Symbion, Inc.

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.


(1)	Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(o) under the Securities Act.
(2)	Includes associated preferred stock purchase rights which, prior to the occurrence of certain events, will not be exercisable or evidenced separately from the common stock.
(3)	A registration fee in the amount of $10,580 was previously paid by the Registrant in connection with the filing of a Registration Statement on Form S-1 (Registration No. 333-89554) on May 31, 2002, which was subsequently withdrawn on April 28, 2003. Thus, pursuant to Rule 457(p) under the Securities Act, the filing fee of $10,580 previously paid by the Registrant may be applied to the total filing fee of $9,304 for this Registration Statement. As a result, no filing fee is due in connection with this filing.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Prior to this offering, there has been no public market for our common stock. The initial public offering price of our common stock is expected to be between $ and $ per share. We have applied to list our common stock on the Nasdaq National Market under the symbol “SMBI.”

The underwriters have an option to purchase a maximum of additional shares to cover over-allotments of shares.

Investing in our common stock involves risks. See “Risk Factors” on page 9.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

You should rely only on the information contained in this document or to which we have referred you. We have not authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities. The information in this document may only be accurate on the date of this document.

Until , 2004 (25 days after the commencement of this offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as an underwriter and with respect to their unsold allotments or subscriptions.

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary may not contain all of the information that may be important to you or that you should consider before investing in our common stock. You should carefully read the entire prospectus, including “Risk Factors” and our consolidated financial statements and related notes, before you decide whether to invest in our common stock. References to “we,” “our,” “us,” “our company” or “Symbion” refer to Symbion, Inc. and its subsidiaries.

Symbion, Inc.

We own and operate a network of surgery centers in 18 states. Our surgery centers provide non-emergency surgical procedures across many specialties. We offer services to meet the health care needs of the communities in which we operate and seek to develop strong relationships with physicians and other health care providers in these markets. We believe we have established relationships with surgeons who are leaders in their community and have entered into strategic relationships with six health care systems that are leaders in their markets. We also believe that one of our competitive advantages is the experience of our senior management team, with four of our executive officers having an average of over 25 years of experience in the health care industry, including senior management positions at leading public and private health care companies. The remaining six members of our senior management team have an average of more than 20 years of experience in the health care industry.

As of November 17, 2003, we owned and operated 33 surgery centers, managed eight surgery centers and were developing one additional surgery center. Surgery centers are facilities where physicians can perform surgical procedures that generally do not require the patient to stay overnight. Our surgery centers include three facilities that are licensed as hospitals, two of which we own and one of which we manage. In addition to our surgery centers, we also operate a diagnostic center and manage three physician networks, including two physician networks in markets in which we operate surgery centers. We have historically targeted majority ownership in our facilities and currently hold majority interests in 24 of the 33 surgery centers in which we own an interest, excluding the center currently being developed. We believe we have a favorable payor mix as we receive most of our revenue from non-government sources. Government payors accounted for about 19.5% of our revenues for the nine months ended September 30, 2003 and about 18.5% of our revenues for the year ended December 31, 2002. In 2002, we had revenues of $144.7 million, EBITDA less minority interests of $25.0 million and net income of $12.3 million. On a pro forma basis, as if we acquired Physicians Surgical Care, Inc. as of January 1, 2002, we had revenues of $157.0 million, EBITDA less minority interests of $26.9 million and net income of $12.3 million in 2002. See Note 2 to “— Summary Consolidated Financial and Other Data” for a reconciliation of EBITDA less minority interests to net income.

The demand for outpatient surgery has grown rapidly in the United States. Based on data compiled by Verispan, L.L.C., an independent health care market research and information firm, the number of outpatient surgery cases performed annually in U.S. outpatient surgery centers grew from an estimated 4.3 million in 1996 to an estimated 7.8 million in 2003, representing a compound annual growth rate of about 9%. Since 1996, the number of outpatient surgery centers operating in the United States increased by more than 50% to about 3,644 outpatient surgery centers as of February 2003, according to Verispan. We believe that the growth in outpatient surgical procedures and the number of outpatient surgery centers is due to a variety of factors, including physician and patient preferences, lower costs compared to inpatient surgery and advances in medical treatment and technology. We also believe that the U.S. surgery center market is fragmented, creating acquisition opportunities. The four largest national operators of outpatient surgery centers by number of centers represented an aggregate of less than 15% of the total number of outpatient surgery centers in the United States as of February 2003, according to Verispan. We believe the surgery center industry will continue to consolidate as many surgery centers seek to affiliate with experienced operators of facilities due to the increasing complexity of the regulatory and managerial aspects of health care delivery, the growing influence of managed care, the rising cost of technology and the need for capital.

Our Strategy

We intend to establish a network of surgery centers in attractive markets throughout the United States by acquiring established centers and developing new centers while enhancing the performance of our existing centers. We also seek to provide patients with high-quality surgical services across many specialties. When attractive opportunities arise, we may acquire or develop other types of facilities, including diagnostic centers.

The key components of our strategy are to:

• Identify, recruit and retain leading surgeons and other physicians for our surgery centers. We believe that establishing and maintaining strong relationships with surgeons and other physicians is a key factor to our success in acquiring and developing surgery centers. We identify and partner with surgeons and other physicians that we believe have established reputations for clinical excellence in their communities. We also believe that forming relationships with leading health care systems can enhance our ability to recruit physicians. We currently have strategic relationships with six health care systems that are leaders in their markets.

• Capitalize on our experienced management team to pursue multiple growth opportunities in the surgery center market. We believe our senior management team’s capabilities and significant experience in the health care industry enable us to pursue multiple growth strategies in the surgery center market. Our growth strategies include acquisitions of established surgery centers, de novo developments in attractive markets, strategic relationships with health care systems and other health care providers and turnaround opportunities in connection with underperforming facilities. We have successfully executed each of these growth strategies and intend to pursue each of them in the future.

• Pursue a disciplined strategy of acquiring and developing surgery centers. Since January 1999, we have acquired 26 surgery centers and developed 10 surgery centers, including three surgery centers that we subsequently divested. We are currently developing one new surgery center. We anticipate acquiring about two to three centers and developing three to four centers annually during the next three to five years. We seek to acquire and develop both single and multi-specialty surgery centers that meet our acquisition and development criteria. We have historically targeted majority ownership in our facilities and currently hold majority ownership interests in over 70% of the surgery centers in which we own an interest. We believe majority ownership allows us to make and execute managerial decisions at our facilities that provide a greater opportunity for growth and higher returns. We intend to continue to target majority ownership in our facilities. However, when attractive opportunities arise, we may acquire minority interests in surgery centers.

• Increase revenues and profitability of existing surgery centers through operational focus. We have a dedicated team that is responsible for implementing best practices, cost controls and overall efficiencies at each of our surgery centers. We intend to continue to recruit additional physicians and expand the range of services offered at our surgery centers to increase the number and types of surgeries performed. We are also committed to enhancing programs and services for our physicians and patients by providing advanced technology, quality care, cost-effective service and convenience.

Recent Developments

On November 17, 2003, we acquired three surgery centers and assumed a management agreement for one additional surgery center from MediSphere Health Partners, Inc. Two of these facilities are licensed as hospitals, one of which we own and one of which we manage. The facilities are located in Kansas, Oklahoma and Texas.

On September 5, 2003, we entered into a purchase agreement to acquire a 75% ownership interest in Bayside Surgery Center, a single-specialty surgery center located in Providence, Rhode Island. We expect the transaction to close by December 2003, upon approval by the Rhode Island Department of Health of a change in control of the center’s surgery center license. The transaction is also subject to other customary conditions to closing.

In July 2003, we established a senior credit facility under which we can borrow up to $110.0 million from a group of lenders for acquisitions, developments of new centers and working capital. As of November 17, 2003, we had outstanding indebtedness under our senior credit facility of about $42.7 million. We also entered into an agreement through which DLJ Investment Partners II, L.P. and its affiliates agreed to purchase our 14 3/4% Senior Subordinated Notes due 2008 in the aggregate principal amount of up to $40.0 million. We made an initial issuance of notes in the aggregate principal amount of about $15.1 million, and may issue additional notes at any time before July 18, 2005. We intend to repay all indebtedness under the outstanding notes and to pay redemption premiums and accrued interest with a portion of the proceeds from this offering. See “Use of Proceeds” and “Description of Indebtedness.”

Our Formation

Effective September 16, 2002, we reincorporated in Delaware from Tennessee, where we were originally incorporated in January 1996. We were formerly named UniPhy Healthcare, Inc. and originally focused on developing and managing physician networks. In June 1999, we acquired Ambulatory Resource Centres, Inc., an owner and operator of surgery centers, and changed our name to Symbion, Inc. Our executive offices are located at 40 Burton Hills Boulevard, Suite 500, Nashville, Tennessee 37215, and our telephone number is (615) 234-5900. Our website address is www.symbion.com. Information contained on our website does not constitute part of this prospectus.

Risks Inherent in Investing in Our Common Stock

Despite our competitive strengths and strategies, an investment in our common stock involves risks, including risks relating to our ability to acquire, develop and operate surgery centers, reliance on the physicians who use our facilities and the substantial government regulations to which we are subject. In addition, we face risks associated with general economic conditions, reimbursement from third-party payors and competition for physicians, patients and strategic relationships. For a more complete description and discussion of these and other risks to which we are subject, see “Risk Factors” beginning on page 9.

The Offering


Common stock offered by us		shares

Common stock to be outstanding after this offering		shares

Use of proceeds		We intend to use the estimated net proceeds from this offering to:

		• pay about $18.2 million to holders of shares of our Series A convertible preferred stock in connection with the conversion of those shares upon completion of this offering;

		• pay about $13.6 million to holders of shares of our Series B convertible preferred stock in connection with the conversion of those shares upon completion of this offering;

		• use about $15.1 million to repay all indebtedness under our outstanding senior subordinated notes and pay about $400,000 of redemption premiums and $348,000 of accrued interest to the holders of the notes;

		• pay about $102,000 of accrued interest on our subordinated convertible debentures on conversion; and

		• use the balance of the estimated net proceeds of about $ million to repay indebtedness under our senior credit facility.

Proposed Nasdaq National Market symbol		“SMBI”

Risk factors		See “Risk Factors” for a discussion of factors you should carefully consider before deciding to invest in shares of our common stock.

Unless we indicate otherwise, all information in this prospectus:

• assumes no exercise of the over-allotment option granted to the underwriters;

• reflects the automatic conversion of shares of our Series A convertible preferred stock and Series B convertible preferred stock into shares of our common stock upon completion of this offering and payment of all amounts due on conversion;

• reflects the automatic conversion of our subordinated convertible debentures into 981,157 shares of our common stock upon completion of this offering; and

• gives effect to a 1-for- reverse stock split of our common stock to be effected prior to the completion of this offering.

Unless we indicate otherwise, all information in this prospectus excludes:

• 5,616,512 shares of common stock issuable upon the exercise of outstanding stock options granted by us with exercise prices ranging from $0.1222 to $3.13 per share and a weighted average exercise price of $2.43 per share;

• 2,178,445 shares of common stock issuable upon the exercise of outstanding warrants issued by us with exercise prices ranging from $0.1223 to $6.03 per share and a weighted average exercise price of $1.97 per share;

Summary Consolidated Financial and Other Data

The following table summarizes the consolidated statement of operations and consolidated balance sheet for our business. The historical results presented below are not necessarily indicative of the results to be expected for any future period. For a more detailed explanation of this financial data, see “Selected Consolidated Financial and Other Data,” “Unaudited Pro Forma Combined Condensed Statement of Operations,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes included elsewhere in this prospectus.

The unaudited pro forma combined condensed statement of operations data for the year ended December 31, 2002 assumes that our acquisition of Physicians Surgical Care, Inc. had occurred on January 1, 2002. In April 2002, we acquired Physicians Surgical Care, which had ownership interests in and managed seven surgery centers and assisted in the development of an additional surgery center to which we began providing administrative services when it opened in October 2002. In connection with the acquisition, we issued an aggregate of 2,770,748 shares of our common stock, 4,341,726 shares of our Series A convertible preferred stock and 2,604,590 shares of our Series B convertible preferred stock. In addition, we agreed to issue up to an additional 2,189,887 shares of our common stock to the former stockholders of Physicians Surgical Care based on the 2003 financial results of one of the Physicians Surgical Care surgery centers. We sold our minority interest in one of the acquired Physicians Surgical Care centers in September 2002.

The unaudited combined condensed balance sheet data as of September 30, 2003, as adjusted, give effect to:

• the sale of shares of our common stock in this offering at an assumed initial public offering price of $ per share, after deducting the estimated underwriting discounts and commissions and our estimated offering expenses and the application of the estimated net proceeds as described in “Use of Proceeds”;

• the conversion of our Series A convertible preferred stock and Series B convertible preferred stock into shares of our common stock and the payment of all amounts due on conversion upon consummation of this offering; and

• the conversion of our subordinated convertible debentures into shares of our common stock upon consummation of this offering.



		Year Ended December 31,												Nine Months Ended
														September 30,
											Pro Forma
		2000			2001			2002			2002			2002			2003

											(unaudited)			(unaudited)			(unaudited)

		(dollars in thousands, except per share amounts)
Consolidated Statement Of Operations Data:
Revenues		$	126,942		$	104,704		$	144,688		$	156,991		$	102,776		$	128,797
Operating expenses(1)			115,430			89,437			112,322			122,026			80,263			98,859
Depreciation and amortization			7,503			7,743			7,836			8,659			5,655			6,854
Impairment and loss on disposal of long-lived assets			6,043			385			492			492			492			162
Gain on sale of long-lived assets			—			(2,346	)		(457	)		(457	)		(457	)		(162	)

Operating income (loss)			(2,034	)		9,485			24,495			26,271			16,823			23,084
Minority interests in (income) loss of consolidated subsidiaries			526			(1,909	)		(7,353	)		(8,009	)		(4,865	)		(7,749	)
Interest expense, net			(3,234	)		(2,600	)		(4,625	)		(5,721	)		(3,541	)		(4,058	)

Income (loss) before income taxes			(4,742	)		4,976			12,517			12,541			8,417			11,277
Income taxes			135			287			215			240			162			959

Net income (loss)		$	(4,877	)	$	4,689		$	12,302		$	12,301		$	8,255		$	10,318

Net income (loss) per share:
	Basic	$	(0.11	)	$	0.11		$	0.27		$	0.26		$	0.18		$	0.22
	Diluted	$	(0.11	)	$	0.10		$	0.23		$	0.22		$	0.16		$	0.18
Weighted average number of common shares outstanding and common equivalent shares:
	Basic		43,914,680			43,897,395			45,851,695			46,475,119			45,617,685			46,660,203
	Diluted		43,914,680			45,814,112			53,802,184			56,296,976			52,957,151			56,107,222
Cash Flow Data:
Net cash provided by (used in) operating activities		$	6,834		$	8,438		$	21,770			n/a		$	17,977		$	21,504
Net cash used in investing activities			(18,359	)		(5,821	)		(21,592	)		n/a			(13,851	)		(23,343	)
Net cash provided by (used in) financing activities			11,654			(3,423	)		5,235			n/a			4,866			(2,176	)
Other Data:
EBITDA(2)		$	5,469		$	17,228		$	32,331		$	34,930		$	22,478		$	29,938
EBITDA as a % of revenues			4.3	%		16.5	%		22.3	%		22.2	%		21.9	%		23.2	%
EBITDA less minority interests(2)		$	5,995		$	15,319		$	24,978		$	26,921		$	17,613		$	22,189
EBITDA less minority interests as a % of revenues			4.7	%		14.6	%		17.3	%		17.1	%		17.1	%		17.2	%
Number of surgery centers operated as of the end of period(3)			20			24			34			34			32			37



	As of December 31,						As of September 30, 2003

	2000		2001		2002		Actual		As Adjusted

							(unaudited)		(unaudited)

	(in thousands)
Consolidated Balance Sheet Data:
Working capital	$	35,347	$	21,706	$	24,839	$	20,282	$
Total assets(4)		103,759		100,799		188,888		198,939
Total long-term debt, less current maturities		47,986		39,983		60,909		58,932
Total stockholders’ equity		37,127		41,610		86,677		96,746

footnotes on following page

(1) Excludes depreciation and amortization expense and impairment and loss on disposal (gain on sale) of long-lived assets.

(2) When we use the term “EBITDA,” we are referring to operating income (loss) plus depreciation and amortization. EBITDA is not a measurement of financial performance under generally accepted accounting principles, and it should not be considered in isolation or as a substitute for net income (loss), operating income (loss), cash flow provided by operating activities or any other measure of operating performance calculated in accordance with generally accepted accounting principles. We use EBITDA and EBITDA less minority interests as analytical indicators for purposes of allocating resources and assessing performance. We also consider EBITDA in acquiring and developing additional surgery centers. EBITDA is commonly used as an analytical indicator within the health care industry. Our calculation of EBITDA may not be comparable to similarly titled measures reported by other companies.

The following table reconciles EBITDA and EBITDA less minority interests to net income (loss):



		Year Ended December 31,												Nine Months Ended
														September 30,
											Pro Forma
		2000			2001			2002			2002			2002			2003

											(unaudited)			(unaudited)			(unaudited)

		(in thousands)
EBITDA		$	5,469		$	17,228		$	32,331		$	34,930		$	22,478		$	29,938
	Minority interests in (income) loss of consolidated subsidiaries		526			(1,909	)		(7,353	)		(8,009	)		(4,865	)		(7,749	)

EBITDA less minority interests			5,995			15,319			24,978			26,921			17,613			22,189
	Depreciation and amortization		(7,503	)		(7,743	)		(7,836	)		(8,659	)		(5,655	)		(6,854	)
	Interest expense, net		(3,234	)		(2,600	)		(4,625	)		(5,721	)		(3,541	)		(4,058	)
	Income taxes		(135	)		(287	)		(215	)		(240	)		(162	)		(959	)

Net income (loss)		$	(4,877	)	$	4,689		$	12,302		$	12,301		$	8,255		$	10,318

(3) Includes surgery centers that we manage but in which we do not have an ownership interest.

(4) Upon the completion of this offering, we anticipate that we will record additional purchase price adjustments to goodwill of $31.8 million. In connection with our merger with Physicians Surgical Care, we issued shares of Series A convertible preferred stock and Series B convertible preferred stock, as discussed in Note 3 to our consolidated financial statements. The Series A convertible preferred stock and Series B convertible preferred stock will automatically convert into shares of our common stock and the right to a cash payment upon completion of this offering. When converted, each share of Series A convertible preferred stock and Series B convertible preferred stock will entitle the holder to receive one share of our common stock and a cash payment of $4.20 for the Series A holders and $5.22 for the Series B holders, for a total cash payment of $31.8 million. This amount will be reflected as additional purchase price and recorded as an addition to goodwill.

Any investment in our common stock involves a high degree of risk. You should consider carefully the following risks and other information contained in this prospectus before you decide whether to buy our common stock. If any of the following risks actually occur, our business, results of operations and financial condition could suffer significantly. As a result, the market price of our common stock could decline, and you may lose all or part of the money you paid to buy our common stock.

We depend on payments from third-party payors, including government health care programs and managed care organizations. If these payments are reduced or eliminated, or if we are unable to negotiate contracts or maintain satisfactory relationships with third-party payors, our revenues and operating income will decrease.

We are dependent upon private and governmental third-party sources of payment for the services provided to patients in our surgery centers and other facilities and the physician networks we manage. The amount that our centers, facilities and networks receive in payment for their services may be adversely affected by market and cost factors as well as other factors over which we have no control, including Medicare, Medicaid and state regulations and the cost containment and utilization decisions and reduced reimbursement schedules of third-party payors. For the nine months ended September 30, 2003, payments from government payors represented about 19.5% of our revenues from surgery centers that we consolidate for financial reporting purposes. In 2002, payments from government payors represented about 18.5% of our revenues from surgery centers that we consolidate for financial reporting purposes. On a pro forma basis, as if we acquired Physicians Surgical Care as of January 1, 2002, payments from government payors represented about 18.3% of our revenues in 2002 from surgery centers that we consolidate for financial reporting purposes.

Medicare’s system of paying for covered procedures performed in a surgery center may change in the near future. The Department of Health and Human Services has proposed a rule which would increase the number of surgical procedure payment groups from eight to 105 and the number of surgical procedures covered by the Medicare program to about 2,500. All of the procedures paid at a particular rate would constitute a payment group. Each of the procedures would be paid at one of the 105 prospectively determined payment rates. To date, the Centers for Medicare and Medicaid Services (formerly known as the Health Care Financing Administration) has not implemented the proposed surgery center methodology. When implemented, the change in payment methodology could reduce our Medicare revenues, depending on the volume and type of procedures performed at a particular facility. States in which we perform Medicaid procedures could also change their payment methodology in the future, and these changes may reduce the payments we receive for our services from state Medicaid programs. In addition, the Medicare Payment Advisory Commission, or MedPAC, and the Office of the Inspector General of the Department of Health and Human Services, or OIG, have both recently recommended changes to the Medicare payment methodology for surgery centers. MedPAC is a congressional advisory board charged with advising Congress on Medicare payment issues, while the OIG is a governmental agency responsible for investigating and monitoring Medicare, Medicaid and other Department of Health and Human Services programs. Generally, MedPAC and the OIG have recommended that reimbursement levels for surgery center procedures be reduced. These are recommendations only and it is uncertain if Congress will act on either or both recommendations. If these recommendations become effective, our revenue and profitability could be adversely affected. While most of our existing surgery center surgical procedures are generally reimbursed at levels lower than hospital outpatient departments, some of our existing surgical procedures are reimbursed at higher levels. These proposed changes do not apply to our facilities licensed as hospitals.

