>
At December 31, 1996, AmSurg partnerships had unfunded construction and
equipment purchase commitments for centers under development of approximately
$2,000,000.
The Company and its partnerships are insured with respect to medical
malpractice risk on a claims made basis. Management is not aware of any claims
against it or its partnerships which would have a material financial impact.
The Company or its wholly-owned subsidiaries, as general partners in the
limited partnerships, are responsible for all debts incurred but unpaid by the
partnership. As manager of the operations of the partnership, the Company has
the ability to limit its potential liabilities by curtailing operations or
taking other operating actions.
In the event of a change in current law which would prohibit the
physicians' current form of ownership in the partnerships or LLCs, the Company
is obligated to purchase the physicians' interests in the partnerships or LLCs.
The purchase price to be paid in such event is generally the greater of the
physicians' capital account or a multiple of earnings.
9. SUBSEQUENT EVENTS
In two separate transactions in January 1997, the Company acquired a
majority interest in a physician practice-based surgery center and a physician
practice and related entities. The purchase price paid for the interests
acquired was $4,928,110 which consisted of cash of $4,227,747 and AmSurg common
stock valued at $700,363. With these transactions, the Company acquired assets
of $561,517, liabilities assumed of $346,033 and excess cost over net assets of
purchased operations of $4,712,626.
F-15
<PAGE> 100
AMSURG CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. OTHER EVENTS SUBSEQUENT TO DECEMBER 31, 1996 (UNAUDITED)
a. Acquisitions
In March 1997, the Company acquired a majority interest in a physician
practice-based surgery center. The purchase price paid for the interest
acquired was $1,804,926 which consisted of cash of $1,443,942 and AmSurg
common stock valued at $360,984. With these transactions, the Company
acquired assets of $309,487, excess cost over net assets of purchased
operations of $1,647,088 and assumed liabilities of $151,649.
b. Long-Term Debt
On April 15, 1997, the Company executed an amended and restated credit
agreement with two lending institutions. Under the new agreement, the terms
and conditions of the term loan (approximately $4.7 million at March 31,
1997) remain unchanged. In addition, the credit agreement permits the
Company to borrow up to $15,000,000 to finance AmSurg acquisitions and
development projects. All borrowings under this agreement bear interest at
prime or 1.75% above LIBOR or a combination thereof. The agreement provides
for a fee of .35% on unused commitments and all outstanding borrowings are
to be repaid April 15, 1999. The agreement contains covenants relating to
the ratio of debt to net worth, operating performance and minimum net worth
and prohibits the payment of dividends to common stockholders. Borrowings
under the $15,000,000 credit agreement totaled $8,133,657 at March 31,
1997.
c. Impairment loss
Impairment loss of $2,321,000 in the three month period ended March
31, 1997 represents a charge in accordance with Statement of Financial
Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed of." The Company determined
that an impairment in the asset carrying value at one of its partnerships
that owns two surgery centers acquired in 1994, had taken place and as a
result it recorded an impairment of asset carrying value associated with
these centers. Various disagreements with the sole physician partner over
the operation of these centers have adversely impacted the operations of
these centers, resulting in the Company's determination in April 1997 that,
based on the inability of the partners to resolve their disagreements, it
is likely that the carrying value of the assets associated with this
partnership will not be recovered. In determining the impairment to be
recorded, the Company projected the undiscounted cash flows from these
centers and determined these cash flows to be substantially less than the
carrying value of the long-lived assets attributable to this partnership.
While there has been no final decision, the Company believes that the most
probable outcome will be the discontinuance of its involvement with these
centers, and accordingly, the fair value of its investment is limited to
its interest in the current net book value of working capital and property
and equipment in the partnership. It is management's intent to pursue a
course of resolution that is as economically favorable as possible to the
Company. The revenues and the pretax loss after minority interest for these
two centers for the three month period ended March 31, 1997, before
consideration of this impairment loss, were $148,000 and $7,000,
respectively.
F-16
<PAGE> 101
AMSURG CORP.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma statement of operations of AmSurg Corp.
for the year ended December 31, 1996 and the three months ended March 31, 1997
is presented to show the effects of the acquisition of The Endoscopy Center
operations of The Endoscopy Center of Ocala, Inc., acquired on August 21, 1996,
and other individually insignificant businesses acquired during the year ended
December 31, 1996 and the three months ended March 31, 1997 (which are accounted
for as purchases) assuming the acquisitions had occurred on January 1, 1996.
The unaudited pro forma financial information does not purport to represent
what AmSurg Corp.'s financial position or results of operations would actually
have been had the transactions in fact occurred on the dates indicated above,
nor to project AmSurg Corp.'s financial position or results of operations for
any future date or period. In the opinion of AmSurg's management, all
adjustments necessary for a fair presentation have been made. This unaudited pro
forma financial information should be read in conjunction with the accompanying
notes and the financial statements of AmSurg Corp. and the related notes
included elsewhere herein.
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1997
THE ENDOSCOPY INDIVIDUALLY INDIVIDUALLY
AMSURG CENTER OF INSIGNIFICANT INSIGNIFICANT PRO FORMA PRO FORMA
HISTORICAL OCALA(A) ACQUISITIONS(A) ACQUISITIONS(B) ADJUSTMENTS COMBINED
---------- ------------- ---------------- --------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues................. $35,007 $1,373 $4,302 $6,554 $ (120)(2) $47,116
------- ------ ------- ------ ------- -------
Expenses:
Salaries and
benefits............ 11,613 304 1,331 1,724 (657)(3) 14,315
Other operating
expenses............ 11,547 322 1,616 2,615 291(4) 16,391
Depreciation and
amortization........ 3,000 36 170 122 465(5) 3,793
Interest............... 948 -- 75 27 592(6) 1,642
------- ------ ------- ------ ------- -------
Total
expenses..... 27,108 662 3,192 4,488 691 36,141
Income before minority
interest and income
taxes.................. 7,899 711 1,110 2,066 (811) 10,975
Minority interest...... 5,433 -- -- -- 2,346(7) 7,779
------- ------ ------- ------ ------- -------
Income before income
taxes.................. 2,466 711 1,110 2,066 (3,157) 3,196
Income tax expense..... 985 -- -- -- 292(8) 1,277
------- ------ ------- ------ ------- -------
Net income............... 1,481 711 1,110 2,066 (3,449) 1,919
Accretion of preferred
stock discount...... 22 -- -- -- -- 22
------- ------ ------- ------ ------- -------
Net income attributable
to common
stockholders........... $ 1,459 $ 711 $1,110 $2,066 $(3,449) $ 1,897
======= ====== ======= ====== ======= =======
Net income per share
attributable to common
stockholders(1)........ $ 0.16 $ 0.20
======= =======
Weighted average common
shares and
equivalents(1)......... 9,102 386(9) 9,488
</TABLE>
- ---------------
(a) From January 1, 1996 to date of acquisition.
(b) From January 1, 1996 through December 31, 1996.
F-17
<PAGE> 102
AMSURG CORP
UNAUDITED PRO FORMA FINANCIAL INFORMATION
THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 INDIVIDUALLY PRO
AMSURG INSIGNIFICANT PRO FORMA FORMA
HISTORICAL ACQUISITION(A) ADJUSTMENTS COMBINED
---------- ----------------- ----------- --------
<S> <C> <C> <C> <C>
Revenues....................................... $12,610 $276 $ (2)(2) $12,884
------- ------ ----- -------
Expenses:
Salaries and benefits........................ 3,972 36 11(3) 4,019
Other operating expenses..................... 4,451 91 1(4) 4,543
Depreciation and amortization................ 1,087 8 7(5) 1,102
Interest..................................... 327 -- 14(6) 341
Write-off of excess of cost over net assets
of purchased operations................... 2,321 -- -- 2,321
------- ------ ----- -------
Total expenses....................... 12,158 135 33 12,326
Income before minority interest and income
taxes........................................ 452 141 (35) 558
Minority interest............................ 1,948 -- 71(7) 2,019
------- ------ ----- -------
Income before income taxes..................... (1,496) 141 (106) (1,461)
Income tax expense........................... 329 -- 14(8) 343
------- ------ ----- -------
Net income..................................... (1,825) 141 (120) (1,804)
Accretion of preferred stock discount........ 67 -- -- 67
------- ------ ----- -------
Net income attributable to common
stockholders................................. $(1,892) $141 $(120) $(1,871)
======= ====== ===== =======
Net income per share attributable to common
stockholders(1).............................. $ (0.20) $ (0.20)
======= =======
Weighted average common shares and
equivalents(1)............................... 9,360 40(9) 9,400
</TABLE>
- ---------------
(a) From January 1, 1997 to date of acquisition. The other two acquisitions were
completed in early 1997 and therefore the results of their operations for
the three months ended March 31, 1997 are included in the AmSurg historical
amounts.
F-18
<PAGE> 103
AMSURG CORP.
NOTES TO THE PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
1. Net income per share is adjusted to reflect the anticipated recapitalization
to be effected prior to the distribution.
2. Decrease in interest income on the funds used to complete the acquisitions.
3. The pro forma adjustments to salaries and benefits reflect the following:
<TABLE>
<CAPTION>
12 MONTHS 3 MONTHS
ENDED ENDED
DECEMBER 31, 1996 MARCH 31, 1997
----------------- --------------
<S> <C> <C>
Estimated additional general and administrative costs as
a result of increase in number of centers managed..... $ 648 $11
Salaries paid to previous owners which are discontinued
upon acquisition...................................... (188) --
Physician salaries and benefits replaced with
independent contractor arrangements................... (1,117) --
-------- ---
$ (657) $11
======== ===
</TABLE>
4. Increase in other operating expenses are as follows:
<TABLE>
<CAPTION>
12 MONTHS 3 MONTHS
ENDED ENDED
DECEMBER 31, 1996 MARCH 31, 1997
----------------- --------------
<S> <C> <C>
Payments to physicians for provision of medical services
pursuant to the new contract between these physicians
and the practice...................................... 510 $--
Reduced rent expense pursuant to new lease agreements... (230) 1
Other miscellaneous fees................................ 11 --
-------- ---
$ 291 $ 1
======== ===
</TABLE>
5. Increase in amortization due principally to the increase in excess of cost
over net assets of purchased operations.
6. Increase in interest expense for debt incurred to complete the acquisitions.
7. Minority owners interest in earnings of acquired operations.
8. Change to the income tax provision due to combination of operations.
9. Income average weighted shares for stock issued in acquisitions, as adjusted
to reflect the proposed recapitalization.
F-19
<PAGE> 104
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Endoscopy Center of Ocala, Inc.
Ocala, Florida
We have audited the accompanying statements of income and cash flows of the
Endoscopy Center Operations of the Endoscopy Center of Ocala, Inc. for the
period from January 1, 1996 to August 21, 1996. These financial statements are
the responsibility of the Center's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the results of operations and cash flows of the Endoscopy Center
Operations of the Endoscopy Center of Ocala, Inc. for the period from January 1,
1996 through August 21, 1996 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Nashville, Tennessee
January 8, 1997
F-20
<PAGE> 105
ENDOSCOPY CENTER OPERATIONS OF THE ENDOSCOPY CENTER OF OCALA, INC.
STATEMENT OF INCOME
PERIOD FROM JANUARY 1, 1996 THROUGH AUGUST 21, 1996
<TABLE>
<S> <C>
Revenues (Note 1)........................................... $1,372,553
Expenses:
Salaries and benefits..................................... 304,129
Supplies and other operating costs........................ 104,253
General and administrative................................ 120,735
Rent charge from affiliate (Note 2)....................... 76,000
Bad debt expense.......................................... 21,032
Depreciation (Note 1)..................................... 35,598
----------
661,747
----------
Net income........................................ $ 710,806
==========
</TABLE>
See accompanying notes to the financial statements.
F-21
<PAGE> 106
ENDOSCOPY CENTER OPERATIONS OF THE ENDOSCOPY CENTER OF OCALA, INC.
STATEMENT OF CASH FLOWS
PERIOD FROM JANUARY 1, 1996 THROUGH AUGUST 21, 1996
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income................................................ $ 710,806
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 35,598
Decrease in accounts receivable........................ 20,874
Increase in accounts payable and accrued expenses...... 5,307
---------
Net cash provided by operating activities......... 772,585
Cash flows from investing activities --
Purchase of furniture and equipment....................... (1,857)
Cash flows from financing activities --
Net cash paid to physician practice....................... (770,728)
---------
Net increase (decrease) in cash and cash equivalents........ --
Cash and cash equivalents, beginning of period.............. --
---------
Cash and cash equivalents, end of period.................... $ --
=========
</TABLE>
See accompanying notes to the financial statements.
F-22
<PAGE> 107
ENDOSCOPY OPERATIONS OF THE ENDOSCOPY CENTER OF OCALA, INC.
NOTES TO THE FINANCIAL STATEMENTS
PERIOD FROM JANUARY 1, 1996 THROUGH AUGUST 21, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Endoscopy Center operations of the Endoscopy Center of Ocala, Inc. (the
"Center") provides outpatient endoscopy procedures at its center in Ocala,
Florida. It is organized as part of an associated physician practice. These
financial statements reflect the operations of the Center only, and do not
include activities of the physician practice.
a. Revenue Recognition
Revenues consist of the billing for the use of the Center's facilities (the
"usage fee") directly to the patient or third party payor. The usage fee does
not include any amounts billed for physicians' services which are billed
separately by the physicians to the patient or third party payor. Revenues are
reported at the estimated net realizable amounts from patients, third-party
payors and others, including Medicare and Medicaid. Such revenues are recognized
as the related services are performed. Contractual adjustments resulting from
agreements with various organizations to provide services for amounts which
differ from billed charges, are recorded as deductions from patient service
revenues. During the period from January 1, 1996 through August 21, 1996,
approximately 62% of the Center's revenues were provided to patients covered
under Medicare and Medicaid. Amounts which are determined to be uncollectible
are charged against the allowance for uncollectible accounts.
b. Depreciation
Depreciation on furniture and equipment is provided on the declining
balance method over the estimated useful life of the respective assets.
c. Income Taxes
No provision for income taxes has been reflected as the Center's operations
are included with the physician practice and all such federal taxes are paid by
the physicians through an election to be taxed pursuant to Subchapter S of the
Internal Revenue Code.
d. Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from the estimates.
2. RELATED PARTY TRANSACTIONS
The Center occupies space provided by the physician practice. Included in
the statement of income is a charge of $76,000 for such costs which management
believes reflects the fair value of the space provided.
All cash receipts and disbursements related to the Center are made through
bank accounts maintained by the physician practice. Revenues and expenses
related to the Center's operations are separately identified and recorded in the
records of the Center. The net cash transactions of the Center are reflected as
net cash paid to physician practice in the accompanying statement of cash flows.
F-23
<PAGE> 108
ENDOSCOPY OPERATIONS OF THE ENDOSCOPY CENTER OF OCALA, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
3. CONTINGENCIES
The Center is insured with respect to medical malpractice risk on a claims
made basis. The Center is not aware of any claims against it which would have a
material financial impact.
4. SUBSEQUENT EVENT
Effective August 22, 1996, the Center sold 51% of its assets to AmSurg
Corp. This 51% interest owned by AmSurg plus the 49% interest retained by the
practice were then contributed to a new partnership in return for a 51% and 49%
interest, respectively, in the new partnership entity.
F-24
<PAGE> 109
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
AmSurg Corp.
Nashville, Tennessee
We have audited the consolidated financial statements of AmSurg Corp. (the
"Company") as of December 31, 1995 and 1996 and for each of the three years in
the period ended December 31, 1996, and have issued our report thereon dated
February 21, 1997; such report is included elsewhere in this Form 10. Our audits
also included the consolidated financial statement schedule of the Company,
listed in Item 15. This consolidated financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such consolidated financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
DELOITTE & TOUCHE LLP
Nashville, Tennessee
February 21, 1997
S-1
<PAGE> 110
SCHEDULE II
AMSURG CORP.
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994:
Allowance for Uncollectible
Accounts included under
balance sheet caption
"Accounts receivable"......... $223,398 $ 525,025 $ 81,715(2) $529,735(1) $ 300,403
Year ended December 31, 1995:
Allowance for Uncollectible
Accounts included under
balance sheet caption
"Accounts receivable"......... $300,403 $ 694,078 $ 58,974(2) $597,827(1) $ 455,628
Year ended December 31, 1996:
Allowance for Uncollectible
Accounts included under
balance sheet caption
"Accounts receivable"......... $455,628 $1,227,315 $366,636(2) $776,928(1) $1,272,651
</TABLE>
- ---------------
(1) Charge-off against reserve.
(2) Valuation of allowance for uncollectible accounts at the acquisition of
AmSurg physician practice-based ambulatory surgery centers and physician
practice. Between 51% and 70% was charged to excess of cost over net assets
of purchased companies. See Note 2 of Notes to the Consolidated Financial
Statements.
S-2
<PAGE> 111
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Endoscopy Center of Ocala, Inc.
Ocala, Florida
We have audited the financial statements of The Endoscopy Center operations
of the Endoscopy Center of Ocala, Inc. (the "Center") for the period from
January 1, 1996 to August 21, 1996, and have issued our report thereon dated
January 8, 1997; such report is included elsewhere in this Form 10. Our audit
also included the financial statement schedule of the Center, listed in Item 15.
This financial statement schedule is the responsibility of the Center's
management. Our responsibility is to express an opinion based on our audit. In
our opinion, such financial statement schedule, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
DELOITTE & TOUCHE LLP
Nashville, Tennessee
January 8, 1997
S-3
<PAGE> 112
THE ENDOSCOPY CENTER OPERATIONS OF THE ENDOSCOPY CENTER OF OCALA, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
PERIOD FROM JANUARY 1, 1996 TO AUGUST 21, 1996
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED BALANCE AT
BEGINNING COSTS AND TO OTHER END OF
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for Uncollectible Accounts
included under balance sheet caption
"Accounts receivable"..................... $54,000 $21,032 $ -- $24,032(1) $51,000
</TABLE>
- ---------------
(1) Charge-off against reserve.
S-4
<PAGE> 113
APPENDIX A
DISTRIBUTION AGREEMENT
This DISTRIBUTION AGREEMENT, dated as of March 7, 1997 (this "Agreement"),
by and between American Healthcorp, Inc., a Delaware corporation ("AHC"), and
AmSurg Corp., a Tennessee corporation ("AmSurg").
W I T N E S S E T H
WHEREAS, AHC currently owns approximately fifty-nine percent (59%) of the
outstanding shares of common stock of AmSurg;
WHEREAS, AmSurg has, since its inception, depended principally on AHC for
its equity financing and has historically depended on AHC for debt financing;
WHEREAS, the Board of Directors of AHC and the Board of Directors of AmSurg
have determined that it is desirable for business reasons and in the best
interests of AHC's and AmSurg's shareholders for AmSurg to have access to
capital markets as an independent publicly traded company without the majority
ownership of AHC;
WHEREAS, subject to the terms and conditions hereof, AHC has agreed to
distribute (the "Distribution") to the holders of AHC's common stock, par value
$.001 per share (the "AHC Common Stock"), on a pro rata basis, all of the shares
of common stock of AmSurg owned by AHC;
WHEREAS, in order to facilitate the trading of the common stock of AmSurg
following the Distribution, AmSurg intends to effect a reverse stock split (or a
transaction having the effect of a reverse stock split) with respect to such
shares of common stock;
WHEREAS, in order to effect the Distribution as a substantially tax-free
transaction under Section 355 of the Internal Revenue Code of 1986, as amended
(the "Code"), AmSurg and AHC have agreed to exchange all of the shares of common
stock of AmSurg currently owned by AHC for shares of a new class of common stock
of AmSurg having a sufficient number of votes per share to give AHC the ability
to distribute "control" within the meaning of Section 368(c) of the Code;
WHEREAS, AHC and AmSurg have determined that it is necessary and desirable
to set forth the principal corporate transactions required to effect the
Distribution, and to set forth the agreements that will govern certain matters
following the Distribution.
NOW, THEREFORE, in consideration of the premises, and of the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. As used in this Agreement, the following terms shall have
the following respective meanings:
"common stock" with respect to AmSurg means any class of common stock
of AmSurg now or hereafter authorized.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"IRS" means the Internal Revenue Service.
"IRS Ruling" means the letter ruling issued by the IRS in response to
the Ruling Request.
"Related Agreements" means the Exchange Agreement and the Management
and Human Resources Agreement, attached hereto as Exhibits to this
Agreement.
A-1
<PAGE> 114
"Ruling Request" means the private letter ruling request filed by AHC
with the IRS on November 21, 1996, as supplemented and amended from time to
time, with respect to certain tax matters relating to the Distribution.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
ARTICLE II
RECAPITALIZATION, EXCHANGE AND DISTRIBUTION
2.1 Recapitalization, Exchange and Distribution. Subject to the
satisfaction of the conditions set forth in Section 2.2 hereof, on the date
established in accordance with Section 2.5 as the date on which the Distribution
shall be effected (the "Distribution Date"):
(a) AmSurg will undertake a recapitalization in accordance with
Section 2.3 hereof (the "Recapitalization");
(b) Upon completion of the Recapitalization, AmSurg and AHC will
effect an exchange of all of the shares of AmSurg common stock owned by AHC
for shares of Class B Common Stock of AmSurg in accordance with Section 2.4
hereof (the "Exchange"); and
(c) Upon completion of the Exchange, AHC will effect the Distribution
in accordance with Section 2.5 hereof.
2.2 Conditions. The obligations of each of AHC and AmSurg to consummate
Recapitalization, the Exchange and the Distribution are subject to the
fulfillment of each of the following conditions, unless otherwise waived in
writing:
(a) The IRS Ruling shall have been granted in form and substance
satisfactory to AHC, in its sole discretion;
(b) A Registration Statement on Form 10 under the Exchange Act (or, if
deemed appropriate by AmSurg and AHC, a Registration Statement under the
Securities Act and a Registration Statement under the Exchange Act) with
respect to each class of common stock of AmSurg to be distributed in the
Distribution and each class of common stock of AmSurg into which such class
or classes may be converted shall have been declared effective by the SEC
or shall otherwise have become effective under the Exchange Act and, if
applicable, the Securities Act;
(c) The shares of each tradable class of common stock of AmSurg to be
distributed in the Distribution and each class of common stock into which
such class or classes may be converted shall have been approved for listing
on a national securities exchange or for inclusion on the Nasdaq National
Market or such other trading market as the parties may agree;
(d) The Recapitalization and the Exchange shall have been approved by
the holders of at least a majority of the voting power of the outstanding
shares of capital stock of AmSurg at a meeting of the shareholders of
AmSurg and, if dissenters' rights apply, holders of no more than 5% of the
outstanding shares of common stock of AmSurg shall have indicated their
intent to seek appraisal for their shares under the Tennessee Business
Corporation Act;
(e) The holders of the Series A Redeemable Preferred Stock and Series
B Convertible Preferred Stock, without par value, of AmSurg shall have
approved the modification and waiver of their rights to elect one director
of AmSurg effected through the AmSurg Charter and the Shareholders'
Agreement, dated as of April 2, 1992, as amended by Amendment No. 1 dated
September 27, 1993 and Amendment No. 2, dated as of November 20, 1996, by
and among AmSurg and the persons identified on the signature pages thereto
as the Founding Investors, the Founding Management and the Preferred Stock
Purchasers, in each case so as to permit AHC to distribute "control" within
the meaning of Section 368(c) of the Code;
A-2
<PAGE> 115
(f) The Special Committee of the Board of Directors of AmSurg shall
have received an opinion, acceptable to it, of J.C. Bradford & Co. as to
the fairness, from a financial point of view, of the Recapitalization,
Exchange and Distribution to shareholders of AmSurg other than AHC and such
other opinions as may be deemed appropriate by such committee and such
opinion or opinions shall not have been withdrawn;
(g) The Board of Directors of AHC shall have received an opinion,
acceptable to it, of Morgan Keegan & Co., Inc. as to the fairness, from a
financial point of view, of the Recapitalization, the Exchange and the
Distribution to the stockholders of AHC, a favorable opinion of Houlihan,
Lokey, Howard & Zukin as to certain solvency issues and such other opinions
as may be deemed appropriate by the Board of Directors of AHC and such
opinions shall not have been withdrawn;
(h) There shall be no proposed legislation or regulation introduced
which, if adopted, would have the effect of amending the Code so as to
alter in any materially adverse respect the substantially tax-free
treatment of the Distribution under Section 355 of the Code or the
classification of the Recapitalization and Exchange as a tax-free
organization under Section 368(a)(1)(E) of the Code;
(i) The matters set forth in Section 2.7(a), (c), (d), (e) and (f)
shall have been approved by the shareholders of AmSurg; and
(j) Any required waiting period applicable to the Exchange or the
Distribution under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, shall have expired or otherwise terminated and AHC and
AmSurg shall each have obtained such other consents and approvals of
federal, state and local governmental authorities and other third parties
as shall be deemed necessary or appropriate by the Boards of Directors of
AHC and AmSurg in connection with the transactions contemplated hereby, and
there shall be no suit or governmental proceeding pending or overtly
threatened that would challenge the validity of or seek to enjoin the
Recapitalization, the Exchange or the Distribution.
2.3 Recapitalization. The Recapitalization will be effected, subject to
the satisfaction or waiver of the conditions set forth in Section 2.2 above,
through an amendment to the Charter of AmSurg. The Recapitalization will: (a)
reduce on a one for three basis the number of outstanding shares of common stock
of AmSurg through a reverse stock split (or transaction having the effect of a
reverse stock split), with the intention of permitting the shares of common
stock of AmSurg distributed in the Distribution to trade at proportionately
higher per share prices and thereby improving the trading markets for these
shares in order to facilitate subsequent equity financings and acquisition
transactions (the "Reverse Stock Split") and (b) authorize a new class of common
stock (the "Class B Common Stock") having seven votes per share in the election
of directors of AmSurg so that, when exchanged for all of the shares of common
stock of AmSurg then owned by AHC, AHC will own shares of common stock of AmSurg
sufficient to constitute "control" within the meaning of Section 368(c) of the
Code. The Reverse Stock Split will be accomplished by converting each three
shares of common stock of AmSurg outstanding immediately prior to the Reverse
Stock Split into a single share of a newly authorized class of common stock of
AmSurg, denominated Class A Common Stock (the "Class A Common Stock"). Following
the Recapitalization the only authorized classes of common stock will be Class A
Common Stock and Class B Common Stock. Unless otherwise required by the IRS
Ruling, the Class A Common Stock and Class B Common Stock will have the terms
substantially as set forth in the Amended and Restated Charter approved by the
AmSurg Board of Directors on the date hereof. It is understood and agreed that
the number of votes per share of Class B Common Stock is required to be
sufficient to enable AHC to distribute, in the Distribution, "control" of AmSurg
within the meaning of Section 368(c) of the Code, after giving effect to any
anticipated issuances of capital stock of AmSurg on the exercise of stock
options and any issuances in possible equity financing transactions and
acquisitions, but that AmSurg shall not issue more shares of Class B Common
Stock than are to be issued in the Exchange. The Recapitalization is intended to
qualify for tax free treatment, for federal income tax purposes, under Section
368(a)(1)(E) of the Code. In connection with the Recapitalization, no changes
will be made in any options to purchase shares of AmSurg common stock, except
that the shares of common stock authorized or subject to outstanding options
will become shares of Class A Common Stock, the number of shares authorized
A-3
<PAGE> 116
or subject to outstanding options will be reduced on a one for three basis, and
the exercise price per share will be proportionately increased in the Reverse
Stock Split in accordance with the provisions of the plans under which such
options were granted.
2.4 Exchange. On or prior to the Distribution Date, AHC and AmSurg will
enter into an Exchange Agreement in substantially the form approved by the
AmSurg Board of Directors on the date hereof (the "Exchange Agreement").
Pursuant to the Exchange Agreement, on the Distribution Date, subject to the
satisfaction or waiver of the conditions set forth in Section 2.2 above and the
completion of the Recapitalization, (a) AHC will deliver to AmSurg a number of
shares of Class A Common Stock of AmSurg which will constitute all of the shares
of AmSurg Class A Common Stock held by AHC as provided in the Exchange Agreement
and (b) AmSurg will deliver to AHC the same number of shares of Class B Common
Stock.
2.5 Distribution. Subject to the satisfaction or waiver of the conditions
set forth in Section 2.2 above and the completion of the Recapitalization and
the Exchange, AHC will on the Distribution Date distribute to the AHC Holders
(as hereinafter defined) all of the shares of Class A Common Stock and Class B
Common Stock of AmSurg owned by AHC by delivering certificates for such shares
to the transfer agent for the AHC Common Stock (the "Transfer Agent") for
delivery to the AHC Holders. The Distribution shall be deemed to be effective
upon notification by AHC to the Transfer Agent that the Distribution has been
declared and is effective and that the Transfer Agent is authorized to proceed
with the Distribution. No fractional shares shall be delivered to the AHC
Holders in the Distribution. The shares that would otherwise be distributed as
fractional shares to AHC Holders will be sold by the Transfer Agent on behalf of
AHC Holders who would otherwise receive fractional shares and the proceeds of
such sale will be paid to such AHC Holders in lieu of such fractional shares.
The term "AHC Holders" means the holders of record of shares of AHC Common Stock
on the date established by the Board of Directors of AHC as the record date for
the Distribution (the "Distribution Record Date"). In connection with the
Distribution, the exercise price of all outstanding options to purchase shares
of AHC Common Stock and (if deemed appropriate by the Board of Directors AHC or
the committee of the Board of Directors of AHC administering such plans) the
number of shares of AHC Common Stock underlying such options shall be adjusted
to reflect the effect of the Distribution in accordance with the provisions of
the plans under which such options were granted.
2.6 Certain Related Agreements. Effective upon the Distribution, AHC will
enter into a Management and Human Services Agreement in substantially the form
approved by the AmSurg Board of Directors on the date hereof, and AmSurg will
assume all liabilities with respect to then current or former employees of
AmSurg under employee benefit plans maintained by AHC as provided in such
Management and Human Services Agreement. Following the Distribution, the
Sublease Agreement between AHC and AmSurg will be continued in accordance with
its terms.
2.7 Governance of AmSurg Following the Distribution. Prior to the
Distribution, AHC and AmSurg will agree on (a) a slate of directors to be
elected as the members of the Board of Directors of AmSurg effective upon the
Distribution and any terms and classes for such directors as may be agreed upon
by AHC and AmSurg, (b) the persons to be the executive officers of AmSurg
effective upon the Distribution, (c) the terms of any amendments to the Charter
of AmSurg (other than any amendments to the Charter necessary to implement the
Recapitalization in accordance with Section 2.3 hereof and the amendments
referred to in Section 2.2(e) hereof) to be effective upon the Distribution, (d)
the terms of any amendments to the Bylaws of AmSurg to be effective upon the
Distribution, (e) the terms of a new Employee Stock Incentive Plan to be
effective upon the Distribution and (f) the terms of advisory services to be
provided by each of Thomas G. Cigarran and Henry D. Herr for AmSurg to be
effective following the Distribution.
2.8 Stock Incentive Plans and Agreements of AmSurg. AHC and AmSurg hereby
agree that none of the transactions contemplated by this Distribution Agreement,
including the Recapitalization, the Exchange and the Distribution, will
constitute, individually or in the aggregate, a "change in control" under the
terms of any stock incentive plan, stock incentive agreement, employment or
severance agreement, or similar plan or agreement of AmSurg.
A-4
<PAGE> 117
ARTICLE III
COVENANTS PRIOR TO THE DISTRIBUTION
3.1 Actions Prior to the Distribution. As promptly as practicable after
the date hereof and prior to the Distribution Date:
(a) AHC and AmSurg shall prepare, and shall file with the SEC, either
(i) a Registration Statement on Form 10 under the Exchange Act, which shall
set forth appropriate disclosure concerning AmSurg, the Distribution and
certain other matters, or (ii) if AHC determines that the Distribution may
not be effected without registration under the Securities Act, a
registration statement under the Securities Act on an appropriate form
covering the AmSurg common stock (the "33 Act Registration Statement") and
a registration statement under the Exchange Act (the "34 Act Registration
Statement"), which may include or incorporate by reference the information
contained in the filings referred to in the 33 Act Registration Statement.
AHC and AmSurg will use their best efforts to cause the Registration
Statement on Form 10 or the 34 Act Registration Statement and the 33 Act
Registration Statement, to be declared effective. The Registration
Statement on Form 10 or 33 Act Registration Statement shall also serve as
an Information Statement with respect to the Distribution to be delivered
to the AHC Holders.
(b) AHC and AmSurg shall cooperate in preparing, filing with the SEC
and causing to become effective any registration statements or amendments
thereto which are appropriate to reflect the establishment of, or
amendments to, any employee benefit and other plans contemplated by this
Agreement.
(c) AHC and AmSurg shall take all such action as may be necessary or
appropriate under state securities or "Blue Sky" laws in connection with
the transactions contemplated by this Agreement.
(d) AmSurg shall prepare and file and seek to make effective, an
application to permit the inclusion on The Nasdaq Stock Market's National
Market or the listing on a national securities exchange of each class of
common stock of AmSurg to be distributed in the Distribution and each class
into which such class or classes may be converted; provided, however, that
no class that cannot by its terms be traded shall be required to be so
included or listed.
(e) AHC shall request the Division of Corporation Finance of the SEC
to issue a no-action letter to the effect that it will not recommend
enforcement action to the SEC if the Distribution is effected without
registration under the Securities Act and such other matters as AHC or its
counsel may deem necessary or appropriate.
(f) AmSurg shall duly call and hold a meeting of its shareholders, and
shall prepare and deliver to its shareholders a proxy statement with
respect to such meeting, to approve the terms of the Recapitalization, the
matters referred to in Section 2.7(a), (c), (d), (e) and (f) hereof and any
other matters requiring approval in connection with the transactions
contemplated by this Agreement.
(g) In addition to the actions specifically provided for elsewhere in
this Agreement, each of the parties hereto shall use its reasonable best
efforts to take or cause to be taken, all actions, and to do, or cause to
be done, all things reasonably necessary, proper or advisable under
applicable laws, regulations and agreements to consummate and make
effective the transactions contemplated by this Agreement, including,
without limitation, using its best efforts to obtain the consents and
approvals to enter into any amendatory agreements and to make the filings
and applications necessary or desirable to have been obtained, entered into
or made in order to consummate the transactions contemplated by this
Agreement.
3.2 Amendment to AmSurg Documents. In order to better prepare itself for
becoming a publicly traded company, AmSurg may amend or establish new employee
benefit plans and amend or adopt other corporate documents as the Board of
Directors of AmSurg may deem reasonably necessary or appropriate, subject to
shareholder approval if necessary. AHC, as shareholder of AmSurg, shall vote in
favor of any such actions submitted to shareholders of AmSurg to the extent that
AHC agrees that such actions are necessary or appropriate for AmSurg as an
independent public company.
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3.3 Agreement to Vote. AHC, in its capacity as a shareholder of AmSurg,
hereby agrees to vote all shares of capital stock of AmSurg owned by AHC in
favor of the Recapitalization, the matters referred to in Section 2.7(a), (c),
(d), (e) and (f) and, subject to Section 3.2 above, any other matters requiring
the approval of the shareholders of AmSurg in connection with the transactions
contemplated by this Agreement.
ARTICLE IV
COVENANTS FOLLOWING THE DISTRIBUTION
4.1 Compliance with IRS Ruling. Following the Distribution, each of AHC
and AmSurg shall, and shall use its best efforts to cause each of its respective
affiliates and subsidiaries to, comply with each representation and statement
made, or to be made, to any taxing authority in connection with the IRS Ruling
or any other ruling obtained, or to be obtained, by AmSurg and AHC acting
together, from the IRS or any other taxing authority with respect to any
transaction contemplated by this Agreement.
4.2 Provision of Corporate Records. Except as may otherwise be provided in
a Related Agreement, AHC shall arrange as soon as practicable following the
Distribution Date, to the extent not previously delivered in connection with the
transactions contemplated herein, for the transportation to AmSurg of the AmSurg
Books and Records (as hereinafter defined) in its possession except to the
extent such items are already in the possession of AmSurg or any of its
subsidiaries. The AmSurg Books and Records shall be the property of AmSurg, but
shall be available to AHC for review and duplication as is reasonably necessary
until AHC shall notify AmSurg in writing that such records are no longer of use
to AHC. "AmSurg Books and Records" means the books and records (including
computerized records) of AmSurg and its subsidiaries and any other books and
records of AHC or its subsidiaries which relate principally to the business of
AmSurg and its subsidiaries, are necessary to conduct the business of AmSurg and
its subsidiaries, or are required by law to be retained by AmSurg or its
subsidiaries, including, without limitation, all such books and records relating
to AmSurg employees, original corporate minute books, stock ledgers and
certificates and corporate seals, and all licenses, leases, agreements and
filings, relating to AmSurg or its subsidiaries or their businesses.
4.3 Access to Information. Except as otherwise provided in a Related
Agreement, from and after the Distribution Date, AHC shall afford to AmSurg and
its authorized accountants, counsel and other designated representatives
reasonable access (including using reasonable efforts to give access to persons
or firms possessing information) and duplicating rights during normal business
hours to all records, books, contracts, instruments, computer data and other
data and information relating to pre-Distribution operations (collectively,
"Information") within AHC's possession insofar as such access is reasonably
required by AmSurg for the conduct of its business, subject to appropriate
restrictions for classified or privileged information. Similarly, except as
otherwise provided in a Related Agreement, AmSurg shall afford to AHC and its
authorized accountants, counsel and other designated representatives reasonable
access (including using reasonable efforts to give access to persons or firms
possessing information) and duplicating rights during normal business hours to
Information within AmSurg's possession, insofar as such access is reasonably
required by AHC for the conduct of its business, subject to appropriate
restrictions for classified or privileged information. Information may be
requested under this Article IV for the legitimate business purposes of either
party, including without limitations, audit, accounting, claims, litigation and
tax purposes, as well as for purposes of fulfilling disclosure and reporting
obligations and for performing this Agreement and transactions contemplated
hereby.
4.4 Production of Witnesses. At all times from and after the Distribution
Date, each of AmSurg and AHC shall use reasonable efforts to make available to
the other, upon written request, its and its subsidiaries' officers, directors,
employees and agents as witnesses to the extent that such persons may reasonably
be required in connection with any legal, administrative or other proceedings in
which the requesting party may be involved.
4.5 Retention of Records. Except as otherwise required by law or agreed to
in a Related Agreement or otherwise in writing, each of AmSurg and AHC may
destroy or otherwise dispose of any of the Information at any time after the
seventh anniversary of this Agreement. Notwithstanding the foregoing, either
party may
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destroy or dispose of such Information at any time if prior to such destruction
or disposal, (a) it shall provide no less than 90 or more than 120 days prior
written notice to the other, specifying in reasonable detail the Information
proposed to be destroyed or disposed of and (b) if a recipient of such notice
shall request in writing prior to the scheduled date for such destruction or
disposal that any of the Information proposed to be destroyed or disposed of be
delivered to such requesting party, the party proposing the destruction or
disposal shall promptly arrange for the delivery of such of the Information as
was requested at the expense of the party requesting such Information.
4.6 Confidentiality. Each party shall hold, and shall cause its officers,
employees, agents, consultants and advisors to hold, in strict confidence,
unless compelled to disclose by judicial or administrative process or, in the
opinion of its counsel, by other requirements of law, all non-public Information
concerning the other party furnished it by such other party or its
representatives pursuant to this Agreement (except to the extent that such
Information can be shown to have been (a) available to such party on a
non-confidential basis prior to its disclosure by the other party, (b) in the
public domain through no fault of such party or (c) later lawfully acquired from
other sources by the party to which it was furnished), and each party shall not
release or disclose such Information to any other person, except its auditors,
attorneys, financial advisors, bankers and other consultants and advisors who
agree to be bound by the provisions of this Section 4.6. Each party shall be
deemed to have satisfied its obligation to hold confidential Information
concerning or supplied by the other party if it exercises the same care as it
takes to preserve confidentiality for its own similar confidential Information.
4.7 Indemnification. From and after the Distribution Date, except as
otherwise provided in any Related Agreement, (a) AHC will indemnify and hold
AmSurg harmless from and against all liabilities with respect to the business
and assets of AHC and its subsidiaries (other than AmSurg and its subsidiaries)
whether arising before or after the Distribution Date, other than liabilities
arising out of the gross negligence or fraud of AmSurg and (b) AmSurg will
indemnify and hold AHC harmless from and against all liabilities with respect to
the business and assets of AmSurg and its subsidiaries, whether arising before
or after the Distribution Date, other than liabilities arising out of the gross
negligence or fraud of AHC.
ARTICLE V
MISCELLANEOUS AND GENERAL
5.1 Termination; Modification or Amendment. This Agreement may be
terminated and the transactions contemplated hereby abandoned at any time prior
to the Recapitalization by mutual agreement of AmSurg and AHC. In the event of
such termination, no party shall have any liability of any kind to any other
party. The parties hereto may modify or amend this Distribution Agreement by
written agreement executed and delivered by authorized officers of the
respective parties.
5.2 Counterparts. For the convenience of the parties hereto, this
Agreement may be executed in any number of separate counterparts, each such
counterpart being deemed to be an original instrument, and all such counterparts
shall together constitute the same agreement.
5.3 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to transactions
occurring solely within the State of Delaware.
