<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended SEPTEMBER 30, 1999
Commission File Number 000-22217
AMSURG CORP.
(Exact Name of Registrant as Specified in its Charter)
TENNESSEE 62-1493316
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
20 BURTON HILLS BOULEVARD
NASHVILLE, TENNESSEE 37215
(Address of principal executive offices) (Zip code)
(615) 665-1283
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of November 12, 1999, there were outstanding 9,746,983 shares of
the Registrant's Class A Common Stock, no par value, and 4,787,131 shares of the
Registrant's Class B Common Stock, no par value.
<PAGE> 2
PART I.
ITEM 1. FINANCIAL STATEMENTS
AMSURG CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ...................................................... $ 4,844,693 $ 6,069,767
Accounts receivable, net of allowance of $2,243,641 and $1,937,765, respectively 14,695,061 12,122,277
Supplies inventory ............................................................. 1,793,662 1,250,487
Deferred income taxes .......................................................... 507,000 507,000
Prepaid and other current assets ............................................... 1,377,807 951,638
------------- ------------
Total current assets .................................................. 23,218,223 20,901,169
Long-term receivables and deposits .................................................. 2,901,504 2,045,474
Property and equipment, net ......................................................... 25,095,571 23,139,495
Intangible assets, net .............................................................. 65,194,977 52,334,975
------------- ------------
Total assets .......................................................... $ 116,410,275 $ 98,421,113
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt .............................................. $ 1,779,441 $ 1,378,270
Notes payable .................................................................. -- 2,385,150
Accounts payable ............................................................... 1,793,695 1,195,305
Accrued salaries and benefits .................................................. 2,023,798 1,724,419
Other accrued liabilities ...................................................... 1,238,965 887,985
Current income taxes payable ................................................... 1,128,585 376,092
------------- ------------
Total current liabilities ............................................. 7,964,484 7,947,221
Long-term debt ...................................................................... 21,216,714 12,483,458
Deferred income taxes ............................................................... 1,827,000 1,827,000
Minority interest ................................................................... 14,773,535 11,794,389
Shareholders' equity:
Common stock:
Class A, no par value, 35,000,000 shares authorized, 9,746,983 and
9,533,486 shares outstanding, respectively ............................... 49,309,165 48,115,915
Class B, no par value, 4,800,000 shares authorized, 4,787,131
shares outstanding ....................................................... 13,528,981 13,528,981
Retained earnings .............................................................. 7,824,517 2,860,796
Deferred compensation on restricted stock ...................................... (34,121) (136,647)
------------- ------------
Total shareholders' equity ............................................ 70,628,542 64,369,045
------------- ------------
Total liabilities and shareholders' equity ............................ $ 116,410,275 $ 98,421,113
============= ============
</TABLE>
See accompanying notes to the consolidated financial statements.
2
<PAGE> 3
AMSURG CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- -----------------------------
1999 1998 1999 1998
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues ..................................... $ 25,386,216 $20,125,797 $ 73,457,715 $ 58,074,392
Operating expenses:
Salaries and benefits ................... 6,865,619 5,393,533 20,195,320 16,665,770
Other operating expenses ................ 8,686,118 7,407,918 25,097,224 20,994,332
Depreciation and amortization ........... 1,815,771 1,660,895 5,229,498 4,912,004
Net (gain) loss on sale of assets ....... (1,344) -- (34,148) 5,463,509
------------ ----------- ------------ ------------
Total operating expenses ............ 17,366,164 14,462,346 50,487,894 48,035,615
------------ ----------- ------------ ------------
Operating income .................... 8,020,052 5,663,451 22,969,821 10,038,777
Minority interest ............................ 4,874,030 3,509,692 14,025,298 9,472,427
Other expenses:
Interest expense, net of interest income 233,216 172,961 668,120 1,295,882
------------ ----------- ------------ ------------
Earnings (loss) before income taxes
and cumulative effect of an
accounting change ................. 2,912,806 1,980,798 8,276,403 (729,532)
Income tax expense ........................... 1,121,430 792,318 3,186,415 32,119
------------ ----------- ------------ ------------
Net earnings (loss) before cumulative
effect of an accounting change .... 1,791,376 1,188,480 5,089,988 (761,651)
Cumulative effect of the change in the method
