<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 3, 1997
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10/A-3
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)
<TABLE>
<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:
<TABLE>
<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
November 3, 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 58% 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") a portion 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 (i) 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 and (ii) to have, to the extent possible, an equal number of shares
of each class of AmSurg Common Stock available to be traded in the public
markets.
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 ten votes per share
on the election and removal of directors of AmSurg and one vote per share on all
other matters. The Class A Common Stock and the Class B Common Stock will be
identical in all other respects. The Distribution to AHC stockholders will be of
the Class A Common Stock and Class B Common Stock held by AHC. Application has
been made for listing of the Class A Common Stock and the Class B Common Stock
on the Nasdaq National Market under the symbols "AMSGA" and "AMSGB",
respectively.
If you are a holder of AHC common stock on November , 1997, the record
date for the Distribution, you will receive, in the Distribution, approximately
9.21 shares of Class A Common Stock and approximately 59.36 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 September 30,
1997. Holders of AHC common stock will receive cash in lieu of any fractional
shares of Class A Common Stock or Class B Common Stock. AHC stockholders will be
subject to federal income taxation with respect to approximately 1.5% of the
aggregate shares of the Class A Common Stock and 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 December 3, 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
<PAGE> 3
[AMSURG LETTERHEAD]
November 3, 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 A common stock, no par value, and 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.
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
<PAGE> 4
CROSS-REFERENCE SHEET BETWEEN
INFORMATION STATEMENT
AND ITEMS OF FORM 10
<TABLE>
<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 December 3, 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 AmSurg Common Stock to trade at
proportionately higher per share prices following the Distribution. Immediately
following the Recapitalization, AHC will exchange (the "Exchange") 4,787,131 of
its shares of Class A Common Stock for the same number of 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 purposes for the
Exchange are: (i) 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 and (ii) to
have, to the extent possible, an equal number of shares of each class of AmSurg
Common Stock available to be traded in the public markets. 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 ten 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 A Common Stock and Class B Common Stock will be entitled to share
ratably in any dividends other than dividends payable solely 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 November , 1997 (the
"Distribution Record Date") will receive a dividend of approximately 9.21 shares
of Class A Common Stock and approximately 59.36 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 September 30, 1997, with cash being paid in lieu of
fractional interests in a share of AmSurg 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
AmSurg Common Stock. There is currently no public trading market for the shares
of AmSurg Common Stock. Application has been made for listing the Class A Common
Stock on The Nasdaq Stock Market's National Market (the "Nasdaq National
Market") under the symbol "AMSGA." Application has been made for listing the
Class B Common Stock on the Nasdaq National Market under the symbol "AMSGB."
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 12 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 November 3, 1997.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION....................................... 1
SUMMARY..................................................... 2
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA OF AMSURG... 9
SUMMARY FINANCIAL DATA OF AHC............................... 11
RISK FACTORS................................................ 12
Prior Reliance on AHC..................................... 12
Dependence on Growth Strategy; Capital Needed for
Growth................................................. 12
Ability to Manage Growth.................................. 12
Dependence on Relationships with Physician Partners; Risks
of Conflicts of Interest, Disputes and Contingent
Obligations............................................ 13
Contingent Repurchase Obligations......................... 13
Risks Associated with Capitated Payment Arrangements...... 13
Dependence on Third-Party Reimbursement; Risk of Fee
Reductions or Exclusion from Managed Care
Arrangements........................................... 14
Risks Associated with Medicare-Medicaid Illegal
Remuneration ("anti-kickback") Laws.................... 14
Risks Associated with Physician Self-Referral Laws........ 15
Risks Related to Laws Governing Corporate Practice of
Medicine............................................... 15
Risk of Potential Applicability of Insurance
Regulations............................................ 15
Risks of Compliance with Other Government Regulation...... 16
Risks Related to Intangible Assets........................ 16
Competition............................................... 16
Risk Factors Regarding AHC after Distribution............. 16
Effect of the Distribution on the AHC Common Stock........ 17
Certain Federal Income Tax Considerations................. 17
Proposed Treasury Regulation Regarding Tax Deduction for
Amortization of Goodwill............................... 18
No Prior Market for AmSurg Common Stock................... 18
Shares Eligible for Future Sale........................... 18
Dilution and Impact of AmSurg Preferred Stock............. 19
Certain Antitakeover Effects.............................. 19
Risks Associated With Forward-Looking Statements.......... 19
THE DISTRIBUTION............................................ 20
Background and Reasons for the Distribution............... 20
The Recapitalization and Exchange......................... 25
The Distribution Agreement................................ 26
Conditions................................................ 28
Manner of Effecting the Distribution...................... 28
Listing of Class A Common Stock and Class B Common Stock;
Restrictions on Resale................................. 29
Interests of Certain Persons in the Distribution.......... 29
The Management Agreement.................................. 29
Adjustment of AHC Stock Options........................... 30
Accounting Treatment...................................... 30
Certain Federal Income Tax Consequences................... 31
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA OF
AMSURG.................................................... 34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF AMSURG....................... 36
Overview.................................................. 36
Results of Operations..................................... 37
Liquidity and Capital Resources........................... 40
Recent Accounting Pronouncements.......................... 41
</TABLE>
i
<PAGE> 7
<TABLE>
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PAGE
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<S> <C>
CAPITALIZATION OF AMSURG.................................... 42
SELECTED FINANCIAL DATA OF AHC.............................. 43
BUSINESS OF AHC AFTER DISTRIBUTION.......................... 44
BUSINESS OF AMSURG.......................................... 45
Industry Overview......................................... 45
Strategy.................................................. 46
Acquisition and Development of Surgery Centers............ 46
Surgery Center Locations.................................. 49
Surgery Center Operations................................. 50
Specialty Physician Networks and Practices................ 50
Revenues.................................................. 51
Competition............................................... 52
Government Regulation..................................... 53
Properties................................................ 56
Employees................................................. 56
Legal Proceedings and Insurance........................... 56
MANAGEMENT OF AMSURG........................................ 57
Directors and Executive Officers.......................... 57
Committees of the Board of Directors...................... 58
Compensation of Directors................................. 59
Director and Officer Indemnification and Limitation of
Liability.............................................. 59
Executive Compensation.................................... 61
Employment Agreements..................................... 62
Stock Incentive Plans..................................... 63
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 69
Management Agreement...................................... 69
Administrative Services Agreement......................... 69
Advisory Agreements....................................... 69
Lease Arrangement......................................... 70
Other Arrangements........................................ 70
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 71
DESCRIPTION OF CAPITAL STOCK................................ 73
Authorized Capital Stock.................................. 73
1992 Stockholders' Agreement.............................. 75
Registration Agreement.................................... 76
Stockholders' Agreements.................................. 76
Certain Provisions of the Charter, Bylaws, and Tennessee
Law.................................................... 76
SHARES ELIGIBLE FOR FUTURE SALE............................. 79
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).
AmSurg is subject to the informational requirements of the Exchange Act
and, in accordance therewith, files annual, quarterly and other reports, proxy
statements and other information with the SEC. The reports, proxy statements and
other information filed or to be filed by AmSurg with the SEC are available or
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.
1
<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
September 30, 1997, AmSurg owned a majority interest in 35 surgery centers in 15
states and the District of Columbia, and owned a majority interest in two
physician practice groups. As of September 30, 1997, AmSurg also had 14 centers
under development and had executed letters of intent to acquire or develop eight
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 September 30, 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 and
start-up specialty physician networks 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
physicians or physician practice groups that generally have offices adjacent to
or in close proximity to the
2
<PAGE> 10
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 expected Distribution, 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 monitor
their investments. See "THE DISTRIBUTION --
Background and Reasons for the Distribution."
3
<PAGE> 11
SECURITIES TO BE
DISTRIBUTED.............. 743,000 shares of Class A Common Stock and all of
the outstanding shares of Class B Common Stock,
which is expected to be 4,787,131 shares of Class B
Common Stock, will be distributed. As of September
30, 1997, AHC owned 58% of the outstanding shares
of common stock of AmSurg. As of that date, 32% 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 Amended and
Restated Distribution Agreement, dated as of
November 3, 1997, by and between AHC and AmSurg set
forth as Appendix A hereto (the "Distribution
Agreement").
DISTRIBUTION RATIO......... Approximately 9.21 shares of Class A Common Stock
and approximately 59.36 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 September 30,
1997. Holders of AHC Common Stock will receive cash
in lieu of any fractional shares of AmSurg 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."
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 ten 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 solely 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."
TRADING MARKET............. Application has been made for listing the Class A
Common Stock and the Class B Common Stock on the
Nasdaq National Market under the symbols "AMSGA"
and "AMSGB," respectively. See "THE
DISTRIBUTION -- Listing of Class A Common Stock and
Class B Common Stock; Restrictions on Resale." The
combined trading prices of AHC Common Stock, Class
A Common Stock and Class B 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... November , 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
4
<PAGE> 12
that the Distribution will take place on December
3, 1997 (the "Distribution Date"). Stock
certificates representing the shares of AmSurg
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 either: (a) a letter ruling from the
Internal Revenue Service (the "IRS") or (b) the
legal opinions of Bass, Berry & Sims PLC and
Sutherland, Asbill & Brennan (the "Tax Opinions")
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 and Class B 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 a majority of the voting
power of the capital stock of AmSurg on September
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 4,787,131 shares of Class B Common Stock to
AHC in exchange for the same number of shares of
Class A Common Stock. The AmSurg Common Stock held
by AHC will have as of the date of the Distribution
approximately 91% of the voting power of the
capital stock of AmSurg in the 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
5
<PAGE> 13
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, (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 and (c) to have, to the
extent possible, an equal number of shares of each
class of AmSurg Common Stock available to be traded
in the public markets. 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 or the Tax Opinions 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. Receipt of the remaining
98.5% of the shares of AmSurg Common Stock by AHC
stockholders is expected to be exempt from federal
income taxation. Stockholders will be subject to
federal income taxation with respect to 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," and "DESCRIPTION OF CAPITAL
STOCK -- Certain Provisions of the Charter, Bylaws
and Tennessee Law."
6
<PAGE> 14
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."
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
7
<PAGE> 15
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 nine months ended September 30, 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 nine months ended September 30, 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 nine months ended September 30, 1997 set forth below reflect the effects
of all acquisitions (five surgery centers and one physician practice in 1996 and
five 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., and The Endoscopy Center,
Inc. which were acquired in 1996 and 1997, respectively, 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 ------------------ -------------
---------------------------------------------- ------------ NINE MONTHS NINE MONTHS
YEAR ENDED DECEMBER 31, YEAR ENDED SEPTEMBER 30, ENDED
---------------------------------------------- DECEMBER 31, ------------------ SEPTEMBER 30,
1992(1) 1993 1994 1995 1996 1996 1996 1997 1997
------- ------ ------- ------- ------- ------------ ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS EXCEPT PER SHARE AND CENTER DATA)
OPERATING DATA:
Revenues..................... $ 576 $6,586 $13,826 $22,489 $35,007 $51,082 $24,075 $41,163 $43,784
------ ------ ------- ------- ------- ------- ------- ------- -------
Expenses:
Salaries and benefits...... 456 2,307 4,092 6,243 11,613 15,195 7,976 12,552 13,107
Other operating expenses... 288 3,002 5,091 7,563 11,547 17,482 7,914 14,564 15,260
Depreciation and
amortization............. 51 665 1,309 2,397 3,000 4,101 2,096 3,511 3,708
Interest................... 3 30 193 722 948 1,981 668 1,141 1,365
Net loss on sale of
assets(2)................ -- -- -- -- -- -- -- 1,494 1,494
Distribution cost(3)....... -- -- -- -- -- -- -- 458 458
------ ------ ------- ------- ------- ------- ------- ------- -------
Total expenses....... 798 6,004 10,685 16,925 27,108 38,759 18,654 33,720 35,392
------ ------ ------- ------- ------- ------- ------- ------- -------
Income (loss) before minority
interest and income
taxes...................... (222) 582 3,141 5,564 7,899 12,323 5,421 7,443 8,392
Minority interest in
earnings of consolidated
partnerships............. 87 1,121 2,464 3,938 5,433 8,690 3,756 6,447 7,072
------ ------ ------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes...................... (309) (539) 677 1,626 2,466 3,633 1,665 996 1,320
Income tax expense......... -- -- 26 578 985 1,452 665 1,279 1,409
------ ------ ------- ------- ------- ------- ------- ------- -------
Net income (loss)............ (309) (539) 651 1,048 1,481 2,181 1,000 (283) (89)
Accretion of preferred
stock discount........... -- -- -- -- 22 22 -- 210 210
------ ------ ------- ------- ------- ------- ------- ------- -------
Net income (loss)
attributable to common
stockholders............... $ (309) $ (539) $ 651 $ 1,048 $ 1,459 $ 2,159 $ 1,000 $ (493) $ (299)
====== ====== ======= ======= ======= ======= ======= ======= =======
Net income (loss) per share
attributable to common
stockholders(4)............ $(0.24) $(0.11) $ 0.09 $ 0.12 $ 0.16 $ 0.22 $ 0.11 $ (0.05) $ (0.03)
====== ====== ======= ======= ======= ======= ======= ======= =======
Weighted average common
shares and
equivalents -- pro
forma(4)................... 1,302 4,734 7,313 8,581 9,102 9,602 8,970 9,437 9,571
</TABLE>
- ---------------
See footnotes on following page
9
<PAGE> 17
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
---------------------------------------------- ------------------
AT DECEMBER 31, AT SEPTEMBER 30,
---------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
------- ------ ------- ------- ------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE AND CENTER DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 583 $ 738 $ 1,750 $ 3,470 $ 3,192 2,321 3,626
Working capital....................................... 1,166 993 2,557 2,931 4,732 2,348 6,407
Total assets.......................................... 9,552 14,637 27,065 35,106 54,653 46,853 72,669
Long-term debt........................................ 214 640 3,520 4,786 9,218 10,409 21,730
Minority interest..................................... 647 601 2,019 3,010 5,674 4,113 8,482
Preferred stock....................................... -- -- -- -- 4,982 -- 5,192
Stockholders' equity.................................. 8,440 12,055 19,558 22,479 28,374 26,501 29,542
GENERAL CENTER DATA:
Procedures............................................ 1,146 16,051 30,922 55,344 71,323 49,640 75,028
Centers at period end................................. 4 6 14 18 27 23 35
</TABLE>
- ---------------
(1) Period from April 2, 1992 (inception) through December 31, 1992.
(2) Reflects a loss attributable to the sale of a partnership interest, net of a
gain on the sale of a surgery center building and equipment, which had an
impact of reducing net income per share by $0.16 on the historical and pro
forma results of operations for the nine months ended September 30, 1997.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations of AmSurg" and "Notes to the Consolidated Financial Statements
of AmSurg -- Note 10."
(3) Reflects costs incurred to date related to the Distribution, which had an
impact of reducing net income per share by $0.05 on the historical and pro
forma results of operations for the nine months ended September 30, 1997.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations of AmSurg" and "Notes to Consolidated Financial Statements of
AmSurg -- Note 10."
(4) Adjusted to give effect to the Recapitalization which includes a one for
three reverse stock split.
10
<PAGE> 18
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, 1997, to present AmSurg as a discontinued operation.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AND AT AUGUST 31,
-----------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues.......................... $39,682 $41,144 $36,583 $31,403 $30,537
------- ------- ------- ------- -------
Expenses:
Salaries and benefits........... 16,972 18,699 18,878 19,866 21,437
Other operating expenses........ 11,771 12,271 10,865 7,254 8,702
Depreciation and amortization... 1,340 1,293 1,339 1,273 1,342
Interest........................ 8 6 7 5 6
------- ------- ------- ------- -------
Total expenses.......... 30,091 32,269 31,089 28,398 31,487
------- ------- ------- ------- -------
Income (loss) before income taxes
and discontinued operations..... 9,591 8,875 5,494 3,005 (950)
Income tax expense (benefit)(1)... 3,884 3,586 2,252 544 (207)
------- ------- ------- ------- -------
Income (loss) from continuing
operations...................... 5,707 5,289 3,242 2,461 (743)
Discontinued operations(3)...... (170) 38 674 799 (940)
------- ------- ------- ------- -------
Net income (loss)................. $ 5,537 $ 5,327 $ 3,916 $ 3,260 $(1,683)
======= ======= ======= ======= =======
Income (loss) per share from
continuing operations(2)........ $ 0.68 $ 0.63 $ 0.40 $ 0.30 $ (0.09)
Income (loss) per share from
discontinued operations(2)...... (0.02) 0.00 0.08 0.10 (0.12)
------- ------- ------- ------- -------
Net income (loss) per share(2).... $ 0.66 $ 0.63 $ 0.48 $ 0.40 $ (0.21)
======= ======= ======= ======= =======
Weighted average common shares and
equivalents..................... 8,404 8,461 8,211 8,161 8,022
</TABLE>
<TABLE>
<CAPTION>
AS
ADJUSTED(4)
-----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......... $ 9,016 $ 9,909 $11,076 $12,562 $12,227 $12,227
Working capital................... 12,772 11,972 11,089 13,324 11,564 11,179
Net assets of discontinued
operations...................... 5,354 11,475 14,695 16,361 16,407 --
Total assets...................... 36,848 43,354 45,873 48,943 49,373 34,416
Long-term liabilities............. 1,892 2,138 2,156 2,657 2,186 2,186
Stockholders' equity.............. 30,850 36,460 38,299 41,611 40,441 25,099
</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) Includes an impairment loss of $1,364,000, or $(0.17) per share, the gain on
a sale of AmSurg's interest in a surgery center building and equipment of
$210,000, or $0.03 per share, and distribution costs of $882,000 or $(0.11)
per share.
(4) Adjusted to give effect to the Distribution, including estimated additional
distribution cost of $385,000 and estimated non-cash compensation expense of
$3,750,000 ($2,300,000 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."
11
<PAGE> 19
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 Securities Litigation
Reform Act of 1995 (the "Litigation Reform Act"), 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. The Litigation Reform Act does not apply to initial
public offerings.
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
12
<PAGE> 20
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.
DEPENDENCE ON RELATIONSHIPS WITH PHYSICIAN PARTNERS; RISKS OF CONFLICTS OF
INTEREST, DISPUTES AND CONTINGENT OBLIGATIONS. 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. AmSurg, in its role as general partner or as the chief manager of the
limited liability company, generally exercises its discretion in managing the
business. Disputes may arise between AmSurg and its physician partners with
respect to a particular business decision or as to the interpretation of the
provisions of the partnership or limited liability company operating agreements,
in which event the agreements provide for arbitration as a dispute resolution
process. No assurances can be given that any such dispute will be resolved or if
resolved will be done so on terms satisfactory to AmSurg.
In the limited partnerships in which AmSurg is the general partner, AmSurg
is liable for 100% of the debts and other obligations of the partnership;
however, the partnership agreement requires the physician partners to guarantee
their pro rata share of any indebtedness or lease agreements to which the
partnership is a party, based on the limited partner's ownership interest in the
partnership. AmSurg has similar liability with respect to the bank debt incurred
by the limited liability companies, and guarantees are also required of the
physician members. There can be no assurance that a third party lender or lessor
would seek performance of the guarantees rather than look to AmSurg for
repayment of any obligation of the partnership should it default thereunder or
that the physician partners would have sufficient assets to satisfy their
guarantee obligations. See "Notes to the Consolidated Financial Statements of
AmSurg -- Note 8."
CONTINGENT PURCHASE OBLIGATIONS. 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 purchase 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."
RISKS ASSOCIATED WITH 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
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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; RISK OF FEE REDUCTIONS OR
EXCLUSION FROM MANAGED CARE ARRANGEMENTS. 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 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."
RISKS ASSOCIATED WITH 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
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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."
RISKS ASSOCIATED WITH 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 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."
RISKS RELATED TO LAWS GOVERNING CORPORATE PRACTICE OF MEDICINE. The laws
of certain states in which AmSurg operates or may operate in the future do not
permit general business corporations to practice medicine, exercise control over
physicians who practice medicine or engage in certain business practices such as
fee-splitting with physicians. 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 physician partners who utilize the center 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. A
recent ruling by the Florida Board of Medicine that an agreement between a
physician practice and a practice management company constituted impermissible
fee-splitting, if upheld on judicial appeal, would cause AmSurg to restructure
its relationship with one of the two group practices. AmSurg does not believe
that any such restructuring would have a material adverse effect on AmSurg.
There can be no assurance, however, that future changes in the law in Florida or
any other state in which AmSurg may own an interest in a physician group
practice will not require AmSurg to restructure its ownership of these group
practices and that such restructuring will not have a material adverse effect on
AmSurg. See "BUSINESS OF AMSURG -- Government Regulation -- Corporate Practice
of Medicine."
RISK OF POTENTIAL APPLICABILITY OF INSURANCE REGULATIONS. Laws in all
states regulate the business of insurance and the operations 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.
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AmSurg and its affiliated physician groups may in the future enter into
contracts with managed care organizations, such as HMOs, whereby AmSurg and its
affiliated physician groups would assume risk in connection with providing
healthcare services under capitation arrangements. If AmSurg or its affiliated
physician 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 on AmSurg's
ability to enter into such contracts. See "BUSINESS OF AMSURG -- Government
Regulation -- Insurance Laws."
RISKS OF COMPLIANCE WITH 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."
RISKS RELATED TO INTANGIBLE ASSETS. As a result of purchase accounting for
AmSurg's various acquisition transactions, AmSurg's balance sheet at September
30, 1997 contains an intangible asset designated as excess of cost over net
assets of purchased operations totaling $41.0 million. Using an amortization
period of 25 years, amortization expense relating to this intangible asset will
be approximately $1.8 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 nine months ended September
30, 1997, AmSurg recorded an 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 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 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
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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 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 fiscal 1997, nine 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, Class A Common
Stock and Class B 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 either (i) a ruling from the IRS or (ii) the Tax
Opinions to the effect that, among other things, the Distribution will be
substantially tax-free under Section 355 of the Code. It should be noted that if
a ruling from the IRS is not obtained and instead the Distribution is made in
reliance on the Tax Opinions, the Tax Opinions are not binding on the IRS, and
no assurance can be given that the IRS will not challenge the substantially
tax-free nature of the proposed transaction. In addition, the Tax Opinions, if
issued, would be based upon the representations of the management and
stockholders of AHC and the management of AmSurg and would be qualified by
reference to existing law and other matters. Approximately 1.5% of the shares of
AmSurg Common Stock distributed in the Distribution will be subject to federal
income taxation as a dividend taxable under Section 302 of the Code. 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 AmSurg Common Stock
distributed in the Distribution exceeds AHC's basis therein and (ii) each holder
of AHC Common Stock who received shares of AmSurg Common Stock in the
Distribution would be treated as if the
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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 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 and Class B Common Stock will trade after the
Distribution. Although it is anticipated that the Class A Common Stock and Class
B Common Stock will be traded on the Nasdaq National Market, the prices at which
Class A Common Stock and Class B Common Stock trade may fluctuate significantly.
Prices for the Class A Common Stock and Class B Common Stock may be influenced
by many factors, including the depth and liquidity of the market for such Class
A Common Stock and Class B 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
September 30, 1997, AmSurg had issued options to purchase 1,109,050 shares of
Class A Common Stock (of which 754,921 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
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options, 213,600 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 December 1, 1997. Of the 3,959,718 shares of Class A
Common Stock that are anticipated to be "restricted securities" immediately
following the Distribution, 3,602,809 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 or Class B
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 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, and Section 21E of the Exchange Act , which
are intended to be covered by the safe harbors created thereby. The Litigation
Reform Act, which includes Section 27A of the Securities Act and Section 21E of
the Exchange Act, does not apply to initial public offerings. 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 September 30, 1997,
AHC owned 58% 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 32% 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 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 presented to AmSurg a proposed
Distribution and a related proposed Recapitalization and Exchange (the "Original
Proposed Distribution") which was structured identically in all material
respects to the Distribution and the related Recapitalization and Exchange
except that in the Original Proposed Distribution only shares of Class B Common
Stock were being distributed to AHC stockholders and a share of Class B Common
Stock converted automatically into a share of Class A Common Stock upon any
transfer.
On October 3, 1996, the AmSurg Board of Directors created the Special
Committee to consider whether the Original Proposed Distribution 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
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<PAGE> 28
Bergein F. Overholt, M.D., both independent directors and AmSurg stockholders,
were appointed to the Special Committee. On May 12, 1997, Mr. Weaver resigned
from the AmSurg Board of Directors and the Special Committee and on September
23, 1997, Debora A. Guthrie was appointed by the AmSurg Board of Directors to
fill the vacancy on 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.
The Special Committee held numerous meetings to consider the Original
Proposed Distribution 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 Original Proposed Distribution, including the
filing with the IRS of a request for a ruling to the effect that the Original
Proposed 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.
On November 21, 1996, AHC and AmSurg submitted a ruling request to the IRS
with regard to the federal income tax consequences of the Original Proposed
Distribution (the "November 1996 Ruling Request"). Between November 1996 and
March 7, 1997, when the Original Proposed Distribution was approved, AHC and
AmSurg negotiated the terms of the Original Proposed Distribution. Concurrently,
the Board of Directors of AHC and the Special Committee, together with their
financial advisors, considered the fairness of the Original Proposed
Distribution 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 Original Proposed Distribution
to the stockholders of AHC.
On March 7, 1997, the Special Committee and the AmSurg Board of Directors
determined that the Original Proposed Distribution was fair to and in the best
interests of AmSurg and its stockholders, including the minority stockholders
and approved the Original Proposed Distribution. On March 7, 1997, the AHC Board
of Directors determined that the Original Proposed Distribution was fair to and
in the best interests of the AHC stockholders and approved the Original Proposed
Distribution. Between March 1997 and May 1997, representatives of AHC and AmSurg
had numerous discussions with representatives of the IRS with respect to the
November 1996 Ruling Request. On June 27, 1997, representatives of the IRS
indicated that the IRS planned to rule adversely on the November 1996 Ruling
Request. In light of that oral advice, the November 1996 Ruling Request was
withdrawn and on July 10, 1997 a new tax ruling request (the "July 1997 Ruling
Request") was filed with a modified structure which contemplated the use of a
convertible preferred security to provide AHC with sufficient voting power
necessary for substantially tax free treatment under Section 355 of the Code.
The IRS indicated on October 9, 1997 that it would rule neither favorably nor
adversely on the July 1997 Ruling Request which was then withdrawn. Based upon
further discussions with representatives of the IRS and its tax counsel, AHC
proposed the Distribution which is identical in all material respects to the
Original Proposed Distribution except that the Distribution contemplates the
distribution of both Class A Common Stock and Class B Common Stock to the AHC
stockholders and the Class B Common Stock does not automatically convert into
Class A Common Stock upon transfer. After discussions with representatives of
AHC and with the Special Committee's legal and financial advisers, on October
23, 1997, the Special Committee recommended to the AmSurg Board of Directors
that AmSurg proceed with the necessary steps to effect the Distribution and the
related Recapitalization and Exchange including the filing of a new tax ruling
request with the IRS. On October 23, 1997, the AmSurg Board of Directors
approved the recommendation of the Special Committee. On October 23, 1997, AHC
and AmSurg submitted a ruling request to the IRS with respect to the
Distribution. The Distribution is conditioned upon the receipt of a favorable
tax ruling or favorable Tax Opinions. See "Risk Factors -- Certain Federal
Income Tax Consequences."
On November 3, 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 November 3, 1997
Special Committee meeting, J.C. Bradford delivered its
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<PAGE> 29
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 recommendation of the Special
Committee, the opinion of J.C. Bradford and other factors considered by the
AmSurg Board of Directors, on November 3, 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. In addition to the financial advice and opinion of J.C.