5.4 Notices. Any notice, request, instruction or other document to be
given hereunder by any party to the other shall be in writing and shall be
deemed to have been duly given (i) on the date of delivery if delivered by
facsimile (upon confirmation of receipt) or personally, (ii) on the first
business day following the date of dispatch if delivered by Federal Express or
other next-day courier service, or (iii) on the third business day following the
date of mailing if delivered by registered or certified mail; return receipt
requested, postage
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prepaid. All notices hereunder shall be delivered as set forth below, or
pursuant to such other instructions as may be designated in writing by the party
to receive such notice:
(a) If to AHC:
American Healthcorp, Inc.
One Burton Hills Boulevard
Nashville, Tennessee 37215
Attention: Thomas G. Cigarran
with a copy to:
James H. Cheek, III
Bass, Berry & Sims PLC
2700 First American Center
Nashville, TN 37238
(b) If to AmSurg:
AmSurg Corp.
One Burton Hills Boulevard
Nashville, Tennessee 37215
Attention: Ken P. McDonald
with a copy to:
Byron R. Trauger
Doramus, Trauger & Ney
222 Fourth Avenue North
Nashville, Tennessee 37219
5.5 Captions. All section captions herein are for convenience of reference
only, do not constitute part of this Agreement and shall not be deemed to limit
or otherwise affect any of the provisions hereof.
5.6 Assignment. This Agreement and all the provisions hereof shall be
binding upon and inure to the benefit of the parties and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by either party
without the prior written consent of the other party and any such assignment of
obligation shall relieve the assigning party from its responsibility hereunder.
Except as expressly otherwise provided herein, nothing contained in this
Agreement or the agreements referred to herein is intended to confer on any
person or entity other than the parties hereto and their respective successors
and permitted assigns any benefit, rights or remedies under or by reason of this
Agreement and such other agreements.
5.7 Further Assurances. AHC and AmSurg will do such additional things as
are necessary or proper to carry out and effectuate the intent of this Agreement
or any part hereof or the transactions contemplated hereby.
5.8 Expenses. Each party will bear its own expenses in connection with the
transactions contemplated by this Agreement; provided, however, that (a) AHC and
AmSurg will share equally the costs of (i) preparing the Registration Statement
on Form 10 (or the 33 Act Registration Statement and 34 Act Registration
Statement, as applicable), (ii) preparing the Distribution Agreement and Related
Agreements and (iii) preparing the no-action letter; (b) AmSurg will be
responsible for the costs of (i) preparing and, as required, filing any charter
amendment or merger required to effect the Recapitalization, (ii) preparing,
printing (or reproducing) and mailing a proxy statement for purposes of
soliciting the votes of shareholders of AmSurg in order to effect the
Recapitalization and to obtain any other required approvals of the shareholders
of AmSurg, (iii) listing or other inclusion of the shares of AmSurg common stock
on the Nasdaq National Market or on a national securities exchange, (iv) the
SEC's registration fees, (v) any required registration or qualification of any
shares of AmSurg common stock under state Blue Sky and securities laws, (vi) the
preparation of stock certificates for the shares of AmSurg common stock to be
distributed in connection with
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the Recapitalization, the Exchange and the Distribution, (vii) the fees and
expenses of J.C. Bradford & Co., (viii) the fees of Doramus, Trauger & Ney and,
with respect to services performed on behalf of AmSurg, Bass, Berry & Sims PLC,
(ix) preparing and auditing the separate financial statements of AmSurg and its
consolidated subsidiaries and (x) obtaining any governmental or third party
consents or approvals required to be obtained on the part of AmSurg in
connection with the transactions contemplated by this Agreement; and (c) AHC
will be responsible for the costs of (i) preparing the Ruling Request, (ii)
printing (or reproducing) and mailing the Information Statement included in the
Registration Statement on Form 10 to AHC Holders, (iii) the fees and expenses of
the Transfer Agent in connection with the Distribution, (iv) the fees and
expenses of Morgan Keegan & Co., Inc. and Houlihan, Lokey, Howard & Zukin, (v)
the fees and expenses of Bass, Berry & Sims PLC with respect to services
performed on behalf of AHC, (vi) preparing and auditing the financial statements
of AHC and its consolidated subsidiaries (except for the separate financial
statements of AmSurg and its consolidated subsidiaries as provided in clause
(b)(ix) above) and (vii) obtaining any governmental or third party consents or
approvals required to be obtained on the part of AHC in connection with the
transactions contemplated by this Agreement.
5.9 Dispute Resolution.
(a) Submission of Disputes to Arbitration. Any claims, demands,
disputes, differences, controversies, and/or misunderstandings arising
under, out of, or in connection with, or in relation to this Agreement
(collectively, a "Dispute"), shall be settled by submission of such Dispute
(if not theretofore resolved by the parties hereto) within 45 days of
assertion to arbitration in accordance with the provisions of this Section
5.9 and the Commercial Arbitration Rules of the American Arbitration
Association.
(b) Selection of Arbitrators.
(i) The parties may agree upon one arbitrator whose decision will
be final and binding on them; otherwise there shall be three
arbitrators, with one named in writing by each party and the third
chosen by these two arbitrators (without necessary delay), and the
decision in writing signed by those assenting thereto of any two of the
arbitrators shall be final and binding on the parties.
(ii) No one shall be nominated or act as an arbitrator who is in
any way financially interested in this Agreement or in the business of
either party hereto.
(c) Consent to Jurisdiction. Any and all arbitrations shall take
place pursuant to the laws of the State of Delaware, and consent is hereby
given to jurisdiction of courts of the State of Delaware over the parties
to this Agreement in reference to any matter arising out of arbitration or
this Agreement, including but not limited to confirmation of any award and
enforcement thereof by entry of judgment thereon or by any other legal
remedy.
(d) Costs of Arbitration. The cost of any arbitration (including the
fees of the arbitrator or arbitrators) pursuant to this Agreement shall be
borne equally by each party to the Dispute, unless otherwise determined by
the arbitrator or arbitrators.
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto as of the date first
hereinabove written.
AMERICAN HEALTHCORP, INC.
By: /s/ HENRY D. HERR
------------------------------------
Name: Henry D. Herr
Title: Executive Vice President
AMSURG CORP.
By: /s/ CLAIRE M. GULMI
------------------------------------
Name: Claire M. Gulmi
Title: Senior Vice President
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APPENDIX B
J.C. Bradford (Letterhead)
March 7, 1997
Special Committee of the Board of Directors
AmSurg Corp.
One Burton Hills Boulevard
Suite 350
Nashville, TN 37215
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of the outstanding common stock, par value $0.01 per
share (the "AmSurg Common Stock"), of AmSurg Corp. (the "Company" or "AmSurg"),
other than American Healthcorp, Inc. ("AHC") (such shareholders being
collectively referred to herein as the "Unaffiliated Shareholders"), of the
proposed recapitalization (the "Recapitalization") and proposed exchange (the
"Exchange") of the Common Stock, and the proposed distribution (the
"Distribution") to the holders of AHC common stock, par value $0.001 per share
(the "AHC Common Stock") of all the outstanding AmSurg Common Stock owned by
AHC. For purposes of this opinion, we have assumed that the draft Distribution
Agreement in the form previously provided to us will not vary in any material
respect form the Distribution Agreement to be signed by the parties thereto.
The Recapitalization provides for, among other things, the conversion of
all shares of AmSurg Common Stock into shares of newly-issued AmSurg Class A
Common Stock, no par value (the "Class A Common Stock"), which will reduce on a
1 for 3 basis the number of outstanding shares of Common Stock through a reverse
stock split (the "Reverse Stock Split"). Immediately following the Reverse Stock
Split, AHC will exchange its shares of Class A Common Stock for shares of Class
B common stock, no par value (the "Class B Common Stock"). The sole purpose for
the Exchange is to increase the voting power of AHC in AmSurg prior to the
Distribution to the extent required in order for the Distribution to qualify for
substantially tax-free treatment for federal income tax purposes. The shares of
Class A Common Stock will have one vote per share on all matters, while the
shares of Class B Common Stock will have 7 votes per share on the election or
removal of directors of AmSurg and one vote per share on all other matters. The
shares of Class B Common Stock will convert automatically into shares of Class A
Common Stock upon the first transfer following the Distribution. The shares of
Class A and Class B Common Stock will be entitled to share ratably in any
dividends other than dividends payable with respect to AmSurg preferred stock.
In all other respects, the Class A Common Stock and Class B Common Stock will be
identical. No further shares of Class B Common Stock will be issued following
the Distribution.
In the Distribution, each holder of AHC Common Stock on the Distribution
Record Date will receive a dividend of 69 shares of AmSurg Class B Common Stock
for every 100 shares of AHC Common Stock owned by such holder on the
Distribution Record Date, with cash being paid in lieu of fractional interests
in a share of Class B Common Stock.
J.C. Bradford & Co., as part of its investment banking business, engages in
the valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate,
and other purposes.
J.C. Bradford (Address)
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We have acted as financial advisor to the Special Committee of the Board of
Directors of AmSurg in connection with the proposed Recapitalization, Exchange
and Distribution and will receive a fee from the Company for our services. In
addition, the Company has agreed to indemnify us for certain liabilities arising
out of the rendering of this opinion.
In conducting our analyses and arriving at our opinion, we have considered
such financial and other information as we deemed appropriate including, among
other things, the following: (i) the proposed terms of the Recapitalization,
Exchange and Distribution; (ii) the historical and current financial position
and results of operations of AHC as set forth in its periodic reports and proxy
materials filed with the Securities and Exchange Commission; (iii) the audited
financial statements of AmSurg for the fiscal years ended December 31, 1992,
1993, 1994, 1995 and 1996, as contained in the Information Statement; (iv)
certain internal operating data and financial analyses, including forecasts of
AmSurg for the years beginning January 1, 1996 and ending December 31, 2001,
which assume no future changes in accounting principles which would have a
material affect on AmSurg's financial statements; (v) the past and current
business, financial condition and prospects of AmSurg and AHC as discussed with
certain senior officers of AmSurg and AHC; (vi) certain financial, operating and
securities trading data of certain other public companies that we believed to be
comparable to AmSurg or relevant to the transaction, with such information taken
from individual companies' annual reports, SEC Forms 10-K and 10-Q; (vii) the
financial terms of certain other transactions that we believed to be relevant;
(viii) data relating to public companies with two classes of stock, including an
analysis of float of the classes, historical price and volume data, data
relating to voting rights of the stocks, and data relating to economic
differences in the classes, such as different dividend rights; (ix) reported
price and trading activity for the shares of AHC Common Stock; (x) a draft of
the Information Statement included in the registration Statement on Form 10 for
the AmSurg Common Stock filed with the Securities and Exchange Commission; (xi)
the tax ruling request, as supplemented, to the Internal Revenue Service from
AHC and AmSurg; and (xii) such other financial studies, analyses, and
investigations as we deemed appropriate for purposes of our opinion.
We have taken into account our assessment of general economic, market, and
financial and other conditions and our experience in other transactions, as well
as our experience in securities valuation and our knowledge of the industries in
which AmSurg and AHC operate generally. Our opinion is necessarily based upon
the information made available to us and conditions as they exist and can be
evaluated as of the date hereof.
We have relied upon the accuracy and completeness of all of the financial
and other information reviewed by us for purposes of our opinion and have not
assumed any responsibility for, nor undertaken an independent verification of,
such information. With respect to the internal operating data and financial
analyses and forecasts supplied to us, we have assumed that such data, analyses,
and forecasts were reasonably prepared on bases reflecting the best currently
available estimates and judgments of AmSurg's and AHC's respective senior
management as to the recent and likely future performance of their respective
companies. Accordingly, we express no opinion with respect to such analyses or
forecasts or the assumptions on which they are based. Also, we have not
conducted a physical inspection of all of the properties and facilities of
AmSurg and AHC, and we have not made an independent evaluation or appraisal of
the assets and liabilities of AmSurg and AHC or any of their respective
subsidiaries or affiliates and have not been furnished with any such evaluation
or appraisal.
AmSurg is entitled to reproduce this opinion, in whole or in part, in its
Form 10 filed with the Securities and Exchange Commission and in any proxy
statement circulated in connection with the Recapitalization, Exchange and
Distribution as required by applicable law or as may be appropriate; provided,
that any excerpt from or reference to this opinion (including any summary
thereof) in such document must be approved by us in advance in writing.
Notwithstanding the foregoing, this opinion does not constitute a recommendation
to any holder of shares of AmSurg Common Stock to vote in favor of the
Recapitalization, Exchange and Distribution. We were engaged by the Special
Committee of the Board of Directors of AmSurg to render this opinion, upon the
Special Committee's request, in connection with the discharge of its fiduciary
obligations and understand and consent to the fact that the AmSurg Board of
Directors has received copies of this Opinion and is entitled to rely upon it in
connection with the discharge of its fiduciary duties. We have advised
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the Special Committee of the Board of Directors that we do not believe that any
person (including a shareholder of the Company) other than the Special Committee
of the Board of Directors and the Board of Directors has the legal right to rely
upon this opinion for any claim arising under state law and that, should any
such claim be brought against us, this assertion will be raised as a defense. In
the absence of governing authority, this assertion will be resolved by the final
adjudication of such issue by a court of competent jurisdiction. Resolution of
this matter under state law, however, will have no effect on the rights and
responsibilities of any person under the federal securities laws or on the
rights and responsibilities of AmSurg's Board of Directors under applicable
state law.
Based upon and subject to the foregoing, and based upon such other matters
as we consider relevant, it is our opinion that, as of the date hereof, the
Recapitalization, Exchange and Distribution are fair to the Unaffiliated
Shareholders from a financial point of view.
Sincerely,
/s/ J.C. BRADFORD & CO.
--------------------------------------
J.C. BRADFORD & CO.
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MORGAN KEEGAN
- --------------------------------------------------------------------------------
MORGAN KEEGAN & COMPANY, INC.
MORGAN KEEGAN TOWER
FIFTY FRONT STREET
MEMPHIS, TENNESSEE 38103
901/524-4100 TELEX 69-74324
WATS 800/368-7426
MEMBERS NEW YORK STOCK EXCHANGE, INC.
APPENDIX C
March 7, 1997
The Board of Directors
American Healthcorp, Inc.
One Burton Hills Boulevard
Nashville, TN 37215
Gentlemen:
We have acted as financial advisor to American Healthcorp, Inc., a Delaware
corporation ("AHC"), in connection with the proposed recapitalization (the
"Recapitalization") of the common stock of AmSurg Corp., a Tennessee Corporation
("AmSurg"), the proposed exchange of AHC's Class A Common Stock in AmSurg for
Class B Common Stock in AmSurg ("the Exchange") and the proposed distribution
(the "Distribution") to the holders of AHC common stock, par value $0.001 per
share (the "AHC Common Stock"), of 59% of the outstanding common stock, no par
value (the "AmSurg Common Stock") of AmSurg. We have been advised that the
purposes of the Recapitalization, the Exchange and the Distribution are as set
forth in the Information Statement proposed to be sent to the stockholders of
AHC, a draft of which has been furnished to us. The Recapitalization, the
Exchange and the Distribution are described more fully in such Information
Statement. You have requested our opinion as to whether the Recapitalization,
the Exchange and the Distribution are fair to the holders of AHC Common Stock
from a financial point of view. We have assumed that the Distribution will be
substantially tax-free to AHC and its stockholders as set forth in the
Information Statement. We have not been asked to, and do not, express any
opinion as to the valuation, future performance or long-term viability of AmSurg
or AHC as an independent public company following either the Recapitalization,
the Exchange or the Distribution. This opinion does not opine on or give any
assurance of the prices at which the shares of AHC Common Stock, AmSurg Class A
Common Stock, or AmSurg Class B Common Stock will actually trade after the
Distribution.
In connection with our review of the Recapitalization, the Exchange and the
Distribution, and in arriving at our opinion, we have, among other things:
(i) reviewed the publicly available consolidated financial statements
of AHC and certain other relevant financial and operating data of AHC made
available to us from published sources and by officers of AHC;
(ii) reviewed the financial statements of AmSurg contained in the
Information Statement;
(iii) reviewed certain internal financial and operating information,
including certain projections, relating to AHC and AmSurg prepared by the
managements of AHC and AmSurg, respectively;
(iv) discussed the business, financial condition and prospects of AHC
with certain officers of AHC;
(v) discussed the business, financial condition and prospects of
AmSurg with certain officers of AHC and AmSurg;
(vi) reviewed the financial terms of the Recapitalization, the
Exchange and the Distribution;
(vii) reviewed the financial terms, to the extent publicly available,
of certain transactions we deemed relevant;
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(viii) reviewed certain publicly available information relating to
certain companies we deemed appropriate in analyzing AHC and AmSurg;
(ix) reviewed the trading history of AHC Common Stock;
(x) reviewed a draft of the Information Statement to be included in
the Registration Statement on Form 10 for the AmSurg Common Stock to be
filed with the Securities and Exchange Commission (the "Information
Statement") ;
(xi) reviewed the tax ruling request filed on behalf of AHC and AmSurg
that seeks a ruling that, among other things, the Distribution will be
substantially tax-free to AHC and its stockholders; and
(xii) performed such other analyses and examinations and considered
such other information, financial studies, analysis and investigations and
financial, economic and market data as we deemed relevant.
We have not independently verified any of the information concerning AHC or
AmSurg considered in connection with our review of the Recapitalization, the
Exchange and the Distribution and, for purposes of the opinion set forth herein,
we have assumed and relied upon the accuracy and completeness of all such
information. With respect to the financial forecasts and projections made
available to us and used in our analysis, we have assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the managements of AHC and AmSurg as to the expected future
financial performance of their respective companies. In our analysis, we
considered the financial aspects of certain alternatives available to AHC,
including the sale of certain of AHC's subsidiaries to an unaffiliated
purchaser, the sale of all or a portion of AmSurg to the public through an
initial public offering, and the continuance of AmSurg as an AHC subsidiary. Our
opinion is necessarily based upon market, economic, financial and other
conditions as they exist on, and can be evaluated as of, the date of this
letter. Any change in such conditions would require a reevaluation of this
opinion.
In connection with our opinion, we have assumed that the Recapitalization,
the Exchange and the Distribution will be consummated on the terms and subject
to the conditions described in the Information Statement. We have also assumed
that all necessary governmental and regulatory approvals and third-party
consents will be obtained on terms and conditions that will not have a material
adverse effect on AHC or AmSurg.
Morgan Keegan & Company, Inc., as part of its investment banking services,
is regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, corporate restructurings, strategic
alliances, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. We have acted as financial advisor to the Board of Directors of AHC in
connection with the Recapitalization, the Exchange and the Distribution and will
receive a fee for our services. Morgan Keegan & Company, Inc. may act as a
market maker and broker in AHC and AmSurg Common Stock following the
Distribution.
This letter and the opinion stated herein are solely for the use of AHC's
Board of Directors and may not be reproduced, summarized, excerpted from or
otherwise publicly referred to in any manner without our prior written consent.
Based upon and subject to the foregoing and such other matters as we deem
relevant, we are of the opinion that as of the date hereof, the
Recapitalization, the Exchange and the Distribution are fair to the holders of
AHC Common Stock from a financial point of view.
We hereby consent to the inclusion of the full extent of our opinion and a
summary thereof in the Registration Statement on Form 10 for AmSurg and the AHC
Information Statement and to references to our name therein.
Sincerely,
/s/ MORGAN KEEGAN & COMPANY, INC.
--------------------------------------
Morgan Keegan & Company, Inc.
C-2
<PAGE> 128
PART II.
RECENT SALES OF UNREGISTERED SECURITIES
During the period beginning February 1, 1994 and ending April 23, 1997,
AmSurg has issued the following securities:
(A) At various times since February 1, 1994, AmSurg has sold an
aggregate of 2,415,990 shares of common stock to certain founding
stockholders and AHC for per share stock prices ranging from $2.94 to
$5.37. These purchases were primarily used to fund the continued operations
of AmSurg, including acquisitions and development of surgery centers during
that period. On February 26, 1996, AHC exercised warrants issued to it by
AmSurg for the purchase of 85,906 shares of AmSurg common stock at a per
share exercise price of $2.70. The warrants were issued in consideration
for AHC's guaranty of AmSurg debt.
(B) At various times since February 1, 1994, AmSurg has granted
options to purchase shares of AmSurg common stock to various employees.
Options to purchase 2,917 shares of AmSurg common stock were exercised on
July 26, 1996 at per share prices ranging from $2.52 to $3.33.
(C) At various times since February 1, 1994, AmSurg has sold an
aggregate of 1,336,996 shares of common stock to physician practices and
individual physicians as partial consideration in connection with the
acquisitions of surgery centers and in private placements to physician
partners in connection with the development of surgery centers. The per
share prices of these sales ranged from $2.94 to $6.15.
(D) On November 20, 1996, AmSurg sold an aggregate of 500,000 shares
of Series A Preferred Stock and 416,666 shares of Series B Preferred Stock
to three investors in a private placement. The per share price for the
Series A Preferred Stock and Series B Preferred Stock was $6.00 for an
aggregate sale price of $5,500,000.
The shares described above were issued without registration under the
Securities Act in reliance upon the exemptions from registration afforded by
Section 4(2) of the Securities Act and Regulation D of the Securities Act.
Reference is made to "THE DISTRIBUTION -- The Exchange" regarding shares of
AmSurg Common Stock to be issued in connection with the Exchange. Such issuance
will occur without registration under the Securities Act in reliance upon the
exemption from registration afforded by Section 3(a)(9) of the Securities Act.
II-1
<PAGE> 129
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this amendment to registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized.
AMSURG CORP.
By: /s/ KEN P. MCDONALD
------------------------------------
Name: Ken P. McDonald
Title: President
Date: May 8, 1997
II-2
<PAGE> 130
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
<C> <S> <C>
*(2.1) -- Distribution Agreement
*(2.2) -- Exchange Agreement
*(3.1) -- Amended and Restated Charter of AmSurg
*(3.2) -- Amended and Restated Bylaws of AmSurg
**(4.1) -- Specimen certificate representing the Class A Common Stock
**(4.2) -- Specimen certificate representing the Class B Common Stock
*(4.3) -- Form of Stockholders' Agreement between AmSurg and certain
investors
(4.4) -- Preferred Stock Purchase Agreement dated as of November 20,
1996 by and among AmSurg, Electra Investment Trust P.L.C.,
Capitol Health Partners, L.P. and Michael E. Stephens.
*(10.1) -- Form of Management and Human Resources Agreement between
AmSurg and AHC
*(10.2) -- Registration Agreement, dated April 2, 1992, as amended
November 30, 1992, and November 20, 1996 among AmSurg and
certain named investors therein
*(10.3) -- Form of Indemnification Agreement with directors, executive
officers and advisors
(10.4) -- Second Amended and Restated Loan Agreement dated as of April
15, 1997 among AmSurg, SunTrust Bank, Nashville, N.A., and
NationsBank of Tennessee, N.A., as amended on May 6, 1997.
*(10.5) -- Sublease dated as of June 9, 1996 between AHC and AmSurg
*(10.6) -- Letter Agreement dated as of December 31, 1996 between
AmSurg and AHC
*(10.7) -- 1992 Stock Option Plan
*(10.8) -- 1997 Stock Incentive Plan
*(10.9) -- Form of Employment Agreement with executive officers
*(10.10) -- Form of Advisory Agreement with Thomas G. Cigarran and Henry
D. Herr
(21.1) -- Subsidiaries of AmSurg
*(27.1) -- Financial Data Schedule
(27.2) -- Financial Data Schedule
</TABLE>
- ---------------
* Previously filed.
** To be filed by amendment.
<PAGE> 1
EXHIBIT 4.4
================================================================================
===============================================================
PREFERRED STOCK PURCHASE AGREEMENT
===============================================================
AMSURG CORP.
Series A Redeemable Preferred Stock and Series B Convertible Preferred Stock
-----------------------------------------------------
Dated as of November 20, 1996
-----------------------------------------------------
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Pages
-----
<S> <C> <C>
1. AUTHORIZATION OF FINANCING...............................................................................1
2. PURCHASE AND SALE OF PREFERRED STOCK.....................................................................1
3. CLOSING OF SALE OF PREFERRED STOCK.......................................................................2
4. CONDITIONS OF CLOSING....................................................................................2
4A. Opinions of Counsel.............................................................................2
4B. Representations and Warranties; No Default......................................................3
4C. Other Agreements................................................................................3
4D. Purchase and Loan Permitted by Applicable Laws..................................................3
4E. No Adverse Legislation, Action or Decision......................................................3
4F. Approvals and Consents..........................................................................4
4G. No Material Adverse Change......................................................................4
4H. Officer's Certificate as to Financial Statements................................................4
4I. Compliance with Existing Debt Facilities; Other Restrictions....................................4
4J. Proceedings; Compliance Certificate.............................................................5
4K. Projections.....................................................................................5
4L. Structure.......................................................................................5
4M. Closing Transaction Fee.........................................................................5
4N. Purchasers' Due Diligence Review................................................................5
5. AFFIRMATIVE COVENANTS....................................................................................5
5A. Financial Statements and Other Information......................................................5
5B. Inspection of Property..........................................................................6
5C. Accountants.....................................................................................7
5D. Maintenance of Properties; Insurance............................................................7
5E. Board Committees................................................................................7
5F. Corporate Existence, Etc........................................................................7
5G. Payment of Taxes, Claims and Senior Debt........................................................7
5H. Compliance With Laws, Etc.......................................................................8
5I. Securities Filings..............................................................................8
5J. Reservation of Shares...........................................................................8
5K. Hart-Scott Filings..............................................................................8
5L. Use of Proceeds.................................................................................8
6. NEGATIVE COVENANTS.......................................................................................8
6A. Limitation on Debt..............................................................................9
6B. Restrictions on Sales, Mergers and Consolidations...............................................9
6C. Restrictions on Dividends, Issuance of Capital Stock............................................9
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
6D. Transactions with Affiliates...................................................................10
6E. Change of Accountants, Accounting Practices....................................................11
6F. Limitations on Sale............................................................................11
6G. Change in Business.............................................................................11
6H. Restrictions on Payment........................................................................11
6I. No Amendment of Organizational Documents.......................................................11
6J. Compliance with ERISA..........................................................................11
6K. Foreign Investment in Real Property Tax Act....................................................12
7. EVENTS OF DEFAULT.......................................................................................12
7A. Purchasers' Remedies...........................................................................14
8. REPRESENTATIONS, COVENANTS AND WARRANTIES...............................................................15
8A. Organization: Corporate Authority..............................................................15
8B. Business; Financial Statements.................................................................16
8C. Capital Stock and Related Matters..............................................................17
8D. Litigation.....................................................................................17
8E. Outstanding Debt...............................................................................18
8F. Title to Properties............................................................................18
8G. Taxes..........................................................................................18
8H. Conflicting Agreements and Other Matters.......................................................18
8I. Patents, Etc...................................................................................19
8J. Private Offering...............................................................................19
8K. Broker's or Finder's Commissions; Transaction Fees.............................................19
8L. Compliance with Law............................................................................19
8M. Investment Company Act.........................................................................20
8N. Public Utility Holding Company Act.............................................................20
8O. Governmental Consents, Etc.....................................................................20
8P. Compliance with ERISA..........................................................................20
8Q. Material Agreement.............................................................................22
8R. Environmental Matters..........................................................................22
8S. Foreign Investment in Real Property Tax Act....................................................23
8T. Leases.........................................................................................23
8U. Professional Liability.........................................................................23
8V. Employee Matters...............................................................................23
8W. Solvency.......................................................................................24
8X. Projections....................................................................................24
9. REPRESENTATIONS AND AGREEMENTS OF THE PURCHASERS........................................................24
10. DEFINITIONS.............................................................................................25
11. INDEMNIFICATION.........................................................................................31
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
11A. Indemnification By Company.....................................................................31
11B. Indemnification By Purchasers..................................................................31
11C. Procedures Under Indemnification...............................................................31
12. MISCELLANEOUS...........................................................................................33
12A. Payments.......................................................................................33
12B. Expenses and Fees..............................................................................33
12C. Consent to Amendment; Waivers..................................................................33
12D. Survival of Representations and Warranties; Entire Agreement...................................34
12E. Successors and Assigns.........................................................................34
12F. Notices........................................................................................34
12G. Descriptive Headings, Etc......................................................................36
12H. Governing Law; Resolution of Disputes..........................................................36
12I. Counterparts...................................................................................37
</TABLE>
iii
<PAGE> 5
PREFERRED STOCK PURCHASE AGREEMENT, dated as of November 20, 1996, by
and among AmSurg Corp., a Tennessee corporation (the "Company"), Electra
Investment Trust P.L.C., a company with limited liability organized under the
laws of England and Wales ("Electra"), Capitol Health Partners, L.P., a Delaware
limited partnership ("CHP") and Michael E. Stephens ("Stephens", and together
with Electra and CHP the "Purchasers", and each, a "Purchaser").
WHEREAS, the Purchasers desire, upon the terms and conditions
hereinafter provided, to purchase from the Company "Preferred Stock" which
consists of 1,500,000 shares of its Series A Redeemable Preferred Stock, no par
value per share (the "Redeemable Stock") and 1,250,000 shares of its Series B
Convertible Preferred Stock, no par value per share ("Convertible Stock"); and
WHEREAS, the Company desires, upon the terms and conditions hereinafter
provided, to sell the Preferred Stock to the Purchasers; and
WHEREAS, the purchase and sale of the Preferred Stock is made in
contemplation of a proposed Spin Off by the Company through which all of the
issued and outstanding common stock of the Company held by American Healthcorp,
Inc. ("AHC") will be distributed to the shareholders of AHC in a tax-free
distribution under Section 355 of the Code.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. AUTHORIZATION OF FINANCING. In order to provide funds for the
expansion of its business and for general corporate purposes, the Company has
authorized the issuance and delivery of 1,500,000 shares of Redeemable Stock and
1,250,000 shares of Convertible Stock. The certificates representing such shares
of Preferred Stock shall be dated the Closing Date and be substantially in the
forms attached hereto as EXHIBITS A and B, respectively, and the shares shall
have terms substantially as specified in the forms of the designation for the
Redeemable Stock (the "Redeemable Designation"), and the designation for the
Convertible Stock (the "Convertible Designation"), both contained in the
Company's Articles of Amendment, dated November 20, 1996 (the "Articles of
Amendment") attached hereto as EXHIBIT C.
Unless otherwise defined, capitalized terms used in this Agreement are
defined in paragraph 10 hereof.
2. PURCHASE AND SALE OF PREFERRED STOCK. The Company hereby agrees to
sell to Purchasers and, subject to the terms and conditions herein set forth,
Purchasers agree to purchase from the Company 1,500,000 shares of the Redeemable
Stock having an aggregate purchase price of $3,000,000, and 1,250,000 shares of
Convertible Stock having an aggregate purchase price of $2,500,000. The shares
shall be in the form of one or more certificates in each Purchaser's name, and
in such denominations as the Purchasers shall request:
1
<PAGE> 6
(i) Electra agrees to purchase 1,090,909 shares of Redeemable
Stock at an aggregate purchase price of $2,181,818, and 909,091 shares
of Convertible Stock at an aggregate purchase price of S 1,818,182.
(ii) CHP agrees to purchase 272,728 shares of Redeemable Stock
at an aggregate purchase price of $545,456, and 227,272 shares of
Convertible Stock at an aggregate purchase price of $454,544.
(iii) Stephens agrees to purchase 136,363 shares of Redeemable
Stock at an aggregate purchase price of $272,726, and 113,637 shares of
Convertible Stock at an aggregate purchase price of $227,274.
3. CLOSING OF SALE OF PREFERRED STOCK. The closing (the "Closing") of
the purchase and delivery of the Preferred Stock shall take place at the offices
of Manatt, Phelps & Phillips, 1501 M Street, N.W., Washington, D.C. 20005, at
10:00 a.m. on November ____, 1996, or at such other place or on such other date
as the Purchasers and the Company may agree (the "Closing Date"). At the
Closing, the Company will deliver to the Purchasers the Preferred Stock, against
payment of the purchase price therefor by transfer in lawful money of the United
States of America in immediately available funds to such bank and account as the
Company may direct in writing. In addition, at the Closing, the Company will
deliver to (i) Electra, Inc., a Delaware corporation ("Electra Inc."), a check
payable in immediately available funds, in payment of a transaction fee in the
amount of $129,091 (the "Electra Closing Transaction Fee") and Expenses and (ii)
Capitol Health Consultants, Inc. ("CHC"), a Delaware corporation, a check
payable in immediately available funds, in payment of a transaction fee in the
amount $48,409 and Expenses (the "CHC Closing Transaction Fee," and together
with the Electra Transaction Fee, the "Closing Transaction Fee"). The Company
shall also pay at Closing to Electra and CHC their Expenses. In addition, the
Company will pay to Electra transaction fees of $29,091 per annum and to CHP
transaction fees of $10,909 per annum, payable on the first business day of each
calendar year commencing on January 1, 1998 and terminating at the end of the
calendar year in which a Triggering Event takes place.
4. CONDITIONS OF CLOSING. The Purchasers' obligation to purchase and
pay for the Preferred Stock is subject to the satisfaction or waiver prior to or
at the Closing of the following conditions:
4A. OPINIONS OF COUNSEL. The Purchasers shall have received
the favorable opinion of Bass, Berry & Sims, PLC, counsel for the Company,
substantially in the form set forth in EXHIBIT D hereto, and covering any other
matters incident to the transactions contemplated hereby as the Purchasers may
reasonably request, dated the Closing Date and addressed to the Purchasers. To
the extent that the opinion referred to above in this paragraph 4A is rendered
in reliance upon the opinion of any other counsel (which other counsel shall be
reasonably acceptable to counsel for the Purchasers), the Purchasers shall have
received a copy of such opinion of such other counsel, dated the Closing Date
and addressed to the Purchasers, or a letter dated the
2
<PAGE> 7
Closing Date and addressed to the Purchasers from such other counsel authorizing
the Purchasers to rely thereon.
4B. REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The
representations and warranties of the Company contained in this Agreement and
those otherwise made in writing by or on behalf of the Company in connection
with the transactions contemplated by this Agreement and the Other Agreements
shall be true and correct in all material respects as of the time made and at
the time of the Closing as if made again on and as of the Closing Date. There
shall exist at the time of the Closing and after giving effect to the
transactions contemplated hereby no Default or Event of Default.
4C. OTHER AGREEMENTS. The Purchasers shall have received a
fully executed counterpart of (i) the Shareholders' Agreement, dated as of April
2, 1992, as amended, substantially in the form of EXHIBIT E (the "Shareholders'
Agreement") and, (ii) the Registration Agreement, dated as of April 2, 1992, as
amended, substantially in the form of EXHIBIT F (the "Registration Agreement")
and at the time of the Closing, both of the Shareholders' Agreement and the
Registration Agreement shall be in full force and effect and no term or
condition thereof shall have been amended, modified or waived.
4D. PURCHASE AND LOAN PERMITTED BY APPLICABLE LAWS. The
purchase of and payment for the Preferred Stock shall not violate any applicable
law or governmental regulation (including, without limitation, section 5 of the
Securities Act or Regulation G, T or X of the Board of Governors of the Federal
Reserve System) and shall not subject the Purchasers to any tax, penalty,
liability or other onerous condition under or pursuant to any applicable law or
governmental regulation or order. The issuance, offering and sale of the
Preferred Stock under this Agreement shall have complied with all applicable
requirements of federal and state securities laws. The Purchasers shall have
received such certificates or other evidence as they may request to establish
compliance with the conditions set forth in this paragraph 4D.
4E. NO ADVERSE LEGISLATION, ACTION OR DECISION. No
legislation, order, rule, ruling or regulation shall have been enacted or made
by or on behalf of any federal, state or local governmental body, department or
agency of the United States, nor shall have any legislation with an effective
date on or prior to the date hereof been proposed in any federal, state or local
governmental body, department or agency of the United States, nor shall any
decision of any court of competent jurisdiction within the United States have
been rendered which, in the Purchasers' reasonable judgment, would materially
and adversely affect the Preferred Stock as an investment or the business,
condition (financial or other, assets, properties, operations or prospects of
the Company or its Subsidiaries. There shall be no action, suit, investigation
or proceeding pending or, to the best of the Purchasers' or the Company's
knowledge, threatened, against or affecting the Purchasers, the Company, any of
the Purchasers' or the Company's properties or rights, or any of the Purchasers'
or the Company's Affiliates, officers or directors, before any court, arbitrator
or administrative or governmental body which (i) seeks to restrain, enjoin,
prevent the consummation of or otherwise affect the transactions contemplated by
this Agreement and the
3
<PAGE> 8
Other Agreements or (ii) questions the validity or legality of any such
transactions or seeks to recover damages or to obtain other relief in connection
with any such transactions, and, to the best of the Purchasers' and the
Company's knowledge, there shall be no valid basis for any such action,
proceeding or investigation.
4F. APPROVALS AND CONSENTS. The Company shall have duly
received all authorizations, waivers, consents, approvals, licenses, franchises,
permits and certificates by or of all federal, state and local governmental
authorities and all material consents of all other Persons necessary for the
validity of the authorization, execution, delivery and issuance, as the case may
be, of the Preferred Stock, this Agreement and the Other Agreements and the
consummation of the transactions contemplated hereby and thereby, all of which
shall be in full force and effect at the time of Closing.
4G. NO MATERIAL ADVERSE CHANGE. No material adverse change in
the business, condition (financial or other), assets, properties, operations or
prospects of the Company and its Subsidiaries shall have occurred since
September 30, 1996.
4H. OFFICER'S CERTIFICATE AS TO FINANCIAL STATEMENTS. The
Purchasers shall have received an Officer's Certificate to the effect that the
consolidated balance sheet of the Company and its Subsidiaries as of September
30, 1996 and the related consolidated statements of operations and retained
earnings for the three-month period then ended (and cash flows for the
nine-month period then ended), fairly present in all material respects the
financial condition and results of operations of the Company and its
Subsidiaries on a consolidated basis in accordance with GAAP, subject to changes
resulting from year-end adjustments and to the absence of footnotes.
4I. COMPLIANCE WITH EXISTING DEBT FACILITIES; OTHER
RESTRICTIONS. The Purchasers shall have received a certificate signed by the
Company's Chief Financial Officer and dated the Closing Date to the effect that
the Company and its Subsidiaries (i) are in compliance with all agreements
relating to the Debt of the Company and its Subsidiaries to Suntrust Bank,
Nashville, N.A. ("Suntrust"), and (ii) to the best of the Company's knowledge,
and without conducting an independent investigation thereof, are in compliance
with all other agreements relating to the Debt of the Company. To the best of
the Company's knowledge, and without conducting an independent investigation
thereof, the execution of this Agreement and performance of its obligations
hereunder will not violate any covenants in any such agreements that purport to
(a) limit or restrict the issuance by the Company of the Preferred Stock (b) the
Company's ability or obligation to make any payment due in respect of the
Preferred Stock or perform its other obligations under this Agreement and the
Other Agreements. The Company shall have delivered to the Purchasers (i)
complete copies of all documents or instruments relating to the Debt of the
Company to Suntrust (such documents or instruments collectively, the "Suntrust
Agreement"), and (ii) the consent (the "Consent") of Suntrust to the issuance of
and sale by the Company of the Preferred Stock pursuant to the terms of the
Purchase Agreement and the terms of the Designations for the Redeemable Stock
and the Convertible Stock. A copy of the Suntrust
4
<PAGE> 9
Amended and Restated Loan Agreement dated as of June 25, 1996, is attached
hereto as EXHIBIT G. A copy of the Consent is attached hereto as EXHIBIT H.
4J. PROCEEDINGS; COMPLIANCE CERTIFICATE. All proceedings taken
or to be taken in connection with the transactions contemplated hereby and under
the Other Agreements, and all documents incident thereto, shall be reasonably
satisfactory in form and substance to the Purchasers and their counsel, and the
Purchasers and their counsel shall have received all such counterpart originals
or certified or other copies of such documents as the Purchasers or their
counsel may reasonably request. The Company shall have delivered to the
Purchasers an Officers' Certificate, dated the Closing Date, confirming the
satisfaction of the conditions specified in paragraphs 4B, 4E, 4F and 4G on and
as of the Closing Date.
4K. PROJECTIONS. There shall have been provided to the
Purchasers the projected annual financial results for the Company and its
Subsidiaries and Affiliates for each of the years ending December 31, 1996
through December 31, 2000, stating any assumptions underlying such projections,
all of which are set forth in the Company's Confidential Offering Memorandum of
July 1996 (the "Offering Memorandum") attached hereto as EXHIBIT I.
4L. STRUCTURE. All actions necessary or desirable shall have
been taken to effect the following results: (i) all of the issued and
outstanding Capital Stock of the Company shall be owned as set forth in SCHEDULE
4L; and (ii) a majority of all of the outstanding Capital Stock of the
Subsidiaries shall be owned directly by the Company as set forth in Schedule 8A.
4M. CLOSING TRANSACTION FEE. Electra, Inc. and CHC shall have
received payment of their Closing Transaction Fees and the Expenses.
4N. PURCHASERS' DUE DILIGENCE REVIEW. The Purchasers shall
have completed to their satisfaction a due diligence review of the Company, its
business, assets, and liabilities, and the Company shall have furnished to the
Purchasers and their representatives such information as may reasonably be
required for such purposes, including financial projections reasonably
satisfactory to Purchasers, a business plan and the intended use of the proceeds
of this sale of Preferred Stock.