Payments from private third-party payors represented about 75.8% of our revenues for the nine months ended September 30, 2003. Payments from private third-party payors represented about 76.0% of our revenues in 2002 from surgery centers that we consolidate for financial reporting purposes. On a pro

Our growth strategy depends in part on our ability to acquire and develop additional surgery centers on favorable terms. If we are unable to do so, our future growth could be limited and our operating results could be adversely affected.

Our strategy is to increase our revenues and earnings by continuing to focus on existing facilities and continuing to acquire and develop additional surgery centers. Since January 1999, we have acquired or developed 36 surgery centers, including three centers that we no longer own. We may be unable to identify suitable acquisition and development opportunities and to negotiate and complete acquisitions and new projects on favorable terms. In addition, our acquisition and development program requires substantial capital resources, and we may need to obtain additional capital or financing, from time to time, to fund these activities. As a result, we may take actions that could have a detrimental effect on our results of operations or the price of our common stock, including incurring substantial debt or issuing equity securities or convertible debt securities that would dilute our existing stockholders’ ownership percentage. Sufficient capital or financing may not be available to us on satisfactory terms, if at all.

We may encounter numerous business risks in acquiring and developing additional surgery centers, and may have difficulty operating and integrating those surgery centers.

If we acquire or develop additional surgery centers, we may be unable to successfully operate the centers and we may experience difficulty in integrating their operations and personnel. For example, in some acquisitions, we have experienced delays in implementing standard operating procedures and systems and improving existing managed care agreements and the mix of specialties offered at the centers. Following the acquisition of a surgery center, key physicians may cease to use the facility, we may be unable to retain key management personnel or we may lose one or more of the surgery center’s managed care contracts. We may also be unable to collect the accounts receivable of an acquired center. In addition, we may acquire surgery centers with unknown or contingent liabilities, including liabilities for failure to comply with health care laws and regulations. In some cases, our right to indemnification for these liabilities may be subject to negotiated limits. We may also experience negative effects on our reported results of operations because of acquisition-related charges and potential impairment of goodwill and other intangibles. In developing new surgery centers, we may be unable to attract physicians to use our facilities or contract with third-party payors. We may also experience losses and lower gross revenues and operating margins during the initial periods of operating our newly-developed centers. Integrating a new surgery center could be expensive and time consuming, and could disrupt our ongoing business and distract our management and other key personnel. If we are unable to timely and efficiently integrate an acquired or newly-developed center, our business could suffer.

Efforts to regulate the construction, acquisition or expansion of health care facilities could prevent us from acquiring additional surgery centers or other facilities, renovating our existing facilities or expanding the breadth of services we offer.

Some states require prior approval for the construction, acquisition or expansion of health care facilities or expansion of the services the facilities offer. In giving approval, these states consider the need for additional or expanded health care facilities or services. In 10 states in which we currently operate, certificates of need must be obtained for capital expenditures exceeding a prescribed amount, changes in

If we fail to maintain good relationships with the physicians who use our facilities, our revenues and profitability could be adversely affected.

Our business depends upon the efforts and success of the physicians who provide medical services at our facilities and the strength of our relationships with these physicians. These physicians are not employees of our facilities and are not contractually required to use our facilities. We generally do not enter into contracts with physicians who use our facilities, other than partnership and operating agreements with physicians who own interests in our surgery centers, provider agreements with anesthesiology groups that provide anesthesiology services in our surgery centers, medical director agreements and pain clinic agreements. Physicians who use our facilities also use other facilities or hospitals. In addition, the physicians who use our facilities may choose not to accept patients who pay for services through certain third-party payors, which could reduce our revenues. In six of the surgery centers in which we own an interest, a single physician performed over 25% of the total number of cases performed at the center during 2002. Our revenues could be significantly reduced if we lost our relationship with one or more key physicians or groups of physicians or if a key physician or group reduced his or its use of our facilities. In addition, any damage to the reputation of a key physician or group of physicians or the failure of these physicians to provide quality medical care or adhere to professional guidelines at our facilities could damage our reputation, subject us to liability and significantly reduce our revenues. We also manage three physician networks that accounted for about 6.5% of our revenues during the nine months ended September 30, 2003. These three physician networks also accounted for about 7.3% of our revenues in 2002 and about 6.7% of our revenues in 2002 on a pro forma basis as if we acquired Physicians Surgical Care as of January 1, 2002. The termination of any of our contracts to manage our physician networks would have an adverse effect on our revenues.

We have a limited history of operations. We have experienced net losses in recent periods and we may experience net losses in the future.

We were founded in 1996, but we have focused on owning and operating surgery centers only since our acquisition of Ambulatory Resource Centres in June 1999. In addition, we acquired Physicians Surgical Care in April 2002 and the MediSphere facilities in November 2003. We have limited experience in operating the facilities we acquired in these transactions. As a result, we have a limited history of operations upon which you can evaluate us or our prospects. Forecasts of our future revenues, expenses and operating results may not be as accurate as they would be if we had a longer history of operations. We experienced net losses of about $2.3 million in 1998, $3.3 million in 1999 and $4.9 million in 2000, and we may experience net losses in the future. In addition, our newly-developed surgery centers typically incur net losses during the first six months of operation and, unless and until their case loads grow, they generally experience lower total revenues and operating margins than established surgery centers.

We may be required to spend substantial amounts to comply with new legislative and regulatory initiatives relating to privacy and security of patient health information and standards for electronic transactions. In addition, we may experience delays in payment of claims and increased costs if we fail to comply with these laws, as well as be subject to substantial fines.

There are currently numerous legislative and regulatory initiatives at the federal and state levels addressing patient privacy and security concerns. In particular, federal regulations issued under the Health Insurance Portability and Accountability Act of 1996, or HIPAA, contain provisions that have required,

and in the future may require us to implement costly new computer systems and to adopt business procedures designed to protect the privacy and security of each of our patients’ individually identifiable health and related financial information. Compliance with the privacy regulations was required on April 14, 2003 for most health care organizations, including us. The privacy regulations are expected to have a financial impact on the health care industry because they impose extensive new administrative requirements, restrictions on the use and disclosure of individually identifiable patient health and related financial information, provide patients with new rights with respect to their health information and require us to enter into contracts extending many of the privacy regulation requirements to third parties who perform functions on our behalf involving health information. On February 20, 2003, the Department of Health and Human Services issued final security regulations. Compliance with these security regulations is required by April 21, 2005 for most health care organizations, including us. These security regulations require us to implement administrative, physical and technical safeguards to protect the integrity, confidentiality and availability of electronically received, maintained or transmitted patient individually identifiable health and related financial information. We cannot predict the total financial or other impact of these regulations on our business. Compliance with these regulations requires substantial expenditures, which could negatively impact our financial results. In addition, our management has spent, and may spend in the future, substantial time and effort on compliance measures.

On August 17, 2000, the Department of Health and Human Services issued regulations requiring most health care organizations, including us, to use standard data formats and code sets by October 16, 2003 when electronically transmitting information in connection with several types of transactions, including health claims, health care payment and remittance advice and health claim status transactions. We believe that we are in compliance with these regulations. However, if we or our payors are unable to exchange information in connection with the specified transactions because of an inability to comply fully with the regulations, we are required to exchange the information using paper. If we are forced to submit paper claims to payors, it will significantly increase our costs associated with billing and could delay payment of claims. Although compliance with these regulations was required on October 16, 2003, the Centers for Medicare & Medicaid Services, or CMS, announced on September 23, 2003 that it would implement a contingency plan to accept noncompliant electronic transactions after the October 16, 2003 deadline. CMS has announced that it will regularly reassess the readiness of its trading partners to comply with the regulations in order to determine how long the contingency plan will remain in effect. Blue Cross/Blue Shield plans in several states have announced similar contingency plans.

Violations of the privacy, security and transaction regulations could subject us to civil penalties of up to $25,000 per calendar year for each provision contained in the privacy, security and transaction regulations that is violated and criminal penalties of up to $250,000 per violation for certain other violations. Since there is no history of enforcement efforts by the federal government at this time, it is not possible to ascertain the likelihood of enforcement efforts in connection with these regulations or the potential for fines and penalties which may result from the violation of the regulations.

If we fail to comply with laws and regulations relating to the operation of our facilities, we could suffer penalties or be required to make significant changes to our operations.

We are subject to many laws and regulations at the federal, state and local government levels in which we operate. These laws and regulations require that our facilities meet various licensing, certification and other requirements, including those relating to:


	•	qualification of medical and support persons;

	•	pricing of services by health care providers;

	•	the adequacy of medical care, equipment, personnel, operating policies and procedures;

	•	maintenance and protection of records; and

	•	environmental protection, health and safety.

If we fail or have failed to comply with applicable laws and regulations, we could suffer civil or criminal penalties, including becoming the subject of cease and desist orders, the loss of our licenses to operate and our ability to participate in Medicare, Medicaid and other government sponsored health care programs.

In pursuing our growth strategy, we may seek to expand our presence into new geographic markets. In new geographic markets, we may encounter laws and regulations that differ from those applicable to our current operations. If we are unable to comply with these legal requirements in a cost-effective manner, we may be unable to expand geographically.

Our facilities do not satisfy all of the requirements for any of the safe harbors under the federal anti-kickback statute. If we fail to comply with the federal anti-kickback statute, we could be subject to criminal and civil penalties, loss of licenses and exclusion from the Medicare and Medicaid programs, which may result in a substantial loss of revenues.

A provision of the Social Security Act, commonly referred to as the federal anti-kickback statute, prohibits the offer, payment, solicitation or receipt of any form of remuneration in return for referring, ordering, leasing, purchasing or arranging for or recommending the ordering, purchasing or leasing of items or services payable by Medicare, Medicaid, or any other federally funded health care program. The federal anti-kickback statute is very broad in scope and many of its provisions have not been uniformly or definitively interpreted by existing case law or regulations. Violations of the federal anti-kickback statute may result in substantial civil or criminal penalties, including criminal fines of up to $25,000 and civil penalties of up to $50,000 for each violation, plus three times the remuneration involved or the amount claimed and exclusion from participation in the Medicare and Medicaid programs. The exclusion, if applied to our facilities, could result in significant reductions in our revenues and could have a material adverse effect on our business. In addition, many of the states in which we operate have also adopted laws, similar to the federal anti-kickback statute, that prohibit payments to physicians in exchange for referrals, some of which apply regardless of the source of payment for care. These statutes typically impose criminal and civil penalties as well as loss of licenses.

In July 1991, the Department of Health and Human Services issued final regulations defining various “safe harbors.” Business arrangements that meet the requirements of the safe harbors are deemed to be in compliance with the federal anti-kickback statute. Business arrangements that do not meet the safe harbor requirements do not necessarily violate the federal anti-kickback statute, but may be subject to scrutiny by the federal government to determine compliance. Two of the safe harbors issued in 1991 apply to business arrangements similar to those used in connection with our surgery centers: the “investment interest” safe harbor and the “personal services and management contracts” safe harbor. However, the structure of the limited partnerships and limited liability companies operating our facilities, as well as our business arrangements involving physician networks, do not satisfy all of the requirements of either safe harbor.

On November 19, 1999, the Department of Health and Human Services issued final regulations creating additional safe harbor provisions, including a safe harbor that applies to physician ownership of, or investment interests in, surgery centers. These regulations do not apply to our facilities licensed as hospitals. The surgery center safe harbor protects four types of investment arrangements. Each category has its own requirements with regard to what type of physician may be an investor in the surgery center. In addition to the physician investor, the categories permit an “unrelated” investor, who is a person or entity that is not in a position to provide items or services related to the surgery center or its investors. Our business arrangements with our surgery centers typically consist of one or more of our subsidiaries being an investor in each limited partnership or limited liability company that owns the surgery center, in addition to providing management and other services to the surgery center. As a result of these and other aspects of our business arrangements, including those relating to the composition of physician groups that own an interest in our facilities, these arrangements do not comply with all the requirements of the surgery center safe harbor and, therefore, are not immune from government review or prosecution.

If a federal or state agency asserts a different position or enacts new laws or regulations regarding illegal remuneration under the Medicare, Medicaid or other governmental programs, we may be subject to civil and criminal penalties, experience a significant reduction in our revenues or be excluded from participation in the Medicare, Medicaid or other governmental programs.

Any change in interpretations or enforcement of existing or new laws and regulations could subject our current practices to allegations of impropriety or illegality, or could require us to make changes in our facilities, equipment, personnel, services, pricing, capital expenditure programs and operating expenses, which could have a material adverse effect on our operations or reduce the demand for or profitability of our services.

Additionally, new federal or state laws may be enacted that would cause our relationships with physician investors to become illegal or result in the imposition of penalties against us or our facilities. If any of our business arrangements with physician investors were deemed to violate the federal anti-kickback statute or similar laws, or if new federal or state laws were enacted rendering these arrangements illegal, our business could be adversely affected.

If we fail to comply with physician self-referral laws as they are currently interpreted or may be interpreted in the future, or if other legislative restrictions are issued, we could incur a significant loss of reimbursement revenues.

The federal physician self-referral law, commonly referred to as the Stark law, prohibits a physician from making a Medicare or Medicaid reimbursed referral for a “designated health service” to an entity if the physician or a member of the physician’s immediate family has a “financial relationship” with the entity. “Designated health services” include a number of services, including clinical laboratory services, radiology and certain other imaging services and inpatient and outpatient hospital services. Under the current Stark law and related regulations, services provided at a surgery center are not covered by Stark, even if those services include imaging, laboratory services or other Stark designated health services, provided that the surgery center does not bill for these services separately. However, services provided at our facilities licensed as hospitals are covered by Stark.

The Stark law and similar state statutes are subject to different interpretations with respect to many important provisions. Violations of these self-referral laws may result in substantial civil or criminal penalties, including large civil monetary penalties and exclusion from participation in the Medicare and Medicaid programs. Exclusion of our surgery centers from these programs through future judicial or agency interpretation of existing laws or additional legislative restrictions on physician ownership or investments in health care entities could result in a significant loss of reimbursement revenues.

Three of our facilities, including one managed facility, are licensed as hospitals. We may acquire additional facilities licensed as hospitals in the future. The Stark law currently contains an exception for physician ownership in hospitals. Legislation was recently introduced in the U.S. Congress that would limit the hospital ownership exception such that physicians would only be permitted to own interests in a hospital if the interests are made available to the general public on the same terms. In addition, on June 27, 2003, the Senate passed the Prescription Drug and Medicare Improvement Act of 2003. This legislation contains an amendment to the Stark law that would carve out surgical and other specialty hospitals from the hospital ownership exception to the Stark law. The proposed changes may apply to our facilities licensed as hospitals. We have not made investments in these facilities available to the general public. If either of these proposed bills is enacted, the business of these facilities could be adversely affected.

Federal and state government agencies, as well as private payors, have heightened and coordinated civil and criminal enforcement efforts as part of numerous ongoing investigations of the cost reporting and billing practices of health care organizations and their quality of care and financial relationships with referral sources. In addition, the OIG and the U.S. Department of Justice have, from time to time,

In late 2002, a former employee of one of the surgery centers we acquired in the Physicians Surgical Care transaction alleged that the center failed to collect certain required co-payments from patients. Subsequently, the OIG initiated a review of these allegations. We have thoroughly investigated these allegations, using both internal and external resources, and have found no evidence of improper billing practices. We understand that the OIG has not completed its review and we can provide no assurance as to the outcome of the review.

The U.S. government is authorized to impose criminal, civil and administrative penalties on any person or entity that files a false claim for payment from the Medicare or Medicaid programs. Claims filed with private insurers can also lead to criminal and civil penalties, including, but not limited to, penalties relating to violations of federal mail and wire fraud statutes. While the criminal statutes are generally reserved for instances of fraudulent intent, the U.S. government is applying its criminal, civil and administrative penalty statutes in an ever-expanding range of circumstances. For example, the government has taken the position that a pattern of claiming reimbursement for unnecessary services violates these statutes if the claimant merely should have known the services were unnecessary, even if the government cannot demonstrate actual knowledge. The government has also taken the position that claiming payment for low-quality services is a violation of these statutes if the claimant should have known that the care was substandard. In addition, some courts have held that a violation of the Stark law can result in liability under the federal False Claims Act.

Over the past several years, the U.S. government has accused an increasing number of health care providers of violating the federal False Claims Act. The False Claims Act prohibits a person from knowingly presenting, or causing to be presented, a false or fraudulent claim to the U.S. government. The statute defines “knowingly” to include not only actual knowledge of a claim’s falsity, but also reckless disregard for or intentional ignorance of the truth or falsity of a claim. Because our facilities perform hundreds of similar procedures a year for which they are paid by Medicare, and there is a relatively long statute of limitations, a billing error or cost reporting error could result in significant civil or criminal penalties.

Under the qui tam, or whistleblower, provisions of the False Claims Act, private parties may bring actions on behalf of the U.S. government. These private parties, often referred to as relators, are entitled to share in any amounts recovered by the government through trial or settlement. Both direct enforcement activity by the government and whistleblower lawsuits have increased significantly in recent years and have increased the risk that a health care company, like us, will have to defend a false claims action, pay fines or be excluded from the Medicare and Medicaid programs as a result of an investigation resulting from a whistleblower case. Although we believe that our operations comply with both federal and state laws, they may nevertheless be the subject of a whistleblower lawsuit, or may otherwise be challenged or scrutinized by governmental authorities. A determination that we have violated these laws could have a material adverse effect on us.

We are also subject to various state insurance statutes and regulations that prohibit us from submitting inaccurate, incorrect or misleading claims. We believe that our surgery centers are in material compliance with all state insurance laws and regulations regarding the submission of claims. We cannot assure you, however, that none of our centers’ insurance claims will ever be challenged. If we were found to be in violation of a state’s insurance laws or regulations, we could be forced to discontinue the violative practice, which could have an adverse effect on our business and operating results, and we could be subject to fines and criminal penalties.

If laws governing the corporate practice of medicine change, we may be required to restructure some of our relationships, which may result in a significant loss of revenues and divert other resources.

The laws of various states in which we operate or may operate in the future do not permit business corporations to practice medicine, to exercise control over or employ physicians who practice medicine or

We are liable for debts and other obligations of the limited partnerships and limited liability companies that own and operate some of our surgery centers.

We own and operate our surgery centers through 20 limited partnerships and 13 limited liability companies. Local physicians, physician groups and health care systems also own an interest in all but two of these limited partnerships and limited liability companies. In the limited partnerships in which we are the general partner, we are liable for 100% of the debts and other obligations of the limited partnership, even if we do not own all of the partnership interests. We also guarantee the debts and other obligations of many of the limited partnerships and limited liability companies in which we own an interest. Our senior credit facility allows us to borrow up to $110.0 million, including funds that we can lend to the limited partnerships and limited liability companies in which we own an interest. The physicians and physician groups that own an interest in these limited partnerships and limited liability companies do not guarantee a pro rata amount of this debt or the other obligations of these limited partnerships and limited liability companies.

If our operations in New York are found not to be in compliance with New York law, we may be unable to continue or expand our operations in New York.

We own an interest in a limited liability company which provides administrative services to a surgery center located in New York. New York law requires that, in order to be approved by the New York Department of Health as licensed health care facilities, corporations must have natural persons as stockholders. Accordingly, we are not able to own interests in a partnership or limited liability company that owns an interest in a New York health care facility. New York law also prohibits the delegation of certain management functions by a licensed health care facility. The law does permit a licensed facility to obtain various services from non-licensed entities; however, it is not clear what types of delegation constitute a violation. Although we believe that our operations and relationships in New York are in compliance with these laws, if New York regulatory authorities or a third party asserts a contrary position we may be unable to continue or expand our operations in New York.

If regulations change, we may be obligated to purchase some or all of the ownership interests of our physician partners or renegotiate some of our partnership agreements with our physician partners and management agreements with surgery centers.

Upon the occurrence of various fundamental regulatory changes or changes in the interpretation of existing regulations, we may be obligated to purchase all of the ownership interests of the physician investors in most of the limited partnerships or limited liability companies that own and operate our surgery centers. The physician investors in some of our surgery centers can require us to purchase their interests in exchange for cash or shares of our common stock if these regulatory changes occur. In addition, some of our partnership agreements with our physician partners and management agreements with surgery centers require us to attempt to renegotiate the agreements upon the occurrence of various fundamental regulatory changes or changes in the interpretation of existing regulations and provide for termination of the agreements if renegotiations are not successful.

Regulatory changes that could create purchase or renegotiation obligations include changes that:


	•	make illegal the referral of Medicare or other patients to our surgery centers by physician investors;

	•	create a substantial likelihood that cash distributions to physician investors from the limited partnerships or limited liability companies through which we operate our surgery centers would be illegal; or

	•	make illegal the ownership by the physician investors of interests in the limited partnerships or limited liability companies through which we own and operate our surgery centers.