Bradford, 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 AmSurg
Common Stock differed materially only in voting rights for the election and
removal of directors and that 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.
Opinion of J.C. Bradford. On November 3, 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, 1997 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
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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 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 or Class B
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 October 31, 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 and 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. In addition to the financial advice and opinion of Morgan Keegan,
the determination by the AHC Board of Directors 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.
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Opinion of Morgan Keegan. On October 31, 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, the 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, the
Exchange and the 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 made available to it from published sources
and by officers of AHC;
(ii) reviewed the financial statements of AmSurg contained in
this 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 it deemed relevant;
(viii) reviewed certain publicly available information relating to
certain companies it deemed appropriate in analyzing AHC and
AmSurg;
(ix) reviewed the trading history of AHC Common Stock;
(x) reviewed a draft, dated October 20, 1997, of the Information
Statement to be included in the Registration Statement on
Form 10, as amended, for the AmSurg Common Stock to be filed
with the SEC; and
(xi) 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.
</TABLE>
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 AmSurg Common
Stock will trade after the Distribution. In its opinion, Morgan Keegan states
that it has assumed that the Distribution will be substantially tax-free to AHC
and its stockholders, as described elsewhere in this Information Statement. 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.
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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, (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 and (iii) to have,
to the extent possible, an equal number of shares of each class of AmSurg Common
Stock available to be traded in the public markets. The number of votes per
share of the Class B Common Stock, when combined with the Class A Common Stock
held by AHC, is required to be sufficient to enable AHC to distribute, in the
Distribution, after 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
AmSurg Common Stock held by AHC will be required to have on the date of the
Recapitalization and Exchange approximately 91% of the voting power of the
capital stock of AmSurg in the 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 December 1, 1997. AHC, as the holder of a majority of the voting power of
the AmSurg capital 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 ten votes per
share in the election and removal of AmSurg directors and one vote in all other
matters, so that, when exchanged for 4,787,131 of the shares of Class A Common
Stock then owned by AHC, AHC will own shares of AmSurg Common Stock having
approximately 91% 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.
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<PAGE> 33
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 common
stock in the Recapitalization. The shares that would otherwise be distributed as
fractional shares to holders of AmSurg 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 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 4,787,131 shares of Class A Common Stock in exchange
for 4,787,131 shares of Class B Common Stock. The sole purposes of the Exchange
are: (i) 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 and (ii) to have, to the extent possible, an equal
number of shares of each class of AmSurg Common Stock available to be traded in
the public markets. 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.
THE DISTRIBUTION AGREEMENT
On November 3, 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 AmSurg 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.
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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 and Class B
Common Stock 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
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 and Class B 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 requests, and, if applicable,
the Tax Opinions, (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 $1,000,000 and $650,000, respectively.
27
<PAGE> 35
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 or Tax Opinions 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 or opinions; (ii) the listing on a national
securities exchange or for inclusion on the Nasdaq National Market of the AmSurg
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 the Distribution in accordance with the Distribution Agreement are
conditioned upon the completion of the Exchange. AHC, as holder of a majority of
the voting power of the capital stock of AmSurg on September 30, 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 AmSurg 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 AmSurg
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
approximately 9.21 shares of Class A Common Stock and approximately 59.36 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 September 30, 1997. All such shares of AmSurg 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.
28
<PAGE> 36
LISTING OF CLASS A COMMON STOCK AND CLASS B COMMON STOCK; RESTRICTIONS ON RESALE
Application has been made for listing the Class A Common Stock and Class B
Common Stock on the Nasdaq National Market. The AmSurg Common Stock received
pursuant to the Distribution will be freely transferable under the Securities
Act, except for shares of AmSurg 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 AmSurg Common Stock outstanding as of the Distribution
held by stockholders other than AHC 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
3,959,718 shares of Class A Common Stock that are anticipated to be "restricted
securities" immediately following the Distribution, 3,602,809 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."
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
29
<PAGE> 37
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 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 Original Proposed Distribution by the AHC
Board of Directors on March 7, 1997, AHC has presented the business of AmSurg as
a discontinued operation to the extent financial information for periods prior
to the Distribution was 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 $1,000,000 for AHC and $650,000 for AmSurg, and will be generally
non-deductible for federal income tax purposes. Expenses incurred have been
recorded as operating expenses 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
30
<PAGE> 38
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 average common shares and equivalents. If the
Distribution were to have occurred on August 31, 1997, on which date the closing
price of AHC Common Stock was $11.13, the estimated impact on earnings and
stockholders' equity would have been as follows:
<TABLE>
<CAPTION>
NET INCOME
INCREASE
(DECREASE)
----------
<S> <C>
Compensation expense........................................ $(3,750,000)
Estimated income tax benefit................................ 1,450,000
-----------
Net decrease in net income........................ $(2,300,000)
===========
</TABLE>
<TABLE>
<CAPTION>
STOCKHOLDERS'
EQUITY
INCREASE
(DECREASE)
-------------
<S> <C>
Increase in paid-in capital from stock options.............. $ 3,750,000
Net decrease in net income.................................. (2,300,000)
-----------
Net increase in stockholders' equity.............. $ 1,450,000
===========
</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 either (i) the receipt
of a ruling or rulings, in form and substance satisfactory to AHC, from the IRS,
or (ii) the receipt of the Tax Opinions, in form and substance satisfactory to
AHC, 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
31
<PAGE> 39
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 AmSurg
Common Stock in the Distribution, except with respect to cash 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 AmSurg Common Stock and AHC Common Stock
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 AmSurg Common Stock and
AHC Common Stock 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 AmSurg 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 AmSurg Common Stock and such stockholder's basis in the fractional share
interest for which cash is received; and
h. An AHC stockholder will recognize dividend income equal to the the
fair market value of the AmSurg Common Stock that was originally received
in a transaction in which gain was recognized by AHC.
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 dividend
income taxable under Section 301 of the Code with respect to 1.5% of the shares
of AmSurg Common Stock received by such stockholder in the Distribution. Any
such income 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. AHC will be deemed to have paid a
dividend with respect to 1.5% of the shares of AmSurg Common Stock distributed
to AHC stockholders and will be subject to federal income taxation on the excess
of the fair market value of such shares over AHC's adjusted basis in such
shares.
A ruling request with respect to the Distribution was submitted to the IRS
on October 23, 1997. 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.
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<PAGE> 40
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.
In the event that AHC does not obtain a ruling from the IRS with respect to
the substantially tax-free nature of the transactions contemplated hereby before
the Distribution Date, AHC intends to make the Distribution in reliance on the
Tax Opinions. It should be noted that if a ruling from the IRS is not obtained
and instead the Distribution is made in reliance on the Tax Opinions, the Tax
Opinions are not binding on the IRS, and no assurance can be given that the IRS
will not challenge the substantially tax-free nature of the proposed
transaction. In addition, the Tax Opinions, if issued, would be based upon the
representations of the management and stockholders of AHC and the management of
AmSurg and would be qualified by reference to existing law and other matters.
See "RISK FACTORS -- Certain Federal Income Tax Consequences."
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 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.
As stated above, 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.
33
<PAGE> 41
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 nine months ended September 30, 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 nine months ended September 30, 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 nine months ended September 30, 1997 set forth below reflect the effects
of all acquisitions (five surgery centers and one physician practice in 1996 and
five 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. and The Endoscopy Center,
Inc. which were acquired in 1996 and 1997, respectively, 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
PRO FORMA NINE MONTHS -------------
------------ NINE MONTHS
HISTORICAL
---------------------------------------------- ENDED
YEAR ENDED DECEMBER 31, YEAR ENDED SEPTEMBER 30, ENDED
---------------------------------------------- DECEMBER 31, ------------------ SEPTEMBER 30,
1992(1) 1993 1994 1995 1996 1996 1996 1997 1997
------- ------ ------- ------- ------- ------------ ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS EXCEPT PER SHARE AND CENTER DATA)
OPERATING DATA:
Revenues..................... $ 576 $6,586 $13,826 $22,489 $35,007 $51,082 $24,075 $41,163 $43,784
------ ------ ------- ------- ------- ------- ------- ------- -------
Expenses:
Salaries and benefits...... 456 2,307 4,092 6,243 11,613 15,195 7,976 12,552 13,107
Other operating expenses... 288 3,002 5,091 7,563 11,547 17,482 7,914 14,564 15,260
Depreciation and
amortization............. 51 665 1,309 2,397 3,000 4,101 2,096 3,511 3,708
Interest................... 3 30 193 722 948 1,981 668 1,141 1,365
Net loss on sale of
assets(2)................ -- -- -- -- -- -- -- 1,494 1,494
Distribution cost(3)....... -- -- -- -- -- -- -- 458 458
------ ------ ------- ------- ------- ------- ------- ------- -------
Total expenses....... 798 6,004 10,685 16,925 27,108 38,759 18,654 33,720 35,392
------ ------ ------- ------- ------- ------- ------- ------- -------
Income (loss) before minority
interest and income
taxes...................... (222) 582 3,141 5,564 7,899 12,323 5,421 7,443 8,392
Minority interest in
earnings of consolidated
partnerships............. 87 1,121 2,464 3,938 5,433 8,690 3,756 6,447 7,072
------ ------ ------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes...................... (309) (539) 677 1,626 2,466 3,633 1,665 996 1,320
Income tax expense......... -- -- 26 578 985 1,452 665 1,279 1,409
------ ------ ------- ------- ------- ------- ------- ------- -------
Net income (loss)............ (309) (539) 651 1,048 1,481 2,181 1,000 (283) (89)
Accretion of preferred
stock discount........... -- -- -- -- 22 22 -- 210 210
------ ------ ------- ------- ------- ------- ------- ------- -------
Net income (loss)
attributable to common
stockholders............... $ (309) $ (539) $ 651 $ 1,048 $ 1,459 $ 2,159 $ 1,000 $ (493) $ (299)
====== ====== ======= ======= ======= ======= ======= ======= =======
Net income (loss) per share
attributable to common
stockholders(4)............ $(0.24) $(0.11) $ 0.09 $ 0.12 $ 0.16 $ 0.22 $ 0.11 $ (0.05) $ (0.03)
====== ====== ======= ======= ======= ======= ======= ======= =======
Weighted average common
shares and
equivalents -- pro
forma(4)................... 1,302 4,734 7,313 8,581 9,102 9,602 8,970 9,437 9,571
</TABLE>
- ---------------
See footnotes on following page
34
<PAGE> 42
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
---------------------------------------------- ------------------
AT DECEMBER 31, AT SEPTEMBER 30,
---------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
------- ------ ------- ------- ------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE AND CENTER DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 583 $ 738 $ 1,750 $ 3,470 $ 3,192 2,321 3,626
Working capital....................................... 1,166 993 2,557 2,931 4,732 2,348 6,407
Total assets.......................................... 9,552 14,637 27,065 35,106 54,653 46,853 72,669
Long-term debt........................................ 214 640 3,520 4,786 9,218 10,409 21,730
Minority interest..................................... 647 601 2,019 3,010 5,674 4,113 8,482
Preferred stock....................................... -- -- -- -- 4,982 -- 5,192
Stockholders' equity.................................. 8,440 12,055 19,558 22,479 28,374 26,501 29,542
GENERAL CENTER DATA:
Procedures............................................ 1,146 16,051 30,922 55,344 71,323 49,640 75,028
Centers at period end................................. 4 6 14 18 27 23 35
</TABLE>
- ---------------
(1) Period from April 2, 1992 (inception) through December 31, 1992.
(2) Reflects a loss attributable to the sale of a partnership interest, net of a
gain on the sale of a surgery center building and equipment, which had an
impact of reducing net income per share by $0.16 on the historical and pro
forma results of operations for the nine months ended September 30, 1997.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations of AmSurg" and "Notes to the Consolidated Financial Statements
of AmSurg -- Note 10."
(3) Reflects costs incurred to date related to the Distribution, which had an
impact of reducing net income per share by $0.05 on the historical and pro
forma results of operations for the nine months ended September 30, 1997.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations of AmSurg" and "Notes to Consolidated Financial Statements of
AmSurg -- Note 10."
(4) Adjusted to give effect to the Recapitalization which includes a one for
three reverse stock split.
35
<PAGE> 43
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 September 30, 1997, AmSurg owned a majority
interest (51% or greater) in 35 surgery centers, owned a majority interest (60%
or greater) in two physician practices and had established and was the majority
owner (51%) of three start-up specialty physician networks. As of September 30,
1997, AHC owned 58% 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
Litigation Reform Act, 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 Litigation Reform
Act does not apply to initial public offerings. 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 identify suitable acquisition candidates and negotiate and close
acquisition transactions; 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; its ability to minimize
start-up losses of its development centers; 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 September 30, 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 NINE MONTHS
DECEMBER 31, ENDED
------------------ SEPTEMBER 30,
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 5
New development centers placed in operation................. 5 2 3 6
Centers sold................................................ -- -- -- (3)
== == == ==
Centers in operation, end of period......................... 14 18 27 35
== == == ==
Centers under development, end of period.................... 4 13 20 14
</TABLE>
Twenty-seven of the surgery centers in operation as of September 30, 1997
perform gastrointestinal endoscopy procedures; five 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. The other partner or
member in each partnership or limited liability company is in each case an
entity owned by physicians who perform procedures at the center.
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. The other partner in each partnership is an
entity owned by the principal physicians who provide professional medical
services to patients of the practice. All third party payor contracts under
which the two physician group practices provide professional services are
entered into by the group practice entity in which AmSurg is the general partner
and owns a majority interest.
36
<PAGE> 44
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 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.
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.
AmSurg's sources of revenues are set forth in the table below.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
-----------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------- NINE MONTHS ENDED
SOURCE OF REVENUES 1994 1995 1996 SEPTEMBER 30, 1997
- ------------------ ----- ----- ----- --------------------
<S> <C> <C> <C> <C>
Surgery center.............................. 97% 96% 83% 82%
Physician practice.......................... -- -- 15 16
Management fee.............................. 1 2 1 1
Interest and other.......................... 2 2 1 1
--- --- --- ---
Total............................. 100% 100% 100% 100%
=== === === ===
</TABLE>
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 years ended
December 31, 1994, 1995 and 1996, respectively, and 36% and 34% in the nine
month periods ended September 30, 1996 and 1997, respectively, from governmental
healthcare programs including Medicare and Medicaid.
RESULTS OF OPERATIONS
Nine Month Period ended September 30, 1997 Compared to Nine Month Period ended
September 30, 1996
Revenues were $41,163,000 for the nine months ended September 30, 1997, an
increase of $17,088,000, or 71%, over revenues for the comparable period in
1996. The increase is primarily attributable to additional centers in operation
since January 1, 1996 and the acquisition of a urology physician practice on
January 1, 1997. Excluding the three centers which were disposed of as described
below, same-center revenues for the nine month period ended September 30, 1997
increased by 6%. Same-center growth resulted from increased case volume and
increases in fees. 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.
Salaries and benefits expense was $12,552,000 for the nine months ended
September 30, 1997, an increase of $4,576,000, or 57%, over salaries and
benefits expense for the comparable period in 1996. Other operating expenses
were $14,564,000 for the nine months ended September 30, 1997, an increase of
$6,649,000, or 84%, over other operating expenses for the comparable period of
1996. This increase resulted
37
<PAGE> 45
primarily from additional centers in operation, the acquisition of the interest
in the urology physician practice and from 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 in the aggregate as a percentage of revenues remained comparable at
approximately 66% for the nine month periods ended September 30, 1997 and 1996.
However, salaries and benefits expense as a percentage of revenues decreased
during the 1997 period while other operating expenses as a percentage of
revenues increased proportionately during the 1997 period compared to the 1996
period due to the inclusion of contracted physician services within other
operating expenses for the urology practice acquired in January 1997.
Depreciation and amortization expense increased $1,415,000, or 68%, for the
nine month period ended September 30, 1997, over the comparable period in 1996,
primarily due to 12 additional surgery centers and one physician practice in
operation in the 1997 period compared to the 1996 period. Interest expense
increased $472,000, or 71%, in the nine month period ended September 30, 1997
over the comparable period in 1996 due to debt assumed or incurred in connection
with additional acquisitions of interests in surgery centers and a physician
practice plus the interest expense associated with newly opened start-up surgery
centers financed partially with bank debt.
AmSurg anticipates further increases in operating expenses during the
remainder of 1997 primarily due to additional start-up centers placed in
operation in excess of the number of development centers historically opened by
AmSurg within a nine month period. Typically a start-up center will incur
start-up losses during its initial one to three months of operations and
experiences lower revenues and operating margins than an established center
until its case load grows to a more optimal operating level, which generally is
expected to occur within 12 months after a center opens.
Included in net loss on sale of assets in the nine month period ended
September 30, 1997 is a loss of approximately $1,954,000 from the disposition in
September 1997 of AmSurg's investment in a partnership that owned two surgery
centers acquired in 1994. Various disagreements with the sole physician partner
over the operation of these centers have adversely impacted the operations of
these centers. After a series of discussions and attempts to resolve these
differences, AmSurg determined that the partners could not resolve their
disagreements and that as a result the carrying value of the assets associated
with this partnership would not likely be fully recovered. AmSurg projected the
undiscounted cash flows from these centers and determined these cash flows to be
less than the carrying value of the long-lived assets attributable to this
partnership. Accordingly, an impairment loss equal to the excess of the carrying
value of the long-lived assets over the present value of the estimated future
cash flows was recorded in March 1997 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." In September 1997, AmSurg sold its
interest in the partnership assets to its physician partner and recognized a
partial loss recovery. Management believes it has good relationships with its
other physician partners and that the loss attributable to the partnership
discussed above resulted from a unique set of circumstances. AmSurg does not
believe that the absence of the operations of these two centers will have a
significant impact on AmSurg's future ongoing results of operations.
In addition, net loss on sale of assets includes a pretax gain of
approximately $460,000 from the sale in July 1997 of the building and equipment
comprising a surgery center which AmSurg leased to a gastrointestinal physician
practice located in Tennessee. AmSurg concurrently terminated its management
agreement for this surgery center in which AmSurg had no ownership interest but
had managed since 1994.
Distribution cost in the nine month period ended September 30, 1997
represents costs incurred by AmSurg to date related to effecting the
Distribution.
AmSurg's minority interest in earnings for the nine month period ended
September 30, 1997 increased by $2,692,000 from the comparable 1996 period
primarily as a result of minority partners' interest in earnings at surgery
centers recently added to operations and from increased profitability at
same-centers.
AmSurg recognized income tax expense of $1,279,000 in the nine month period
ended September 30, 1997, compared to $665,000 in the comparable period in 1996.
Because the net loss on sale of assets may only be deducted for tax purposes
against future capital gains for up to five years, AmSurg has recognized no tax
38
<PAGE> 46
benefit associated with this loss in the current period. However, certain tax
aspects of the gain transaction recorded during the nine month period ended
September 30, 1997 resulted in income tax expense of approximately $100,000. In
addition, the distribution cost recognized by AmSurg is not deductible for tax
purposes. AmSurg's effective tax rate in both periods is 40% of earnings prior
to the impact of the net loss on sale of assets and distribution cost, and
differs from the federal statutory income tax rate of 34% due primarily to the
impact of state income taxes.
Accretion of preferred stock discount resulted from the issuance during
November 1996 of redeemable preferred stock with a redemption amount of
$3,000,000. The preferred stock was recorded at its fair market value, net of
issuance costs. The redeemable preferred stock is being accreted to its
redemption value including potential dividends which will begin in November 1998
unless redeemed by that date.
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 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
39
<PAGE> 47
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.
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 nine month period ended September 30,
1997 generated $8,912,000 and $9,713,000, 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 nine month period
ended September 30, 1997 used $18,350,000, including $12,626,000 used to acquire
interests in five additional surgery centers and an interest in the urology
physician practice and $7,738,000 to acquire property and equipment for new
start-up surgery centers and for new or replacement property at existing centers
which were partially offset by $1,978,000 in proceeds from the sale of a surgery
center building and equipment and the sale of a partnership interest in two
surgery 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 nine month period September 30, 1997 provided $9,070,000 in cash flow,
primarily as a result of (i) net additions to long-term debt of $15,533,000,
(ii) minority partner capital contributions to AmSurg's partnerships and limited
liability companies of $2,289,000 and (iii) $494,000 in cash proceeds from the
issuance of common stock; these financing proceeds were partially offset by
$6,342,000 in distributions to surgery center minority partners. At September
30, 1997, AmSurg had $3,343,000 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 $16,988,000 under a related revolving
credit facility which provides up to $25,000,000 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 September 30, 1997, AmSurg
partnerships and limited liability companies had unfunded construction and
equipment purchase commitments for centers under development of approximately
$3,100,000. Of the $3,100,000, AmSurg expects that approximately $2,100,000 will
be borrowed under AmSurg's credit facility (and guaranteed on a pro rata basis
by the physicians), and that the remaining amount will be provided by AmSurg and
the physician partners in proportion to their respective ownership interests.
AmSurg intends to fund its portion out of cash flow from operations.
40
<PAGE> 48
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 for a limited period of time following the Distribution or upon a
Qualified IPO at the then current market price of the Class A Common Stock. Upon
a Qualified IPO or other triggering event, 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 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. The failure to raise the funds necessary to finance its
future cash requirements could adversely affect AmSurg's ability to pursue its
strategy and could adversely affect its results of operations for future
periods.
AmSurg is evaluating the Year 2000 issues and the impact upon information
systems and computer technologies. While certain applications in system software
critical to processing financial and operational information are Year 2000
compliant, AmSurg expects to incur some costs in testing and implementing
updates to such software. AmSurg is also evaluating the impact of the Year 2000
on other computer technologies and software. All costs to evaluate and make
modifications will be expensed as incurred and are not expected to have a
significant impact on AmSurg's ongoing results of operations.
RECENT ACCOUNTING PRONOUNCEMENTS
AmSurg 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.
AmSurg 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.
Statements of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income" and No. 131 "Disclosures about Segments of an Enterprise
and Related Information" become effective for AmSurg for the year ended December
31, 1998. AmSurg is still evaluating the effects of adopting these two
statements, but does not expect the adoption of either pronouncement to have a
material effect on AmSurg's consolidated financial statements.
41
<PAGE> 49
CAPITALIZATION OF AMSURG
The following table sets forth the capitalization of AmSurg as of September
30, 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 SEPTEMBER 30, 1997
--------------------------
HISTORICAL PRO FORMA(1)
---------- ------------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt:
$25,000,000 credit agreement.............................. $16,988 $16,988
Term note................................................. 3,343 3,343
Other long-term debt...................................... 4,161 4,161
------- -------
Total debt........................................ 24,492 24,492
------- -------
Minority interest........................................... 8,482 8,482
Preferred stock, no par value, 5,000,000 shares authorized,
916,666 issued
Series A redeemable preferred stock, 500,000 shares
outstanding............................................ 1,984 1,984
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,
9,489,849 shares outstanding........................... 27,725 --
Class A common stock, no par value, 20,000,000 shares
authorized, 4,702,718 shares outstanding............... -- 14,196
Class B common stock, no par value, 4,800,000 shares
authorized, 4,787,131 shares outstanding............... -- 13,529
Retained earnings......................................... 1,817 1,625
------- -------
Total capitalization.............................. $67,708 $67,516
======= =======
</TABLE>
- ---------------
(1) Pro forma to give effect to the Recapitalization and Distribution.
42
<PAGE> 50
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, 1997 to present AmSurg as a discontinued operation.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED AND AT AUGUST 31,
-----------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues............................... $39,682 $41,144 $36,583 $31,403 $30,537
------- ------- ------- ------- -------
Expenses:
Salaries and benefits................ 16,972 18,699 18,878 19,866 21,437
Other operating expenses............. 11,771 12,271 10,865 7,254 8,702
Depreciation and amortization........ 1,340 1,293 1,339 1,273 1,342
Interest............................. 8 6 7 5 6
------- ------- ------- ------- -------
Total expenses............... 30,091 32,269 31,089 28,398 31,487
------- ------- ------- ------- -------
Income (loss) before income taxes and
discontinued operations.............. 9,591 8,875 5,494 3,005 (950)
Income tax expense (benefit)(1)........ 3,884 3,586 2,252 544 (207)
------- ------- ------- ------- -------
Income (loss) from continuing
operations........................... 5,707 5,289 3,242 2,461 (743)
Discontinued operations(3)........... (170) 38 674 799 (940)
------- ------- ------- ------- -------
Net income (loss)...................... $ 5,537 $ 5,327 $ 3,916 $ 3,260 $(1,683)
======= ======= ======= ======= =======
Income (loss) per share from continuing
operations(2)........................ $ 0.68 $ 0.63 $ 0.40 $ 0.30 $ (0.09)
Income (loss) per share from
discontinued operations(2)........... (0.02) 0.00 0.08 0.10 (0.12)
------- ------- ------- ------- -------
Net income (loss) per share(2)......... $ 0.66 $ 0.63 $ 0.48 $ 0.40 $ (0.21)
======= ======= ======= ======= =======
Weighted average common shares and
equivalents.......................... 8,404 8,461 8,211 8,161 8,022
</TABLE>
<TABLE>
<CAPTION>
AS
ADJUSTED(4)
-----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............. $ 9,016 $ 9,909 $11,076 $12,562 $12,227 $12,227
Working capital........................ 12,772 11,972 11,089 13,324 11,564 11,179
Net assets of discontinued
operations........................... 5,354 11,475 14,695 16,361 16,407 --
Total assets........................... 36,848 43,354 45,873 48,943 49,373 34,416
Long-term liabilities.................. 1,892 2,138 2,156 2,657 2,186 2,186
Stockholders' equity................... 30,850 36,460 38,299 41,611 40,441 25,099
</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) Includes an impairment loss of $1,364,000, or ($0.17) per share, the gain on
a sale of AmSurg's interest in a surgery center building and equipment of
$210,000, or $0.03 per share, and distribution cost of $882,000, or ($0.11)
per share.
(4) Adjusted to give effect to the Distribution, including estimated additional
distribution cost of $385,000 and estimated non-cash compensation expense of
$3,750,000 ($2,300,000 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."
43
<PAGE> 51
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 provided its diabetes disease management
services for individuals with diabetes pursuant to contracts with Bristol-Myers
Squibb covering employees with diabetes located in central and western New
Jersey and eastern Pennsylvania, with Principal Health Care, Inc. for enrollees
at seven of its HMO locations and with Health Options, Inc., a subsidiary of
Blue Cross and Blue Shield of Florida, for enrollees at two of its HMO
locations. DTCA has also recently executed and is in the process of implementing
a contract with CIGNA HealthCare to provide diabetes disease management services
to enrollees at six of CIGNA HealthCare's HMO locations. These contracts provide
for DTCA to deliver disease management services to approximately 32,000
individuals with diabetes. While DTCA believes that these agreements will
provide revenue and profit opportunities for DTCA over the two to five year
terms 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."
44
<PAGE> 52
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
September 30, 1997, AmSurg owned a majority interest in 35 surgery centers in 15
states and the District of Columbia and owned a majority interest in two
physician practice groups. As of September 30, 1997, AmSurg also had 14 centers
under development and had executed letters of intent to acquire or develop eight
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 September 30, 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.