in which pre-opening costs are recorded . -- -- (126,267) --
------------ ----------- ------------ ------------
Net earnings (loss) ................. $ 1,791,376 $ 1,188,480 $ 4,963,721 $ (761,651)
============ =========== ============ ============
Basic earnings (loss) per common share:
Net earnings (loss) before cumulative
effect of an accounting change ........ $ 0.12 $ 0.08 $ 0.35 $ (0.07)
Net earnings (loss) ..................... $ 0.12 $ 0.08 $ 0.34 $ (0.07)
Diluted earnings (loss) per common share:
Net earnings (loss) before cumulative
effect of an accounting change ........ $ 0.12 $ 0.08 $ 0.34 $ (0.07)
Net earnings (loss) ..................... $ 0.12 $ 0.08 $ 0.34 $ (0.07)
Weighted average number of shares and share
equivalents outstanding:
Basic ................................... 14,500,896 14,302,197 14,394,178 11,549,800
Diluted ................................. 14,844,197 14,659,425 14,754,481 11,549,800
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE> 4
AMSURG CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) ............................................................... $ 4,963,721 $ (761,651)
Adjustments to reconcile net earnings (loss) to net cash provided by operating
activities:
Minority interest ............................................................. 14,025,298 9,472,427
Distributions to minority partners ............................................ (12,667,863) (8,880,449)
Depreciation and amortization ................................................. 5,229,498 4,912,004
Deferred income taxes ......................................................... -- (346,561)
Amortization of deferred compensation on restricted stock ..................... 102,526 102,526
Net (gain) loss on sale of assets ............................................. (34,148) 5,463,509
Cumulative effect of an accounting change ..................................... 126,267 --
Increase (decrease) in cash, net of effects of acquisitions, due to changes in:
Accounts receivable, net ................................................. (1,411,621) (2,745,772)
Supplies inventory ....................................................... (446,125) 767
Prepaid and other current assets ......................................... (364,779) (31,074)
Other assets ............................................................. 78,418 (176,511)
Accounts payable ......................................................... 598,390 (174,674)
Accrued expenses and other liabilities ................................... 1,487,030 (63,761)
Other, net ............................................................... (13,925) (27,746)
------------ ------------
Net cash flows provided by operating activities .......................... 11,672,687 6,743,034
Cash flows from investing activities:
Acquisition of interest in surgery centers ........................................ (15,647,018) (11,830,592)
Acquisition of property and equipment ............................................. (2,727,862) (4,559,696)
Proceeds from sale of assets ...................................................... 26,700 652,000
Decrease (increase) in long-term receivables ...................................... (642,371) 120,739
------------ ------------
Net cash flows used by investing activities .............................. (18,990,551) (15,617,549)
Cash flows from financing activities:
Repayment of notes payable ........................................................ (2,385,150) --
Proceeds from long-term borrowings ................................................ 16,659,799 11,945,222
Repayment on long-term borrowings ................................................. (8,785,822) (30,267,101)
Net proceeds from issuance of common stock ........................................ 107,458 27,642,423
Proceeds from capital contributions by minority partners .......................... 496,505 1,053,130
Financing cost incurred ........................................................... -- (55,099)
------------ ------------
Net cash flows provided by financing activities .......................... 6,092,790 10,318,575
------------ ------------
Net increase (decrease) in cash and cash equivalents ................................... (1,225,074) 1,444,060
Cash and cash equivalents, beginning of period ......................................... 6,069,767 3,406,787
------------ ------------
Cash and cash equivalents, end of period ............................................... $ 4,844,693 $ 4,850,847
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE> 5
AMSURG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of AmSurg
Corp. and subsidiaries (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial reporting and in
accordance with Rule 10-01 of Regulation S-X.
In the opinion of management, the unaudited interim financial
statements contained in this report reflect all adjustments, consisting of only
normal recurring accruals which are necessary for a fair presentation of the
financial position and the results of operations for the interim periods
presented. The results of operations for any interim period are not necessarily
indicative of results for the full year.
The accompanying consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's 1998 Annual Report on Form 10-K.