We do not control whether or when any of these regulatory events might occur. In the event we are required to purchase all of the physicians’ ownership interests, our existing capital resources would not be sufficient for us to meet this obligation. These obligations and the possible termination of our partnership and management agreements would have a material adverse effect on us.

If we become subject to malpractice and related legal claims, we could be required to pay significant damages, which may not be covered by insurance.

In recent years, physicians, hospitals and other health care providers have become subject to an increasing number of legal actions alleging malpractice, product liability or related legal theories. Many of these actions involve large monetary claims and significant defense costs. We maintain liability insurance in amounts that we believe are appropriate for our operations. Currently, we maintain professional and general liability insurance that provides coverage on a claims made basis of $1.0 million per occurrence and $3.0 million in annual aggregate coverage per facility. We also maintain business interruption insurance and property damage insurance, as well as an additional umbrella liability insurance policy in the aggregate amount of $10.0 million. However, this insurance coverage may not cover all claims against us. Insurance coverage may not continue to be available at a cost allowing us to maintain adequate levels of insurance. If one or more successful claims against us were not covered by or exceeded the coverage of our insurance, our financial condition could be adversely affected.

Significant indebtedness could limit our ability to operate our business and pursue business opportunities.

As of November 17, 2003, we had outstanding debt of about $73.9 million that we incurred to finance our acquisitions and developments and for other general corporate purposes. This amount includes about $42.7 million of debt outstanding under our senior credit facility and about $15.1 million of outstanding 14 3/4% Senior Subordinated Notes due 2008. Our senior credit facility allows us to borrow up to $110.0 million, and we may issue additional senior subordinated notes in an aggregate principal amount of up to $24.9 million. After giving effect to the use of the estimated net proceeds from this offering, based on an assumed initial public offering price of $ per share, our outstanding debt will be about $ million.

Our significant indebtedness could have important consequences to you, including the following:


	•	we may be required to dedicate a substantial portion of our cash flows from operations to the payment of principal and interest on our indebtedness, reducing the funds available to fund working capital, capital expenditures and other general corporate purposes;

	•	if our borrowings are at variable rates of interest, we may be vulnerable to increases in interest rates;

	•	our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate may be limited;

	•	we may be at a disadvantage to our competitors who are less leveraged;

	•	we may be more vulnerable to a downturn in our business or the economy generally;


	•	the terms of our senior credit facility contains numerous financial and other restrictive covenants, including restrictions on paying dividends, incurring additional indebtedness and buying or selling assets; and

	•	the terms of our senior credit facility requires us to pledge the capital stock or other equity interests of our subsidiaries to the bank group as collateral security.

We face intense competition for physicians, strategic relationships, acquisitions and managed care contracts, which may result in a decline in our revenues, profitability and market share.

The health care business is highly competitive. We compete with other health care providers, primarily hospitals and other surgery centers in recruiting physicians to utilize our facilities and in contracting with managed care payors in each of our markets. There are unaffiliated hospitals in each market in which we operate. These hospitals have established relationships with physicians and payors. In addition, other companies either are currently in the same or similar business of developing, acquiring and operating surgery centers and other facilities or may decide to enter our business. Many of these companies have greater resources than we do, including financial, marketing, staff and capital resources. We may also compete with some of these companies for entry into strategic relationships with health care systems and health care professionals. In addition, many physician groups develop surgery centers without a corporate partner, utilizing consultants who perform their services for a fee and do not take an equity interest in the ongoing operations of the center. If we are unable to compete effectively with any of these entities, we may be unable to implement our business strategies successfully and our business could be adversely affected.

A large number of our surgery centers are located in Texas and Florida, which makes us particularly sensitive to regulatory, economic and other conditions in those states. In addition, three of our surgery centers account for a significant portion of our revenues.

Our revenues are particularly sensitive to regulatory, economic and other conditions in the states of Texas and Florida. As of November 17, 2003, we operated eight surgery centers in Texas and seven surgery centers in Florida. On a pro forma basis, assuming that our acquisition of Physicians Surgical Care had occurred as of January 1, 2002, the surgery centers in Texas, excluding a center that we acquired from MediSphere Health Partners in November 2003, represented about 27% of our revenues during 2002 and the surgery centers in Florida represented about 19% of our revenues during 2002. In addition, Wilmington SurgCare in Wilmington, North Carolina, Physicians Surgical Specialty Hospital in Houma, Louisiana and NorthStar Surgical Center in Lubbock, Texas generated about 7%, 8% and 8%, respectively, of our revenues during 2002 on a pro forma basis. If these facilities are adversely affected by regulatory, economic and other conditions, or if we are unable to operate these facilities effectively, our operating results will be adversely affected.

We depend on our senior management and we may be adversely affected if we lose any member of our senior management.

We are highly dependent on our senior management, including Richard E. Francis, Jr., our chairman of the board and chief executive officer, and Clifford G. Adlerz, our president and chief operating officer. We do not maintain “key man” life insurance policies on any of our officers. Because our senior management has contributed greatly to our growth since inception, the loss of key management personnel or our inability to attract, retain and motivate sufficient numbers of qualified management personnel could have a material adverse effect on us.

If we are unable to integrate and manage our information systems effectively, our operations could be disrupted.

Our operations depend significantly on effective information systems. Our information systems and applications require continual maintenance, upgrading and enhancement to meet our operational needs.

We may have a special legal responsibility to the holders of ownership interests in the entities through which we own our surgery centers, which may conflict with the interests of our stockholders and prevent us from acting solely in our own best interests or the interests of our stockholders.

Our ownership interests in surgery centers generally are held through limited partnerships or limited liability companies in which we maintain an ownership interest along with physicians or physician practice groups. As general partner or manager of these entities, we may have a special responsibility, known as a fiduciary duty, to manage these entities in the best interests of the other interest holders. We also have a duty to operate our business for the benefit of our stockholders. As a result, we may encounter conflicts between our responsibility to the other interest holders and our responsibility to our stockholders. For example, we have entered into management agreements to provide management services to our surgery centers in exchange for a fee. Disputes may arise as to the nature of the services to be provided or the amount of the fee to be paid. In these cases, we are obligated to exercise reasonable, good faith judgment to resolve the disputes and may not be free to act solely in our own best interests or the interests of our stockholders. Disputes may also arise between us and our physician investors with respect to a particular business decision or regarding the interpretation of the provisions of the applicable limited partnership agreement or operating agreement. We seek to avoid these disputes but have not implemented any measures to resolve these conflicts if they arise. If we are unable to resolve a dispute on terms favorable or satisfactory to us, our business may be adversely affected.

We are a holding company and our ability to service our debt and pay dividends, if any, is dependent upon the earnings from the business conducted by our subsidiaries. The distributions of those earnings or advances or other distributions of funds by these subsidiaries to us, all of which could be subject to statutory or contractual restrictions, are contingent upon the subsidiaries’ earnings and are subject to various business considerations.

We do not have exclusive control over the distribution of cash from our operating entities and may be unable to cause all or a portion of the cash of these entities to be distributed.

All of the surgery centers in which we have ownership interests are held through limited partnerships or limited liability companies. We typically own, directly or indirectly, the general partnership or majority member interests in these entities. The limited partnership and operating agreements for these entities provide for distribution of available cash, in some cases on a quarterly basis. If we are unable to cause sufficient revenues to be distributed from one or more of these entities, our relationships with the physicians who also own an interest in these entities may be damaged and we could be adversely affected. We may not be able to resolve favorably any dispute regarding revenue distribution or other matters with a health care system with which we share control of the distributions made by these entities. Further, the failure to resolve a dispute with these health care systems could cause an entity in which we own an interest to be dissolved.

Our stockholder rights plan, provisions of our certificate of incorporation and bylaws and Delaware law could prevent or discourage a change in our management or a takeover you may consider favorable.

We have adopted a stockholder rights plan. The rights plan may discourage, delay or prevent a merger or acquisition that you may consider favorable. The rights plan may also entrench our management by

In addition, some of the provisions of our certificate of incorporation and bylaws may discourage, delay or prevent a merger or acquisition that you may consider favorable or the removal of our current management. These provisions:


	•	authorize the issuance of “blank check” preferred stock;

	•	provide for a classified board of directors with staggered, three-year terms;

	•	prohibit cumulative voting in the election of directors;

	•	prohibit our stockholders from acting by written consent without the approval of our board of directors;

	•	limit the persons who may call special meetings of stockholders; and

	•	establish advance notice requirements for nominations for election to the board of directors or for proposing matters to be approved at meetings of stockholders.

Our certificate of incorporation and bylaws also prohibit the amendment of many of the provisions in the certificate of incorporation and bylaws by our stockholders unless the amendment is approved by the holders of at least 67% of our shares of common stock. In addition, Delaware law may discourage, delay or prevent a change in our control by prohibiting us from engaging in a business combination with an “interested stockholder” for a period of three years after the person becomes an interested stockholder.

We currently intend to use a large portion of the net proceeds of this offering to repay indebtedness and for other uses that may not enable us to grow our operations.

We currently intend to use all of the estimated net proceeds of this offering to repay indebtedness, pay related prepayment penalties and to make cash payments to holders of our Series A and Series B convertible preferred stock, which would not permit us to use those net proceeds to acquire or develop additional surgery centers or otherwise expand our operations. We will have broad discretion in how we use the proceeds from this offering, and we may spend these proceeds in ways that do not ultimately improve our operating results or increase the value of your investment.

Because our management and their affiliates together own a large percentage of our common stock, they will be able to exert significant influence over all matters submitted to our stockholders for approval, regardless of the preferences of our other stockholders.

Following this offering, our officers, directors and their affiliates together will beneficially own about % of our outstanding common stock. Accordingly, these stockholders will be able to exert significant influence over:


	•	the election of our board of directors;

	•	our management and policies; and

	•	the outcome of any corporate transaction or other matter submitted to our stockholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets.

For at least one year following this offering, Whitney & Co., LLC and its affiliated funds will have the right to designate one nominee for our board of directors. Our officers, directors and their affiliates will also be able to exert significant influence over a change in our control or an amendment to our certificate of incorporation or bylaws. In addition, we granted registration rights to these stockholders covering all shares of our stock they own. Their interests may conflict with the interests of other holders of common

Because we have not paid dividends and do not anticipate paying dividends on our common stock in the foreseeable future, you should not expect to receive dividends on shares of our common stock.

We currently anticipate that we will retain all future earnings, if any, to finance the growth and development of our business and do not anticipate paying cash dividends on our common stock in the foreseeable future. Any payment of cash dividends will depend upon our financial condition, capital requirements, earnings and other factors deemed relevant by our board of directors. Further, under the terms of our senior credit facility, we are restricted from paying cash dividends and making other distributions to our stockholders.

The price you pay for shares of our common stock sold in this offering is substantially higher than the per share value of our net assets, after giving effect to this offering. As a result, if you purchase common stock in this offering, assuming an offering price of $ , you will incur immediate dilution in net tangible book value per share of about $ . Additionally, investors in this offering will have contributed % of our total equity, but will own only % of our outstanding shares upon completion of this offering. We also have outstanding warrants to purchase 2,178,445 shares of our common stock at a weighted average exercise price of $1.97 per share and stock options to purchase 5,616,512 shares of our common stock at a weighted average exercise price of $2.43 per share. To the extent these warrants or options are exercised, there will be further dilution. In addition, if we make acquisitions using our stock as currency, you will suffer additional dilution.

Our stock price is likely to be highly volatile. As a result, investors in our common stock may not be able to resell their shares at or above the initial public offering price.

Before this offering, there has been no public market for our common stock. Although we expect our common stock to be quoted on the Nasdaq National Market, an active trading market for our shares may not develop or be sustained following this offering. Purchasers in this offering may not be able to resell their shares at prices equal to or greater than the initial public offering price and may suffer a loss on their investment. The initial public offering price will be determined through negotiations between us and the underwriters and may not be indicative of the market price for these shares following this offering. You should read “Underwriting” for a discussion of the factors to be considered in determining the initial public offering price.

The stock market has, from time to time, experienced extreme price and volume fluctuations. Many factors may cause the market price for our common stock to decline, perhaps substantially, following this offering, including:


	•	our failure or delay in meeting our development and acquisition plans;

	•	our revenues and operating results failing to meet the expectations of securities analysts or investors in any quarter;

	•	changes in laws and regulations governing health care and the surgery center industry;

	•	proposed or enacted changes in reimbursement by governmental and other third-party payors;

	•	changes in securities analysts’ financial estimates or recommendations;

	•	investor perception of our industry or our prospects; and

	•	general economic trends and market conditions, including factors unrelated to our operating performance.

In the past, other companies in the health care industry have experienced volatility in the market price of their stock and have been the subject of securities class action litigation. We may be involved in securities class action litigation in the future which could divert our management’s attention and resources and could have a material adverse effect on our business, operations and financial condition.

Future sales of our common stock, or the perception in the public markets that these sales may occur, could depress our stock price.

Sales of substantial amounts of our common stock in the public market, or the perception in the public markets that these sales may occur, following this offering could cause the market price of our common stock to decline. Upon completion of this offering, we will have shares of our common stock outstanding. Of these shares, the shares to be sold in this offering will be freely tradable, unless purchased by our affiliates. Our current stockholders and holders of shares of our Series A convertible preferred stock, Series B convertible preferred stock, convertible debentures and options and warrants to acquire our common stock, on a fully-diluted basis assuming exercise of all options and warrants, are expected to own % of the outstanding shares of our common stock, or % if the underwriters’ over-allotment option is exercised in full. In addition, the holders of about shares are subject to “lock-up” agreements that prohibit the sale of these shares in the public market for 180 days after the date of this prospectus. When the 180 day period expires, or if Credit Suisse First Boston consents in its sole discretion to an earlier sale, the holders will in general be entitled to sell those shares in the public market, subject to the requirements of Rule 144 under the Securities Act of 1933. In addition to the adverse effect a price decline could have on holders of our common stock, such a decline would likely impede our ability to raise capital through the issuance of additional shares of our common stock or other equity securities.

After this offering, the holders of shares of our common stock, including shares issuable upon the conversion of Series A convertible preferred stock and Series B convertible preferred stock, will have rights, subject to some conditions, to include their shares in registration statements that we may file on our behalf or on behalf of other stockholders. By exercising their registration rights and selling a large number of shares, these holders could cause the price of our common stock to decline. Furthermore, if we file a registration statement to offer additional shares of our common stock and have to include shares held by those holders, it could impair our ability to raise needed capital by depressing the price at which we could sell our common stock. As soon as practicable after this offering, we intend to register the shares of our common stock to be issued under our stock option plans and employee stock purchase plan.

This prospectus contains some forward-looking statements, which are based on our current expectations, estimates and assumptions about future events. All statements other than statements of current or historical fact contained in this prospectus, including statements regarding our future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “may,” “plan,” “will,” and similar expressions are generally intended to identify forward-looking statements. In particular, these include, among other things, statements relating to:


	•	our ability to attract and retain quality physicians;

	•	our ability to acquire and develop additional facilities on favorable terms and to integrate their business operations;

	•	our ability to enter into strategic alliances with health care systems and other health care providers that are leaders in their markets;

	•	our ability to negotiate favorable contracts on behalf of our facilities with managed care organizations or other third-party payors; and

	•	our ability to enhance operating efficiencies.

These forward-looking statements involve various risks and uncertainties, some of which are beyond our control. Any or all of our forward-looking statements in this prospectus may turn out to be wrong. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. They can be affected by inaccurate assumptions we might make or by known or unknown risks, uncertainties and assumptions, including the risks, uncertainties and assumptions described in “Risk Factors.”

In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements. When you consider these forward-looking statements, you should keep in mind these risk factors and other cautionary statements in this prospectus.

Our forward-looking statements speak only as of the date made. Other than as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

We estimate that we will receive about $ in net proceeds from the sale of our common stock in this offering, or about $ if the underwriters’ over-allotment option is exercised in full, based upon an assumed initial offering price of $ per share and after deducting the estimated underwriting discounts and commissions and our estimated offering expenses.

We currently intend to use the estimated net proceeds of this offering as follows:


	•	about $18.2 million to make cash payments to holders of shares of our Series A convertible preferred stock in connection with the conversion of these shares to our common stock upon completion of this offering;

	•	about $13.6 million to make cash payments to holders of shares of our Series B convertible preferred stock in connection with the conversion of these shares to our common stock upon completion of this offering;

	•	about $15.1 million to repay all indebtedness under our outstanding senior subordinated notes, about $400,000 to pay redemption premiums and about $348,000 to pay accrued interest to the holders of the notes;

	•	pay about $102,000 of accrued interest on our subordinated convertible debentures on conversion; and

	•	the balance of about $ million to repay indebtedness under our senior credit facility.

Until allocated for specific use, we will invest the proceeds in short-term government and other investment-grade debt securities. The manner in which we actually spend the net proceeds from this offering could vary significantly from that described in this prospectus and will depend on a number of factors, including our future revenues and cash generated by operations and the occurrence of unforeseen events or changed business conditions. Therefore, we will have broad discretion in the way we use the net proceeds from this offering.

Our Series A convertible preferred stock and Series B convertible preferred stock automatically convert into shares of our common stock upon the completion of this offering. When converted, each share of Series A convertible preferred stock will entitle the holder to receive, subject to adjustment, one share of common stock and a cash payment of $4.20 and each share of Series B convertible preferred stock will entitle the holder to receive, subject to adjustment, one share of common stock and a cash payment of $5.22, plus any accrued and unpaid dividends from the date of issuance of the shares of Series A and Series B preferred stock to the conversion date.

We have outstanding senior subordinated notes in an aggregate principal amount of about $15.1 million. The notes bear interest at a rate of 14 3/4% per year and are due on July 18, 2008.

We have outstanding subordinated convertible debentures in an aggregate principal amount of about $3.1 million bearing interest at 4.0% per year. These debentures mature on April 1, 2005 and will automatically convert into shares of our common stock at $3.13 per share upon completion of this offering.

We have outstanding indebtedness under our senior credit facility of about $42.7 million. Borrowings under the senior credit facility bear interest at a rate equal to a LIBOR rate or a base rate, each plus an applicable margin. The applicable margin for both the LIBOR rate and the base rate varies depending upon our leverage ratio. As of September 30, 2003, the interest rate for this debt was 4.1% per year. The senior credit facility terminates and is due and payable on July 18, 2006.

We have never paid dividends on our common stock and we do not intend to pay any cash dividends in the foreseeable future. Instead, we currently intend to retain our earnings to finance the development and expansion of our business and for general corporate purposes. Our future dividend policy will be determined by our board of directors on the basis of various factors, including our results of operations, financial condition, business opportunities, capital requirements, plans for expansion, contractual restrictions on payments of dividends, governing laws which prohibit the payment of dividends if it would result in the corporation being unable to pay its debt as they become due or the corporation’s assets being less than its liabilities and other factors our board of directors considers relevant.

Our senior credit facility restricts our ability to pay dividends. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

The following table sets forth our cash and cash equivalents and capitalization as of September 30, 2003 on an actual basis and on an as adjusted basis.


	•	the sale of shares of common stock in this offering at an assumed initial public offering price of $ per share and the application of the net proceeds, as described under “Use of Proceeds;”

	•	the conversion of all of our Series A convertible preferred stock and Series B convertible preferred stock into shares of our common stock and payment of all amounts due on conversion; and

	•	the conversion of our convertible subordinated debentures into shares of our common stock.

You should read this table together with “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes appearing elsewhere in this prospectus.

As of September 30, 2003, we had a pro forma net tangible book value of $19.2 million or $0.35 per share of common stock. Pro forma net tangible book value per share is equal to our total tangible assets less total liabilities, divided by the pro forma number of shares of our outstanding common stock after giving effect to the conversion of our Series A convertible preferred stock, Series B convertible preferred stock and subordinated convertible debentures into shares of common stock. After giving effect to the issuance of shares of common stock offered by this prospectus at an assumed initial public offering price of $ per share and after deducting the estimated underwriting discounts and commissions and our estimated offering expenses and the payment of $31.8 million upon automatic conversion of the Series A convertible preferred stock and Series B convertible preferred stock, our pro forma net tangible book value as adjusted, as of September 30, 2003, would have been about $ million, or about $ per pro forma share of common stock. This represents an immediate increase in pro forma net tangible book value of $ per share to our existing stockholders and an immediate dilution of $ per share to new investors in this offering. If the initial public offering price is higher or lower than $ per share, the dilution to new stockholders will be higher or lower, respectively. The following table illustrates this per share dilution:

The following table summarizes, on an as adjusted basis as of September 30, 2003, the difference between existing common stockholders, existing holders of our preferred stock and convertible debentures upon conversion thereof and the new investors with respect to the number of shares of common stock purchased, the total consideration paid and the average price per share paid. The table assumes that the initial public offering price will be $ before deducting underwriters’ discounts and expenses. If the underwriters’ over-allotment option is exercised in full, the number of shares held by existing stockholders will decrease to % of the total number of shares of common stock outstanding after this offering, and the number of shares held by new investors will increase to , or % of the total number of shares of common stock outstanding after this offering.