According to estimates of SMG Marketing Group Inc. in its Freestanding
Outpatient Surgery Center Directory (June 1997), an industry publication,
outpatient surgical procedures represented approximately 68% of all surgical
procedures performed in the United States in 1996. As of December 31, 1996,
there were approximately 2,425 freestanding ambulatory surgery centers in the
U.S., of which approximately 171 were owned by hospitals and approximately 607
were owned by corporate entities. The remaining approximately 1,647 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
45
<PAGE> 53
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 leader in the development, acquisition and
operation of 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
intensive services in a broader array of surgical specialties. In addition, the
practice-based surgery center,
46
<PAGE> 54
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 administrative services to the center. Because the
management fee usually approximates the value of services
47
<PAGE> 55
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 purchase 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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<PAGE> 56
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 September 30, 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
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
Fayetteville, Arkansas........ Gastroenterology 1992 May 1997 2 51
Independence, Missouri........ Gastroenterology 1994 Sept. 1997 2 60
Kansas City, Missouri......... Gastroenterology 1995 Sept. 1997 2 60
DEVELOPED CENTERS
Santa Fe, New Mexico.......... Gastroenterology May 1994 -- 3 60
Tarzana, California........... Gastroenterology July 1994 -- 3 51
Beaumont, Texas............... Gastroenterology Oct. 1994 -- 3 51
Abilene, Texas................ Gastroenterology Dec. 1994 -- 3 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
Montgomery, Alabama........... Ophthalmology May 1997 -- 2 51
Willoughby, Ohio.............. Gastroenterology July 1997 -- 2 51
Milwaukee, Wisconsin.......... Gastroenterology July 1997 -- 2 51
Chevy Chase, Maryland......... Gastroenterology July 1997 -- 2 51
Melbourne, Florida............ Gastroenterology Aug. 1997 -- 2 51
Lorain, Ohio.................. Gastroenterology Aug. 1997 -- 2 51
</TABLE>
49
<PAGE> 57
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 September 30, 1997, 27 of the AmSurg centers in operation performed
gastrointestinal endoscopy procedures, five 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 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 position AmSurg to capture an increased volume
of managed care contracts, including capitated contracts, and will increase the
market share and profitability of the AmSurg surgery centers and the practices.
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<PAGE> 58
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 September 30, 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 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
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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 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 $2.1 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.
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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, 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.
A recent ruling by the Florida Board of Medicine that an agreement between a
physician practice and a practice management company constituted impermissible
fee-splitting, if upheld on judicial appeal, would cause AmSurg to restructure
its relationship with one of the two group practices. AmSurg does not believe
that any such restructuring would have a material adverse effect on AmSurg. See
"RISK FACTORS -- Risks Related to Laws Governing Corporate Practice of
Medicine."
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 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
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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's ability to enter into such contracts. See
"RISK FACTORS -- Risk of Potential Applicability of Insurance Regulations."
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.
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;
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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 effect upon AmSurg. See "RISK FACTORS -- Risks
Associated with 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
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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 -- Dependence on Relationships with
Physician Partners; Risks of Conflicts of Interest, Disputes and Contingent
Obligations."
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. Thirty-three of the centers and the
physician practices in operation at September 30, 1997 lease space ranging from
1,200 to 7,800 square feet with remaining lease terms ranging from two to
eighteen years. Two centers in operation at September 30, 1997 are located in
buildings owned directly or indirectly by AmSurg.
EMPLOYEES
As of September 30, 1997, AmSurg and its affiliated entities employed 225
persons, 177 of whom were full-time employees and 48 of whom were part-time
employees. Of the above, 54 were employed at AmSurg's headquarters in Nashville,
Tennessee. In addition, approximately 105 employees are leased on a part-time
basis and 157 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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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................................. 57 President, Chief Executive Officer and
Director (Class II director with term
expiring in 1999)
Claire M. Gulmi................................. 44 Senior Vice President, Chief Financial
Officer and Secretary
Royce D. Harrell................................ 52 Senior Vice President, Operations, and
Assistant Secretary
Rodney H. Lunn.................................. 47 Senior Vice President, Center Development
David L. Manning................................ 48 Senior Vice President, Development
Thomas G. Cigarran.............................. 55 Chairman of the Board (Class III director
with term expiring in 2000)
James A. Deal................................... 47 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............................... 42 Director (Class III director with term
expiring in 2000)
Henry D. Herr................................... 51 Director (Class II director with term
expiring in 1999)
Bergein F. Overholt, M.D........................ 60 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 is a founding
stockholder of AmSurg and was a principal of Practice
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Development Associates, Inc. ("PDA"), 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 is a founding
stockholder of AmSurg and 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 a founder,
Chairman and Chief Executive Officer of Clinical Pharmaceuticals, Inc. of
Nashville, Tennessee which was acquired by PCS.
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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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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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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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 $4,320
</TABLE>
- ---------------
(1) Forgiveness of debt.
(2) Ms. Gulmi became Senior Vice President in March 1997.
(3) Automobile allowance.
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OPTION/STOCK APPRECIATION RIGHTS GRANTS IN LAST FISCAL YEAR
The following table provides information as to options granted to the Named
Executive Officers during fiscal 1996. No Stock Appreciation Rights ("SARs")
were awarded in fiscal 1996.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------- VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
NUMBERS OF TOTAL STOCK PRICE
SECURITIES OPTIONS/SARS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED (#)(1) FISCAL YEAR ($/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> 70
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, April 11, 1997 and June 27, 1997, the Board of Directors
approved grants of options for the purchase of 213,600 shares of Class A Common
Stock to various employees pursuant to the 1997 Incentive Plan for an average
per share exercise price of $6.02. 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 December 1, 1997.
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<PAGE> 71
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 39, based on the number of employees
of AmSurg at September 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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<PAGE> 72
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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<PAGE> 75
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, of which
options for 4,000 shares have been exercised and/or terminated. The outstanding
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 $4.92 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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<PAGE> 76
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 earliest 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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<PAGE> 77
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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<PAGE> 78
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 September 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 September 30, 1997.
COMMON STOCK
<TABLE>
<CAPTION>
CLASS A PERCENT CLASS B PERCENT
NAME COMMON STOCK(1)(2) OF CLASS COMMON STOCK(2) OF CLASS
---- ------------------ -------- --------------- --------
<S> <C> <C> <C> <C>
Waddell & Reed, Inc.(3)............... 75,316 1.6% 485,276 10.1%
Equitable Asset Management(4)......... 40,717 * 262,341 5.5
William C. Weaver, III(5)............. 492,968(6) 10.5 15,781 *
Ken P. McDonald....................... 47,500(7) 1.0 0 --
Claire M. Gulmi....................... 13,333(8) * 0 --
Royce D. Harrell...................... 84,916(9) 1.8 0 --
Rodney H. Lunn........................ 280,148(10) 5.7 59 *
David L. Manning...................... 287,333(11) 5.8 0 --
Thomas G. Cigarran(12)................ 56,702 1.2 365,339 7.6
James A. Deal......................... 27,906 * 179,801 3.8
Steven I. Geringer.................... 8,460(13) * 0 --
Debora A. Guthrie..................... 138 * 890 *
Henry D. Herr......................... 35,060 * 225,901 4.7
Bergein F. Overholt, M.D.............. 134,813(14) 2.9 340 *
All directors and executive officers
as a group (11 persons)............. 976,309 18.4% 772,330 16.1%
</TABLE>
- ---------------
* Less than 1%.
(1) Includes shares issuable within 60 days of September 30, 1997 upon the
exercise of presently outstanding options.
(2) Does not include shares of AmSurg 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 September 30,
1997 are exercised prior to the Distribution.
(3) 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 Form 13F dated June 30, 1997
filed with the SEC with respect to ownership of AHC Common Stock.
(4) The address of Equitable Asset Management is 3495 Piedmont Rd., Suite 810,
Atlanta, GA 30305. Information with respect to stock ownership of Equitable
Asset Management is based upon the Form 13F dated June 30, 1997 filed with
the SEC with respect to ownership of AHC Common 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.
(7) Represents currently exercisable options for the purchase of 47,500 shares
of Class A Common Stock.
(8) Represents currently exercisable options for the purchase of 13,333 shares
of Class A Common Stock.
(9) Represents currently exercisable options for the purchase of 84,916 shares
of Class A Common Stock.
(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.
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<PAGE> 79
(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) Represents 8,460 shares held in trust for the benefit of Mr. Geringer's
son.
(14) Includes 21,000 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, 23,583 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)(5)...................... 90,909 18.2% 75,757 18.2%
</TABLE>
- ---------------
(1) The address for Electra Investment Trust P.L.C. is 65 Kingsway, London,
England WC 2B6QT.
(2) The address for 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> 80
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Upon the Distribution Date, AmSurg will be authorized to issue 20,000,000
shares of its Class A Common Stock, 4,800,000 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 September 30, 1997, 4,702,718 shares of AmSurg
Class A Common Stock and 4,787,131 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 September 30, 1997, there are expected to be
approximately 336 holders of record and 2,750 beneficial owners 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 September
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 September 30, 1997, stock options for the purchase of 1,109,050 shares of
Class A Common Stock are expected to be outstanding immediately following the
Distribution, of which options to purchase 754,921 shares of Class A Common
Stock having an average exercise price of $2.37 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, 213,600 were granted pursuant to
the 1997 Stock Incentive Plan and are subject to stockholder approval at the
stockholders meeting scheduled to be held on December 1, 1997.
Based on ownership of AmSurg and AHC Common Stock as of September 30, 1997,
the AmSurg executive officers and directors or their affiliates are expected to
beneficially own approximately 18.4% of the outstanding Class A Common Stock and
16.1% 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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<PAGE> 81
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
ten votes per share in the election and removal of the Board of Directors of
AmSurg and are not entitled to cumulative voting in the election and removal 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. 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 member of 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 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
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<PAGE> 82
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 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
75
<PAGE> 83
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 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 twelve, with the exact
number to be established by the Board of Directors and subject to
76
<PAGE> 84
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. The Charter also provides
that in order to call a special meeting of shareholders, written demands of the
holders of at least 15% of the voting power of each class of AmSurg Common Stock
must be received. These provisions, 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 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
77
<PAGE> 85
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.
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.
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<PAGE> 86
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
4,702,718 shares of Class A Common Stock and 4,787,131 shares of Class B Common
Stock based on the number of outstanding shares of AmSurg common stock on
September 30, 1997. Of the total outstanding shares of Common Stock, the shares
of AmSurg 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 held by stockholders other than AHC 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 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 47,027 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 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 3,959,718 shares of Class A Common Stock
that are anticipated to
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<PAGE> 87
be "restricted securities" immediately following the Distribution, 3,602,809
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 1,109,050 shares of AmSurg Class A Common Stock, including
options granted to non-employee directors of AmSurg. Of such options,
approximately 754,921 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
amounts of AmSurg Common Stock in the public market, or the perception that such
sales could occur, could adversely affect the prevailing market price of the
AmSurg Common Stock.
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<PAGE> 88
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 September 30, 1997............................ F-3
Consolidated Statements of Operations for each of the
three years in the period ended December 31, 1996 and
the nine months ended September 30, 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 nine months ended September
30, 1997............................................... F-5
Consolidated Statements of Cash Flows for each of the
three years in the period ended December 31, 1996 and
the nine months ended September 30, 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 nine
months ended September 30, 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
The Endoscopy Center, Inc.
Independent Auditors' Report.............................. F-25
Balance Sheets as of December 31, 1995 and 1996 and August
31, 1997............................................... F-26
Statements of Earnings and Retained Earnings for the years
ended December 31, 1995 and 1996 and the eight months
ended August 31, 1996 and 1997......................... F-27
Statements of Cash Flows for the years ended December 31,
1995 and 1996 and the eight months ended August 31,
1996 and 1997.......................................... F-28
Notes to Financial Statements............................. F-29
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
Financial Statement Schedule -- The Endoscopy Center, Inc.
Independent Auditors' Report.............................. S-5
Schedule II -- Valuation and Qualifying Accounts.......... S-6
</TABLE>
F-1
<PAGE> 89
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> 90
AMSURG CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1995 1996 1997
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents (Note 1).................... $ 3,469,661 $ 3,192,408 $ 3,625,801
Accounts receivable, net of allowance for
uncollectible accounts of $455,628, $1,272,651 and
$1,410,703......................................... 2,878,840 5,640,946 7,884,505
Supplies inventory.................................... 248,002 554,839 752,473
Other current assets (Note 1)......................... 466,922 680,761 798,856
Deferred tax asset (Notes 1 and 4).................... 243,000 303,000 303,000
----------- ----------- -----------
Total current assets.......................... 7,306,425 10,371,954 13,364,635
----------- ----------- -----------
Long-term receivables and deposits (Note 2)............. 133,930 643,516 493,898
----------- ----------- -----------
Property and equipment (Note 1)
Land and improvements................................. -- 98,540 98,540
Buildings and improvements............................ 4,578,990 7,017,163 8,500,045
Moveable equipment.................................... 5,848,399 8,725,140 12,052,717
Construction in progress.............................. 97,165 316,384 1,556,094
----------- ----------- -----------
10,524,554 16,157,227 22,207,396
Accumulated depreciation.............................. (2,366,560) (3,821,335) (5,305,569)
----------- ----------- -----------
Property and equipment, net........................... 8,157,994 12,335,892 16,901,827
----------- ----------- -----------
Other assets, net (Note 1).............................. 391,179 530,312 867,977
----------- ----------- -----------
Excess of cost over net assets of purchased operations,
net (Notes 1, 2, 9 and 10)............................ 19,116,909 30,771,784 41,040,299
----------- ----------- -----------
$35,106,437 $54,653,458 $72,668,636
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable...................................... $ 562,961 $ 982,547 $ 750,118
Accrued salaries and benefits......................... 516,383 829,582 898,378
Accrued liabilities................................... 740,888 1,128,856 2,168,337
Current income taxes payable (Notes 1 and 4).......... 316,895 82,586 378,489
Current portion of long-term debt (Notes 5 and 10).... 2,238,496 2,616,714 2,762,777
----------- ----------- -----------
Total current liabilities..................... 4,375,623 5,640,285 6,958,099
----------- ----------- -----------
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 21,729,560
----------- ----------- -----------
Minority interest (Note 1).............................. 3,010,070 5,673,960 8,481,675
----------- ----------- -----------
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 5,192,261
----------- ----------- -----------
Stockholders' equity (Note 7)
Common stock
No par value, 40,000,000 shares authorized,
24,907,430, 27,598,577 and 28,469,548 shares
outstanding...................................... 21,627,861 26,064,085 27,725,045
Retained earnings..................................... 851,331 2,309,790 1,816,996
----------- ----------- -----------
Total stockholders' equity.................... 22,479,192 28,373,875 29,542,041
----------- ----------- -----------
$35,106,437 $54,653,458 $72,668,636
=========== =========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-3
<PAGE> 91
AMSURG CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues (Note 1)............... $13,826,566 $22,489,379 $35,007,216 $24,075,288 $41,162,839
----------- ----------- ----------- ----------- -----------
Expenses:
Salaries and benefits (Note
3)......................... 4,091,996 6,243,134 11,613,504 7,976,212 12,551,809
Other operating expenses (Note
3)......................... 5,091,110 7,562,655 11,546,562 7,914,391 14,563,740
Depreciation and amortization
(Note 1)................... 1,309,054 2,396,796 3,000,183 2,095,566 3,510,515
Interest...................... 193,047 722,390 947,863 668,370 1,140,587
Net loss on sale of assets
(Note 10).................. -- -- -- -- 1,494,333
Distribution cost (Note 10)... -- -- -- -- 458,000
----------- ----------- ----------- ----------- -----------
Total expenses........ 10,685,207 16,924,975 27,108,112 18,654,539 33,718,984
----------- ----------- ----------- ----------- -----------
Income before minority interest
and income taxes.............. 3,141,359 5,564,404 7,899,104 5,420,749 7,443,855
Minority interest (Note 1).... 2,464,105 3,938,364 5,433,588 3,755,799 6,447,445
----------- ----------- ----------- ----------- -----------
Income before income taxes...... 677,254 1,626,040 2,465,516 1,664,950 996,410
Income tax expense (Notes 1
and 4)..................... 26,000 578,000 985,000 665,000 1,279,000
----------- ----------- ----------- ----------- -----------
Net income (loss)............... 651,254 1,048,040 1,480,516 999,950 (282,590)
Accretion of preferred stock
discount (Note 6).......... -- -- 22,057 -- 210,204
----------- ----------- ----------- ----------- -----------
Net income (loss) attributable
to common stockholders........ $ 651,254 $ 1,048,040 $ 1,458,459 $ 999,950 $ (492,794)
=========== =========== =========== =========== ===========
Net income (loss) per share
attributable to common
stockholders (Note 1)......... $ 0.03 $ 0.04 $ 0.05 $ 0.04 $ (0.02)
=========== =========== =========== =========== ===========
Weighted average common shares
and equivalents (Note 1)...... 21,937,814 25,742,923 27,306,780 26,908,598 28,310,008
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE> 92
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)...................... 494,006 -- 494,006
Issuance of stock in conjunction with acquisitions
(unaudited)..................................... 1,847,376 -- 1,847,376
Acquisition of stock (unaudited)................... (680,422) -- (680,422)
Net loss attributable to common stockholders
(unaudited)..................................... -- (492,794) (492,794)
----------- ---------- -----------
Balance, September 30, 1997 (unaudited).............. $27,725,045 $1,816,996 $29,542,041
=========== ========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE> 93
AMSURG CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------- --------------------------
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 $ 999,950 $ (282,590)
Income tax expense (Note 1 and 4)......... 26,000 578,000 985,000 665,000 1,279,000
Minority interest (Note 1)................ 2,464,105 3,938,364 5,433,588 3,755,799 6,447,445
----------- ----------- ------------ ----------- -----------
Income before minority interest and income
taxes..................................... 3,141,359 5,564,404 7,899,104 5,420,749 7,443,855
Noncash expenses, revenues, losses and gains
included in income:
Depreciation and amortization (Note 1).... 1,309,054 2,396,796 3,000,183 2,095,566 3,510,515
Net loss on sale of assets (Note 10)...... -- -- -- -- 1,494,333
Increase in working capital items......... (285,015) (132,418) (856,584) (269,050) (1,111,679)
Other noncash transactions................ 59,926 106,220 125,190 71,222 45,840
----------- ----------- ------------ ----------- -----------
4,225,324 7,935,002 10,167,893 7,318,487 11,382,864
Increase in other assets.................... (373,201) (120,705) (286,031) (152,301) (686,388)
Income taxes paid........................... -- (74,105) (970,309) (774,750) (983,097)
----------- ----------- ------------ ----------- -----------
Net cash flows provided by operating
activities.......................... 3,852,123 7,740,192 8,911,553 6,391,436 9,713,379
----------- ----------- ------------ ----------- -----------
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) (8,535,956) (12,626,007)
Acquisition of property and equipment....... (4,777,563) (2,138,075) (3,863,052) (2,438,419) (7,737,744)
Proceeds from sale of assets................ -- -- -- -- 1,978,462
Decrease (increase) in long-term
receivables............................... (116,683) (846) 137,582 102,939 35,118
----------- ----------- ------------ ----------- -----------
Net cash flows used in investing
activities.......................... (9,432,026) (5,325,433) (16,395,264) (10,871,436) (18,350,171)
----------- ----------- ------------ ----------- -----------
Cash flows from financing activities:
Additions to long-term debt (Notes 5 and
10)....................................... 3,163,300 2,471,579 10,544,700 6,639,000 15,533,041
Payments on long-term debt (Notes 5 and
10)....................................... (516,007) (999,929) (7,261,534) (2,091,237) (2,903,616)
Distributions to minority partners.......... (2,327,128) (3,840,787) (5,084,294) (3,666,597) (6,342,236)
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 1,670,510 494,006
Capital contributions by minority
partners.................................. 679,486 476,693 1,681,324 779,602 2,288,990
----------- ----------- ------------ ----------- -----------
Net cash flows provided by (used in)
financing activities................ 6,592,212 (695,165) 7,206,458 3,331,278 9,070,185
----------- ----------- ------------ ----------- -----------
Net increase (decrease) in cash and cash
equivalents................................. 1,012,309 1,719,594 (277,253) (1,148,722) 433,393
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 2,320,939 3,625,801
=========== =========== ============ =========== ===========
(Increase) decrease in working capital items
excluding income taxes:
Accounts receivable, net.................... $ (605,969) $ (467,620) $ (1,353,365) (544,800) (1,255,421)
Other current assets........................ (114,893) (183,856) (342,086) (133,283) (391,612)
Accounts payable............................ 28,959 145,612 419,586 431,785 (232,429)
Accrued expenses............................ 406,888 373,446 419,281 (22,752) 767,783
----------- ----------- ------------ ----------- -----------
$ (285,015) $ (132,418) $ (856,584) (269,050) (1,111,679)
=========== =========== ============ =========== ===========
</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 $637,012 and
$1,083,626 during the nine months ended September 30, 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 $1,351,174 and $1,847,376 during the nine months ended
September 30, 1996 and 1997, respectively. (See Notes 2 and 10.)
3. Forgiveness of debt and shares of the Company's stock valued at $127,648 and
$680,422, respectively, were received in connection with the sale of a
partnership interest during the nine months ended September 30, 1997.
See accompanying notes to the consolidated financial statements.
F-6
<PAGE> 94
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 on a
pro rata basis based upon their respective ownership interests. 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
F-7
<PAGE> 95
AMSURG CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed 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> 96
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> 97
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 reimburses certain of its limited partners for salaries
and benefits related to time spent by employees of their practices on activities
of the centers. Total reimbursement of such salary and benefit costs totaled
$2,344,839, $3,538,925 and $4,616,745 for the years ended December 31, 1994,
1995 and 1996, respectively.
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> 98
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> 99
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> 100
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.
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>
F-13
<PAGE> 101
AMSURG CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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.
F-14
<PAGE> 102
AMSURG CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
10. OTHER EVENTS SUBSEQUENT TO DECEMBER 31, 1996 (UNAUDITED)
a. Acquisitions and Dispositions
In three separate transactions in March 1997, May 1997 and September
1997, the Company acquired a majority interest in four physician practice-based
surgery centers. The purchase price paid for the interests acquired was
$9,119,730 which consisted of cash of $8,002,717 and AmSurg common stock valued
at $1,117,013. With these transactions, the Company acquired assets of $994,422,
excess cost over net assets of purchased operations of $8,573,033 and assumed
liabilities of $447,725.
In September 1997, the Company sold its investment in a partnership that
owned two surgery centers acquired in 1994. Various disagreements with the sole
physician partner over the operation of these centers have adversely impacted
the operations of these centers. After a series of discussions and attempts to
resolve these differences, the Company determined that the partners could not
resolve their disagreements and that as a result the carrying value of the
assets associated with this partnership would not likely be fully recovered. The
Company projected the undiscounted cash flows from these centers and determined
these cash flows to be
F-15
<PAGE> 103
AMSURG CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
less than the carrying value of the long-lived assets attributable to this
partnership. Accordingly, an impairment loss equal to the excess of the carrying
value of the long-lived assets over the present value of the estimated future
cash flows was recorded in March 1997 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." In September 1997, when the
Company sold its interest in the partnership assets to its physician partner it
recognized a partial loss recovery. The net loss associated with these
transactions is $1,954,000.
In July 1997, the Company sold a surgery center building and equipment
which the Company leased to a physician practice located in Tennessee and
recognized a pretax gain of approximately $460,000. In July 1997, the Company
also terminated its management agreement with the physician practice for the
surgery center in which it had no ownership interest but had managed since 1994.
b. Long-Term Debt
In September 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 $3.3 million at September 30, 1997)
remain unchanged. In addition, the credit agreement permits the Company to
borrow up to $25,000,000 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 $25,000,000 credit
agreement totaled $16,987,657 at September 30, 1997.
c. Public Distribution of Common Stock
In 1997, the Board of Directors of AmSurg approved an agreement pursuant
to which AHC will distribute on a substantially tax-free basis all of the shares
of the Company's common stock owned by AHC to the holders of AHC common stock
("the Distribution"). In the third quarter of 1997, the Company expensed
$458,000 for its proportionate share of costs incurred to date associated with
the Distribution.
F-16
<PAGE> 104
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 nine months ended September 30,
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,
The Endoscopy Center, Inc., acquired on September 2, 1997 and other individually
insignificant businesses acquired during the year ended December 31, 1996 and
the nine months ended September 30, 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 THE ENDOSCOPY INSIGNIFICANT INSIGNIFICANT PRO FORMA
HISTORICAL OCALA(A) CENTER, INC(B) ACQUISITIONS(A) ACQUISITIONS(B) ADJUSTMENTS
---------- ------------- -------------- ---------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues........................ $35,007 $1,373 $3,122 $4,302 $7,483 $ (205)(2)
------- ------ ------ ------ ------ -------
Expenses:
Salaries and benefits......... 11,613 304 507 1,331 2,001 (561)(3)
Other operating expenses...... 11,547 322 808 1,616 2,987 202(4)
Depreciation and
amortization................ 3,000 36 -- 170 150 745(5)
Interest...................... 948 -- -- 75 31 927(6)
------- ------ ------ ------ ------ -------
Total expenses.......... 27,108 662 1,315 3,192 5,169 1,313
Income before minority interest
and income taxes.............. 7,899 711 1,807 1,110 2,314 (1,518)
Minority interest............. 5,433 -- -- -- -- 3,257(7)
------- ------ ------ ------ ------ -------
Income before income taxes...... 2,466 711 1,807 1,110 2,314 (4,775)
Income tax expense............ 985 -- -- -- -- 467(8)
------- ------ ------ ------ ------ -------
Net income...................... 1,481 711 1,807 1,110 2,314 (5,242)
Accretion of preferred stock
discount.................... 22 -- -- -- -- --
------- ------ ------ ------ ------ -------
Net income attributable to
common stockholders........... $ 1,459 $ 711 $1,807 $1,110 $2,314 $(5,242)
======= ====== ====== ====== ====== =======
Net income per share
attributable to common
stockholders(1)............... $ 0.16
=======
Weighted average common shares
and equivalents(1)............ 9,102 500(9)
<CAPTION>
PRO FORMA
COMBINED
---------
<S> <C>
Revenues........................ $51,082
-------
Expenses:
Salaries and benefits......... 15,195
Other operating expenses...... 17,482
Depreciation and
amortization................ 4,101
Interest...................... 1,981
-------
Total expenses.......... 38,759
Income before minority interest
and income taxes.............. 12,323
Minority interest............. 8,690
-------
Income before income taxes...... 3,633
Income tax expense............ 1,452
-------
Net income...................... 2,181
Accretion of preferred stock
discount.................... 22
-------
Net income attributable to
common stockholders........... $ 2,159
=======
Net income per share
attributable to common
stockholders(1)............... $ 0.22
=======
Weighted average common shares
and equivalents(1)............ 9,602
</TABLE>
- ---------------
(a) From January 1, 1996 to date of acquisition.
(b) From January 1, 1996 through December 31, 1996.
F-17
<PAGE> 105
AMSURG CORP.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 INDIVIDUALLY PRO
AMSURG THE ENDOSCOPY INSIGNIFICANT PRO FORMA FORMA
HISTORICAL CENTER, INC.(A) ACQUISITIONS(A)(B) ADJUSTMENTS COMBINED
---------- --------------- ------------------ ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues......................... $41,163 $2,090 $586 $ (55)(2) $43,784
------- ------ ------ ------- -------
Expenses:
Salaries and benefits.......... 12,552 470 128 (43)(3) 13,107
Other operating expenses....... 14,564 501 215 (20)(4) 15,260
Depreciation and
amortization................ 3,511 -- 17 180(5) 3,708
Interest....................... 1,141 -- 1 223(6) 1,365
Net loss on sale of
assets(c)................... 1,494 -- -- -- 1,494
Distribution cost(d)........... 458 -- -- -- 458
------- ------ ------ ------- -------
Total expenses......... 33,720 971 361 340 35,392
Income before minority interest
and income taxes............... 7,443 1,119 225 (395) 8,392
Minority interest.............. 6,447 -- -- 625(7) 7,072
------- ------ ------ ------- -------
Income before income taxes....... 996 1,119 225 (1,020) 1,320
Income tax expense............. 1,279 -- -- 130(8) 1,409
------- ------ ------ ------- -------
Net income (loss)................ (283) 1,119 225 (1,150) (89)
Accretion of preferred stock
discount.................... 210 -- -- -- 210
------- ------ ------ ------- -------
Net income (loss) attributable to
common stockholders............ $ (493) $1,119 $225 $(1,150) $ (299)
======= ====== ====== ======= =======
Net income per share attributable
to common stockholders(1)...... $ (0.05) $ (0.03)
======= =======
Weighted average common shares
and equivalents(1)............. 9,437 134(9) 9,571
</TABLE>
- ---------------
(a) From January 1, 1997 to date of acquisition.