5. AFFIRMATIVE COVENANTS. The Company covenants as follows from and
after the date of this Agreement and until the earliest to occur of (i) a
Triggering Event, (ii) a Spin Off and (iii) the date the Required Holder(s)
cease(s) to own 25% or more of the Redeemable Stock or the Convertible Stock
purchased by them, or the Common Stock of the Company received upon conversion
thereof (on a fully-diluted and as-converted basis) held by such Required
Holder(s), in the aggregate.
5A. FINANCIAL STATEMENTS AND OTHER INFORMATION. The Company
will deliver, or cause to be delivered to each Purchaser:
5
<PAGE> 10
(i) as soon as available and in any event within 45 days after
the end of each of the first three fiscal quarters, the unaudited
consolidated balance sheets of the Company as of the end of such fiscal
quarter, and the unaudited consolidated and consolidating statements of
income of the Company and its consolidated Subsidiaries for such
quarter and for a period from the beginning of the fiscal year to the
close of such fiscal quarter, all certified by the chief financial
officer or chief accounting officer of the Company as being true and
correct to the best of his or her knowledge;
(ii) as soon as available, and in any event within 90 days
after the close of each fiscal year, the audited consolidated financial
statements of the Company setting forth the audited consolidated
balance sheets of the Company as at the end of such year, and the
audited consolidated statements of income, statements of cash flows,
and consolidated statements of retained earnings of the Company for
such year, setting forth in each case in comparative form, other than
as to cash flow, (beginning when comparative data are available) the
corresponding figures for the preceding fiscal year accompanied by the
report of the Company's certified public accountants, and by an
unaudited consolidating balance sheet and unaudited consolidating
statements of income of the Company and its Subsidiaries and duly
certified by the Company's chief financial officer as being correct
reflections of the information used for the audited consolidated
financial statements. The audit opinion in respect of the financial
statements of the Company shall be the opinion of a firm of independent
certified public accountants reasonably acceptable to the Required
Holder(s); and
(iii) together with each delivery of financial statements
required by clauses (i) and (ii) above, an Officers' Certificate
stating that the signers have reviewed the terms of this Agreement and
the Preferred Stock and have made, or caused to be made under their
supervision, a review in reasonable detail of the transactions and
condition of the Company and its Subsidiaries during the fiscal period
covered by such financial statements and further that such review has
not disclosed the existence during or at the end of such fiscal period,
and that the signers do not have knowledge of the existence, as of the
date of the Officers' Certificate, of any condition or event which
constitutes a Default or Event of Default or, if any such condition or
event existed or exists, specifying the nature and period of existence
thereof and what action the Company has taken or is taking or proposes
to take with respect thereto.
5B. INSPECTION OF PROPERTY. Upon the occurrence and during the
continuation of a Default or Event of Default, any Required Holder of Preferred
Stock, acting alone, shall be entitled to visit and inspect any of the
properties of the Company and its Subsidiaries, to examine the books and
financial records of the Company and its Subsidiaries and make copies thereof or
extracts therefrom and to discuss its affairs, finances and accounts with its
officers and its and their independent public accountants, all at reasonable
times and upon reasonable prior notice to the Company. All expenses incurred by
such holder in connection with such holder's exercise of rights pursuant to this
paragraph 5B shall be borne by such holder, except that the Company
6
<PAGE> 11
agrees to pay all reasonable out-of-pocket expenses incurred by any such
Required Holder in connection with such exercise of rights at any time when a
Default or an Event of Default has occurred and is continuing.
5C. ACCOUNTANTS. The Company will continue to engage Deloitte
& Touche, LLP or another "big six" accounting firm to serve as its independent
public accountants.
5D. MAINTENANCE OF PROPERTIES; INSURANCE. The Company and its
Subsidiaries will maintain or cause to be maintained in good repair, working
order and condition all properties used or useful in the business of the Company
and its Subsidiaries and from time to time will make or cause to be made all
appropriate repairs, renewals and replacements thereof. The Company and its
Subsidiaries will maintain or cause to be maintained, with financially sound and
reputable insurers (or, as to workers' compensation or similar insurance, in an
insurance fund or by self-insurance authorized by the laws of the jurisdiction
in question), insurance with respect to their respective properties and
businesses against loss or damage of the kinds customarily insured against by
corporations of established reputation engaged in the same or similar businesses
and similarly situated, of such type and in such amounts as are customarily
carried under similar circumstances by such other corporations and as are in
good faith believed by the Company to be sufficient to prevent the Company and
its Subsidiaries from becoming a co-insurer within the terms of the policies in
question.
5E. BOARD COMMITTEES. The Company has established, or will
establish no later than the next regularly scheduled Board meeting (presently
scheduled for January 1997), and will cause to remain in existence an audit
committee and a compensation committee of its Board of Directors, with such
duties and responsibilities typical of audit and compensation committees.
5F. CORPORATE EXISTENCE, ETC. The Company and each of its
Subsidiaries will at all times preserve and keep in full force and effect its
corporate existence, and rights, licenses and franchises material to its
business, and will qualify to do business in any jurisdiction where the failure
to do so would have a material adverse effect on the business, condition
(financial or other), assets, properties or operations of the Company or such
Subsidiary. The Company will duly call and hold shareholders meetings not less
frequently than once each year. The Company will duly call and hold meetings of
its Board of Directors (and its audit and compensation committees) not less
frequently than once each fiscal quarter.
5G. PAYMENT OF TAXES, CLAIMS AND SENIOR DEBT. The Company and
each of its Subsidiaries will pay all taxes, assessments and other governmental
charges imposed upon them or any of their respective properties or assets or in
respect of any of their respective franchises, business income or properties
before any significant penalty or significant interest accrues thereon, and all
claims (including, without limitation, claims for labor, services, materials and
supplies) for sums which have become due and payable, provided that no such
charge or claim need be paid if being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted and if such accrual or
other appropriate provision, if any, as shall be required by
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GAAP shall have been made therefor. The Company will duly and punctually pay
when due all payments required to be made under and pursuant to the Senior Debt.
5H. COMPLIANCE WITH LAWS, ETC. The Company will, and will
cause each of its Subsidiaries to, comply with the requirements of all
applicable laws, rules, regulations, and orders of any court or other
governmental authority (including, without limitation, those related to
environmental or ERISA compliance), noncompliance with which could materially
adversely affect the business, condition (financial or other), assets, property,
operations or prospects of the Company or the Company and its Subsidiaries taken
as a whole.
5I. SECURITIES FILINGS. From and after the date that any class
of the Company's capital stock is traded on the public securities markets, the
Company will (i) comply, in all material respects, with the reporting
requirements of the Exchange Act and (ii) comply, in all material respects, with
all other public information reporting requirements of the Commission that are a
condition to the availability of an exemption from the Securities Act (under
Rule 144 and Rule 144A thereof, as amended from time to time, or successor rules
thereto or otherwise) for the sale of Common Stock received by any holder of
Preferred Stock upon the conversion thereof. The Company will cooperate with
each holder in supplying such information as may be necessary for such holder to
complete and file any information reporting forms presently or hereafter
required by the Commission as a condition to the availability of an exemption
from the Securities Act (under Rule 144 and Rule 144A thereof or otherwise) for
the sale of any such Common Stock.
5J. RESERVATION OF SHARES. On or prior to the Closing Date,
the Company will reserve and keep reserved at all times sufficient shares of its
Common Stock for (i) issuance upon conversion of the Preferred Stock exercise of
options pursuant to the Company's Stock Option Plan, and pursuant to the
exercise of other options granted by the Company, and (ii) issuance by the
Company in the normal course of its business of acquiring and developing
practice-based surgery centers and physician practices. Upon conversion of
Preferred Stock the Company will promptly issue and deliver the shares of Common
Stock required to be delivered, and such shares, when issued and delivered, will
be validly issued, fully paid and nonassessable.
5K. HART-SCOTT FILINGS. At the request of any holder of
Preferred Stock, the Company or its "ultimate parent" (as defined in the
Hart-Scott Act) will promptly prepare and file, or cause to be prepared and
filed, any notification or response to any request for additional information
required to be filed under the Hart-Scott Act and the rules and regulations
promulgated thereunder with respect to the acquisition of shares of Common Stock
by such holder upon conversion of such holder's Preferred Stock.
5L. USE OF PROCEEDS. The Company will apply the proceeds from
the sale and issuance of the Preferred Stock for working capital, acquisitions
and Debt repayment.
6. NEGATIVE COVENANTS. The Company covenants as follows from and after
the date of this Agreement through the Closing and until the earliest to occur
of (i) a Triggering
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Event, (ii) a Spin Off, and (iii) the date the Required Holder(s) cease(s) to
own 25% or more of the Redeemable Stock or Convertible Stock purchased by them
or the Common Stock of the Company received upon conversion thereof (on a
fully-diluted and as-converted basis) held by such Required Holder(s), in the
aggregate.
6A. LIMITATION ON DEBT. The Company will not, and will not
permit any of its Subsidiaries to create, assume or incur, or become or at any
time be liable in respect of, any Debt:
(i) in excess of $40,000,000; or
(ii) in violation of any limitation on Debt that has not been
waived contained in the Suntrust Agreement, or any amendment,
extension, refunding or replacement thereof.
6B. RESTRICTIONS ON SALES, MERGERS AND CONSOLIDATIONS. Without
the prior written consent of the Required Holder(s), the Company will not, and
will not permit any of its Subsidiaries to: (i) lease a Substantial Part of its
properties (or any of its divisions or businesses) substantially as an entirety
to any Person; (ii) consolidate or merge with any other Person, or sell or
otherwise dispose of all or a Substantial Part of its properties or business or
any of its divisions or businesses, except in a transaction constituting a
Triggering Event; (iii) liquidate, wind up or dissolve (or suffer any
liquidation or dissolution); or (iv) convey, sell, lease, transfer or otherwise
dispose of, in one transaction or a series of transactions, all or any
Substantial Part of its business, property or fixed assets, whether now owned or
hereafter acquired, except in a transaction constituting a Triggering Event.
6C. RESTRICTIONS ON DIVIDENDS, ISSUANCE OF CAPITAL STOCK.
(i) Except as otherwise permitted in this Agreement, the Other
Agreements, the Redeemable Certificate of Designation, and the
Convertible Certificate of Designation, the Company will not pay any
dividends, in cash or otherwise, or make any distributions, to its
shareholders, or purchase, redeem or otherwise acquire any of its
outstanding Capital Stock, or set apart assets for a sinking or other
analogous fund for the purchase, redemption, retirement or other
acquisition of, any shares of its Capital Stock; provided, however,
that the Company may (a) make payments to AHC, pursuant to arms-length
management services, administrative services or other agreements
approved by the Company's Board of Directors, (b) purchase shares for
an aggregate purchase price of not more than $750,000 pursuant to
agreements executed by the Company in connection with acquisitions of
physician practices, surgery centers and surgery center development
transactions, and (c) pay cash in lieu of fractional shares of its
Common Stock on exercise of outstanding options to purchase its Common
Stock and on conversion of Preferred Stock.
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(ii) Without the prior written consent (which consent shall
not be unreasonably withheld) of the Required Holder(s), the Company
will not issue, sell or otherwise dispose of any of its Capital Stock
or the Capital Stock of any of its Subsidiaries, other than (a) upon
the conversion of shares of Preferred Stock; (b) pursuant to the Stock
Option Plan, provided that the shares issued pursuant to options
granted thereunder do not exceed 15% of the outstanding shares of
Common Stock as of the date hereof; (c) in a Qualified Initial Public
Offering; (d) as issued to physicians affiliated with surgery centers
or physician practices and in the ordinary course of the Company's
acquisitions of physician practices, surgery centers and surgery center
development transactions, provided that such shares shall not be issued
or sold at less than fair value therefor as determined in accordance
with a valuation methodology developed by J.C. Bradford & Co. and
generally utilized by the Company; (e) pursuant to a private equity
financing which conforms with Section 6C(iii) of the Company in the
absence of a Spin Off; or (f) pursuant to a Spin Off, provided that it
shall be a condition of the issuance of such shares that the Company
obtain a Private Letter ruling from the Internal Revenue Service to the
effect that, among other things, the issuance of such shares qualifies
as a reorganization within the meaning of Section 368(a)(1)(E) of the
Code and the distribution of such shares will qualify as a tax-free
distribution under Section 355 of the Code.
(iii) The Company shall not issue or sell, any shares of
Common Stock or any warrants, options or other rights to subscribe for
or purchase any such additional shares at a price per share for which
Common Stock is issuable upon the exercise of such warrants, options or
other rights that is less than the Current Market Price in effect
immediately prior to such issue or sale.
(iv) Until the occurrence of a Qualified IPO, the Company
shall not undertake an underwritten initial public offering resulting
in a sale by the Company of Common Stock to the public at an aggregate
offering price for the shares sold for the account of the Company of
less than $20,000,000 without the affirmative vote of a majority of the
shares of the Series A Redeemable Preferred Stock and the Series B
Convertible Preferred Stock voting together as a single class.
6D. TRANSACTIONS WITH AFFILIATES. Except as set forth in
SCHEDULE 6D, the Company and its Subsidiaries are not parties to any material
contract, agreement or other understanding with any Affiliate. The Company will
not, and will not permit any of its Subsidiaries to, make any loans or advances
to any of their respective officers, directors, shareholders or Affiliates
(other than the Company or another Subsidiary), other than: (a) expense advances
made by the Company or such Subsidiary to its officers and employees in the
ordinary course of business and (b) other loans and advances to officers of the
Company or such Subsidiary in an aggregate principal amount outstanding at any
time not to exceed $200,000. The Company will not, and will not permit, any of
its Subsidiaries to, engage in any transactions with Affiliates (other than the
Company or another Subsidiary) other than in the ordinary course of business and
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on terms no less favorable to the Company or such Subsidiary than those
obtainable from unaffiliated third parties.
6E. CHANGE OF ACCOUNTANTS, ACCOUNTING PRACTICES. The Company
will not change its accountants without the prior written consent of the
Required Holder(s), which consent shall not be unreasonably withheld, and the
Company will not change its accounting practices except in compliance with GAAP.
6F. LIMITATIONS ON SALE. Except for a Permitted Sale (as
defined herein), the Company will not, and will not permit any of its
Subsidiaries to, sell, transfer or otherwise dispose, in a single transaction or
a series of related transactions, a Substantial Part of the Company's stock,
property or assets, without the prior written consent of the Required Holder(s).
A "Permitted Sale" shall mean (i) the sale, abandonment or other disposition of
obsolete or worn out property or assets or property or assets no longer useful
in the Company's business in the ordinary course of business; or (ii) the sale
or other disposition of any property or assets in the ordinary course of
business.
6G. CHANGE IN BUSINESS. The Company will not cause or effect
a Change in Business.
6H. RESTRICTIONS ON PAYMENT. Except as set forth in SCHEDULE
6H, the Company will not be bound by any instrument and will not, and will not
permit any of its Subsidiaries to, enter into, become a party to or otherwise
become subject to any instrument evidencing or governing the terms of any Debt
or other contract or agreement or any amendments or modifications of the
foregoing, the provisions of which restrict or limit the Company's ability or
obligation to make any payment due in respect of the Preferred Stock or perform
its other obligations under this Agreement and the Other Agreements.
6I. NO AMENDMENT OF ORGANIZATIONAL DOCUMENTS. The Company will
not permit any amendment of or modification to its Articles of Incorporation or
Bylaws without the written consent of the Required Holder(s), which consent will
not be unreasonably withheld, which amendment or modification would adversely
affect the rights of the Purchasers.
6J. COMPLIANCE WITH ERISA. The Company will not, and will
not permit any of its ERISA Affiliates to:
(i) engage in any transaction in connection with which the
Company or any of its Subsidiaries could be subject to either a
material civil penalty assessed pursuant to section 502(i) or (1) of
ERISA or a material tax imposed by section 4975 of the Code;
(ii) terminate or partially terminate any Plan, or withdraw or
partially withdraw from a Multiemployer Plan, in a manner, or take any
other action, which in any case may
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reasonably be expected to result in any material liability of the
Company or any of its ERISA Affiliates to the PBGC or any Multiemployer
Plan;
(iii) fail to make full payment when due of all amounts which,
under the provisions of any Plan, the Company or any of its ERISA
Affiliates is required to pay as contributions thereto under section
302 of ERISA and section 412 of the Code, or permit to exist any
accumulated funding deficiency, whether or not waived, with respect to
any such Plan (other than a Multiemployer Plan);
(iv) fail to make full payment when due of all amounts which,
under the provisions of any Multiemployer Plan or collective bargaining
agreement, the Company or any of its ERISA Affiliates is required to
pay as contributions thereto. The Company agrees (x) upon the request
of any Purchaser to use its best efforts to obtain a current statement
of withdrawal liability from each Multiemployer Plan to which the
Company or any of its ERISA Affiliates contributes or to which the
Company or any of its ERISA Affiliates has an obligation to contribute
and (y) to transmit a copy of such statement to each Purchaser, so long
as such Purchaser or its nominee shall be the holder of any shares of
Preferred Stock, and to each other Purchaser, within 15 days after the
Company receives the same; or
(v) amend or permit an ERISA Affiliate to amend a Plan
resulting in an increase in current liability for the plan year such
that either the Company or an ERISA Affiliate is required to provide
security to such Plan under section 401 (a)(29) of the Code.
6K. FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT. The Company
will not become a "United States real property holding corporation," as defined
in section 897 of the Code and in applicable regulations thereunder.
7. EVENTS OF DEFAULT. If any of the following events shall occur
and be continuing for any reason whatsoever (and whether such occurrence shall
be voluntary or involuntary or come about or be effected by operation of law or
otherwise), such event shall constitute an Event of Default:
(i) the Company defaults in the payment of any other amount
due from time to time under this Agreement or any of the Other
Agreements (provided that the Company has been notified of such other
amount due and such default shall continue for ten days after the date
of such notice); or
(ii) the Company or any of its Subsidiaries defaults in any
payment of principal of or interest on any Debt (excluding trade
payables) in excess of $500,000 or any covenant or obligation contained
in any document governing the terms of any such debt beyond any period
of grace provided with respect thereto and the effect of such failure
is
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to cause such Debt to become due or to be repurchased or otherwise
retired prior to stated maturity thereof; or
(iii) any representation or warranty made in writing by or on
behalf of the Company in this Agreement or in any of the Other
Agreements or in any writing furnished in connection with or pursuant
to this Agreement or in any of the Other Agreements or in connection
with the transactions contemplated by this Agreement shall be false in
any material respect on the date as of which made; or
(iv) the Company fails to perform or observe any agreement
contained in paragraphs 5I or 5J, or paragraph 6, and such default
continues for 30 Business Days after notice thereof to the Company; or
(v) the Company shall fail to perform or observe any other
material agreement, term or condition contained in this Agreement or in
any of the Other Agreements, and such failure shall not have been
remedied within 30 days after such failure shall first have become
known to any Responsible Officer of the Company or written notice
thereof shall have been received by the Company (regardless of the
source of such notice); or
(vi) the Company or any of its Subsidiaries (other than
Inactive Companies) makes an assignment for the benefit of creditors or
is generally not paying its debts as such debts become due; or
(vii) any order or decree for relief in respect of the Company
or any of its Subsidiaries (other than the Inactive Companies) is
entered under any bankruptcy, reorganization, compromise, arrangement,
insolvency, readjustment of debt, dissolution or liquidation or similar
law, whether now or hereafter in effect (herein called the "Bankruptcy
Law"), of any jurisdiction; or
(viii) the Company or any of its Subsidiaries (other than the
Inactive Companies) petitions or applies to any tribunal for, or
consents to, the appointment of, or taking possession by, a trustee,
receiver, custodian, liquidator or similar official of the Company or
any of its Subsidiaries (other than the Inactive Companies), or of any
Substantial Part of the assets of the Company or any of its
Subsidiaries (other than the Inactive Companies), or commences a
voluntary case under the Bankruptcy Law of the United States or any
proceedings (other than proceedings for the voluntary liquidation and
dissolution of a Subsidiary) relating to the Company or any of its
Subsidiaries (other than the Inactive Companies) under the Bankruptcy
Law of any other jurisdiction; or
(ix) any petition or application described in clause (x) below
is filed, or any such proceedings are commenced, against the Company or
any of its Subsidiaries (other than the Inactive Companies) and the
Company or such Subsidiary by any act indicates its approval thereof,
consent thereto or acquiescence therein, or an order, judgment or
decree
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is entered appointing any such trustee, receiver, custodian, liquidator
or similar official, or approving the petition in any such proceedings,
and such order, judgment or decree remains unstayed and in effect for
more than 60 days; or
(x) any order, judgment or decree is entered in any
proceedings against the Company or any of its Subsidiaries (other than
the Inactive Companies) decreeing the dissolution of the Company or
such Subsidiary and such order, judgment or decree remains unstayed and
in effect for more than 60 days; or
(xi) any order, judgment or decree is entered in any
proceedings against the Company or any of its Subsidiaries (other than
the Inactive Companies) decreeing a split-up of the Company or such
Subsidiary which requires the divestiture of a Substantial Part, or the
divestiture of the stock of a Subsidiary of the Company the assets of
which constitute a Substantial Part, of the assets of the Company and
its Subsidiaries and such order, judgment or decree remains unstayed
and in effect for more than 60 days; or
(xii) a final judgment (not fully covered by insurance) in an
amount in excess of $500,000 is rendered against the Company or any of
its Subsidiaries (other than the Inactive Companies) and, within 30
Business Days after entry thereof, such judgment is not discharged or
execution thereof stayed pending appeal, or within 30 days after the
expiration of any such stay, such judgment is not discharged.
7A. PURCHASERS' REMEDIES.
(i) Upon the occurrence of an Event of Default and subject to
any rights of cure set forth in this Agreement, the holder of any
shares of Preferred Stock may proceed to protect and enforce its rights
under this Agreement and the Articles of Amendment by exercising such
remedies as are available to such holder in respect thereof under
applicable law, either by suit in equity or by action at law, or both,
whether for specific performance of any covenant or other agreement
contained in this Agreement or in aid of the exercise of any power
granted in this Agreement. Subject to section 7A(ii), no remedy
conferred in this Agreement upon the holder of any shares of Preferred
Stock is intended to be exclusive of any other remedy, and each and
every such remedy shall be cumulative and shall be in addition to every
other remedy conferred herein or now or hereafter existing at law or in
equity or by statute or otherwise.
(ii) In the event that (a) Suntrust refuses to give its
consent pursuant to Exhibit I (the "Consent") to the payment of a
dividend, or (b) the enforcement of any right or remedy accorded to the
holders pursuant to paragraph 7A would violate, or cause the Company to
be in violation of, or otherwise be restricted by, any covenant
contained in, any Debt agreement or instrument to which the Company or
any of its Subsidiaries is or may be a party and upon the written
request by the Company to each holder, the holders agree to not assert
any such right or remedy, as the case may be, the Company will
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thereafter and until Suntrust shall give its consent or until such
Event of Default is cured, pay or accrue to the holders a cumulative
dividend of 14% of the purchase price per annum per each share of
Preferred Stock payable quarterly in cash. Upon such consent or cure by
the Company, and upon payment of all due and accrued dividends, the
cumulative dividend per share shall thereupon reduce to the dividend,
if any, to which the holders would be entitled but for the failure of
Suntrust to give its consent or such Event of Default.
8. REPRESENTATIONS, COVENANTS AND WARRANTIES. The Company
represents, covenants and warrants as follows:
8A. ORGANIZATION: CORPORATE AUTHORITY.
(i) The Company is a corporation duly organized, validly
existing and in good standing under the laws of Tennessee and has all
requisite corporate power and authority to own and operate its
properties and to carry on its business, as it is now conducted. The
Company has all requisite corporate power and authority to enter into
and perform all of its obligations under this Agreement and the Other
Agreements and to issue and sell the Preferred Stock as contemplated
hereby. The execution, delivery and performance of this Agreement, the
Other Agreements and the Preferred Stock have been duly authorized by
the Board of Directors and all other necessary action on the part of
the Company. The Company is duly qualified and in good standing as a
foreign corporation authorized to do business in each jurisdiction in
which the character of the properties owned or held under lease by it
or the nature of the business transacted by it requires such
qualification, except where the failure to be so qualified would not
have a material adverse effect on the Company. The Company has all
requisite power and authority to own or hold under lease the properties
it purports to own or hold under lease and to carry on its business as
now being conducted.
(ii) SCHEDULE 8A is a complete and correct list identifying
each Subsidiary of the Company as of the date of this Agreement and
showing, as to each such Subsidiary, the correct name thereof, the
jurisdiction of its organization and the percentage of shares of each
class of securities of such Subsidiary owned by the Company or another
Subsidiary of the Company. All of the outstanding shares or other
ownership interests of each of the Subsidiaries shown in Schedule 8A
have been validly issued, are fully paid and nonassessable and are
owned by the Company or another Subsidiary of the Company free and
clear of any Lien or encumbrance. No Subsidiary of the Company owns any
shares or other ownership interests of the Company.
Each Subsidiary of the Company is duly organized and validly
existing and is duly qualified and in good standing as an entity authorized to
do business in each jurisdiction in which the character of the properties owned
or held under lease by it or the nature of the business transacted by it
requires such qualification, except where failure to be so qualified would not
have
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a materially adverse effect on such Subsidiary. Each such Subsidiary has all
requisite power and authority to own or hold under lease the properties it
purports to own or hold under lease and to carry on its business as now being
conducted.
8B. BUSINESS; FINANCIAL STATEMENTS.
(i) The Company has furnished the Purchasers with the
following financial statements: (i) the audited consolidated and
consolidating balance sheets of the Company at December 31, 1995 and
the related audited statements of operations, stockholders' equity and
cash flows for each of the two years in the period ended December 31,
1995, all reported on by Deloitte & Touche, LLP, and (ii) the
unaudited consolidated and consolidating balance sheet of the Company
at September 30, 1996 and the related unaudited statement of
operations, stockholders' equity and cash flows for the period ended on
such date (the "Historical Financial Statements"). The Historical
Financial Statements (i) have been prepared in conformity with GAAP
applied on a consistent basis and disclose all liabilities, direct and
contingent, required to be shown in accordance with such principles and
(ii) present fairly the financial position of the Company at the dates
indicated and results of operations for the periods indicated (subject,
in the case of such unaudited financial statements, to normal year-end
and audit adjustments and the absence of footnotes).
(ii) No document, certificate or written statement furnished
to the Purchasers by or on behalf of the Company in connection with the
transactions contemplated hereby contains any untrue statement of a
material fact or omits to state a material fact necessary in order to
make the statements contained therein, in the light of the
circumstances under which they were made, not misleading.
(iii) Except as set forth in SCHEDULE 8B, no event has
occurred peculiar to the Company or any of its Subsidiaries which
materially adversely affects or in the future would reasonably be
expected to (so far as the Company can now reasonably foresee)
materially adversely affect the business, prospects, condition
(financial or other) or operations of the Company or any of its
Subsidiaries which has not been disclosed in this Agreement. The
Company and its Subsidiaries have not sustained since September 30,
1996 any loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree
which is material to the Company or any of its Subsidiaries; and,
except as contemplated hereby, since September 30, 1996, there has not
been any material change in the outstanding capital stock or long-term
or short-term debt of the Company or any of its Subsidiaries or in the
capitalization of the Company or any material adverse change, or any
development which the Company has reasonable cause to believe (so far
as the Company can now reasonably foresee) will involve a prospective
material adverse change, in or affecting the business, condition
(financial or other), assets, properties, operations or prospects of
the Company or any of its Subsidiaries.
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8C. CAPITAL STOCK AND RELATED MATTERS. As of the Closing Date
(or other indicated date) and after giving effect to the transactions
contemplated hereby (i) the authorized Capital Stock of the Company will consist
of 40,000,000 shares of Common Stock, and 5,000,000 shares of Preferred Stock,
of which 27,292,677 shares of Common Stock and 2,750,000 shares of Preferred
Stock will be issued and outstanding, 2,830,000 shares of Common Stock will be
reserved for issuance pursuant to the Stock Option Plan, (ii) no shares of
Common Stock will be owned or held by or for the account of the Company as
treasury stock or otherwise, (iii) the Company will not have outstanding any
stock or other securities convertible into or exchangeable for any shares of
Capital Stock any rights to subscribe for or to purchase, or any options for the
purchase of, or any agreements providing for the issuance (contingent or other)
of, or any calls, commitments or claims of any other character relating to the
issuance of, any Capital Stock or any stock or preferred stock convertible into
or exchangeable for any Capital Stock (other than the Preferred Stock described
in clause (i) above or as described in SCHEDULE 8C hereto) and (iv) stock which
the Company may issue as a result of any "fundamental regulatory change"
pursuant to documents which it has executed in connection with any surgery
center acquisition or development transactions. Except pursuant to this
Agreement, or as set forth in Schedule 8C, the Company will not be subject to
any obligation (contingent or other) to repurchase, otherwise acquire or retire
any shares of Capital Stock. Except pursuant to the Shareholders' Agreement, the
Registration Agreement, dated as of April 2, 1992, as amended, and all
shareholders agreements to which the Company is a party in connection with the
acquisition of surgery centers or physician practices or the development of
surgery centers, the Company has not granted or agreed to grant any rights
relating to the registration of the Common or Preferred Stock under applicable
federal and state securities laws, including piggyback rights.
8D. LITIGATION. There are no claims, actions, suits,
proceedings, labor disputes or investigations in process by or against the
Company or any of its Subsidiaries or, to the best knowledge of the Company,
threatened either by a written communication directed to the Company or any of
its Subsidiaries or by an oral communication directed to the Company or any of
its Subsidiaries by a stockholder of the Company, before any federal or state
court, arbitrator or governmental authority by or against the Company or any of
its Subsidiaries, except actions, suits or proceedings which (A) individually do
not represent a potential claim in excess of $50,000 and (B) in the aggregate,
if adversely determined, would not result in any material liability or material
adverse change in the business, condition (financial or other), assets,
properties, operations or prospects of the Company. There are no such claims,
actions, suits, proceedings, disputes or investigations which question the
validity or legality of or seek damages in connection with this Agreement or the
Other Agreements or any action taken or to be taken pursuant to this Agreement
or the Other Agreements. There are no outstanding judgments, decrees or orders
of any court or governmental authority against the Company or any of its
Subsidiaries which may reasonably be expected to result in any material adverse
change in the business, condition (financial or other), assets, properties,
operations or prospects of the Company or in any liability on the part of the
Company or its Subsidiaries which would be material to the Company or any of its
Subsidiaries.
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8E. OUTSTANDING DEBT. After giving effect to the Closing and
the transactions contemplated by this Agreement and the Other Agreements there
will exist no default(s) by the Company or any of its Subsidiaries under the
provisions of any instrument evidencing any Debt or of any agreement relating
thereto which default(s) exceeds $1,000,000 in the aggregate.
8F. TITLE TO PROPERTIES. The Company and each of its
Subsidiaries has good and marketable title to all of its respective properties
and assets, owned by any of them, free and clear of all Liens other than Liens
in connection with existing Debt. The Company and each of its Subsidiaries
enjoys peaceful and undisturbed possession under all leases and subleases
necessary in any material respect for the operation of its properties and
businesses; and none of such leases or subleases contain any unusual and
burdensome provisions which might reasonably be expected to materially adversely
affect or impair the operation of such properties and businesses. Except to
perfect and protect security interests in connection with existing Debt at the
time of the Closing, (i) no effective financing statement under the Uniform
Commercial Code which names the Company or any of its Subsidiaries as debtor or
lessee will be on file in any jurisdiction and (ii) neither the Company nor any
of its Subsidiaries will have signed any effective financing statement or any
effective security agreement authorizing any secured party thereunder to file
any such financing statement.
8G. TAXES. The Company and each of its Subsidiaries has filed
all tax returns required by law to be filed by it (or obtained valid extensions
thereof), and all taxes, assessments and other governmental charges levied upon
the Company or any of its Subsidiaries or any of their respective properties,
assets, income or franchises which are due and payable, other than those
presently payable without penalty or interest, have been paid, other than
charges or claims being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted and with respect to which an
accrual or other appropriate provision, if any, as required by GAAP shall have
been made therefor. There are no tax liens upon any assets of the Company or any
of its Subsidiaries.
8H. CONFLICTING AGREEMENTS AND OTHER MATTERS. Neither the
execution or delivery of this Agreement or the Preferred Stock or the Other
Agreements, nor the offering, issuance and sale of the Preferred Stock, nor
fulfillment of or any compliance with the terms and provisions hereof and
thereof, will conflict with, or result in a breach of the terms, conditions or
provisions of, or constitute a default under, or result in any violation of, or
result in the creation of any Lien upon any of the properties or assets of the
Company or any of its Subsidiaries pursuant to, the charter or Bylaws of the
Company or any of its Subsidiaries, any award of any arbitrator or any material
agreement, instrument, order, judgment, decree, statute, law, rule or regulation
to which the Company or any of its Subsidiaries, or any of their respective
properties or assets is subject. Other than with respect to the Suntrust
Agreement, the Company is not a party to or otherwise subject to any contract or
agreement which limits the amounts of, or otherwise imposes restrictions on, the
incurring of Debt or which contains dividend or redemption limitations on any
Capital Stock of the Company, or which restricts the issuance of the Preferred
Stock, except for this Agreement.
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8I. PATENTS, ETC. All patents, trademarks, service marks,
trade names, licenses, franchises or other rights (collectively, "Intangible
Rights") owned or held by the Company and its Subsidiaries that are material to
the business of the Company and its Subsidiaries are described on SCHEDULE 8I
hereto. All such Intangible Rights are free and clear of any Lien. Nothing has
come to the attention of the Company and its Subsidiaries to the effect that (i)
any activity in operating the business of the Company and its Subsidiaries as
presently conducted or as proposed to be conducted may infringe any patent,
trademark, service mark, trade name, copyright, permit, license, franchise or
other right owned by any other Person, (ii) there is pending or threatened any
claim or litigation against or affecting the Company or any of its Subsidiaries
contesting its right to carry on such activities or (iii) there is, or there is
pending or proposed, any statute, law, rule, regulation, standard or code which
would prevent or inhibit, or substantially reduce the projected revenues of, or
otherwise adversely affect the business, condition (financial or other), or
operations of, the Company or any of its Subsidiaries, other than any statute,
law, rule, regulation, standard or code which would be applicable to all
companies or other businesses conducting business in the applicable
jurisdiction.
8J. PRIVATE OFFERING. Neither the Company nor anyone acting on
behalf of the Company has, directly or indirectly, offered any of the Preferred
Stock or any similar security of the Company, and neither the Company nor any
agent acting on its behalf has taken or will take any action which would subject
the issuance or sale of any of the Preferred Stock to the provisions of section
5 of the Securities Act or to the provisions of any securities or Blue Sky law
of any applicable jurisdiction.
8K. BROKER'S OR FINDER'S COMMISSIONS; TRANSACTION FEES. No
broker's or finder's fee, commissions (whether payable in cash, any equity
interest in the Company or any of its Subsidiaries or Affiliates, or any other
form of compensation), or other transaction fees will be payable by the Company
with respect to the issuance and sale of the Preferred Stock or the transactions
contemplated hereby, other than the Transaction Fees and fees payable to J.C.
Bradford & Co. with respect thereto.
8L. COMPLIANCE WITH LAW.
(a) Neither the Company nor any of its Subsidiaries
has received notice of or citation or summons for, and no complaint has been
filed, no penalty has been assessed and no investigation or review is in
process or, to the best knowledge of the Company, threatened by any
governmental authority with respect to, any violation or alleged violation of
any law, regulation, order or other legal requirement, or failure by the
Company or any of its Subsidiaries to have any permit, certificate, license,
approval, registration or authorization required in connection with the
operation of its business, other than where such violation or failure would not
reasonably be expected to have a material adverse effect on the business,
condition (financial or other), assets, properties, operations or prospects of
the Company. Neither the Company nor any of its Subsidiaries is in default with
respect to any order, writ, judgment, award, injunction or decree of any
federal, state or local court or governmental or regulatory authority or
arbitrator,
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domestic or foreign, applicable to or in connection with its business or any of
its assets, properties or operations.
(b) With respect to the operation of its business, the
Company and each of its Subsidiaries possesses and is in compliance with all
permits, certificates, licenses, approvals, registrations and authorizations
required under all applicable laws, rules and regulations, all of which are in
full force and effect, and the business has been conducted and is now being
conducted in compliance with all applicable laws, rules, regulations, judgments
and orders of the United States, its states, counties, municipalities and
agencies and of any other jurisdiction, including, without limitation, laws,
rules and regulations relating to pollution and environmental control, equal
employment opportunity, health and safety, the provision of health care
services, insurance and zoning, except for such noncompliance which,
individually or in the aggregate, would not reasonably be expected to have a
material adverse effect on the business, condition (financial or other), assets,
properties, operations or prospects of the Company.
8M. INVESTMENT COMPANY ACT. Neither the Company nor any of
its Subsidiaries is an "investment company," or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
8N. PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Company
nor any of its Subsidiaries is a "holding company," or a "subsidiary company" of
a "holding company," or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company," as such terms are defined in the
Public Utility Holding Company Act of 1935, as amended.
8O. GOVERNMENTAL CONSENTS, ETC. No consent, approval
authorization, exemption or other action by, or notice to or filing with, any
court or administrative or governmental body which has not been obtained, taken
or made is required in connection with the execution and delivery of this
Agreement and the Other Agreements or the consummation of the transactions
contemplated hereby or thereby or fulfillment of or compliance with the terms
and provisions hereof.
8P. COMPLIANCE WITH ERISA.
(a) Prohibited Transactions. Neither the Company nor any
ERISA Affiliate has engaged in a transaction in connection with which the
Company could be subject to a material liability for either a civil penalty
assessed pursuant to section 502(i) or (1) of ERISA or a tax imposed by section
4975 of the Code.
(b) Plan Termination; Material Liabilities. There has been
no termination or partial termination of a Plan or trust, insurance contract or
other funding arrangement maintained or created under any Plan that would give
rise to a material liability to the PBGC on the part of the Company or an ERISA
Affiliate. No material liability to the PBGC has been or is expected to be
incurred with respect to any Plan by the Company or an ERISA
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Affiliate. The PBGC has not instituted proceedings to terminate any Plan with
respect to which the Company or an ERISA Affiliate has liabilities. There exists
no condition or set of circumstances which presents a material risk of
termination or partial termination of any Plan by the PBGC. The Company and each
ERISA Affiliate have paid all premiums to the PBGC when due.
(c) Accumulated Funding Deficiency. Full payment has been made
of all amounts which are required under the terms of each Plan to have been paid
or accrued as contributions to such Plan as of the last day of the most recent
fiscal year of such Plan ended on or before the date of this Agreement (except
such contributions as have not been made but that can be timely made at a later
date without penalty in accordance with sections 412 and 4971 of the Code), and
no accumulated funding deficiency (as defined in section 302 of ERISA and
section 412 of the Code), whether or not waived, exists with respect to any
Plan. Neither the Company nor an ERISA Affiliate has failed to make a required
installment under section 412(m) of the Code.
(d) Relationship Of Benefits to Pension Plan Assets. The
current value of the "benefit liabilities" (as defined in section 4001 (a)(16)
of ERISA) of each Plan subject to Title IV of ERISA and section 412 of the Code
does not exceed the fair market value of the assets of such Plan, except, in the
case of Plans established after the date hereof, as permitted by the applicable
funding requirements of Section 412 of the Code. Neither the Company nor any
ERISA Affiliate is required to provide security to any Plan. No Lien under
section 412(n) of the Code or sections 302(f) or 4068 of ERISA has been or is
reasonably expected by the Company to be imposed on the assets of the Company or
any ERISA Affiliate.
(e) Compliance with ERISA. All Plans which are intended to be
"qualified" have been determined by the Internal Revenue Service to be
"qualified" under section 401 (a) of the Code. All Plans and Welfare Plans
contributed to or maintained by the Company or an ERISA Affiliate have been
administered substantially in compliance with ERISA and the applicable
provisions of the Code. There are no pending issues before the Internal Revenue
Service or any court of competent jurisdiction related to the qualification of,
or payment of benefits under, any Plan or Welfare Plan.
(f) Execution of Agreements; Purchase and Sale of Preferred
Stock, etc. The execution and delivery of this Agreement, the issue and sale of
the Preferred Stock and the consummation of the transactions contemplated by
this Agreement and the Other Agreements will not involve any transaction which
is subject to the prohibitions of section 406 of ERISA or in connection with
which a tax could be imposed pursuant to section 4975 of the Code. The
representation by the Company in the preceding sentence is made in reliance upon
and subject to the accuracy of the Purchasers' representations in paragraph 9 as
to the source of funds used to pay the purchase price of the Preferred Stock.