(2) CUMULATIVE EFFECT OF AN ACCOUNTING CHANGE
Prior to January 1, 1999, deferred pre-opening costs, which consist of
costs incurred for surgery centers while under development, had been amortized
over one year, starting upon the commencement date of operations. In 1999, the
Company adopted Statement of Position ("SOP") No. 98-5 "Reporting on the Costs
of Start-Up Activities," which requires that pre-opening costs be expensed as
incurred and that upon adoption all unamortized deferred pre-opening costs be
expensed as a cumulative effect of a change in accounting principle.
Accordingly, as of January 1, 1999, the Company expensed $126,267, net of
minority interest and income taxes, as a cumulative effect of an accounting
change.
(3) ACQUISITIONS
In the nine months ended September 30, 1999, the Company, through
wholly owned subsidiaries and in separate transactions, acquired majority
interests in five physician practice-based surgery centers. The aggregate
purchase price and related cost for the acquisitions was approximately
$16,671,000, consisting primarily of cash and Class A Common Stock valued at
approximately $1,024,000, of which the Company assigned approximately
$15,327,000 to excess cost over net assets of purchased operations.
Subsequent to September 30, 1999, the Company, through a wholly owned
subsidiary, acquired a majority interest in a physician practice-based surgery
center for approximately $2,950,000.
5
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" contains forward-looking statements. These statements,
which have been included in reliance on the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, involve risks and
uncertainties. The Company's actual operations and results may differ materially
from the results discussed in any such forward-looking statements. Factors that
might cause such a difference include, but are not limited to, the Company'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 obtain the necessary financing or capital on terms
satisfactory to the Company in order to execute its expansion strategy; its
ability to manage growth; its ability to contract with managed care payers on
terms satisfactory to the Company 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;
its ability to maintain favorable relations with its physician partners; the
implementation of the proposed rule issued by the Health Care Financing
Administration ("HCFA") which would update the ratesetting methodology, payment
rates, payment policies and the list of covered surgical procedures for
ambulatory surgery centers; and risks relating to the Company's technological
systems, including becoming Year 2000 compliant. As to the potential asset
purchase from Physicians Resource Group, Inc. ("PRG"), factors include, but are
not limited to, the companies' respective ability to meet all the conditions to
the execution of a definitive agreement and the consummation of the transactions
contemplated thereunder; the Company's ability to enter into partnership or
operating agreements with the physician owners of the surgery centers; the
Company's ability to effectively integrate the operations of the PRG surgery
centers into its operations; and the Company's ability to operate the PRG
surgery centers profitably.
OVERVIEW
The Company develops, acquires and operates practice-based ambulatory
surgery centers in partnership with physician practices. As of September 30,
1999, the Company owned a majority interest (51% or greater) in 57 surgery
centers and had established seven specialty physician networks, of which it was
the majority owner (51%) of six of such networks.
The following table presents the components of changes in the number of
surgery centers in operation and centers under development during the three and
nine months ended September 30, 1999 and 1998. 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>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1999 1998 1999 1998
----- ----- ----- ----
<S> <C> <C> <C> <C>
Centers in operation, beginning of period..... 54 46 52 39
New center acquisitions placed in operation... 3 1 5 4
New development centers placed in operation... - - - 5
Centers sold.................................. - - - (1)
----- ----- ----- -----
Centers in operation, end of period........... 57 47 57 47
===== ===== ==== ====
Centers under development, end of period...... 5 5 5 5
===== ===== ===== =====
</TABLE>
Of the surgery centers in operation as of September 30, 1999, 42
perform gastrointestinal endoscopy procedures, 12 perform ophthalmology surgery
procedures, one performs orthopaedic procedures, one performs otolaryngology
procedures and one 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.
The specialty physician networks are owned through limited partnerships
and limited liability companies in which, with the exception of one, the Company
owns a majority interest. The other partners or members are individual
physicians who will provide the medical services to the patient population
covered by the contracts the network enters into with managed care payers. The
Company does not expect that the specialty physician networks alone will be a
significant source of income. These networks were and will be formed in selected
markets primarily as a contracting vehicle for certain managed care arrangements
to generate revenues for the Company's practice-based surgery centers. As of
September 30, 1999, three networks had secured managed care contracts and were
operational.
6
<PAGE> 7
The Company intends to expand through the development and acquisition
of additional practice-based surgery centers in targeted surgical specialties.