	•	5,616,512 shares of common stock issuable upon the exercise of stock options outstanding at September 30, 2003 at a weighted average exercise price of $2.43 per share;

	•	4,208,604 shares of common stock available for future grant under our stock option plans and our employee stock purchase plan as of September 30, 2003;

	•	2,115,945 shares of common stock issuable upon exercise of warrants outstanding as of September 30, 2003 at a weighted average exercise price of $1.94 per share;

	•	up to 2,189,887 shares of our common stock issuable to the former stockholders of Physicians Surgical Care based on the financial results of one of the Physicians Surgical Care surgery centers during 2003.

To the extent the warrants and options are exercised and the underlying shares of common stock are issued, there will be further dilution to new investors. See “Risk Factors,” “Capitalization,” “Management” and “Description of Capital Stock,” and the notes to our consolidated financial statements included elsewhere in this prospectus.

The following selected consolidated financial and other data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus. The selected consolidated statement of operations data set forth below for each of the three years ended December 31, 2002, and the selected consolidated balance sheet data set forth below at December 31, 2001 and 2002, are derived from our audited consolidated financial statements that are included elsewhere in this prospectus. The selected consolidated statement of operations data set forth below for the years ended December 31, 1998 and 1999, and the selected consolidated balance sheet data set forth below at December 31, 2000, are derived from our audited consolidated financial statements that are not included in this prospectus. The selected consolidated statement of operations data for the nine months ended September 30, 2002 and 2003, and the consolidated balance sheet data at September 30, 2003 are derived from our unaudited consolidated financial statements included elsewhere in this prospectus. We have prepared the unaudited information on the same basis as the audited consolidated financial statements and have included all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of our consolidated financial position at those dates and our consolidated results of operations for the periods ended.

The historical results presented below are not necessarily indicative of the results to be expected for any future period.


(1)	On June 25, 1999, we acquired Ambulatory Resource Centres, Inc. in a merger that was accounted for as a reverse acquisition under the purchase method of accounting. For financial accounting purposes, Ambulatory Resource Centres was considered to be the acquiring company in the merger and its historical financial statements replaced ours. Accordingly, for periods prior to June 25, 1999, our consolidated financial statements reflect only the results of Ambulatory Resource Centres.
(2)	Excludes depreciation and amortization expense and impairment of (gain on) long-lived assets.
(3)	When we use the term “EBITDA,” we are referring to operating income (loss) plus depreciation and amortization. EBITDA is not a measurement of financial performance under generally accepted accounting principles, and it should not be considered in isolation or as a substitute for net income (loss), operating income (loss), cash flow provided by operating activities or any other measure of operating performance calculated in accordance with generally accepted accounting principles. We use EBITDA and EBITDA less minority interests as analytical indicators for purposes of allocating resources and assessing performance. We also consider EBITDA in acquiring and developing additional surgery centers. EBITDA is commonly used as an analytical indicator within the health care industry. Our calculation of EBITDA may not be comparable to similarly titled measures reported by other companies.


	The following table reconciles EBITDA and EBITDA less minority interests to net income (loss):


(4)	Includes surgery centers that we manage but in which we do not have an ownership interest.

The unaudited pro forma combined condensed statement of operations data for the year ended December 31, 2002 assumes that our acquisition of Physicians Surgical Care had occurred on January 1, 2002. In April 2002, we acquired Physicians Surgical Care, which had ownership interests in and managed seven surgery centers and assisted in the development of an additional surgery center to which we began providing administrative services when it opened in October 2002. In connection with the acquisition, we issued an aggregate of 2,770,748 shares of our common stock, 4,341,726 shares of our Series A convertible preferred stock and 2,604,590 shares of our Series B convertible preferred stock. In addition, we agreed to issue up to an additional 2,189,887 shares of our common stock to the former stockholders of Physicians Surgical Care based on the 2003 financial results of one of the Physicians Surgical Care surgery centers. We sold our minority interest in one of the acquired Physicians Surgical Care centers in September 2002.

The unaudited pro forma combined condensed statement of operations data for the year ended December 31, 2002 does not purport to represent what our results actually would have been if the acquisition of Physicians Surgical Care had occurred on January 1, 2002 nor does such information purport to project our results for any future period.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Selected Consolidated Financial and Other Data” and our consolidated financial statements and related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. For additional information regarding some of the risks and uncertainties that affect our business and the industry in which we operate and that apply to an investment in our common stock, please read “Risk Factors.” Our actual results may differ materially from those estimated or projected in any of these forward-looking statements.

We own and operate a network of surgery centers in 18 states. As of November 17, 2003, we owned and operated 33 surgery centers, managed eight additional surgery centers and were developing one new surgery center. Our surgery centers include three facilities that are licensed as hospitals, two of which we own and one of which we manage. In addition to our surgery centers, we also operate a diagnostic center and manage three physician networks, including two physician networks in markets in which we operate surgery centers.

On September 16, 2002, we reincorporated in Delaware. We were originally incorporated in Tennessee in January 1996 under the name UniPhy Healthcare, Inc. and focused on the development and management of physician networks. On June 25, 1999, we acquired Ambulatory Resource Centres, Inc., an owner and operator of surgery centers, and changed our name to Symbion, Inc. Our acquisition of Ambulatory Resource Centres was accounted for as a reverse acquisition under the purchase method of accounting and, for financial reporting purposes, Ambulatory Resources Centres was considered to be the acquiring company and its historical financial statements replaced ours. Accordingly, for periods prior to June 25, 1999, our consolidated financial statements reflect only the results of Ambulatory Resource Centres.

Since our acquisition of Ambulatory Resource Centres, we have focused on developing, acquiring and managing surgery centers, and have grown our operations from 14 to 41 surgery centers. During that period, we terminated all but three of our management agreements with physician networks and transferred our assets and liabilities relating to those terminated agreements to the physician networks in exchange for cash and our previously issued securities. We also modified our agreements with two of the remaining physician networks to require us to provide only management services. As a result of these actions, we now focus our business on developing, acquiring and managing surgery centers and it may be difficult to compare our historical operating results from period to period.

During 2003, we have acquired three centers, including one licensed as a hospital, opened four newly-developed surgery centers and assumed a management agreement for one additional surgery center licensed as a hospital. We entered into management agreements with each of these surgery centers and have a majority ownership interest in three of these centers. Our investment related to these centers has been about $13.5 million, including about $12.8 million funded with debt, and the assumption of about $585,000 in long-term debt. In addition, we issued warrants to purchase 62,500 shares of our common stock. The additional cost to complete the developed centers is expected to be about $1.2 million.

In addition, during 2003, we acquired an additional 39% ownership interest in Dry Creek Imaging Center, a diagnostic imaging center that is adjacent to our surgery center in the Denver, Colorado market, for about $1.5 million in cash. We now own 90% of the center. We also acquired an additional 16.4% ownership interest in Village SurgiCenter in Erie, Pennsylvania, for about $1.0 million in cash. We now own about 82% of the center.

In April 2002, we acquired Physicians Surgical Care, Inc., which had ownership interests in and managed seven surgery centers, including one licensed as a hospital. A subsidiary of Physicians Surgical Care assisted in the development of an additional surgery center to which we began providing administrative services when it opened in October 2002. In connection with the acquisition, we issued an aggregate of 2,770,748 shares of our common stock, 4,341,726 shares of our Series A convertible preferred stock and 2,604,590 shares of our Series B convertible preferred stock. In addition, we agreed to issue up to an additional 2,189,887 shares of our common stock to the former stockholders of Physicians Surgical Care based on the 2003 financial results of one of the Physicians Surgical Care surgery centers.

In addition to Physicians Surgical Care, we acquired ownership interests in three additional surgery centers and opened two newly-developed surgery centers during 2002. We entered into management agreements with each of these surgery centers and have majority ownership interests in four of the centers. Our total investment related to these centers was about $24.6 million, including about $16.8 million funded with debt.

During 2001, we acquired ownership interests in three surgery centers and opened one additional newly-developed surgery center and one diagnostic imaging center. We entered into management agreements with each of these surgery centers and have majority ownership interests in all of these centers. Our total investment related to these centers was about $21.9 million, consisting of about $15.8 million in cash, of which about $8.3 million was funded with debt related to the acquisitions, $5.7 million of debt incurred by the newly-developed surgery center and 126,811 shares of our common stock.

During 2000, we acquired ownership interests in three surgery centers and opened two additional newly-developed surgery centers. We entered into management agreements with each of these surgery centers and have majority ownership interests in four of these facilities. Our total investment related to these facilities was about $15.7 million, consisting of about $9.3 million in cash, of which $2.6 million was funded with debt related to the acquisitions, and $6.4 million of debt incurred by the newly-developed surgery centers.

During 1999, in addition to our acquisition of Ambulatory Resource Centres, we opened two additional newly-developed surgery centers. We entered into management agreements with each of these surgery centers and have majority ownership interests in all of these centers. Our total investment related to these centers was about $5.0 million, including about $3.5 million of debt incurred by the newly-developed surgery centers.

All of our acquisitions were accounted for under the purchase method of accounting and, accordingly, the results of operations of these acquired surgery centers are reflected on a consolidated or equity basis in our consolidated financial statements from the respective dates of their acquisitions.

Effective August 8, 2003, we sold a 33% interest in Physicians SurgiCenter of Houston in Houston, Texas to Memorial Hermann Hospital for about $825,000 in cash. We now own an approximately 38% interest in the center. Memorial Hermann Hospital has the right to require us to repurchase its interest.

Effective May 20, 2003, the surgery center we managed in Knoxville, Tennessee closed following the opening of the new surgery center in this market we developed with the same organization, University Health System, Inc. We have a 25% ownership interest in the new surgery center.

Effective September 6, 2002, we sold all of our ownership interest in a surgery center and terminated our management agreement with the surgery center. In consideration for our ownership interest and termination of the management agreement, we received about $1.4 million in cash in October 2002. In addition, we were released from a guaranty of about $4.6 million of debt incurred by the center. We recorded a charge in the third quarter of 2002 of about $380,000 in connection with this transaction.

Effective May 31, 2002, we sold all of our ownership interest in a surgery center and terminated our management agreement with the surgery center. In consideration for our ownership interest, we were

Since January 1, 2001, we terminated our management agreements with three physician networks and transferred our assets and liabilities relating to those terminated agreements to these physician networks. Prior to termination of these management agreements, we recognized management fees earned and expenses reimbursed under these management agreements as physician service revenues. We also modified our management agreements with two physician networks to require us to provide only management services, which are reflected as other service revenues, and we transferred certain related accounts receivable, prepaid expenses and liabilities to these physician networks. In exchange for these terminations, modifications and asset transfers, we received an aggregate of about $22.6 million in cash, a promissory note in the amount of $400,000, 1,007,368 shares of our common stock and the cancellation of a convertible subordinated debenture with an aggregate principal amount of $2.7 million that we had previously issued to one of these physician networks. In addition, the physician networks assumed about $1.8 million in liabilities. In 2001, we recorded gains on the sale of long-lived assets of $2.3 million in connection with the termination and modification of these management agreements. In January 2002, we terminated the last of these management agreements. The loss of $255,000 on termination of this management agreement was recorded in 2001 and is included in the impairment and loss on disposal of long-lived assets of $385,000 in 2001. The net assets and liabilities of $4.6 million relating to this management agreement were reflected as assets held for sale at December 31, 2001.

Our accounting policies are described in Note 2 of our consolidated financial statements. In preparing our consolidated financial statements in conformity with accounting principles generally accepted in the United States, our management must make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our actual results could differ from those estimates. We believe that the following critical accounting policies are important to the portrayal of our financial condition and results of operations, and require our management’s subjective or complex judgment because of the sensitivity of the methods, assumptions and estimates used.

Our consolidated financial statements include our accounts and those of our wholly-owned subsidiaries, as well as our interests in facilities that we control through our ownership of a majority voting interest or other rights granted to us by contract as the sole general partner or manager to manage and control the business. The rights of the limited partners or minority members in these surgery centers are generally limited to those that protect their ownership interests, including the right to approve of the issuance of new ownership interests, and those that protect their financial interests, including the right to approve the acquisition or divestiture of significant assets or the incurrence of debt that physician limited partners or members are required to guarantee on a pro rata basis based upon their respective ownership interests or that exceeds 20% of the fair market value of the center’s assets. All significant intercompany balances and transactions, including management fees from consolidated centers, are eliminated in consolidation.

We also hold non-controlling interests in some surgery centers over which we exercise significant influence. Significant influence includes financial interests ranging from 25% to 49% and duties, rights and responsibilities for the day-to-day management of the surgery center. These non-controlling interests are accounted for under the equity method.

Our revenues are comprised of patient service revenues, physician service revenues and other service revenues. Our patient service revenues relate to fees charged for surgical or diagnostic procedures performed at facilities that we consolidate for financial reporting purposes. These fees are billed either to the patient or a third-party payor. Our fees vary depending on the procedure, but usually include all charges for usage of an operating room, a recovery room, equipment, supplies, nursing staff and medications. Our fees do not include professional fees charged by the patient’s surgeon, anesthesiologist or other attending physician, which are billed directly by the physicians to the patient or third-party payor. We recognize patient service revenues when the related procedures are performed.

Our physician service revenues relate to fees we derive from managing physician networks for which we also have a contractual obligation to provide capital and additional assets. Currently we have such an obligation to only one group of six physicians included in one of the three physician networks we manage. We expect our physician service revenues to decline as a percentage of our total revenues as we continue to focus on our surgery center business. Physician service revenues consist of reimbursed expenses and a percentage of the amount by which each physician network’s revenues exceed its expenses, as defined by our management agreement with each physician network. We recognize physician service revenues in the period in which reimbursable expenses are incurred and the period in which we have rights to a percentage of the amount by which a physician network’s revenues exceed its expenses.

Our other service revenues are comprised of management and administrative service fees we derive from non-consolidated facilities that we account for under the equity method, management of surgery centers in which we do not own an interest and management services we provide to physician networks for which we are not required to provide capital or additional assets. The fees we derive from these management arrangements are based on a pre-determined percentage of the revenues of each surgery center and physician network. We recognize other service revenues in the period in which services are rendered.

Our patient service revenues are recorded net of estimated contractual allowances from third-party payors, which we estimate based on the historical trend of our surgery centers’ cash collections and contractual write-offs, accounts receivable agings, established fee schedules, relationships with payors and procedure statistics. We estimate our allowances for bad debts using similar information and analysis. While we believe that our allowances for contractual adjustments and bad debts are adequate, if the actual write-offs are significantly different from our estimates, our results of operations may, in turn, be significantly impacted. Our net accounts receivable reflected allowances for bad debts of $11.0 million at September 30, 2003 and $11.6 million at December 31, 2002.

We derive all of our physician service revenues from physician networks with which we have service agreements. Physician service revenues from physician networks consist of reimbursed expenses, plus participation in the excess of revenue over expenses of the physician networks as defined in the service agreements. Reimbursed expenses include the costs of our personnel, supplies and other expenses incurred to provide the management services to the physician networks. We recognize physician service revenues in the period in which reimbursable expenses are incurred and in the period in which we have rights to a percentage of the amount by which a physician network’s revenues exceed its expenses. Physician service revenues are based on net billings of the physician network with any changes in estimated contractual adjustments and bad debts reflected in physician service revenues in the subsequent period. Our physician service revenues would be impacted by changes in estimated contractual adjustments and bad debts recorded by the physician networks.

When events, circumstances and operating results indicate that the carrying values of certain long-lived assets and the related identifiable intangible assets might be impaired, we assess whether the carrying value of the assets will be recovered through undiscounted future cash flows expected to be generated from the use of the assets and their eventual disposition. If the assessment indicates that the recorded cost will not be recoverable, that cost will be reduced to estimated fair value. Estimated fair value will be determined based on a discounted future cash flow analysis. Using this methodology, for the year ended December 31, 2001, we recorded an impairment charge of $130,000 related to three of our surgery centers. We believe that there has been no other impairment.

Goodwill represents the excess of purchase price over fair value of net tangible assets acquired. Effective January 1, 2002, the amortization of all goodwill was discontinued upon the adoption of Statement of Financial Accounting Standards, or SFAS, No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 no longer permits the amortization of goodwill and other indefinite lived intangible assets over a set period, rather these assets must be tested for impairment at least annually using a fair value method. Impairment is measured at the reporting unit level using a discounted cash flows model to determine the fair value of the reporting units. We will perform a goodwill impairment test whenever events or changes in facts or circumstances indicate that impairment may exist, or at least annually during the fourth quarter each year.


	•	patient service revenues for the facilities that we consolidate for financial reporting purposes, which are typically those in which we have ownership interests of greater than 50% or maintain effective control;

	•	physician service revenues derived from our management of physician networks for which we also have a contractual obligation to provide capital and additional assets; and

	•	other service revenues, consisting of management and administrative service fees derived from the non-consolidated facilities that we account for under the equity method, management of surgery centers in which we do not own an interest and management services we provide to physician networks for which we are not required to provide capital or additional assets.

The following table summarizes our revenues by service type as a percentage of revenues for the periods indicated:

Patient service revenues as a percentage of total revenues has increased from 34% in 2000 to 90% in 2002 and was 90% in the nine months ended September 30, 2003, primarily as a result of our focus on our surgery center operations and the termination and modification of our management agreements with physician networks in which we recorded physician service revenues. Physician service revenues as a percentage of total revenues has decreased from 60% in 2000 to 2% in 2002 and was 2% in the nine months ended September 30, 2003, primarily as a result of our focus on our surgery center operations and the termination and modification of our management agreements with physician networks in which we recorded physician service revenues. Other service revenues as a percentage of total revenues has increased

The following table summarizes certain statements of operations items expressed as a percentage of revenues for the periods indicated:


(1)	For each of the periods set forth in this table, operating expenses excludes depreciation and amortization expense.
(2)	EBITDA refers to operating income plus depreciation and amortization, and should not be considered in isolation or as a substitute for net income, operating income, cash flows provided by operating activities or other measures of operating performance calculated in accordance with generally accepted accounting principles. We use EBITDA and EBITDA less minority interests as analytical indicators for purposes of allocating resources and assessing performance. We also consider EBITDA in acquiring and developing additional surgery centers. EBITDA is commonly used as an analytical indicator within the health care industry. Our calculation of EBITDA may not be comparable to similarly titled measures reported by other companies.

The following table reconciles EBITDA and EBITDA less minority interests to net income (loss):

Nine months ended September 30, 2003 Compared to Nine Months Ended September 30, 2002

Revenues. Revenues increased 25.3% from $102.8 million for the nine months ended September 30, 2002 to $128.8 million for the nine months ended September 30, 2003. This increase was primarily the result of a $19.5 million increase in patient service revenue from surgery centers acquired or developed since January 1, 2002 and a $6.5 million increase in patient service revenue from facilities that we owned in both the nine months ended September 30, 2002 and the nine months ended September 30, 2003,

Operating Expenses. Operating expenses are comprised of all direct costs and indirect costs except depreciation and amortization. Operating expenses also include impairment and loss on disposal of long-lived assets and gain on sale of long-lived assets. Operating expenses increased 23.1% from $80.3 million for the nine months ended September 30, 2002 to $98.9 million for the nine months ended September 30, 2003. This increase was primarily the result of a $12.9 million increase in operating expenses from surgery centers acquired or developed since January 1, 2002. The increase in operating expenses is also the result of a $3.3 million increase in operating expenses from same store facilities, an increase of $1.4 million in general and administrative expenses and a $1.0 million increase in our general and professional liability expense. The increase in same store operating expenses is primarily due to the increase in the number of cases.

The general and professional liability expense includes reserves for an estimate of losses limited to deductibles and self insured retention related to claims incurred and reported in the policy period and an estimate for unlimited losses related to claims incurred but not reported during the policy period. The accrual for general and professional liability expense was increased in the third quarter based on management’s analysis of an independent actuarial study performed in the third quarter of 2003.

Also included in operating expenses is a decrease in the provision for doubtful accounts by $1.2 million. As a percentage of revenues, the provision for doubtful accounts decreased from 3.0% for the nine months ended September 30, 2002 to 1.4% for the nine months ended September 30, 2003. This decrease can be attributed to improved cash collections primarily in the six months ended June 30, 2003 related to the conversion of our surgery centers acquired in 2002 to our cash collections processes and improved collections on older accounts receivable from our same store facilities.

As a percentage of revenues, operating expenses decreased from 78.1% for the nine months ended September 30, 2002 to 76.8% for the nine months ended September 30, 2003, primarily as a result of operating efficiencies at our surgery centers and improved economies of scale.

Depreciation and Amortization. Depreciation and amortization expense increased 21.2% from $5.7 million for the nine months ended September 30, 2002 to $6.9 million for the nine months ended September 30, 2003. The increase in depreciation and amortization expense was primarily related to surgery centers acquired or developed since January 1, 2002. As a percentage of revenues, depreciation and amortization expense decreased from 5.5% for the nine months ended September 30, 2002 to 5.3% for the nine months ended September 30, 2003.