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8Q. MATERIAL AGREEMENTS. This Agreement, the Other Agreements
and the existing Debt facilities and the agreements contemplated hereby and
thereby and the agreements set forth on SCHEDULES 8Q and 8T comprise all
material agreements, contracts and other arrangements (collectively,
"Contracts") to which the Company is a party, other than agreements executed in
connection with physician practice acquisitions, surgery center acquisition and
development transactions and the operations thereof, including, without
limitation, contracts or other agreements for the employment or compensation of
any officer, director, stockholder, consultant or key employee of the Company,
joint venture agreements, or similar arrangements, contracts or other agreements
of the Company. No party to any Contracts has given the Company written notice
of or made a claim with respect to any breach or default under any such Contract
the consequences of which, individually or in the aggregate, would reasonably be
expected to have a material adverse effect on the business, condition (financial
or other), assets, properties, operations or prospects of the Company. Each of
the Contracts is valid, binding and enforceable to the best of the Company's
knowledge against the other parties thereto, in accordance with its terms and is
in full force and effect. Each of the Company, and, to the best of the Company's
knowledge, each of the other parties thereto, has performed all material
obligations required to be performed by it to date under, and is not in default
in respect of, any of the Contracts and, to the best of the Company's knowledge,
no event exists which, with notice or lapse of time, or both, would constitute
such a default, other than where failure to perform such obligations or such
default would not reasonably be expected to have a material adverse effect on
the business, condition (financial or other), assets, properties, operations or
prospects of the Company.
8R. ENVIRONMENTAL MATTERS.
(a) To the best of the Company's knowledge, none of the
real property owned or leased by the Company or any of its Subsidiaries (the
"Real Property") contains or has previously contained any hazardous or toxic
wastes or substances or underground storage tanks.
(b) To the best of the Company's knowledge, the Real
Property is in compliance with all applicable federal, state and local
environmental standards and requirements affecting such Real Property and, to
the best of the Company's knowledge, there are no environmental conditions which
could interfere with the continued use of the Real Property.
(c) Neither the Company nor any of its Subsidiaries has
received any notice of violation or advisory action from any regulatory agency
regarding environmental laws or regulations or permit regulations.
(d) To the best of the Company's knowledge, neither the
Company nor any of its Subsidiaries has transferred hazardous waste from any of
the Real Property to any other location which is not in compliance with all
applicable environmental laws and regulations and permit regulations.
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(e) With respect to the Real Property, there are no
proceedings, governmental administrative actions or judicial proceedings pending
or, to the best knowledge of the Company, threatened under any federal, state,
or local law regulating the discharge of hazardous or toxic materials or
substances into the environment, in which the Company or any of its Subsidiaries
is named as a party.
8S. FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT. As of the
date hereof and as of the Closing Date, the Company is not a "United States real
property holding corporation," as defined in section 897 of the Code and in
applicable regulations thereunder.
8T. LEASES. SCHEDULE 8T sets forth a list of all material real
and personal properties in which the Company has a leasehold or concession
interest and which are used in connection with its business (each a "Lease" and,
collectively, the "Leases"), other than Leases executed or assumed in connection
with physician practice acquisitions, surgery center acquisition and development
transactions and the operations thereof, including, without limitation, all
material leases of equipment, machinery, furniture, vehicles and tangible
personal property. No party to any Lease has given the Company written notice of
or made a claim with respect to any breach or default under any such Lease the
consequences of which, individually or in the aggregate, would reasonably be
expected to have a material adverse effect on the business, condition (financial
or other), assets, properties, operations or prospects of the Company. Each of
the Leases is valid, binding and enforceable to the best of the Company's
knowledge against the other parties thereto, in accordance with its terms and is
in full force and effect. Each of the Company and, to the best of the Company's
knowledge, each of the other parties thereto, has performed all material
obligations required to be performed by it to date under, and is not in default
in respect of, any of the Leases and, to the best of the Company's knowledge, no
event exists which, with notice or lapse of time, or both, would constitute such
a default, other than where failure to perform such obligations or such default
would not reasonably be expected to have a material adverse effect on the
business, condition (financial or other), assets, properties, operations or
prospects of the Company.
8U. PROFESSIONAL LIABILITY. Except for lawsuits, claims
(asserted or unassorted), damages and expenses adequately covered by insurance,
there are no liabilities of the Company or any of its Subsidiaries, fixed or
contingent, asserted or, to the best knowledge of the Company, unasserted, with
respect to any professional services liability or any similar claim that relates
to any services performed in connection with the business of the Company or any
of its Subsidiaries prior to the Closing Date, except where such liabilities do
not or would not reasonably be expected to have a material adverse effect on the
business, condition (financial or other), assets, properties, operations or
prospects of the Company.
8V. EMPLOYEE MATTERS. There are no open National Labor
Relations Board claims, petitions, proceedings, charges, complaints or notices
with respect to the Company or any of its Subsidiaries, (b) the Company and its
Subsidiaries have no labor negotiations in process with any labor union or other
labor organization, (c) no labor disputes, including, but not limited to,
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strikes, slowdowns, picketing or work stoppages or other labor difficulty exist
or to the best of the Company's knowledge are threatened, with respect to any
employees of the Company or any of its Subsidiaries, (d) no grievance or
arbitration proceeding arising out of or under any collective bargaining
agreement relating to the employees of the Company or any of its Subsidiaries is
in process, and to the best knowledge of the Company, no claim thereunder
exists, (e) neither the Company nor any of its Subsidiaries is experiencing any
labor disputes, including but not limited to strikes, slowdowns, picketing or
work stoppages with respect to the employees of the Company or any of its
Subsidiaries and (f) no "plant closing" or "mass layoff" has been effectuated by
the Company or any of its Subsidiaries (in each case as defined in the Worker
Adjustment and Retraining Notification Act (29 U.S.C. ss. 2101, et seq.), as
amended). To the best knowledge of the Company, there are no efforts in process
by unions to organize any employees of the Company who are not now represented
by recognized collective bargaining agents.
8W. SOLVENCY. As of and at the Closing, upon consummation of
the transactions contemplated by this Agreement and the Other Agreements, each
of the Company and its Subsidiaries:
(i) is and will be able to pay its debts as they become due;
(ii) owns and will own property whose fair saleable value is
greater than the amount required to pay its debts (including a
reasonable estimate of the amount of all contingent liabilities);
(iii) has and will have adequate capital to carry on its
business, and has and will have capital which is not unreasonably small
for the businesses in which it is engaged or proposes to engage; and
(iv) is making no transfer of property and is incurring no
obligation in connection with the transactions contemplated by this
Agreement and the Other Agreements with the intent to hinder, delay or
defraud any of the present or future creditors of such company.
8X. PROJECTIONS. The projections set forth in the Offering
Memorandum, reflect the Company's management's good faith estimate that such
projections are reasonable and attainable when taken in the aggregate.
9. REPRESENTATIONS AND AGREEMENTS OF THE PURCHASERS. Each of the
Purchasers represents, and in making this sale to such Purchaser it is
specifically understood and agreed, that (i) each institutional Purchaser is
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization, having the corporate or other power and authority
to execute, deliver and perform this Agreement and the Other Agreements and has
taken all action required by law, the Purchaser's governing documents or
otherwise to authorize such execution, delivery and performance, (ii) the
Purchaser is purchasing the Preferred
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Stock for the Purchaser's own account, for investment purposes and not with a
view to or for sale in connection with any distribution thereof in violation of
applicable federal and state securities laws, (iii) the Purchaser has received,
or has had access to, all information which it considers necessary or advisable
to enable the Purchaser to make a decision concerning its purchase of the
Preferred Stock, and possesses such knowledge and experience in financial and
business matters that the Purchaser is capable of evaluating the merits and
risks of the Purchaser investment hereunder, and (iv) the source of the funds
used by such Purchaser to purchase the Preferred Stock or otherwise to effect
the transactions contemplated hereunder will not involve any transaction which
is subject to the prohibitions of section 406 of ERISA or in connection with
which a tax could be imposed pursuant to section 4975 of the Code, provided the
Company is neither a "party in interest," as such term is defined in section
3(14) of ERISA, nor a "disqualified person," as such term is defined in section
4975(e)(2) of the Code, with respect to any "employee benefit plan," as such
term is defined in section 3(3) of ERISA, whose assets include such source of
funds for purposes of Department of Labor regulations at 29 CFR 2510.3-101.
By accepting any Preferred Stock, each holder of any Preferred
Stock that receives any information with respect to the Company or any
Subsidiary agrees to use each holder's best efforts not to disclose any such
information that should reasonably be expected by the recipient to be
confidential and proprietary to the Company without the prior consent of the
Company (other than to such holder's employees, auditors or counsel, its limited
partners or to another holder of shares of Preferred Stock) provided that any
such holder may disclose any such information (a) as has become generally
available to the public, (b) upon prior notice to the Company (i) as may be
required or appropriate in any report, statement or testimony submitted to any
municipal, state or Federal or other national regulatory body having or claiming
to have jurisdiction over such holder, (ii) as may be required or appropriate in
response to any summons or subpoena or in connection with any litigation, (iii)
in order to comply with any law, order, regulation or ruling applicable to such
holder, or (iv) to the prospective transferee in connection with any
contemplated transfer of any of the Preferred Stock by such holder and provided
further that the foregoing restrictions shall not apply to any information with
respect to the Company or any Subsidiary that such holder of Preferred Stock
acquires, develops or receives from a source other than the Company or a Person
which, to the holder's knowledge, would be in violation of any confidentiality
agreement with the Company by disclosing such information.
10. DEFINITIONS. For the purpose of this Agreement, the terms defined
in paragraphs 1, 2 and 3 and elsewhere in this Agreement shall have the
respective meanings specified therein, and, except as otherwise indicated, the
following additional terms shall have the meanings specified with respect
thereto below:
"AFFILIATE" shall mean, with respect to any Person, other than AHC,
directly or indirectly controlling, controlled by or under direct or indirect
common control with, such Person. The term Affiliate shall include, without
limitation, (i) any director or executive officer of such Person or of an
Affiliate of such Person, (ii) any group, acting in concert, of such director,
executive officer
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or relative (a "group"), (iii) any Person controlled by any such director,
executive officer or group, and (iv) any Person or group which beneficially owns
or holds 10% or more of any class of voting securities or a 10% or greater
equity or profits interest in such Person. The term Affiliate shall not include
the Purchasers and any Transferee that might be deemed to be an Affiliate solely
by reason of its ownership of the Preferred Stock (or any other securities
issued in exchange for any such Preferred Stock) or by reason of its benefiting
from any agreements or covenants of the Company or its Subsidiaries contained in
or contemplated by this Agreement. The term control (including, with correlative
meanings, controlling, controlled by or under common control with) shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities or by contract or otherwise.
"AHC" means American Healthcorp, Inc.
"BOARD OF DIRECTORS" shall mean the Board of Directors of the Company.
"BUSINESS DAY" shall mean any day other than a Saturday, a Sunday or a
day on which commercial banks in Washington, D.C. are required or authorized to
be closed.
"CAPITAL STOCK" shall mean any and all shares, interests, rights to
purchase, warrants, options, participation or other equivalents of or interests
in (however designated) corporate stock.
"CHANGE IN BUSINESS" with respect to the Company shall mean any change
in or addition to the primary business of the Company that has not been approved
by the Required Holder(s) such that more than 20% of the Consolidated Net
Earnings of the Company are derived from a business other than the Current
Business.
"CHANGE IN CONTROL" shall mean the occurrence of any of the following
events: (a) the sale, lease or other disposition of all or substantially all of
the Capital Stock or assets of the Company (other than in an initial public
offering), or a merger or consolidation of the Company with or into another
entity in a transaction in which the shareholders of the Company own less than
50% of the voting securities of the surviving or resulting corporation
immediately after such merger or consolidation; or (b) any liquidation,
dissolution or winding up of the Company.
"CHP" shall have the meaning specified in the first paragraph hereof.
"CLOSING" shall have the meaning specified in paragraph three hereof.
"CLOSING DATE" shall have the meaning specified in paragraph three
hereof.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
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"COMMON STOCK" shall have the meaning specified in the recitals to
this Agreement
"COMMISSION" shall mean the United States Securities and Exchange
Commission or any governmental body or agency succeeding to the functions
thereof.
"COMPANY SALE" shall mean (i) the sale or other disposition by the
Company of all or substantially all of the stock or assets of the Company to an
independent third party in an arms-length transaction, including disposition by
merger, share exchange or lease yielding net proceeds to the Company of at least
$25,000,000, or in the event that the Company has completed a Spin Off, such
disposition yielding to the Company and/or its Shareholders net cash proceeds or
freely marketable securities of at least $20,000,000.
"CONSOLIDATED NET EARNINGS" means consolidated gross revenues of the
Company and its Subsidiaries less all operating and nonoperating expenses of the
Company and its Subsidiaries, including all charges of a proper character
(including current and deferred taxes on income, provision for taxes on income,
provision for taxes on unremitted foreign earnings which are included in gross
revenues, and current additions to reserves), all determined in accordance with
GAAP applied on a basis consistent with prior years, but not including in gross
revenues any gains (net of expenses and taxes applicable thereto) in excess of
losses resulting from the sale, conversion or other disposition of capital
assets (i.e., assets other than current assets) any gains resulting from the
write-up of assets, any gains resulting from an acquisition by the Company or
any of its Subsidiaries at a discount of any Debt of the Company or any of its
Subsidiaries, any equity of the Company or any of its Subsidiaries in the
unremitted earnings of any corporation which is not a Subsidiary of the Company,
any earnings of any Person acquired by the Company or any of its Subsidiaries
through purchase, merger or consolidation or otherwise for any time prior to the
date of acquisition, or any deferred credit representing the excess of equity in
any Subsidiary of the Company at the date of acquisition over the cost of the
investment in such Subsidiary.
"CONVERTIBLE DESIGNATION" shall have the meaning accorded such term in
paragraph 1.
"CONVERTIBLE STOCK" shall have the meaning specified in paragraph 1.
"CONTRACTS" shall have the meaning specified in paragraph 8Q.
"CONVERTIBLE STOCK" shall have the meaning specified in paragraph 1.
"CURRENT BUSINESS" shall mean the business of the Company as described
in the Offering Memorandum.
"DEBT" means, with respect to any Company, all obligations of the
Company, contingent or otherwise, which in accordance with GAAP would be
classified on a balance sheet of the Company as liabilities of the Company, but
in any event including (a) liabilities secured by any
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mortgage, pledge or lien existing on Property owned by the Company and subject
to such mortgage, pledge or lien, whether or not the liability secured thereby
shall have been assumed by the Company, (b) all indebtedness and other similar
monetary obligations of the Company, (c) all guaranties, obligations in respect
of letters of credit, endorsements (other than endorsements of negotiable
instruments for purposes of collection in the ordinary course of business),
obligations to purchase goods or services for the purpose of supplying funds for
the purchase of payment of Debt of others and other contingent obligations in
respect of, or to purchase, or otherwise acquire, or advance funds for the
purchase of, Debt of others, (d) all obligations of the Company to indemnify
another Company to the extent of the amount of indemnity, if any, which would be
payable by the Company at the time of determination of Debt and (e) all
obligations of the Company under capital leases.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"ERISA AFFILIATE" shall mean each trade or business (whether or not
incorporated) which together with the Company is treated as a "single employer"
under sections (b), (c), (m), (n) or (o) of section 414 of the Code; provided
that in no event shall Electra or any of its Affiliates be deemed to be an ERISA
Affiliate for purposes of this Agreement.
"EVENT OF DEFAULT" shall mean any of the events specified in paragraph
7, provided that there has been satisfied any requirement in connection with
such event for the giving of notice, or the lapse of time, or the happening of
any further condition, event or act, and "Default" shall mean any of such
events, whether or not any such requirement has been satisfied.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"EXPENSES" shall have the meaning specified in paragraph 12B hereof.
"GAAP" shall mean generally accepted accounting principles as set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board, or statements by
such other entity as have been approved by a significant segment of the
accounting profession, which are in effect from time to time.
"INACTIVE COMPANIES" shall mean all corporations, partnerships, joint
ventures or other entities in which the Company owns at least 5% of the
outstanding interests and that do not conduct any business or own any material
assets.
"LEASE" shall have the meaning specified in paragraph 8T.
"LIEN" shall mean any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any agreement to give any of the
foregoing, any conditional sale or other
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title retention agreement, any lease in the nature thereof and the filing of or
agreement to give any financing statement under the Uniform Commercial Code of
any jurisdiction).
"MULTIEMPLOYER PLAN" shall mean "multiemployer plan" (as such term is
defined in section 3(37) of ERISA and section 414(f) of the Code) to which
contributions are or have been made by the Company or any of its Subsidiaries.
"OFFERING MEMORANDUM" means the Confidential Offering Memorandum
described in paragraph 4K.
"OFFICERS' CERTIFICATE" shall mean a certificate signed in the name of
the Company by its Chief Executive Officer, President or its Vice Presidents and
by its Chief Financial Officer, Treasurer or Controller.
"OTHER AGREEMENTS" shall mean, collectively, the Preferred Stock, the
Shareholders' Agreement and the Registration Agreement dated as of April 2, 1992
between the Company and the Investors named therein.
"PBGC " shall mean the Pension Benefit Guaranty Corporation or any
corporation or governmental body or agency succeeding to the functions thereof.
"PERSON" shall mean and include an individual, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and a government
or any department or agency thereof.
"PLAN" shall mean an employee pension benefit plan within the meaning
of section 3(2) of ERISA, maintained or contributed to by the Company or an
ERISA Affiliate.
"PREFERRED STOCK" means the Company's Series A Redeemable Preferred
Stock and Series B Convertible Preferred Stock sold to Purchasers pursuant to
this Agreement.
"PURCHASERS" shall have the meaning specified in the first paragraph
hereof.
"QUALIFIED INITIAL PUBLIC OFFERING" mean (i) an initial public offering
of Common Stock of the Company yielding net cash proceeds to the Company of at
least $25,000,000 or (ii) in the event that the Company has completed a Spin
Off; a public offering of Common Stock of the Company yielding net cash proceeds
to the Company and/or its Shareholders of at least $20,000,000.
"REAL PROPERTY" shall have the meaning specified in paragraph 8R.
"REDEEMABLE DESIGNATION" shall have the meaning accorded to it in
paragraph 1.
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<PAGE> 34
"REDEEMABLE STOCK" shall have the meaning specified in paragraph l.
"REQUIRED HOLDER(S)" shall mean (i) Electra for so long as it holds at
least 50% of the shares of the Redeemable Stock, the Convertible Stock or Common
Stock of the Company received on conversion thereof (on a fully-diluted and
as-converted basis) held by it upon the Closing hereunder, and (ii) CHP for so
long as it holds at least 50% of the shares of the Redeemable Stock, the
Convertible Stock or Common Stock of the Company received on conversion thereof
(on a fully-diluted and as-converted basis) held by it upon the Closing
hereunder.
"RESPONSIBLE OFFICER" shall mean, with respect to the Company, its
Chairman of the Board, Chief Executive Officer, President, Chief Operating
Officer, Chief Financial Officer, Treasurer, Secretary, and any Vice President.
"PREFERRED STOCK" shall have the meaning specified in paragraph 1.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SENIOR DEBT" shall mean existing senior indebtedness and any
extension, refunding or replacement thereof from time to time with the same or
different lenders subject to the restrictions of Section 6A.
"SHAREHOLDERS' AGREEMENT" shall have the meaning specified in
paragraph 4C.
"SPIN OFF" means the recapitalization of all of the issued and
outstanding Common Stock in a transaction intended to qualify as a tax-free
reorganization under Section 368(a)(i)(E) of the Internal Revenue Code of 1986,
as amended, and the distribution of all shares of Common Stock held by AHC pro
rata among the shareholders of AHC in a tax-free distribution under Section 355
of the Code.
"STOCK OPTION PLAN" means the Company's 1992 Stock Option Plan, as it
may be amended from time to time and any other similar share incentive plans
which the Company may adopt and any options granted to members of the Board of
Directors and Medical Directors of the Company.
"SUBSIDIARY" means any corporation or other entity of which more than
fifty percent (50%) of the issued and outstanding voting power is owned or
controlled at the time as of which any determination is being made directly or
indirectly, by the Company or one or more of the Company's Subsidiaries.
"SUBSTANTIAL PART" shall mean, as of any date, assets (i) having a net
book value equal to or in excess of 20% of the consolidated assets of the
Company and its Subsidiaries (determined
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<PAGE> 35
in accordance with GAAP) or (ii) which have provided 20% or more of Consolidated
Net Earnings in the most recent fiscal year of the Company.
"SUNTRUST" means Suntrust Bank, Nashville, NA.
"SUNTRUST AGREEMENT" means that certain Amended and Restated Loan
Agreement between the Company and Suntrust, dated as of June 25, 1996, as
amended from time to time.
"TRANSACTION FEE" shall have the meaning specified in paragraph 3
hereof.
"TRANSFEREE" shall mean any direct or indirect transferee of all or any
part of any Preferred Stock issued under this Agreement.
"TRIGGERING EVENT" shall mean the occurrence of either
(a) a Company Sale or
(b) a Qualified Initial Public Offering.
"WELFARE PLAN" shall mean an employee welfare benefit plan within the
meaning of section 3(1) of ERISA, maintained or contributed to by the Company or
an ERISA Affiliate.
11. INDEMNIFICATION.
11A. INDEMNIFICATION BY COMPANY. The Company agrees to indemnify,
defend, and hold the Purchasers harmless from and against all claims,
demands, losses, liabilities or judgments including, without limitation, all
interest, penalties, fines and other sanctions, and any reasonable costs or
expenses in connection therewith, including, without limitation, attorneys' fees
and expenses, arising out of or in connection with (i) the breach or failure by
the Company or its Subsidiaries to observe, pay or perform any of its or their
respective warranties, representations, covenants or agreements set forth herein
and (ii) any violation by the Company or its Subsidiaries of any applicable
statute, law or regulation relating to the environment or occupational health or
safety, or any material expenditures required to comply therewith.
11B. INDEMNIFICATION BY PURCHASERS. The Purchasers hereby
agree to indemnify, defend, and hold the Company harmless from and against all
claims, demands, losses, liabilities or judgments, including, without
limitation, all interest, penalties, fines and other sanctions, and any
reasonable costs or expenses in connection therewith, including, without
limitation, attorneys' fees and expenses, arising out of or in connection with
the breach or failure by the Purchasers to observe, pay or perform any of the
warranties, representations, covenants or agreements set forth herein.
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<PAGE> 36
11C. PROCEDURES UNDER INDEMNIFICATION. In the event that any
legal proceedings shall be instituted or that any claim or demand shall be
asserted by any person in respect of which payment may be sought by either party
from the other party under the provisions of this paragraph 11, the party
seeking indemnification (the "Indemnitee") shall promptly cause written notice
of the assertion of any claim of which it has knowledge and which is covered by
this paragraph 11 to be forwarded to the party from which indemnification is
sought (the "Indemnitor"); provided, however, that failure to give notice shall
not relieve the Indemnitor of its indemnity obligation, except to the extent the
Indemnitor is actually prejudiced in its defense of the action as a result of
such failure. The Indemnitor shall have the right, at its option and at its
expense, to be represented by counsel of its choice and to participate in, or to
take exclusive control of, the defense, negotiation and/or settlement of any
proceeding, claim or demand which relates to any losses or potential losses
indemnified against hereunder provided that (i) the Indemnitor acknowledges in
writing its obligation to fully indemnify the Indemnitee pursuant to paragraph
11A or 11B, as applicable, with respect to such claim or demand and (ii) such
claim or demand involved seeks (and continues to seek) solely monetary damages,
and provided, further, that the Indemnitee may participate in any such
proceeding with counsel of its choice and at its own expense. To the extent that
the Indemnitor elects not to defend or settle, or fails to adequately defend or
prosecute, such proceeding, claim or demand, the Indemnitee may in accordance
with its good faith business judgment elect reasonably to defend against, settle
or otherwise deal with any such proceeding, claim or demand. Any settlement
shall be made only with the consent of the Indemnitee (which consent shall not
be unreasonably withheld or delayed, and shall be deemed given by the Indemnitee
unless the Indemnitee shall notify the Indemnitor of its objection to such
settlement and the reasons for such objection by notice given within ten (10)
days after such consent shall be requested by the Indemnitor). Indemnitor shall
not, without the prior written consent of the Indemnitee, enter into any
compromise or settlement which commits the Indemnitee to take, or to forbear
from taking, any action. The parties agree to cooperate fully with each other in
connection with the defense, negotiation or settlement of any such legal
proceeding, claim or demand, provided that Indemnitor shall reimburse Indemnitee
for all reasonable out-of-pocket expenses in connection therewith. After any
final judgment or award shall have been rendered by a court, arbitration board
or administrative agency of competent jurisdiction and the time in which to
appeal such final judgment or award shall have expired, or a settlement shall
have been consummated, or the Indemnitee and the Indemnitor shall have arrived
at a mutually binding agreement with respect to each separate matter indemnified
by the Indemnitor, the Indemnitee shall forward to the Indemnitor notice of any
sums due and owing by the Indemnitor with respect to such matter and the
Indemnitor shall be required to pay all of such sums owing by reason of such
judgment, award or settlement to the Indemnitee by wire transfer in immediately
available funds within thirty (30) days after the date of such notice. If
defendants in any action include both the Indemnitor and the Indemnitee, and (a)
the Indemnitee shall have been advised by its counsel that there may be legal
defenses available to the Indemnitee which are different from or additional to
those available to the Indemnitor or (b) if there are any conflicts of interest
between the Indemnitor and the Indemnitee with respect to such action, the
Indemnitee shall have the right to employ its own counsel in such action, and in
such event, the fees and
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<PAGE> 37
expenses of such counsel shall be borne by the Indemnitor and shall be advanced
by the Indemnitor to the Indemnitee as they are incurred.
12. MISCELLANEOUS.
12A. PAYMENTS. The Company agrees that, so long as the Purchasers
shall hold any Preferred Stock it will make payments, if any, with respect to
the Preferred Stock, in compliance with the terms of this Agreement, by wire
transfer of immediately available funds for credit to: (i) in the case of
Electra, NatWest Bank N.A., New York, New York, ABA No. 021 200339 for the
account of Electra Investment Trust, P.L.C., account number 2753 10 3670, (ii)
in the case of CHP, NationsBank, N.A., Washington, D.C., ABA No. 054001204 for
the checking account of Capitol Health Partners, L.P., account number
1933056188, (iii) in the case of Michael E. Stephens, Am South Bank, ABA No.
062000019, For Further Credit To Michael E. Stephens, Account No. 12781304 or
(iv) to such other account or accounts as the Purchasers or any other holder of
the Preferred Stock may designate in writing, notwithstanding any contrary
provision herein with respect to the place of payment. The Company agrees to
afford the benefits of this paragraph 12A to any Transferee which shall have
made the same agreement as the Purchasers have made in this paragraph 12A.
12B. EXPENSES AND FEES. The Company agrees, provided the
transactions hereby contemplated shall be consummated, to pay, and save the
Purchasers and their Affiliates harmless against liability for the payment of,
all reasonable out-of-pocket expenses of the Purchasers arising in connection
with this Agreement, the Preferred Stock, the Other Agreements and the
transactions contemplated hereunder and thereunder, including, without
limitation, the following expenses incurred by Electra and/or CHP (the "Electra
Expenses" and the "CHP Expenses", respectively): (i) all document production and
duplication charges, (ii) all fees and expenses of Electra and CHP's counsel,
accounting firm and other advisers engaged by such Purchasers or any of their
Affiliates in connection with this Agreement and the Other Agreements and the
transactions contemplated hereunder and thereunder, (iii) all expenses,
including attorneys' fees and expenses, incurred by Electra or CHP or any of
their Affiliates or Transferees with respect to the enforcement of any rights or
provisions of any such agreement or instrument, or in responding to any subpoena
or other legal process issued in connection with such agreements and instruments
or the transactions contemplated hereunder or thereunder, or in connection with
any subsequent proposed modification of, or proposed consent under, this
Agreement or the Other Agreements, whether or not such proposed modification
shall be effected or proposed consent granted, and (iv) all expenses incurred in
connection with the printing of such agreements and instruments which may be
payable in respect of the execution and delivery of such agreements or
instruments, or the issuance, delivery or purchase by the Purchasers of any
shares of Preferred Stock.
12C. CONSENT TO AMENDMENT; WAIVERS. This Agreement may be amended
and the Company may take any action herein prohibited, or omit to perform any
act or covenant herein required to be performed by it, only if the Company shall
have obtained the written consent to such amendment, action or omission to act,
of the Required Holder(s), and each holder of any
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<PAGE> 38
shares of Preferred Stock at the time or thereafter outstanding shall be bound
by any consent authorized by this paragraph 12C, whether or not the shares of
Preferred Stock shall have been marked to indicate such consent, but any shares
of Preferred Stock issued thereafter may bear a notation referring to any such
consent; provided that without the written consent of the holder or holders of
all the Preferred Stock at the time outstanding, no consent, amendment or waiver
to or under this Agreement shall affect the exchange, conversion or put rights
of the Preferred Stock, or reduce the proportion of the amount of shares of
Preferred Stock required with respect to any consent, amendment or waiver of, or
contemplated by, this Agreement or alter the rights or obligations of any holder
of Preferred Stock without so altering the rights or obligations of all holders
of Preferred Stock. No course of dealing between the Company and a holder of
Preferred Stock nor any delay in exercising any rights hereunder or under the
Preferred Stock shall operate as a waiver of any rights of any holder of
Preferred Stock. As used herein, the term "this Agreement" and references
thereto shall mean this Agreement as it may from time to time be amended or
supplemented.
12D. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT. All
representations and warranties contained herein or made in writing by or on
behalf of the Company in connection herewith shall survive the execution and
delivery of this Agreement, the Other Agreements and the Preferred Stock, the
transfer by the Purchasers of any shares of Preferred Stock or portion thereof
or interest therein, and may be relied upon by any Transferee regardless of any
investigation made at any time by or on behalf of any Purchaser or any
Transferee. Subject to the preceding sentence, this Agreement, the Other
Agreements and the Preferred Stock embody the entire agreement and understanding
among the Purchasers and the Company and supersede all prior agreements and
understandings relating to the subject matter hereof.
12E. SUCCESSORS AND ASSIGNS. All covenants and other agreements in this
Agreement contained by or on behalf of any of the parties hereto shall bind and
inure to the benefit of the respective successors and assigns of the parties
hereto (including, without limitation, any Transferee) whether so expressed or
not.
12F. NOTICES. All written communications provided for hereunder shall
be sent by first-class mail or nationwide overnight delivery service (with
charges prepaid) or via receipted facsimile transmission and shall be directed
to the holder at the holder's last requested address or facsimile number:
If to Electra:
Electra Investment Trust, P.L.C.
65 Kingsway
London, England WC2B 6QT
Attention: Philip J. Dyke, Company Secretary
Telecopy No.: 011-44-71-404-5388
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<PAGE> 39
with copies to:
Electra, Inc.
70 East 55th Street
New York, New York 10022
Attention: Scott D. Steele
Telecopy No.: (212) 319-3069
and
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Attention: Peter J. Hanlon, Esq.
Telecopy No.: (212) 821-8111
If to CHP:
Capitol Health Partners, L.P.
3000 P Street, N.W.
Washington, D.C. 20005
Attention: Debora A. Guthrie
Telecopy No.: (202) 965-2344
with copies to:
Manatt, Phelps & Phillips, LLP
1501 M Street N.W.
Washington, D.C. 20009
Attention: Joseph F. Kelly, Jr.
Telecopy No.: (202) 463-4394
If to Michael E. Stephens:
One Perimeter Park South
Suite 100N
Birmingham, AL 35243
Telecopy No.: (205) 970-6524
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<PAGE> 40
with copies to:
Bradley, Arant Rose & White
2001 Park Place
Suite 1400
Birmingham, AL 35203
Attention: Thomas Carruthers
Telecopy No.: 205/252-0264
If to any other holder of any shares of Preferred Stock addressed to
such holder at such address as such other holder shall have specified to the
Company in writing or, if any such other holder shall not have so specified an
address to the Company, then addressed to such other holder in care of the last
holder of such shares of Preferred Stock which shall have so specified an
address. Each party may, by notice given hereunder, designate any further or
different addresses to which subsequent notices, certificates or other
communications shall be sent.
If to the Corporation:
AmSurg Corp.
One Burton Hills Boulevard
Suite 350
Nashville, TN 37215
Attention: Claire M. Gulmi
Telecopy No. (615) 665-0755
with copies to:
Bass, Berry & Sims PLC
2700 First American Center
Nashville, TN 37238
Attention: Cynthia Y. Reisz
Telecopy No.: (615) 742-6293
12G. DESCRIPTIVE HEADINGS, ETC. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement. References herein to a paragraph are,
unless otherwise specified, to one of the paragraphs of this Agreement and
references to an "Exhibit" are, unless otherwise specified, to one of the
Exhibits to this Agreement.
12H. GOVERNING LAW; RESOLUTION OF DISPUTES. This Agreement shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the law of the State of New York without regard to the conflicts
of laws provisions thereof. The Company and the Purchasers shall not seek a jury
trial in any action based upon or arising out of
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<PAGE> 41
this Agreement or any related document or agreement. The Company will not seek
to consolidate any such action with any other action in which trial by jury has
not been waived.
12I. COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, and it shall
not be necessary in making proof of this Agreement to produce or account for
more than one such counterpart.
IN WITNESS WHEREOF, the Company and the Purchasers have executed this
Agreement as of the date first above written.
AMSURG CORP.
By:
---------------------------------
Title
ELECTRA INVESTMENT TRUST, P.L.C.
By:
---------------------------------
Title
CAPITOL HEALTH PARTNERS, L.P.
By: CAPITOL HEALTH ADVISORS, L.P.
Its General Partner
By: CAPITOL HEALTH, INC.
Its General Partner
By:
--------------------------------
Debora A. Guthrie
President
-----------------------------------
Michael E. Stephens
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<PAGE> 42
LIST OF EXHIBITS
<TABLE>
<S> <C>
Exhibit A Series A Convertible Preferred Stock
Exhibit B Series B Convertible Preferred Stock
Exhibit C Articles of Amendment
Exhibit D Bass, Berry & Sims, PLC Opinion
Exhibit E Shareholders' Agreement
Exhibit F Registration Agreement
Exhibit G Suntrust's Amended and Restated Loan Agreement
Exhibit H Consent of Suntrust
Exhibit I Prospectus
LIST OF SCHEDULES
Schedule 4L Structure and Capital Stock
Schedule 6D Transactions with Affiliates
Schedule 6H Restrictions on Payment/Debts
Schedule 8A Subsidiaries
Schedule 8B Business
Schedule 8C Capital Stock and Related Matters
Schedule 8I Patents, Trademarks, etc.
Schedule 8Q Material Agreements
Schedule 8T Leases
</TABLE>
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<PAGE> 1
EXHIBIT 10.4
SECOND AMENDED AND RESTATED LOAN AGREEMENT
ENTERED INTO by and among AMSURG CORP. a Tennessee corporation (the
"Borrower"), SUNTRUST BANK, NASHVILLE, N.A., AGENT for the Lenders defined
herein ("Agent"), SUNTRUST BANK, NASHVILLE, N.A., a national bank ("STB"), and
NATIONSBANK OF TENNESSEE, N.A., a national bank ("NBT") (herein STB and NBT
shall be referred to as "Lenders"), as of this 15th day of April, 1997.
RECITALS:
1. Borrower and STB entered into an Amended and Restated Loan
Agreement dated as of June 25, 1996 (the "Loan Agreement").
2. The Borrower has agreed that the indebtedness previously held
by STB is to be held by the Lenders pursuant to the terms of this Second
Amended and Restated Loan Agreement.
3. The Borrower further desires that the Lenders increase the
credit available to Borrower.
4. The Borrower, the Agent, and the Lenders desire to amend and
restate the terms of the Loan Agreement, as provided herein.
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the parties hereto agree that the Loan Agreement is
amended and restated as follows:
Article I. Definitions.
As used in this Agreement, the following terms shall have the
following meanings, unless the context expressly otherwise requires:
The terms defined in this article have the meanings attributed to them
in this article. Singular terms shall include the plural as well as the
singular, and vice versa. Words of masculine, feminine or neuter gender shall
mean and include the correlative words of other genders.
All references herein to a separate instrument are to such separate
instrument as the same may be amended or supplemented from time to time
pursuant to the applicable provisions thereof.
All accounting terms not otherwise defined herein have the meanings
assigned to them, and all computations herein provided for shall be made, in
accordance with generally accepted accounting principles applied on a
consistent basis. All references herein to "generally accepted accounting
principles" refer to such principles as they exist at the date of application
thereof.
<PAGE> 2
All references herein to designated "Articles", "Sections" and other
subdivisions or to lettered Exhibits are to the designated Articles, Sections
and other subdivisions hereof and the Exhibits annexed hereto unless the
context otherwise clearly indicates. All Article, Section, other subdivision
and Exhibit captions herein are used for reference only and in no way limit or
describe the scope or intent of, or in any way affect, this Agreement.
"Acquisition" means the acquisition by Borrower of a majority
ownership interest in any existing ambulatory surgery center(s) through the
formation of a Partnership or LLC with a physician or group of physicians.
"Agent" shall mean SunTrust Bank, Nashville, N.A., Agent or any
successor appointed pursuant to Article XI herein.
"Advance" or "Advances" means any and all extensions of credit made
pursuant to this Agreement and shall include, without limitation, any and all
advances under the Revolving Credit Notes and amounts evidenced by any Letter
of Credit.
"Agreement" means this Loan Agreement (including all exhibits hereto)
as the same may be modified, amended, or supplemented from time to time.
"Applicable Interest Rate" means either the Base Rate or the
LIBOR-Based Rate as applicable.
"Base Rate" means the rate of interest established from time to time
and announced by STB as its "base rate," such rate being an interest rate used
as an index for establishing interest rates on loans.
"Borrower" means AmSurg Corp., a Tennessee corporation and any
successors thereto, including without limitation, any trustee or receiver in
bankruptcy, in reorganization, or in similar proceedings.
"Borrowing Request" means that certain written request presented by
Borrower to Agent in connection with a request for an Advance, which Borrowing
Request shall be in the form of Exhibit B hereto.
"Business Day" means any day other than a Saturday, Sunday or day on
which commercial banks are authorized to close under the laws of the State of
Tennessee.
"Capitalization" means Borrower's total consolidated Debt plus an
amount equal to Borrower's Consolidated Net Worth.
"Change of Control" means the occurrence of (i) any Person or two or
more Persons acting in concert acquiring beneficial
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<PAGE> 3
ownership (within the meaning of Rule 13d-3 of the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended), directly or
indirectly, of securities of Borrower (or other securities convertible into
such securities) representing 40% or more of the combined voting power of all
securities of Borrower entitled to vote in the election of directors; or (ii)
individuals who at the beginning of this Agreement were directors of Borrower
ceasing for any reason to constitute a majority of the Board of Directors of
Borrower unless the Persons replacing such individuals were nominated by the
Board of Directors of Borrower; or (iii) any Person or two or more Persons
acting in concert acquiring by contract or otherwise, or entering into a
contract or arrangement which upon consummation will result in its or their
acquisition of, or control over, securities of Borrower (or other securities
convertible into such securities) representing 40% or more of the combined
voting power of all securities of Borrower entitled to vote in the election of
directors.
"Closing" means the time and place of the execution and/or delivery of
the Loan Documents.
"Closing Date" means the 15th day of April, 1997 or at such other date
as the parties elect.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Collateral" means any and all collateral securing the Indebtedness,
as described in Article III hereof.
"Conditions Precedent" means those matters or events that must be
completed or must occur or exist prior to Agent's and Lenders' being obligated
to fund any Advance, including, but not limited to, those matters described in
Article V hereof.
"Consolidated Net Income" means, for any period, the net income on a
consolidated basis of Borrower, its Subsidiaries, the Partnerships, the LLC's,
and any other Persons that prepare financial statements on a consolidated basis
under Borrower for such period, determined in accordance with GAAP.
"Consolidated Statements" means Financial Statements of the Borrower
on a consolidated basis.
"Consolidated Net Worth" means (a) the aggregate amount of all assets
of the Borrower (determined on a consolidated basis) as may properly be
classified as such, less (b) the aggregate amount (as determined on a
consolidated basis) of (i) all current liabilities of the Borrower, (ii) all
deferred taxes of the Borrower, (iii) all long term debt of Borrower, and (iv)
Minority Interest.
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<PAGE> 4
"Contingent Liabilities" means all contingent liabilities required to
be disclosed on the consolidated Financial Statements of the Borrower, its
Subsidiaries, the Partnerships, the LLC's in accordance with GAAP as in effect
from time to time, including statement #5 of the Financial Accounting Standards
Board and any successor thereto.
"Conversion Date" means the date that interest on the outstanding
principal balance of any Advance is converted from the Base Rate to the
LIBOR-Based Rate.
"Debt" means, with respect to any Person, all obligations of such
Person, contingent or otherwise, which in accordance with GAAP would be
classified on a balance sheet of such Person as liabilities of such Person, but
in any event including (a) liabilities secured by any mortgage, pledge or lien
existing on Property owned by such Person and subject to such mortgage, pledge
or lien, whether or not the liability secured thereby shall have been assumed
by such Person, (b) all indebtedness and other similar monetary obligations of
such Person, (c) all guaranties, obligations in respect of letters of credit,
endorsements (other than endorsements of negotiable instruments for purposes of
collection in the ordinary course of business), obligations to purchase goods
or services for the purpose of supplying funds for the purchase or payment of
Debt of others and other contingent obligations in respect of, or to purchase,
or otherwise acquire, or advance funds for the purchase of, Debt of others, (d)
all obligations of such Person to indemnify another Person to the extent of the
amount of indemnity, if any, which would be payable by such Person at the time
of determination of Debt and (e) all obligations of such Person under capital
leases.