(b) Two acquisitions were completed in early 1997 and therefore the results of
their operations for the nine months ended September 30, 1997 are included
in the AmSurg historical amounts.
(c) Reflects a loss attributable to the sale of a partnership interest, net of a
gain on the sale of a surgery center building and equipment, which had an
impact of $0.16 per share on the historical and pro forma results of
operations for the nine months ended September 30, 1997.
(d) Reflects costs incurred to date related to the distribution of the Company's
common stock, which had an impact of $0.05 per share on the historical and
pro forma results of operations for the nine months ended September 30,
1997.
F-18
<PAGE> 106
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>
TWELVE MONTHS NINE MONTHS
ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
Estimated additional general and administrative costs
as a result of increase in number of centers
managed............................................ $ 780 $ 77
Salaries paid to previous employees which are
discontinued upon acquisition...................... (224) (120)
Physician salaries and benefits replaced with
independent contractor arrangements................ (1,117) --
------- -------
$(561) $ (43)
======= =======
</TABLE>
4. Increase in other operating expenses are as follows:
<TABLE>
<CAPTION>
NINE MONTHS
TWELVE MONTHS ENDED
ENDED SEPTEMBER 30,
DECEMBER 31, 1996 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... (332) (33)
Other miscellaneous fees................................ 24 13
-------- ----
$ 202 $(20)
======== ====
</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. Average weighted shares for stock issued in acquisitions, as adjusted to
reflect the proposed recapitalization.
F-19
<PAGE> 107
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> 108
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> 109
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> 110
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> 111
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> 112
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
The Endoscopy Center, Inc.
Independence, Missouri
We have audited the accompanying balance sheets of The Endoscopy Center,
Inc. as of December 31, 1996 and 1995, and the related statements of earnings
and retained earnings and cash flows for the years then ended. 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 provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of The Endoscopy Center, Inc. as of December
31, 1996 and 1995 and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Nashville, Tennessee
October 7, 1997
F-25
<PAGE> 113
THE ENDOSCOPY CENTER, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, AUGUST 31,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash..................................................... $179,363 $193,156 $191,848
Accounts receivable, net of allowance for uncollectible
accounts of $196,808, $160,148 and $150,000,
respectively.......................................... 429,651 467,787 500,000
Supplies inventory....................................... 10,374 12,507 13,240
-------- -------- --------
Total current assets............................. 619,388 673,450 705,088
Organization cost, net of accumulated amortization of $71,
$142 and $189, respectively.............................. 219 148 101
-------- -------- --------
$619,607 $673,598 $705,189
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 19,744 $ 41,711 $ 20,756
Distribution withholdings................................ 78,525 108,355 --
Amount due to related party (note 2)..................... 69,779 73,580 65,050
-------- -------- --------
Total current liabilities........................ 168,048 223,646 85,806
Stockholders' equity:
Common stock, $1 par value, 30,000 shares authorized, 90
shares outstanding.................................... 90 90 90
Retained earnings........................................ 451,469 449,862 619,293
-------- -------- --------
Total stockholders' equity....................... 451,559 449,952 619,383
-------- -------- --------
$619,607 $673,598 $705,189
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE> 114
THE ENDOSCOPY CENTER, INC.
STATEMENTS OF EARNINGS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
EIGHT MONTHS
YEAR ENDED DECEMBER 31, ENDED AUGUST 31,
------------------------- -----------------------
1995 1996 1996 1997
----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues...................................... $ 2,836,600 $ 3,122,033 $1,953,144 $2,090,308
Expenses:
Salaries and benefits (note 2).............. 491,112 507,417 317,440 470,278
Supplies and other operating expenses....... 338,397 452,182 282,885 255,584
Rent expense (note 2)....................... 230,825 299,583 199,722 200,656
Bad debt expense............................ 168,029 56,335 35,243 44,503
----------- ----------- ---------- ----------
Total expenses...................... 1,228,363 1,315,517 835,290 971,021
----------- ----------- ---------- ----------
Net earnings........................ 1,608,237 1,806,516 1,117,854 1,119,287
Retained earnings, beginning of period........ 153,760 451,469 451,469 449,862
Distributions to stockholders................. (1,310,528) (1,808,123) (1,128,268) (949,855)
----------- ----------- ---------- ----------
Retained earnings, end of period.... $ 451,469 $ 449,862 $ 441,055 $ 619,294
=========== =========== ========== ==========
</TABLE>
See accompanying notes to the financial statements.
F-27
<PAGE> 115
THE ENDOSCOPY CENTER, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
EIGHT MONTHS
YEAR ENDED DECEMBER 31, ENDED AUGUST 31,
------------------------- -------------------------
1995 1996 1996 1997
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flow from operations:
Net earning............................... $ 1,608,237 $ 1,806,516 $ 1,117,854 $ 1,119,287
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of organization cost...... 71 71 47 47
Decrease (increase) in accounts
receivable........................... (220,594) (38,136) 84,016 (32,213)
Increase in supplies inventory......... (5,174) (2,133) (1,290) (733)
Increase (decrease) in accounts
payable.............................. (2) 21,967 42,685 (20,956)
Increase (decrease) in amount due to
related party........................ 33,559 3,801 193 (8,530)
----------- ----------- ----------- -----------
Net cash provided by operating
activities...................... 1,416,097 1,792,086 1,243,505 1,056,902
----------- ----------- ----------- -----------
Cash flows from investing activities:
Stockholders' distribution................ (1,310,528) (1,808,123) (1,128,268) (949,855)
Increase (decrease) in distribution
withholdings........................... 78,525 29,830 (78,525) (108,355)
Decrease in outstanding checks in excess
of deposits............................ (4,731) -- -- --
----------- ----------- ----------- -----------
Net cash used by financing
activities...................... (1,236,734) (1,778,293) (1,206,793) (1,058,210)
----------- ----------- ----------- -----------
Net increase (decrease) in cash............. 179,363 13,793 36,712 (1,308)
Cash, beginning of period................... -- 179,363 179,363 193,156
----------- ----------- ----------- -----------
Cash, end of period......................... $ 179,363 $ 193,156 $ 216,075 $ 191,848
=========== =========== =========== ===========
</TABLE>
See accompanying notes to the financial statements.
F-28
<PAGE> 116
THE ENDOSCOPY CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996 AND EIGHT MONTHS ENDED AUGUST 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Endoscopy Center Inc. ("TEC") began operations in 1994 and operates two
gastrointestinal surgery centers in Independence and Kansas City, Missouri. TEC
is owned by a group of stockholders which perform gastroenterology procedures at
the centers through their related physician practice.
a. Revenue Recognition
Revenue consists of the billing for the use of TEC's facilities (the "usage
fee") directly to the patient or third-party payor. The usage fee excludes
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
1995, 1996 and 1997 periods, approximately 29%, 39% and 28%, respectively, of
the Centers' 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. Amortization
Amortization of organization cost is provided on a straight-line basis over
four years.
c. Income Taxes
TEC has elected Subchapter S status of the Internal Revenue Code, and
accordingly, income taxes are the responsibility of the individual stockholders
of TEC. Therefore, no provision for income taxes has been reflected by TEC.
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
Both centers rent equipment and furniture and one center occupies space
provided by an entity which is owned by the same group of stockholders which own
TEC. Included in the statement of earnings and retained earnings is a charge of
$156,571, $200,993, $133,995 and $133,587 for the years ended December 31, 1995
and 1996 and the eight months ended August 31, 1996 and 1997, respectively,
related to these lease arrangements, which management believes reflects the fair
value of space and rental items provided. In addition, the employees of TEC are
leased from the related physician practice. Charges associated with this
arrangement are reflected as salaries and benefits in the statements of earnings
and retained earnings.
3. SUBSEQUENT EVENT
Effective September 1, 1997, AmSurg Holdings, Inc. ("Holdings"), a
subsidiary of AmSurg Corp. ("AmSurg") acquired from TEC a sixty percent
ownership interest in the assets comprising the business operations of two
gastrointestinal surgery centers.
F-29
<PAGE> 117
THE ENDOSCOPY CENTER, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Pursuant to the terms of the Asset Purchase Agreement, dated as of
September 2, 1997, by and among Holdings, AmSurg and TEC, Holdings paid
$5,652,205 in cash and AmSurg issued 280,367 shares of its common stock to TEC.
Following the asset purchase, Holdings and TEC contributed their respective
ownership in the assets of the centers into a newly formed limited liability
company, The Independence ASC, LLC, and received proportionate membership
therein.
F-30
<PAGE> 118
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
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<PAGE> 119
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> 120
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
The 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> 121
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> 122
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
The Endoscopy Center, Inc.
Independence, Missouri
We have audited the financial statements of The Endoscopy Center, Inc. (the
"Center") as of and for the years ended December 31, 1995 and 1996, and have
issued our report thereon dated October 7, 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
October 7, 1997
S-5
<PAGE> 123
SCHEDULE II
THE ENDOSCOPY CENTER -- INDEPENDENCE, MISSOURI
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END
OF PERIOD EXPENSES DEDUCTIONS(1) OF PERIOD
---------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1995:
Allowance for Uncollectible Accounts included
under balance sheet caption "Accounts
receivable"................................... $ 59,811 $168,029 $ 31,032 $196,808
Year ended December 31, 1996:
Allowance for Uncollectible Accounts included
under balance sheet caption "Accounts
receivable"................................... $196,808 $ 56,335 $ 92,995 $160,148
</TABLE>
- ---------------
(1) Charge-off against reserve.
S-6
<PAGE> 124
APPENDIX A
AMENDED AND RESTATED DISTRIBUTION AGREEMENT
This AMENDED AND RESTATED DISTRIBUTION AGREEMENT, dated as of November 3,
1997 (this "Amended and Restated 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-eight percent (58%) 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 a portion 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;
WHEREAS, on March 7, 1997, AHC and AmSurg executed a Distribution Agreement
and;
WHEREAS, certain circumstances have made it necessary to amend certain
provisions of the Agreement;
NOW, THEREFORE, in consideration of the premises, and of the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby amend and restate the Distribution Agreement and 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.
A-1
<PAGE> 125
"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.
"Ruling Request" means the private letter ruling request filed by AHC
with the IRS on October 23, 1997, 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.
"Tax Opinions" means the legal opinions of Bass, Berry & Sims PLC and
Sutherland, Asbill & Brennan with respect to certain tax matters relating
to the Distribution.
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 a portion 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
the 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, or Tax Opinions rendered,
in form and substance satisfactory to AHC, in its sole discretion;
(b) A Registration Statement on Form 10 under the Exchange Act with
respect to each class of common stock of AmSurg to be distributed in the
Distribution shall have been declared effective by the SEC or shall
otherwise have become effective under the Exchange Act;
(c) The shares of each tradable class of common stock of AmSurg to be
distributed in the Distribution 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
A-2
<PAGE> 126
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;
(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 ten votes per share in the election
and removal of directors so that, when exchanged for 4,787,131 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 or the Tax Opinions, 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
A-3
<PAGE> 127
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 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 4,787,131
shares of Class A Common Stock of AmSurg 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 of 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
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<PAGE> 128
any stock incentive plan, stock incentive agreement, employment or severance
agreement, or similar plan or agreement of AmSurg.
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, an
amendment to the AmSurg Registration Statement on Form 10 under the
Exchange Act, which shall set forth appropriate disclosure concerning
AmSurg, the Distribution and certain other matters. The Registration
Statement on Form 10, as amended, 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; provided,
however, that no class that cannot by its terms be traded shall be required
to be so included or listed.
(e) 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.
(f) 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 a 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.
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.
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ARTICLE IV
COVENANTS FOLLOWING THE DISTRIBUTION
4.1 Compliance with IRS Ruling or Tax Opinions. 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 Tax Opinions or any other ruling or tax
opinion obtained, or to be obtained, by AmSurg and AHC acting together, from the
IRS or any other taxing authority or law firm 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 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
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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 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
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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 and amending the
Registration Statement on Form 10, (ii) preparing the Distribution Agreement and
Related Agreements 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 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 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 and, if applicable, the Tax Opinions, (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.,
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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.
IN WITNESS WHEREOF, this Amended and Restated 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:
------------------------------------
Name: Henry D. Herr
Title: Executive Vice President
AMSURG CORP.
By:
------------------------------------
Name: Claire M. Gulmi
Title: Senior Vice President
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APPENDIX B
[J.C. Bradford Letterhead]
November 3, 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 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 AmSurg
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 from 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 of AmSurg through
a reverse stock split (the "Reverse Stock Split"). Immediately following the
Reverse Stock Split, AHC will exchange 4,787,131 shares of Class A Common Stock
for 4,787,131 shares of 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 purposes for the Exchange are 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
and to have, to the extent possible, an equal number of shares of each class of
AmSurg Common Stock available to trade in the public markets. 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 10 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 A Common Stock and Class B Common Stock will be entitled to
share ratably in any dividends other than dividends payable solely 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 approximately 9.21 shares of AmSurg Class
A Common Stock and approximately 59.36 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
AmSurg Common Stock.
[J.C. Bradford Address]
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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. 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, 1997 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 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, as
amended, 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
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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 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
October 31, 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 a portion of the shares of AmSurg Class A
common stock, no par value (the "Class A Common Stock"), currently owned by AHC
for shares of AmSurg Class B common stock, no par value (the "Class B 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 an
aggregate of 743,000 shares of AmSurg Class A Common Stock and all the
outstanding shares of AmSurg Class B Common Stock, estimated to be 4,787,131
shares of such stock. 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 either of AmSurg or AHC as an independent
public company following any of 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;
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(vii) reviewed the financial terms, to the extent publicly available,
of certain transactions we deemed relevant;
(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, dated October 20, 1997, of the Information
Statement to be included in the Registration Statement on Form 10, as
amended, for the AmSurg Common Stock to be filed with the Securities and
Exchange Commission (the "Information Statement") ;
(xi) 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
Information Statement and to references to our name therein.
Sincerely,
/s/ MORGAN KEEGAN & COMPANY, INC.
--------------------------------------
Morgan Keegan & Company, Inc.
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PART II.
RECENT SALES OF UNREGISTERED SECURITIES
During the period beginning February 1, 1994 and ending September 30, 1997,
AmSurg has issued the following securities:
(A) At various times since February 1, 1994, AmSurg has sold an
aggregate of 2,415,388 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 and
directors. Options to purchase 4,417 shares of AmSurg common stock were
exercised in 1996 and 1997 at per share prices ranging from $2.52 to $4.68.
(C) At various times since February 1, 1994, AmSurg has sold an
aggregate of 1,531,608 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 $6.72.
(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.
(E) On March 14, 1997, AmSurg sold an aggregate of 8,460 shares of
common stock to Steven I. Geringer, a newly elected director, at a per
share price of $6.15.
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 Reverse Stock Split and
the Exchange. The issuance of shares of Class A Common Stock in the Reverse
Stock Split and the Exchange 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.
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<PAGE> 139
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: November 3, 1997
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<PAGE> 140
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
<C> <S> <C>
(2.1) -- Amended and Restated 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
and on September 2, 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
(10.11) -- Agreement dated as of April 11, 1997 between AmSurg and
Rodney H. Lunn
(10.12) -- Agreement dated as of April 11, 1997 between AmSurg and
David L. Manning
(21.1) -- Subsidiaries of AmSurg
*(27.1) -- Financial Data Schedule
*(27.2) -- Financial Data Schedule
(27.3) -- Financial Data Schedule
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
Exhibit 2.1
AMENDED AND RESTATED DISTRIBUTION AGREEMENT
This AMENDED AND RESTATED DISTRIBUTION AGREEMENT, dated as of November 3,
1997 (this "Amended and Restated 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-eight percent (58%) 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 a portion 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;
WHEREAS, on March 7, 1997, AHC and AmSurg executed a Distribution Agreement
and;
WHEREAS, certain circumstances have made it necessary to amend certain
provisions of the Agreement;
NOW, THEREFORE, in consideration of the premises, and of the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby amend and restate the Distribution Agreement and 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.
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<PAGE> 2
"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.
"Ruling Request" means the private letter ruling request filed by AHC
with the IRS on October 23, 1997, 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.
"Tax Opinions" means the legal opinions of Bass, Berry & Sims PLC and
Sutherland, Asbill & Brennan with respect to certain tax matters relating
to the Distribution.
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 a portion 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
the 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, or Tax Opinions rendered,
in form and substance satisfactory to AHC, in its sole discretion;
(b) A Registration Statement on Form 10 under the Exchange Act with
respect to each class of common stock of AmSurg to be distributed in the
Distribution shall have been declared effective by the SEC or shall
otherwise have become effective under the Exchange Act;
(c) The shares of each tradable class of common stock of AmSurg to be
distributed in the Distribution 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
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<PAGE> 3
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;
(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 ten votes per share in the election
and removal of directors so that, when exchanged for 4,787,131 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 or the Tax Opinions, 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
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<PAGE> 4
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 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 4,787,131
shares of Class A Common Stock of AmSurg 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 of 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
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<PAGE> 5
any stock incentive plan, stock incentive agreement, employment or severance
agreement, or similar plan or agreement of AmSurg.
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, an
amendment to the AmSurg Registration Statement on Form 10 under the
Exchange Act, which shall set forth appropriate disclosure concerning
AmSurg, the Distribution and certain other matters. The Registration
Statement on Form 10, as amended, 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; provided,
however, that no class that cannot by its terms be traded shall be required
to be so included or listed.
(e) 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.
(f) 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 a 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.
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.
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<PAGE> 6
ARTICLE IV
COVENANTS FOLLOWING THE DISTRIBUTION
4.1 Compliance with IRS Ruling or Tax Opinions. 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 Tax Opinions or any other ruling or tax
opinion obtained, or to be obtained, by AmSurg and AHC acting together, from the
IRS or any other taxing authority or law firm 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 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
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<PAGE> 7
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 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
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<PAGE> 8
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 and amending the
Registration Statement on Form 10, (ii) preparing the Distribution Agreement and
Related Agreements 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 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 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 and, if applicable, the Tax Opinions, (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.,
A-8
<PAGE> 9
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.
IN WITNESS WHEREOF, this Amended and Restated 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:
------------------------------------
Name: Henry D. Herr
Title: Executive Vice President
AMSURG CORP.
By:
------------------------------------
Name: Claire M. Gulmi
Title: Senior Vice President
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<PAGE> 1
EXHIBIT 2.2
EXCHANGE AGREEMENT
This EXCHANGE AGREEMENT, dated as of November ___, 1997 (the
"Agreement"), by and between American Healthcorp, Inc., a Delaware
corporation ("AHC"), and AmSurg Corp., a Tennessee corporation ("AmSurg").
WITNESSETH:
WHEREAS, AHC and AmSurg are parties to an Amended and Restated
Distribution Agreement, dated as of November ___, 1997 (the "Distribution
Agreement"), pursuant to which AmSurg has agreed to undertake a recapitalization
converting each three outstanding shares of common stock, without par value, of
AmSurg into one share of Class A Common Stock, without par value (the "Class A
Common Stock") as provided in the Distribution Agreement and authorizing a new
class of common stock having certain voting and other rights as described in the
Distribution Agreement (the "Class B Common Stock"); and
WHEREAS, pursuant to the Distribution Agreement, AmSurg has
agreed, subject to the satisfaction of certain terms and conditions, to
issue shares of Class B Common Stock to AHC on the Distribution Date (as
defined in the Distribution Agreement) in exchange for a portion of the shares
of Class A Common Stock then owned by AHC.
NOW, THEREFORE, in consideration of the premises and the
respective agreements set forth herein and in the Distribution Agreement,
the parties hereto hereby agree as follows:
1. The Exchange. On the Distribution Date, subject to the
satisfaction or waiver of the conditions set forth in Section 2.2 of the
Distribution Agreement and the completion of the Recapitalization:
a. AHC will deliver to AmSurg [4,787,131] shares of
Class A Common Stock of AmSurg, free and clear of any security
interest, lien, mortgage, encumbrance or other interest of third
parties of any kind; and
b. in exchange for the shares delivered pursuant to
Section 1(a) above, AmSurg will issue to AHC [4,787,131] shares of
Class B Common Stock.
All of the shares of Class B Common Stock issued to AHC will, when issued to
AHC as provided herein, be duly authorized, validly issued, fully paid and
nonassessable.
2. Defined Terms. Terms defined in the Distribution Agreement
and used herein will have the meanings provided in the Distribution
Agreement. The term "AmSurg" will include the surviving corporation in any
merger entered into to effect the Recapitalization.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this Exchange
Agreement to be duly executed and delivered as of the date first above
written.
AMERICAN HEALTHCORP, INC.
By:
-----------------------------------
AMSURG CORP.
By:
-----------------------------------
<PAGE> 1
Exhibit 3.1
AMENDED AND RESTATED CHARTER
OF
AMSURG CORP.
Pursuant to the provisions of Section 48-20-107 of the Tennessee
Business Corporation Act, the undersigned corporation hereby amends and restates
its Charter to supersede the original Charter and any and all prior amendments
thereto as follows:
The name of the corporation is: AmSurg Corp.
I. The text of the Amended and Restated Charter is as follows:
1. The name of the corporation (hereinafter called the "Corporation")
is AmSurg Corp.
2. The Corporation is for profit.
3. The duration of the Corporation is perpetual.
4. The street address and zip code of the Corporation's principal
office in Tennessee shall be:
One Burton Hills Boulevard
Suite 350
Nashville, TN 37215
County of Davidson
5. (a) The name of the Corporation's registered agent is Claire M.
Gulmi.
(b) The street address, zip code, and county of the Corporation's
registered office and registered agent in Tennessee shall be:
One Burton Hills Boulevard
Suite 350
Nashville, TN 37215
County of Davidson
6. The Corporation is organized to do any and all things and to
exercise any and all powers, rights, and privileges that a corporation may now
or hereafter be organized to do, or to exercise, under the Tennessee Business
Corporation Act, as amended.
7. The aggregate number of shares of capital stock the Corporation is
authorized to issue is 29,800,000 shares, of which 4,800,000 shares shall be
Class B Common Stock,
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<PAGE> 2
no par value, 20,000,000 shares shall be Class A Common Stock, no par value
(collectively the "Common Stock"), and 5,000,000 shares shall be preferred
stock, no par value (the "Preferred Stock") of which 500,000 shares are
designated as Series A Redeemable Preferred Stock and 416,666 shares are
designated as Series B Convertible Preferred Stock. The Board of Directors may
determine, in whole or in part, the preferences, limitations, and relative
rights of any class of shares before the issuance of any shares of that class or
one or more series within a class before the issuance of any shares within that
series.
The preferences, limitations, and relative rights of the above
designated classes of stock shall be as follows:
(1) Series A Redeemable Preferred Stock. There shall be a series of Preferred
Stock to be known and designated as Series A Redeemable Preferred Stock. The
number of shares constituting such series shall be 500,000. Set forth below in
this Section (1) of Article 7 is a statement of the designations and the powers,
preferences and rights, and the qualifications, limitations or restrictions
thereof. All subsection references contained herein shall be to this Section (1)
of Article 7.
(a) Dividends.
(i) During the period prior to and including November
20, 1998, holders of Series A Redeemable Preferred Stock shall
be entitled to no dividends. Thereafter, holders of Series A
Redeemable Preferred Stock shall be entitled to a cash
dividend per share in an amount, per annum, equal to eight
percent (8%) of the purchase price per share, payable in
arrears in installments on the first day of each calendar
quarter and from funds legally available therefor. The
dividends provided for hereunder shall be cumulative and to
the extent they are not paid as provided for herein because
funds are not legally available therefor or otherwise, they
shall be paid as soon as funds are legally available therefor
and before any dividends or other distribution (including
distributions made as a result of any reorganization,
reclassification, merger, consolidation or disposition of
assets) are made to holders of the Corporation's Common Stock
but subject to the rights, preferences and privileges of any
other series of Preferred Stock then issued and outstanding.
The dividends hereunder shall be entitled to a liquidation
preference pursuant to Subsection (b).
(ii) In the event that the enforcement of any right
or remedy accorded to the holders of the Series A Redeemable
Preferred Stock upon an Event of Default as set forth in the
Purchase Agreement would violate or be restricted by any
covenant contained in any instrument relating to any Debt of
the Corporation to Suntrust Bank, Nashville, N.A.
("Suntrust"), or any amendment, extension, refunding or
refinancing thereof, and upon written request by the
Corporation to each holder, the holders shall refrain from
asserting any such right or remedy. For
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<PAGE> 3
so long as the Event of Default remains uncured, or in the
event that Suntrust or any other lender to the Corporation
refuses to consent to the payment of the dividend set forth in
Subsection (a)(i), the holders shall be entitled to a cash
dividend per share in an amount, per annum, equal to fourteen
percent (14%) of the purchase price per share, payable in
arrears and installments on the first day of each calendar
quarter and from funds legally available therefor. The
dividends provided for hereunder shall be cumulative and, to
the extent they are not paid as provided for herein because
funds are not legally available therefor or otherwise, they
shall be paid as soon as funds are legally available therefor
and before any dividends or other distributions (including
distributions made as a result of any reorganization,
reclassification, merger, consolidation or disposition of
assets) are made to holders of the Corporation's Common Stock,
but subject to the rights, preferences and privileges of any
other series of Preferred Stock then issued and outstanding.
Upon cure by the Corporation of such Event of Default, or upon
consent by each lender whose consent is necessary for the
payment of a dividend, and upon payment of all due or accrued
dividends, the cumulative dividend per share under this
Subsection (a)(ii) shall thereupon be reduced to the dividend,
if any, to which the holder would be entitled absent an Event
of Default, or upon consent by all such lenders. The dividends
hereunder shall be entitled to a liquidation preference
pursuant to Subsection (b).
(b) Liquidation. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of the Series A
Redeemable Preferred Stock will be entitled to be paid out of the assets of the
Corporation available for distribution to shareholders (whether from capital,
surplus or earnings), before any distribution or payment is made upon any other
Junior Securities, an amount in cash equal to the aggregate Liquidation Value of
all Series A Redeemable Preferred Stock outstanding, and the holders of the
Series A Redeemable Preferred Stock will not be entitled to any further payment.
If, upon any such liquidation, dissolution or winding up of the Corporation, the
assets of the Corporation to be distributed among the holders of the Series A
Redeemable Preferred Stock are insufficient to permit payment to such holders of
the aggregate amount to which they are entitled, then the entire assets of the
Corporation to be distributed to such holders will be distributed ratably among
such holders based upon the aggregate Liquidation Value of the Series A
Redeemable Preferred Stock held by each such holder. The Corporation will mail
written notice of such liquidation, dissolution or winding up, not less than
thirty (30) days prior to the payment date stated therein, to each record holder
of Series A Redeemable Preferred Stock. Neither the consolidation or merger of
the Corporation into or with any other corporation or corporations, nor the sale
or transfer by the Corporation of all or any part of its assets, nor the
reduction of the capital stock of the Corporation, will be deemed to be a
liquidation, dissolution or winding up of the Corporation within the meaning of
this Subsection (b).