Operating Income. Operating income increased by 37.2% from $16.8 million for the nine months ended September 30, 2002 to $23.1 million for the nine months ended September 30, 2003. This increase was primarily the result of an increase of $5.3 million from surgery centers acquired or developed since January 1, 2002 and a $2.4 million increase from same store facilities partially offset by an increase in general and administrative expenses. As a percentage of revenues, operating income increased from 16.4% for the nine months ended September 30, 2002 to 17.9% for the nine months ended September 30, 2003.

Interest Expense, Net of Interest Income. Interest expense, net of interest income, increased 14.6% from $3.5 million for the nine months ended September 30, 2002 to $4.1 million for the nine months ended September 30, 2003. The increase in interest expense is primarily the result of prepayment penalties of $725,000 during the third quarter of 2003, which related to our repayment of certain indebtedness with the proceeds from our senior credit facility.

Provision for Income Taxes. The provision for income taxes increased from $162,000 for the nine months ended September 30, 2002 to $959,000 for the nine months ended September 30, 2003. Tax expense for years ending prior to January 1, 2003 was less than that calculated at statutory rates because of available net operating loss carryforwards. In 2003, the provision for income taxes increased because of greater pre-tax income and increased state income taxes payable in states in which our facilities operate.

Net Income. Net income increased 25.0% from $8.3 million for the nine months ended September 30, 2002 to $10.3 million for the nine months ended September 30, 2003, primarily as the result of a $2.7 million increase from surgery centers acquired or developed since January 1, 2002.

As a percentage of revenues, net income remained constant at 8.0% for the nine months ended September 30, 2002 compared to the nine months ended September 30, 2003. Excluding the impact of gains and losses on disposals of long-lived assets and the results of operations of two surgery centers divested during the third quarter of 2002, net income, as a percentage of revenues, increased from 7.5% for the nine months ended September 30, 2002 to 8.0% for the nine months ended September 30, 2003.

EBITDA Less Minority Interests. EBITDA less minority interests increased 26.0% from $17.6 million for the nine months ended September 30, 2002 to $22.2 million for the nine months ended September 30, 2003. The increase was primarily the result of a $4.3 million increase in EBITDA less minority interests from surgery centers acquired or developed since January 1, 2002 and a $2.4 million increase in EBITDA less minority interests from same store facilities, which was partially offset by a $1.4 million increase in general and administrative expenses. Additionally, the increase in EBITDA less minority interests was offset by $690,000 as a result of the increase in the general and professional liability reserves related to management’s analysis of an independent actuarial study performed in the third quarter of 2003. As a percentage of revenues, EBITDA less minority interests increased to 17.2% for the nine months ended September 30, 2003 from 17.1% for the nine months ended September 30, 2002. Excluding the impact of gains and losses on disposals of long-lived assets and the results of operations of two surgery centers divested during the third quarter of 2002, EBITDA less minority interests, as a percentage of revenues, increased from 16.7% for the nine months ended September 30, 2002 to 17.2% for the nine months ended September 30, 2003. Minority interests in income of consolidated subsidiaries increased from $4.9 million to $7.7 million, primarily as a result of a $2.2 million increase in minority interests from surgery centers acquired or developed since January 1, 2002 and a $618,000 increase in minority interests from same store facilities.

When we use the term “EBITDA,” we are referring to operating income (loss) plus depreciation and amortization. EBITDA and EBITDA less minority interests are not measurements of financial performance under generally accepted accounting principles, and they should not be considered in isolation or as a substitute for net income (loss), operating income (loss), cash flow provided by operating activities or any other measure of operating performance calculated in accordance with generally accepted accounting principles. We use EBITDA and EBITDA less minority interests as analytical indicators for purposes of allocating resources and assessing performance. We also consider EBITDA in acquiring and developing additional surgery centers. EBITDA is commonly used as an indicator within the health care industry. Our calculation of EBITDA and EBITDA less minority interests may not be comparable to similarly titled measures reported by other companies. See Note 3 to “Selected Consolidated Financial and Other Data” for a reconciliation of EBITDA and EBITDA less minority interests to net income.

Revenues. Revenues increased by 38.2% from $104.7 million for 2001 to $144.7 million for 2002. This increase was primarily the result of a $65.2 million increase in patient service revenue from surgery centers acquired or developed since January 1, 2001 and an increase of $4.8 million from facilities that we owned in both the twelve months ended December 31, 2001 and the twelve months ended December 31, 2002, which we refer to as “same store” facilities, which was partially offset by a decrease in physician service revenues of $30.0 million resulting from termination and modification of management agreements with physician networks in which we recorded physician service revenues.

Operating Expenses. Operating expenses increased by 28.4% from $87.5 million for 2001 to $112.4 million for 2002. This increase was primarily the result of a $46.3 million increase from surgery centers acquired or developed since January 1, 2001 and a $1.9 million increase in general and administrative expenses, which was partially offset by a decrease of $25.6 million resulting from termination and modification of management agreements with physician networks. The increase was also

As a percentage of revenues, operating expenses decreased from 83.5% for 2001 to 77.7% for 2002, primarily as a result of surgery centers representing a higher percentage of our total operations and generating higher operating margins than our management of physician networks, and improved operating efficiencies at surgery centers operating throughout both periods.

Depreciation and Amortization. Depreciation and amortization expense increased by 1.2% from $7.7 million for 2001 to $7.8 million for 2002. This increase was primarily the result of a $3.2 million increase in depreciation and amortization expense related to surgery centers acquired or developed since January 1, 2001, which was partially offset by a $1.8 million decrease in depreciation and amortization expense resulting from termination and modification of management agreements with physician networks. In addition, on January 1, 2002 we adopted SFAS 142, “Goodwill and Other Intangible Assets,” which required goodwill and indefinite-lived intangible assets to no longer be amortized, but instead to be tested at least annually for impairment, resulting in a decrease of depreciation and amortization expense of $1.3 million. As a percentage of revenues, depreciation and amortization expense decreased from 7.4% for 2001 to 5.4% for 2002.

Operating Income. Operating income increased from $9.5 million for 2001 to $24.5 million for 2002. This increase was primarily due to a $15.6 million increase in operating income from surgery centers acquired or developed since January 1, 2001 and an increase of $5.9 million from same store facilities, which was partially offset by a $1.9 million increase in general and administrative expenses and a $2.6 million decrease in operating income resulting from termination and modification of management agreements. The increase was also partially offset by a $2.0 million decrease in gain on sale of long-lived assets, net of impairment and loss on sale of long-lived assets. As a percentage of revenues, operating income increased from 9.1% for 2001 to 16.9% for 2002.

Interest Expense, Net of Interest Income. Interest expense, net of interest income, increased 77.9% from $2.6 million for 2001 to $4.6 million for 2002 as a result of an increase in long-term debt, primarily related to surgery centers acquired or developed since January 1, 2001.

Provision for Income Taxes. Provision for income taxes decreased 25.1% from $287,000 for 2001 to $215,000 for 2002, primarily related to a decrease in state income taxes assessed by certain states in which our surgery centers operate and a decrease in pre-tax income.

Net Income. Net income increased from $4.7 million for 2001 to $12.3 million for 2002. As a percentage of revenues, net income increased from 4.5% for 2001 to 8.5% for 2002, primarily related to an $8.1 million increase from surgery centers acquired or developed since January 1, 2001, a $6.3 million increase from same store facilities, which was partially offset by a decrease in net income of $2.9 million resulting from the termination and modification of management agreements with physician networks, a $2.0 million gain on the sale of long-lived assets recorded in 2001, along with an increase in general and administrative expenses of $1.9 million.

EBITDA Less Minority Interests. EBITDA less minority interests increased 63.1% from $15.3 million for 2001 to $25.0 million for 2002. This increase was primarily the result of a $13.1 million increase of EBITDA less minority interests from surgery centers acquired or developed since January 1, 2001 and an increase of $4.9 million from same store facilities, partially offset by a $1.9 million increase in general and administrative expense and a $4.4 million decrease from EBITDA less minority interests resulting from termination and modification of management agreements with physician networks. The increase was also partially offset by a $2.0 million decrease in gain on sale of long-lived assets. As a percentage of revenues,

Revenues. Revenues decreased by 17.5% from $126.9 million for 2000 to $104.7 million for 2001. This decrease was primarily due to a $44.7 million decrease in physician service revenues resulting from termination and modification of management agreements with physician networks in which we recorded physician service revenues, which was partially offset by $22.5 million of patient service revenues contributed by facilities we acquired or developed since January 1, 2000 and from facilities that we owned in both the twelve months ended December 31, 2000 and the twelve months ended December 31, 2001, which we refer to as “same store” facilities.

Operating Expenses. Operating expenses decreased by 28.0% from $121.5 million for 2000 to $87.5 million for 2001. This decrease was due to a $40.3 million decrease in operating expenses primarily resulting from termination and modification of management agreements with physician networks, which was partially offset by a $12.0 million increase in operating expenses primarily relating to facilities acquired or developed since January 1, 2000. Same store operating expenses increased $1.7 million and general and administration expenses increased $1.0 million.

The $40.3 million decrease in operating expenses was primarily related to decreases in salaries and benefits of $19.8 million, supplies expense of $5.0 million, professional and medical fees of $6.7 million, rent and lease expense of $4.1 million and other operating expenses of $4.7 million. The increase of $12.0 million in operating expenses was primarily the result of increases in salaries and benefits of $3.6 million, supplies expense of $3.5 million, professional and medical fees of $895,000 and other operating expenses of $2.2 million, which was partially offset by a $608,000 decrease in bad debt expense. As a percentage of revenues, operating expenses decreased from 95.7% for 2000 to 83.5% for 2001, primarily as a result of surgery centers representing a higher percentage of our total operations and generating higher operating margins than our management of physician networks, and improved operating efficiencies at surgery centers operating throughout both periods.

We recorded a $6.0 million impairment of long-lived assets in 2000, which resulted from our termination and modification of management agreements with physician networks. In addition, we recorded a $2.0 million net gain on sale of long-lived assets in 2001, which resulted from our termination and modification of management agreements with physician networks and certain surgery center goodwill impairment. We recorded a gain of approximately $2.3 million in 2001 in connection with the termination of one of these management agreements, which reflected the consideration that we received in excess of our carrying amount of the related net assets. We also recorded an additional impairment and loss on disposal charge of $255,000 in connection with the termination of one of the management agreements. We had previously recorded an impairment of approximately $2.5 million in 2000 relating to this management agreement based on the estimated fair value at December 31, 2000. During 2001, we recorded impairment to goodwill of approximately $130,000 related to three surgery centers based on estimated fair value, as the recorded cost would not be recoverable.

Depreciation and Amortization. Depreciation and amortization expense increased by 3.2% from $7.5 million for 2000 to $7.7 million for 2001. This increase was primarily the result of a $1.1 million increase in depreciation and amortization expense related to surgery centers acquired or developed since January 1, 2000 and from same store facilities, as well as a $750,000 increase related to equipment purchases by same store facilities, which was partially offset by a $1.5 million decrease in depreciation and amortization expense resulting from termination and modification of management agreements with

Operating Income. Operating income (loss) increased from an operating loss of $2.0 million for 2000 to operating income of $9.5 million for 2001. Operating income during 2001 increased $1.6 million from surgery centers acquired or developed since January 1, 2000 and from same store facilities. As a percentage of revenues, operating income increased from (1.6)% for 2000 to 9.1% for 2001, primarily as a result of the impairment of long-lived assets in 2000 and the gain on the sale of long-lived assets in 2001.

Interest Expense, Net of Interest Income. Interest expense, net of interest income, decreased 19.6% from $3.2 million for 2000 to $2.6 million for 2001, primarily related to a reduction of long-term debt of $8.0 million and lower interest rates during 2001 as compared to 2000. The $8.0 million reduction of long-term debt is primarily related to the repayment of $16.0 million in debt using proceeds received from our termination and modification of management agreements with physician networks, which was partially offset by an increase in debt of $8.0 million related to facilities acquired or developed since January 1, 2000 and from same store facilities.

Provision for Income Taxes. Provision for income taxes increased 112.6% from $135,000 for 2000 to $287,000 for 2001, primarily related to state income taxes assessed by certain states in which our surgery centers operate and an increase in pre-tax income.

Net Income. Net income increased from a net loss of $4.9 million for 2000 to net income of $4.7 million for 2001. As a percentage of revenues, net income increased from (3.8)% for 2000 to 4.5% for 2001, primarily as a result of a $6.0 million charge for impairment of long-lived assets in 2000 and a $2.0 million net gain on the sale and disposal of long-lived assets in 2001. The remaining increase was related to $4.5 million of net income generated by surgery centers acquired or developed since January 1, 2000 and from same store facilities, as well as $2.9 million by physician networks and surgery centers that were in operation for the full year in both periods.

EBITDA Less Minority Interests. EBITDA less minority interests increased 155.5% from $6.0 million for 2000 to $15.3 million for 2001. This increase was primarily the result of a net increase of $8.0 million consisting of net gains on the sale and disposal of long-lived assets of $2.0 million in 2001 and the prior year impairment of long-lived assets of $6.0 million; $1.7 million of EBITDA less minority interests contributed by facilities acquired or developed since January 1, 2000 and $4.6 million from same store facilities, which was partially offset by a $4.4 million decrease in EBITDA less minority interests resulting from termination and modification of management agreements with physician networks. As a percentage of revenues, EBITDA less minority interests increased from 4.7% for 2000 to 14.6% for 2001, as our surgery centers generated higher operating margins than our management of physician networks. Minority interests in loss of consolidated subsidiaries was $526,000 for 2000, compared to minority interests in income of consolidated subsidiaries of $1.9 million for 2001, primarily resulting from an increase in the number of facilities in which we hold less than 100% of the ownership interests and that we consolidate for financial reporting purposes. See Note 3 to “Selected Consolidated Financial and Other Data” for a reconciliation of EBITDA and EBITDA less minority interests to net income.

The following table presents a summary of our unaudited quarterly consolidated results of operations for each of the four quarters in 2002 and for the first three quarters in 2003. The unaudited interim financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of such information when read in conjunction with our audited consolidated financial statements and related notes. Our quarterly operating results have varied in the past, may continue to do so and are not necessarily indicative of results for any future period.

(1)

When we use the term “EBITDA,” we are referring to operating income (loss) plus depreciation and amortization. EBITDA is not a measurement of financial performance under generally accepted accounting principles, and it should not be considered in isolation or as a substitute for net income (loss), operating income (loss), cash flow provided by operating activities or any other measure of operating performance calculated in accordance with generally accepted accounting principles. We use EBITDA and EBITDA less minority interests as analytical indicators for purposes of allocating resources and assessing performance. We also consider EBITDA in acquiring and developing additional surgery centers. EBITDA is commonly used as an analytical indicator within the health care industry. Our calculation of EBITDA may not be comparable to similarly titled measures reported by other companies.

The following table reconciles EBITDA and EBITDA less minority interests to net income:


(2)	Includes surgery centers that we manage but in which we do not have an ownership interest.

In the nine months ended September 30, 2003, we generated operating cash flow of $21.5 million. Net cash used in investing activities during the nine months ended September 30, 2003 was $23.3 million, including $15.4 million of payments related to capital expenditures, facilities developed and the acquisition of additional ownership interests in existing centers. Our net cash used in financing activities during the nine months ended September 30, 2003 was $2.2 million, primarily related to $54.1 million of proceeds from debt issuances offset by $60.1 million of principal payments on long-term debt.

During 2002, we generated operating cash flow of $21.8 million. Net cash used in investing activities during 2002 was $21.6 million, including $24.4 million of payments related to capital expenditures and facilities acquired or developed. Our net cash provided by financing activities during 2002 was $5.2 million, primarily related to a $11.4 million of proceeds from debt issuances for facilities acquired or developed during this period, which was partially offset by $8.2 million for repayment of debt.

We have used capital during the past three years primarily to acquire and develop surgery centers. We anticipate acquiring about two to three centers and developing three to four centers annually during the next three to five years. We expect that our acquisition and development program will require substantial capital resources, which we estimate to range from $30.0 million to $50.0 million per year over the next three years. We have entered into a purchase agreement to acquire a majority ownership interest in one surgery center and intend to borrow under our senior credit facility and issue additional senior subordinated notes to fund the purchase price for this acquisition. We expect the transaction to close by December 2003. In addition, the operations of our existing facilities will require ongoing capital expenditures. We expect that our capital needs will be financed through a combination of cash flow from operations, bank debt and the issuance of debt and equity securities.

During 2003, we have acquired three surgery centers, including one licensed as a hospital, opened four newly-developed surgery centers and assumed a management agreement for one additional surgery center licensed as a hospital. We entered into management agreements with each of these surgery centers and have a majority ownership interest in three of these centers. Our investment related to these centers has been about $13.5 million, including about $12.8 million funded with debt, and the assumption of about $585,000 in long-term debt. In addition, we issued warrants to purchase 62,500 shares of our common stock. The additional cost to complete the developed centers is expected to be about $1.2 million. The long-term debt we assumed bears interest at a rate of 1.0% above the prime rate, matures on October 26, 2009 and is secured by a first priority lien in the real estate owned by the surgery center. The cash portion of the purchase price for these centers was funded with borrowings under our senior credit facility.

A typical surgery center costs us between $2.0 million and $7.0 million to develop and equip, excluding costs of real estate. This cost varies depending on the range of specialties that will be provided at the facility and the number of operating and treatment rooms. The surgery center that we are currently

In July 2003, we established a senior credit facility under which we can borrow up to $110.0 million from a group of lenders for acquisitions, developments of new centers and working capital. At the date of closing of the senior credit facility, we borrowed $31.1 million to refinance outstanding indebtedness. As of November 17, 2003, we had outstanding indebtedness under our senior credit facility of about $42.7 million. The senior credit facility contains various financial and non-financial covenants and restrictions. We believe that we are in compliance with these covenants and restrictions. We intend to use about $ million of the estimated net proceeds from this offering to repay outstanding indebtedness under the senior credit facility. See “Description of Indebtedness.”

In July 2003, we entered into a purchase agreement through which DLJ Investment Partners II, L.P. and its affiliates agreed to purchase our 14 3/4% Senior Subordinated Notes due 2008 in the aggregate principal amount of up to $40.0 million. We made an initial issuance of notes in the aggregate principal amount of about $15.1 million, and may issue additional notes at any time before July 18, 2005. The $15.1 million in proceeds from the issuance of these notes were used to refinance outstanding indebtedness. A commitment fee of 0.5% of the outstanding commitment is payable semi-annually, so long as the commitment is outstanding. The notes are our unsecured obligations and contain various financial and non-financial covenants and restrictions. We believe that we are in compliance with these covenants and restrictions. We intend to use a portion of the estimated net proceeds of this offering to repay all indebtedness under the outstanding notes and to pay about $400,000 of redemption premiums and about $348,000 of accrued interest. The commitment of the purchasers of the notes to purchase up to an additional $24.9 million of notes in the future will remain outstanding and we will continue to pay the commitment fee. See “Description of Indebtedness.”

In connection with our acquisition of Physicians Surgical Care, we issued subordinated convertible debentures to various persons in exchange for their ownership interests in certain of Physician Surgical Care’s surgery centers. The aggregate principal amount of outstanding debentures was about $3.1 million, as of September 30, 2003. The debentures bear interest at 4.0% per year and are unsecured obligations. These debentures mature on April 1, 2005 and will automatically convert into shares of our common stock at $3.13 per share upon completion of this offering. In addition, we have agreed to issue up to 2,189,887 shares of our common stock to the former stockholders of Physicians Surgical Care based upon the financial performance of one of the Physicians Surgical Care centers during 2003.

As of September 30, 2003, we had outstanding indebtedness to Southwest Bank of Texas in an aggregate amount of about $975,000 in connection with the financing of a surgery center located in Houma, Louisiana. This debt bears interest at variable rates equal to 1.0% above the lender’s prime rate, with a maturity date of December 31, 2003. As of September 30, 2003, the interest rate for this debt was 5.0% per year. This loan is secured by a first priority lien on the personal property of the surgery center.

As of September 30, 2003, we had outstanding indebtedness to Synergy Bank in an aggregate amount of about $3.4 million in connection with the financing of a surgery center located in Houma, Louisiana. This debt, which consists of two loans, bears interest at 6.7% per year and matures on May 1, 2008 and January 1, 2008. These loans are secured by a first priority lien in the real estate owned by the surgery center.

As of September 30, 2003, we had outstanding indebtedness to DVI Financial Services in an aggregate amount of about $5.7 million in connection with financing of surgery centers that we developed. This debt, which consists of two loans, bears interest at fixed rates that differ for each loan and range from 8.9% to 11.1% per year, with maturity dates ranging from 2007 to 2009. Generally, these loans are secured by a first priority lien on the personal property of the respective surgery center that borrowed the funds.

Upon completion of this offering, all of the outstanding shares of our Series A convertible preferred stock and Series B convertible preferred stock, which were issued in connection with our acquisition of Physicians Surgical Care, will be automatically converted into shares of our common stock and the holders of the preferred stock will be entitled to receive an aggregate cash payment of about $31.8 million. We intend to use a portion of the net proceeds from this offering to fund these payments.