"Default" or "Event of Default" means the occurrence of any of the
events specified in Section 8.01 hereof.
"Default Conditions" or "Default Condition" means the occurrence of
any of the events specified in Section 8.04 hereof.
"Development Costs" means the total amount of all costs and expenses
(excluding soft costs and fees payable to Borrower) incurred by a Partnership
or LLC in the development, construction, or renovation of Projects.
"EBITDA" (Earnings Before Interest, Taxes, Depreciation, and
Amortization) for any period means an amount equal to Consolidated Net Income
(or the net deficit, if expenses and charges exceed revenues and proper income
items) for such period, plus amounts that have been deducted for (i)
depreciation, (ii) amortization, (iii) interest expense, (iv) income taxes, (v)
extraordinary and non-recurring items, and (vi) the cumulative effects of
changes in accounting principles, and minus (vii) amounts that have been added
for (a) extraordinary and non-recurring items and (b) the
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<PAGE> 5
cumulative effects of changes in accounting principles, in determining
Consolidated Net Income for such period.
"Environmental Law" means any federal, state or local law, statute,
ordinance or regulation applicable or pertaining to health, industrial hygiene,
waste materials, removal of waste materials, oil, gas, or underground storage
tanks, Hazardous Substances, other environmental conditions on, under, or
affecting Borrower's Property or any interest therein.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, including (unless the context otherwise requires)
any rules or regulations promulgated thereunder.
"Eurodollar Business Day" means a Business Day on which the relevant
London international financial markets are open for transaction of business
contemplated by this Agreement.
"Financial Statements" means (i) the consolidated financial statement
or statements of Borrower described or referenced in Section 4.06 hereof and
delivered with this Agreement to Agent, and (ii) subsequent financial
statements required to be provided pursuant to this Agreement.
"Fiscal Quarter" means each of the quarters of the Fiscal Year ending
on March 31st, June 30th, September 30th, and December 31st.
"Fiscal Year" or "Annually" means any twelve-month accounting period
ending December 31st.
"Funded Debt" means all Debt resulting from loans made to Borrower by
banks, savings and loan associations, and financial institutions, all purchase
money mortgages, all conditional sales contracts, all title retention
agreements, all Seller Financing, and all current maturities of Debt not
otherwise specified herein.
"GAAP" means generally accepted accounting principles.
"Guarantors" means all Subsidiaries of Borrower, both presently
existing and those hereafter formed.
"Guarantees" means guaranty agreements executed by the Guarantors in
favor of Agent on behalf of Lenders.
"IPO Transaction" means (i) the recapitalization of all of the issued
and outstanding shares of common stock of the Borrower in a transaction
intended to qualify as a tax-free reorganization under Section 368(1)(i)(E) of
the Code and the distribution of all shares of common stock of the Borrower
held by American Healthcorp, Inc. pro rata among the shareholders of American
Healthcorp, Inc. in a tax-free distribution under Section 355 of the Code, or
(ii) a
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public offering of common stock of the Borrower yielding net cash proceeds to
the Borrower and/or its shareholders of at least $20,000,000.
"Indebtedness" means any and all amounts and liabilities owing or to
be owing by Borrower to Agent pursuant hereto or to either of the Lenders from
time to time whether now existing or hereafter incurred, and whether in
connection with this Agreement or otherwise, including any amendments hereof,
or in connection with loans, participation interests, drafts, notes, banker's
acceptances, letters of credit, guarantees, or overdrafts of checking or
savings accounts of Borrower maintained with either of Lenders.
"Interest Expense" means any and all payments, cash or in-kind, made
or accrued on account of interest obligations incurred, arising under or out of
any Debt of the Borrower (on a consolidated basis), including but not limited
to promissory notes issued to evidence such interest payments and including the
component of amounts payable under capital leases attributable to interest, and
excluding any non-cash items other than notes issued to evidence such interest
payments and the component of amounts payable under capital leases attributable
to interest.
"LLC" means any limited liability company validly formed under the law
of any State for the purpose of making an Acquisition or a Physician Practice
Acquisition, or for the purpose of developing a Project and in which the
Borrower retains a majority ownership interest.
"LLC Note" means a promissory note issued by an LLC to the order of
Borrower and evidencing a loan by Borrower to such LLC of monies initially
advanced to Borrower under the Revolving Credit Notes, which loan is made for
the purpose of developing a Project in which the Borrower retains a majority
ownership interest.
"LLC Note Collateral" means any property, collateral, or assets
securing repayment of an LLC Note.
"Lenders" means STB and the other banks and lending institutions
listed on the signature pages set forth herein, and any permitted transferee
thereof.
"Letter of Credit" means any letter of credit issued by Agent on
Borrower's account pursuant to and in compliance with Section 2.11 herein.
"Letter of Credit Fee" shall mean an amount equal to 1% multiplied by
the face amount of the Letter of Credit.
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"LIBOR-Based Rate" means for any Libor Based Rate Period, one hundred
and seventy-five (175) basis points per annum above the LIBOR Rate for the
applicable Libor-Based Rate Period.
"LIBOR-Based Rate Period" means with respect to any Advance on which
the Borrower has elected, pursuant to Section 2.06, that the LIBOR-Based Rate
apply, the 30, 60, or 90 day period selected by Borrower commencing on the date
the Advance is made or on any subsequent Conversion Date.
"LIBOR Rate" means either the 30-day, 60-day, or 90-day LIBOR Rate, as
applicable, as set forth in STB's Fund Management, Cost of Funds Report
published for STB by Telerate, Inc. each Monday through Friday that STB is open
for business.
"Lien" means any interest in Property securing an obligation owed to,
or a claim by, a Person other than the owner of the Property, whether such
interest is based on the common law, statute, or contract, and including, but
not limited to, the lien or security interest arising from a mortgage,
encumbrance, pledge, security agreement, conditional sale, or trust receipt or
a lease, consignment, or bailment for security purposes. The term "Lien" shall
include reservations, exceptions, encroachments, easements, rights-of-way,
covenants, conditions, restrictions, leases, and other title exceptions and
encumbrances affecting the Property. For the purposes of this Agreement,
Borrower shall be deemed to be the owner of any Property that it has acquired
or holds subject to a conditional sale agreement, financing lease, or other
arrangement pursuant to which title to the Property has been retained by or
vested in some other Person for security purposes.
"Loan" or "Loans" means any borrowing by Borrower under this
Agreement, the Revolving Credit Notes, the Term Notes, and/or any extension of
credit by Agent on behalf of Lenders or by any of the Lenders to or for
Borrower pursuant to this Agreement or any other Loan Document, including any
renewal, amendment, extension, or modification thereof.
"Loan Documents" means, collectively, each document, paper or
certificate executed, furnished or delivered in connection with this Agreement
(whether before, at, or after the Closing Date), including, without limitation,
this Agreement, the Revolving Credit Notes, the Term Notes, the Guarantees, and
all other documents, certificates, reports, and instruments that this Agreement
requires or that were executed or delivered (or both) at Agent's request.
"Majority Lenders" means Lenders in the aggregate having a Pro Rata
Share equal to 66 2/3% or greater, provided that in no event shall Majority
Lenders be less than two (2) Lenders.
"Minority Interest" means that amount depicted from time to time on
Borrower's most current consolidated balance sheet as
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"Minority Interest" so long as such is calculated on a consistent basis and in
accordance with GAAP.
"NBT" means NationsBank of Tennessee, N.A., its successors and
assigns.
"Notice of Interest Rate Election" means the notice required by
Section 2.06(c) and Section 2.06(d) herein and which notice shall be in either
the form of Exhibit B hereto or in such other form as approved by Agent.
"Obligations" means all of Borrower's undertakings in the Loan
Documents including, but not limited to, all agreements, representations,
warranties, and covenants. The term "Obligations" includes the Indebtedness.
"Partnership" means any general or limited partnership validly formed
under the law of any state for the purpose of making an Acquisition or a
Physician Practice Acquisition, or for the purpose of developing a Project and
in which the Borrower retains a majority ownership interest.
"Partnership Agreement" means the general partnership agreement or the
limited partnership agreement of any Partnership.
"Partnership Note" means a promissory note issued by a Partnership to
the order of Borrower and evidencing a loan by Borrower to such Partnership of
monies initially advanced by the Lenders to Borrower under the Revolving Credit
Notes, which loan is made in connection with the development of a Project in
which the Borrower retains a majority ownership interest.
"Partnership Note Collateral" means any property, collateral, or
assets securing repayment of a Partnership Note.
"Physician Practice Acquisition" means the acquisition of the assets
of a physician's practice or the practice of more than one physician by a
Partnership or LLC in circumstances where the physicians whose assets are
acquired are partners or are members in an LLC or immediately thereafter will
become partners in the Partnership or a member in the LLC.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Person" means any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization,
government, or any agency or political subdivision thereof, or any other form
of entity.
"Plan" means any employee benefit or other plan established or
maintained, or to which contributions have been made, by the
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Borrower or any Subsidiary and covered by Title IV of ERISA or to which Section
412 of the Code applies.
"Principal Office" means the principal office of the Agent located at
201 Fourth Avenue North, Nashville, Tennessee.
"Pro Rata Share" means the percentage of interest held by each of the
Lenders as set forth opposite their respective signatures hereto, as such
percentage may be adjusted from time to time as a result of assignments or
amendments made pursuant to this Agreement.
"Projects" mean construction, expansion and/or renovation of
ambulatory surgery centers owned by a Partnership or LLC.
"Property" or "Properties" means any interest in any kind of property
or asset, whether real, personal, or mixed, or tangible or intangible.
"Revolving Credit Note" and "Revolving Credit Notes" means those
Revolving Credit Notes executed by the Borrower payable to the order of each of
the Lenders, each Revolving Credit Note being substantially in the form of
Exhibit C hereto and in the principal amount that each Lender's Pro Rata Share
bears to $15,000,000, including all amendments, renewals, and extensions
thereto.
"STB" means SunTrust Bank, Nashville, N.A., its successors and
assigns.
"Seller Financing" means either: (i) the extension of credit to
Borrower that enables the Borrower to acquire a majority interest in a
Partnership or LLC, (ii) the extension of credit to Borrower by any seller of a
majority interest in an existing ambulatory surgery center, which sale is made
to Borrower, a Partnership, or an LLC, or (iii) the extension of credit to
Borrower by the seller of the assets in a Physician Practice Acquisition.
"Subsidiary" means any corporation of which more than fifty percent
(50%) of the issued and outstanding voting stock is owned or controlled at the
time as of which any determination is being made directly or indirectly, by
Borrower and/or by one or more of Borrower's Subsidiaries.
"Term Note" and "Term Notes" means Term Notes executed by the Borrower
payable to the order of each of the Lenders, each Term Note being substantially
in the form of Exhibit D hereto and in the original principal amount that each
Lender's Pro Rata Share bears to $4,671,261.88, and including all amendments,
renewals, and extensions thereto.
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"Voting Stock" means securities of any class of a corporation the
holders of which are ordinarily, in the absence of contingencies, entitled to
elect a majority of the corporate directors (or persons performing similar
functions).
Article II. The Loans.
Section 2.01 The Revolving Credit Notes. Subject to the conditions and
the terms of the Loan Documents and subject to the limitations of Section 2.11
set forth below, and in reliance upon the representations, warranties, and
covenants set forth in the Loan Documents, the Lenders agree to extend the
Borrower credit on a revolving credit basis, in the principal amount of up to
$15,000,000 pursuant to the Revolving Credit Notes.
Section 2.02 Advances Under the Revolving Credit Notes. Advances under
the Revolving Credit Notes shall be made only after the Borrower has complied
with the provisions of this Agreement. Subject to the terms and requirements
of this Agreement, Borrower may repay and re-borrow amounts under the Revolving
Credit Notes up to the maximum principal amount thereof, provided, however, the
amount available to be advanced to Borrower under the Revolving Credit Notes
shall be reduced by the face amount of any outstanding Letters of Credit issued
by Agent on Borrower's behalf pursuant to Section 2.11 herein. Each Lender
shall be responsible to fund its Pro Rata Share of any Advance. The failure of
any Lender to fund its Pro Rata Share of any Advance shall not relieve any
other Lender of its obligations to fund such other Lender's Pro Rata Share of
an Advance, but no Lender shall be responsible for the failure of any other
Lender to make an Advance.
Section 2.03 Borrowing Procedure. The Borrower hereby authorizes the
Lenders (acting through the Agent) to deposit all Advances under the Revolving
Credit Notes into the operating account maintained by the Borrower with STB.
Any authorized officer of Borrower shall have the authority to request
Advances. All requests for Advances shall be evidenced by a Borrowing Request
delivered to Agent (except that telephonic requests by any authorized officer
confirmed immediately thereafter by delivery of a Borrowing Request shall be
acceptable). In the event of a telephonic request, the Agent shall be entitled
to rely, without further investigation, on the fact that the person making the
telephone call has identified himself as one of the authorized officers.
Neither the Agent nor any of the Lenders shall have any liability to Borrower
arising out of compliance with this procedure.
Subject to the remaining terms of this Loan Agreement and with regard
to Advances that bear interest at the Base Rate, the Agent shall endeavor to
cause all requests for Advances received prior to 11:00 A.M. Nashville Time to
be funded on the same date received, and the Agent shall endeavor to cause all
requests for Advances
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received subsequent to 11:00 A.M. Nashville Time to be funded on the next
succeeding Business Day. Subject to the remaining terms of this Loan Agreement
and with regard to Advances that bear interest at the LIBOR Based Rate, the
Agent shall endeavor to cause all requests for Advances to be funded within two
(2) Business Days from the date the Agent receives the Borrowing Request.
The giving of notice by Borrower that it is requesting an Advance
shall constitute a warranty that, as of the date the notice is given and as of
the date of the Advance, the officers of the Borrower do not have knowledge of
any Default Conditions or Event of Default as defined herein; and that as of
such date, the representations and warranties contained in Article IV are and
will be true and correct, except as to changes occurring after the date of this
Agreement caused by transactions not prohibited under this Agreement.
Section 2.04 Minimum Advance Amounts. Advances under the Revolving
Credit Notes shall not be made in amounts less than $100,000 without Agent's
prior written consent.
Section 2.05 Required Payments. The Revolving Credit Notes and the Term
Notes shall be payable as set forth therein. Each payment under the Revolving
Credit Notes and the Term Notes shall be made without defense, setoff, or
counterclaim to Agent at its Principal Office in U.S. Dollars for the account
of each of the Lenders and in immediately available funds before 12:00 Noon
Nashville Time on the date such payment is due.
Section 2.06 Applicable Interest Rate.
(a) With regard to the Revolving Credit Notes and at the
time that the Borrower requests an Advance, the Borrower shall deliver
to Agent a Borrowing Request which shall be irrevocable, and which
shall set forth the following: (a) whether the selected interest rate
is the Base Rate or the LIBOR-Based Rate, and (b) if the interest rate
selected is the LIBOR-Based Rate, the maturity selected for the
LIBOR-Based Rate Period. In the event that the Borrower shall fail to
select an Applicable Interest Rate on the Borrowing Request, then it
shall be conclusively presumed that the Borrower has elected the Base
Rate.
(b) With regard to the Term Notes and upon the Closing
Date, the Borrower shall advise the Agent in writing: (a) whether the
Applicable Interest Rate on the Term Notes is the Base Rate or the
LIBOR-Based Rate, and (b) if the interest rate selected is the
LIBOR-Based Rate, the maturity selected for the LIBOR-Based Rate
Period.
(c) At any time that the outstanding principal balance of
the Term Notes or an Advance bears interest at the Base
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Rate, the Borrower may elect upon two (2) Business Days prior written
notice and delivery to Agent of a Notice of Interest Rate Election to
convert the Applicable Interest Rate to a LIBOR-Based Rate.
(d) Once the Borrower has selected the LIBOR-Based Rate,
such rate shall remain applicable until the expiration of the then
applicable LIBOR-Based Rate Period. Two (2) Business Days prior to
the expiration of any applicable LIBOR-Based Rate Period, the Borrower
shall deliver to Agent a Notice of Interest Rate Election. Should the
Borrower fail to deliver such Notice of Interest Rate Election in a
timely manner, then it shall be conclusively presumed that the
Borrower has selected the Base Rate as the Applicable Interest Rate.
(e) At any time, no more than ten (10) different
LIBOR-Based Rate Periods may be applicable to the Term Notes and all
Advances.
(f) The Applicable Interest Rate shall be computed on the
basis of a year of 360 days for the actual number of days elapsed.
(g) The following provisions shall apply at any time that
the LIBOR-Based Rate is applicable:
(i) Increased Cost. If, as a result of any
change in applicable law, regulation, treaty or directive, in
the interpretation or application thereof or compliance by
Agent or any of the Lenders with any request or directive
(whether or not having the force of law) from any court or
governmental authority, agency or instrumentality:
(A) the basis of taxation of payments to
any of the Lenders of the principal of or interest on
any loan on which a LIBOR-Based Rate is applicable
(other than taxes imposed on the overall net income
of either of the Lenders) is changed;
(B) any reserve, special deposit or
similar requirements against assets of, deposits with
or for the account of, or credit extended by, Agent
or any of the Lenders are imposed, modified or deemed
applicable; or
(C) any other condition affecting this
Agreement or the LIBOR-Based Rate is imposed on Agent
or any of the Lenders or the London eurodollar
market;
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and Agent or any of the Lenders determines that, by
reason thereof, the actual out-of-pocket cost to
Agent or any of the Lenders of offering, making, or
maintaining the LIBOR-Based Rate is increased, or the
amount of any sum receivable by Agent or any of the
Lenders hereunder in respect of any of the
LIBOR-Based Rate is reduced;
then, Borrower shall pay to Agent or such of the
Lenders as designated by Agent upon demand (which
demand shall be accompanied by a statement setting
forth the basis for the calculation thereof but
only to the extent not theretofore provided to
Borrower) such additional amount or amounts as
will compensate Agent or any of the Lenders for
such additional cost or reduction. Determinations
by the Agent for purpose of this section of the
additional amounts required to compensate Agent or
any of the Lenders in respect of the foregoing
shall be conclusive, absent demonstrable error.
(ii) Eurodollar Deposits Unavailable
or Interest Rate Unascertainable. In the event that
the Agent shall have reasonably determined (which
determination shall be conclusive and binding on the
parties hereto, absent demonstrable error) that
deposits of the necessary amount for the relevant
LIBOR-Based Rate Period are not available to Agent or
any of the Lenders in the London Eurodollar market or
that, by reason of circumstances affecting such
market, adequate and reasonable means do not exist
for ascertaining the LIBOR-Based Rate applicable to
such period or term, as the case may be, or that the
application or use of the LIBOR-Based Rate would be
impracticable as a result of a contingency occurring
after the Closing Date that materially and adversely
affects the London interbank market, then Agent shall
promptly give notice of such determination to
Borrower and (i) any notice of new LIBOR- Based Rate
selection previously given by Borrower and not yet
converted shall be deemed a selection of the Base
Rate and (ii) the existing LIBOR-Based Rate shall be
converted to the Base Rate on the last day of the
then current LIBOR-Based Rate Period with respect
thereof.
(iii) Changes in Law Rendering the
LIBOR-Based Rate Unlawful. If at any time due to any
new law, treaty or regulation, or any interpretation
thereof by any governmental or other regulatory
authority charged with the administration thereof, or
for any other reason arising subsequent to the date
hereof, it shall become unlawful for Agent or any of
the Lenders to offer, charge or collect interest
based on the LIBOR-Based Rate, the obligation of
Agent or such of the Lenders to provide the
LIBOR-Based Rate shall, upon the happening of such
event,
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forthwith be suspended for the duration of such
illegality. Upon the happening of such event, Agent
or any of the Lenders shall notify Borrower thereof
in writing, and Borrower, at its election, shall, on
the earlier of (i) the last day of the then current
LIBOR-Based Rate Period or (ii) if required by such
law, regulation or interpretation, on such date as
shall be specified in such notice, either convert the
unlawful LIBOR-Based Rate to the Base Rate or repay
such of the Revolving Credit Notes, without penalty,
to Agent or any of the Lenders, as designated by
Agent, in full, together with all interest accrued
thereon.
(iv) Other Changes Rendering Use of
LIBOR-Based Rate a Severe Hardship. In the event that
on any date after the Closing Date Agent or any of
the Lenders shall reasonably determine (which
determination shall be conclusive and binding on the
parties hereto, absent demonstrable error) that the
use and/or application of the LIBOR-Based Rate will
cause the Agent or any of the Lenders severe hardship
as a result of a contingency occurring after the date
of this Agreement; then, and in any such event, the
Agent and the affected Lenders shall give telephonic
notice (immediately confirmed in writing) to the
Borrower of such determination, and the obligation of
the Agent and such of the affected Lenders to offer
or permit the selection of the LIBOR-Based Rate shall
be terminated at the earlier of the end of the then
current LIBOR-Based Rate Period, and upon such date
the Borrower, at its option shall either repay such
Revolving Credit Note, without penalty, together with
all interest accrued thereon, or convert such
Revolving Credit Note to the Base Rate.
(v) Adjustments to Rate to Cover
Additional Cost. It is the intention of the parties
that the LIBOR-Based Rate shall accurately reflect
the cost to the Lenders of maintaining loans at the
LIBOR-Based Rate during the applicable LIBOR-Based
Rate Period. Accordingly:
(i) if by reason of any change
after the date hereof in any applicable law
or governmental rule, regulation or order
(or any interpretation thereof and
including the introduction of any new law
or governmental rule, regulation or order),
including any change in the LIBOR reserve
requirement, the cost to either of the
Lenders of maintaining loans at the
LIBOR-Based Rate or funding the same by
means of a London interbank market time
deposit, as the case may be, shall
increase, the LIBOR-Based Rate then charged
by any of the Lenders shall be adjusted as
necessary to reflect such change in
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cost to any of the Lenders, effective as of
the date on which such change in any
applicable law, governmental rule,
regulation or order becomes effective.
(ii) if the Agent shall have
determined that the adoption after the
Closing Date of any law, rule, regulation
or guideline regarding capital adequacy, or
any change in any of the foregoing or in
the interpretation or administration of any
of the foregoing by any governmental
authority or agency, central bank or
comparable agency charged with the
interpretation or administration thereof,
or compliance by any of the Lenders (or any
lending office of any of the Lenders) or
any of the Lenders' holding company with
any request or directive regarding capital
adequacy (whether or not having the force
of law) of any such governmental authority
or agency, central bank or comparable
agency, has or would have the effect of
reducing the rate of return on any of the
Lenders' capital or on the capital of any
of the Lenders' holding company, as a
consequence of the Lenders' obligations
under this Agreement or the Advances made
by any of the Lenders pursuant hereto to a
level below that which any of the Lenders
or either of the Lenders' holding company
could have achieved but for such adoption,
change or compliance (taking into
consideration the Lenders' guidelines with
respect to capital adequacy) by an amount
deemed by any of the Lenders to be
material, then from time to time the
Borrower shall pay to the Agent for
delivery to the Lenders such additional
amount or amounts as will compensate such
of the Lenders or such of the Lenders'
holding company for any such reduction
suffered.
(h) Borrower may prepay the principal amount
evidenced by the Term Notes or by any Advance at any time that the
Applicable Interest Rate is the Base Rate. Except as provided
specifically in Section 2.05(i), (iii) and (iv), Borrower may not
prepay the Term Notes or any Advance so long as the Applicable
Interest Rate is the LIBOR-Based Rate, except at the maturity of any
applicable LIBOR-Based Rate Period.
Section 2.07 The Term Notes. Subject to the conditions and terms of
the Loan Documents and in reliance upon the representations, warranties, and
covenants set forth in the Loan Documents, Lenders agree to extend the Borrower
credit in the principal amount of $4,671,261.88 pursuant to the Term Notes.
The terms of repayment of the Term Notes shall be as set forth therein.
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Section 2.08 Participation. The Lenders shall have the right to enter
into one or more participation agreements with affiliates of Lenders, but not
further or otherwise.
Section 2.09 Use of Proceeds. Proceeds of the Revolving Credit Notes
will be used to: (i) permit the issuance of Letters of Credit, (ii) enable the
Borrower to make (x) loans to Partnerships or LLC's for the construction and
renovation of Projects and/or (y) Acquisitions and Physician Practice
Acquisitions, or (iii) for working capital. Proceeds of the Term Notes were
used to refinance existing indebtedness.
Section 2.10 Payments to Principal Office; Debit Authority. Each
payment under the Revolving Credit Notes and Term Notes (including any
permitted prepayment and payment of interest) shall be made to Agent at its
Principal Office for the account of Lenders in U.S. dollars and in immediately
available funds before 11:00 a.m. Nashville Time on the date such payment is
due.
Section 2.11 Letters of Credit. (a) Provided no Event of Default or
Default Condition exists and subject to the terms and conditions of the Loan
Documents, the Lenders have agreed that the Agent on behalf of the Lenders will
issue to third party beneficiaries on the Borrower's account standby Letters of
Credit.
(b) In connection with the issuance of each Letter of
Credit, the Borrower shall complete a Letter of Credit Application Agreement
and such other documentation, in form and substance as required by the Agent.
(c) In connection with each Letter of Credit, the Borrower
shall pay to the Agent a Letter of Credit Fee to be apportioned and paid by
Agent to each of the Lenders pursuant to the Pro Rata Share of each Lender.
(d) In connection with each Letter of Credit, the
Borrower shall pay to the Agent administrative and documentation fees in such
amount as established by Agent from time to time, which administrative and
documentation fees shall be retained by Agent and shall not be apportioned
among the Lenders.
(e) The issuance by the Agent of a Letter of Credit shall
reduce the Borrower's ability to receive Advances under the Revolving Credit
Notes by an amount equal to the face amount of the Letter of Credit for so long
as the Letter of Credit remains outstanding.
(f) In the event that the Agent is required to pay to any
Person the proceeds (partially or in full) of a Letter of Credit, the Borrower
agrees to pay to the Agent immediately on demand by the Agent, an amount equal
to the proceeds paid by the
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Agent to such Person, plus interest from the date of such payment at an amount
equal to the Base Rate.
(g) Letters of Credit issued by the Agent shall not be
issued for a time period in excess of twelve months.
(h) The Agent shall have no obligation to issue Letters
of Credit on or after April 7, 1998.
(i) The Lenders shall participate in all Letters of
Credit issued by the Agent. Each Lender, upon the issuance of a Letter of
Credit by the Agent, shall be deemed to have purchased without recourse a risk
participation from the Agent in such Letter of Credit and the obligations
arising thereunder, in each case in an amount equal to its Pro Rata Share of
all obligations under such Letter of Credit and shall absolutely,
unconditionally, and irrevocably assume, as primary obligor and not as a
surety, and be obligated to pay to the Agent therefor and discharge when due,
its Pro Rata Share of all obligations arising under such Letter of Credit.
Without limiting the scope and nature of each Lender's participation in any
Letter of Credit, to the extent that the Agent has not been reimbursed as
required hereunder or under any such Letter of Credit, each such Lender shall
pay to the Agent its Pro Rata Share of such unreimbursed drawing in same day
funds on the day of notification by the Agent of an unreimbursed drawing. The
obligation of each Lender to so reimburse the Agent shall be absolute and
unconditional and shall not be affected by the occurrence of a Default
Condition or an Event of Default or any other occurrence or event.
Section 2.12 Right of Offset, Etc. The Borrower hereby agrees that, in
addition to (and without limitation of) any right of set-off, banker's lien or
counterclaim the Agent or the Lenders may otherwise have, the Agent and the
Lenders shall be entitled, at their option, to offset balances held by any of
Agent or Lenders at any of their offices against any principal of or interest
on the Obligations hereunder which is not paid within fifteen (15) days after
such payment is due, and in the event Agent or any of the Lenders does offset
against such balances, it shall promptly notify the Borrower, provided that its
failure to give such notice shall not affect the validity thereof.
Section 2.13 Usury. The parties to this Agreement intend to conform
strictly to applicable usury laws as presently in effect. Accordingly, if the
transactions contemplated hereby would be usurious under applicable law
(including the laws of the United States of America and the State of
Tennessee), then, in that event, notwithstanding anything to the contrary in
any Loan Document or agreement executed in connection with or as security for
the Obligations, Borrower, Agent, and the Lenders agree as follows: (i) the
aggregate of all consideration that constitutes interest under applicable law
which is contracted for, charged, or received under
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any of the Loan Documents or agreements, or otherwise in connection with the
Obligations, shall under no circumstance exceed the maximum lawful rate of
interest permitted by applicable law, and any excess shall be credited on the
Obligations by the holder thereof (or, if the Obligations shall have been paid
in full, refunded to Borrower); and (ii) in the event that the maturity of the
Obligations is accelerated by reason of an election of the holder resulting
from any Event of Default under this Agreement or otherwise, or in the event of
any required or permitted prepayment, then such consideration that constitutes
interest may never include more than the maximum amount of interest permitted
by applicable law, and excess interest, if any, for which this Agreement
provides, or otherwise, shall be cancelled automatically as of the date of such
acceleration or prepayment and, if previously paid, shall be credited on the
Obligations (or, if the Obligations shall have been paid in full, refunded to
Borrower).
Article III. Collateral and Guarantees.
Section 3.01 Collateral. The Indebtedness and Obligations shall be
secured by the following:
(a) all Partnership Notes, Partnership Note Collateral,
LLC Notes, and LLC Note Collateral;
(b) all deposit accounts, monies, and items of value of
Borrower now or hereafter placed in the possession of Agent or any of
the Lenders; and
(c) all other Property of Borrower presently and/or
subsequently pledged or delivered to Agent to secure all or a portion
of the Indebtedness.
Section 3.02 Guarantees. The Indebtedness and Obligations shall be
guaranteed by the Guarantors.
Article IV. Representations and Warranties.
To induce Agent and Lenders to enter this Agreement and extend credit
under this Agreement, Borrower covenants, represents, and warrants to Agent and
to Lenders that as of the date hereof and as of the Closing Date:
Section 4.01 Corporate Existence. Borrower and each Subsidiary are
corporations duly organized, and validly existing, and in good standing under
the laws of the states of their respective incorporation, and the Borrower and
each Subsidiary are duly qualified as a foreign corporation in all
jurisdictions in which the Property owned or the business transacted by each of
them makes such qualification necessary, except where failure to do so would
not have a material, adverse effect on the Borrower or any
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Subsidiary which acts as a general partner in a Partnership or member
in an LLC.
Each Partnership and LLC that has executed LLC Notes or Partnership
Notes, as applicable, as of the date hereof is duly formed and validly existing
under the laws of the respective State under which it was formed.
Section 4.02 Corporate Power and Authorization. The Borrower is duly
authorized and empowered to execute, deliver, and perform under all Loan
Documents; the Borrower's board of directors has authorized the Borrower to
execute and perform under the Loan Documents; and all other corporate and/or
shareholder action on Borrower's part required for the due execution, delivery,
and performance of the Loan Documents has been duly and effectively taken.
Section 4.03 Binding Obligations. This Agreement is, and the other
Loan Documents when executed and delivered in accordance with this Agreement
will be, legal, valid and binding upon and against the Borrower and its
Properties enforceable in accordance with their respective terms, subject to no
defense, counterclaim, set-off, or objection of any kind known to or suspected
by Borrower. To the best of Borrower's knowledge and belief, neither the Agent
nor any of the Lenders has taken any action or failed to take any action that
subjects Agent or Lenders to any liability to Borrower.
Section 4.04 No Legal Bar or Resultant Lien. The Borrower's execution,
delivery and performance of the Loan Documents do not constitute a default
under, and will not violate any provisions of the charter or bylaws of
Borrower, or any contract or agreement entered into by Borrower and any Person.
To Borrower's knowledge, the Borrower's execution, delivery and performance of
the Loan Documents do not constitute a breach of any law, regulation, order,
injunction, judgment, decree, or writ to which Borrower is subject, or result
in the creation or imposition of any lien upon any Properties of Borrower,
other than those contemplated by the Loan Documents.
Section 4.05 No Consent. The execution, delivery, and performance of
the Loan Documents do not require the consent or approval of any other Person,
except for such consents which have been obtained by Borrower in writing.
Section 4.06 Financial Condition. The Financial Statements for the
period ended December 31, 1996 which have been delivered to Agent, have been
prepared on a consolidated basis in accordance with GAAP, consistently applied,
and the Financial Statements present fairly the consolidated financial
condition of Borrower as of the date or dates and for the period or periods
stated therein. No material adverse change in the consolidated financial
condition
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of Borrower has occurred since the date of the most recent Financial
Statements.
The Financial Statements include all liabilities (direct and
contingent) and all assets of each LLC and Partnership, and such Financial
Statements accurately reflect Borrower's ownership interest therein.
Section 4.07 Investments, Advances, and Guaranties. Except for the
transactions described on Exhibit E, neither Borrower, nor any Subsidiary, nor
any Partnership, nor any LLC has made investments in, advances to, or
guaranties of the obligations of any Person (other than to Borrower or any
Subsidiary, a Partnership, a LLC, or to a partnership or other entity that
prepares financial statements under Borrower on a consolidated basis) in excess
of $100,000 in the aggregate, or committed or agreed to undertake any of these
actions or obligations, except as referred to or reflected in the Financial
Statements or as permitted hereunder.
Section 4.08 Liabilities and Litigation. Neither Borrower, nor any
Subsidiary, nor any Partnership, nor any LLC has any material liabilities
(individually or in the aggregate) direct or contingent, except as referred to
or reflected in the Financial Statements. There is no litigation, legal or
administrative proceeding, investigation, or other action of any nature pending
or, to the knowledge of Borrower, threatened against or affecting Borrower, or
any Subsidiary, or any Partnership, or any LLC that involves the possibility of
any judgment or liability not fully covered by insurance or that if adversely
decided could reasonably be expected to materially and adversely affect the
business or the Properties of Borrower, or any Subsidiary, or any Partnership,
or any LLC or the ability of Borrower, or any Subsidiary, or any Partnership,
or any LLC to carry on its business as now conducted.
Section 4.09 Taxes; Governmental Charges. Borrower, each Subsidiary,
each Partnership, and each LLC have filed or caused to be filed all tax returns
and reports required to be filed and have paid all taxes, assessments, fees,
and other governmental charges levied upon each of them or upon any of their
respective Properties or income, which are due and payable, including interest
and penalties unless such are contested in good faith and adequate reserves
have been retained therefor. Borrower, each Subsidiary, each Partnership, and
each LLC have made all required withholding deposits.
Section 4.10 Title, Etc. Borrower, each Subsidiary, each Partnership,
and each LLC have good title to their respective Properties, free and clear of
all liens except those referenced or reflected in the Financial Statements or
those securing the Obligations. Borrower, each Subsidiary which acts as a
general partner in a Partnership, each Partnership, and each LLC possess all
trademarks, copyrights, trade names, patents, licenses, and
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rights therein, adequate in all material respects for the conduct of their
respective business as now conducted and presently proposed to be conducted,
without conflict with the rights or claimed rights of others.
Section 4.11 No Default. Neither Borrower, nor any Subsidiary, nor any
Partnership, nor any LLC is in default in any material respect that affects its
respective business, Properties, operations, or condition, financial or
otherwise, under any indenture, mortgage, deed of trust, credit agreement,
note, agreement, or other instrument to which Borrower, or any Subsidiary, or
any Partnership, or any LLC is a party or by which it or its respective
Properties are bound. Neither the Borrower, nor any Subsidiary, nor any
Partnership, nor any LLC is in violation in any material respect of its
applicable articles of incorporation or charter or bylaws or Partnership
Agreements or LLC operating agreements. Neither the Borrower, nor any
Subsidiary, nor any Partnership, nor any LLC has received notice from any
Person that it has violated or breached any applicable articles of
incorporation, charter, bylaws, Partnership Agreements, articles of
organization, or operating agreements. No Default Conditions hereunder have
occurred or are continuing as of the date hereof or at the Closing Date.
Section 4.12 Casualties; Taking of Properties, Etc. Neither the
business nor the Properties of Borrower, nor of any Subsidiary which acts as a
general partner in a Partnership, nor of any Partnership, nor of any LLC have
been materially affected as a result of any fire, explosion, earthquake, flood,
drought, windstorm, accident, strike or other labor disturbance, embargo,
requisition or taking of property, cancellation of contracts, permits,
concessions by any domestic or foreign government or any agency thereof, riot,
activities of armed forces or acts of God or of any public enemy.
Section 4.13 Regulation U. Neither Borrower, nor any Subsidiary which
acts as a general partner in a Partnership, nor any Partnership, nor any LLC
is engaged principally, or as one of its important activities, in the business
of extending credit for the purpose of purchasing or carrying margin stock
within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System. No part of the Indebtedness shall be used at any time to
purchase or to carry margin stock within the meaning of Regulation U or to
extend credit to others for the purpose of purchasing or carrying any margin
stock if to do so would cause the Lender to violate the provisions of
Regulation U.
Section 4.14 Compliance with Laws, Etc. Neither Borrower, nor any
Subsidiary which acts as a general partner in a Partnership, nor any
Partnership, nor any LLC is in violation of any law, judgment, decree, order,
ordinance, or governmental rule or regulation to which Borrower, or any such
Subsidiary, or any
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Partnership, or any LLC or any of their respective Properties is subject which,
if enforced, would have a material adverse effect on the Borrower, or such
Subsidiaries, or any Partnership, or any LLC. Neither Borrower, nor any
Subsidiary, which acts as a general partner in a Partnership, nor any
Partnership, nor any LLC has failed to obtain any license, permit, franchise,
or other governmental authorization necessary to the ownership of any of their
Properties or to the conduct of their respective business. All improvements on
the real estate owned by, leased to or used by Borrower, or any Subsidiary
which acts as a general partner in any Partnership, or any Partnership, or any
LLC conform in all material respects to all applicable state and local laws,
zoning and building ordinances and health and safety ordinances, and such real
estate is zoned for the various purposes for which such real estate and
improvements thereon are presently being used.
Section 4.15 ERISA. Borrower, each Subsidiary, each Partnership, and
each LLC are in compliance in all material respects with the applicable
provisions of ERISA. Neither Borrower, nor any Subsidiary, nor any Partnership,
nor any LLC has incurred any "accumulated funding deficiency" within the
meaning of ERISA which is material, and Borrower has not incurred any material
liability to PBGC in connection with any Plan.
Section 4.16 Subsidiaries, Etc. The names, addresses of registered
offices, and states of incorporation of Borrower's Subsidiaries are attached
hereto as Exhibit F. Borrower owns a majority interest of all of the Voting
Stock of each Subsidiary and its ownership interest is noted on Exhibit F. The
Borrower uses no trade names.
The names, addresses of registered offices, and states of formation of
the Partnerships and LLC's are attached hereto as Exhibit G.
Section 4.17 No Material Misstatements. No information, exhibit, or
report furnished or to be furnished by Borrower to Agent or to Lenders in
connection with this Agreement, contain as of the date thereof, or will contain
as of the Closing Date, any material misstatement of fact or failed or will
fail to state any material fact, the omission of which would render the
statements therein materially false or misleading.
Section 4.18 Investment Company Act. Neither Borrower, nor any
Subsidiary, nor any Partnership, nor any LLC is an "investment company" or a
company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
Section 4.19 Use of Proceeds; Purpose of the Credit. Borrower has used
and will use proceeds from the Term Notes and the
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Revolving Credit Notes exclusively for the purposes stated in this Agreement.
Section 4.20 Personal Holding Company; Subchapter S. Neither Borrower,
nor any Subsidiary, nor any Partnership, nor any LLC is a "personal holding
company" as defined in Section 542 of the Code, and neither Borrower, nor any
Subsidiary, nor any Partnership, nor any LLC is a "Subchapter S" corporation
within the meaning of the Code.
Section 4.21 Solvency. Borrower, each Subsidiary that is a general
partner in any Partnership, each Partnership, and each LLC are solvent as of
the date hereof and shall remain solvent at all times hereafter. Borrower, and
each Subsidiary that is a general partner in any Partnership, and each
Partnership, and each LLC are generally paying their respective debts as they
mature and the fair value of Borrower's, and such Subsidiary's, and such
Partnership's, and such LLC's assets substantially exceeds the sum total of
their respective liabilities.
Section 4.22 Capital. Borrower now has capital sufficient to carry on
its business and transactions and all businesses and transactions in which it
is engaged.
Article V. Conditions of Lending.
Section 5.01 Initial Conditions. Lenders' obligation to extend credit
hereunder is subject to the Conditions Precedent that Agent shall have received
(or agreed in writing to waive or defer receipt of) all of the following, each
duly executed, dated and delivered as of the Closing Date, in form and
substance satisfactory to Agent and its counsel:
(a) Revolving Credit Notes, the Term Notes, and Loan
Documents. The Revolving Credit Notes, the Term Notes, and all other
Loan Documents.
(b) Collateral. Delivery of any collateral required by
Article III herein.
(c) Resolutions of Borrower. Certified copies of
resolutions of the Board of Directors of Borrower authorizing or
ratifying the execution, delivery, and performance, respectively, of
this Agreement and all Loan Documents.
(d) Borrower's Certificate of Existence. A certificate
of existence of Borrower from the State of Tennessee, which
certificate shall contain no facts objectionable to Agent.