(c) Stock Combinations and Subdivisions. Subject to the rights,
preferences and privileges of any Common Stock and other series of Preferred
Stock outstanding from time to time
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<PAGE> 4
and to the immediately following sentence, in the event the Corporation in any
manner subdivides or combines the outstanding shares of any class of common
stock, the Series A Redeemable Preferred Stock shall automatically be combined
or subdivided in such manner as may be permitted by applicable law so that
following such an event, the conversion rate, ownership interests and voting
interests of the Series A Redeemable Preferred Stock shall be equitably
preserved. Series A Redeemable Preferred Stock shall not be combined or
subdivided unless at the same time there is a proportionate combination or
subdivision of all other classes and series of capital stock of the Corporation.
(d) Voting. The holders of Series A Redeemable Preferred Stock shall be
entitled to vote as a separate class on all such matters as may be required by
law to be submitted to such holders as a separate class and shall have the
following additional rights:
(i) no amendment, modification or waiver will be
binding or effective with respect to any provision of this
Section 1 unless approved by the affirmative vote of the
holders of at least two-thirds of the outstanding shares of
Series A Redeemable Preferred Stock voting together as a
separate class; and
(ii) the affirmative vote of the holders of
two-thirds of the outstanding shares of Series A Redeemable
Preferred Stock voting together as a separate class shall be
necessary to increase the number of authorized shares of
Preferred Stock or authorize or issue any additional shares of
any series of Preferred Stock or any shares of capital stock
of the Corporation of any class, or any security or
obligations convertible into any capital stock of the
Corporation of any class, other than the Corporation's Series
B Convertible Preferred Stock, in each case ranking on a
parity with or senior to the Series A Redeemable Preferred
Stock as to distribution of assets in liquidation or in the
right of payment of dividends.
In all other matters, subject to voting rights that may be
granted to holders of other classes or series of Preferred
Stock and Common Stock outstanding from time to time, the
holders of Series A Redeemable Preferred Stock shall vote
together with the holders of Common Stock and the holders of
all other series of Preferred Stock as a single class. In all
matters that the holders of Series A Redeemable Preferred
Stock are entitled to so vote, such holders shall be entitled
to .25 votes per share of Series A Redeemable Preferred Stock.
(iii) With respect to the election of members to the
Board of Directors (each, a "Director"), the Purchasers of
Series A Redeemable Preferred Stock and the Purchasers of
Series B Convertible Preferred Stock pursuant to the Purchase
Agreement, voting together as a separate class, shall be
entitled to elect one (1) Director under the circumstances
described below in this Subsection (d)(iii). In addition, the
Purchasers of Series A Redeemable Preferred Stock and the
Purchasers of Series B Convertible Preferred Stock, voting
together as a separate
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<PAGE> 5
class, shall be entitled to vote on the removal, with or
without cause, of any Director elected by them pursuant to
this Subsection (d)(iii). Any vacancy in the office of a
Director elected by the Purchasers of Series A Redeemable
Preferred Stock and Purchasers of Series B Convertible
Preferred Stock may be filled by a vote of such Purchasers
voting together as a separate class. In the absence of a vote
within 30 days, any such vacancy may be filled by the
remaining Directors. Any Directors elected by the Board of
Directors to fill a vacancy shall serve until the next annual
meeting of shareholders and until his successor has been duly
elected and qualified. The rights of the Purchasers hereunder
shall commence on May 31, 2000 if a Qualified IPO has not
occurred before that date and shall terminate thereafter upon
the occurrence of a Qualified IPO.
(e) Optional Conversion.
(i) Notwithstanding anything in Subsection (f) to the
contrary, at the option of the holders of the Series A
Redeemable Preferred Stock and upon the occurrence of a
Conversion Event, and for a period of thirty (30) days
thereafter, each holder of record of Series A Redeemable
Preferred Stock may, in such holder's sole discretion and at
such holder's option, convert any whole number or all of such
holder's shares of Series A Redeemable Preferred Stock into
fully paid and non-assessable shares of Class A Common Stock
at a rate equal to the Conversion Rate. Any such conversion
may be effected by a holder of Series A Redeemable Preferred
Stock surrendering, on a date no later than thirty (30) days
after the occurrence of a Conversion Event, such holder's
certificate or certificates for the shares of Series A
Redeemable Preferred Stock to be converted, duly endorsed, at
the office of the Corporation or any transfer agent for the
Series A Redeemable Preferred Stock together with a written
notice to the Corporation at such office that such holder
elects to convert all or a specified number of shares of
Series A Redeemable Preferred Stock and stating the name or
names in which such holder desires the certificate or
certificates for such shares of Class A Common Stock to be
issued. Promptly thereafter, the Corporation shall issue and
deliver to such holder or such holder's nominee or nominees, a
certificate or certificates for the number of shares of Class
A Common Stock to which such holder shall be entitled as
provided for herein. Such conversion shall be deemed to have
been made at 12:01 a.m., local time on the day of such
surrender and the person or persons entitled to receive the
shares of Class A Common Stock issuable on such conversion
shall be treated for all purposes as the record holder or
holders of such shares of Class A Common Stock on that date.
The Corporation shall pay all taxes and other charges in
respect of the issuance of shares of Class A Common Stock upon
any such conversion; provided, however, that the Corporation
shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery
of the shares of the Class A Common Stock in a name
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<PAGE> 6
other than that in which the shares of Series A Redeemable
Preferred Stock so converted were registered.
(ii) The Corporation shall at all times reserve and
keep available out of the authorized and unissued shares of
Class A Common Stock, solely for the purpose of effecting the
conversion of issued and outstanding shares of Series A
Redeemable Preferred Stock such number of shares of Class A
Common Stock as shall from time to time be sufficient to
effect the conversion of all issued and outstanding shares of
Series A Redeemable Preferred Stock and if, at any time, the
number of authorized and unissued shares of Class A Common
Stock shall not be sufficient to effect conversion of the then
issued and outstanding shares of Series A Redeemable Preferred
Stock, the Corporation shall take such corporate action as may
be necessary to increase the number of authorized and unissued
shares of Class A Common Stock to such number as shall be
sufficient for such purposes.
(f) Optional Redemption
(i) The Corporation may, at the option of the Board
of Directors at any time and from time to time, pursuant to
notice to each holder thereof, redeem from funds of the
Corporation legally available therefor, all or part of the
outstanding Series A Redeemable Preferred Stock at a price
equal to the Redemption Price.
(ii) The Corporation shall give written notice (the
"Redemption Notice") by mail, postage prepaid, to all holders
of Series A Redeemable Preferred Stock no later than
forty-five (45) days prior to the date specified for
redemption therein (the "Redemption Date"). The Redemption
Notice shall specify the Redemption Date, the Redemption Price
and the aggregate number of shares offered to be redeemed by
the Corporation (the "Redemption Shares"). If the Redemption
Notice specifies less than all of the issued and outstanding
shares of Series A Redeemable Preferred Stock as Redemption
Shares, the shares of each holder which will be redeemed will
equal the product of (x) the number of Redemption Shares and
(y) the number of shares owned by each holder divided by the
number of all issued and outstanding shares of Series A
Redeemable Preferred Stock. No later than ten (10) days prior
to the Redemption Date, the Corporation shall give written
notice by mail, postage prepaid, to each holder of the Series
A Redeemable Preferred Stock calling upon each such
shareholder to surrender to the Corporation on the Redemption
Date at the location designated in the notice such holder's
certificate or certificates representing the shares of Series
A Redeemable Preferred Stock to be redeemed by the
Corporation. Each holder shall surrender to the Corporation
the certificate or certificates evidencing such shares on the
Redemption Date at the location designated in such notice.
Upon tendering such certificate or certificates, each such
holder shall be entitled to receive full payment of the
Redemption Price. From and after the Redemption Date (unless
default shall be
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<PAGE> 7
made by the Corporation in duly paying the Redemption Price,
in which event all of the rights of the holders of such shares
shall continue), the holders of the shares of Series A
Redeemable Preferred Stock so redeemed shall cease to have any
rights as shareholders of the Corporation with respect to
those shares except the right to receive the Redemption Price
upon surrender of the applicable certificate or certificates.
Such shares shall thereafter be transferred to the Corporation
to be held as treasury stock on the books of the Corporation
and shall not be deemed outstanding for any purpose whatsoever
until such time, if at all, that the Corporation reissues any
such shares.
(g) Mandatory Redemption.
(i) The Corporation shall redeem, from funds of the
Corporation legally available therefor, all of the outstanding
Series A Redeemable Preferred Stock at a price equal to the
Redemption Price on the earlier to occur of (a) a Mandatory
Redemption Event or (b) the Sixth Anniversary (each, a
"Mandatory Redemption Event").
(ii) The Corporation shall give written notice (the
("Redemption Notice") by mail, postage prepaid, to all holders
of Series A Redeemable Preferred Stock no later than
thirty-five (35) days prior to the anticipated date of a
Mandatory Redemption Event. The Redemption Notice shall
specify the date of redemption, which date shall be on or no
more than five (5) days prior to the anticipated date of the
Mandatory Redemption Event (the "Redemption Date"), the
Redemption Price and the aggregate number of shares being
redeemed by the Corporation (which, subject to legally
available funds therefor, shall be all of the issued and
outstanding shares of Series A Redeemable Preferred Stock),
and shall call upon each holder of Series A Redeemable
Preferred Stock to surrender to the Corporation on the
Redemption Date at the location specified in the notice, such
holders' certificate or certificates evidencing such shares.
Upon tendering such certificate or certificates, each
shareholder shall be entitled to receive full payment of the
Redemption Price. From and after the Redemption Date (unless
default shall be made by the Corporation in duly paying the
Redemption Price, in which event all of the rights of the
holders of such shares shall continue), the holders of the
shares of Series A Redeemable Preferred Stock so redeemed
shall cease to have any rights as shareholders of the
Corporation with respect to those shares except the right to
receive the Redemption Price upon surrender of the applicable
certificate or certificates. Such shares shall thereafter be
transferred to the Corporation to be held as treasury stock on
the books of the Corporation and shall not be deemed
outstanding for any purpose whatsoever until such time, if at
all, that the Corporation reissues any such shares.
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(h) Definitions. For the purposes of this Section (1) of Article 7 the
following terms shall have the following meanings:
"Business Day" shall mean any day other than a Saturday,
Sunday or a day on which commercial banks in Nashville, Tennessee are
required or authorized by law to be closed.
"Common Stock" shall mean collectively the Corporation's
authorized shares of Class A Common Stock, no par value and Class B
Common Stock, no par value.
"Conversion Event" shall mean the earlier to occur of (i) that
date which is sixty (60) days after a Spin Off or (ii) upon a Qualified
IPO.
"Conversion Rate" shall mean:
(i) if the optional conversion is triggered by a Spin
Off, then the Conversion Rate shall equal (x) the Liquidation
Value per share of the Series A Redeemable Preferred Stock,
divided by (y) the average closing price per share of Class A
Common Stock on the Nasdaq National Market System for the
period commencing on the forty-sixth (46th) day following the
consummation of the Spin Off and ending on the fifteenth
(15th) day thereafter; and
(ii) if the optional conversion is triggered by the
occurrence of a Qualified IPO, then the Conversion Rate shall
equal (x) the Liquidation Value per share of the Series A
Redeemable Preferred Stock, divided by (y) the price per share
of Class A Common Stock in the Qualified IPO.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time.
"Independent Auditors" shall mean Deloitte & Touche, LLP or
another "big six" accounting firm.
"Junior Security" means Common Stock and any other equity
security (other than the Series A Redeemable Preferred Stock),
including the Series B Convertible Preferred Stock, of any kind which
the Corporation at any time issues or is authorized to issue.
"Liquidation Value" of any share of Series A Redeemable
Preferred Stock as of any particular date will be the purchase price
amount of such Stock plus accrued and unpaid dividends, if any.
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"Mandatory Redemption Event" shall mean the earliest to occur
of: (a) the sale, lease or other disposition by the Corporation of all
or substantially all of the assets of the Corporation; (b) a merger or
consolidation of the Corporation with or into another entity in a
transaction in which the shareholders of the Corporation own less than
fifty percent (50%) of the voting securities of the surviving or
resulting corporation immediately after such merger or consolidation;
(c) the sale, transfer or other disposition by the Corporation of all
or substantially all of the capital stock of the Corporation
(including, without limitation, any and all shares, interests, rights
to purchase, warrants, options, participation or other equivalents of
or in (however designated) capital stock of the Corporation; or (d) a
Qualified IPO.
"Preferred Stock" shall mean the Corporation's authorized
shares of preferred stock, no par value.
"Purchase Agreement" shall mean the Preferred Stock Purchase
Agreement, dated as of November 20, 1996, by and among the
Corporation, Electra Investment Trust PLC, Capitol Health Partners,
L.P. and Michael E. Stephens.
"Purchasers" shall mean Electra Investment Trust PLC, Capitol
Health Partners, L.P. and Michael E. Stephens.
"Qualified IPO" means (i) an initial public offering of Class
A Common Stock of the Corporation yielding net cash proceeds to the
Corporation of at least $25,000,000 or (ii) in the event the
Corporation has completed a Spin Off, a public offering of Class A
Common Stock of the Corporation yielding net cash proceeds to the
Corporation and/or its shareholders of at least $20,000,000.
"Redemption Price" for any shares of Series A Redeemable
Preferred Stock as of any particular date shall mean an amount equal to
the Liquidation Value.
"Secondary Registration" means the offer and sale of
securities to the public by or on behalf of one or more of the holders
of the Corporation's securities pursuant to a registration statement
filed by the Corporation with, and declared effective by, the
Commission.
"Sixth Anniversary" shall mean November 20, 2002.
"Spin Off" means the recapitalization of all of the issued and
outstanding Common Stock in a "reorganization" with the meaning of
Section 368(a)(i)(E) of the Internal Revenue Code of 1986, as amended
(the "Code"), and the distribution of all shares of Common Stock held
by American Healthcorp, Inc. ("AHC") pro rata among the shareholders of
AHC in a tax-free distribution under Section 355 of the Code.
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<PAGE> 10
(i) 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
relevant party at its address stated below:
If to Electra:
Electra Investment Trust PLC
65 Kingsway
London, England WC2B 6QT
Attention: Philip J. Dyke, Company Secretary
Telecopy No.: 011-44-71-404-5388
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
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<PAGE> 11
If to Michael E. Stephens:
One Perimeter Park South
Suite 100N
Birmingham, AL 35243
Telecopy No.: (205) 970-6524
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 Corporation in writing or, if any such other
holder shall not have so specified an address to the Corporation, 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
(j) Registration of Transfer. The Corporation shall keep at its
principal office (or such other place as the Corporation designates) a register
for the registration of shares of Series A Redeemable Preferred Stock of the
Corporation. Upon the surrender of any certificate representing shares of Series
A Redeemable Preferred Stock at such place, the Corporation shall, at the
request of the registered holder of such certificate, execute and deliver a new
certificate or certificates in exchange therefor representing in the aggregate
the number of shares of Series A Redeemable
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<PAGE> 12
Preferred Stock represented by the surrendered certificate (and the Corporation
forthwith shall cancel such surrendered certificate), subject to the
requirements of applicable securities laws and to any restrictions on transfer
(including without limitation, those referred to in any legend on the
certificate so surrendered). Each such new certificate shall be registered in
such name and shall represent such number of shares of Series A Redeemable
Preferred Stock as is requested by the holder of the surrendered certificate and
shall be substantially identical in form to the surrendered certificate. The
issuance of new certificates shall be made without charge to the holders of the
surrendered certificates for any issuance tax in respect thereof or other cost
incurred by the Corporation in connection with such issuance; provided, however,
that the Corporation shall not be required to pay any tax which may be payable
in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the surrendered
certificate.
(k) Replacement. Upon receipt of evidence reasonably satisfactory to
the Corporation (an affidavit of the registered holder shall be satisfactory) of
the ownership and the loss, theft, destruction or mutilation of any certificate
evidencing one or more shares of Series A Redeemable Preferred Stock and, in the
case of any such loss, theft or destruction, upon receipt of an unsecured
indemnity agreement satisfactory to the Corporation or, in the case of any such
mutilation, upon surrender of such certificate, the Corporation shall execute
and deliver in lieu of such certificate a new certificate of like kind
representing the number of shares of Series A Redeemable Preferred Stock
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate.
(l) Restrictive Legend. The Series A Redeemable Preferred Stock, and
all shares of Class A Common Stock issued upon conversion hereof, shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH
SECURITIES AND ANY SECURITIES OR SHARES ISSUED HEREUNDER MAY NOT BE
SOLD, OFFERED FOR SALE OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND ANY APPLICABLE STATE
SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
(2) Series B Convertible Preferred Stock. There shall be a series of Preferred
Stock to be known and designated as Series B Convertible Preferred Stock. The
number of shares constituting such series shall be 416,666. Set forth below in
this Section (2) of Article 7 is a statement of the designations and the powers,
preferences and rights, and the qualifications, limitations or restrictions
thereof. All subsection references contained herein shall be to this Section (2)
of Article 7.
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<PAGE> 13
(a) Dividends. The holders of the Series B Convertible Preferred Stock
shall be entitled to receive, from funds legally available therefor, such
dividends as may be declared by the Board of Directors from time to time.
(b) Liquidation. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of the Series B
Convertible Preferred Stock will be entitled to be paid out of the assets of the
Corporation available for distribution to shareholders (whether from capital,
surplus or earnings), before any distribution or payment is made upon any other
Junior Securities, an amount in cash equal to the aggregate Liquidation Value of
all Series B Convertible Preferred Stock outstanding, and the holders of the
Series B Convertible Preferred Stock will not be entitled to any further
payment. If, upon any such liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation to be distributed among the holders
of the Series B Convertible Preferred Stock are insufficient to permit payment
to such holders of the aggregate amount to which they are entitled, then the
entire assets of the Corporation to be distributed to such holders will be
distributed ratably among such holders based upon the aggregate Liquidation
Value of the Series B Convertible Preferred Stock held by each such holder. The
Corporation will mail written notice of such liquidation, dissolution or winding
up, not less than thirty (30) days prior to the payment date stated therein, to
each record holder of Series B Convertible Preferred Stock. Neither the
consolidation or merger of the Corporation into or with any other corporation or
corporations, nor the sale or transfer by the Corporation of all or any part of
its assets, nor the reduction of the capital stock of the Corporation, will be
deemed to be a liquidation, dissolution or winding up of the Corporation within
the meaning of this Subsection (b).
(c) Stock Combinations and Subdivisions. Subject to the rights,
preferences and privileges of any Common Stock and other series of Preferred
Stock outstanding from time to time and to the immediately following sentence,
in the event the Corporation in any manner subdivides or combines the
outstanding shares of any class of common stock, the Series B Convertible
Preferred Stock shall automatically be combined or subdivided in such manner as
may be permitted by applicable law so that following such an event, the
conversion rate, ownership interest and voting interests of the Series B
Convertible Preferred Stock shall be equitably preserved. Series B Convertible
Preferred Stock shall not be combined or subdivided unless at the same time
there is a proportionate combination or subdivision of all other classes and
series of capital stock of the Corporation.
(d) Voting. The holders of Series B Convertible Preferred Stock shall
be entitled to vote as a separate class on all such matters as may be required
by law to be submitted to such holders as a separate class and shall have the
following additional rights:
(i) no amendment, modification or waiver will be
binding or effective with respect to any provision of this
Section 2 unless approved by the affirmative vote of the
holders of at least two-thirds of the outstanding shares of
Series B Convertible Preferred Stock voting together as a
separate class; and
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<PAGE> 14
(ii) the affirmative vote of the holders of
two-thirds of the outstanding shares of Series B Convertible
Preferred Stock voting together as a separate class shall be
necessary to increase the number of authorized shares of
Preferred Stock or authorize or issue any additional shares of
any series of Preferred Stock or any shares of capital stock
of the Corporation of any class, or any security or
obligations convertible into any capital stock of the
Corporation of any class, in each case ranking on a parity
with or senior to the Series B Convertible Preferred Stock as
to distribution of assets in liquidation or in right of
payment of dividends.
In all other matters, subject to voting rights that may be
granted to holders of other classes or series of Preferred
Stock and Common Stock outstanding from time to time, the
holders of Series B Convertible Preferred Stock shall vote
together with the holders of Common Stock and the holders of
all other series of Preferred Stock as a single class. In all
matters that the holders of Series B Convertible Preferred
Stock are entitled to so vote, such holders initially shall be
entitled to 1.05 votes per share of Series B Convertible
Preferred Stock. In the event that the number of Fully-Diluted
shares of Class A Common Stock into which the Series B
Convertible Preferred Stock is convertible increases above
599,216, then for each such additional Fully-Diluted share,
the aggregate voting rights of the holders of Series B
Convertible Preferred Stock shall increase by one vote.
(iii) The Purchasers of Series A Redeemable Preferred
Stock and the Purchasers of Series B Convertible Preferred
Stock pursuant to the Purchase Agreement, voting together as a
separate class, shall be entitled to elect one (1) Director
under the circumstances described in this Subsection (d)(iii).
In addition, the Purchasers of Series A Redeemable Preferred
Stock and the Purchasers of Series B Convertible Preferred
Stock, voting together as a separate class, shall be entitled
to vote on the removal, with or without cause, of any Director
elected by them pursuant to this Subsection (d)(iii). Any
vacancy in the office of a Director elected by the Purchasers
of Series A Redeemable Preferred Stock and Purchasers of
Series B Convertible Preferred Stock may be filled by a vote
of such Purchasers voting together as a separate class. In the
absence of such a vote within 30 days, any such vacancy may be
filled by the remaining Directors. Any Directors elected by
the Board of Directors to fill a vacancy shall serve until the
next annual meeting of shareholder and until his successor has
been duly elected and qualified. The rights of the Purchasers
hereunder shall commence on May 31, 2000, if a Qualified IPO
has not occurred before that date and shall terminate
thereafter upon the occurrence of a Qualified IPO.
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<PAGE> 15
(e) Conversion.
(i) Upon the occurrence of a Triggering Event, all of
the issued and outstanding shares of Series B Convertible
Preferred Stock shall be automatically converted into that
number of fully paid and nonassessable shares of Class A
Common Stock at the Conversion Rate.
The Class A Common Stock shall be allocated among the holders
of Series B Convertible Preferred Stock on a pro-rata basis in
accordance with their respective percentage ownership of
Series B Convertible Preferred Stock. Notwithstanding
Subsection (e)(ii) below, such conversion shall be deemed to
have been made at 12:01 a.m. on the day of the date on which
the Triggering Event occurs, and the holders of shares of
Series B Convertible Preferred Stock shall be treated for all
purposes as the record holders of such shares of Class A
Common Stock on that date.
(ii) Any conversion provided for in this Subsection
(e) shall be effected by the holders of Series B Convertible
Preferred Stock surrendering their certificates for such
shares, duly endorsed, at the office of the Corporation or any
transfer agent for the Series B Convertible Preferred Stock,
together with written notices stating the name or names in
which each such holder desires the certificate or certificates
for such shares of Class A Common Stock to be issued. Promptly
thereafter, the Corporation shall issue and deliver to such
holders or such holders' nominees, a certificate or
certificates for the number of shares of Class A Common Stock
to which such holder shall be entitled in accordance with the
foregoing provisions. The Corporation shall pay all taxes and
other charges in respect of the issuance of shares of Class A
Common Stock upon any such conversion; provided, however, that
the Corporation shall not be required to pay any tax which may
be payable in respect of any transfer involved in the issuance
and delivery of the shares of the Class A Common Stock in a
name other than that in which the shares of Series B
Convertible Preferred Stock so converted were registered.
(iii) The Corporation shall at all times reserve and
keep available out of the authorized and unissued shares of
Class A Common Stock, solely for the purpose of effecting the
conversion of issued and outstanding shares of Series B
Convertible Preferred Stock, such number of shares of Class A
Common Stock as shall from time to time be sufficient to
effect the conversion of all issued and outstanding shares of
Series B Convertible Preferred Stock and if, at any time, the
number of authorized and unissued shares of Class A Common
Stock shall not be sufficient to effect conversion of the then
issued and outstanding shares of Series B Convertible
Preferred Stock, the Corporation shall take such corporate
action as may be necessary to increase the number of
authorized and unissued shares of Class A Common Stock to such
number as shall be sufficient for such purposes.
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<PAGE> 16
(f) Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets.
(i) All of the issued and outstanding shares of Class
B Convertible Preferred Stock may be converted at the Current
Market Price per share into shares of Class A Common Stock in
accordance with the applicable provisions of Subsection (e) in
the event the Corporation shall reorganize its capital
pursuant to a spin off or otherwise, reclassify its capital
stock, consolidate or merge with or into another corporation
(where there is a change in or distribution with respect to
the Class A Common Stock of the Corporation), or sell,
transfer or otherwise dispose of all of its property, assets
or business to another corporation other than in a Company
Sale (a "Reorganization Event"). If pursuant to the terms of
such Reorganization Event, shares of common stock of the
successor or acquiring corporation, or any cash, shares of
stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights)
in addition to or in lieu of common stock of the successor or
acquiring corporation (herein referred to as "Other
Property"), are to be received by or distributed to the
holders of Class A Common Stock of the Corporation, each
holder of Series B Convertible Preferred Stock shall have the
right thereafter to receive, after giving effect to such
conversion, the number of shares of common stock of the
successor or acquiring corporation or of the Corporation, if
it is the surviving corporation, and Other Property receivable
upon or as a result of such Reorganization Event by a holder
of the number of shares of Class A Common Stock for which such
Series B Convertible Preferred Stock is convertible
immediately prior to such event. For purposes of this
Subsection (f), "common stock of the successor or acquiring
corporation" shall include stock of such corporation of any
class which is not preferred as to dividends or assets over
any other class of stock of such corporation and which is not
subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are
convertible into or exchangeable for any such stock, either
immediately or upon the arrival of a specified date or the
happening of a specified event, and any warrants, options or
other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Subsection (f) shall similarly
apply to successive Reorganization Events.
(ii) Upon the occurrence of any Reorganization Event,
the Corporation shall forthwith prepare a certificate to be
executed by the chief financial officer of the Corporation
setting forth, in reasonable detail, the events described
therein and the number of shares or Other Property receivable
by the holders of the Series B Convertible Preferred Stock.
The Corporation shall promptly cause a signed copy of such
certificate to be delivered to each holder of Series B
Convertible Preferred Stock no later than 5 days prior to the
anticipated occurrence of such event. In addition, holders of
Series B Convertible Preferred Stock shall be entitled to the
16
<PAGE> 17
same rights to receive notice of corporate action as any
holder of Class A Common Stock.
(g) Put to the Corporation.
(i) If, by November 20, 2002 (the "Put Date"), there
shall not have occurred a Triggering Event, then the holders
of Series B Convertible Preferred Stock shall have the right
to sell to the Corporation all of the issued and outstanding
shares of Series B Convertible Preferred Stock, and the
Corporation shall have the obligation to purchase from such
holders any of such shares so put to the Corporation, at the
price (the "Put Price") equal to the Current Market Price of
the Class A Common Stock that would otherwise then be issuable
upon conversion of the Series B Convertible Preferred Stock.