In addition, the Company believes that its surgery centers, combined with its
relationships with specialty physician practices in the surgery centers'
markets, will provide the Company with other opportunities for growth through
specialty network development. By using its surgery centers as a base to develop
specialty physician networks that are designed to serve large numbers of covered
lives, the Company believes that it will strengthen its market position in
contracting with managed care organizations.
On March 31, 1999, the Company signed a letter of intent with PRG for
the purchase by the Company of a portion of PRG's ownership interests in up to
approximately 40 of its practice-based ophthalmology surgery centers.
Consummation of the transaction is subject to, among other things, the execution
of a definitive purchase agreement; the completion of due diligence by the
Company; the sale by PRG of physician practice assets and interests and, in some
instances, interests in surgery centers to its affiliated practices and a
concurrent termination of management services agreements and execution of mutual
releases between PRG and such practices; and the completion of agreements
between the Company and the physician practices for a joint ownership interest
in each of the surgery centers. Due diligence has been completed for the
majority of the centers and AmSurg and PRG are finalizing a definitive purchase
agreement for approximately 25 of the centers.
While the Company generally owns 51% to 70% of the entities that own
the surgery centers, the Company's consolidated statements of operations include
100% of the results of operations of the entities, reduced by the minority
partners' share of the net earnings or loss of the surgery center entities.
SOURCES OF REVENUES
The Company'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 payers by such physicians. Historically, the Company's other
significant source of revenues had been the fees for physician services
performed by two physician group practices in which the Company owned a majority
interest. However, as a result of the disposition of these practices occurring
in 1998, the Company no longer earns such revenue.
Surgery centers provided 100% of the Company's revenues in the 1999
periods while surgery centers and physician practices provided 97% and 3%,
respectively, of the Company's revenues in the three months ended September 30,
1998, and 92% and 8%, respectively, of the Company's revenues in the nine months
ended September 30, 1998.
Practice-based ambulatory surgery centers and physician practices, such
as those in which the Company owns or has owned a majority interest, depend upon
third-party reimbursement programs, including governmental and private insurance
programs, to pay for services rendered to patients. The Company derived
approximately 44% and 40% of its net revenues from governmental healthcare
programs, including Medicare and Medicaid, in the nine months ended September
30, 1999 and 1998, respectively. The Medicare program pays ambulatory surgery
centers and physicians in accordance with fee schedules which are prospectively
determined.
7
<PAGE> 8
RESULTS OF OPERATIONS
The following table shows certain statement of operations items
expressed as a percentage of revenues for the three and nine months ended
September 30, 1999 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -------------------
1999 1998 1999 1998
----- ------ ----- ------
<S> <C> <C> <C> <C>
Revenues ................................... 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Salaries and benefits .................. 27.0 26.8 27.4 28.7
Other operating expenses ............... 34.2 36.8 34.2 36.1
Depreciation and amortization .......... 7.2 8.3 7.1 8.5
Net loss on sale of assets ............. -- -- -- 9.4
----- ----- ----- -----
Total operating expenses .......... 68.4 71.9 68.7 82.7
----- ----- ----- -----
Operating income .................. 31.6 28.1 31.3 17.3
Minority interest .......................... 19.2 17.4 19.1 16.3
Other expenses:
Interest expense, net of interest income 0.9 0.9 0.9 2.2
----- ----- ----- -----
Earnings (loss) before income
taxes and cumulative effect
of an accounting change ....... 11.5 9.8 11.3 (1.2)
Income tax expense ......................... 4.4 3.9 4.3 0.1
----- ----- ----- -----
Net earnings (loss) before
cumulative effect of an
accounting change ............. 7.1 5.9 7.0 (1.3)
Cumulative effect of the change in the
method in which pre-opening costs
are recorded ........................... -- -- (0.2) --
----- ----- ----- -----
Net earnings (loss) ............... 7.1% 5.9% 6.8% (1.3)%
===== ===== ===== =====
</TABLE>
Revenues were $25.4 million and $73.5 million in the three and nine
months ended September 30, 1999, respectively, an increase of $5.3 million and
$15.4 million, or 26%, over revenues in the comparable 1998 periods. The
increase is primarily attributable to additional centers in operation during
1999. Same-center revenues in the three and nine months ended September 30,
1999, increased by 10% and 12%, respectively. Same-center growth is primarily
attributable to additional procedure volume. The Company anticipates further
revenue growth during 1999 as a result of additional start-up and acquired
centers expected to be placed in operation and from same-center revenue growth.