(e) Consents, Etc. Certified copies of all documents
evidencing any necessary corporate action, consents, and
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governmental approvals (if any) with respect to this Agreement and the
Loan Documents.
(f) Officer's Certificate. A certificate of the secretary
or any assistant secretary of Borrower certifying the names of the
officer or officers of Borrower authorized to sign this Agreement and
the Loan Documents, together with a sample of the true signature of
such officer(s).
(g) Borrower's Charter and By-Laws. A copy of Borrower's
by-laws and charter (including all amendments thereto) certified, in
the case of by-laws, by the secretary or any assistant secretary of
Borrower, and in the case of the charter by the Secretary of State of
Tennessee, as being true and complete copies of the current charter
and by-laws of Borrower.
(h) Guaranties. Delivery of all Guaranties required by
Section 3.02 herein.
(i) Guarantor's Certificate of Existence. A certificate
of existence for each Guarantor from the State of its incorporation.
(j) Resolutions of Guarantors. Certified copies of
resolutions of the Board of Directors of each Guarantor authorizing or
ratifying the execution, delivery, and performance of the Guaranties.
(k) Guarantor's Charters and Bylaws. A copy of the
Charter and Bylaws (including all amendments thereto) for each
Guarantor, certified as complete and accurate by the secretary of such
Guarantor.
(l) Opinions of Counsel for Borrower. The opinions of
counsel addressed to Agent, substantially in the form of Exhibit H.
(m) Other. Such other documents as Agent may reasonably
request.
Section 5.02 Conditions Prior to Funding. Lenders' obligation to fund
any Advance is subject to the additional Conditions Precedent that Agent shall
have received (or agreed in writing to waive or defer receipt of) all of the
following, each duly executed:
Borrowing Request. A Borrowing Request in the form of Exhibit
B hereto, along with borrowing base certificate signed by the chief
financial officer of Borrower affirming that the total amount
outstanding under all Advances, including the requested Advance, do
not and will not exceed the sum of (i)
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85% of Development Costs, plus (ii) 65% of the total cost of
Acquisitions and Physician Practice Acquisitions.
Section 5.03 All Borrowings. The Lenders' obligations to extend credit
under the Loan Documents are subject to the following additional Conditions
Precedent which shall be met each time an Advance is requested and an Advance
is made:
(a) The representations of the Borrower contained in
Article IV are true and correct in all material respects as of the
date of the requested Advance, with the same effect as though made on
the date additional funds are advanced, except as to changes occurring
after the date of this Agreement caused by transactions not prohibited
under this Agreement; (b) There has been no material adverse change in
the Borrower's financial condition or other condition since the date
of the last borrowing hereunder; (c) No Default Conditions and no
Event of Default have occurred and continue to exist; (d) No material
litigation (including, without limitation, derivative actions),
arbitration proceedings or governmental proceedings not disclosed in
writing by the Borrower to the Agent and the Lenders prior to the date
of the execution and delivery of this Agreement is pending or known to
be threatened against the Borrower, or any Subsidiary, or any
Partnership, or any LLC, and (e) no material development not so
disclosed has occurred in any litigation, arbitration proceedings or
governmental proceedings so disclosed, which could reasonably be
expected to adversely affect the financial position or business of the
Borrower, or any Subsidiary, or any Partnership, or any LLC, or impair
the ability of the Borrower, or any Subsidiary, or any Partnership, or
any LLC, to perform their respective obligations under this Agreement
or any other Loan Documents.
Article VI. Affirmative Covenants.
Borrower covenants that, during the term of this Agreement (including
any extensions hereof) and until all Indebtedness shall have been finally paid
in full and all Obligations shall have been fully discharged, unless Agent
shall otherwise first consent in writing, Borrower shall:
Section 6.01 Financial Statements and Reports. Promptly furnish to
Agent (with sufficient copies for each of the Lenders):
(a) Annual Reports. As soon as available, and in any
event within ninety (90) days after the close of each Fiscal Year, the
audited consolidated Financial Statements of the Borrower setting
forth the audited consolidated balance sheets of Borrower as at the
end of such year, and the audited consolidated statements of income,
statements of cash flows, and consolidated statements of retained
earnings of Borrower for such year, setting forth in each case in
comparative form
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(beginning when comparative data are available) the corresponding
figures for the preceding Fiscal Year accompanied by the report of
Borrower's certified public accountants, and by an unaudited
consolidating balance sheet and unaudited consolidating statements of
income of Borrower, its Subsidiaries, LLC's, Partnerships, and
partnerships and LLC's that are not borrowing funds from Borrower duly
certified by Borrower's chief financial officer as being correct
reflections of the information used for the audited consolidated
Financial Statements. The audit opinion in respect of the Financial
Statements of Borrower shall be the opinion of a firm of independent
certified public accountants reasonably acceptable to Agent;
(b) Quarterly and Year-to-Date Reports. As soon as
available and in any event within forty-five (45) days after the end
of each of the first three (3) Fiscal Quarters, the unaudited
consolidated balance sheets of Borrower as of the end of such Fiscal
Quarter, and the unaudited consolidated and consolidating statements
of income of Borrower, its Subsidiaries, the LLC's, the Partnerships,
and partnerships and LLC's that are not borrowing funds from Borrower
for such Quarter and for a period from the beginning of the Fiscal
Year to the close of such Fiscal Quarter, all certified by the chief
financial officer or chief accounting officer of Borrower as being
true and correct to the best of his or her knowledge; and
(c) Other Information. Promptly upon its becoming
available, such other material information about Borrower or the
Indebtedness as Agent may reasonably request from time to time.
All such balance sheets and other Financial Statements referred to in Sections
6.01(a) and (b) hereof shall conform to GAAP on a basis consistent with those
of previous Financial Statements.
Section 6.02 Taxes and Other Liens. Cause to be paid and discharged
promptly all taxes, assessments, and governmental charges or levies imposed
upon it, upon any Subsidiary, upon any LLC, or upon any Partnership or upon any
of its or any Subsidiary's, any LLC's, or any Partnership's income or Property
as well as all claims of any kind (including claims for labor, materials,
supplies, and rent) which, if unpaid, might become a Lien upon any or all of
its or any Subsidiary's, any LLC's, or any Partnership's Property; provided,
however, that neither Borrower, nor any Subsidiary, nor any LLC, nor any
Partnership shall be required to pay any such tax, assessment, charge, levy, or
claim if the amount, applicability, or validity thereof shall currently be
contested in good faith by appropriate proceedings diligently conducted and if
Borrower shall establish reserves therefor adequate under GAAP.
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Section 6.03 Maintenance.
(a) Maintain and cause to be maintained its corporate
existence, name, rights, and franchises and the corporate existence,
name, rights and franchises of each Subsidiary that acts as a general
partner in a Partnership, and the existence, name, and rights of each
Partnership and each LLC;
(b) observe and comply (to the extent necessary so that
any failure will not materially and adversely affect the business or
Property of Borrower, or of any Subsidiary that is a general partner
of any Partnership, or of any Partnership, or of any LLC) with all
applicable laws, statutes, codes, acts, ordinances, orders, judgments,
decrees, injunctions, rules, regulations, certificates, franchises,
permits, licenses, authorizations, and requirements of all federal,
state, county, municipal, and other governments;
(c) cause its Property and the Property of any Subsidiary
that acts as a general partner in any Partnership, any Partnership,
and of any LLC (and any Property leased by or consigned to it, any
Subsidiary that acts as a general partner in any Partnership, any
Partnership, or any LLC or held under title retention or conditional
sales contracts) to be maintained in good and workable condition at
all times and make all repairs, replacements, additions, and
improvements to the Property owned by Borrower, and any Subsidiary
that acts as a general partner in any Partnership, and any
Partnership, and any LLC reasonably necessary and proper to ensure
that the business carried on in connection with such Property may be
conducted properly and efficiently at all times; and
(d) cause the Borrower, each LLC, and each Subsidiary
that acts as a general partner in a Partnership, and each Partnership
to refrain from doing business in any state in which such business
would require qualifications to do business in such state unless and
until it shall have qualified to do business in such state.
Section 6.04 Further Assurances. Promptly cure any defects in the
creation, issuance, and delivery of the Loan Documents. Borrower at its expense
promptly will execute and deliver to Agent upon request all such other and
further documents, agreements, and instruments in compliance with or
accomplishment of the covenants and agreements of Borrower in the Loan
Documents, or to correct any omissions in the Loan Documents, or to state more
fully the Obligations and agreements set out in any of the Loan Documents, to
file any notices, or to obtain any consents, all as may be reasonably necessary
or appropriate in connection therewith.
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Section 6.05 Performance of Obligations.
(a) Pay the Indebtedness according to the terms of the
Loan Documents; and
(b) do and perform, and cause to be done and to be
performed, every act and discharge all of the Obligations provided to
be performed and discharged by Borrower under the Loan Documents, at
the time or times and in the manner specified.
Section 6.06 Insurance. Maintain and continue to maintain, with
financially sound and reputable insurors, insurance satisfactory in type,
coverage and amount to Agent against such liabilities, casualties, risks, and
contingencies and in such types and amounts as is customary in the case of
Persons engaged in the same or similar businesses and similarly situated as
that of Borrower, its Subsidiaries, LLC's, and the Partnerships. Upon request
of Agent, Borrower will furnish or cause to be furnished to Agent from time to
time a summary of the insurance coverage of Borrower in form and substance
satisfactory to Agent and if requested will furnish Agent copies of the
applicable policies. In the case of any fire, accident, or other casualty
causing material loss or damage to any Property of Borrower, any Subsidiary,
any LLC, or any Partnership, and the loss(es) materially impair(s) the
operation of the business of Borrower, any Subsidiary, any LLC, or any
Partnership the proceeds of such policies shall be used, at Borrower's
discretion (a) to repair or replace the damaged Property, or (b) to prepay the
Indebtedness.
Section 6.07 Accounts and Records. At Borrower's expense, cause books
of record and account for it and its Subsidiaries, the LLC's, and the
Partnerships to be kept, in which full, true, and correct entries will be made
of all dealings or transactions in accordance with GAAP as applicable, except
only for changes in accounting principles or practices with which Borrower's
certified public accountants concur and which changes have been reported to
Agent in writing and with an explanation thereof.
Section 6.08 Right of Inspection. At Borrower's expense, permit any
officer, employee, or agent of Agent or either of the Lenders to visit and
inspect any of the Property of Borrower or any Subsidiary, to examine
Borrower's and any Subsidiary's books of record and accounts, to take copies
and extracts from such books of record and accounts, and to discuss the
affairs, finances, and accounts of Borrower and any Subsidiary with Borrower's
respective officers, accountants, and auditors, all at such reasonable times
and as often as Agent or either of the Lenders may reasonably desire. Cause at
reasonable times any officer, employee, or agent of Agent or either of the
Lenders to be permitted to visit and inspect at Borrower's cost any Properties
owned by any Partnership or LLC and to inspect and copy any financial records
and books of records and account of such Partnership or LLC.
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Section 6.09 Notice of Certain Events. Promptly notify Agent if
Borrower learns of the occurrence of (i) any event that constitutes a Default
Condition or Event of Default together with a detailed statement by a
responsible officer of Borrower of the steps being taken as a result thereof;
or (ii) the receipt of any notice from, or the taking of any other action by,
the holder of any promissory note, debenture, or other evidence of Debt of
Borrower or of any security (as defined under the Securities Act of 1933, as
amended) of Borrower with respect to a claimed default, together with a
detailed statement by a responsible officer of Borrower specifying the notice
given or other action taken by such holder and the nature of the claimed
default and what action Borrower is taking or proposes to take with respect
thereto; or (iii) any legal, judicial, or regulatory proceedings affecting
Borrower in which the amount involved is material and is not covered by
insurance or which, if adversely determined, would have a material and adverse
effect on the business or the financial condition of Borrower; or (iv) any
dispute between Borrower and any governmental or regulatory authority or any
other person, entity, or agency which, if adversely determined, could
reasonably be expected to materially interfere with the normal business
operations of Borrower; or (v) any material adverse changes, either
individually or in the aggregate, in the assets, liabilities, financial
condition, business, operations, affairs, or circumstances of Borrower from
those reflected in the Financial Statements or from the facts warranted or
represented in any Loan Document; or (vi) the occurrence of a default under a
Partnership Note or an LLC Note.
Section 6.10 ERISA Information and Compliance. Comply with ERISA and
all other applicable laws governing any pension or profit sharing plan or
arrangement to which Borrower is a party. Borrower shall provide Agent with
notice of any "reportable event" or "prohibited transaction" or the imposition
of a "withdrawal liability" within the meaning of ERISA.
Section 6.11 Management. Give notice to Agent of any material change in
the executive officers of Borrower within five (5) days after such change
occurs.
Section 6.12 Reports, Etc. If applicable, furnish to Agent copies of
all filings and reports, of any nature or type, made with or to the Securities
and Exchange Commission (or any successor thereto) within 5 days thereafter,
and including all amendments, modifications, or supplements thereto, as the
same are filed with the Securities and Exchange Commission.
Section 6.13 Calculations. In all calculations made for purposes
required by this Loan Agreement, the Borrower, each Subsidiary, each LLC, each
Partnership, and each partnership and LLC not borrowing funds from the Borrower
shall comply with GAAP, and the Borrower, each Subsidiary, each LLC, each
Partnership, and each partnership and LLC not borrowing funds from the Borrower
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shall use the same procedures and methods employed by Borrower, each
Subsidiary, each LLC, each Partnership, and each partnership and LLC not
borrowing funds from the Borrower in preparing the Financial Statements
delivered to STB prior to the date of this Agreement. All references contained
herein to calculations of or determinations affecting Borrower (on a
consolidated basis) shall refer to the Borrower, each Subsidiary, each LLC,
each Partnership, and each Person that prepares financial statements under
Borrower.
Section 6.14 Partnership Notes and LLC Notes, Etc. The Borrower shall
assign to Agent and grant Agent for the benefit of Lenders a first perfected
security interest in all Partnership Notes, Partnership Note Collateral, LLC
Notes, and LLC Note Collateral to secure repayment of the Indebtedness and the
Obligations pursuant to such documentation as reasonably required by Agent.
Section 6.15 Additional Guarantees. Within thirty (30) days after the
Borrower acquires or forms a Subsidiary, the Borrower shall cause such new
Subsidiary to execute a Guarantee in the form of the Guarantees executed by the
Guarantors, and to deliver to Agent such Guarantees and other documents,
instruments and items with respect thereto that are similar to those documents,
instruments and items delivered by the Guarantors with regard to their
Guarantees. Additionally, in such case Agent shall be entitled to receive, at
Borrower's option, either: (a) copy of duly certified corporate resolutions of
each guaranty authorizing the execution of the Guaranty, together with a
certificate of good standing containing no matters objectionable to Lender, or
(b) a counsel's opinion letter issued by counsel acceptable to Agent regarding
such matters involving the new Guarantor as may be reasonably required by
Agent. Immediately upon any Person becoming a Subsidiary, Borrower shall give
notice thereof to Agent. Borrower shall pay the costs and expenses, including
without limitation Agent's legal fees and expenses, in connection with the
preparation, negotiation, execution and review of the Guaranty of such
Subsidiary and the other items described in this Section.
Article VII. Negative Covenants.
Borrower covenants and agrees that, during the term of this Agreement
and any extensions hereof and until the Indebtedness has been paid and
satisfied in full, unless Agent shall otherwise first consent in writing,
neither Borrower, nor any Subsidiary, nor any LLC, nor any Partnership, nor any
other partnership or LLC in which Borrower or a Subsidiary owns an interest
will, either directly or indirectly:
Section 7.01 Debts, Guaranties, and Other Obligations. Incur, create,
assume, or in any manner become or be liable with respect to any Debt; provided
that subject to all other provisions of this Article VII, the foregoing
prohibitions shall not apply to:
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(a) Any Indebtedness to the Lenders as described herein;
(b) liabilities, direct or contingent, of Borrower or any
Subsidiary, or any Partnership, or any LLC existing on the date of
this Agreement that are referenced or reflected in the Financial
Statements; and
(c) Excluding the Indebtedness to the Lenders described
herein, Funded Debt not to exceed $5,500,000 in the aggregate.
Section 7.02 Liens. Create, incur, assume, or permit to exist any Lien
on any of its Property (now owned or hereafter acquired) except, subject to all
other provisions of this Article, the foregoing restrictions shall not apply
to:
(a) Liens securing the payment of any Indebtedness to
Lenders;
(b) Liens for taxes, assessments, or other governmental
charges not yet due or which are being contested in good faith by
appropriate action promptly initiated and diligently conducted, if
Borrower or such Subsidiary shall have made any reserve therefor
required by GAAP;
(c) Liens referred to or reflected in the Financial
Statements identified in Section 4.06 herein; and
(d) Liens on any real or personal property that secures
the Debt permitted by Section 7.01(c) above; and
(e) Liens permitted by Section 7.01(e); and
(f) Landlord liens in states where such liens arise by
operation of law.
Section 7.03 Investments, Loans, and Advances. Make or permit to
remain outstanding any loans or advances to or investments in any Person,
except that, subject to all other provisions of this Article, the foregoing
restriction shall not apply to:
(a) investments in direct obligations of the United
States of America or any agency thereof;
(b) investments in certificates of deposit having
maturities of less than one year, or repurchase agreements issued by
commercial banks in the United States of America having capital and
surplus in excess of $50,000,000, or commercial paper of the highest
quality;
(c) investments in money market funds so long as the
entire investment therein is fully insured or so long as the fund is a
fund operated by a commercial bank of the type specified in (b) above;
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(d) those matters referenced on Exhibit F and loans to
Partnerships or LLC's; and
(e) other investments not to exceed $500,000.
Section 7.04 Dividends, Distributions, and Redemptions; Issuance of
Stock. (a) Excluding dividends paid to holders of Series A Redeemable Preferred
Stock as described in a Conditional Consent Agreement between Borrower and STB,
permit Borrower to declare or pay any dividend; nor permit any Subsidiary to
declare or pay any dividend to any Person other than Borrower or another
Subsidiary; or (b) permit Borrower or any Subsidiary to redeem any of its stock
or return capital to shareholders except through existing shareholder
agreements and future shareholder agreements with (i) Persons who are members
in an LLC or who are partners in a Partnership formed subsequent to the Closing
Date that acquire Voting Stock of Borrower, (ii) physicians or physician groups
that are affiliated with the partners in a Partnership or are affiliated with
the members in an LLC formed subsequent to the Closing Date; and (iii)
physicians and physician groups that enter into a business relationship with
the Borrower or a Subsidiary after the Closing Date regarding the development,
operation, or investment in an ambulatory surgery center.
Section 7.05 Nature of Business. (a) Suffer any material change to be
made in the character of its business as carried on at the Closing Date; or (b)
except as set forth on Exhibit F hereto, permit the Borrower to own less than
51% of the Voting Stock of any incorporated Subsidiary; or (c) except as set
forth on Exhibit G hereto, permit the Borrower or a Subsidiary of Borrower to
own less than 51% of the controlling ownership interest of any Partnership or
LLC.
Section 7.06 Further Acquisitions, Mergers, Etc. (a) Permit Borrower to
merge or consolidate with any other Person, except under conditions in which
the Borrower is the surviving entity and such merger or consolidation does not
cause the Borrower to be in violation of this Agreement; or (b) permit any
Subsidiary to merge or consolidate with any Person other than the Borrower or
any other Subsidiary; or (c) permit the Borrower, any Subsidiary, LLC, or
Partnership to dispose of substantially all of their respective Properties.
Section 7.07 Proceeds of Loan. Permit the proceeds of the Advances to
be used for any purpose other than those permitted under this Agreement.
Section 7.08 Sale or Discount of Receivables. Except to minimize
losses on bona fide debts previously contracted, discount or sell with
recourse, or sell for less than the greater of the face or market value
thereof, any of its notes receivable or Accounts.
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Section 7.09 Disposition of Assets. Dispose of any of its assets
having a material value other than in the ordinary course of its present
business upon terms standard in Borrower's industry; provided, however, that
Borrower, AmSurg West Tennessee, Inc., and AmSurg Holdings, Inc. may sell,
transfer, and convey their interests in the Digestive Clinic Ambulatory Surgery
Center in Jackson, Tennessee without the consent of Agent or of Lenders.
Section 7.10 Partnership Notes or LLC Notes. Forgive, cancel, amend,
alter, or seek to transfer any Partnership Notes or LLC Notes.
Section 7.11 Financial Covenants.
(a) Net Worth. Permit its Consolidated Net Worth as of
December 31, 1996 to be less than $31,396,401; nor permit its
Consolidated Net Worth as measured at the end of each Fiscal Quarter
thereafter to be less than the sum of: (i) $31,396,401, plus (ii) the
amount by which Borrower's additional paid in capital exceeds
$31,396,401, plus (iii) 75% of the net, after-tax earnings of the
Borrower as determined on a consolidated basis from the immediately
preceding Fiscal Year.
(b) Funded Debt to EBITDA. As calculated on the last day
of each Fiscal Quarter, permit the ratio of Funded Debt, plus amounts
attributable to capital leases to EBITDA to be greater than 2.75 to
1.0.
(c) Funded Debt to Capitalization. As calculated on the
last day of each Fiscal Quarter, permit the ratio of Borrower's Funded
Debt (as determined on a consolidated basis but excluding Minority
Interest), to Capitalization to be greater than .5 to 1.0.
(d) Debt Service Coverage Ratio. As calculated on the
last day of each Fiscal Quarter, permit the ratio of EBITDA to an
amount equal to: (i) Interest Expense, plus (ii) current payments of
long term Debt to be less than 1.8 to 1.0.
(e) For the purpose of calculating EBITDA in parts (b)
and (d) above, EBITDA shall be calculated on an annualized, trailing
six (6) month basis and it shall include the EBITDA of any Acquisition
so long as the calculation thereof is done in a manner reasonably
calculated to comply with GAAP. For the purpose of calculating
Interest Expense in part (d) above, Interest Expense shall be
calculated on a trailing twelve (12) month basis. For the purpose of
calculating EBITDA in parts (a), (b) and (d) above, the amount
attributable to EBITDA shall exclude a pre-tax amount up to $500,000
in spinoff costs.
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Section 7.12 Inconsistent Agreements. Enter into any agreement
containing any provision which would be violated or breached by the performance
by Borrower of its Obligations.
Section 7.13 Restrictions on Physician Practice Acquisitions. (a)
Enter into Physician Practice Acquisitions the aggregate cost of which exceeds
$4,000,000 in any twelve (12) month period without the Agent's prior written
consent; or (b) enter into any single Physician Practice Acquisition the cost
of which exceeds $2,000,000 without the Agent's prior written approval.
Article VIII. Events of Default.
Section 8.01 Events of Default. Any of the following events shall be
considered an Event of Default as those terms are used in this Agreement:
(a) Principal and Interest Payments. Borrower fails to
make payment when due of any installment of principal or interest on
any of the Revolving Credit Notes or any of the Term Notes or the
Indebtedness within fifteen (15) days of the date thereof, or Borrower
fails to pay when due any payment due hereunder or under any of the
Loan Documents within fifteen (15) days of the due date thereof; or
(b) Representations and Warranties. Any representation or
warranty made by Borrower in any Loan Document, proves to have been
incorrect in any material respect as of the date thereof; or any
representation, statement (including Financial Statements),
certificate, or data furnished or made by Borrower in any Loan
Document with respect to any Indebtedness, proves to have been untrue
in any material respect, as of the date as of which the facts therein
set forth were stated or certified, provided that with regard to
Borrower's representation in Section 4.04 herein, the Agent shall not
be entitled to declare a default hereunder unless the Borrower's
representation in Section 4.04 proves to be untrue with regard to any
contract requiring the payment of money or goods valued at $250,000 or
more or the performance of services valued at $250,000 or more; or
(c) Obligations. Borrower fails to perform its
Obligations as required by and contained in any Loan Document or a
breach occurs of any agreement, representation, or warranty contained
herein or in any Loan Document and such continues for thirty (30) days
after delivery by Agent of written notice to Borrower that it has
failed to perform its Obligations or that a breach has occurred of any
agreement, representation, or warranty contained herein or in any Loan
Document, and following delivery of such written notice from Agent to
Borrower the failure or breach has not been fully cured and/or
corrected; provided and except that the 30 day notice and cure period
shall not be applicable to Events of
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Default or breaches arising out of or under the following sections of
this Loan Agreement (and in such cases no notice and cure period
beyond any specifically stated therein shall be applicable):
Section 8.01(a), 8.01(b), 8.01(d), 8.01(e), 8.01(f), 8.01(h),
8.01(i), 8.01(k), 8.01(l), 6.01, 6.08, 6.09, 6.11, 6.12, 7.01,
7.02, 7.03, 7.05, 7.06, 7.07, 7.08, 7.09, 7.10, 7.11, and
7.12.
(d) Involuntary Bankruptcy or Receivership Proceedings. A
receiver, custodian, liquidator, or trustee of Borrower, any
Subsidiary, any Partnership, or of any LLC, or of any of their
respective Property, is appointed by the order or decree of any court
or agency or supervisory authority having jurisdiction; or Borrower,
any Subsidiary, any Partnership, or any LLC is adjudicated bankrupt or
insolvent; or any of the Property of Borrower, any Subsidiary, any
Partnership, or LLC is sequestered by court order or a petition is
filed against Borrower, any subsidiary, Partnership, and/or any LLC
under any state or federal bankruptcy, reorganization, debt
arrangement, insolvency, readjustment of debt, dissolution,
liquidation, or receivership law of any jurisdiction, whether now or
hereafter in effect, which proceeding is not dismissed within 60 days
of filing; or
(e) Voluntary Petitions. Borrower, any Subsidiary, any
Partnership, or any LLC takes affirmative steps to prepare to file, or
Borrower, any Subsidiary, any Partnership, or any LLC files a petition
in voluntary bankruptcy or to seek relief under any provision of any
bankruptcy, reorganization, debt arrangement, insolvency, readjustment
of debt, dissolution, or liquidation law of any jurisdiction, whether
now or hereafter in effect, or consents to the filing of any petition
against it under any such law; or
(f) Assignments for Benefit of Creditors, Etc. Borrower,
any Subsidiary, any Partnership, or any LLC makes an assignment for
the benefit of its creditors, or admits in writing its inability to
pay its debts generally as they become due, or consents to the
appointment of a receiver, trustee, or liquidator of Borrower, any
Subsidiary, any Partnership, or any LLC, or of all or any part of its
Properties; or
(g) Discontinuance of Business, Etc. Borrower, any
Subsidiary that acts as a general partner in any Partnership, any
Partnership, or any LLC discontinues its usual business and such has a
material adverse impact on Borrower's financial condition; or
(h) Cross-Default on Other Debt or Security. Subject to
any applicable grace period or waiver prior to any due date,
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Borrower, any Subsidiary, any Partnership, any partnerships
consolidated with Borrower on its consolidated Financial Statements,
and/or any LLC fails to make any payment due on any Debt or security
(as "security" is defined for purposes of the federal securities laws)
in excess of an aggregate amount equal to $500,000 or any event shall
occur or any condition shall exist with respect to any Debt or
security of Borrower, any Subsidiary, any Partnership, and/or any LLC
or under any agreement securing or relating to such indebtedness or
security the effect of which is to cause or to permit any holder or
holders of Debt in excess of an aggregate amount equal to $500,000 to
cause such Debt or security, or a portion thereof, to become due prior
to its stated maturity or prior to its regularly scheduled dates of
payment; or
(i) Undischarged Judgments. If a judgment for the payment
of money in excess of $500,000 in the aggregate is rendered by any
court or other governmental authority against Borrower, any
Subsidiary, any Partnership, and/or any LLC which is not fully covered
by valid collectible insurance (subject, however to a reasonable
deductible); or
(j) Violation of Laws, Etc. Borrower, any Subsidiary,
any Partnership, or any LLC violates or otherwise fails to comply with
any law, rule, regulation, decree, order, or judgment under the laws
of the United States of America, or of any state or jurisdiction
thereof which violation or failure has a material, adverse effect on
Borrower, any Subsidiary, any Partnership, or any LLC; or Borrower
fails or refuses at any and all times to remain current in its or
their financial reporting requirements pursuant to such laws, rules,
and regulations or pursuant to the rules and regulations of any
exchange upon which any shares of Borrower are traded.
(k) Dissolution of Partnerships, Subsidiaries, or LLC's.
Should any Partnership, Subsidiary, or LLC be dissolved prior to
repayment of all amounts owed by such Partnership, Subsidiary, or LLC
to Borrower.
(l) Change of Ownership Prior to IPO Transaction. Should
the majority of common stock of Borrower cease to be owned by American
Healthcorp, Inc. unless otherwise approved in writing by Agent;
provided that this provision shall not be violated in the event that
the stock of the Borrower is sold pursuant to an IPO Transaction.
(m) Change of Control Subsequent to an IPO Transaction.
Subsequent to the completion of an IPO Transaction, should a Change of
Control occur.
Section 8.02 Remedies. Upon the happening of any Event of Default set
forth above, with the exception of those events set forth in Section 8.01(d)
and 8.01(e): (i) Agent may declare the
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entire principal amount of all Indebtedness then outstanding, including
interest accrued thereon, to be immediately due and payable without
presentment, demand, protest, notice of protest, or dishonor or other notice of
default of any kind, all of which Borrower hereby expressly waives, (ii) at
Agent's sole discretion and option, all obligations of Lenders under this
Agreement shall immediately cease and terminate unless and until Agent shall
reinstate such obligations in writing, (iii) Agent on behalf of Lenders may
exercise all rights against the Guarantors under the Guaranties and against the
Collateral set forth in the Security Documents or afforded a creditor under
applicable law; or (iv) Agent on behalf of Lenders may bring an action to
protect or enforce its rights under the Loan Documents or seek to collect the
Indebtedness and/or enforce the Obligations by any lawful means.
Upon the happening of any event specified in Section 8.01(d) and
Section 8.01(e) above: (i) all Indebtedness, including all principal, accrued
interest, and other charges or monies due in connection therewith shall be
immediately and automatically due and payable in full, without presentment,
demand, protest, or dishonor or other notice of any kind, all of which Borrower
hereby expressly waives, (ii) all obligations of Lenders under this Agreement
shall immediately cease and terminate unless and until Agent shall reinstate
such obligations in writing, (iii) Agent on behalf of Lenders may exercise all
rights against the Guarantors under the Guaranties and against the Collateral
set forth in the Security Documents or afforded a creditor under applicable
law; or (iv) Agent on behalf of Lenders may bring an action to protect or
enforce its rights under the Loan Documents or seek to collect the Indebtedness
and/or enforce the Obligations by any lawful means.
Section 8.03 Right of Set-off. Upon the occurrence and during the
continuance of any Event of Default, each of the Lenders and Agent are
authorized, at any time and from time to time, without notice to Borrower (any
such notice being expressly waived by Borrower), to set-off and apply any and
all deposits (general or special, time or demand, provisional or final) at any
time held by the Agent or any of the Lenders to or for the credit or the
account of Borrower against any and all of the Obligations, irrespective of
whether or not Agent shall have accelerated the Indebtedness or made any demand
under this Agreement and although such obligations may be unmatured.
Section 8.04 Default Conditions. Any of the following events shall be
considered a Default Condition:
(a) Borrower suffers a material adverse change in its
financial condition; and
(b) Any event occurs which with the passage of time or
giving of notice would become an Event of Default hereunder or an
Event of Default under any Guaranty.
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Upon the occurrence of a Default Condition or at any time thereafter
until such Default Condition no longer exists, the Borrower agrees that the
Agent and the Lenders, in Agent's sole discretion, and without notice to
Borrower, may immediately cease making any Advances under the Loan Documents,
all without liability whatsoever to Borrower or any other Person whomsoever,
all of which is expressly waived hereby. Borrower releases Agent and each of
the Lenders from any and all liability whatsoever, whether direct, indirect, or
consequential, and whether seen or unforeseen, resulting from or arising out of
or in connection with Agent's and/or Lenders' determination to cease making
Advances pursuant to this Section, unless Agent and/or Lenders act with gross
negligence or willful misconduct.
Article IX. General Provisions.
Section 9.01 Notices. All communications under or in connection with
this Agreement or any of the other Loan Documents shall be in writing and shall
be mailed by first class certified mail, postage prepaid, or otherwise sent by
telex, telegram, telecopy, or other similar form of rapid transmission
confirmed by mailing (in the manner stated above) a written confirmation at
substantially the same time as such rapid transmission, or personally delivered
to an officer of the receiving party. All such communications shall be mailed,
sent, or delivered as follows:
(a) if to Borrower, to its address shown below, or to
such other address as Borrower may have furnished to Agent in writing:
One Burton Hills Boulevard
Suite 350
Nashville, Tennessee 37215
Attention: Claire Gulmi
(b) if to Agent, to its address shown below, or to such
other address or to such individual's or department's attention as it
may have furnished Borrower in writing:
Karen Ahern
SunTrust Bank, Nashville, N.A., Agent
201 Fourth Avenue North
Nashville, Tennessee 37219
(C) if to STB, to its address shown below, or to such
other addresses STB may have furnished to Borrower:
Karen Ahern
SunTrust Bank, Nashville, N.A.
201 Fourth Avenue North
Nashville, Tennessee 37219
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(d) if to NBT, to the address shown below, or to such
other address as NBT may have furnished to Borrower:
Dave Dupuy
One NationsBank Plaza
Fourth Floor
Nashville, Tennessee 37239
Any communication so addressed and mailed by certified mail shall be deemed to
be given when so mailed.
Section 9.02 Deviation from Covenants. The procedure to be followed by
Borrower to obtain the consent of Agent to any deviation from the covenants
contained in this Agreement or any other Loan Document shall be as follows:
(a) Borrower shall send a written notice to Agent setting
forth (i) the covenant(s) relevant to the matter, (ii) the requested
deviation from the covenant(s) involved, and (iii) the reason for the
requested deviation from the covenant(s); and
(b) Agent, within a reasonable time, will send a written
notice to Borrower, signed by an authorized officer of Agent,
permitting or refusing the request, but in no event will any deviation
from the covenants of this Agreement or any other Loan Document be
effective without the express prior written consent of Agent. Agent's
failure to provide such written notice shall be deemed a refusal of
such request.
Section 9.03 Invalidity. In the event that any one or more of the
provisions contained in any Loan Document for any reason shall be held invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision of any Loan Document.
Section 9.04 Survival of Agreements. All representations and
warranties of Borrower in this Agreement and all covenants and agreements in
this Agreement not fully performed before the Closing Date of this Agreement
shall survive the Closing.
Section 9.05 Successors and Assigns. Borrower may not assign its
rights or delegate its duties under this Agreement or any other Loan Document.
All covenants and agreements contained by or on behalf of Borrower in any Loan
Document shall bind the Borrower's successors and assigns and shall inure to
the benefit of Agent and Lenders and their respective successors and assigns.
In the event that any of the Lenders sells participations in Indebtedness to
participating lenders, each of such participating lenders shall have the rights
of set-off against such Indebtedness and similar rights or Liens to the same
extent available to Lenders, except as otherwise provided in this Agreement.
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Section 9.06 Renewal, Extension, or Rearrangement. All provisions of
this Agreement relating to Indebtedness shall apply with equal force and effect
to each and all promissory notes executed hereafter which in whole or in part
represent a renewal, extension for any period, increase, or rearrangement of
any part of the Indebtedness originally represented by any part of such other
Indebtedness.
Section 9.07 Waivers. Pursuant to T.C.A. Section 47-50-112, no action
or course of dealing on the part of Agent or Lenders or their officers,
employees, consultants, or agents, nor any failure or delay by Agent or any of
the Lenders with respect to exercising any right, power, or privilege Agent or
any of the Lenders under the Note, this Agreement, or any other Loan Document
shall operate as a waiver thereof, except as otherwise provided in this
Agreement. Agent or Lenders may from time to time waive any requirement hereof,
including any of the Conditions Precedent; however no waiver shall be effective
unless in writing and signed by the Agent or the Lenders, as applicable. The
execution by Agent or the Lenders of any waiver shall not obligate Lender to
grant any further, similar, or other waivers.
Section 9.08 Cumulative Rights. Rights and remedies of Agent and
Lenders under each Loan Document shall be cumulative, and the exercise or
partial exercise of any such right or remedy shall not preclude the exercise of
any other right or remedy.
Section 9.09 Construction. This Agreement and the other Loan Documents
constitute a contract made under and shall be construed in accordance with and
governed by the laws of the State of Tennessee.
Section 9.10 Nature of Commitment. With respect to the Loan and the
Advances, Lenders' obligation to make the Loan or any Advances shall be deemed
to be pursuant to a contract to make a loan or to extend debt financing or
financial accommodations to or for the benefit of Borrower within the meaning
of Sections 365(c)(2) and 365(e)(2)(B) of the United States Bankruptcy Code, 11
U.S.C. Section 101 et seq.
Section 9.11 Disclosures. Every reference in this Agreement to
disclosures of Borrower to Agent and to Lenders (except the Financial
Statements), to the extent that such references refer or are intended to refer
to disclosures at or prior to the execution of this Agreement, shall be deemed
strictly to refer only to written disclosures delivered to Agent and to Lenders
concurrently with the execution of this Agreement and referred to specifically
in the Loan Documents. The parties intend that such disclosures are to be
limited to those presented in an orderly manner at the time of executing this
Agreement and are not to be deemed to include expressly or impliedly any
disclosures that previously may have been delivered from time to time to Agent
and Lenders, except to the extent that such previous disclosures are again
presented to
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Agent or Lenders in writing concurrently with the execution of this Agreement.
Section 9.12 Governance; Exhibits. The terms of this Agreement shall
govern if determined to be in conflict with the terms or provisions in any
other Loan Document. The exhibits attached to this Agreement are incorporated
in this Agreement and shall be considered a part of this Agreement except that
in the event of any conflict between an exhibit and this Agreement or another
Loan Document, the provisions of this Agreement or the Loan Document, as the
case may be, shall prevail over the exhibit.
Section 9.13 Titles of Articles, Sections, and Subsections. All titles
or headings to articles, sections, subsections, or other divisions of this
Agreement or the exhibits to this Agreement are only for the convenience of the
parties and shall not be construed to have any effect or meaning with respect
to the other content of such articles, sections, subsections, or other
divisions, such other content being controlling with respect to the agreement
between the parties.
Section 9.14 Time of Essence. Time is of the essence with regard to
each and every provision of this Agreement.
Section 9.15 Remedies. All remedies for which this Agreement and all
other Loan Documents provide for Agent shall be in addition to all other
remedies available to Agent and Lenders under the principles of law and equity,
and pursuant to any other body of law, statutory or otherwise.
Section 9.16 Application of Prepayments. Prepayments shall be applied
at Agent's sole discretion (i) first to accrued interest under any of the
Obligations as determined by Agent and (ii) second to reduce principal of any
of the Obligations, all in such manner as determined by Agent.
Section 9.17 Computations; Accounting Principles. Where the character
or amount of any asset or liability or item of income or expense is required to
be determined, or any consolidation or other accounting computation is required
to be made for the purposes of this Agreement, such determination or
calculation, to the extent applicable and except as otherwise specified in this
Agreement, shall be made in accordance with GAAP applied on a consolidated
basis consistent with those in effect at the Closing Date.
Section 9.18 Costs, Expenses, and Taxes. Borrower agrees to pay on
demand all out-of-pocket costs and expenses of Agent (including the reasonable
fees and out-of-pocket expenses of counsel for Agent) incurred by Agent in
connection with the preparation, execution, delivery, administration,
interpretation, enforcement, or protection of Agent or either of Lenders'
rights under the Loan Documents (including any suit for declaratory judgment or
interpretation of the provisions hereof). In addition,
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Borrower agrees to pay, and to hold Agent and both of the Lenders harmless from
all liability for, any stamp or other taxes (including taxes under Tennessee
Code Annotated Section 67-4-409 due upon the recordation of mortgages and
financing statements) which may be payable in connection with the execution or
delivery of this Agreement, the Advances, and the Collateral under this
Agreement, or the issuance of the Loan Documents delivered or to be delivered
under or in connection with this Agreement. Borrower, upon request, promptly
will reimburse Agent and both of the Lenders for all amounts expended,
advanced, or incurred by Agent and both of the Lenders to satisfy any
obligation of Borrower under this Agreement or any other Loan Documents, or to
perfect a Lien in favor of Agent and both of the Lenders, or to protect the
Properties or business of Borrower or to collect the Obligations, or to enforce
the rights of Agent and both of the Lenders under this Agreement or any other
Loan Document, which amounts will include all court costs, attorney's fees,
fees of auditors and accountants, and investigation expenses reasonably
incurred by Agent and both of the Lenders in connection with any such matters,
together with interest thereon at the rate applicable to past due principal and
interest as set forth in the Loan Documents but in no event in excess of the
maximum lawful rate of interest permitted by applicable law on each such
amount. All obligations for which this Section provides shall survive any
termination of this Agreement.