(ii) Holders of Series B Convertible Preferred Stock
shall exercise their right to require the Corporation to
purchase their shares as provided for in Subsection (g)(i) by
delivering a written notice to the Corporation (the "Notice")
no later than thirty (30) days after the Put Date. Within
thirty (30) days after receipt by the Corporation of any such
Notice, the Corporation shall deliver to each holder of Series
B Convertible Preferred Stock so exercising its rights under
this Subsection (g) the Put Price to which said holder is
entitled, as determined hereunder, in exchange for the stock
certificate(s) evidencing all of the shares of Series B
Convertible Preferred Stock, duly endorsed for transfer to the
Corporation. In the event that the Corporation is unable to
purchase all of the shares of Series B Convertible Stock put
to it hereunder due to lack of funds legally available
therefor or otherwise, the Corporation shall purchase from the
holders thereof, on a pro-rata basis, that number of shares
which it is able to purchase using funds legally available
therefor, and shall purchase any remaining shares at such time
as funds are legally available therefor.
(h) Definitions. For purposes of this Section (2) of Article 7 the
following terms shall have the following meanings:
"Appraised Value" shall mean, in respect of any share of Class
A Common Stock as of any date herein specified, the fair saleable value
of such share of Class A Common Stock determined without giving effect
to a discount for (i) a minority interest or (ii) any lack of liquidity
of the Class A Common Stock or to the fact that the Corporation may
have no class of equity registered under the Exchange Act as of the
last day of the most recent fiscal quarter end (within 60 days prior to
such date specified) based upon the value of the Corporation as
determined upon negotiation in good faith between the holders of a
majority of the Series B Convertible Preferred Stock and the
Corporation or, in the absence of an agreement between such persons
within five business days (or such longer period as agreed to by such
persons), by an investment banking firm satisfactory to both the
Corporation
17
<PAGE> 18
and the holders of a majority of the Series B Convertible
Preferred Stock. The Corporation shall retain, at its sole cost, such
investment banking firm as may be necessary for the determination of
Appraised Value.
"Business Day" shall mean any day other than a Saturday,
Sunday or a day on which commercial banks in Nashville, Tennessee are
required or authorized by law to be closed.
"Commission" means the Securities and Exchange Commission.
"Common Equivalent Shares" shall have the meaning set forth in
the Shareholders' Agreement, dated April 2, 1992, as amended between
the Corporation, its Founding Investors, its Founding Management and
the Preferred Stock Purchasers.
"Common Stock" shall mean collectively the Corporation's
authorized shares of Class A Common Stock, no par value, and Class B
Common Stock, no par value.
"Company Sale" shall mean the sale or other disposition of all
or substantially all of the stock or assets of the Corporation to an
independent third party in an arms-length transaction, including
disposition by merger, share exchange or lease yielding net cash
proceeds to the Corporation of at least $25,000,000 or, in the event
that the Corporation has completed a Spin Off, such disposition
yielding net cash proceeds or freely marketable securities to the
Corporation and/or its shareholders of at least $20,000,000.
"Convertible Securities" shall mean evidences of indebtedness,
shares of stock or other securities which are convertible into or
exchangeable, with or without payment of additional consideration in
cash or property, for Class A Common Stock, either immediately or upon
the occurrence of a specified date or a specified event.
"Conversion Rate" shall mean that rate which results in the
holders of Series B Convertible Preferred Stock thereafter holding, in
the aggregate, the following percentage of the total issued and
outstanding Fully Diluted Common Stock, after giving effect to the
conversion contemplated herein:
If the Triggering Event occurs on or before November
20, 1998 - 6% of Fully Diluted Shares
If the Triggering Event occurs on or before November
20, 1999 - 6.5% of Fully Diluted Shares
If the Triggering Event occurs on or before November
20, 2000 - 7% of Fully Diluted Shares
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<PAGE> 19
If the Triggering Event occurs after November 20,
2000 - 8% of Fully Diluted Shares
"Current Market Price" shall mean, in respect of any share of
Common Stock on any date herein specified, the greater of (i) book
value per share of Common Stock as determined by the Corporation's
financial statements for the most recently ended fiscal quarter, (ii)
the Liquidation Value per share of the Series B Convertible Preferred
Stock, (iii) a valuation per share of Common Stock of eight (8) times
Net EBITDA for the most recently ended four quarters, and (iv) the
Appraised Value per share of Common Stock.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time.
"Fully-Diluted" shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be
determined, all shares of Common Stock outstanding as of November 20,
1996, increased by all shares of Class A Common Stock issuable in
respect of Series B Convertible Preferred Stock and increased by all
Common Equivalent Shares (using the treasury stock method) issuable
upon exercise of stock options, warrants or convertible securities
(other than the shares issuable upon conversion of the Series A
Redeemable Preferred Stock) and increased by shares issued to the
Founding Investors and Founding Management pursuant to the
Corporation's Shareholders' Agreement dated as of April 2, 1992, as
amended, for consideration of up to $1,300,000. In the event that the
Corporation creates an additional class or series of common stock,
Fully Diluted shall take into account all such outstanding shares of
any other class or series.
"Independent Auditors" means Deloitte & Touche, LLP or another
"big six" accounting firm.
"Junior Security" means Common Stock and any other equity
security, other than the Series A Redeemable Preferred Stock, of any
kind which the Corporation at any time issues or is authorized to
issue.
"Liquidation Value" of any share of Series B Convertible
Preferred Stock as of any particular date will be the purchase price of
such Stock.
"Net EBITDA" shall mean the Corporation's earnings before
interest, taxes, depreciation, amortization and extraordinary items
less minority interest expense, all as determined based on the audited
financial statements for such period prepared by the Corporation's
independent auditors in accordance with GAAP.
"Preferred Stock" shall mean the Corporation's authorized
shares of preferred stock, no par value.
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<PAGE> 20
"Purchase Agreement" shall mean the Preferred Stock Purchase
Agreement, dated as of November 20, 1996, by and among the
Corporation, Electra Investment Trust PLC, Capitol Health Partners,
L.P. and Michael E. Stephens.
"Purchasers" shall mean Electra Investment Trust PLC, Capitol
Health Partners, L.P. and Michael E. Stephens.
"Qualified IPO" means an initial public offering of Common
Stock of the Corporation yielding net cash proceeds to the Corporation
of at least $25,000,000, or in the event that the Corporation has
completed a Spin Off, a public offering of Common Stock yielding net
cash proceeds to the Corporation and/or its shareholders of at least
$20,000,000.
"Reorganization Event" shall have the meaning set forth in
Subsection (f).
"Spin Off" means the recapitalization of all of the issued and
outstanding Common Stock in a reorganization within the meaning of
Section 368(a)(i)(E) of the Internal Revenue Code of 1986, as amended
(the "Code"), and the distribution of all shares of Common Stock held
by American Healthcorp, Inc. ("AHC") pro rata among the shareholders of
AHC in a tax-free distribution under Section 355 of the Code.
"Stock Option Plan" means shares issued pursuant to the
Corporation's 1992 Stock Option Plan, as it may be amended from time to
time, and any other similar share incentive plans which the Corporation
may adopt and any options granted to members of the Board of Directors
and Medical Directors of the Corporation.
"Triggering Event" shall mean the occurrence the earlier of
(i) a Company Sale or (ii) a Qualified IPO.
(i) Notices. All written communications provided for hereunder shall be
sent by first-class mail or nationwide overnight delivery service (with charges
prepaid) or via facsimile transmission and shall be directed to the relevant
party at its address stated below:
If to Electra:
Electra Investment Trust PLC
65 Kingsway
London, England WC2B 6QT
Attention: Philip J. Dyke, Company Secretary
Telecopy No.: 011-44-71-404-5388
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<PAGE> 21
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
with copies to:
Bradley, Arant Rose & White
2001 Park Place
Suite 1400
Birmingham, AL 35203
Attention: Thomas Carruthers
Telecopy No.: (205) 252-0264
21
<PAGE> 22
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 Corporation in writing or, if any such other holder shall not
have so specified an address to the Corporation, then addressed to such other
holder in care of the last holder of such shares of Series B Convertible
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
(j) Registration of Transfer. The Corporation shall keep at
its principal office (or such other place as the Corporation
designates) a register for the registration of shares of Series B
Convertible Preferred Stock of the Corporation. Upon the surrender of
any certificate representing shares of Series B Convertible Preferred
Stock at such place, the Corporation shall, at the request of the
registered holder of such certificate, execute and deliver a new
certificate or certificates in exchange therefor representing in the
aggregate the number of shares of Series B Convertible Preferred Stock
represented by the surrendered certificate (and the Corporation
forthwith shall cancel such surrendered certificate), subject to the
requirements of applicable securities laws and to any restrictions on
transfer (including without limitation, those referred to in any legend
on the certificate so surrendered). Each such new certificate shall be
registered in such name and shall represent such number of shares of
Series B Convertible Preferred Stock as is requested by the holder of
the surrendered certificate and shall be substantially identical in
form to the surrendered certificate. The issuance of new certificates
shall be made without charge to the holders of the surrendered
certificates for any issuance tax in respect thereof or other cost
incurred by the Corporation in connection with such issuance; provided,
however, that the Corporation shall not be required to pay any tax
which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of
the holder of the surrendered certificate.
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(k) Replacement. Upon receipt of evidence reasonably
satisfactory to the Corporation (an affidavit of the registered holder
shall be satisfactory) of the ownership and the loss, theft,
destruction or mutilation of any certificate evidencing one or more
shares of Series B Convertible Preferred Stock and, in the case of any
such loss, theft or destruction, upon receipt of an unsecured indemnity
agreement satisfactory to the Corporation or, in the case of any such
mutilation, upon surrender of such certificate, the Corporation shall
execute and deliver in lieu of such certificate a new certificate of
like kind representing the number of shares of Series B Convertible
Preferred Stock represented by such lost, stolen, destroyed or
mutilated certificate and dated the date of such lost, stolen,
destroyed or mutilated certificate.
(l) Restrictive Legend. The Series B Convertible Preferred
Stock, and all shares of Common Stock issued upon conversion hereof,
shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS.
SUCH SECURITIES AND ANY SECURITIES OR SHARES ISSUED HEREUNDER MAY
NOT BE SOLD, OFFERED FOR SALE OR TRANSFERRED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND ANY
APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED."
(3) Common Stock. Except as otherwise provided in this Section (3) of Article 7,
the Class A Common Stock and the Class B Common Stock shall have the same rights
and privileges and shall rank equally, share ratably and be identical in all
respects and as to all matters. All subsection references contained herein shall
be to this Section (3) of Article 7.
(a) Voting.
(i) Except as required by law and subject to any
voting rights provided to holders of Preferred Stock or any
other class of Common Stock by this Charter, at every meeting
of shareholders of the Corporation, every holder of Class A
Common Stock shall be entitled to one vote and every holder of
Class B Common Stock shall be entitled to ten votes, in person
or by proxy, for each share of Class A Common Stock and Class
B Common Stock, respectively, standing in such holder's name
on the stock transfer records of the Corporation in the
election of the Corporation's Board of Directors or the
removal, but only for cause (as defined in Section 9 hereof),
of any Director. On all other matters, the holders of
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the Class A Common Stock and the Class B Common Stock shall
be entitled to one vote in person or by proxy for each share
of Class A Common Stock or Class B Common Stock standing in
such holder's name on the stock transfer records of the
Corporation.
(ii) The holders of Class A Common Stock shall be
entitled to vote separately as a group only with respect to
(1) amendments to the Corporation's Charter that alter or
change the powers, preferences or special rights of the
holders of Class A Common Stock so as to affect them
adversely, and (2) such other matters as may require separate
group voting under the Tennessee Business Corporation Act. The
holders of Class B Common Stock shall be entitled to vote
separately as a group only with respect to (1) amendments to
the Corporation'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 (2) such other
matters as may require separate group voting under the
Tennessee Business Corporation Act. On each other matter, the
holders of Class A Common Stock and Class B Common Stock shall
vote together as a single group, together with the holders of
any series of Preferred Stock entitled to vote on such matter,
subject to any rights of such series of Preferred Stock to
vote as a separate class on such matter.
(b) Distribution of Assets. If the Corporation shall be
liquidated, dissolved or wound up, whether voluntarily or
involuntarily, the holders of the Class B Common Stock shall
be entitled to share ratably with the holders of the Class A
Common Stock of the Corporation as a single class in the net
assets of the Corporation; that is, an equal amount of net
assets for each share of Class A Common Stock and Class B
Common Stock. A merger or consolidation of the Corporation
with or into any other corporation or sale or conveyance of
all or any part of the assets of the Corporation (which shall
not in fact result in the liquidation of the Corporation and
the distribution of assets to shareholders) shall not be
deemed to be a voluntary or involuntary liquidation or
dissolution or winding up of the Corporation within the
meaning of this Subsection (b).
(c) Merger or Consolidation. In the event of a merger,
consolidation, share exchange or other business combination of
the Corporation with or into another entity (whether or not
the Corporation is the surviving entity), the holders of Class
A Common Stock shall be entitled to receive the same per share
consideration as the per share consideration, if any, received
by any holder of the Class B Common Stock in such merger or
consolidation, share exchange or other business combination.
(d) Subdivisions and Combinations of Shares. If the
Corporation in any manner subdivides or combines the
outstanding shares of one class of Common Stock, the
outstanding shares of the other class of Common Stock will be
likewise subdivided or combined.
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(e) Dividends; Distributions. Holders of Class A Common Stock
and Class B Common Stock shall be entitled to receive, on an
equal basis, such dividends, payable in cash or otherwise, as
may be declared thereon by the Board of Directors from time to
time out of the assets or funds of the Corporation legally
available therefor. In the case of dividends and other
distributions in cash, each share of Class A Common Stock
shall have rights equal to the rights of Class B Common Stock,
and in the case of dividends and other distributions of stock
or property of the Corporation, each share of Class A Common
Stock shall have rights equal to the rights of Class B Common
Stock; provided that, in the case of dividends or
distributions payable in stock of the Corporation, including
distributions pursuant to stock splits or divisions which
occur after the date shares of Class B Common Stock are
issued, only shares of Class A Common Stock shall be
distributed with respect to Class A Common Stock and Class B
Common Stock; and provided, further that, if a dividend or
distribution is declared with respect to Class A Common Stock
payable in Class A Common Stock, the Board of Directors shall
also declare a pro rata and simultaneous dividend or
distribution on the Class B Common Stock and that if a
dividend or distribution is declared with respect to Class B
Common Stock payable in Class A Common Stock, the Board of
Directors shall also declare a pro rata and simultaneous
dividend or distribution on the Class A Common Stock.
(f) Issuance of the Class B Common Stock. The Corporation
shall not issue additional shares of Class B Common Stock
after the date shares of Class B Common Stock are first issued
by the Corporation.
(g) Open Market Purchases and Issuer Tender Offers. If the
Corporation publicly offers to purchase any shares of Class B
Common Stock in the open market or in private transactions or
pursuant to an issuer tender offer, the Corporation shall
simultaneously offer to purchase at least the same number of
shares of Class A Common Stock on the same terms and
conditions.
(h) Authorized Shares. The number of authorized shares of
Class B Common Stock may not be increased unless approved by
the holders of a majority of the then outstanding shares of
Class A Common Stock voting separately as a class.
(i) Amendment or Modification. None of the powers, preferences
and relative rights of the Class A Common Stock or the Class B
Common Stock as provided herein shall be amended in any manner
which would alter or change the powers, preferences and
relative rights of the holders of Class A Common Stock or
Class B Common Stock, as the case may be, so as to adversely
affect them without being approved by the holders of Class A
Common Stock or Class B Common Stock, as the case may be,
voting as a separate class.
8. The shareholders of the Corporation shall not have preemptive
rights.
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9. All corporate powers shall be exercised by or under the authority
of, and the business and affairs of the Corporation shall be managed under the
direction of, a Board of Directors consisting of not less than three nor more
than twelve directors, the exact number of Directors to be determined in the
manner provided in the Bylaws of the Corporation. The Board of Directors shall
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 at the 1997 annual meeting of
shareholders, Class I Directors shall be elected for a one-year term; Class II
Directors shall be elected for a two-year term; and Class III Directors shall be
elected for a three-year term. If the number of Directors is changed, any
increase or decrease shall be apportioned among the classes so as to maintain
the number of Directors in each class as nearly equal as possible, and any
additional Director of any class elected to fill a vacancy resulting from an
increase in such class shall hold office for a term that shall coincide with the
remaining term of that class, but in no case will a decrease in the number of
Directors shorten the term of any incumbent Director. A Director shall hold
office until the annual meeting for the year in which his term expires and until
his successor shall be elected and shall qualify, subject, however, to prior
death, resignation, retirement, disqualification or removal from office.
A Director may be removed from office but only for "cause" by the
affirmative vote of the holders of a majority of the voting power of the shares
entitled to vote for the election of Directors, considered for this purpose as
one class. "Cause" shall be defined for purposes of this Section 9 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 duties as a director.
Notwithstanding any other provisions of this Charter, the affirmative
vote of holders of two-thirds of the voting power of the shares entitled to vote
at an election of Directors shall be required to amend, alter, change or repeal,
or to adopt any provisions as part of this Charter or as part of the
Corporation's Bylaws inconsistent with the purpose and intent of, this Article
9.
10. To the fullest extent permitted by the Tennessee Business
Corporation Act as in effect on the date hereof and as hereafter amended from
time to time, a Director of the Corporation shall not be liable to the
Corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director. If the Tennessee Business Corporation Act or any successor
statute is amended after adoption of this provision to authorize corporate
action further eliminating or limiting the personal liability of directors, then
the liability of a Director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the Tennessee Business Corporation Act, as so
amended from time to time, or such successor statute. Any repeal or modification
of this Article 10 by the shareholders of the Corporation shall not affect
adversely any right or protection of a Director of the Corporation existing at
the time of such repeal or modification or with respect to events occurring
prior to such time.
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<PAGE> 27
11. The Corporation shall indemnify every person who is or was a party
or is or was threatened to be made a party to any action, suit, or proceeding,
whether civil, criminal, administrative, or investigative, by reason of the fact
that he or she is or was a director, medical director or officer or is or was
serving at the request of the Corporation as a director, medical director,
officer, employee, agent, or trustee of another corporation or of a partnership,
joint venture, trust, employee benefit plan, or other enterprise, including
service on a committee formed for any purpose (and, in each case, his or her
heirs, executors, and administrators), against all expense, liability, and loss
(including counsel fees, judgments, fines, ERISA excise taxes, penalties, and
amounts paid in settlement) actually and reasonably incurred or suffered in
connection with such action, suit, or proceeding, to the fullest extent
permitted by applicable law, as in effect on the date hereof and as hereafter
amended. Such indemnification shall include advancement of expenses in advance
of final disposition of such action, suit, or proceeding, subject to the
provision of any applicable statute.
The indemnification and advancement of expenses provisions of this
Article 11 shall not be exclusive of any other right that any person (and his or
her heirs, executors, and administrators) may have or hereafter acquire under
any statute, this Charter, the Corporation's Bylaws, resolution adopted by the
shareholders, resolution adopted by the Board of Directors, agreement, or
insurance, purchased by the Corporation or otherwise, both as to action in his
or her official capacity and as to action in another capacity. The Corporation
is hereby authorized to provide for indemnification and advancement of expenses
through its Bylaws, resolution of shareholders, resolution of the Board of
Directors, or agreement, in addition to that provided by this Charter.
12. The Bylaws of this Corporation may be amended, altered, modified,
or repealed by resolution adopted by the Board of Directors, subject to any
provisions of law then applicable.
13. The Corporation shall hold a special meeting of shareholders only
in the event (a) of a call of the Board of Directors of the Corporation or the
officers authorized to do so by the Bylaws of the Corporation, or (b) the
holders of at least fifteen (15%) percent of the voting power of each of the
Class A Common Stock and the Class B Common Stock, sign, date, and deliver to
the Corporation's secretary one or more written demands for the meeting
describing the purpose or purposes for which it is to be held.
14. As a result of the recapitalization of the Corporation effected by
this Amended and Restated Charter, each holder of three shares of common stock
of the Corporation registered on the stock transfer records of the Corporation
immediately prior to the filing of this Amended and Restated Charter will
automatically be deemed to hold, in respect of such shares, one share of Class A
Common Stock registered on the stock transfer records of the Corporation
immediately after the filing of this Amended and Restated Charter. In the event
that the recapitalization effected by this Amended and Restated Charter would
result in any holder holding fractional shares of Class A Common Stock, the
total number of fractional shares held by all such holders will be aggregated
and sold on behalf of the holders who would otherwise receive fractional shares
and the proceeds of the sale will be paid to the holders in lieu of such
fractional shares. Each certificate representing shares of common stock of
the Corporation issued prior to the filing of this Amended and Restated
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<PAGE> 28
Charter will be deemed to represent the number of shares of Class A Common Stock
that the holder of such shares registered on the stock transfer records of the
Corporation immediately prior to the filing of this Amended and Restated Charter
would be deemed to hold immediately following the filing of this Amended and
Restated Charter.
III. The Amended and Restated Charter as set forth above was duly adopted
effective December 1, 1997, by the Board of Directors and
shareholders of the Corporation.
AmSurg Corp.
By:
Title: _____________________________
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<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
AMSURG CORP.
(THE "CORPORATION")
ARTICLE I.
OFFICES
The Corporation may have such offices, either within or without the
State of Tennessee, as the Board of Directors may designate or as the business
of the Corporation may require from time to time.
ARTICLE II.
SHAREHOLDERS
2.1 ANNUAL MEETING.
An annual meeting of the shareholders of the Corporation shall be held
on such date as may be determined by the Board of Directors. The business to
be transacted at such meeting shall be the election of directors and such other
business as shall be properly brought before the meeting.
2.2 SPECIAL MEETINGS.
A special meeting of shareholders shall be held on call of the Board
of Directors or if the holders of at least fifteen percent (15%) of the
voting power of each of the Class A Common Stock and the Class B Common Stock
sign, date, and deliver to the Corporation's Secretary one (1) or more written
demands for the meeting describing the purpose or purposes for which such
special meeting is to be held, including all statements necessary to make any
statement of such purpose not incomplete, false or misleading, and include any
other information specified in Schedule 14A, Rule 14a-3, Rule 14a-8, or Rule
14a-11 of the Rules and Regulations of the Securities and Exchange Commission.
Only business within the purpose or purposes described in the meeting notice may
be conducted at a special shareholders' meeting.
<PAGE> 2
2.3 PLACE OF MEETINGS.
The Board of Directors may designate any place, either within or
without the State of Tennessee, as the place of meeting for any annual meeting
or for any special meeting. If no place is fixed by the Board of Directors,
the meeting shall be held at the principal office of the Corporation.
2.4 NOTICE OF MEETINGS; WAIVER.
(A) NOTICE. Notice of the date, time and place of each
annual and special shareholders' meeting and, in the case of a special meeting,
a description of the purpose or purposes for which the meeting is called, shall
be given no fewer than ten (10) days nor more than two (2) months before the
date of the meeting. Such notice shall comply with the requirements of Article
XI of these Bylaws.
(B) WAIVER. A shareholder may waive any notice required
by law, the Corporation's Amended and Restated Charter (the "Charter") or these
Bylaws before or after the date and time stated in such notice. Except as
provided in the next sentence, the waiver must be in writing, be signed by the
shareholder entitled to the notice and be delivered to the Corporation for
inclusion in the minutes or filing with the corporate records. A shareholder's
attendance at a meeting: (1) waives objection to lack of notice or defective
notice of the meeting, unless the shareholder at the beginning of the meeting
(or promptly upon his arrival) objects to holding the meeting or transacting
business at the meeting; and (2) waives objection to consideration of a
particular matter at the meeting that is not within the purpose or purposes
described in the meeting notice, unless the shareholder objects to considering
the matter when it is presented.
2.5 RECORD DATE.
The Board of Directors shall fix as the record date for the
determination of shareholders entitled to notice of a shareholders' meeting, to
demand a special meeting, to vote, or to take any other action, a date not more
than seventy (70) days before the meeting or action requiring a determination
of shareholders.
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<PAGE> 3
A record date fixed for a shareholders' meeting is effective for any
adjournment of such meeting unless the Board of Directors fixes a new record
date, which it must do if the meeting is adjourned to a date more than four (4)
months after the date fixed for the original meeting.
2.6 SHAREHOLDERS' LIST.
After the record date for a meeting has been fixed, the Corporation
shall prepare an alphabetical list of the names of all shareholders who are
entitled to notice of a shareholders' meeting. Such list will show the address
of and number of shares held by each shareholder. The shareholders' list will
be available for inspection by any shareholder, beginning two (2) business days
after notice of the meeting is given for which the list was prepared and
continuing through the meeting, at the Corporation's principal office or at a
place identified in the meeting notice in the city where the meeting will be
held. A shareholder or his agent or attorney is entitled on written demand to
inspect and, subject to the requirements of the Tennessee Business Corporation
Act (the "Act"), to copy the list, during regular business hours and at his
expense, during the period it is available for inspection.
2.7 VOTING GROUPS; QUORUM; ADJOURNMENT.
All shares entitled to vote and be counted together collectively on a
matter at a meeting of shareholders shall be a "voting group". Shares entitled
to vote as a separate voting group may take action on a matter at a meeting
only if a quorum of those shares exists with respect to that matter. Except as
otherwise required by the Act or provided in the Charter, a majority of the
votes entitled to be cast on a matter by a voting group constitutes a quorum of
that voting group for action on that matter.
Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
adjourned meeting.
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<PAGE> 4
If a quorum of a voting group shall not be present or represented at
any meeting, the shares entitled to vote thereat shall have power to adjourn
the meeting to a different date, time or place without notice other than
announcement at the meeting of the new time, date or place to which the meeting
is adjourned. At any adjourned meeting at which a quorum of any voting group
shall be present or represented, any business may be transacted by such voting
group which might have been transacted at the meeting as originally called.
2.8 VOTING OF SHARES.
Unless otherwise provided by the Act or the Charter, each outstanding
share is entitled to one (1) vote on each matter voted on at a shareholders'
meeting. Only shares are entitled to vote. If a quorum exists, approval of
action on a matter (other than the election of directors) by a voting group
entitled to vote thereon is received if the votes cast within the voting group
favoring the action exceed the votes cast opposing the action, unless the
Charter or the Act requires a greater number of affirmative votes. Unless
otherwise provided in the Charter, directors are elected by a plurality of the
votes cast by the shares entitled to vote in the election at a meeting at which
a quorum is present.
2.9 PROXIES.
A shareholder may vote his or her shares in person or by proxy. A
shareholder may appoint a proxy to vote or otherwise act for him or her by
signing an appointment either personally or through an attorney-in-fact. An
appointment of a proxy is effective when received by the Secretary or other
officer or agent authorized to tabulate votes. An appointment is valid for
eleven (11) months unless another period is expressly provided in the
appointment form. An appointment of a proxy is revocable by the shareholder
unless the appointment form conspicuously states that it is irrevocable and the
appointment is coupled with an interest.
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<PAGE> 5
2.10 ACCEPTANCE OF SHAREHOLDER DOCUMENTS.
If the name signed on a shareholder document (a vote, consent, waiver,
or proxy appointment) corresponds to the name of a shareholder, the
Corporation, if acting in good faith, is entitled to accept such shareholder
document and give it effect as the act of the shareholder. If the name signed
on such shareholder document does not correspond to the name of a shareholder,
the Corporation, if acting in good faith, is nevertheless entitled to accept
such shareholder document and to give it effect as the act of the shareholder
if:
(I) the shareholder is an entity and the name signed
purports to be that of an officer or agent of the entity;
(II) the name signed purports to be that of a fiduciary
representing the shareholder and, if the Corporation requests,
evidence of fiduciary status acceptable to the Corporation has been
presented with respect to such shareholder document;
(III) the name signed purports to be that of a receiver or
trustee in bankruptcy of the shareholder and, if the Corporation
requests, evidence of this status acceptable to the Corporation has
been presented with respect to the shareholder document;
(IV) the name signed purports to be that of a pledgee,
beneficial owner, or attorney-in-fact of the shareholder and, if the
Corporation requests, evidence acceptable to the Corporation of the
signatory's authority to sign for the shareholder has been presented
with respect to such shareholder document; or
(V) two or more persons are the shareholder as co-tenants
or fiduciaries and the name signed purports to be the name of at least
one (1) of the co-owners and the person signing appears to be acting
on behalf of all the co-owners.