Salaries and benefits expense was $6.9 million and $20.2 million in the
three and nine months ended September 30, 1999, respectively, an increase of
$1.5 million and $3.5 million, or 27% and 21%, respectively, over salaries and
benefits expense in the comparable 1998 periods. This increase resulted
primarily from additional centers in operation, offset in the nine month period
by the absence of physician salaries of a practice disposed of in June 1998. The
absence of physician salaries in 1999 also caused salaries and benefits expense
as a percentage of revenue to decrease in the nine months ended September 30,
1999.
Other operating expenses were $8.7 million and $25.1 million in the
three and nine months ended September 30, 1999, respectively, an increase of
$1.3 million and $4.1 million, or 17% and 20%, respectively, over other
operating expenses in the comparable 1998 periods. This increase also resulted
primarily from additional centers in operation. This increase was offset by the
absence of physician practice expenses of the practices disposed of in 1998,
which also served to reduce operating expenses as a percentage of revenues.
8
<PAGE> 9
The Company anticipates further increases in operating expenses in
1999, primarily due to additional start-up centers and acquired centers expected
to be placed in operation. Typically a start-up center will incur start-up
losses while under development and during its initial months of operation and
will experience lower revenues and operating margins than an established center
until its case load increases to a more optimal operating level, which generally
is expected to occur within 12 months after a center opens.
Depreciation and amortization expense increased $155,000 and $317,000,
or 9% and 6%, in the three and nine months ended September 30, 1999,
respectively, over the comparable 1998 periods, primarily due to ten additional
surgery centers in operation in the 1999 periods compared to the 1998 periods.
This increase was offset by a reduction in the amortization of excess of cost
over net assets of purchased operations and deferred pre-opening cost in the
aggregate of approximately $231,000 and $832,000 in the three and nine months
ended September 30, 1999, respectively, due to physician practices sold in 1998
and the adoption in 1999 of Statement of Position ("SOP") No. 98-5 "Reporting on
Cost of Start-Up Activities," as further discussed below.
The Company realized a net gain on sale of assets of $34,000 during the
nine months ended September 30, 1999 primarily related to the disposal of
certain equipment. The Company incurred a net loss on sale of assets of $5.5
million during the nine months ended September 30, 1998, primarily due to the
disposal of the Company's interests in two physician practices.
The minority interest in earnings in the three and nine months ended
September 30, 1999 increased by $1.4 million and $4.6 million, or 39% and 48%,
respectively, over the comparable 1998 periods primarily as a result of minority
partners' interest in earnings at surgery centers recently added to operations
and from increased same-center profitability. Minority interest as a percentage
of revenues increased in the three and nine months ended September 30, 1999 over
the comparable 1998 periods primarily as a result of the absence of physician
practice revenues of the practices disposed of in 1998 which are not as
marginally profitable to the Company's respective minority partners as are the
Company's existing surgery centers, as well as increased same-center
profitability as a result of same-center revenue growth.
Interest expense increased $60,000, or 35%, in the three months ended
September 30, 1999 and decreased $628,000, or 48%, in the nine months ended
September 30, 1999 from the comparable 1998 periods. The increase in the three
month period was the result of additional acquisition borrowings since September
1998. The reduction in the nine month period was the result of the repayment of
long-term debt from the proceeds of the public offering in June 1998 (see
"Liquidity and Capital Resources") and a decrease in the Company's borrowing
rate due to a decrease in borrowing levels.
The Company recognized income tax expense of $1.1 million and $3.2
million in the three and nine months ended September 30, 1999, respectively,
compared to $792,000 and $32,000 in the comparable 1998 periods, respectively.
The reduction of the tax expense in the nine months ended September 30, 1998
resulted from the $5.4 million loss on sale of assets incurred in June 1998.
Excluding the impact of the disposal transactions in 1998, the Company's
effective tax rate in the 1999 and 1998 periods was 38.5% and 40.0%,
respectively, of net earnings before income taxes and cumulative effect of an
accounting change and differed from the federal statutory income tax rate of 34%
primarily due to the impact of state income taxes.