Section 9.19 Distribution of Information. The Borrower hereby
authorizes the Agent and the Lenders, as the Agent and the Lenders may elect in
their sole discretion, to discuss with and furnish to any affiliate of the
Agent and the Lenders, to any government or self-regulatory agency with
jurisdiction over the Agent and the Lenders, or to any participant or
prospective participant, all financial statements, audit reports and other
information pertaining to the Borrower and/or its Subsidiaries whether such
information was provided by Borrower or prepared or obtained by the Agent and
the Lenders or third parties. Neither the Agent nor the Lenders nor any of
their employees, officers, directors or agents make any representation or
warranty regarding any audit reports or other analyses of Borrower which the
Agent or the Lenders may elect to distribute, whether such information was
provided by Borrower or prepared or obtained by the Agent, the Lenders, or
third parties, nor shall the Agent, the Lenders, or any of their employees,
officers, directors or agents be liable to any Person receiving a copy of such
reports or analyses for any inaccuracy or omission contained in such reports or
analyses or relating thereto.
Section 9.20 Entire Agreement; No Oral Representations Limiting
Enforcement. This Agreement represents the entire agreement between the parties
hereto except for such other agreements set forth in the Loan Documents, and
any and all oral statements heretofore made regarding the matters set forth
herein are merged herein.
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<PAGE> 43
Section 9.21 Amendments. Excluding Section 11.1 through 11.14, the
Borrower's written agreement shall be necessary to amend this Agreement.
Sections 11.1 through 11.14 of this Agreement may be amended by the Lenders
without the necessity of Borrower's agreement thereto pursuant to the
provisions contained therein.
Section 9.22 Non-Use Fee. As additional consideration for the Lenders'
committing and reserving monies to fund the Revolving Credit Note, the Borrower
shall pay to Agent for the account of Lenders quarterly in arrears a fee at a
rate equal to 35 basis points per annum of the average unused portion of the
Revolving Credit Note during the prior Fiscal Quarter. The fee shall be
calculated on a 360-day basis.
Section 9.23 Commitment Fee. In consideration of Lenders' willingness
to extend the Loans and to reserve the funds necessary to fund the Revolving
Credit Note, the Borrower shall pay to Agent a one-time commitment fee equal to
$37,500.00.
Article X. Jury Waiver.
Section 10.01 Jury Waiver. IF ANY ACTION OR PROCEEDING INVOLVING THIS
LOAN AGREEMENT OR ANY LOAN DOCUMENT IS COMMENCED IN ANY COURT OF COMPETENT
JURISDICTION, BORROWER, AGENT, AND LENDERS HEREBY WAIVE THEIR RIGHTS TO DEMAND
A JURY TRIAL.
Article XI. The Agent.
Section 11.01 Appointment of Agent. Each of the Lenders hereby
designates the Agent to administer all matters concerning the Indebtedness and
the Obligations and to act as herein specified. Each of the Lenders hereby
irrevocably authorizes the Agent to take such actions on its behalf under the
provisions of this Agreement, the other Loan Documents and all other
instruments and agreements referred to herein or therein, and to exercise such
powers and to perform such duties hereunder and thereunder as are specifically
delegated to or required of the Agent by the terms hereof and thereof and such
other powers as are reasonably incidental thereto. The Agent may perform any of
its duties hereunder by or through its agents or employees. The Lenders agree
that neither the Agent nor any of its directors, officers, employees or agents
shall be liable for any action taken or omitted to be taken by it or them
hereunder or in connection herewith, except for its or their own gross
negligence or willful misconduct. The Lenders agree that the Agent shall not
have any duties or responsibilities, except those expressly set forth herein,
or any fiduciary relationship with any of the Lenders, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities
shall be read into this Agreement or otherwise be imposed upon or exist against
the Agent.
Section 11.02 Authorization of Agent with Respect to the Loan
Documents. (a) Each of the Lenders hereby authorizes the Agent to
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<PAGE> 44
enter into each of the Loan Documents and to take all action contemplated
thereby, all in its capacity as Agent for the ratable benefit of the Lenders.
All rights and remedies under the Loan Documents may be exercised by the Agent
for the benefit of the Agent and the Lenders upon the terms thereof.
(b) The Agent shall administer the Loans described herein and the
Loan Documents on behalf of and for the benefit of the Lenders in all respects
as if the Agent were the sole Lender under the Loan Documents, except that:
(i) The Agent shall administer the Loans and the Loan
Documents with a degree of care at least equal to that customarily
employed by the Agent in the administration of similar credit
facilities for its own account.
(ii) The Agent shall not, without the consent of the
Majority Lenders, take any of the following actions:
(A) agree to a waiver of any material
requirements, covenants, or obligations of the Borrower or of
any of the Guarantors contained herein;
(B) agree to any amendment to or modification
of any of the terms of any of the Loan Documents;
(C) waive any Event of Default or Default
Condition as set forth in the Loan Agreement;
(D) accelerate the indebtedness described in
the Loan Agreement following an Event of Default; or
(E) initiate litigation or pursue other
remedies to enforce the obligations contained in any Loan
Document or to collect the indebtedness described herein.
(iii) The Agent shall not, without the consent of all of the
Lenders, take any of the following actions:
(A) extend the maturity of any payment of
principal of or interest on the indebtedness described herein;
(B) reduce any fees paid to or for the benefit
of Lenders under the Loan Agreement;
(C) reduce the rate of interest charged on the
indebtedness described herein;
(D) release any Guaranty;
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<PAGE> 45
(E) postpone any date fixed for the payment in
respect of principal of, or interest on the indebtedness
described herein, or any fees hereunder;
(F) modify the definition of Majority Lenders;
or
(G) modify this Section 11.02(b)(iii).
(c) The Agent, upon its receipt of actual notice thereof,
shall notify the Lenders of: (i) each proposed action that would
require the consent of the Lenders as set forth herein, or (ii) any
action proposed to be taken by the Agent in the administration of the
Loans and Loan Documents not in the ordinary course of business;
provided that any failure of the Agent to give the Lenders any such
notice shall not alone be the basis for any liability of the Agent to
the Lenders except for the Agent's gross negligence or willful
misconduct.
(d) The Lenders agree that the Agent shall incur no
liability under or in respect of this Agreement with respect to
anything which it may do or refrain from doing in the reasonable
exercise of its judgment or which may seem to it to be necessary or
desirable in the circumstances, except for its gross negligence or
willful misconduct. Agent shall incur no liability to any of the
Lenders for giving consent on behalf of the Lenders when under the
terms of this Agreement consent may not be unreasonably withheld.
(e) The Agent shall not be liable to the Lenders or to
any Lender in acting or refraining from acting under this Agreement or
any other Loan Document in accordance with the instructions of the
Majority Lenders or all of the Lenders, where expressly required by
this Agreement, and any action taken or failure to act pursuant to
such instructions shall be binding on all Lenders. In each
circumstance where any consent of or direction from the Majority
Lenders or all of the Lenders is required or requested by Agent, the
Agent shall send to the Lenders a notice setting forth a description
in reasonable detail of the matter as to which consent or direction is
requested and the Agent's proposed course of action with respect
thereto. In the event the Agent shall not have received a response
from any Lender within five (5) Business Days after Agent sends such
notice, such Lender shall be deemed to have agreed to the course of
action proposed by the Agent.
Section 11.03 Agent's Duties Limited; No Fiduciary Duty. The Lenders
agree that the Agent shall have no duties or responsibilities except those
expressly set forth in this Agreement and the other Loan Documents. The Lenders
agree that none of the Agent nor any of its respective officers, directors,
employees or agents shall be liable for any action taken or omitted by it as
such hereunder or in connection herewith, unless caused by its or
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<PAGE> 46
their gross negligence or willful misconduct. The Agent shall not have by
reason of this Agreement a fiduciary relationship to or in respect of any of
the Lenders, and nothing in this Agreement, express or implied, is intended to
or shall be so construed as to impose upon the Agent any obligations in respect
of this Agreement or the other Loan Documents except as expressly set forth
herein.
SECTION 11.04 NO RELIANCE ON THE AGENT. (A) EACH OF THE LENDERS
REPRESENTS AND WARRANTS TO THE AGENT AND THE OTHER LENDERS THAT INDEPENDENTLY
AND WITHOUT RELIANCE UPON THE AGENT, EACH OF THE LENDERS, TO THE EXTENT IT
DEEMS APPROPRIATE, HAS MADE AND SHALL CONTINUE TO MAKE (I) ITS OWN INDEPENDENT
INVESTIGATION OF THE FINANCIAL CONDITION AND AFFAIRS OF THE BORROWER AND THE
GUARANTORS IN CONNECTION WITH THE TAKING OR NOT TAKING OF ANY ACTION IN
CONNECTION HEREWITH, AND (II) ITS OWN APPRAISAL OF THE CREDIT WORTHINESS OF THE
BORROWER AND THE GUARANTORS, AND EACH OF THE LENDERS FURTHER AGREES THAT,
EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, THE AGENT SHALL HAVE NO DUTY OR
RESPONSIBILITY, EITHER INITIALLY OR ON A CONTINUING BASIS, TO PROVIDE ANY OF
THE LENDERS WITH ANY CREDIT OR OTHER INFORMATION WITH RESPECT THERETO, WHETHER
COMING INTO ITS POSSESSION BEFORE THE MAKING OF THE LOANS OR AT ANY TIME OR
TIMES THEREAFTER. AS LONG AS ANY OF THE LOANS ARE OUTSTANDING AND/OR ANY AMOUNT
IS AVAILABLE TO BE REQUESTED OR BORROWED HEREUNDER, OR THIS AGREEMENT AND THE
LOAN DOCUMENTS HAVE NOT BEEN CANCELLED AND TERMINATED, EACH OF THE LENDERS
SHALL CONTINUE TO MAKE ITS OWN INDEPENDENT EVALUATION OF THE FINANCIAL
CONDITION AND AFFAIRS OF THE BORROWERS AND THE GUARANTORS.
(b) The Agent shall not be responsible to any of the Lenders for
any recitals, statements, information, representations or warranties herein or
in any document, certificate or other writing delivered in connection herewith
or for the execution, effectiveness, genuineness, validity, enforceability,
collectability, priority or sufficiency of this Agreement, the Revolving Credit
Notes, the Term Notes, the Guarantees, the other Loan Documents, or any other
documents contemplated hereby or thereby, or the financial condition of the
Borrower or the Guarantors, or be required to make any inquiry concerning
either the performance or observance of any of the terms, provisions or
conditions of this Agreement, the Revolving Credit Notes, the Term Notes, the
Guarantees, the other Loan Documents or the other documents contemplated hereby
or thereby, or the financial condition of the Borrower or the Guarantors, or
the existence or possible existence of any Default Condition or Event of
Default.
Section 11.05 Certain Rights of Agent. The Lenders agree that if the
Agent shall request instructions from the Majority Lenders (or all of the
Lenders where unanimity is expressly required under the terms of this
Agreement) with respect to any action or actions (including the failure to act)
in connection with this Agreement, the Agent shall be entitled to refrain from
such act or taking such act, unless and until the Agent shall have received
instructions from the Majority Lenders (or all of the Lenders where unanimity
is
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<PAGE> 47
expressly required under the terms of this Agreement); and the Agent shall not
incur liability to any Person by reason of so refraining. Without limiting the
foregoing, none of the Lenders shall have any right of action whatsoever
against the Agent as a result of the Agent acting or refraining from acting
hereunder in accordance with the instructions of the Majority Lenders (or, with
regard to acts for which the consent of all of the Lenders is expressly
required under the terms of this Agreement, in accordance with the instructions
of all of the Lenders).
Section 11.06 Reliance by Agent. The Lenders agree that the Agent shall
be entitled to rely, and shall be fully protected in relying, upon any note,
writing, resolution, notice, statement, certificate, telex, teletype or
telecopier message, cablegram, radiogram, order or other documentary,
teletransmission or telephone message reasonably believed by it to be genuine
and correct and to have been signed, sent or made by the proper Person. The
Lenders agree that the Agent may consult with legal counsel (including counsel
for any of the Lenders), independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken by it in good faith in accordance with the advice of such counsel,
accountants or experts.
Section 11.07 Indemnification of Agent. To the extent the Agent is not
reimbursed and indemnified by the Borrower, each of the Lenders will reimburse
and indemnify the Agent, ratably according to their respective Pro Rata Share,
for, from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses (including fees of
experts, consultants and counsel and disbursements) or disbursements of any
kind or nature whatsoever that may be imposed on, incurred by or asserted
against the Agent in performing its duties hereunder, in any way relating to or
arising out of this Agreement or the other Loan Documents; provided that none
of the Lenders shall be liable to the Agent for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from the Agent's gross
negligence or willful misconduct. The obligations and indemnifications arising
under this Section 11.07 shall survive termination of this Agreement, repayment
of the Loans and indebtedness arising in connection with the Letters of Credit
and expiration of the Letters of Credit.
Section 11.08 The Agent in its Individual Capacity. With respect to its
obligation to lend under this Agreement and the Loans made by it, the Agent
shall have the same rights and powers hereunder as any other of the Lenders,
and may exercise the same as though it were not performing the duties of Agent
specified herein; and the terms "Lenders" and "Majority Lenders" or any similar
terms shall, unless the context clearly otherwise indicates, include the Agent
in its individual capacity. The Agent and its affiliates may accept deposits
from, lend money to, and generally engage in any
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<PAGE> 48
kind of banking, trust, financial advisory or other business with the Borrower
and the Guarantors, and any affiliate of the Borrower as if it were not
performing the duties specified herein as Agent, and may accept fees and other
consideration from the Borrower for services in connection with this Agreement
and otherwise without having to account for the same to the Lenders.
Section 11.09 Successor Agent. (a) The Agent may resign at any time by
giving written notice thereof to the Lenders and the Borrower and may be
removed at any time with cause by the Majority Lenders; provided, however, the
Agent may not resign or be removed until (i) a successor Agent has been
appointed and shall have accepted such appointment and (ii) the successor Agent
has assumed all responsibility for issuance of the Letters of Credit and the
successor Agent has assumed in the place and stead of the Agent all existing
liability under outstanding Letters of Credit. The transactions described in
the immediately preceding sentence shall be accomplished pursuant to written
agreements reasonably satisfactory to the Agent and the successor Agent. Upon
any such resignation or removal, the Majority Lenders shall have the right to
appoint a successor Agent. If no successor Agent shall have been so appointed
by the Majority Lenders, and shall have accepted such appointment, within
thirty (30) days after the retiring Agent's giving of notice of resignation or
the Majority Lenders' removal of the retiring Agent, then the retiring Agent
may, on behalf of the Lenders, appoint a successor Agent, which shall be a bank
that maintains an office in the United States, or a commercial bank organized
under the laws of the United States of America or any State thereof, or any
Affiliate of such bank, having a combined capital and surplus of at least
$100,000,000.
(b) Upon the acceptance of any appointment as the Agent hereunder
by a successor Agent, such successor Agent shall thereupon succeed to and
become vested with all the rights, powers, privileges and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring Agent's resignation or
removal hereunder as Agent, the provisions of this Article XI shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
an Agent under this Agreement.
Section 11.10 Notice of Default or Event of Default. In the event that
the Agent or any of the Lenders shall acquire actual knowledge, or shall have
been notified, of any Default Condition or Event of Default (other than through
a notice by one party hereto to all other parties), the Agent or such Lender
shall promptly notify the Agent, and the Agent shall take such action and
assert such rights under this Agreement as the Majority Lenders shall request
in writing, and the Agent shall not be subject to any liability by reason of
its acting pursuant to any such request. If, following notification by Agent to
Lenders, the Majority Lenders (or all of the Lenders if required hereunder)
shall fail to request the Agent to take action or to assert rights under this
Agreement
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<PAGE> 49
in respect of any Default Condition or Event of Default within five (5)
Business Days after their receipt of the notice of any Default Condition or
Event of Default from the Agent or any Lender, or shall request inconsistent
action with respect to such Default Condition or Event of Default, the Agent
may, but shall not be required to, take such action and assert such rights as
it deems in its discretion to be advisable for the protection of the Lenders.
Section 11.11 Sharing of Payments, etc. Each of the Lenders agrees that
if it shall, through the exercise of a right of banker's lien, set-off,
counterclaim or otherwise, obtain payment with respect to the Indebtedness
which results in its receiving more than its Pro Rata Share of the aggregate
payments with respect to all of the Indebtedness, then (a) such Lender shall be
deemed to have simultaneously purchased from the other Lender a share in the
Indebtedness so that the amount of the Indebtedness held by each of the Lenders
shall continue to equal their respective Pro Rata Shares, and (b) such other
adjustments shall be made from time to time as shall be equitable to insure
that the Lenders share such payments ratably.
Section 11.12 Separate Liens on Collateral. Each Lender agrees with the
other Lenders that it will not take or permit to exist any Lien in its favor on
any of the Collateral or other property of any of the Borrowers other than
Liens securing the Indebtedness.
Section 11.13 Payments Between Agent and Lenders. All payments by the
Agent to any Lender, and all payments by any Lender to the Agent, under the
terms of this Agreement shall be made by wire transfer in immediately available
funds to the receiving party's address specified in or pursuant to Section 9.01
hereof. If the Agent or any of the Lenders shall fail to pay when due any sum
payable to the Agent or any other Lender, such sum shall bear interest until
paid at the interest rate per annum for overnight borrowing by the payee from
the Federal Reserve Bank for the period commencing on the date such payment was
due and ending on, but excluding, the date such payment is made.
Section 11.14 Independent Agreements. The provisions contained in
Sections 11.01 through 11.10 and Sections 11.12, 11.13, 11.14, and 11.15
constitute independent obligations and agreements of the Agent and the Lenders,
and the Borrower shall not be deemed a party thereto or bound thereby or
entitled to any benefit thereunder. The Borrower acknowledges the rights of the
Lenders and the Agent under Section 11.11.
Section 11.15 Limitation on Lenders. The Borrower agrees and
acknowledges that neither the Agent nor STB shall have liability to the
Borrower for any damages or claim of any kind whatsoever, whether seen or
unforeseen, arising out of or in connection with the failure of NBT to fund
through the Agent its Pro Rata Share of any Advance, and that Borrower's sole
recourse for such conduct by NBT shall be to NBT.
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<PAGE> 50
The Borrower agrees and acknowledges that NBT shall not have liability
to the Borrower for any damages or claims of any kind whatsoever, whether seen
or unforeseen, arising out of or in connection with the failure of STB to fund
through the Agent its Pro Rata Share of any Advance, and that Borrower's sole
recourse for such conduct by STB shall be to STB.
ENTERED INTO this date first set forth above.
BORROWER:
AMSURG CORP., a Tennessee corporation
By: /s/
------------------------------------
Title: Senior Vice President
---------------------------------
AGENT:
SUNTRUST BANK, NASHVILLE, N.A., AGENT
By: /s/
------------------------------------
Title: GVP
---------------------------------
PRO RATA SHARE LENDERS:
71% SUNTRUST BANK, NASHVILLE, N.A..
By: /s/
------------------------------------
Title: GVP
---------------------------------
29% NATIONSBANK OF TENNESSEE, N.A.
By: /s/
------------------------------------
Title: VP
---------------------------------
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<PAGE> 51
INDEX OF EXHIBITS
<TABLE>
<S> <C>
Exhibit A: Notice of Interest Rate Election (Section 2.06(c)
and Section 2.06(d)) (form)
Exhibit B: Borrowing Request
Exhibit C: Revolving Credit Notes
Exhibit D: Term Notes
Exhibit E: Exemptions from Section 4.07 (Largo, FL and
Jackson, TN)
Exhibit F: List of Subsidiaries
Exhibit G: List of Partnerships and LLC's
Exhibit H: Opinion Letter of Borrower's Counsel Due at
Closing
</TABLE>
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<PAGE> 52
EXHIBIT A TO LOAN AGREEMENT
BORROWING REQUEST
VIA FAX (615) 748-4611
ATTN: LEIGH ANN GREGORY
SunTrust Bank, Nashville, N.A., Agent
Date:_____________________________, _______
Re: Second Amended and Restated Loan Agreement dated April 15,
1997 by and among AmSurg Corp., the lenders listed therein and
SunTrust Bank, Nashville, N.A., as Agent (as may be amended
from time to time, the "Loan Agreement")
Capitalized terms not otherwise defined in this request have the same meaning
as in the Loan Agreement. The individual signing this request certifies that
(i) he or she is an individual authorized by the Borrower to submit Borrowing
Requests to the Agent pursuant to the Loan Agreement, (ii) the undersigned
hereby irrevocably gives notice of and requests, pursuant to Section 2.03 of
the Loan Agreement, an Advance under the Loan Agreement (the "Proposed
Advance"), and (iii) the amount of the Proposed Advance is available to the
Borrower pursuant to the Loan Agreement. The information below relates to the
Proposed Advance:
1. AMOUNT OF PROPOSED
ADVANCE:
---------------------------------------------------------------
2. DATE OF PROPOSED
ADVANCE:
---------------------------------------------------------------
3. DESIGNATION OF
ADVANCES:
--------------------------------------------------------------
<TABLE>
<S> <C>
Base Rate Advance $ (Multiples of $100,000 and minimums of $100,000)
------------------------
LIBOR Based Rate Advance $ (Multiples of $100,000 and minimums of $100,000)
-------------------------
</TABLE>
Borrowing Requests must be given prior to 11:00 a.m. (local time for Agent) two
(2) Business Days prior to the Proposed Advance for Libor Based Rate Advances
and on the same day of the Proposed Advances for Base Rate Advances. All
Borrowing Requests received after 11:00 a.m. shall be deemed received on the
next Business Day.
4. For LIBOR Based Rate Advances, the LIBOR Based Rate Period (indicate
one):
(a) 30 DAYS 60 DAYS 90 DAYS
------------- ----------------- -----------------
<PAGE> 53
(b) CALCULATION OF RATE:
LIBOR
---------
Plus spread 1.75%
TOTAL =
--------
(c) EXPIRATION DATE:
--------------
5. DEPOSIT PROCEEDS OF BORROWING INTO AMSURG CORP.
ACCOUNT NO. 6784100
-------
AND
WIRE TRANSFER $___________________ FROM OUR ACCOUNT NO. 6784100
ACCORDING TO THE FOLLOWING INSTRUCTIONS:
Name of Bank:
------------------------------------------------
ABA No.
------------------------------------------------------
Credit account No.
-------------------------------------------
Beneficiary Name
---------------------------------------------
Special Instructions
-----------------------------------------
- -------------------------------------------------------------
Remitter
-----------------------------------------------------
6. The Borrower represents to Agent as follows: (a) the amount of the Proposed
Advance, when combined with the outstanding principal amount of the Revolving
Credit Notes plus the face amount of all outstanding Letters of Credit does not
exceed $15,000,000; (b) the total amount of all Advances, including the
Proposed Advance, together with the face amount of all outstanding Letters of
Credit, do not and will not exceed the sum of (i) 85% of Development Costs,
plus (ii) 65% of the total cost of Acquisitions and Physician Practice
Acquisitions as depicted on Schedule I attached hereto.
7. The conditions as set forth in Section 5.03 of the Loan Agreement have been
met and the representations contained therein are true and correct.
BORROWER:
AMSURG CORP.
By:
------------------------
Title:
---------------------
<PAGE> 54
SCHEDULE I
<TABLE>
<CAPTION>
Purchase % Original Current
Price or LTV Borrowing Amount New Amount
Project Hard $ Cost Allowed Allowed Borrowed Repayment Borrowings Borrowed
------- ----------- ------- ------- -------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning Debt 4,671,262 100% 4,671,262 4,671,262 - - 4,671,262
Panama City GI 1,760,162 65% 1,144,000 (1,450,000) 1,036,000 730,000
Hallendale GI 500,000 85% 425,000 425,000 (425,000) - -
Ocala GI 3,347,662 65% 2,175,954 (2,175,000) (2,175,000) - -
Columbia 1,897,397 65% 1,233,308 1,233,000 - - 1,233,000
Minneapolis 1,143,377 65% 743,195 743,000 (442,043) - 300,957
Sidney 531,930 85% 452,141 450,000 - - 450,000
Miami Urology Practice 2,852,590 65% 1,854,184 1,854,000 - - 1,854,000
Crystal River GI 2,075,520 65% 1,349,088 1,349,000 - - 1,349,000
Hialeah 494,000 65% 419,900 150,000 - - 150,000
Abilene Eye 1,804,927 65% 1,173,203 1,173,000 1,173,000
Wichita Ortho 1,374,950 65% 893,718 893,700 - - 893,700
---------- ---------- ----------- ----------- --------- ---------
Totals 22,453,737 16,535,057 16,260,962 (4,492,043) 1,036,000 12,804,919
========== ========== =========== =========== ========= ==========
</TABLE>
<PAGE> 55
EXHIBIT B TO LOAN AGREEMENT
NOTICE OF INTEREST RATE ELECTION
VIA FAX (615) 748-4611
ATTN: LEIGH ANN GREGORY
SunTrust Bank, Nashville, N.A., Agent
Date:_____________________________, _______
Re: Second Amended and Restated Loan Agreement dated April 15, 1997 by
and among AmSurg Corp., the lenders listed therein, and SunTrust Bank,
Nashville, N.A., as Agent (as may be amended from time to time, the
"Loan Agreement")
Capitalized terms not otherwise defined in this request have the same meaning
as in the Loan Agreement. The individual signing this request certifies that
(i) he or she is an individual authorized by the Borrower to submit this Notice
of Interest Rate Election to the Agent pursuant to the Loan Agreement, (ii) the
undersigned hereby irrevocably gives notice of and requests, pursuant to
Section 2.06(c) and/or 2.06(d) of the Loan Agreement, the continuation or
conversion of an Advance made under the Loan Agreement (the
"Continued/Converted Advance"), and (iii) the amount of the Continued/Converted
Advance is available to the Borrower pursuant to the Loan Agreement. The
information below relates to the Continued/Converted Advance:
1. IDENTIFICATION THE CONTINUED/CONVERTED ADVANCE:
<TABLE>
<CAPTION>
Amount
<S> <C>
Base Rate Advance $
------------------------
LIBOR Based Rate Advance
expiring $
-------- ------------------------
</TABLE>
2. DATE OF CONTINUED/CONVERTED
ADVANCE:
--------------------------------------------------------------------
3. DESIGNATION OF INTEREST OPTION FOR CONTINUED/CONVERTED ADVANCE:
<TABLE>
<S> <C>
Base Rate Advance $ (Multiples of $100,000 and minimum of $100,000)
-----------------------
LIBOR Based Rate Advance $ (Multiples of $100,000 and minimum of $100,000)
-------------------------
</TABLE>
<PAGE> 56
Notices of Interest Rate Election must be given prior to 11:00 a.m. (local time
for Agent) two (2) Business Days prior to the Proposed Continuation/Conversion
for Libor Based Rate Advances and on the same day of the Proposed
Continuation/Conversion for Base Rate Advances. All Notices of Interest Rate
Election received after 11:00 a.m. shall be deemed received on the next
Business Day.
4. LIBOR BASED RATE PERIOD FOR CONTINUED/CONVERTED ADVANCES CALCULATED AT THE
LIBOR BASED RATE (indicate one):
(a) 30 DAYS 60 DAYS 90 DAYS
------------- ----------------- -----------------
(b) CALCULATION OF RATE:
LIBOR
---------
Plus spread
TOTAL = 1.75%
---------
(c) EXPIRATION DATE:
---------------
In connection with the Continued/Converted Advance the undersigned represents
on the date hereof and on the date of the Continued/Converted Advance (a) there
exists no Default or Event of Default and (b) the conditions as set forth in
Section 5.03 of the Loan Agreement have been met and the representations
contained therein are true and correct.
BORROWER:
AMSURG CORP.
By:
--------------------------------------------
Title:
-----------------------------------------
<PAGE> 57
EXHIBIT C
SUNTRUST
REVOLVING CREDIT NOTE
FOR VALUE RECEIVED, AMSURG CORP., a Tennessee corporation (hereinafter
referred to as "Borrower"), promises and agrees to pay to the order of SUNTRUST
BANK, NASHVILLE, N.A., a national bank (the "Lender") at the Nashville,
Tennessee offices of SunTrust Bank, Nashville, N.A., Agent (the "Agent"), in
lawful money of the United States of America, the principal sum of Ten Million
Six Hundred Fifty Thousand and no/100 Dollars ($10,650,000), or so much thereof
as may be advanced from time to time by the Lender, together with interest on
the unpaid principal balance outstanding from time to time hereon computed from
the date of each advance until maturity at the rate of interest set forth in
that certain Second Amended and Restated Loan Agreement executed among
Borrower, Lender, NationsBank of Tennessee, N.A., and Agent dated April 15,
1997, as such may be amended from time to time (herein referred to as the "Loan
Agreement"). Interest for each year shall be computed on the basis of a year
of 360 days for the actual number of days elapsed.
So long as no default has occurred and is continuing hereunder and so
long as no Event of Default or Default Condition has occurred and is continuing
under the Loan Agreement, and subject to the terms of the Loan Agreement, the
Borrower may borrow hereunder, repay such borrowings, and reborrow hereunder as
provided in the Loan Agreement. Lender shall keep records of all borrowings and
repayments. Draws under this Note shall be evidenced by such documentation as
required by Article II of the Loan Agreement.
Advances under this Note shall be made pursuant to the procedure
specified in the Loan Agreement.
This Note shall be repaid as follows:
(a) Commencing on the tenth (10th) day of May, 1997, and on
the tenth day of each consecutive month through and including March
10, 1999, the Borrower shall pay to Lender an amount equal to all then
accrued interest; and
(b) On April 15, 1999, this Note shall mature at which time
the Borrower shall pay to Lender an amount equal to all outstanding
principal, plus all then accrued interest.
This Note is subject to the terms of the Loan Agreement.
Notwithstanding any provision to the contrary, it is the intent of the
Lender, the Borrower, and all parties liable on this Note, that neither the
Lender nor any subsequent holder shall be entitled to receive, collect, reserve
or apply, as interest, any amount in excess of the maximum lawful rate of
interest permitted
<PAGE> 58
to be charged by applicable law or regulations, as amended or enacted from time
to time. In the event the Note calls for an interest payment that exceeds the
maximum lawful rate of interest then applicable, such interest shall not be
received, collected, charged, or reserved until such time as that interest,
together with all other interest then payable, falls within the then applicable
maximum lawful rate of interest. In the event the Lender, or any subsequent
holder, receives any such interest in excess of the then maximum lawful rate of
interest, such amount which would be excessive interest shall be deemed a
partial prepayment of principal and treated hereunder as such, or, if the
principal indebtedness evidenced hereby is paid in full, any remaining excess
funds shall immediately be paid to the Borrower. In determining whether or not
the interest paid or payable, under any specific contingency, exceeds the
maximum lawful rate of interest, the Borrower and the Lender shall, to the
maximum extent permitted under applicable law, (a) exclude voluntary
prepayments and the effects thereof, and (b) amortize, prorate, allocate, and
spread, in equal parts, the total amount of interest throughout the entire term
of the indebtedness; provided that if the indebtedness is paid in full prior to
the end of the full contemplated term hereof, and if the interest received for
the actual period of existence hereof exceeds the maximum lawful rate of
interest, the holder of the Note shall refund to the Borrower the amount of
such excess or credit the amount of such excess against the principal portion
of the indebtedness as of the date it was received, and, in such event, the
Lender shall not be subject to any penalties provided by any laws for
contracting for, charging, reserving, collecting or receiving interest in
excess of the maximum lawful rate of interest.
Principal and unpaid interest bear interest during the continuance of
any default in payment of principal and interest as herein provided at the
lesser of (i) the Base Rate (as defined in the Loan Agreement) plus 4% per
annum, or the maximum lawful rate of interest permitted by law. In case of
suit, or if this obligation is placed in an attorney's hands for collection, or
to protect the security for its payment, the undersigned will pay all costs of
collection and litigation, including a reasonable attorney's fee.
In the event that there occurs any breach of any promise made in this
Note and such breach continues for longer than fifteen (15) days, or upon the
occurrence of an Event of Default as defined in the Loan Agreement, then,
during the continuance of any of such events, at the option of the holder, the
entire indebtedness hereby evidenced shall become due, payable and collectible
then or thereafter, without notice, as the holder may elect regardless of the
date of maturity. The holder may waive any default before or after the same has
been declared and restore this Note to full force and effect without impairing
any rights hereunder, such right of waiver being a continuing one.
-2-
<PAGE> 59
The makers, endorsers, guarantors and all parties to this Note and all
who may become liable for same, jointly and severally waive presentment for
payment, protest, notice of protest, notice of nonpayment of this Note, demand
and all legal diligence in enforcing collection, and hereby expressly agree
that the lawful owner or holder of this Note may defer or postpone collection
of the whole or any part thereof, either principal and/or interest, or may
extend or renew the whole or any part thereof, either principal and/or
interest, or may accept additional collateral or security for the payment of
this Note, or may release the whole or any part of any collateral security
and/or liens given to secure the payment of this Note, or may release from
liability on account of this Note any one or more of the makers, endorsers,
guarantors and/or other parties thereto, all without notice to them or any of
them; and such deferment, postponement, renewal, extension, acceptance of
additional collateral or security and/or release shall not in any way affect or
change the obligation of any such maker, endorser, guarantor or other party to
this Note, or of any who may become liable for the payment thereof.
The Borrower shall pay a "late charge" of five percent (5%) of any
payments of principal and/or interest due when paid more than five days after
the due date thereof (provided that in no event shall said "late charge" result
in the payment of interest in excess of the maximum lawful rate of interest
permitted by applicable law), to cover the extra expenses involved in handling
delinquent payments; and provided that the late charge shall not be applicable
to the payment due on the Maturity Date.
The term "maximum lawful rate of interest" as used herein shall mean a
rate of interest equal to the higher or greater of the following: (a) the
"applicable formula rate" defined in Tennessee Code Annotated Section
47-14-102(2), or (b) such other rate of interest as may be charged under other
applicable laws or regulations.
This Note is a secured Note.
This Note has been executed and delivered in, and shall be governed by
and construed according to the laws of the State of Tennessee except to the
extent pre-empted by applicable laws of the United States of America.
This Note may not be changed or terminated without the prior written
approval of the Lender and the Borrower. No waiver of any term or provision
hereof shall be valid unless in writing signed by the holder.
This Note is one of the Revolving Credit Notes issued by Borrower
pursuant to the Loan Agreement. This Note reflects in part an amendment,
restatement, and increase to the revolving credit indebtedness previously
evidenced by that certain Amended
-3-
<PAGE> 60
and Restated Revolving Credit Note payable to the order of SunTrust Bank,
Nashville, N.A. in the principal amount of $12,000,000 dated as of June 25,
1996, which Amended and Restated Revolving Credit Note was assigned by SunTrust
Bank, Nashville, N.A. to Agent. Subsequent to the assignment to Agent, the
revolving credit indebtedness was increased to $15,000,000 and separate notes
were issued to the Lenders (as defined in the Loan Agreement) to evidence the
amended, restated, and increased revolving credit indebtedness. This Note is
not (and is not intended to be) a novation of the revolving credit indebtedness
evidenced by the Amended and Restated Revolving Credit Note.
Executed this 15th day of April, 1997.
BORROWER:
AMSURG CORP., a Tennessee corporation
By:
-------------------------------------
Title:
----------------------------------
-4-
<PAGE> 61
EXHIBIT C
NATIONSBANK
REVOLVING CREDIT NOTE
FOR VALUE RECEIVED, AMSURG CORP., a Tennessee corporation (hereinafter
referred to as "Borrower"), promises and agrees to pay to the order of
NATIONSBANK OF TENNESSEE, N.A., a national bank (the "Lender") at the
Nashville, Tennessee offices of SunTrust Bank, Nashville, N.A., Agent (the
"Agent"), in lawful money of the United States of America, the principal sum of
Four Million Three Hundred Fifty Thousand and no/100 Dollars ($4,350,000), or
so much thereof as may be advanced from time to time by the Lender, together
with interest on the unpaid principal balance outstanding from time to time
hereon computed from the date of each advance until maturity at the rate of
interest set forth in that certain Second Amended and Restated Loan Agreement
executed among Borrower, Lender, SunTrust Bank, Nashville, N.A., and Agent
dated April 15, 1997, as such may be amended from time to time (herein referred
to as the "Loan Agreement"). Interest for each year shall be computed on the
basis of a year of 360 days for the actual number of days elapsed.
So long as no default has occurred and is continuing hereunder and so
long as no Event of Default or Default Condition has occurred and is continuing
under the Loan Agreement, and subject to the terms of the Loan Agreement, the
Borrower may borrow hereunder, repay such borrowings, and reborrow hereunder as
provided in the Loan Agreement. Lender shall keep records of all borrowings and
repayments. Draws under this Note shall be evidenced by such documentation as
required by Article II of the Loan Agreement.
Advances under this Note shall be made pursuant to the procedure
specified in the Loan Agreement.
This Note shall be repaid as follows:
(a) Commencing on the tenth (10th) day of May, 1997, and
on the tenth day of each consecutive month through and including March
10, 1999, the Borrower shall pay to Lender an amount equal to all then
accrued interest; and
(b) On April 15, 1999, this Note shall mature at which
time the Borrower shall pay to Lender an amount equal to all
outstanding principal, plus all then accrued interest.
This Note is subject to the terms of the Loan Agreement.
Notwithstanding any provision to the contrary, it is the intent of the
Lender, the Borrower, and all parties liable on this Note, that neither the
Lender nor any subsequent holder shall be entitled to receive, collect, reserve
or apply, as interest, any amount in excess of the maximum lawful rate of
interest permitted
<PAGE> 62
to be charged by applicable law or regulations, as amended or enacted from time
to time. In the event the Note calls for an interest payment that exceeds the
maximum lawful rate of interest then applicable, such interest shall not be
received, collected, charged, or reserved until such time as that interest,
together with all other interest then payable, falls within the then applicable
maximum lawful rate of interest. In the event the Lender, or any subsequent
holder, receives any such interest in excess of the then maximum lawful rate of
interest, such amount which would be excessive interest shall be deemed a
partial prepayment of principal and treated hereunder as such, or, if the
principal indebtedness evidenced hereby is paid in full, any remaining excess
funds shall immediately be paid to the Borrower. In determining whether or not
the interest paid or payable, under any specific contingency, exceeds the
maximum lawful rate of interest, the Borrower and the Lender shall, to the
maximum extent permitted under applicable law, (a) exclude voluntary
prepayments and the effects thereof, and (b) amortize, prorate, allocate, and
spread, in equal parts, the total amount of interest throughout the entire term
of the indebtedness; provided that if the indebtedness is paid in full prior to
the end of the full contemplated term hereof, and if the interest received for
the actual period of existence hereof exceeds the maximum lawful rate of
interest, the holder of the Note shall refund to the Borrower the amount of
such excess or credit the amount of such excess against the principal portion
of the indebtedness as of the date it was received, and, in such event, the
Lender shall not be subject to any penalties provided by any laws for
contracting for, charging, reserving, collecting or receiving interest in
excess of the maximum lawful rate of interest.
Principal and unpaid interest bear interest during the continuance of
any default in payment of principal and interest as herein provided at the
lesser of (i) the Base Rate (as defined in the Loan Agreement) plus 4% per
annum, or (ii) the maximum lawful rate of interest permitted by law. In case of
suit, or if this obligation is placed in an attorney's hands for collection, or
to protect the security for its payment, the undersigned will pay all costs of
collection and litigation, including a reasonable attorney's fee.
In the event that there occurs any breach of any promise made in this
Note and such breach continues for longer than fifteen (15) days, or upon the
occurrence of an Event of Default as defined in the Loan Agreement, then,
during the continuance of any of such events, at the option of the holder, the
entire indebtedness hereby evidenced shall become due, payable and collectible
then or thereafter, without notice, as the holder may elect regardless of the
date of maturity. The holder may waive any default before or after the same has
been declared and restore this Note to full force and effect without impairing
any rights hereunder, such right of waiver being a continuing one.
-2-
<PAGE> 63
The makers, endorsers, guarantors and all parties to this Note and all
who may become liable for same, jointly and severally waive presentment for
payment, protest, notice of protest, notice of nonpayment of this Note, demand
and all legal diligence in enforcing collection, and hereby expressly agree
that the lawful owner or holder of this Note may defer or postpone collection
of the whole or any part thereof, either principal and/or interest, or may
extend or renew the whole or any part thereof, either principal and/or
interest, or may accept additional collateral or security for the payment of
this Note, or may release the whole or any part of any collateral security
and/or liens given to secure the payment of this Note, or may release from
liability on account of this Note any one or more of the makers, endorsers,
guarantors and/or other parties thereto, all without notice to them or any of
them; and such deferment, postponement, renewal, extension, acceptance of
additional collateral or security and/or release shall not in any way affect or
change the obligation of any such maker, endorser, guarantor or other party to
this Note, or of any who may become liable for the payment thereof.
The Borrower shall pay a "late charge" of five percent (5%) of any
payments of principal and/or interest due when paid more than five days after
the due date thereof (provided that in no event shall said "late charge" result
in the payment of interest in excess of the maximum lawful rate of interest
permitted by applicable law), to cover the extra expenses involved in handling
delinquent payments; and provided that the late charge shall not be applicable
to the payment due on the Maturity Date.
The term "maximum lawful rate of interest" as used herein shall mean a
rate of interest equal to the higher or greater of the following: (a) the
"applicable formula rate" defined in Tennessee Code Annotated Section
47-14-102(2), or (b) such other rate of interest as may be charged under other
applicable laws or regulations.
This Note is a secured Note.
This Note has been executed and delivered in, and shall be governed by
and construed according to the laws of the State of Tennessee except to the
extent pre-empted by applicable laws of the United States of America.