We believe that existing funds, cash flows from operations, the net proceeds from this offering, borrowings under our senior credit facility and amounts received upon our issuance of additional senior subordinated notes will provide sufficient liquidity through at least the end of 2004. We may need to incur additional debt or issue additional equity or debt securities in the future to fund our acquisitions and development projects. We cannot assure you that capital will be available on acceptable terms, if at all. If we are unable to obtain funds when needed or on acceptable terms, we will be required to curtail our acquisition and development program. Our ability to meet our funding needs could be adversely affected if we suffer adverse results from our operations, or if we violate the covenants and restrictions to which we are subject under our senior credit facility and senior subordinated notes.

The following table summarizes our contractual obligations by period as of December 31, 2002 on a historical basis:


(1)	We intend to use the net proceeds from this offering to repay indebtedness. Based on estimated net proceeds from this offering of $ million, we anticipate that our long-term debt would be about $ million after giving effect to our use of the net proceeds from this offering. Our long-term debt may increase in the future, primarily as a result of acquisitions and developments.
(2)	We agreed to issue up to an additional 2,189,887 shares of our common stock to the former stockholders of Physicians Surgical Care based on the 2003 financial results of one of the Physicians Surgical Care surgery centers.

The following table summarizes our other commercial commitments related to unconsolidated entities by period as of December 31, 2002 on a historical basis:

(1)

We have guaranteed $600,000 of long-term debt incurred by an unconsolidated surgery center in which we have a 39% ownership interest. The proceeds from this debt were used to construct and equip the center. This debt is payable in monthly installments of principal and interest over a period of seven years, and matures on various dates during 2006 and 2007. The debt is secured by substantially all of the assets of the surgery center.

We are exposed to market risk related to changes in prevailing interest rates. Historically, we have not held or issued derivative financial instruments, including interest rate swaps. Our outstanding debt to commercial lenders is generally based on a predetermined percentage above LIBOR or the lenders’ prime rate. At September 30, 2003, $33.1 million of our total long-term debt was subject to variable rates of interest, while the remaining $30.3 million of our total long-term debt was subject to fixed rates of interest. A hypothetical 100 basis point increase in market interest rates would result in additional annual interest expense of $331,000. The fair value of our long-term debt, based on a discounted cash flow analysis, approximates its carrying value as of September 30, 2003.

Inflation and changing prices have not significantly affected our operating results or the markets in which we operate.

In June 2002, the Financial Accounting Standards Board, or FASB, issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and supercedes EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring.” SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue 94-3, a liability for an exit cost as generally defined in Issue 94-3 was recognized at the date of an entity’s commitment to an exit plan. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. We adopted SFAS No. 146 effective July 1, 2002, and it did not have a material effect on our results of operations or financial position.

In November 2002, the FASB issued Interpretation, or FIN, No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an Interpretation of FASB statements No. 5, 57 and 107 and Rescission of FASB Interpretation No. 34.” The interpretation requires that upon issuance of a guarantee, the entity must recognize a liability for the fair value of the obligations it assumes under that obligation. This interpretation is intended to improve the comparability of financial reporting by requiring identical accounting for guarantees issued with separately identified consideration and guarantees issued without separately identified consideration. This initial recognition and measurement provision of FIN 45 is applicable to guarantees issued or modified after December 31, 2002. The adoption of FIN 45 did not have a material effect on our results of operations or financial position.

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities (“VIEs”), an Interpretation of Accounting Research Bulletin No. 51.” FIN 46 requires certain VIEs to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new VIEs created or acquired after January 31, 2003. For VIEs created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after December 15, 2003. We are evaluating the impact of this interpretation on our future results of operations and financial position.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This statement generally requires liability classification for two broad classes of financial instruments. Under SFAS No. 150, instruments that represent, or are indexed to, an obligation to buy back the issuer’s shares, regardless whether the instrument is settled on a net-cash or gross physical basis are required to be classified as liabilities. Obligations that can be settled in

shares, but either derive their value predominately from some other underlying, have a fixed value, or have a value to the counterparty that moves in the opposite direction as the issuer’s shares, are also required to be classified as liabilities under this statement. SFAS No. 150 must be applied immediately to instruments entered into or modified after May 31, 2003 and to all other instruments that exist as of the beginning of the first interim financial reporting period beginning after June 15, 2003. On November 5, 2003 the FASB agreed to defer indefinitely the effective date of the statement for certain types of noncontrolling interests that are classified as equity in the financial statements of subsidiaries, but are classified as liabilities in the financial statements of related parent companies. As a result of the deferral, companies should continue to account for these interests as minority interests. We do not expect this statement to have a material impact on our results of operations or financial position.

We own and operate a network of surgery centers in 18 states. Our surgery centers provide non-emergency surgical procedures across many specialties. We offer services designed to meet the health care needs of the communities in which we operate and seek to develop strong relationships with physicians and other health care providers in these markets. We believe we have established relationships with surgeons who are leaders in their communities and have entered into strategic relationships with six health care systems that are leaders in their markets. We also believe that one of our competitive advantages is the experience of our senior management team, with four of our executive officers having an average of over 25 years of experience in the health care industry, including senior management positions at leading public and private health care companies. The remaining six members of our senior management team have an average of over 20 years of experience in the health care industry. As of November 17, 2003, we owned and operated 33 surgery centers, managed eight additional surgery centers and were developing one new surgery center. Our surgery centers include three facilities that are licensed as hospitals, two of which we own and one of which we manage. In addition to our surgery centers, we also operate a diagnostic center and manage three physician networks, including two physician networks in markets in which we operate surgery centers.

Outpatient surgery has experienced tremendous growth since 1970, when the first surgery center opened in the United States, according to Verispan, L.L.C., an independent health care market research and information firm. Surgery centers are facilities where physicians can perform surgical procedures that generally do not require the patient to stay overnight. According to Verispan, about 3,644 outpatient surgery centers were operating in the United States as of February 2003, an increase of more than 50% since 1996. Based on data compiled by Verispan, the number of outpatient surgery cases performed annually in U.S. outpatient surgery centers increased from an estimated 4.3 million in 1996 to an estimated 7.8 million in 2003, representing a compound annual growth rate of about 9%.

We believe that the following factors have contributed to the growth in surgery centers and outpatient surgical procedures:


	•	Physician and Patient Preference for Surgery Centers. Physicians often prefer to operate in surgery centers, as compared to acute care hospitals, because of the efficiency and convenience that surgery centers afford. Procedures performed at surgery centers are typically non-emergency, so physicians can schedule their time more efficiently and increase the number of procedures that they can perform in a given period. Surgery centers also provide physicians with greater scheduling flexibility, more consistent nurse staffing and faster turnaround time between cases, as compared to acute care hospitals. In addition, we believe patients prefer the comfort of a less institutional setting and the more convenient process for scheduling and registration available in surgery centers, as compared to acute care hospitals.

	•	Lower Cost Alternative. Based upon our management’s experience in the health care industry, we believe that surgeries performed in surgery centers are generally less expensive than those performed in acute care hospitals because of lower facility development costs, the focus on non-emergency procedures and more efficient staffing and work flow processes. We believe that cost-conscious payors are attracted to the lower costs afforded by surgery centers, as compared to acute care hospitals.

	•	Advanced Technology and Improved Anesthesia. Advancements in medical technology such as lasers, arthroscopy, fiber optics and enhanced endoscopic techniques have reduced the trauma of surgery and the amount of recovery time required by patients following a surgical procedure. Improvements in anesthesia also have shortened the recovery time for many patients and have reduced post-operative side effects such as pain, nausea and drowsiness. These medical


		advancements have enabled more patients to undergo surgery without an overnight stay and reduced the need for hospitalization following surgery.

With an estimated 3,644 outpatient surgery centers operating in the United States as of February 2003, we believe significant opportunities exist for consolidation in this industry. The four largest national operators of outpatient surgery centers by number of centers represented an aggregate of less than 15% of the total number of outpatient surgery centers in the United States as of February 2003, according to Verispan. We believe that the surgery center industry will continue to consolidate because of the increasing complexity of the regulatory and managerial aspects of health care delivery, the growing influence of managed care, the rising cost of technology and the need for capital. We believe there are many surgery centers that are seeking to affiliate with experienced operators of facilities with access to capital, management expertise and other resources.


	•	Identify, recruit and retain leading surgeons and other physicians for our surgery centers. We believe that establishing and maintaining strong relationships with surgeons and other physicians is a key factor to our success in acquiring, developing and operating surgery centers. We identify and partner with surgeons and other physicians that we believe have established reputations for clinical excellence in their communities. We believe that we have had success in recruiting and retaining physicians because of the ownership structure of our surgery centers and our staffing, scheduling and clinical systems that are designed to increase physician productivity, promote physicians’ professional success and enhance the quality of patient care. We also believe that forming relationships with leading medical centers or health care systems can enhance our ability to recruit physicians. We currently have strategic relationships with six health care systems that are leaders in their market.

	•	Capitalize on our experienced management team to pursue multiple growth opportunities in the surgery center market. We believe that the experience and capabilities of our senior management team provides a strategic advantage in improving the operations of our surgery centers, attracting physicians and identifying new development and acquisition opportunities. Four of our executive officers have an average of over 25 years of experience in the health care industry, including senior management positions at leading public and private health care companies. The remaining six members of our senior management team have an average of over 20 years of experience in the health care industry. Our management’s broad industry experience has allowed them to establish strong relationships with participants throughout the health care industry. These relationships are helpful in forming leads for acquisitions, and in making decisions about expanding into new markets and services. The experience and capabilities of our management team also enable us to pursue multiple growth strategies in the surgery center market, including acquisitions of established surgery centers, de novo developments in attractive markets, strategic relationships with prominent hospitals and other health care providers and turnaround opportunities in connection with underperforming facilities. We have successfully executed each of these growth strategies, and intend to pursue each of them in the future.

	•	Pursue a disciplined strategy of acquiring and developing surgery centers. Since January 1999, we have acquired 26 surgery centers and developed 10 surgery centers, including three surgery centers that we subsequently divested. We currently are developing one new surgery center. We anticipate acquiring about two to three centers and developing three to four centers annually during the next three to five years. We seek to acquire and develop both single and multi-specialty surgery centers


		that meet our criteria, including prominence and quality of physician partners, specialty mix, opportunities for growth, level of competition in the local market, level of managed care penetration and our ability to access managed care organizations. Our acquisition and development team conducts extensive due diligence and applies a financial model that targets a threshold return on invested capital over a period of five years. Once we acquire a surgery center, our team establishes a strategic plan to improve the center’s operating systems, physician recruitment and facilities, and capitalize on the center’s competitive strengths. We have historically targeted majority ownership in our facilities and currently hold majority ownership interests in over 70% of the surgery centers in which we own an interest. We believe majority ownership allows us to make and execute managerial decisions at our facilities that provide greater opportunity for growth and higher returns. We also believe that by starting with majority ownership of a center, we can benefit by capturing a greater share of the value we create in managing and improving the center. We intend to continue to target majority ownership in our facilities. However, when attractive opportunities arise, we may acquire minority interests in surgery centers.

	•	Increase revenues and profitability of existing surgery centers through operational focus. We seek to increase revenues, profitability and return on our invested capital at all of our centers by focusing on operations. We have a dedicated team that is responsible for implementing best practices, cost controls and overall efficiencies at each of our surgery centers. Our centers operate on a standard financial reporting system and we recently implemented a standardized system to manage scheduling and other administrative functions at each of our facilities. Our centers benefit from our network of facilities by sharing best practices and participating in group purchasing agreements designed to reduce the cost of supplies and equipment. We intend to continue to recruit additional physicians and expand the range of services offered at our surgery centers to increase the number and types of surgeries performed in our centers. We are committed to enhancing programs and services for our physicians and patients by providing advanced technology, quality care, cost-effective service and convenience.

As of November 17, 2003, we owned and operated 33 surgery centers, managed eight surgery centers and were developing one new surgery center. Three of our facilities are licensed as hospitals, two of which we own and one of which we manage. Our typical surgery center is a freestanding facility with about 14,000 square feet of space and four fully equipped operating rooms, two treatment rooms and ancillary areas for preparation, recovery, reception and administration. Our surgery centers provide non-emergency surgical procedures among many specialties, including orthopedic, obstetrics/gynecology, general surgery, ear, nose and throat, pain management, gastrointestinal, plastic surgery and ophthalmology. Our surgery centers that are licensed as hospitals may also provide additional services such as diagnostic imaging, pharmacy, laboratory and obstetrical services and can accommodate overnight stays. In certain markets where we believe it is appropriate, we operate surgery centers that focus on a single specialty.

Our surgery centers are generally located in proximity to physicians’ offices. Each facility typically employs a staff of about 30, depending on its size, the number of cases and the type of services provided. Our staff at each center generally includes a center administrator, a business manager, a medical director, registered nurses, operating room technicians and clerical workers. At each of our surgery centers, we have arrangements with anesthesiologists to provide anesthesiology services. We also provide each of our surgery centers with a full range of financial, marketing and operating services. For example, our regional managed care directors assist the local management team at each of our centers in developing relationships with managed care providers and negotiating managed care contracts.

All of our surgery centers are Medicare certified. To ensure that a high level of care is provided, we implement quality assurance procedures at each of our surgery centers. Each of our surgery centers is available for use only by licensed physicians who have met professional credentialing requirements

We own and operate our surgery centers through limited partnerships or limited liability companies. Local physicians or physician groups also own an interest in most of our surgery centers. In some cases, a hospital may own an interest in our surgery center. One of our wholly-owned subsidiaries typically serves as the general partner or majority member of our surgery centers. We generally own a majority interest in our surgery centers, or otherwise have sufficient control over the centers to be able to consolidate the financial results of operations of the centers with ours. In some instances, we will acquire an ownership interest in a surgery center with the prior owners retaining an ownership interest, and, in some cases, we offer new ownership interests to other physicians or hospital partners. We own a majority interest in 24 of the 33 surgery centers in which we own an interest, excluding the center currently being developed. We typically guarantee all of the debts of these limited partnerships and limited liability companies, even though we do not own all of the ownership interests in the surgery centers. We also have a management arrangement with each of the surgery centers, under which we provide day-to-day management services for a management fee, which is typically based on a percentage of the revenues of the center.

Each of the limited partnerships and limited liability companies through which we own and operate our surgery centers are governed by a partnership or operating agreement. These partnership and operating agreements typically provide, among other things, for voting rights and limited transfer of ownership interests. The partnership and operating agreements also provide for the distribution of available cash to the owners, in some cases on a quarterly basis. In addition, the agreements typically restrict the physician owners from owning an interest in a competing surgery center during the period in which the physician owns an interest in our center and for one year after that period. The partnership and operating agreements for our centers typically provide that the centers will purchase all of the physicians’ ownership interests at a purchase price based on a pre-determined formula if certain adverse regulatory events occur, such as it becoming illegal for the physicians to own an interest in a surgery center, refer patients to a center or receive cash distributions from a surgery center. Some of these agreements require us to make a good faith effort to restructure our relationships with the physician investors in a manner that preserves the economic terms of the relationship prior to purchasing these interests. See “Risk Factors” and “Government Regulation.” In certain circumstances, we have the right to purchase a physician’s ownership interests, including upon a physician’s breach of the noncompetition provisions of a partnership or operating agreement. In some cases, we have the right to require the physician owners to purchase our ownership interest in the event our management agreement with a center is terminated. In one center, the physician owners have the right to purchase our ownership interest upon a change in our control and, in another center, a hospital investor has the right to require us to repurchase its interest in the center.

We currently manage six surgery centers without owning an interest in them through a strategic alliance with a hospital system located in the Memphis, Tennessee area. We also manage a surgery center licensed as a hospital located in Kansas City, Kansas in which we have no ownership interest. In addition, we own an interest in a limited liability company which assisted in the development of a surgery center in Lynbrook, New York and began providing administrative services to the surgery center when it opened in October 2002.

The following table sets forth information regarding each of our surgery centers as of November 17, 2003:


(1)	We consolidate these surgery centers for financial reporting purposes.
(2)	This facility is licensed as a hospital.
(3)	We manage these facilities, but do not have an ownership interest in them.
(4)	We hold a 57% ownership interest in the limited liability company which provides administrative services to this surgery center. Due to regulatory restrictions in the State of New York, we cannot directly own an interest in the facility.

We are currently developing a surgery center in Columbia, Tennessee, which we anticipate will begin operations in the first quarter of 2004.

The following table sets forth the percentage of cases in each specialty performed in 2002 and the nine months ended September 30, 2003 at surgery centers in which we owned an interest as of September 30, 2003:


(1)	Presented on a pro forma basis, as if we acquired Physicians Surgical Care as of January 1, 2002.

The following table sets forth the percentage of our patient service revenues generated in 2002 and the nine months ended September 30, 2003 for surgery centers in which we owned an interest as of September 30, 2003:


(1)	Presented on a pro forma basis, as if we acquired Physicians Surgical Care as of January 1, 2002.

When attractive opportunities arise, we may develop, acquire or operate surgery centers through strategic alliances with health care systems and other health care providers that are leaders in their markets. We believe that forming a relationship with a leading medical center can enhance our ability to recruit physicians and access managed care contracts for our facilities in that market. We currently have strategic relationships with:


	•	Vanderbilt Health Services, Inc., with which we own and operate a surgery center in Franklin, Tennessee;

	•	Vanguard Health Systems, Inc., with which we own and operate a surgery center in San Antonio, Texas;

	•	Baptist Memorial Health Services, Inc., for which we manage six surgery centers in Memphis, Tennessee and surrounding areas;

	•	University Health System, Inc., with which we own and operate a surgery center in Knoxville, Tennessee;

	•	Harris Methodist Ft. Worth, with which we own and operate a surgery center in Fort Worth, Texas; and

	•	Memorial Hermann Hospital, with which we own and operate a surgery center in Houston, Texas.

The strategic relationships through which we own and operate surgery centers are governed by partnership and operating agreements that are generally comparable to the partnership and operating agreements of the other surgery centers in which we own an interest. The primary difference between the structure of these strategic relationships and the other surgery centers in which we own an interest is that, in the strategic relationships, a health care system holds an ownership interest in the surgery center, in addition to physician investors. For a general description of the terms of our partnership and operating agreements, see “— Operations — Surgery Center Ownership Structure.” In each of these strategic relationships, we have also entered into a management agreement under which we provide day-to-day management services for a management fee based on a percentage of the revenues of the surgery center. The terms of those management agreements are comparable to the terms of our management agreements with other surgery centers in which we own an interest.

We manage six surgery centers owned by Baptist Memorial Health Services, Inc. under management agreements with Baptist Memorial, in exchange for a management fee based on a percentage of the revenues of these surgery centers. The management agreements terminate in February 2005 and may be

We intend to expand our presence in the surgery center market by making strategic acquisitions of existing surgery centers and by developing new surgery centers in cooperation with local physician partners and, when appropriate, with hospitals and other strategic partners.

Acquisition Program. We employ a dedicated acquisition team with experience in health care services. Our team seeks to acquire surgery centers that meet our criteria, including prominence and quality of physician partners, specialty mix, opportunities for growth, level of competition in the local market, level of managed care penetration and our ability to access managed care organizations. Our team utilizes their extensive industry contacts, as well as referrals from current physician partners and other sources, to identify, contact and develop potential acquisition candidates.

We believe there are numerous acquisition opportunities that would pass our general screening criteria. We carefully evaluate each of our acquisition opportunities through an extensive due diligence process to determine which facilities have the greatest potential for growth and profitability improvements under our operating structure. In many cases, the acquisition team identifies specific opportunities to enhance a center’s productivity post-acquisition. For example, we may renovate or construct additional operating or treatment rooms in existing facilities to meet anticipated demand for procedures based on analysis of local market characteristics. Our team may also identify opportunities to recruit additional physicians to increase the acquired facility’s revenues and profitability. Once we decide to proceed with an acquisition proposal, we use a pricing strategy that targets a threshold return on invested capital over a period of five years. We have acquired 26 surgery centers since January 1999 and anticipate acquiring about two to three centers annually during the next three to five years.

Development Program. We develop surgery centers in markets in which we anticipate substantial interest by physicians and payors. We have experience in developing both single and multi-specialty surgery centers. When we develop a new surgery center, we generally provide all of the services necessary to complete the project. We offer in-house capabilities for structuring partnerships and financing facilities and work with architects and construction firms in the design and development of facilities. Before and during the development phase of a new center, we analyze the competitive environment in the local market, review market data to identify appropriate services to provide, prepare and analyze financial forecasts, evaluate regulatory and licensing issues and assist in designing the center and identifying appropriate equipment to purchase or lease. After the surgery center is developed, we generally provide startup operational support, including information systems, equipment procurement and financing. We have developed 10 surgery centers since January 1999 and anticipate developing about three to four centers annually during the next three to five years.

Development and construction of a surgery center generally takes us from 12 to 18 months, depending on whether we are building the facility or improving available space. Estimated construction costs generally total from $1.0 million to $2.0 million for improving existing space. Equipment and other furnishing costs generally range from $900,000 to $2.5 million. In addition, working capital of approximately $1.0 million to $1.5 million is generally required to sustain operations for the initial six to 12 months of operations. We historically finance these costs through capital contributions from investors in the center, borrowings under our facility loan agreements and long-term facility lease agreements. We expect to finance these costs in the future with borrowings under our senior credit facility in addition to capital contributions from investors in the centers. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Description of Indebtedness.”