Prior to January 1, 1999, deferred pre-opening costs, which consist of
costs incurred for surgery centers while under development, had been amortized
over one year, starting upon the commencement date of operations. In 1999, the
Company adopted SOP No. 98-5, which requires that pre-opening costs be expensed
as incurred and that upon adoption all unamortized deferred pre-opening costs be
expensed as a cumulative effect of a change in accounting principle.
Accordingly, as of January 1, 1999, the Company expensed $126,000, net of
minority interest and income taxes, as a cumulative effect of an accounting
change.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Company had working capital of $15.3 million
compared to $14.8 million at September 30, 1998. Operating activities for the
nine months ended September 30, 1999, generated $11.7 million in cash flows
compared to $6.7 million in the comparable 1998 period. Cash and cash
equivalents at September 30, 1999 and 1998 were $4.8 million and $4.9 million,
respectively.
During the nine months ended September 30, 1999, the Company used
approximately $15.6 million to acquire interests in practice-based ambulatory
surgery centers, which it funded primarily from net borrowings of $5.5 million
and operating cash flows. In addition, the Company made capital expenditures
primarily for new start-up surgery centers and for new or replacement property
at existing centers which totaled approximately $2.7 million in the nine months
ended September 30, 1999, of which approximately $500,000 was funded from the
capital contributions of the Company's minority partners. The Company used its
existing cash and cash flows from operations to fund its development
obligations.
During the nine months ended September 30, 1999, notes receivable
increased by approximately $642,000 primarily as the result of the financing of
a sale of an additional interest in a surgery center to a minority partner and
development costs incurred by a development surgery center.
9
<PAGE> 10
At September 30, 1999, borrowings under the Company's revolving credit
facility were $17.7 million, are due in January 2001 and are guaranteed by the
wholly owned subsidiaries of the Company, and in some instances, the underlying
assets of certain developed centers. The loan agreement permits the Company to
borrow up to $50.0 million to finance the Company's acquisition and development
projects at a rate equal to, at the Company's option, the prime rate or LIBOR
plus a spread of 1.0% to 2.25%, depending upon borrowing levels. The loan
agreement also provides for a fee ranging between 0.15% and 0.40% of unused
commitments based on borrowing levels. The loan agreement also prohibits the
payment of dividends and contains covenants relating to the ratio of debt to net
worth, operating performance and minimum net worth. The Company was in
compliance with all covenants at September 30, 1999.
On June 17, 1998, the Company completed a public offering of 3,700,000
shares of Class A Common Stock and received net proceeds of $27.6 million. The
net proceeds were used to repay borrowings under the Company's revolving credit
facility and other long-term debt.
On June 12, 1998, HCFA published a proposed rule that would update the
ratesetting methodology, payment rates, payment policies and the list of covered
surgical procedures for ambulatory surgery centers. The proposed rule was
subject to a comment period which expired on July 31, 1999. The proposed rule
reduces the rates paid for certain ambulatory surgery center procedures
reimbursed by Medicare, including a number of endoscopy and ophthalmological
procedures performed at the Company's centers. The latest statement from HCFA of
which the Company is aware indicates that it currently estimates a final rule on
revised payment rates will be issued by spring 2000 with an implementation date
scheduled for no earlier than mid-year 2000.
The Company believes that the proposed rule if adopted in its current
form would adversely affect the Company's annual revenues by approximately 4% at
that time. However, if the proposed rule were adopted in its current form, the
Company expects that the earnings impact will be offset by certain actions taken
by the Company or that the Company intends to take, including actions to effect
certain cost efficiencies in center operations, reduce corporate overhead costs
and provide for contingent purchase price adjustments for future acquisitions.
There can be no assurance that the Company will be able to implement
successfully these actions or that if implemented the actions will offset fully
the adverse impact of the rule, as finally adopted, on the earnings of the
Company. There also can be no assurance that HCFA will not modify the proposed
rule, before it is enacted in final form, in a manner that would adversely
impact the Company's financial condition, results of operations and business
prospects.
YEAR 2000
The Company has evaluated its risks associated with software and
hardware components which may fail due to the millennium change and has
determined these risks include but are not limited to (i) risk that surgical
equipment critical to the patient's care may fail, (ii) risk that billing and
administration software will not support timely billing and collection efforts
and (iii) risk that third party payers will not be able to provide timely
reimbursement for services performed.