This Note may not be changed or terminated without the prior written
approval of the Lender and the Borrower. No waiver of any term or provision
hereof shall be valid unless in writing signed by the holder.
This Note is one of the Revolving Credit Notes issued by Borrower
pursuant to the Loan Agreement. This Note reflects in part an amendment,
restatement, and increase to the revolving credit indebtedness previously
evidenced by that certain Amended
-3-
<PAGE> 64
and Restated Revolving Credit Note payable to the order of SunTrust Bank,
Nashville, N.A. in the principal amount of $12,000,000 dated as of June 25,
1996, which Amended and Restated Revolving Credit Note was assigned by SunTrust
Bank, Nashville, N.A. to Agent. Subsequent to the assignment to Agent, the
revolving credit indebtedness was increased to $15,000,000 and separate notes
were issued to the Lenders (as defined in the Loan Agreement) to evidence the
amended, restated, and increased revolving credit indebtedness. This Note is
not (and is not intended to be) a novation of the revolving credit indebtedness
evidenced by the Amended and Restated Revolving Credit Note.
Executed this 15th day of April, 1997.
BORROWER:
AMSURG CORP., a Tennessee corporation
By:
-------------------------------------
Title:
----------------------------------
-4-
<PAGE> 65
EXHIBIT D
SUNTRUST
TERM NOTE
FOR VALUE RECEIVED, AMSURG CORP., a Tennessee corporation (hereinafter
referred to as "Borrower"), promises and agrees to pay to the order of SUNTRUST
BANK, NASHVILLE, N.A. (the "Lender") at the Nashville, Tennessee offices of
SunTrust Bank, Nashville, N.A, Agent (the "Agent"), in lawful money of the
United States of America, the principal sum of Three Million Three Hundred
Sixteen Thousand Five Hundred Ninety-Five and 93/100 Dollars ($3,316,595.93),
together with interest on the unpaid principal balance outstanding from time to
time hereon computed from the date hereof until maturity at the rate of
interest set forth in that certain Second Amended and Restated Loan Agreement
executed among Borrower, Lender, NationsBank of Tennessee, N.A., and Agent
dated April 15, 1997, as such may be amended from time to time (herein referred
to as the "Loan Agreement"). Interest for each year shall be computed based on
the basis of a year of 360 days for the actual number of days elapsed.
This Note shall be repaid as follows: (a) commencing on the tenth
(10th) day of April, 1997 and on the tenth (10th) day of each consecutive month
thereafter through and including May 10, 2000, the Borrower shall pay to Lender
an amount equal to $85,040.96, plus all then accrued interest; and (b) on June
10, 2000, this Note shall mature, and the Borrower shall pay to Lender an
amount equal to all outstanding principal, plus all then accrued interest.
This Note is subject to the terms of the Loan Agreement.
Notwithstanding any provision to the contrary, it is the intent of the
Lender, the Borrower, and all parties liable on this Note, that neither the
Lender nor any subsequent holder shall be entitled to receive, collect, reserve
or apply, as interest, any amount in excess of the maximum lawful rate of
interest permitted to be charged by applicable law or regulations, as amended
or enacted from time to time. In the event the Note calls for an interest
payment that exceeds the maximum lawful rate of interest then applicable, such
interest shall not be received, collected, charged, or reserved until such time
as that interest, together with all other interest then payable, falls within
the then applicable maximum lawful rate of interest. In the event the Lender,
or any subsequent holder, receives any such interest in excess of the then
maximum lawful rate of interest, such amount which would be excessive interest
shall be deemed a partial prepayment of principal and treated hereunder as
such, or, if the principal indebtedness evidenced hereby is paid in full, any
remaining excess funds shall immediately be paid to the Borrower. In
determining whether or not the interest paid or payable, under any specific
contingency, exceeds the maximum lawful rate of
<PAGE> 66
interest, the Borrower and the Lender shall, to the maximum extent permitted
under applicable law, (a) exclude voluntary prepayments and the effects
thereof, and (b) amortize, prorate, allocate, and spread, in equal parts, the
total amount of interest throughout the entire term of the indebtedness;
provided that if the indebtedness is paid in full prior to the end of the full
contemplated term hereof, and if the interest received for the actual period of
existence hereof exceeds the maximum lawful rate of interest, the holder of the
Note shall refund to the Borrower the amount of such excess or credit the
amount of such excess against the principal portion of the indebtedness as of
the date it was received, and, in such event, the Lender shall not be subject
to any penalties provided by any laws for contracting for, charging, reserving,
collecting or receiving interest in excess of the maximum lawful rate of
interest.
Principal and unpaid interest bear interest during the continuance of
any default in payment of principal and interest as herein provided at the
lesser of(i) the Base Rate (as defined in the Loan Agreement), plus 4% per
annum, or the maximum lawful rate of interest permitted by law. In case of
suit, or if this obligation is placed in an attorney's hands for collection, or
to protect the security for its payment, the undersigned will pay all costs of
collection and litigation, including a reasonable attorney's fee.
In the event that there occurs any breach of any promise made in this
Note and such breach continues for longer than fifteen (15) days, or upon the
occurrence of an Event of Default as defined in the Loan Agreement, then,
during the continuance of any of such events, at the option of the holder, the
entire indebtedness hereby evidenced shall become due, payable and collectible
then or thereafter, without notice, as the holder may elect regardless of the
date of maturity. The holder may waive any default before or after the same has
been declared and restore this Note to full force and effect without impairing
any rights hereunder, such right of waiver being a continuing one.
The makers, endorsers, guarantors and all parties to this Note and all
who may become liable for same, jointly and severally waive presentment for
payment, protest, notice of protest, notice of nonpayment of this Note, demand
and all legal diligence in enforcing collection, and hereby expressly agree
that the lawful owner or holder of this Note may defer or postpone collection
of the whole or any part thereof, either principal and/or interest, or may
extend or renew the whole or any part thereof, either principal and/or
interest, or may accept additional collateral or security for the payment of
this Note, or may release the whole or any part of any collateral security
and/or liens given to secure the payment of this Note, or may release from
liability on account of this Note any one or more of the makers, endorsers,
guarantors and/or other parties thereto, all without notice to them or any of
them; and
-2-
<PAGE> 67
such deferment, postponement, renewal, extension, acceptance of additional
collateral or security and/or release shall not in any way affect or change the
obligation of any such maker, endorser, guarantor or other party to this Note,
or of any who may become liable for the payment thereof.
The Borrower shall pay a "late charge" of five percent (5%) of any
payments of principal and/or interest due when paid more than five days after
the due date thereof (provided that in no event shall said "late charge" result
in the payment of interest in excess of the maximum lawful rate of interest
permitted by applicable law), to cover the extra expenses involved in handling
delinquent payments; and provided that the late charge shall not be applicable
to the payment due on the Maturity Date.
The term "maximum lawful rate of interest" as used herein shall mean a
rate of interest equal to the higher or greater of the following: (a) the
"applicable formula rate" defined in Tennessee Code Annotated Section
47-14-102(2), or (b) such other rate of interest as may be charged under other
applicable laws or regulations.
This Note is a secured Note.
This Note has been executed and delivered in, and shall be governed by
and construed according to the laws of the State of Tennessee except to the
extent pre-empted by applicable laws of the United States of America.
This Note may not be changed or terminated without the prior written
approval of the Lender and the Borrower. No waiver of any term or provision
hereof shall be valid unless in writing signed by the holder.
This Note is one of the Term Notes issued by Borrower pursuant to the
Loan Agreement. This Note reflects in part an amendment and restatement of the
indebtedness evidenced by that certain Consolidated, Amended, and Restated Term
Note payable to the order of SunTrust Bank, Nashville, N.A. in the principal
amount of $5,749,245.88 dated as of June 25, 1996, which Consolidated, Amended,
and Restated Term Note was assigned without recourse by SunTrust Bank,
Nashville, N.A. to Agent. Subsequent to the assignment to Agent, separate
notes were issued to the Lenders (as such term is defined in the Loan
Agreement) to evidence the indebtedness. This Note is not (and is not intended
to be) a novation of the indebtedness evidenced previously by the Consolidated,
Amended, and Restated Term Note.
-3-
<PAGE> 68
Executed this 15th day of April, 1997.
BORROWER:
AMSURG CORP., a Tennessee corporation
By:
-------------------------------------
Title:
----------------------------------
-4-
<PAGE> 69
EXHIBIT D
NATIONSBANK
TERM NOTE
FOR VALUE RECEIVED, AMSURG CORP., a Tennessee corporation (hereinafter
referred to as "Borrower"), promises and agrees to pay to the order of
NATIONSBANK OF TENNESSEE, N.A. (the "Lender") at the Nashville, Tennessee
offices of SunTrust Bank, Nashville, N.A, Agent (the "Agent"), in lawful money
of the United States of America, the principal sum of One Million Three Hundred
Fifty Four Thousand Six Hundred Sixty-Five and 95/100 Dollars ($1,354,665.95),
together with interest on the unpaid principal balance outstanding from time to
time hereon computed from the date hereof until maturity at the rate of
interest set forth in that certain Second Amended and Restated Loan Agreement
executed among Borrower, Lender, SunTrust Bank, Nashville, N.A., and Agent
dated April 15, 1997, as such may be amended from time to time (herein referred
to as the "Loan Agreement"). Interest for each year shall be computed based on
the basis of a year of 360 days for the actual number of days elapsed.
This Note shall be repaid as follows: (a) commencing on the tenth
(10th) day of April, 1997 and on the tenth (10th) day of each consecutive month
thereafter through and including May 10, 2000, the Borrower shall pay to Lender
an amount equal to $34,735.04, plus all then accrued interest; and (b) on June
10, 2000, this Note shall mature, and the Borrower shall pay to Lender an
amount equal to all outstanding principal, plus all then accrued interest.
This Note is subject to the terms of the Loan Agreement.
Notwithstanding any provision to the contrary, it is the intent of the
Lender, the Borrower, and all parties liable on this Note, that neither the
Lender nor any subsequent holder shall be entitled to receive, collect, reserve
or apply, as interest, any amount in excess of the maximum lawful rate of
interest permitted to be charged by applicable law or regulations, as amended
or enacted from time to time. In the event the Note calls for an interest
payment that exceeds the maximum lawful rate of interest then applicable, such
interest shall not be received, collected, charged, or reserved until such time
as that interest, together with all other interest then payable, falls within
the then applicable maximum lawful rate of interest. In the event the Lender,
or any subsequent holder, receives any such interest in excess of the then
maximum lawful rate of interest, such amount which would be excessive interest
shall be deemed a partial prepayment of principal and treated hereunder as
such, or, if the principal indebtedness evidenced hereby is paid in full, any
remaining excess funds shall immediately be paid to the Borrower. In
determining whether or not the interest paid or payable, under any specific
contingency, exceeds the maximum lawful rate of
<PAGE> 70
interest, the Borrower and the Lender shall, to the maximum extent permitted
under applicable law, (a) exclude voluntary prepayments and the effects
thereof, and (b) amortize, prorate, allocate, and spread, in equal parts, the
total amount of interest throughout the entire term of the indebtedness;
provided that if the indebtedness is paid in full prior to the end of the full
contemplated term hereof, and if the interest received for the actual period of
existence hereof exceeds the maximum lawful rate of interest, the holder of the
Note shall refund to the Borrower the amount of such excess or credit the
amount of such excess against the principal portion of the indebtedness as of
the date it was received, and, in such event, the Lender shall not be subject
to any penalties provided by any laws for contracting for, charging, reserving,
collecting or receiving interest in excess of the maximum lawful rate of
interest.
Principal and unpaid interest bear interest during the continuance of
any default in payment of principal and interest as herein provided at the
lesser of (i) the Base Rate (as defined in the Loan Agreement), plus 4% per
annum, or the maximum lawful rate of interest permitted by law. In case of
suit, or if this obligation is placed in an attorney's hands for collection, or
to protect the security for its payment, the undersigned will pay all costs of
collection and litigation, including a reasonable attorney's fee.
In the event that there occurs any breach of any promise made in this
Note and such breach continues for longer than fifteen (15) days, or upon the
occurrence of an Event of Default as defined in the Loan Agreement, then,
during the continuance of any of such events, at the option of the holder, the
entire indebtedness hereby evidenced shall become due, payable and collectible
then or thereafter, without notice, as the holder may elect regardless of the
date of maturity. The holder may waive any default before or after the same has
been declared and restore this Note to full force and effect without impairing
any rights hereunder, such right of waiver being a continuing one.
The makers, endorsers, guarantors and all parties to this Note and all
who may become liable for same, jointly and severally waive presentment for
payment, protest, notice of protest, notice of nonpayment of this Note, demand
and all legal diligence in enforcing collection, and hereby expressly agree
that the lawful owner or holder of this Note may defer or postpone collection
of the whole or any part thereof, either principal and/or interest, or may
extend or renew the whole or any part thereof, either principal and/or
interest, or may accept additional collateral or security for the payment of
this Note, or may release the whole or any part of any collateral security
and/or liens given to secure the payment of this Note, or may release from
liability on account of this Note any one or more of the makers, endorsers,
guarantors and/or other parties thereto, all without notice to them or any of
them; and
-2 -
<PAGE> 71
such deferment, postponement, renewal, extension, acceptance of additional
collateral or security and/or release shall not in any way affect or change the
obligation of any such maker, endorser, guarantor or other party to this Note,
or of any who may become liable for the payment thereof.
The Borrower shall pay a "late charge" of five percent (5%) of any
payments of principal and/or interest due when paid more than five days after
the due date thereof (provided that in no event shall said "late charge" result
in the payment of interest in excess of the maximum lawful rate of interest
permitted by applicable law), to cover the extra expenses involved in handling
delinquent payments; and provided that the late charge shall not be applicable
to the payment due on the Maturity Date.
The term "maximum lawful rate of interest" as used herein shall mean a
rate of interest equal to the higher or greater of the following: (a) the
"applicable formula rate" defined in Tennessee Code Annotated Section
47-14-102(2), or (b) such other rate of interest as may be charged under other
applicable laws or regulations.
This Note is a secured Note.
This Note has been executed and delivered in, and shall be governed by
and construed according to the laws of the State of Tennessee except to the
extent pre-empted by applicable laws of the United States of America.
This Note may not be changed or terminated without the prior written
approval of the Lender and the Borrower. No waiver of any term or provision
hereof shall be valid unless in writing signed by the holder.
This Note is one of the Term Notes issued by Borrower pursuant to the
Loan Agreement. This Note reflects in part an amendment and restatement of the
indebtedness evidenced by that certain Consolidated, Amended, and Restated Term
Note payable to the order of SunTrust Bank, Nashville, N.A. in the principal
amount of $5,749,245.88 dated as of June 25, 1996, which Consolidated, Amended,
and Restated Term Note was assigned without recourse by SunTrust Bank,
Nashville, N.A. to Agent. Subsequent to the assignment to Agent, separate
notes were issued to the Lenders (as such term is defined in the Loan
Agreement) to evidence the indebtedness. This Note is not (and is not intended
to be) a novation of the indebtedness evidenced previously by the Consolidated,
Amended, and Restated Term Note.
-3 -
<PAGE> 72
Executed this 15th day of April, 1997.
BORROWER:
AMSURG CORP., a Tennessee corporation
By:
-------------------------------------
Title:
----------------------------------
-4-
<PAGE> 73
Exhibit E
1. Loans to Digestive Disease Clinic, Inc., Jackson, Tennessee. AmSurg
has a management agreement but no current ownership in this ASC but
does have an option to acquire a 51% ownership interest in July, 1997.
2. Loan to The Largo Urology ASC, Inc., Largo, Florida. AmSurg will own
40% of this ASC with a right to buy up to 51% after 3 years of
operation.
3. Loan to Evansville ASC, LLC, Evansville, Indiana. AmSurg current
ownership is 40%. On the date of opening, AmSurg will purchase an
additional 15% bringing ownership to 55%.
<PAGE> 74
Exhibits F and G
AmSurg Corp.
Subsidiaries
As of March 31, 1997
(Note: All subsidiaries are Tennessee entities)
Registered office for all entities is:
One Burton Hills Blvd., Suite 350 Nashville, TN 37215
<TABLE>
<CAPTION>
SUBSIDIARY CORPORATION AND AFFILIATED FACILITY OWNERSHIP
LIMITED PARTNERSHIP/LLC LOCATION INTEREST
<S> <C> <C>
*AmSurg EC Centennial, Inc. Nashville, Tennessee 100%
EIN: 62-1511980
The Endoscopy Center of Centennial, L.P. Nashville, Tennessee 60
*AmSurg EC Topeka, Inc. Topeka, Kansas 100
EIN: 62-1512093
The Endoscopy Center of Topeka, L.P. Topeka, Kansas 60
*AmSurg EC St. Thomas, Inc. Nashville, Tennessee 100
EIN: 62-1511996
The Endoscopy Center of St. Thomas, L.P. Nashville, Tennessee 60
*AmSurg EC Beaumont, Inc. Beaumont, Texas 100
EIN: 62-1524208
The Endoscopy Center of Southeast Texas, L.P. Beaumont, Texas 51
</TABLE>
<PAGE> 75
<TABLE>
<CAPTION>
SUBSIDIARY CORPORATION AND AFFILIATED FACILITY OWNERSHIP
LIMITED PARTNERSHIP/LLC LOCATION INTEREST
<S> <C> <C>
*AmSurg KEC, Inc. Knoxville, Tennessee 100
EIN: 62-1510489
The Endoscopy Center of Knoxville, L.P. Knoxville, Tennessee 51
*AmSurg EC Santa Fe, Inc. Santa Fe, New Mexico 100
EIN: 62-1523398
The Endoscopy Center of Santa Fe, L.P. Santa Fe, New Mexico 60
*AmSurg EC Washington, Inc. Washington, District of 100
Columbia
EIN: 62-1506354
The Endoscopy Center of Washington, D.C., L.P. Washington, District of 60
Columbia
*AmSurg Torrance, Inc. Torrance, California 100
EIN: 62-1545685
The Endoscopy Center of the South Bay, L.P. Torrance, California 51
*AmSurg Brevard, Inc. Melbourne, Florida 100
EIN: 62-1545684
The Ophthalmology Center of Brevard, L.P. Melbourne, Florida 51
*AmSurg Encino, Inc. Encino, California 100
EIN: 62-1545683
The Valley Endoscopy Center, L.P. Encino, California 51
</TABLE>
<PAGE> 76
<TABLE>
<CAPTION>
SUBSIDIARY CORPORATION AND AFFILIATED FACILITY OWNERSHIP
LIMITED PARTNERSHIP/LLC LOCATION INTEREST
<S> <C> <C>
*AmSurg Sebastopol, Inc. Sebastopol, California 100
EIN: 62-1545686
The Sebastopol ASC, L.P. Sebastopol, California 60
*AmSurg ENT Brevard, Inc. Melbourne, Florida 100
EIN: 62-1555412
The ENT Center of Brevard, L.P. Melbourne, Florida 51
*AmSurg Abilene, Inc. Abilene, Texas 100
EIN: 62-1555413
The Abilene ASC, L.P. Abilene, Texas 60
*AmSurg West Tennessee, Inc. Jackson, Tennessee 100
EIN: 62-1555415
The West Tennessee Center, L.P. Jackson, Tennessee 40
*AmSurg Dallas, Inc. Dallas, Texas 100
EIN: 62-1555677
*AmSurg Lakeland, Inc. Lakeland, Florida 100
EIN: 62-1558353
*AmSurg SWFLA, Inc. Fort Myers/Cape Coral, 100
Florida
EIN: 62-1567628
</TABLE>
<PAGE> 77
<TABLE>
<CAPTION>
SUBSIDIARY CORPORATION AND AFFILIATED FACILITY OWNERSHIP
LIMITED PARTNERSHIP/LLC LOCATION INTEREST
<S> <C> <C>
AmSurg Southwest Florida, L.P. Fort Myers/Cape Coral, 60
Florida
*AmSurg Lorain, Inc. Lorain, Ohio 100
EIN: 62-1595307
The Lorain ASC, L.P. Lorain, Ohio 60
*AmSurg Maryville, Inc. Maryville, Tennessee 100
EIN: 62-1586143
The Maryville ASC Maryville, Tennessee 51
*AmSurg Holdings, Inc. All LLCs 100
EIN: 62-1595888
The Knoxville Ophthalmology ASC, LLC Knoxville, Tennessee 60
The West Monroe Endoscopy ASC, LLC West Monroe, Louisiana 55
Montgomery Eye Surgery Center, LLC Montgomery, Alabama 51
The Evansville ASC, LLC Evansville, Indiana 40
The Sidney ASC, LLC Sidney, Ohio 51
The Bloomington ASC, LLC Bloomington, Minnesota 51
The Union City ASC, LLC Union City, Tennessee 51
The Cleveland ASC, LLC Cleveland, Ohio 51
The Milwaukee ASC, LLC Milwaukee, Wisconsin 51
The Eye Care Network, LLC Knoxville, Tennessee 51
The Alabama Eye Care Network, LLC Montgomery, Alabama 51
</TABLE>
<PAGE> 78
<TABLE>
<CAPTION>
SUBSIDIARY CORPORATION AND AFFILIATED FACILITY OWNERSHIP
LIMITED PARTNERSHIP/LLC LOCATION INTEREST
<S> <C> <C>
The Columbia ASC, LLC Columbia, South Carolina 51
The Wichita Orthopaedic ASC, LLC Wichita, Kansas 51
The Minneapolis Endoscopy ASC, LLC Minneapolis, Minnesota 51
The Chevy Chase ASC, LLC Chevy Chase, Maryland 51
The Willoughby ASC, LLC Willoughby, Ohio 51
The Oklahoma City ASC, LLC Oklahoma City, Oklahoma 51
The Cincinnati ASC, LLC Cincinnati, Ohio 51
The Mountain West Gastroenterology ASC, LLC Salt Lake City, Utah 51
*AmSurg Miami, Inc. Miami, Florida 100
EIN: 62-1598504
The Miami ASC, L.P. Miami, Florida 51
*AmSurg North Platte, Inc. North Platte, Nebraska 100
EIN: 62-1619547
*AmSurg Fort Collins, Inc. Fort Collins, Colorado 100
EIN: 62-1612176
*AmSurg Hanford, Inc. Hanford, California 100
EIN: 62-1619548
The Hanford ASC, L.P. Hanford, California 63
</TABLE>
<PAGE> 79
<TABLE>
<CAPTION>
SUBSIDIARY CORPORATION AND AFFILIATED FACILITY OWNERSHIP
LIMITED PARTNERSHIP/LLC LOCATION INTEREST
<S> <C> <C>
*AmSurg Melbourne Inc. Melbourne, Florida 100
EIN: 62-1625312
The Melbourne ASC, L.P. Melbourne, Florida 51
*AmSurg Largo, Inc. Largo, Florida 100
EIN: 62-1625310
The Largo Urology ASC, L.P. Largo, Florida 40
*AmSurg Port Arthur, Inc.. Port Arthur, Texas 100
EIN: 62-1625307
The Port Arthur ASC, L.P. Port Arthur, Texas 51
*Amsurg Chicago, Inc. Chicago, Illinois 100
EIN: 62-1625304
The Chicago Endoscopy ASC, L.P. Chicago, Illinois 51
*AmSurg Dade County, Inc. Miami, Florida 100
EIN: 62-1626021
Gastroenterology Group of South Florida Miami, Florida 70
*AmSurg Hillmont, Inc. Philadelphia, PA 100
EIN: 62-1632685
The Hillmont, ASC, L.P. Philadelphia, PA 51
</TABLE>
<PAGE> 80
<TABLE>
<CAPTION>
SUBSIDIARY CORPORATION AND AFFILIATED FACILITY OWNERSHIP
LIMITED PARTNERSHIP/LLC LOCATION INTEREST
<S> <C> <C>
*AmSurg Northwest Florida, Inc. Panama City, Florida 100
EIN: 62-1519549
The Northwest Florida ASC, L.P. Panama City, Florida 51
*Amsurg Palmetto, Inc. Hialeah, Florida 100
EIN: 62-1647404
The Palmetto ASC, L.P. Hialeah, Florida 51
*AmSurg Hallandale, Inc. Hallandale, Florida 100
EIN: 62-1648269
The Hallandale Surgery ASC, L.P. Hallandale, Florida 51
*AmSurg South Florida Network, Inc. Miami, Florida 100
EIN: 62-1647400
The GI Network of South Florida, L.P. Miami, Florida 51
*AmSurg Panama City, Inc. Panama City, Florida 100
EIN: 62-1659906
The Panama City Eye ASC, L.P. Panama City, Florida 51
*AmSurg Ocala, Inc. Ocala, Florida 100
EIN: 62-1650493
The Ocala Endoscopy ASC, L.P. Ocala, Florida 51
*AmSurg MEA, Inc. Nashville, Tennessee 100
EIN: applied for
</TABLE>
<PAGE> 81
<TABLE>
<CAPTION>
SUBSIDIARY CORPORATION AND AFFILIATED FACILITY OWNERSHIP
LIMITED PARTNERSHIP/LLC LOCATION INTEREST
<S> <C> <C>
*AmSurg Miami Urology, Inc. Miami, Florida 100
EIN: 62-1666190
The Miami Urology Group, L.P. Miami, Florida 60
The Miami Urology ASC, L.P. Miami, Florida 60
*AmSurg Crystal River, Inc. Crystal River, Florida 100
EIN: 62-1666189
The Crystal River Endoscopy ASC, L.P. Crystal River, Florida 51
*AmSurg Abilene Eye, Inc. Abilene, Texas 100
EIN: applied for
The Abilene Eye ASC, L.P. Abilene, Texas 51
</TABLE>
- -------------------------------------------
* Signifies Guarantor
<PAGE> 82
EXHIBIT H
[BASS, BERRY & SIMS LETTERHEAD]
April __, 1997
SunTrust Bank, Nashville, N.A., Agent
201 Fourth Avenue North
Nashville, TN 37219
Attention: Karen Ahern
Dear Ms. Ahern:
We have acted as counsel to AmSurg Corp., a Tennessee corporation (the
"Borrower"), in connection with the execution by the Borrower of that certain
Second Amended and Restated Loan Agreement dated as of April __, 1997 among
Borrower, SunTrust Bank, Nashville, N.A., Agent (the "Agent"), and the Lenders,
described therein (the "Loan Agreement"), the Revolving Credit Notes, the Term
Notes and certain other loan documents executed in connection with the Loan
Agreement (the Loan Agreement, the Revolving Credit Notes, the Term Notes, and
such other loan documents executed by the Borrower are collectively referred to
herein as the "Transaction Documents").
This Opinion Letter is delivered to, and for the benefit of, the Agent
and the Lenders, pursuant to the requirements of the Loan Agreement. All terms
used, but not defined, herein shall have the meanings ascribed to them in the
Loan Agreement or the Accord (see below).
This Opinion Letter is governed by, and shall be interpreted in
accordance with, the Legal Opinion Accord (the "Accord") of the ABA Section of
Business Law (1991). As a consequence, it is subject to a number of
qualifications, exceptions, definitions, limitations on coverage and other
limitations, all as more particularly described in the Accord, and this Opinion
Letter should be read in conjunction therewith.
Solely as to matters of fact, but not as to the legal conclusions that
are the subject of this opinion, we have relied upon representations made by
Borrower in the Transaction Documents.
The Law covered by the opinions expressed herein is limited to the
federal Law of the United States and the Law of the State of Tennessee.
<PAGE> 83
April __, 1997
Page 2
Based on the foregoing, and subject to the assumptions, limitations
and qualifications set forth herein, we are of the opinion that:
1. Borrower is a corporation, duly organized, validly existing,
and in good standing under the laws of the State of Tennessee. Borrower has
the corporate power and corporate authority under such laws to enter into and
perform its obligations under the Transaction Documents.
2. The Transaction Documents have been duly authorized by all
necessary corporate action on the part of Borrower and have been duly executed
and delivered by the Borrower.
3. The Transaction Documents are enforceable against the Borrower.
Our opinion in paragraph 3 is further subject to the qualification
that certain waivers, procedures, remedies and other provisions of the
Transaction Documents may be unenforceable under or limited by applicable law;
provided, however, that the inclusion of such waivers, procedures, remedies and
other provisions does not render the Transaction Documents invalid as a whole,
and subject to the other qualifications and limitations set forth herein, there
exist in the Transaction Documents or pursuant to applicable law, legally
adequate remedies for the practical realization of the principal benefits
reasonably intended to be provided by the Transaction Documents, subject to the
consequences of any delay that may result from limitations imposed by
applicable law.
In making our examinations and in expressing our opinions, we have
assumed that the Transaction Documents have been executed and delivered for
adequate consideration.
The General Qualifications apply to all of the opinions set forth
above.
We hereby confirm to you that there are no actions or proceedings
against the Borrower, pending or threatened in writing, before any court,
governmental agency or arbitrator that affect the enforceability of the
Transaction Documents.
This Opinion Letter may be relied upon by Agent and the Lenders only
in connection with the Transaction Documents and may not be used or relied upon
by any other person for any purpose whatsoever, except to the extent authorized
in the Accord, without in each instance our prior written consent.
Very truly yours,
2
<PAGE> 84
FIRST AMENDMENT TO SECOND AMENDED
AND RESTATED LOAN AGREEMENT
ENTERED INTO by and among AMSURG CORP., a Tennessee corporation (the
"Borrower"), SUNTRUST BANK, NASHVILLE, N.A., AGENT for the Lenders defined
herein ("Agent"), SUNTRUST BANK, NASHVILLE, N.A., a national bank ("STB"), and
NATIONSBANK OF TENNESSEE, N.A., a national bank ("NBT") (herein STB and NBT
shall be referred to as "Lenders"), as of this 6th day of May, 1997.
RECITALS
1. The Borrower, the Agent, and the Lenders entered into a Second Amended
and Restated Loan Agreement dated as of April 15, 1997 (herein the "Loan
Agreement").
2. The Borrower, the Agent, and the Lenders desire to amend the Loan
Agreement as set forth herein.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration the parties hereto agree as follows:
1. Section 7.11(a) of the Loan Agreement shall be amended and restated as
follows:
(a) Net Worth. Permit its Consolidated Net Worth as of March 31,
1997 to be less than $32,726,225; nor permit its Consolidated Net
Worth as measured at the end of each Fiscal Quarter thereafter to
be less than the sum of: (i) $32,726,225, plus (ii) the amount
by which Borrower's additional paid-in capital exceeds $32,726,225,
plus (iii) 75% of the net, after-tax earnings of the Borrower as
determined on a consolidated basis.
2. The Loan Agreement is not amended in any other respect.
3. The Borrower reaffirms its obligations under the Loan Agreement and
agrees that such obligations are valid and binding, enforceable in accordance
with their respective terms, subject to no defense, counterclaim or objection.
ENTERED INTO as of the date first set forth above.
BORROWER:
AMSURG CORP., a Tennessee
corporation
By: Claire M. Gulmi
---------------------------
Title: CFO
-------------------------
AGENT:
SUNTRUST BANK, NASHVILLE, N.A.,
AGENT
By: Karen Cole Ahern
----------------------------
Title: GVP
-------------------------
LENDERS:
SUNTRUST BANK, NASHVILLE, N.A
By: Karen Cole Ahern
----------------------------
Title: GVP
-------------------------
NATIONSBANK OF TENNESSEE, N.A.
By: David H. Dupuy
----------------------------
Title: VP
-------------------------
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARY LIST
AS OF MAY 1, 1997
(PAGE 1 OF 4)
<TABLE>
<CAPTION>
STATE OF OWNERSHIP
NAME OF SUBSIDIARY ORGANIZATION OWNED BY PERCENTAGE
- --------------------------------------------- ------------ --------------------------- ------------
<S> <C> <C> <C>
AmSurg KEC, Inc. TN AmSurg Corp. 100%
The Endoscopy Center of Knoxville, L.P. TN AmSurg KEC, Inc. 51%
AmSurg EC Topeka, Inc. TN AmSurg Corp. 100%
The Endoscopy Center of Topeka, L.P. TN AmSurg EC Topeka, Inc. 60%
AmSurg EC St. Thomas, Inc. TN AmSurg Corp. 100%
The Endoscopy Center of St. Thomas, L.P. TN AmSurg EC St. Thomas, Inc. 60%
AmSurg EC Centennial, Inc. TN AmSurg Corp. 100%
The Endoscopy Center of Centennial, L.P. TN AmSurg EC Centennial, Inc. 60%
AmSurg EC Beaumont, Inc. TN AmSurg Corp. 100%
The Endoscopy Center of Southeast Texas, L.P. TN AmSurg EC Beaumont, Inc. 60%
AmSurg EC Santa Fe, Inc. TN AmSurg Corp. 100%
The Endoscopy Center of Santa Fe, L.P. TN AmSurg EC Santa Fe, Inc. 60%
AmSurg EC Washington, Inc. TN AmSurg Corp. 100%
The Endoscopy Center of Washington D.C., L.P. TN AmSurg EC Washington, Inc. 60%
AmSurg Torrance, Inc. TN AmSurg Corp. 100%
The Endoscopy Center of the South Bay, L.P. TN AmSurg Torrance, Inc. 51%
AmSurg Encino, Inc. TN AmSurg Corp. 100%
The Valley Endoscopy Center, L.P. TN AmSurg Encino, Inc. 51%
AmSurg Brevard, Inc. TN AmSurg Corp. 100%
The Ophthalmology Center of Brevard, L.P. TN AmSurg Brevard, Inc. 51%
AmSurg Sebastopol, Inc. TN AmSurg Corp. 100%
The Sebastopol ASC, L.P. TN AmSurg Sebastopol, Inc. 60%
AmSurg ENT Brevard, Inc. TN AmSurg Corp. 100%
The ENT Center of Brevard, L.P. TN AmSurg ENT Brevard, Inc. 51%
</TABLE>
<PAGE> 2
SUBSIDIARY LIST
AS OF MAY 1, 1997
(PAGE 2 OF 4)
<TABLE>
<CAPTION>
STATE OF OWNERSHIP
NAME OF SUBSIDIARY ORGANIZATION OWNED BY PERCENTAGE
- --------------------------------------------- ------------ --------------------------- ------------
<S> <C> <C> <C>
AmSurg Abilene, Inc. TN AmSurg Corp. 100%
The Abilene ASC, L.P. TN AmSurg Abilene, Inc. 60%
AmSurg West Tennessee, Inc. TN AmSurg Corp. 100%
The West Tennessee Center, L.P. TN AmSurg West Tennessee, Inc. 40%
AmSurg Lakeland, Inc. TN AmSurg Corp. 100%
AmSurg SWFLA, Inc. TN AmSurg Corp. 100%
AmSurg Southwest Florida, L.P. TN AmSurg SWFLA, Inc. 60%
AmSurg Lorain, Inc. TN AmSurg Corp. 100%
The Lorain ASC, L.P. TN AmSurg Lorain, Inc. 51%
AmSurg Maryville, Inc. TN AmSurg Corp. 100%
The Maryville ASC TN AmSurg Maryville, Inc. 51%
AmSurg Holdings, Inc. TN AmSurg Corp. 100%
The Knoxville Ophthalmology ASC, LLC TN AmSurg Holdings, Inc. 60%
The West Monroe Endoscopy ASC, LLC TN AmSurg Holdings, Inc. 55%
Montgomery Eye Surgery Center, LLC TN AmSurg Holdings, Inc. 51%
The Evansville ASC, LLC TN AmSurg Holdings, Inc. 40%
The Sidney ASC, LLC TN AmSurg Holdings, Inc. 51%
The Bloomington ASC, LLC TN AmSurg Holdings, Inc. 51%
The Union City ASC, LLC TN AmSurg Holdings, Inc. 51%
The Cleveland ASC, LLC TN AmSurg Holdings, Inc. 51%
The Milwaukee ASC, LLC TN AmSurg Holdings, Inc. 51%
The Eye Care Network, LLC TN AmSurg Holdings, Inc. 51%
The Alabama Eye Care Network, LLC TN AmSurg Holdings, Inc. 51%
The Columbia ASC, LLC TN AmSurg Holdings, Inc. 51%
The Wichita Orthopaedic ASC, LLC TN AmSurg Holdings, Inc. 51%
The Minneapolis Endoscopy ASC, LLC TN AmSurg Holdings, Inc. 51%
The Chevy Chase ASC, LLC TN AmSurg Holdings, Inc. 51%
The Willoughby ASC, LLC TN AmSurg Holdings, Inc. 51%
The Oklahoma City ASC, LLC TN AmSurg Holdings, Inc. 51%
The Cincinnati ASC, LLC TN AmSurg Holdings, Inc. 51%
The Mountain West Gastroenterlogy ASC, LLC TN AmSurg Holdings, Inc. 51%
AmSurg Miami, Inc. TN AmSurg Corp. 100%
The Miami ASC, L.P. TN AmSurg Miami, Inc. 70%
</TABLE>
<PAGE> 3
SUBSIDIARY LIST
AS OF MAY 1, 1997
(PAGE 3 OF 4)
<TABLE>
<CAPTION>
STATE OF OWNERSHIP
NAME OF SUBSIDIARY ORGANIZATION OWNED BY PERCENTAGE
- --------------------------------------------- ------------ ------------------------------ ------------
<S> <C> <C> <C>
AmSurg North Platte, Inc. TN AmSurg Corp. 100%
AmSurg Fort Collins, Inc. TN AmSurg Corp. 100%
AmSurg Hanford, Inc. TN AmSurg Corp. 100%
The Hanford ASC, L.P. TN AmSurg Hanford, Inc. 63%
AmSurg Dallas, Inc. TN AmSurg Corp. 100%
AmSurg Port Arthur, Inc. TN AmSurg Corp. 100%
The Port Arthur ASC, L.P. TN AmSurg Port Arthur, Inc. 51%
AmSurg Melbourne, Inc. TN AmSurg Corp. 100%
The Melbourne ASC, L.P. TN AmSurg Melbourne, Inc. 51%
AmSurg Chicago, Inc. TN AmSurg Corp. 100%
The Chicago Endoscopy ASC, L.P. TN AmSurg Chicago, Inc. 51%
AmSurg Hillmont, Inc. TN AmSurg Corp. 100%
The Hillmont ASC, L.P. TN AmSurg Hillmont, Inc. 51%
AmSurg Northwest Florida, Inc. TN AmSurg Corp. 100%
The Northwest Florida ASC, L.P. TN AmSurg Northwest Florida, Inc. 51%
AmSurg Palmetto, Inc. TN AmSurg Corp. 100%
The Palmetto ASC, L.P. TN AmSurg Palmetto, Inc. 51%
AmSurg Hallandale, Inc. TN AmSurg Corp. 100%
The Hallandale Surgery ASC, L.P. TN AmSurg Hallandale, Inc. 51%
AmSurg Ocala, Inc. TN AmSurg Corp. 100%
The Ocala Endoscopy ASC, L.P. TN AmSurg Ocala, Inc. 51%
AmSurg South Florida Network, Inc. TN AmSurg Corp. 100%
The GI Network of South Florida, L.P. TN AmSurg South Florida Network, Inc. 51%
AmSurg Largo, Inc. TN AmSurg Corp. 100%
The Largo Urology ASC, L.P. TN AmSurg Largo, Inc. 40%
AmSurg Dade County, Inc. TN AmSurg Corp. 100%
Gastroenterology Group of South Florida TN AmSurg Dade County, Inc. 70%
</TABLE>
<PAGE> 4
SUBSIDIARY LIST
AS OF MAY 1, 1997
(PAGE 4 OF 4)
<TABLE>
<CAPTION>
STATE OF OWNERSHIP
NAME OF SUBSIDIARY ORGANIZATION OWNED BY PERCENTAGE
- ------------------------------------- -------------------- --------------------------- ------------
<S> <C> <C> <C>
AmSurg Panama City, Inc. TN AmSurg Corp. 100%
The Panama City Eye ASC, L.P. TN AmSurg Panama City, Inc. 51%
AmSurg MEA, Inc. TN AmSurg Corp. 100%
AmSurg Miami Urology, Inc. TN AmSurg Corp. 100%
The Miami Urology Group, L.P. TN AmSurg Miami Urology, Inc. 60%
The Miami Urology ASC, L.P. TN AmSurg Miami Urology, Inc. 60%
AmSurg Crystal River, Inc. TN AmSurg Corp. 100%
The Crystal River Endosocopy ASC, L.P. TN AmSurg Crystal River, Inc. 51%
AmSurg Abilene Eye, Inc. TN AmSurg Corp. 100%
The Abilene Eye ASC, L.P. TN AmSurg Abilene Eye, Inc. 51%
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,453,835
<SECURITIES> 0
<RECEIVABLES> 6,770,831
<ALLOWANCES> 0
<INVENTORY> 674,794
<CURRENT-ASSETS> 11,066,924
<PP&E> 18,297,790
<DEPRECIATION> 4,444,937
<TOTAL-ASSETS> 60,892,172
<CURRENT-LIABILITIES> 6,225,344
<BONDS> 0
5,049,622
0
<COMMON> 27,259,208
<OTHER-SE> 417,395
<TOTAL-LIABILITY-AND-EQUITY> 60,892,172
<SALES> 0
<TOTAL-REVENUES> 12,609,924
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 11,830,888
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 326,955
<INCOME-PRETAX> (1,495,830)
<INCOME-TAX> 329,000
<INCOME-CONTINUING> (1,824,830)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,824,830)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