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<PAGE> 6
The Corporation is entitled to reject a shareholder document if the
Secretary or other officer or agent authorized to tabulate votes, acting in
good faith, has a reasonable basis for doubt about the validity of the
signature on such shareholder document or about the signatory's authority to
sign for the shareholder.
2.11 ACTION WITHOUT MEETING.
Action required or permitted by the Act to be taken at a shareholders'
meeting may be taken without a meeting. If all shareholders entitled to vote
on the action consent to taking such action without a meeting, the affirmative
vote of the number of shares that would be necessary to authorize or take such
action at a meeting is the act of the shareholders.
The action must be evidenced by one (1) or more written consents
describing the action taken, at least one of which is signed by each
shareholder entitled to vote on the action in one (1) or more counterparts,
indicating such signing shareholder's vote or abstention on the action and
delivered to the Corporation for inclusion in the minutes or for filing with
the corporate records.
If the Act or the Charter requires that notice of a proposed action be
given to nonvoting shareholders and the action is to be taken by consent of the
voting shareholders, then the Corporation shall give its nonvoting shareholders
written notice of the proposed action at least ten (10) days before such action
is taken. Such notice shall contain or be accompanied by the same material
that would have been required to be sent to nonvoting shareholders in a notice
of a meeting at which the proposed action would have been submitted to the
shareholders for action.
2.12 PRESIDING OFFICER AND SECRETARY.
Meetings of the shareholders shall be presided over by the Chairman of
the Board (the "Chairman"), or if the Chairman is not present or if the
Corporation shall not have a Chairman, by the President or Chief Executive
Officer, or if neither the Chairman nor the President or Chief Executive
Officer is present, by a chairman chosen by a majority of the shareholders
entitled to vote at such meeting.
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<PAGE> 7
The Secretary or, in the Secretary's absence, an Assistant Secretary shall act
as secretary of every meeting, but if neither the Secretary nor an Assistant
Secretary is present, a majority of the shareholders entitled to vote at such
meeting shall choose any person present to act as secretary of the meeting.
2.13 NOTICE OF NOMINATIONS.
Nominations for the election of directors may be made by the Board of
Directors or a committee appointed by the Board of Directors authorized to make
such nominations or by any shareholder entitled to vote in the election of
directors generally. However, any such shareholder nomination may be made only
if written notice of such nomination has been given, either by personal
delivery or the United States mail, postage prepaid, to the Secretary of the
Corporation not later than (a) with respect to an election to be held at an
annual meeting of shareholders, one hundred twenty (120) days in advance of the
anniversary date of the proxy statement for the previous year's annual meeting,
and (b) with respect to an election to be held at a special meeting of
shareholders for the election of directors called other than by written request
of a shareholder, the close of business on the tenth day following the date on
which notice of such meeting is first given to shareholders, and (c) in the
case of a special meeting of shareholders duly called upon the written request
of a shareholder to fill a vacancy or vacancies (then existing or proposed to
be created by removal at such meeting), within ten (10) business days of such
written request. In the case of any nomination by the Board of Directors or a
committee appointed by the Board of Directors authorized to make such
nominations, compliance with the proxy rules of the Securities and Exchange
Commission shall constitute compliance with the notice provisions of the
preceding sentence.
In the case of any nomination by a shareholder, each such notice shall
set forth: (a) as to each person whom the shareholder proposes to nominate for
election or re-election as a director, (i) the name, age, business address, and
residence address of such person, (ii) the principal occupation or employment
of such person, (iii) the class and number of shares of the Corporation which
are beneficially owned by
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<PAGE> 8
such person, and (iv) any other information relating to such person that is
required to be disclosed in solicitations of proxies with respect to nominees
for election as directors, pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (including without limitation such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director, if elected); and (b) as to the shareholder giving the
notice (i) the name and address, as they appear on the Corporation's books, of
such shareholder, and (ii) the class and number of shares of the Corporation
which are beneficially owned by such shareholder; and (c) a description of all
arrangements or understandings between the shareholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the shareholder. The President,
Chief Executive Officer, or chairman of the meeting may refuse to acknowledge
the nomination of any person not made in compliance with the foregoing
procedure.
2.14 NOTICE OF NEW BUSINESS.
At an annual meeting of the shareholders only such new business shall
be conducted, and only such proposals shall be acted upon, as have been
properly brought before the meeting. To be properly brought before the annual
meeting such new business must be (a) specified in the notice of meeting (or
any supplement thereto) given by or at the direction of the Board of Directors,
(b) otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (c) otherwise properly brought before the meeting by a
shareholder. For a proposal to be properly brought before an annual meeting by
a shareholder, the shareholder must have given timely notice thereof in writing
to the Secretary of the Corporation and the proposal and the shareholder must
comply with Rule 14a-8 under the Securities Exchange Act of 1934. To be
timely, a shareholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation within the time limits
specified by Rule 14a-8.
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<PAGE> 9
A shareholder's notice to the Secretary shall set forth as to each
matter the shareholder proposes to bring before the annual meeting (a) a brief
description of the proposal desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (b) the name
and address, as they appear on the Corporation's books, of the shareholder
proposing such business, (c) the class and number of shares of the Corporation
which are beneficially owned by the shareholder, and (d) any financial interest
of the shareholder in such proposal.
Notwithstanding anything in these Bylaws to the contrary, no business
shall be conducted at an annual meeting except in accordance with the
procedures set forth in this Section 2.14. The President, Chief Executive
Officer, or chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that new business or any shareholder proposal was not
properly brought before the meeting in accordance with the provisions of this
Section 2.14, and if he or she should so determine, he or she shall so declare
to the meeting and any such business or proposal not properly brought before
the meeting shall not be acted upon at the meeting. This provision shall not
prevent the consideration and approval or disapproval at the annual meeting of
reports of officers, directors and committees, but in connection with such
reports no new business shall be acted upon at such annual meeting unless
stated and filed as herein provided.
2.15 CONDUCT OF MEETINGS.
Meetings of the shareholders generally shall follow accepted rules of
parliamentary procedure subject to the following:
(a) The President, Chief Executive Officer, or chairman of the
meeting shall have absolute authority over the matters of procedure, and there
shall be no appeal from the ruling of the President, Chief Executive Officer,
or chairman. If, in his or her absolute discretion, the President, Chief
Executive Officer, or chairman deems it advisable to dispense with the rules of
parliamentary procedure as to any meeting
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<PAGE> 10
of shareholders or part thereof, he or she shall so state and shall state the
rules under which the meeting or appropriate part thereof shall be conducted.
(b) If disorder should arise which prevents the continuation of
the legitimate business of the meeting, the President, Chief Executive Officer,
or chairman may quit the chair and announce the adjournment of the meeting, and
upon so doing, the meeting will immediately be adjourned.
(c) The President, Chief Executive Officer, or chairman may ask or
require that anyone not a bona fide shareholder or proxy leave the meeting.
(d) The resolution or motion shall be considered for vote only if
proposed by a shareholder or a duly authorized proxy and seconded by a
shareholder or duly authorized proxy other than the individual who proposed the
resolution or motion.
(e) Except as the President, Chief Executive Officer, or chairman
may permit, no matter shall be presented to the meeting which has not been
submitted for inclusion in the agenda at least thirty (30) days prior to the
meeting.
ARTICLE III.
DIRECTORS
3.1 POWERS AND DUTIES.
All corporate powers shall be exercised by or under the authority of
and the business and affairs of the Corporation managed under the direction of
the Board of Directors.
3.2 NUMBER AND TERM.
(A) NUMBER. The Board of Directors shall consist of no
fewer than three (3) or more than twelve (12) members. The exact number of
directors, within the minimum and maximum, or the range
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<PAGE> 11
for the size of the Board, or whether the size of the Board shall be fixed or
variable-range may be fixed, changed or determined from time to time by the
Board of Directors.
(B) TERM. The Board of Directors shall 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 at the 1997 annual meeting of
shareholders, Class I directors shall be elected for a one-year term; Class II
directors shall be elected for a two-year term; and Class III directors shall
be elected for a three-year term. If the number of directors is changed, any
increase or decrease shall be apportioned among the classes so as to maintain
the number of directors in each class as nearly equal as possible, and any
additional director of any class elected to fill a vacancy resulting from an
increase in such class shall hold office for a term that shall coincide with
the remaining term of that class, but in no case will a decrease in the number
of directors shorten the term of any incumbent director. A director shall hold
office until the annual meeting for the year in which his or her term expires
and until his or her successor shall be elected and shall qualify, subject,
however, to prior death, resignation, retirement, disqualification or removal
from office.
3.3 MEETINGS; NOTICE.
The Board of Directors may hold regular and special meetings either
within or without the State of Tennessee. The Board of Directors may permit
any or all directors to participate in a regular or special meeting by, or
conduct the meeting through the use of, any means of communication by which all
directors participating may simultaneously hear each other during the meeting.
A director participating in a meeting by this means is deemed to be present in
person at the meeting.
(A) REGULAR MEETINGS. Unless the Charter otherwise
provides, regular meetings of the Board of Directors may be held without notice
of the date, time, place, or purpose of the meeting.
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(B) SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman, the President, Chief Executive
Officer, or one-third of the entire Board of Directors. Unless the Charter
otherwise provides, special meetings must be preceded by at least twenty-four
(24) hours' notice of the date, time, and place of the meeting but need not
describe the purpose of such meeting. Such notice shall comply with the
requirements of Article XI of these Bylaws.
(C) ADJOURNED MEETINGS. Notice of an adjourned meeting
need not be given if the time and place to which the meeting is adjourned are
fixed at the meeting at which the adjournment is taken, and if the period of
adjournment does not exceed one (1) month in any one (1) adjournment.
(D) WAIVER OF NOTICE. A director may waive any required
notice before or after the date and time stated in the notice. Except as
provided in the next sentence, the waiver must be in writing, signed by the
director, and filed with the minutes or corporate records. A director's
attendance at or participation in a meeting waives any required notice to him
or her of such meeting unless the director at the beginning of the meeting (or
promptly upon his arrival) objects to holding the meeting or transacting
business at the meeting and does not thereafter vote for or assent to action
taken at the meeting.
3.4 QUORUM.
Unless the Charter requires a greater number, a quorum of the Board of
Directors consists of a majority of the fixed number of directors if the
Corporation has a fixed board size or a majority of the number of directors
prescribed, or if no number is prescribed, the number in office immediately
before the meeting begins, if the Corporation has a variable range board.
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3.5 VOTING.
If a quorum is present when a vote is taken, the affirmative vote of a
majority of directors present is the act of the Board of Directors, unless the
Charter or these Bylaws require the vote of a greater number of directors. A
director who is present at a meeting of the Board of Directors when corporate
action is taken is deemed to have assented to such action unless:
(I) he or she objects at the beginning of the meeting (or
promptly upon his or her arrival) to holding the meeting or
transacting business at the meeting;
(II) his or her dissent or abstention from the action
taken is entered in the minutes of the meeting; or
(III) he or she delivers written notice of his or her
dissent or abstention to the presiding officer of the meeting before
its adjournment or to the Corporation immediately after adjournment of
the meeting. The right of dissent or abstention is not available to a
director who votes in favor of the action taken.
3.6 ACTION WITHOUT MEETING.
Unless the Charter otherwise provides, any action required or
permitted by the Act to be taken at a Board of Directors meeting may be taken
without a meeting. If all directors consent to taking such action without a
meeting, the affirmative vote of the number of directors that would be
necessary to authorize or take such action at a meeting is the act of the Board
of Directors. Such action must be evidenced by one or more written consents
describing the action taken, at least one of which is signed by each director,
indicating the director's vote or abstention on the action, which consents
shall be included in the minutes or filed with the corporate records reflecting
the action taken. Action taken by consent is effective when the last director
signs the consent, unless the consent specifies a different effective date.
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3.7 COMPENSATION.
Directors and members of any committee created by the Board of
Directors shall be entitled to such reasonable compensation for their services
as directors and members of such committee as shall be fixed from time to time
by the Board, and shall also be entitled to reimbursement for any reasonable
expenses incurred in attending meetings of the Board or of any such committee
meetings. Any director receiving such compensation shall not be barred from
serving the Corporation in any other capacity and receiving reasonable
compensation for such other services.
3.8 RESIGNATION.
A director may resign at any time by delivering written notice to the
Board of Directors, the Chairman, President, or Chief Executive Officer, or to
the Corporation. A resignation is effective when the notice is delivered
unless the notice specifies a later effective date.
3.9 VACANCIES.
Unless the Charter otherwise provides, if a vacancy occurs on the
Board of Directors, including a vacancy resulting from an increase in the
number of directors or a vacancy resulting from the removal of a director with
or without cause, either the shareholders or the Board of Directors may fill
such vacancy. If the vacancy is filled by the shareholders, it shall be filled
by a plurality of the votes cast at a meeting at which a quorum is present. If
the directors remaining in office constitute fewer than a quorum of the Board
of Directors, they may fill such vacancy by the affirmative vote of a majority
of all the directors remaining in office. If the vacant office was held by a
director elected by a voting group of shareholders, only the holders of shares
of that voting group shall be entitled to vote to fill the vacancy if it is
filled by the shareholders.
3.10 REMOVAL OF DIRECTORS.
(A) BY SHAREHOLDERS. The shareholders may remove one (1)
or more directors solely for cause as defined in the Charter. If cumulative
voting is authorized, a director may not be removed for
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cause if the number of votes sufficient to elect him or her under cumulative
voting is voted against his or her removal. If cumulative voting is not
authorized, a director may be removed for cause only if the number of votes
cast to remove him or her exceeds the number of votes cast not to remove him or
her.
(B) GENERAL. A director may be removed for cause by the
shareholders only at a meeting called for the purpose of removing him or her,
and the meeting notice must state that the purpose, or one (1) of the purposes,
of the meeting is removal of directors for cause.
3.11 ELECTRONIC COMMUNICATION.
Any one or more members of the Board of Directors or any committee
thereof may participate in a meeting of the Board of Directors or any such
committee by means of a conference telephone or similar communications
equipment allowing all persons participating in the meeting to hear each other
at the same time. Participation by such means shall constitute presence in
person at a meeting.
3.12 CHAIRMAN OF THE BOARD.
The Chairman of the Board shall be appointed from time to time by the
Board of Directors and shall preside at all meetings of the Board of Directors
and of the shareholders of the Corporation.
ARTICLE IV.
COMMITTEES
Unless the Charter otherwise provides, the Board of Directors may
create one (1) or more committees, each consisting of one (1) or more members.
All members of committees of the Board of Directors which exercise powers of
the Board of Directors must be members of the Board of Directors and serve at
the pleasure of the Board of Directors.
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The creation of a committee and appointment of a member or members to
it must be approved by the greater of (i) a majority of all directors in office
when the action is taken or (ii) the number of directors required by the
Charter or these Bylaws to take action.
Unless otherwise provided in the Act, to the extent specified by the
Board of Directors or in the Charter, each committee may exercise the authority
of the Board of Directors. All such committees and their members shall be
governed by the same statutory requirements regarding meetings, action without
meetings, notice and waiver of notice, quorum, and voting requirements as are
applicable to the Board of Directors and its members.
ARTICLE V.
OFFICERS
5.1 NUMBER.
The officers of the Corporation shall be a President, a Chief
Executive Officer, a Chief Financial Officer, a Secretary and such other
officers as may be from time to time appointed by the Board of Directors or by
the Chairman or Chief Executive Officer with the Board of Directors' approval.
The Chairman may, but need not be, an officer of the Corporation. One person
may simultaneously hold more than one office, except the President may not
simultaneously hold the office of Secretary.
5.2 APPOINTMENT.
The principal officers shall be appointed annually by the Board of
Directors at the first meeting of the Board following the annual meeting of the
shareholders, or as soon thereafter as is conveniently possible. Each officer
shall serve at the pleasure of the Board of Directors and until his or her
successor shall have been appointed, or until his or her death, resignation, or
removal.
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5.3 RESIGNATION AND REMOVAL.
An officer may resign at any time by delivering notice to the
Corporation. Such resignation is effective when such notice is delivered
unless such notice specifies a later effective date. An officer's resignation
does not affect the Corporation's contract rights, if any, with the officer.
The Board of Directors may remove any officer at any time with or
without cause, but such removal shall not prejudice the contract rights, if
any, of the person so removed.
5.4 VACANCIES.
Any vacancy in an office for any reason may be filled for the
unexpired portion of the term by the Board of Directors.
5.5 DUTIES.
(A) CHAIRMAN. The Chairman shall preside at all meetings
of the shareholders and the Board of Directors.
(B) CHIEF EXECUTIVE OFFICER. The Chief Executive Officer
of the Corporation shall have general supervision over the active management of
the business of the Corporation and shall see that all orders and resolutions
of the Board of Directors are carried into effect.
(C) PRESIDENT. The President shall have the general
powers and duties of supervision and management usually vested in the office of
the President of a corporation and shall perform such other duties as the Board
of Directors may from time to time prescribe.
(D) CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall, subject to the power of the President and the Chief Executive Officer,
have general and active control of all of the financial matters of the
Corporation and shall have all necessary powers to discharge such
responsibility and shall perform such other duties as the Board of Directors,
the President, the Chief Executive Officer or the Chairman may prescribe.
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(E) VICE PRESIDENT. The Vice President or Vice
Presidents (if any) shall be active executive officers of the Corporation,
shall assist the Chairman, President, and Chief Executive Officer in the active
management of the business, and shall perform such other duties as the Board of
Directors may from time to time prescribe.
(F) SECRETARY AND ASSISTANT SECRETARY . The Secretary or
Assistant Secretary shall attend all meetings of the Board of Directors and all
meetings of the shareholders and shall prepare and record all votes and all
minutes of all such meetings in a book to be kept for that purpose. He or she
shall also perform like duties for any committee when required. The Secretary
or Assistant Secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the Board of Directors when required, and unless
directed otherwise by the Board of Directors, shall keep a stock record
containing the names of all persons who are shareholders of the Corporation,
showing their place of residence and the number of shares held by each of them.
The Secretary or Assistant Secretary shall have the responsibility of
authenticating records of the Corporation. The Secretary or Assistant
Secretary shall perform such other duties as may be prescribed from time to
time by the Board of Directors.
(G) OTHER OFFICERS. Other officers appointed by the
Board of Directors shall exercise such powers and perform such duties as may be
delegated to them.
(H) DELEGATION OF DUTIES. In case of the absence or
disability of any officer of the Corporation or of any person authorized to act
in his or her place, the Board of Directors may from time to time delegate the
powers and duties of such officer to any officer, or any director, or any other
person whom it may select, during such period of absence or disability.
5.6 INDEMNIFICATION, ADVANCEMENT OF EXPENSES, AND INSURANCE.
(A) INDEMNIFICATION AND ADVANCEMENT OF EXPENSES. The
Corporation shall indemnify and advance expenses to each director, officer and
medical director of the Corporation, or any
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person who may have served at the request of the Corporation's Board of
Directors or its President or Chief Executive Officer as a director or officer
of another corporation (and, in either case, such person's heirs, executors,
and administrators), to the full extent allowed by the laws of the State of
Tennessee, both as now in effect and as hereafter adopted. The Corporation may
indemnify and advance expenses to any employee or agent of the Corporation who
is not a director or officer (and such person's heirs, executors, and
administrators) to the same extent as to a director or officer, if the Board of
Directors determines that doing so is in the best interests of the Corporation.
(B) NON-EXCLUSIVITY OF RIGHTS. The indemnification and
expense advancement provisions of subsection (a) of this Section 5.6 shall not
be exclusive of any other right which any person (and such person's heirs,
executors and administrators) may have or hereafter acquire under any statute,
provision of the Charter, provision of these Bylaws, resolution adopted by the
shareholders, resolution adopted by the Board of Directors, agreement, or
insurance (purchased by the Corporation or otherwise), both as to action in
such person's official capacity and as to action in another capacity.
(C) INSURANCE. The Corporation may maintain insurance,
at its expense, to protect itself and any individual who is or was a director,
officer, employee, or agent of the Corporation, or who, while a director,
officer, employee, or agent of the Corporation, is or was serving at the
request of the Corporation's Board of Directors or its Chief Executive Officer
as a director, officer, partner, trustee, employee, or agent of another
corporation, partnership, joint venture, trust, employee benefit plan, or other
enterprise against any expense, liability, or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability, or loss under this Article or the Act.
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ARTICLE VI.
SHARES OF STOCK
6.1 SHARES WITH OR WITHOUT CERTIFICATES.
The Board of Directors may authorize that some or all of the shares of
any or all of the Corporation's classes or series of stock be evidenced by a
certificate or certificates of stock. The Board of Directors may also
authorize the issue of some or all of the shares of any or all of the
Corporation's classes or series of stock without certificates. The rights and
obligations of shareholders with the same class and/or series of stock shall be
identical whether or not their shares are represented by certificates.
(A) SHARES WITH CERTIFICATES. If the Board of Directors
chooses to issue shares of stock evidenced by a certificate or certificates,
each individual certificate shall include the following on its face: (i) the
Corporation's name, (ii) the fact that the Corporation is organized under the
laws of the State of Tennessee, (iii) the name of the person to whom the
certificate is issued, (iv) the number of shares represented thereby, (v) the
class of shares and the designation of the series, if any, which the
certificate represents, and (vi) such other information as applicable law may
require or as may be lawful.
If the Corporation is authorized to issue different classes of
shares or different series within a class, the designations, relative rights,
preferences, and limitations determined for each series (and the authority of
the Board of Directors to determine variations for future series) shall be
summarized on the front or back of each certificate. Alternatively, each
certificate shall state on its front or back that the Corporation will furnish
the shareholder this information in writing, without charge, upon request.
Each certificate of stock issued by the Corporation shall be
signed (either manually or in facsimile) by any two officers of the
Corporation. If the person who signed a certificate no longer holds office
when the certificate is issued, the certificate is nonetheless valid.
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(B) SHARES WITHOUT CERTIFICATES. If the Board of
Directors chooses to issue shares of stock without certificates, the
Corporation, if required by the Act, shall, within a reasonable time after the
issue or transfer of shares without certificates, send the shareholder a
written statement of the information required on certificates by Section 6.1(a)
of these Bylaws and any other information required by the Act.
6.2 SUBSCRIPTIONS FOR SHARES.
Subscriptions for shares of the Corporation shall be valid only if
they are in writing. Unless the subscription agreement provides otherwise,
subscriptions for shares, regardless of the time when they are made, shall be
paid in full at such time, or in such installments and at such periods, as
shall be determined by the Board of Directors. All calls for payment on
subscriptions shall be uniform as to all shares of the same class or of the
same series, unless the subscription agreement specifies otherwise.
6.3 TRANSFERS.
Transfers of shares of the capital stock of the Corporation shall be
made only on the books of the Corporation by (i) the holder of record thereof,
(ii) his or her legal representative, who, upon request of the Corporation,
shall furnish proper evidence of authority to transfer, or (iii) his or her
attorney, authorized by a power of attorney duly executed and filed with the
Secretary of the Corporation or a duly appointed transfer agent. Such
transfers shall be made only upon surrender, if applicable, of the certificate
or certificates for such shares properly endorsed and with all taxes thereon
paid.
6.4 LOST, DESTROYED, OR STOLEN CERTIFICATES.
No certificate for shares of stock of the Corporation shall be issued
in place of any certificate alleged to have been lost, destroyed, or stolen
except on production of evidence, satisfactory to the Board of Directors, of
such loss, destruction, or theft, and, if the Board of Directors so requires,
upon the
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furnishing of an indemnity bond in such amount and with such terms and such
surety as the Board of Directors may in its discretion require.
ARTICLE VII.
CORPORATE ACTIONS
7.1 CONTRACTS.
Unless otherwise required by the Board of Directors, the Chairman, the
President, the Chief Executive Officer, or any Vice President shall execute
contracts or other instruments on behalf of and in the name of the Corporation.
The Board of Directors may from time to time authorize any other officer,
assistant officer, or agent to enter into any contract or execute any
instrument in the name of and on behalf of the Corporation as it may deem
appropriate, and such authority may be general or confined to specific
instances.
7.2 LOANS.
No loans shall be contracted on behalf of the Corporation and no
evidence of indebtedness shall be issued in its name unless authorized by the
Chairman, the President, the Chief Executive Officer, or the Board of
Directors. Such authority may be general or confined to specific instances.
7.3 CHECKS, DRAFTS, ETC.
Unless otherwise required by the Board of Directors, all checks,
drafts, bills of exchange, and other negotiable instruments of the Corporation
shall be signed by either the Chairman, the President, the Chief Executive
Officer, a Vice President or such other officer, assistant officer, or agent of
the Corporation as may be authorized so to do by the Board of Directors. Such
authority may be general or confined to specific business, and, if so directed
by the Board, the signatures of two or more such officers may be required.
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7.4 DEPOSITS.
All funds of the Company not otherwise employed shall be deposited
from time to time to the credit of the Corporation in such banks or other
depositories as the Board of Directors may authorize.
7.5 VOTING SECURITIES HELD BY THE CORPORATION.
Unless otherwise required by the Board of Directors, the Chairman,
President, or Chief Executive officer shall have full power and authority on
behalf of the Corporation to attend any meeting of security holders, or to take
action on written consent as a security holder, of other corporations in which
the Corporation may hold securities. In connection therewith the Chairman, the
President, or the Chief Executive Officer shall possess and may exercise any
and all rights and powers incident to the ownership of such securities which
the Corporation possesses. The Board of Directors may, from time to time,
confer like powers upon any other person or persons.
7.6 DIVIDENDS.
The Board of Directors may, from time to time, declare, and the
Corporation may pay, dividends on its outstanding shares of capital stock in
the manner and upon the terms and conditions provided by applicable law. The
record date for the determination of shareholders entitled to receive the
payment of any dividend shall be determined by the Board of Directors, but
which in any event shall not be less than ten (10) days prior to the date of
such payment.
ARTICLE VIII.
FISCAL YEAR
The fiscal year of the Corporation shall be determined by the Board of
Directors, and in the absence of such determination, shall be the calendar
year.
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ARTICLE IX.
CORPORATE SEAL
The Corporation shall not have a corporate seal.
ARTICLE X.
AMENDMENT OF BYLAWS
These Bylaws may be altered, amended, repealed, or restated, and new
Bylaws may be adopted, at any meeting of the shareholders by the affirmative
vote of a majority of the stock represented at such meeting, or by the
affirmative vote of a majority of the members of the Board of Directors who are
present at any regular or special meeting.
ARTICLE XI.
NOTICE
Unless otherwise provided for in these Bylaws, any notice required
shall be in writing except that oral notice is effective if it is reasonable
under the circumstances and not prohibited by the Charter or these Bylaws.
Notice may be communicated in person, by telephone, telegraph, teletype or
other form of wire or wireless communication, or by mail or private carrier.
If these forms of personal notice are impracticable, notice may be communicated
by a newspaper of general circulation in the area where published, or by radio,
television, or other form of public broadcast communication. Written notice to
a domestic or foreign corporation authorized to transact business in Tennessee
may be addressed to its registered agent at its registered office or to the
corporation or its secretary at its principal office as shown in its most
recent annual report or, in the case of a foreign corporation that has not yet
delivered an annual report, in its application for a certificate of authority.