Because the Company generally has no internally designed software
systems or hardware components nor does the Company market or support any
software or hardware products, the Company has focused its efforts on ensuring
that its systems are Year 2000 compliant by implementing a plan designed to
evaluate all critical systems purchased from third parties at each of its
operating surgery centers and its corporate offices. In order to address these
risks, the Company has designed and implemented a Year 2000 assessment and
remediation plan for each of its surgery centers which includes the following
steps:
(1) identifying all potential Year 2000 hardware and software components,
including but not limited to medical equipment, office machinery,
financial software, building operating support equipment and general
service equipment and components;
(2) contracting with a third party consultant to measure medical equipment
products against their Year 2000 compliance database;
(3) obtaining verification from third parties stating that their products
are Year 2000 compliant and, if not, the third parties' ability to
make the appropriate modifications;
(4) replacing or upgrading equipment and systems which are found not to be
Year 2000 compliant; and
(5) contacting all significant suppliers and third party payers to
determine if they are Year 2000 compliant and if they will be able to
continue to provide products, services or reimbursement in 2000.
This assessment and remediation plan was initiated in the third quarter
of 1998 and is substantially complete at each of its surgery centers. In
addition, the Company has substantially completed the necessary actions to
ensure the compliance of its billing systems used by its surgery centers,
including testing, upgrading and/or replacement.
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All mission critical systems and significant equipment residing at the
Company's corporate offices have been identified and the testing of all systems
is virtually complete. To date, the Company has identified no significant Year
2000 compliance issues at its corporate offices.
The Company has incurred to date approximately $150,000 for the
replacement or upgrade of non-compliant medical and non-medical systems. By mid
December 1999, the Company anticipates that an additional $250,000 to $350,000
of capitalizable costs will be incurred for the final installation of medical
imaging systems at approximately five of its surgery centers. These amounts are
currently within the Company's preestablished budget for Year 2000 compliance.
In addition, all costs associated with the implementation of the Year 2000
assessment and remediation plan have been expensed as incurred, have generally
been shared by the Company's physician partners in proportion to their ownership
interest in the surgery centers and have not had a significant impact on the
Company's financial position or ongoing results of operations.
The Company relies upon a number of third parties which provide
products or services to the Company's corporate offices and surgery centers. The
Company's surgery centers have inquired as to the Year 2000 readiness of all
significant third party suppliers of products and services and based on those
responses, the Company estimates that on a consolidated basis the levels of
compliance of third party suppliers pose no significant risks to the Company.
To date, attempts to confirm governmental and private third party
payers' ability to provide timely reimbursement in Year 2000 has been limited
due to the low level of reliance the Company would be able to place on such
responses or the Company's ability to influence the actions of noncompliant
respondents. No payers have indicated an inability to continue remittances in
the normal course of business; however, most payers, including the federal
government, are in the process of evaluating and updating their internal systems
and cannot yet assure the Company that their systems are Year 2000 compliant. An
inability of such payers to provide timely reimbursement could result in
significant decreases in operating cash flows, the effects of which could be
material to the Company. The Company would be forced to rely on its current cash
on hand and available borrowing capacity in order to satisfy working capital
needs. The Company considers this possibility to be its most likely worst case
scenario associated with Year 2000 compliance.
Contingency plans that address the identified risks for the Company's
corporate office and each of its surgery centers include the development of
certain manual processes that can be performed in place of automated systems and
the establishment of multiple machine backup files and hard copy reports.
Because the Company's surgery centers perform elective surgeries on an
outpatient basis, each surgery center will be required on January 1, 2000 to
completely retest all medical and non-medical equipment before admitting any
patients, thereby minimizing any risks that patient care is hindered by
equipment or software failures. Also as part of the contingency plans, the
Company's surgery centers have increased medical supplies and drug inventories
in preparation of any potential supply shortages. These contingency plans are
not expected to require any significant incremental costs to implement. The
Company has begun to build its cash reserves at each of its surgery centers in
order to establish cash levels adequate to sustain operations in the event that
payers are unable to provide timely reimbursement in early 2000. In the event
that payers' reimbursements are delayed beyond early 2000, the Company has
available through its line of credit sufficient borrowing capacity to fund
shortfalls in working capital for an abbreviated period of time.