Although our business is primarily focused on owning and operating surgery centers, we also provide other services that complement our core surgery center business.

We operate Dry Creek Imaging Center, a diagnostic imaging center that is adjacent to our surgery center in the Denver, Colorado market. We own a 90% interest in the diagnostic imaging center through a joint venture with Touchstone Medical Imaging, LLC. Dry Creek Imaging Center currently provides MRI, CT, ultrasound and mammography procedures. Touchstone and Dry Creek Imaging Center have entered into a management agreement, under which Touchstone provides daily management and administrative services to the diagnostic center in exchange for a percentage of the diagnostic center’s net revenues. The initial term of the management agreement expires in 2006, and may be renewed for additional renewal terms of one year each. We believe the services provided by this diagnostic center complement and support the services provided by our surgery center in this market. We may explore the possibility of selectively purchasing and developing additional diagnostic centers in the markets in which we operate surgery centers.

We currently manage physician networks in Memphis, Tennessee, Johnson City, Tennessee and Louisville, Kentucky. Each of these physician networks has entered into a long-term agreement with us, which provides, among other things, that we will provide billing, financial services and other business management services in exchange for a management fee. One of the physician networks is an independent practice association, or IPA, of health care providers located in the greater Louisville, Kentucky area. We believe this network is complementary to our local surgery center by providing the center with greater access to managed care contracts.

Each of our surgery centers uses a standard financial reporting system that provides information to our corporate office to track financial performance on a timely basis. In addition, each of our facilities uses an operating system to manage its business by providing critical support in areas such as scheduling, billing and collection, accounts receivable management, purchasing and other essential operational functions. We recently implemented a standardized system to support all of our facilities and to enable us to access more easily information about our centers on a timely basis. The new information system has been installed in all of our surgery centers, except for those facilities we acquired in the Physicians Surgical Care transaction. The Physicians Surgical Care facilities operate on a different standardized system provided by the same vendor that provides our information system. We are currently working with this vendor to integrate the two systems at a later date.

We have developed proprietary measurement tools to track key operating statistics at each of our surgery centers by integrating data from our local operating systems and our standardized financial system. Management uses these tools to measure operating results against target thresholds and to identify, monitor and adjust areas such as specialty mix, staffing, operating costs, employee expenses and accounts receivable management. Our corporate and facility-level management team is compensated in part using performance-based incentives focused on revenue growth and improvement in operating income.

Our sales and marketing efforts are directed primarily at physicians, who are responsible for referring patients to our facilities. Marketing activities directed at physicians and other health care providers are coordinated locally by the individual facility and are supplemented by dedicated corporate personnel. These activities generally emphasize the benefits offered by our surgery centers compared to other facilities in the market, such as the proximity of our facilities to physicians’ offices, the ability to schedule consecutive

We also market our surgery centers directly to payors, including HMOs, PPOs and other managed care organizations, employers and other payors. Payor marketing activities conducted by our corporate office management and facility administrators emphasize the high quality of care, cost advantages and convenience of our facilities, and are focused on making each facility an approved provider under local managed care plans.

In each market in which we operate a surgery center, we compete with hospitals and operators of other surgery centers to attract physicians and patients. We believe that the competitive factors that affect our centers’ ability to compete for physicians are convenience of location of the surgery center, access to capital and participation in managed care programs. We believe that our centers attract patients based upon our quality of care, the specialties and reputations of the physicians who operate in our centers, participation in managed care programs, ease of access and convenient scheduling and registration procedures.

In developing or acquiring existing surgery centers, we compete with other public and private surgery center and hospital companies. Several large national companies own and/or manage surgery centers and surgical hospitals, including HEALTHSOUTH Corporation, HCA Inc., Universal Health Services, Inc., AmSurg Corp. and United Surgical Partners International, Inc. In general, these companies have greater resources and access to capital than we do. In addition, local hospitals, physician groups and other providers may compete with us in the ownership and operation of surgery centers.

At September 30, 2003, we had 1,471 employees, of which about 870 were full-time employees. None of our employees are represented by a collective bargaining agreement. We believe that we have a good relationship with our employees.

Our corporate headquarters are located in Nashville, Tennessee in 35,000 square feet of leased office space, under a ten-year lease that commenced on November 1, 2002. We also lease 8,553 square feet of space in an office building located in Houston, Texas, substantially all of which we sublease to a third party.

Typically, our surgery centers are located on real estate leased by the limited partnership or limited liability company that owns the centers. These leases generally have initial terms of ten years, but range from two to 15 years. Most of the leases contain options to extend the lease period for up to ten additional years. The surgery centers are generally responsible for property taxes, property and casualty insurance and routine maintenance expenses. Three of our surgery centers are located on real estate owned by the limited partnership or limited liability company that owns the surgery center. We generally guarantee the lease obligations of the limited partnerships and limited liability companies that own our surgery centers.

We are subject to various federal, state and local laws and regulations relating to the protection of the environment and human health and safety, including those governing the management and disposal of hazardous substances and wastes, the cleanup of contaminated sites and the maintenance of a safe

We maintain liability insurance in amounts that we believe are appropriate for our operations. Currently, we maintain professional and general liability insurance that provides coverage on a claims made basis of $1.0 million per occurrence and $3.0 million in annual aggregate coverage per facility. We also maintain business interruption insurance and property damage insurance, as well as an additional umbrella liability insurance policy in the aggregate amount of $10.0 million. Coverage under certain of these policies is contingent upon the policy being in effect when a claim is made regardless of when the events which caused the claim occurred. The cost and availability of such coverage has varied widely in recent years. While we believe that our insurance policies are adequate in amount and coverage for our anticipated operation, we cannot assure you that the insurance coverage is sufficient to cover all future claims or will continue to be available in adequate amounts or at a reasonable cost.

We are involved, from time to time, in litigation arising in the ordinary course of business. We believe that the matters in which we are currently involved will be resolved without a material adverse effect on our financial position or results of operations.

The health care industry is highly regulated, and we cannot assure you that the regulatory environment in which we operate will not change significantly in the future or that we will be able to successfully address changes in the regulatory environment. In addition to extensive, existing government health care regulation, there continues to be numerous initiatives on the federal and state levels affecting the payment for and availability of health care services. We believe that these health care initiatives will continue during the foreseeable future. Some of the reform initiatives proposed in the past, such as further reductions in Medicare and Medicaid payments and additional prohibitions on physician ownership of facilities to which they refer patients, could, if adopted, adversely affect us and our business.

Every state imposes licensing requirements on individual physicians and health care facilities. In addition, federal and state laws regulate HMOs and other managed care organizations. Many states require regulatory approval, including certificates of need, before establishing certain types of health care facilities, including surgery centers, offering certain services, including services we offer, or making expenditures in excess of statutory thresholds for health care equipment, facilities or programs. We believe that outpatient surgery and diagnostic services will continue to be subject to intense regulation at the federal and state levels.

Our ability to operate profitably will depend in part upon all of our facilities obtaining and maintaining all necessary licenses, certificates of need and other approvals and operating in compliance with applicable health care regulations. If we fail to obtain any necessary licenses or certifications or fail to maintain our existing licenses and certifications it could have a material adverse effect on our business.

The laws of many states prohibit physicians from splitting fees with non-physicians, prohibit non-physician entities (such as us) from practicing medicine and prohibit referrals to facilities in which physicians have a financial interest. We believe our activities do not violate these state laws; however, we cannot assure you that future interpretations of, or changes in, these laws might require structural and organizational modifications of our existing relationships with facilities and physician networks, and we cannot assure you that we would be able to appropriately modify such relationships. In addition, statutes in some states could restrict our expansion into those states.

Our facilities are subject to federal, state and local laws dealing with issues such as occupational safety, employment, medical leave, insurance regulations, civil rights, discrimination, building codes, and medical waste and other environmental issues. Federal, state and local governments are expanding the regulatory requirements on businesses. The imposition of these regulatory requirements may have the effect of increasing operating costs and reducing the profitability of our operations.

We are unable to predict what additional government regulations, if any, affecting our business may be enacted in the future or how existing or future laws and regulations might be interpreted. If we or any of our facilities fail to comply with applicable laws, it might have a material adverse effect on our business.

Capital expenditures for the construction of new facilities, the addition of beds or the acquisition of existing facilities may be reviewable by state regulators under statutory schemes that are sometimes referred to as certificate of need laws. States with certificate of need laws place limits on the construction and acquisition of health care facilities and the expansion of existing facilities and services. In these states, approvals are required for capital expenditures exceeding amounts that involve certain facilities or services, including surgery centers.

State certificate of need laws generally provide that, prior to the addition of new beds, the construction of new facilities or the introduction of new services, a designated state health planning agency must determine that a need exists for those beds, facilities or services. The certificate of need process is intended to promote comprehensive health care planning, assist in providing high quality health care at the

Typically, the provider of services submits an application to the appropriate agency with information concerning the area and population to be served, the anticipated demand for the facility or service to be provided, the amount of capital expenditure, the estimated annual operating costs, the relationship of the proposed facility or service to the overall state health plan and the cost per patient day for the type of care contemplated. The issuance of a certificate of need is based upon a finding of need by the agency in accordance with criteria set forth in certificate of need laws and state and regional health facilities plans. If the proposed facility or service is found to be necessary and the applicant to be the appropriate provider, the agency will issue a certificate of need containing a maximum amount of expenditure and a specific time period for the holder of the certificate of need to implement the approved project.

Our health care facilities are also subject to state licensing requirements for medical providers. Our surgery centers have licenses to operate as ambulatory surgery centers in the states in which they operate, except for one facility in Kansas, one facility in Louisiana and one facility in Oklahoma that are licensed as hospitals. Even though these facilities licensed as hospitals provide surgical services, they must meet all applicable requirements for general hospital licensure. Our surgery centers that are licensed as ambulatory surgery centers must meet all applicable requirements for ambulatory surgery centers. To assure continued compliance with these regulations, governmental and other authorities periodically inspect our facilities. The failure to comply with these regulations could result in the suspension or revocation of a facility’s license.

The majority of our revenues are expected to continue to be received through third-party reimbursement programs, including state and federal programs, such as Medicare and Medicaid, and private health insurance programs. Medicare is a federally funded and administered health insurance program, primarily for individuals entitled to social security benefits who are 65 or older or who are disabled. Medicaid is a health insurance program jointly funded by state and federal governments that provides medical assistance to qualifying low income persons. Each state Medicaid program covers in-patient hospital services and has the option to provide payment for surgery center services. The Medicaid programs of all of the states in which we currently operate cover surgery center services; however, these states may not continue to cover surgery center services and states into which we expand our operations may not cover or continue to cover surgery center services.

To participate in the Medicare program and receive Medicare payment, our facilities must comply with regulations promulgated by the Department of Health and Human Services. Among other things, these regulations, known as “conditions of participation,” relate to the type of facility, its equipment, its personnel and its standards of medical care, as well as compliance with state and local laws and regulations. Our facilities must also satisfy the conditions of participation in order to be eligible to participate in the Medicaid program. The requirements for certification under Medicare and Medicaid are subject to change and, in order to remain qualified for these programs, we may have to make changes from time to time in our facilities, equipment, personnel or services. Although we intend to continue to participate in these reimbursement programs, we cannot assure you that our facilities will continue to qualify for participation.

Three of our facilities, including one managed facility, are licensed as hospitals. The Medicare program pays hospitals on a prospective payment system for acute inpatient services. Under this prospective payment system, a hospital receives a fixed amount for inpatient hospital services based on each patient’s final diagnosis. These payments do not consider a specific hospital’s costs, but are national rates adjusted for area wage differentials and case-mix index. For several years, the percentage increases to the prospective payment rates have been generally lower than the percentage increases in the costs of goods and services by hospitals. Most outpatient services provided by hospitals are reimbursed by Medicare under the outpatient prospective payment system. The Balanced Budget Act of 1997 mandated the

Payments under the Medicare program to ambulatory surgery centers are made under a system whereby the Secretary of Health and Human Services determines payment amounts prospectively for various categories of medical services performed in ambulatory surgery centers, subject to an inflation adjustment. The various state Medicaid programs also pay us a fixed payment for our services, which amount varies from state to state. About 18.2% of our revenues during 2002 were attributable to Medicare and Medicaid payments.

A rule proposed by the Centers for Medicare and Medicaid Services, formerly the Health Care Financing Administration, would make substantial changes to the rate-setting methodology, payment rates, payment policies and the list of covered surgical procedures for ambulatory surgery centers. Among the proposed changes is a shift from eight payment groups to 105 ambulatory payment classifications. A federal statute allows the payment methodology to be phased in for ambulatory surgery centers over four years beginning as early as January 1, 2002. However, this payment methodology has not been implemented. We cannot predict when or if the new payment methodology will be implemented. Further, we are unable at this time to predict the extent of the impact that the proposed rule, if adopted in its current form, would have on the operation of our surgery centers. The proposed rule does not apply to our facilities licensed as hospitals.

The Medicare Payment Advisory Commission, or MedPAC, and the Office of the Inspector General of the Department of Health and Human Services, or OIG, have both recently recommended changes to the Medicare payment methodology for ambulatory surgery centers. MedPAC is a congressional advisory board charged with advising Congress on Medicare payment issues, while the OIG is a governmental agency responsible for investigating and monitoring Medicare, Medicaid and other Department of Health and Human Services programs. Generally, MedPAC and the OIG have recommended that reimbursement levels for ambulatory surgery center procedures be reduced. These are recommendations only and it is uncertain if Congress will act on either or both recommendations. If these recommendations become effective, our revenue and profitability could be adversely affected. While most of our existing surgery center surgical procedures are generally reimbursed at levels lower than hospital outpatient departments, some of our existing surgical procedures are reimbursed at higher levels. These recommended changes do not apply to our facilities licensed as hospitals.

We cannot predict what further legislation may be enacted or what regulations or guidelines may be established concerning third party reimbursement by state, federal or private programs. Reductions or changes in these programs could have a material adverse affect on our business.

Federal and state antitrust laws prohibit price fixing among competitors. Independent physicians who are not economically integrated through a group practice or some other method of sharing substantial financial risk may be considered “competitors” under antitrust laws and subject to prohibitions on price fixing. Price fixing is considered a per se violation of federal antitrust laws. The Federal Trade Commission and the Department of Justice have the authority to bring civil and criminal enforcement actions against persons and entities who violate federal antitrust laws. Moreover, competitors and customers who are injured by activities that violate federal antitrust laws may bring civil actions against the alleged violator. In some cases, treble damages are available to an injured competitor or customer.

Networks of physicians, such as the IPA that we manage, involve price discussions among competitors, which create antitrust concerns. In recognition of the beneficial nature of these entities in a changing health care environment, the FTC and the Department of Justice have issued several joint policy statements regarding enforcement in the health care industry that set forth “antitrust safety zones” in which a network may safely operate.

The IPA that we manage may not fit within a safety zone. However, the policy statements issued by the Department of Justice and the FTC provide that the failure of an IPA to meet all of the requirements of a safety zone will not render the activities of the IPA per se illegal. The government will examine IPA arrangements on a case by case or “rule of reason” basis to determine if the IPA can demonstrate that its members are economically or clinically integrated and that the pro-competitive aspects of the IPA outweigh the anti-competitive aspects. If there are sufficient pro-competitive aspects to the IPA, it should not be held to be illegal. The FTC and the Department of Justice will provide advisory opinions regarding the compliance of physician network arrangements with the antitrust statutes; however, we have not sought such an opinion.

The Social Security Act includes provisions addressing false statements, illegal remuneration and other fraud. These provisions are commonly referred to as the Medicare Fraud and Abuse Laws, and include the statute commonly referred to as the federal anti-kickback statute. The federal anti-kickback statute prohibits providers and others from, among other things, soliciting, receiving, offering or paying, directly or indirectly, any remuneration in return for either making a referral for a service or item covered by a federal health care program or ordering or arranging for or recommending the order of any covered service or item. Violations of the federal anti-kickback statute are punishable by a fine of up to $50,000 or imprisonment for each violation, as well as damages up to three times the total amount of remuneration.

In addition, the Medicare Patient and Program Protection Act of 1987, as amended by the Health Insurance Portability and Accountability Act of 1996, commonly referred to as HIPAA, and the Balanced Budget Act of 1997, imposes civil monetary penalties for a violation of the Medicare Fraud and Abuse Laws, as well as exclusion from federal health care programs. Pursuant to the enactment of HIPAA, as of June 1, 1997, the Secretary of Health and Human Services may, and in some cases must, exclude individuals and entities from participating in any government health care program that the Secretary determines have “committed an act” in violation of the Medicare Fraud and Abuse Laws or have improperly filed claims in violation of the Medicare Fraud and Abuse Laws. HIPAA also expanded the Secretary’s authority to exclude a person involved in fraudulent activity from participation in a program providing health benefits, whether directly or indirectly, which is funded directly, in whole or in part, by the U.S. government.

Because physician-investors in our surgery centers are in a position to generate referrals to the centers, the distribution of available cash to those investors could come under scrutiny under the federal anti-kickback statute. The U.S. Court of Appeals for the Third Circuit has held that the federal anti-kickback statute is violated if one purpose (as opposed to a primary or sole purpose) of a payment to a provider is to induce referrals. Other federal circuit courts have followed this decision. None of these cases involved a joint venture such as those owning and operating our surgery centers and it is not clear how a court would apply these holdings to our activities. It is clear, however, that a physician’s investment income from a surgery center may not vary with the number of his or her referrals to the surgery center, and we comply with this prohibition.

In a case involving a physician-owned joint venture, the U.S. Court of Appeals for the Ninth Circuit held that the federal anti-kickback statute is violated when a person or entity (1) knows that the statute prohibits offering or paying remuneration to induce referrals and (2) engages in prohibited conduct with the specific intent to violate the law. In that case, the joint venture was determined to have violated the law because its agent solicited prospective limited partners by implying that eligibility to purchase shares in the limited partnership was dependent on an agreement to refer business to it, told prospective limited partners that the number of shares they would be permitted to purchase would depend on the volume of business they referred, and stated that partners who did not refer business would be pressured to leave the partnership. The joint venture was vicariously liable for the actions of its agents, notwithstanding that the agent’s actions were contrary to the principal’s stated policy.

Further, under HIPAA, individuals who hold a direct or indirect ownership or controlling interest in an entity that is found to violate the Medicare Fraud and Abuse Laws may also be excluded from the Medicare and Medicaid programs if the individual knew or should have known of the activity leading to the conviction or exclusion of the entity, or where the individual is an officer or managing employee of the entity. Under HIPAA, the term “should know” means that a person acts in deliberate ignorance or reckless disregard of the truth or falsity of the information. This standard does not require that specific intent to defraud be proven by the OIG.

Under regulations issued by the OIG, certain categories of activities are deemed not to violate the federal anti-kickback statute. According to the preamble to these safe harbor regulations, the failure of a particular business arrangement to comply with the regulations does not determine whether the arrangement violates the federal anti-kickback statute. The safe harbors do not make conduct illegal, but instead outline standards that, if complied with, protect conduct that might otherwise be deemed in violation of the federal anti-kickback statute.

One earlier safe harbor protects profit distributions to investors in small entity joint ventures, such as limited partnerships, if certain conditions are met. However, we believe that our ownership and operation of our facilities, will not satisfy this safe harbor for small entity joint ventures, because this safe harbor requires that no more than 40% of the value of each class of investment interests be held by investors in a position to make or influence referrals or to generate business for the entity, and we anticipate that our facilities will not meet this requirement.

The OIG published an expanded listing of safe harbors under the federal anti-kickback statute on November 19, 1999. The new, expanded provisions include a safe harbor designed to protect distributions to physician investors in ambulatory surgery centers who refer patients directly to the center and personally perform the procedures as an extension of their practice. The safe harbor for surgery center ownership protects four categories of investors, including facilities owned by general surgeons, single-specialty physicians, multi-specialty physicians and hospital/physician ventures, provided that certain requirements are satisfied.


	1. The center must be an ambulatory surgery center certified to participate in the Medicare program and its operating and recovery room space must be dedicated exclusively to the surgery center and not a part of a hospital (although such space may be leased from a hospital if such lease meets the requirements of the safe harbor for space rental).

	2. Each investor must be either (a) a physician who derived at least one-third of his or her medical practice income for the previous fiscal year or 12-month period from performing procedures on the list of Medicare-covered procedures for ambulatory surgery centers, (b) a hospital, or (c) a person or entity not in a position to make or influence referrals to the center, nor to provide items or services to the center, nor employed by the center or any investor.

	3. Unless all physician-investors are members of a single specialty, each physician-investor must perform at least one-third of his or her procedures at the center each year. (This requirement is in addition to the requirement that the physician-investor has derived at least one-third of his or her medical practice income for the past year from performing procedures.)

	4. Physician-investors must have fully informed their referred patients of the physician’s investment interest.

	5. The terms on which an investment interest is offered to an investor are not related to the previous or expected volume of referrals, services furnished or the amount of business otherwise generated from that investor to the entity.