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Written notice to shareholders, if in a comprehensible form, is
effective when mailed, if mailed postpaid and correctly addressed to the
shareholder's address shown in the Corporation's current record of
shareholders. Except as provided above, written notice, if in a comprehensible
form, is effective at the earliest of the following: (a) when received; (b)
five (5) days after its deposit in the United States mail, if mailed correctly
addressed and with first class postage affixed thereon; (c) on the date shown
on the return receipt, if sent by registered or certified mail, return receipt
requested, and the receipt is signed by or on behalf of the addressee; or (d)
twenty (20) days after its deposit in the United States mail, as evidenced by
the postmark if mailed correctly addressed, and with other than first class,
registered, or certified postage affixed. Oral notice is effective when
communicated if communicated in a comprehensible manner.
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Exhibit 4.2
AMSURG CORP
[CLASS B COMMON STOCK CERTIFICATE]
CLASS B CLASS B
COMMON STOCK COMMON STOCK
INCORPORATED UNDER SEE REVERSE FOR
THE LAWS OF THE CERTAIN DEFINITIONS
STATE OF TENNESSEE
CUSIP 03232P 20 7
THIS CERTIFIES THAT
IS THE OWNER OF
Fully paid and non-assessable shares of the Class B Common Stock, no
par value, of AmSurg Corp transferable on the books of the Corporation
by the holder hereof in person or by Attorney upon surrender of this
certificate properly endorsed. This certificate is not valid unless
countersigned by the Transfer Agent and registered by the Registrar.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers.
Dated:
/s/ Claire M. Gulmi /s/ Ken P. McDonald
Secretary President and Chief
Executive Officer
<PAGE> 2
AMSURG CORP
The Company will furnish the shareholder information regarding the
designations, relative rights, preferences, and limitations applicable to each
class and series and the variations in rights, preferences, and limitations for
each class and series of stock issued by the Company (and the authority of the
board of directors to determine variations for future classes or series) upon
request in writing and without charge.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they are written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- ____________________ Custodian _______________________
(Cust) (Minor)
under Uniform Gifts to Minors Act
______________________________________________________
(State)
Additional abbreviations may also be used though not in the above list.
For value received, __________________________________ hereby sell,
assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
___________________________________________
_________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE
_________________________________________________________________________
_________________________________________________________________________
__________________________________________________________________ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_____________________________________________________________ Attorney to
transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated ___________________________________
____________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED: _______________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
FINANCIAL INSTITUTION (BANK, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS) WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM, PURSUANT TO SEC RULE 17Ad-15.
<PAGE> 1
EXHIBIT 10.1
MANAGEMENT AND HUMAN RESOURCES AGREEMENT
This MANAGEMENT AND HUMAN RESOURCES AGREEMENT (as amended and
supplemented from time to time, this "Agreement") is made as of November __,
1997, by and between AmSurg Corp., a Tennessee corporation ("AmSurg"), and
American Healthcorp, Inc., a Delaware corporation ("AHC").
WITNESSETH:
WHEREAS, AHC and AmSurg are parties to that certain Amended and
Restated Distribution Agreement, dated as of November 3, 1997 (the
"Distribution Agreement"), pursuant to which, as of the date hereof, AHC has
distributed all of the shares of capital stock of AmSurg owned by AHC to the
stockholders of AHC (the "Distribution");
WHEREAS, AHC is supplying to AmSurg and its Subsidiaries (as defined
herein) certain accounting and financial services pursuant to that certain
January 1, 1997 letter agreement between AHC and AmSurg, as amended (the
"Letter Agreement"); and
WHEREAS, AHC and AmSurg desire that AHC continue to provide the same
types of accounting and financial services to AmSurg and its Subsidiaries on a
transition basis following the Distribution 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 Transition Period
(as defined herein).
NOW, THEREFORE, in consideration of the mutual promises contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound,
the parties agree that AHC shall provide certain services to AmSurg and its
Subsidiaries pursuant to the following terms and conditions:
ARTICLE I
TRANSITION SERVICES
1.1 Services During the Transition Period. During the Transition
Period (as defined in Section 1.6), AHC shall provide the following accounting
and financial services with respect to the corporate office operations of
AmSurg (collectively, the "Services"): (a) processing payroll and associated
payroll tax returns and accounts payable for the AmSurg corporate office, (b)
maintaining general accounting records for the AmSurg corporate operations and
the operations of its Subsidiaries, (c) preparing consolidated AmSurg financial
statements, (d) preparing such AmSurg corporate tax returns and the tax returns
of its Subsidiaries as may be required during the Transition Period, (e)
preparing such estimated tax reports for AmSurg and its Subsidiaries as may be
required during the Transition Period, and (f) preparing financial statements
in connection with periodic
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reports required to be filed by AmSurg with the Securities and Exchange
Commission. Such Services will be provided in a manner and at a time
consistent with services provided by AHC under the Letter Agreement.
1.2 Services Not Included. The Services described in Section 1.1
do not include (a) additional outside professional services or fees needed to
review the referenced tax returns or consultations with outside accounting and
tax advisors on specific issues and questions or the costs of AmSurg's annual
independent audit, (b) accounting and financial services in connection with any
offering of securities or acquisition on behalf of AmSurg or any of its
Subsidiaries, as provided below, (c) services and costs as a result of changes
and modifications requested by AmSurg, (d) services and costs in connection
with the conversion to new systems implemented by AmSurg, and (e) services and
costs in connection with any audit of AmSurg's tax returns. Any services and
costs referred to in clauses (b), (c), (d) and (e) of this Section 1.2 may be
provided if specifically agreed by AHC and AmSurg in a written agreement
identifying such services and costs and the fees therefor. Any such services
and costs so agreed to are referred to herein as "Additional Services."
1.3 Compensation for Services.
(a) As compensation for the Services, AmSurg shall pay
AHC:
(i) A fixed fee of $4,166.67 per month during the
Transition Period, and
(ii) A variable fee of $625.00 per month for each
accounting unit identified on Schedule A hereto during the Transition Period.
(b) As compensation for any Additional Services, AmSurg
will pay to AHC the fees agreed to by AHC and AmSurg in the written agreement
referred to in Section 1.2 above relating to such Additional Services.
1.4 Payment. AmSurg shall pay all amounts payable pursuant to
Section 1.3 hereof by check or by wire transfer of immediately available funds
into an account designated by AHC. Each such payment shall be made in arrears
on the fifth day of the calendar month following the provision of the Services
or Additional Services.
1.5 Responsibility for Accuracy and Integrity. It is understood
and agreed, and AmSurg hereby acknowledges, that AmSurg has sole responsibility
for the accuracy and integrity of the financial statements and tax returns
prepared by AHC. AmSurg will provide oversight and review on a timely basis of
the Services and any Additional Services provided by AHC.
1.6 Transition Period. The Services and any Additional Services
will be provided during the period (the "Transition Period") beginning on the
date hereof and ending on the earlier of (a) the end of the twelfth
consecutive month following the date hereof, or (b) the date as of which AmSurg
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elects to terminate the Services and any Additional Services by giving notice
to AHC as provided in Section 5.1 hereof.
1.7 Certain Definitions. For purposes of this Agreement, the
following terms shall have the following respective meanings:
(a) "Entity" means any partnership, limited liability
company, corporation, association, business trust, joint venture, governmental
entity, business entity or other entity of any kind or nature.
(b) "Subsidiary" means, with respect to AmSurg, an Entity
identified on Schedule A hereto which, directly or indirectly through one or
more intermediaries is controlled by AmSurg, including but not limited to, any
ambulatory surgery center, physician practice group or operational specialty
network identified on Schedule A hereto managed by AmSurg.
1.8 Termination of Letter Agreement. The Letter Agreement is
hereby terminated as of the date hereof.
1.9 Services to be Provided by AHC; Quality. All Services and any
Additional Services will be performed by employees of AHC, unless otherwise
reasonably agreed to by AHC and AmSurg. The Services and any Additional
Services will be of a level of quality at least consistent with the services
historically provided under the Letter Agreement.
ARTICLE II
HEALTH INSURANCE
AHC will be responsible for claims incurred on or prior to the date
hereof by AmSurg Employees (as hereinafter defined) under any medical or dental
plans offered by AHC to AmSurg Employees on or prior to the date of this
Agreement in accordance with the terms of such plans. AHC will not be
responsible for any claims incurred following the date of this Agreement by any
AmSurg Employees under any plan. For purposes of this Section 2.1, the term
"AmSurg Employee" means any covered employee or covered former employee of
AmSurg or any of its Subsidiaries and any covered dependent of any such
employee or former employee.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS
3.1 AHC hereby represents, warrants and covenants to AmSurg and
its Subsidiaries:
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(a) AHC shall use its reasonable efforts in performing
its obligations under this Agreement.
(b) AHC shall comply with all applicable material
statutes, ordinances, rules, regulations, orders of public authorities or
regulatory agencies and laws of the United States and/or any state thereof
(collectively, "Laws") relating to this Agreement or to the provision of the
Services and any Additional Services.
3.2 AmSurg hereby represents, warrants and covenants to AHC that
AmSurg and its Subsidiaries shall comply with all applicable Laws relating to
this Agreement or to the use of the Services and any Additional Services.
ARTICLE IV
ACCESS TO INFORMATION AND CONFIDENTIALITY; ACCURACY
4.1 Access to AmSurg Information During the Transition Period;
Cooperation. AmSurg will provide AHC and its authorized accountants, counsel
and other designated representatives access to all records, books, contracts,
instruments, computer data and other data and information of AmSurg and its
Subsidiaries required or requested by AHC in the performance of the Services
and any Additional Services during the Transition Period. AmSurg shall, and
shall cause each of its Subsidiaries, officers, employees, agents, consultants
and advisors to cooperate with AHC in connection with the Services and any
Additional Services. AHC shall deliver to AmSurg all records of AmSurg in
AHC's possession as soon as practicable upon the termination of the Transition
Period.
4.2 Confidentiality. Each party shall hold, and shall cause its
subsidiaries, 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 obtained by such party in
connection with the performances of the Services hereunder (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 4.2. 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.
4.3 Accuracy of Information. AHC shall not be responsible for
determining whether any information provided to AHC in connection with the
Services or any Additional Services is accurate or complete or whether there is
any additional information not furnished to AHC which is required for any
financial statements, estimated tax report or tax return prepared by AHC on
behalf of
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AmSurg. In the absence of gross negligence on behalf of AHC, AHC shall not be
responsible for the accuracy, completion or timely filing of any financial
statements, estimated tax report or tax return prepared by 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 of 1933, as
amended, and their respective successors and assigns (each of AHC and such
directors, officers, employees, agents and controlling persons, and their
respective successors and assigns, being referred to herein as an "Indemnified
Person") harmless from and against any and all liabilities, claims or damages
incurred by them in connection with any actual or threatened action, claim or
proceeding arising out of or relating to any Services or Additional Services
performed by AHC or any transactions or conduct in connection therewith, in the
absence of gross negligence on the part of AHC.
After receipt by an Indemnified Person of notice of any complaint or
the commencement of any action or proceeding with respect to which
indemnification is being sought hereunder, such person will promptly notify
AmSurg in writing of such complaint or of the commencement of such action or
proceeding, but failure so to notify AmSurg will relieve AmSurg from any
liability which AmSurg may have hereunder only if, and to the extent that, such
failure results in the forfeiture by AmSurg of substantial rights and defenses,
and will not in any event relieve AmSurg from any obligation or liability that
AmSurg may have to any Indemnified Person otherwise than under this Section
4.3. If AmSurg so elects or is requested by an Indemnified Person, AmSurg will
assume the defense of such action or proceeding, including the employment of
counsel reasonably satisfactory to the Indemnified Person and the payment of
the fees and disbursements of such counsel; provided, however, that without
regard to whether AmSurg assumes such defense, AmSurg shall have the right to
participate in any such action or proceeding. In the event, however, that an
Indemnified Person reasonably determines in its judgment that having common
counsel would present such counsel with a conflict of interest or if the
defendants in, or targets of, any such action or proceeding include both an
Indemnified Person and AmSurg, and such Indemnified Person concludes that there
may be legal defenses available to it or other Indemnified Persons that are
different from or in addition to those available to AmSurg, or if AmSurg fails
to assume the defense of the action or proceeding or to employ counsel
reasonably satisfactory to such Indemnified Person, in either case in a timely
manner, then such Indemnified Party may employ separate counsel reasonably
satisfactory to AmSurg to represent or defend it in any such action or
proceeding and AmSurg will pay the reasonable fees and disbursements of such
counsel. In any action or proceeding the defense of which is assumed by
AmSurg, the Indemnified Person will have the right to participate in such
litigation and retain its own separate counsel at its own expense. AmSurg will
not be liable to any Indemnified Person under this Section 4.3 for the cost of
any settlement, compromise or consent to the entry of any judgment in any
action or proceeding unless AmSurg has consented in writing to such settlement,
compromise or consent, which consent will not be unreasonably withheld or
delayed. AmSurg agrees that it will not, without the prior written consent of
AHC and any Indemnified Person (which consent shall not be unreasonably
withheld or delayed), settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification or contribution under this Section 4.3 may be
sought and to which AHC or any other Indemnified Person is an actual party to
such claim, action, suit or proceeding or in connection with which any
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publicly available statement is made which names or refers to AHC or any
Indemnified Person, unless such settlement, compromise or consent includes an
unconditional release of AHC and each other Indemnified Person hereunder from
all liability arising out of such claim, action, suit or proceeding.
AmSurg agrees that if any indemnification sought by an Indemnified
Person pursuant to this Section 4.3 is held to be unavailable for any reason
other than the gross negligence of AHC, then AmSurg and AHC will contribute to
the liabilities, claims or damages for which such indemnification is held
unavailable; provided, however, that no person guilty of fraudulent
misrepresentation shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. In determining the amount of
contribution to which the respective parties are entitled, there shall be taken
into account the relative benefits of this Agreement to AHC as compared to the
benefits to AmSurg of this Agreement and the transactions giving rise to such
liabilities, claims or damages, the parties' relative knowledge and access to
information concerning the matter with respect to which the claim was asserted,
the opportunity to correct and prevent any statement or omission, and any other
equitable considerations appropriate under the circumstances. AmSurg and AHC
agree that it would not be just and equitable if the amount of such
contribution were determined by pro rata or per capita allocation. Neither AHC
nor any Indemnified Person shall be obligated to make contribution hereunder
which in the aggregate exceeds the fees received by AHC under this Agreement,
less the aggregate amount of any damages which AHC and the Indemnified Persons
have otherwise been required to pay in respect of the same or any similar
claim.
AmSurg will promptly reimburse AHC and any other Indemnified Person
for all expenses (including reasonable fees and disbursements of counsel) as
they are incurred by AHC or such other Indemnified Person in connection with
investigating, preparing for or defending, or providing evidence in, any
pending or threatened action, claim, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not AHC or
any other Indemnified Person is a party) and in enforcing this Agreement.
ARTICLE V
MISCELLANEOUS AND GENERAL
5.1 Termination; Modification or Amendment. The Transition
Period may be terminated at any time by AmSurg by giving thirty days' prior
written notice to AHC. It is contemplated that (a) as AmSurg becomes
self-sufficient during the Transition Period certain of the Services may no
longer be required and that appropriate adjustments in the list of Services and
the fees therefor will be made by written agreement between AHC and AmSurg, and
(b) Schedule A may be modified from time to time by written agreement between
AHC and AmSurg. The obligations of the parties under Sections 4.2, 4.3 and 5.8
hereof shall survive the Transition Period or any termination of the Transition
Period or this Agreement. The parties hereto may modify or amend this
Agreement by written agreement executed and delivered by authorized officers of
the respective parties.
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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 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
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(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 not relieve the assigning party from its
responsibility hereunder. Except as provided in Section 4.3 or otherwise
expressly 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 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 5.8 and the
Commercial Arbitration Rules of the American Arbitration Association.
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(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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed and become effective as of the day and year first written above.
AMERICAN HEALTHCORP, INC.
By:
-----------------------------------
Name:
Title:
AMSURG CORP.
By:
-----------------------------------
Name:
Title:
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SCHEDULE A
Subsidiaries and Accounting Units
Facility/Subsidiary Name: Number of Accounting Units*:
*Each AmSurg corporate location will be assigned two accounting units. Each
practice-based ambulatory surgery center will be assigned one accounting unit.
Each managed physician practice group will be assigned two accounting units.
The number of accounting units to be assigned to operational specialty networks
is to be determined by good faith negotiation between AHC and AmSurg.
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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.
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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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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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"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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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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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> 85
SECOND 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 September 2, 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, as amended by a
First Amendment to Second Amended and Restated Loan Agreement dated as of May 5,
1997 (herein the Second Amended and Restated Loan Agreement, as amended, shall
be referred to as the "Loan Agreement").
2. The Borrower desires that the Lenders increase the amount of the
indebtedness available under the Loan Agreement and related Revolving Credit
Notes.
3. The Borrower, the Agent, and the Lenders desire to amend the Loan
Agreement as provided herein.
NOW, THEREFORE, in consideration of the recitals and the mutual
agreements contained herein, the Borrower, the Agent, and the Lenders agree as
follows:
1. The definition of "Revolving Credit Note" and "Revolving Credit
Notes" as set forth in Article I of the Loan Agreement shall be amended and
restated as follows:
"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 Collective Exhibit C hereto and in the
principal amount that each Lender's Pro Rata Share bears to
$25,000,000, including all amendments, renewals, and extensions
thereto.
2. Section 2.01 of the Loan Agreement shall be amended and restated as
follows:
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
<PAGE> 86
Borrower credit on a revolving credit basis, in the principal amount
of up to $25,000,000 pursuant to the Revolving Credit Notes.
3. Section 9.23 of the Loan Agreement shall be amended to include the
following additional sentence:
In addition to the commitment fee referenced in the immediately
preceding sentence, and in consideration of Lenders' willingness to
increase the principal amount of the Loans and to reserve the funds
necessary to fund the Revolving Credit Notes, the Borrower shall pay to
the Agent a one-time commitment fee of $50,000.00.
4. Exhibit A to the Loan Agreement shall be amended and restated
pursuant to the Exhibit A attached hereto.
5. Exhibit C to the Loan Agreement shall be amended and restated
pursuant to the Collective Exhibit C attached hereto.
6. The Loan Agreement is not amended in any other respect.
7. 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: /s/ Claire M. Gulmi
----------------------------
Title: CFO
-------------------------
AGENT:
SUNTRUST BANK, NASHVILLE, N.A.,
AGENT
- 2 -
<PAGE> 87
By: /s/ Karen Ahern
-----------------------------
Title: Group Vice President
-------------------------
LENDERS:
SUNTRUST BANK, NASHVILLE, N.A
By: /s/ Karen Ahern
-----------------------------
Title: Group Vice President
--------------------------
NATIONSBANK OF TENNESSEE, N.A.
By: /s/ Walker Choppin
----------------------------
Title: Senior Vice President
-------------------------
- 3 -
<PAGE> 1
Exhibit 10.11
AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into effective as of
April 11, 1997, between AMSURG CORP., a Tennessee corporation (hereinafter the
"Company"), and RODNEY H. LUNN (hereinafter "Colleague").
In consideration of Colleague's continued employment by the Company,
eligibility for stock incentive plans and other benefit programs of the Company,
and other good and valuable consideration, receipt and sufficiency of which is
hereby acknowledged, the parties hereby agree as follows:
1. STATUS OF COLLEAGUE. Colleague acknowledges that he has specialized knowledge
and experience in the Company's business which are considered to be of great
value to the Company, and that it is critical to the Company that it have
sufficient time to recruit, hire and train a successor should Colleague decide
to terminate his employment with the Company.
2. NOTICE OF TERMINATION. Colleague agrees that in the event Colleague desires
to terminate his employment with the Company prior to April 11, 2001, Colleague
shall give the Company at least nine (9) months prior written notice of such
decision (the "Notice Period"). During the Notice Period, Colleague shall
continue to perform the services and discharge the duties normally associated
with Colleague's position with the Company on a full-time basis and shall assist
the Company in the recruitment, hiring and training of Colleague's successor.
3. LIQUIDATED DAMAGES. If Colleague breaches any of the provisions of Section 2
of this Agreement, then in such event Colleague shall be required to pay
$200,000 to the Company as liquidated damages, and not as a penalty for his
breach of this Agreement. Any such payment shall be due within 10 days after
receipt of written notice from the Company that the payment is due.
Notwithstanding the foregoing, in the event of (a) the termination of
Colleague's employment by the Company for any reason, including but not limited
to death or total disability (as defined in the Colleague's employment agreement
with the Company), or (b) a sale of all of the outstanding capital stock of the
Company, a merger of the Company with or into another entity, or the sale of all
or substantially all of the assets of the Company, and the subsequent
termination of Colleague's employment by the Company, the parties acknowledge
and agree that no such liquidated damages payment will be due or payable by
Colleague.
4. NOTICE. Any notice or other communication required under this Agreement shall
be in writing and shall be sent by certified or registered mail or by facsimile
transmission or overnight courier service addressed as follows:
If to the Company:
AmSurg Corp.
One Burton Hills Boulevard
Suite 350
Nashville, Tennessee 37215
Attention: President
<PAGE> 2
If to Colleague:
6229 Millbrook Road
Brentwood, Tennessee 37027
5. REMEDIES. Each party to this Agreement will be entitled to enforce
its rights under this Agreement specifically, to recover damages by reason of
any breach of any provision of this Agreement and to exercise all other rights
existing in its favor. The parties hereto agree and acknowledge that, with
respect to Colleague, money damages may not be an adequate remedy for any breach
of the provisions of this Agreement by the Company and that Colleague may in its
sole discretion apply to any court of law or equity of competent jurisdiction
for specific performance or injunctive relief in order to enforce or prevent any
violations of the provisions of this Agreement. The parties further agree and
acknowledge that the Company's sole and exclusive remedy for any breach of
Section 2 of this Agreement by Colleague shall be the liquidated damages as set
forth in Section 3 hereof.
6. AMENDMENTS. This Agreement may be amended only upon the written
agreement of both parties hereto.
7. SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity without invalidating the remainder of
this Agreement.
8. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Tennessee applicable to contracts made and to be performed in that
state.
9. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of
the parties hereto concerning the matters referred to herein and supersedes all
prior agreements and understandings. The parties acknowledge that they have
independently negotiated the provisions of this Agreement, that they have relied
upon their own counsel as to matters of law and application and that neither
party has relied on the other party with regard to such matters. The parties
expressly agree that there shall be no presumption created as a result of either
party having prepared in whole or in part any provision of this Agreement.
IN WITNESS WHEREOF, the Company and Colleague have executed this
Agreement effective as of the date first above written and upon approval of the
1997 Stock Incentive Plan by the shareholders of the Company.
AMSURG CORP.
By: /s/ Claire M. Gulmi
------------------------------------
Title: CFO
----------------------------------
/s/ Rodney H. Lunn
----------------------------------------
RODNEY H. LUNN
2
<PAGE> 1
Exhibit 10.12
AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into effective as of
April 11, 1997, between AMSURG CORP., a Tennessee corporation (hereinafter the
"Company"), and DAVID L.
MANNING (hereinafter "Colleague").
In consideration of Colleague's continued employment by the Company,
eligibility for stock incentive plans and other benefit programs of the Company,
and other good and valuable consideration, receipt and sufficiency of which is
hereby acknowledged, the parties hereby agree as follows:
1. STATUS OF COLLEAGUE. Colleague acknowledges that he has specialized knowledge
and experience in the Company's business which are considered to be of great
value to the Company, and that it is critical to the Company that it have
sufficient time to recruit, hire and train a successor should Colleague decide
to terminate his employment with the Company.
2. NOTICE OF TERMINATION. Colleague agrees that in the event Colleague desires
to terminate his employment with the Company prior to April 11, 2001, Colleague
shall give the Company at least nine (9) months prior written notice of such
decision (the "Notice Period"). During the Notice Period, Colleague shall
continue to perform the services and discharge the duties normally associated
with Colleague's position with the Company on a full-time basis and shall assist
the Company in the recruitment, hiring and training of Colleague's successor.
3. LIQUIDATED DAMAGES. If Colleague breaches any of the provisions of Section 2
of this Agreement, then in such event Colleague shall be required to pay
$200,000 to the Company as liquidated damages, and not as a penalty for his
breach of this Agreement. Any such payment shall be due within 10 days after
receipt of written notice from the Company that the payment is due.
Notwithstanding the foregoing, in the event of (a) the termination of
Colleague's employment by the Company for any reason, including but not limited
to death or total disability (as defined in the Colleague's employment agreement
with the Company), or (b) a sale of all of the outstanding capital stock of the
Company, a merger of the Company with or into another entity, or the sale of all
or substantially all of the assets of the Company, and the subsequent
termination of Colleague's employment by the Company, the parties acknowledge
and agree that no such liquidated damages payment will be due or payable by
Colleague.
4. NOTICE. Any notice or other communication required under this Agreement shall
be in writing and shall be sent by certified or registered mail or by facsimile
transmission or overnight courier service addressed as follows:
If to the Company:
AmSurg Corp.
One Burton Hills Boulevard
Suite 350
Nashville, Tennessee 37215
Attention: President
<PAGE> 2
If to Colleague:
6520 Edinburgh Drive
Nashville, Tennessee 37221
5. REMEDIES. Each party to this Agreement will be entitled to enforce
its rights under this Agreement specifically, to recover damages by reason of
any breach of any provision of this Agreement and to exercise all other rights
existing in its favor. The parties hereto agree and acknowledge that, with
respect to Colleague, money damages may not be an adequate remedy for any breach
of the provisions of this Agreement by the Company and that Colleague may in its
sole discretion apply to any court of law or equity of competent jurisdiction
for specific performance or injunctive relief in order to enforce or prevent any
violations of the provisions of this Agreement. The parties further agree and
acknowledge that the Company's sole and exclusive remedy for any breach of
Section 2 of this Agreement by Colleague shall be the liquidated damages as set
forth in Section 3 hereof.
6. AMENDMENTS. This Agreement may be amended only upon the written
agreement of both parties hereto.
7. SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity without invalidating the remainder of
this Agreement.
8. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Tennessee applicable to contracts made and to be performed in that
state.
9. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of
the parties hereto concerning the matters referred to herein and supersedes all
prior agreements and understandings. The parties acknowledge that they have
independently negotiated the provisions of this Agreement, that they have relied
upon their own counsel as to matters of law and application and that neither
party has relied on the other party with regard to such matters. The parties
expressly agree that there shall be no presumption created as a result of either
party having prepared in whole or in part any provision of this Agreement.
IN WITNESS WHEREOF, the Company and Colleague have executed this
Agreement effective as of the date first above written and upon approval of the
1997 Stock Incentive Plan by the shareholders of the Company.
AMSURG CORP.
By: /s/ Claire M. Gulmi
-----------------------------------
Title: CFO
--------------------------------
/s/ David L. Manning
---------------------------------------
DAVID L. MANNING
2
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARY LIST
AS OF OCTOBER 23, 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 19, 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%
AmSurg Lakeland, Inc. TN AmSurg Corp. 100%
AmSurg SWFLA, Inc. TN AmSurg Corp. 100%
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 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%
The Fayetteville ASC, LLC TN AmSurg Holdings, Inc. 51%
The Westglenn Endoscopy Center, LLC TN AmSurg Holdings, Inc. 51%
The Independence ASC, LLC TN AmSurg Holdings, Inc. 60%
The West Texas EyeCare Network, LLC TN AmSurg Holdings, Inc. 51%
The Cleveland EyeCare Network, 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 19, 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 19, 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%
AmSurg Santa Monica, 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>
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
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