In light of its assessment and remediation plan, the Company believes
that overall risk associated with Year 2000 compliance is not significant to the
Company and its surgery centers. However, because of uncertainties associated
with Year 2000 compliance issues and because of the necessary reliance placed on
third parties, there can be no assurance that the Company's assessment is
correct, that its assessment and remediation plan will successfully resolve all
significant Year 2000 concerns or that the Company's estimates of the financial
impact are materially correct.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risk from exposure to changes in
interest rates based on its financing, investing and cash management activities.
The Company utilizes a balanced mix of debt maturities along with both
fixed-rate and variable-rate debt to manage its exposures to changes in interest
rates. Although there can be no assurances that interest rates will not change
significantly, the Company does not expect changes in interest rates to have a
material effect on income or cash flows in 1999.
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PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
3.1 Amended and Restated Charter
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
The Company filed a report on Form 8-K, dated June
30, 1999, during the quarter ended September 30, 1999 to
report the acquisition of a 51% membership interest in
Northside Gastroenterology Endoscopy Center, LLC, which
operates an ambulatory surgery center in Indianapolis,
Indiana.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMSURG CORP.
Date: November 12, 1999 By: /s/ Claire M. Gulmi
--------------------------------------
CLAIRE M. GULMI
Senior Vice President and Chief Financial Officer
(Principal Financial and Duly Authorized Officer)
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EXHIBIT 3.1
[Restated, as amended, electronically for SEC filing purposes only]
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:
20 Burton Hills Boulevard
Nashville, Tennessee 37215
Davidson County
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:
20 Burton Hills Boulevard
Nashville, Tennessee 37215
Davidson County
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 44,800,000 shares, of which 35,000,000 shares shall be
Class A Common Stock, no par value, 4,800,000 shares shall be Class B 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
<PAGE> 2
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 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
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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 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
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<PAGE> 4
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 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
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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
other than that in which the shares of Series A Redeemable
Preferred Stock so converted were registered.
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<PAGE> 6
(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 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
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<PAGE> 7
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.
(h) Definitions. For the purposes of this Section (1) of Article 7 the
following terms shall have the following meanings:
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"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.
"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
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(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.
(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:
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<PAGE> 10
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
If to Michael E. Stephens:
One Perimeter Park South
Suite 100N
Birmingham, AL 35243
Telecopy No.: (205) 970-6524
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<PAGE> 11
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 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
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<PAGE> 12
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.
(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.
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<PAGE> 13
(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
(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
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<PAGE> 14
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.
(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.
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<PAGE> 15
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.
(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
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<PAGE> 16
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 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
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<PAGE> 17
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 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.
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<PAGE> 18
"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
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,
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<PAGE> 19
(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.
"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.
19
<PAGE> 20
"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
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
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<PAGE> 21
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
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:
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<PAGE> 22
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.
(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
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<PAGE> 23
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 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
23
<PAGE> 24
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.
(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
24
<PAGE> 25
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.
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
25
<PAGE> 26
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.
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
26
<PAGE> 27
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 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.
27
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMSURG
CORP.'S BALANCE SHEET AS OF SEPTEMBER 30, 1999 AND STATEMENT OF OPERATIONS FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 4,844,693
<SECURITIES> 0
<RECEIVABLES> 14,695,061<F1>
<ALLOWANCES> 0
<INVENTORY> 1,793,662
<CURRENT-ASSETS> 23,218,223
<PP&E> 25,095,571<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 116,410,275
<CURRENT-LIABILITIES> 7,964,484
<BONDS> 0
0
0
<COMMON> 62,838,146
<OTHER-SE> 7,790,396
<TOTAL-LIABILITY-AND-EQUITY> 116,410,275
<SALES> 0
<TOTAL-REVENUES> 73,457,715
<CGS> 0
<TOTAL-COSTS> 50,487,894
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 668,120
<INCOME-PRETAX> 8,276,403
<INCOME-TAX> 3,186,415
<INCOME-CONTINUING> 5,089,988
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (126,267)
<NET-INCOME> 4,963,721
<EPS-BASIC> 0.34
<EPS-DILUTED> 0.34
<FN>
<F1>Value represents net amount.
</FN>
</TABLE>