	6. Neither the center nor any other investor may loan funds to or guarantee a loan for an investor if the investor uses any part of such loan to obtain the investment interest.


	7. The amount of payment to an investor in return for the investment interest is directly proportional to the amount of the capital investment (including the fair market value of any pre-operational services rendered) of that investor.

	8. All physician-investors, any hospital-investor and the center agree to treat patients receiving medical benefits or assistance under the Medicare or Medicaid programs.

	9. All ancillary services performed at the center for beneficiaries of federal health care programs must be directly and integrally related to primary procedures performed at the center, and may not be billed separately.

	10. No hospital-investor may include on its cost report or any claim for payment from a federal health care program any costs associated with the center.

	11. The center may not use equipment owned by or services provided by a hospital-investor unless such equipment is leased in accordance with a lease that complies with the equipment rental safe harbor and such services are provided in accordance with a contract that complies with the personal services and management contracts safe harbor.

	12. No hospital-investor may be in a position to make or influence referrals directly or indirectly to any other investor or the center.

We believe that the ownership and operations of our surgery centers will not fully satisfy this safe harbor for investment interests in ambulatory surgery centers because, among other reasons, we or one of our subsidiaries generally will be an investor in each surgery center and provide management services to the surgery center. We cannot assure you that the OIG would view our activities favorably even though they are intended to achieve compliance with the remaining elements of this safe harbor. In addition, although we expect each physician-investor to utilize the surgery center as an extension of his practice, we cannot assure you that all physician-investors will perform one-third of their procedures at the surgery center or inform their referred patients of their investment interests.

We own an interest in one surgery center in which a physician group that includes primary care physicians who do not use the center also owns an interest. In OIG Advisory Opinion 03-5 (February 6, 2003), the OIG declined to grant a favorable opinion to a proposed ambulatory surgery center structure that would be jointly owned by a hospital and a multi-specialty group practice composed of a substantial number of primary care physicians who would not personally use the center. According to the opinion, the fact that interests in the center would be indirectly owned by physicians who would not personally practice at the center precluded the OIG from determining that the proposed arrangement poses a minimal risk of fraud and abuse. The OIG concluded that the proposed structure could potentially generate prohibited remuneration under the federal anti-kickback statute. We believe that the ownership of our center complies with the federal anti-kickback statute because the physician group that owns an interest in our center is structured to fit within the Stark law’s definition of a unified group practice, and the income distributions of the group practice comply with the Stark law’s acceptable methods of income distribution. No physician in the group practice receives an income distribution that is based directly on his referrals to the center. We believe that the group’s ownership of the center is no different than its ownership of other ancillary services common in physician practices. Nevertheless, there can be no assurance that the proposed arrangement will not be determined to be in violation of the law.

We have entered into management agreements to manage many of our surgery centers, as well as three physician networks. Most of these agreements call for our subsidiary to be paid a percentage-based management fee. Although there is a safe harbor for personal services and management contracts, this safe harbor requires, among other things, that the aggregate compensation paid to the manager over the term of the agreement be set in advance. Because our management fee may be based on a percentage of revenues, it does not meet this requirement. However, we believe that our management arrangements satisfy the other requirements of the safe harbor for personal services and management contracts and that they comply with the federal anti-kickback statute. The OIG has taken the position that percentage-based management agreements are not protected by a safe harbor, and consequently, may violate the federal

In some cases, we guarantee a surgery center’s debt financing and lease obligations as part of our obligations under a management agreement. Physician-investors are generally not required to enter into similar guarantees. The OIG might take the position that the failure of the physician investors to enter into similar guarantees represents a special benefit to the physician investors given to induce referrals and that such failure would result in a violation of the federal anti-kickback statute. We believe that the management fees (and in some cases guarantee fees) are adequate compensation to us for the credit risk associated with the guarantee and that the failure of the physician investors to enter into similar guarantees does not create a material risk of violating the federal anti-kickback statute. However, the OIG has not issued any guidance in this regard.

The OIG is authorized to issue advisory opinions regarding the interpretation and applicability of the federal anti-kickback statute, including whether an activity constitutes grounds for the imposition of civil or criminal sanctions. We have not, however, sought such an opinion regarding any of our arrangements. If it were determined that our activities, or those of our facilities, violate the federal anti-kickback statute, we, our subsidiaries, our officers, our directors and each surgery center investor could be subject, individually, to substantial monetary liability, prison sentences and/or exclusion from participation in any health care program funded in whole or in part by the U.S. government, including Medicare, CHAMPUS or state health care programs.

Physician self-referral laws have been enacted by the U.S. Congress and many states prohibiting certain self-referrals for health care services. The federal prohibition, commonly known as the Stark law, prohibits a practitioner, including a physician, dentist or podiatrist, from referring patients for certain “designated health services” provided by an entity with which the practitioner or a member of his immediate family has a “financial relationship” if those services are paid in whole or in part by Medicare or Medicaid unless an exception exists. The term “financial relationship” is broadly defined and includes most types of ownership and compensation relationships. The Stark law also prohibits the entity from seeking payment from Medicare or Medicaid for services rendered through a prohibited referral. If an entity is paid for services rendered through a prohibited referral, it may be required to refund the payments. Violations of the Stark law may also result in damages of three times the amount claimed, civil penalties of up to $15,000 per prohibited claim and $100,000 per prohibited scheme and exclusion from participating in Medicare and Medicaid. “Designated health services” include:


	•	clinical laboratory services;

	•	physical therapy services;

	•	occupational therapy services;

	•	radiology services, including magnetic resonance imaging, computerized axial tomography scans, and ultrasound services;

	•	radiation therapy services and supplies;

	•	durable medical equipment and supplies;

	•	parenteral and enteral nutrients, equipment and supplies;

	•	prosthetics, orthotics and prosthetic devices and supplies;


	•	home health services;

	•	outpatient prescription drugs; and

	•	inpatient and outpatient hospital services.

The list of designated health services includes imaging services and other diagnostic services provided by our diagnostic center. However, the Stark law is implicated only if the referring physician or a member of his immediate family has a financial relationship with the provider of designated health services. There is no physician ownership (or physician family member ownership) in our diagnostic center. Any compensation relationships between our diagnostic centers and physicians are set forth in writing, provide for a fair market value compensation and are otherwise structured to fit within applicable exceptions to the Stark law.

The list of designated health services does not include surgical services provided in an ambulatory surgery center. Furthermore, in final Stark law regulations published by the Department of Health and Human Services on January 4, 2001, the term “designated health services” was defined as not including services that are reimbursed by Medicare as part of a composite rate, such as services provided in an ambulatory surgery center.

However, if designated health services are provided by an ambulatory surgery center and separately billed, referrals to the surgery center by a physician investor would be prohibited by the Stark law. Because our facilities that are licensed as ambulatory surgery centers do not have independent laboratories and do not provide designated health services apart from surgical services, we do not believe referrals to these facilities by physician investors are prohibited.

If legislation or regulations are implemented that prohibit physicians from referring patients to surgery centers in which the physician has a beneficial interest, our business and financial results would be adversely affected.

Additionally, the physician networks we manage must comply with the “in-office ancillary services exception” of the Stark law. We believe that these physician networks operate in compliance with the language of statutory exceptions to the Stark law, including the exceptions for services provided by physicians within a group practice or in-office ancillary services.

Three of our facilities, including one managed facility, are licensed as hospitals. The Stark law includes an exception for physician ownership of a hospital, provided that the physician’s ownership interest is in the whole hospital and the physician is authorized to perform services at the hospital. Physician investment in our facilities licensed as hospitals meet this requirement. Legislation was recently introduced in the U.S. Congress that would limit the hospital ownership exception such that physicians would only be permitted to own interests in a hospital if the interests are made available to the general public on the same terms. In addition, on June 27, 2003, the Senate passed the Prescription Drug and Medicare Improvements Act of 2003. This legislation contains an amendment to the Stark law that would carve out surgical and other specialty hospitals from the hospital ownership exception to the Stark law. The proposed changes may apply to our facilities licensed as hospitals. We have not made investments in these facilities available to the general public. It is currently unclear whether either of these proposed bills will be enacted.

Under the “qui tam,” or whistleblower, provisions of the False Claims Act, private parties may bring actions on behalf of the U.S. government. These private parties, often referred to as relators, are entitled to share in any amounts recovered by the government through trial or settlement. Both direct enforcement activity by the government and whistleblower lawsuits have increased significantly in recent years and have increased the risk that a health care company, like us, will have to defend a false claims action, pay fines or be excluded from the Medicare and Medicaid programs as a result of an investigation resulting from a whistleblower case. Although we believe that our operations materially comply with both federal and state laws, they may nevertheless be the subject of a whistleblower lawsuit, or may otherwise be challenged or scrutinized by governmental authorities. A determination that we have violated these laws could have a material adverse effect on us.

We are also subject to various state insurance statutes and regulations that prohibit us from submitting inaccurate, incorrect or misleading claims. We believe that our surgery centers are in compliance with all state insurance laws and regulations regarding the submission of claims. We cannot assure you, however, that none of our centers’ insurance claims will ever be challenged. If we were found to be in violation of a state’s insurance laws or regulations, we could be forced to discontinue the violative practice, which could have an adverse effect on our business and operating results, and we could be subject to fines and criminal penalties.

There are currently numerous laws at the state and federal levels addressing patient privacy concerns. Federal regulations issued pursuant to the Health Insurance Portability and Accountability Act of 1996, or HIPAA, contain, among other measures, provisions that require many organizations, including us, to implement very significant and potentially expensive new computer systems, employee training programs and business procedures. The federal regulations are intended to encourage electronic commerce in the healthcare industry.

On August 17, 2000, the Department of Health and Human Services finalized regulations requiring us to use standard data formats and code sets established by the rule when electronically transmitting information in connection with several transactions, including health claims and equivalent encounter information, health care payment and remittance advice and health claim status. On February 20, 2003, the Department of Health and Human Services issued final modifications to these regulations. We have implemented or upgraded computer systems, as appropriate, at our facilities and at our corporate headquarters to comply with the new transaction and code set regulations and have tested these systems with several of our payors. If we or our payors are unable to exchange information in connection with the specified transactions because of an inability to comply fully with the regulations, we are required to exchange the information using paper. If we are forced to submit paper claims to payors, it will significantly increase our costs associated with billing and could delay payment of claims. Although compliance with the transaction and code set regulations was required on October 16, 2003, the Centers

On May 7, 1998, the Department of Health and Human Services issued a proposed rule to establish a unique number for healthcare providers that will be used by health plans. Additionally, on May 31, 2002, the Department of Health and Human Services issued a final rule that calls for using the Employer Identification Number (the taxpayer identifying number for employers that is assigned by the Internal Revenue Service) as the identifying number that will be used by all health plans. Most health care organizations, including us, must comply with this final rule by July 30, 2004. Health plans, health care clearinghouses and providers would use these identifiers, among other uses, in connection with the electronic transactions standards.

The Department of Health and Human Services has not yet issued proposed rules that establish the standard for a national health plan or individual identifier. Once these regulations are issued in final form, we expect to have about two years to become fully compliant.

On February 20, 2003, the Department of Health and Human Services finalized a rule that establishes, in part, standards to protect the confidentiality, availability and integrity of health information by health plans, health care clearinghouses and health care providers that receive, store, maintain or transmit health and related financial information in electronic form, regardless of format. These security standards require us to establish and maintain reasonable and appropriate administrative, technical and physical safeguards to ensure the integrity, confidentiality and the availability of electronic health and related financial information. The security standards were designed to protect electronic information against reasonably anticipated threats or hazards to the security or integrity of the information and to protect the information against unauthorized use or disclosure. Although the security standards do not reference or advocate a specific technology, and covered health care providers, plans and clearinghouses have the flexibility to choose their own technical solutions, we expect that the security standards will require us to implement significant new systems, business procedures and training programs. We must comply with these security regulations by April 21, 2005.

On December 28, 2000, the Department of Health and Human Services published a final rule establishing standards for the privacy of individually identifiable health information. The final rule establishing the privacy standards became effective on April 14, 2001, with compliance required by April 14, 2003. On August 14, 2002, the Department of Health and Human Services published final revisions to the privacy rule. The final revisions did not alter the compliance date of April 14, 2003 for the majority of the requirements in the privacy regulations. These privacy standards apply to all health plans, all health care clearinghouses and health care providers that transmit health information in an electronic form in connection with the standard transactions. We are a covered entity under the final rule. The privacy standards apply to individually identifiable information held or disclosed by a covered entity in any form, whether communicated electronically, on paper or orally. These standards impose extensive new administrative requirements on us. They require our compliance with rules governing the use and disclosure of this health information. They create new rights for patients in their health information, such as the right to amend their health information, and they require us to impose these rules, by contract, on any business associate to whom we disclose such information in order to perform functions on our behalf. In addition, our facilities will continue to remain subject to any state laws that are more restrictive than the privacy regulations issued under HIPAA. These state laws vary by state and could impose additional penalties.

A violation of these regulations could result in civil money penalties of $100 per incident, up to a maximum of $25,000 per person per year per standard. HIPAA also provides for criminal penalties of up to $50,000 and one year in prison for knowingly and improperly obtaining or disclosing protected health information, up to $100,000 and five years in prison for obtaining protected health information under false

We expect that compliance with these standards will require significant commitment and action by us. We have appointed members of our management team to direct our compliance with these standards. Implementation will require us to engage in extensive preparation and make significant expenditures. At this time we have appointed a privacy officer, prepared privacy policies, trained our workforce on these policies and entered into business associate agreements with the appropriate vendors. Because some of the regulations are proposed regulations, we cannot predict the total financial impact of the regulations on our operations.

Laws in the State of New York require that corporations have natural persons as stockholders in order to be approved by the New York Department of Health as a licensed health care facility. Accordingly, we are not able to own interests in a limited partnership or limited liability company that owns an interest in a health care facility located in New York. Laws in the State of New York also prohibit the delegation of certain management functions by a licensed health care facility. The law does permit a licensed facility to lease premises and obtain various services from non-licensed entities; however, it is not clear what types of delegation constitute a violation. Although we believe that our operations and relationships in New York are in compliance with these laws, if New York regulatory authorities or a third party asserts a contrary position, we may be unable to continue or expand our operations in New York. We own an interest in a limited liability company which provides administrative services to a surgery center located in New York.

The following table provides information about our directors and executive officers:


(1)	Member of Compensation Committee
(2)	Member of Audit and Compliance Committee

Richard E. Francis, Jr. has served as the Chairman of the Board since March 2002 and as Chief Executive Officer and a director of Symbion since its inception in 1996. Mr. Francis also served as President of Symbion from 1996 to May 2002. Mr. Francis served from 1992 to 1995 as Senior Vice President, Development of HealthTrust, Inc. From 1990 to 1992, Mr. Francis served as Regional Vice President, Southern Region for HealthTrust, where he oversaw operations of 11 hospitals in five states.

Clifford G. Adlerz has served as our President since May 2002 and as the Chief Operating Officer and a director of Symbion since its inception in 1996. Mr. Adlerz also served as our Secretary from 1996 to May 2002. Mr. Adlerz served as Regional Vice President, Midsouth Region for HealthTrust from 1992 until its merger with HCA Inc. (formerly Columbia/HCA Healthcare Corporation) in May 1995, at which time he became Division Vice President of HCA and served in that position until September 1995. Mr. Adlerz served as Chief Executive Officer of South Bay Hospital in Sun City, Florida from 1987 to 1992.

William V. B. Webb has served as Chief Development Officer and a director of Symbion since June 1999. Mr. Webb served as President and Chief Executive Officer and a director of Ambulatory Resource Centres, Inc. from 1997 until our acquisition of Ambulatory Resource Centres in June 1999. Mr. Webb served as Vice President and Senior Vice President of Acquisitions and Development for OrNda HealthCorp from 1991 until 1997. From 1990 to 1991, Mr. Webb was Vice President of Development for Heritage Surgical Corp.

Kenneth C. Mitchell has served as our Chief Financial Officer since May 2002 and as our Senior Vice President of Finance since December 2002. Mr. Mitchell served as our Vice President of Finance from 1996 to December 2002. Mr. Mitchell served as Chief Financial Officer of American HealthMark, Inc. from 1989 to 1995 and as Vice President — Controller for HCA Management Company from 1988 to 1989. Prior to that time, Mr. Mitchell served as Assistant Vice President — Development and Regional Controller for HCA Management Company.

R. Dale Kennedy has served as our Secretary since May 2002 and as our Senior Vice President of Management Services since December 2002. Mr. Kennedy served as our Vice President of Management Services from 1996 to December 2002. Mr. Kennedy served as Chief Operations Officer for IPN Network, LLC, a company that managed the business office functions of health care entities, from 1991 until 1995. Prior to that time, Mr. Kennedy served in regional financial roles for HealthTrust and HCA.

Frederick L. Bryant has served as a director of Symbion since 1996. Mr. Bryant served as a General Partner of ABS Capital Partners, L.P., a private equity firm, from 1993 to 2003, when he retired. Prior to 1993, Mr. Bryant served as head of the mergers and acquisitions department and as a founder of the Alex. Brown & Sons Incorporated private equity investment program.

Donald W. Burton has served as a director of Symbion since 1999. Mr. Burton has served as managing general partner of South Atlantic Venture Fund I, II and III, Limited Partnerships and Chairman of South Atlantic Capital, Inc. and South Atlantic Private Equity Fund IV, Limited Partnership. Mr. Burton has also managed The Burton Partnership which invests in public and private companies, since 1979. Mr. Burton serves on the boards of directors of ITC Financial Services, LLC, ITC DeltaCom, Inc., KNOLOGY, Inc. and 26 Merrill Lynch-sponsored mutual funds.

Eve M. Kurtin has served as a director of Symbion since 1996. Ms. Kurtin has served as a Managing Partner of Pacific Venture Group, L.P. since its inception in 1997. Prior to joining Pacific Venture Group, Ms. Kurtin served as Chief Executive Officer of Physician Venture Management, a joint venture of UniHealth and HCA, from 1994 to 1996. Ms. Kurtin was President and Chief Executive Officer of Kurtin Communications, serving as a consultant in areas of managed care for major pharmaceutical companies and major providers, including UniHealth, from 1991 to 1994.

Charles N. Martin, Jr. has served as a director of Symbion since 1996. Mr. Martin has served as Chairman and Chief Executive Officer of Vanguard Health Systems, Inc., a company based in Nashville, Tennessee, since 1997. Until May 31, 2001, he also served as Vanguard’s President. He is former Chairman, President and Chief Executive Officer of OrNda HealthCorp, serving in those capacities from 1992 to 1997. Prior to joining OrNda, Mr. Martin served as Director, President and Chief Operating Officer of HealthTrust from 1987 to 1991. Mr. Martin serves on the board of directors of Vanguard Health Systems, Inc.

Jack Tyrrell has served as a director of Symbion since 1999. Mr. Tyrrell has been a founder of five venture capital funds since 1985 and currently serves as managing partner of Richland Ventures I, L.P., Richland Ventures II, L.P. and Richland Ventures III, L.P. He is currently a director of seven privately-held companies.

David M. Wilds has served as a director of Symbion since 1999. Mr. Wilds has served as a managing director of First Avenue Partners, L.P., a venture capital firm, since 1998. From 1997 until 1998, he was a principal at Nelson Capital Corp. From 1991 to 1995, Mr. Wilds was Chairman of the Board of Cumberland Health Systems, Inc. Mr. Wilds serves on the board of directors of Dollar General Corporation, Internet Pictures Corp. and iPayment, Inc.

Our board of directors is divided into three classes serving staggered three-year terms. Each year, the directors of one class will stand for election as their terms of office expire. Ms. Kurtin and Messrs. Martin and Adlerz have been designated as Class II directors with their terms of office expiring in 2004; Messrs. Tyrrell, Bryant and Francis have been designated as Class III directors with their terms of office expiring in 2005; and Messrs. Burton, Wilds and Webb have been designated as Class I directors with their terms of office expiring in 2006.

Our board of directors has designated an Audit and Compliance Committee and a Compensation Committee of the board. These committees help the board of directors fulfill its responsibilities and assist it in making informed decisions as to our operations.

Our Audit and Compliance Committee currently consists of Ms. Kurtin and Messrs. Burton and Tyrrell, each of whom is a non-management member of our board of directors. The Audit and Compliance Committee selects and oversees our independent auditors. It also oversees our systems of internal controls, compliance policies and ethical standards, and auditing, accounting and financial reporting processes. The Audit and Compliance Committee operates as a direct line of communication between the board of directors and our independent auditors, as well as our internal compliance personnel. We believe that the composition of our Audit and Compliance Committee meets the requirements for independence under the Sarbanes-Oxley Act of 2002, the Nasdaq National Market and SEC rules and regulations.

Our Compensation Committee consists of Messrs. Bryant, Wilds and Martin, each of who is a non-management member of the board of directors. The Compensation Committee determines compensation for our executive officers. The Compensation Committee also administers the issuance of stock options and other awards under our stock plans and establishes and reviews policies relating to the compensation and benefits of our employees. We believe that the composition of our Compensation Committee meets the requirements for independence under applicable requirements of the Nasdaq National Market.

Our directors received no base compensation for their service as directors during 2002. Each director was, however, reimbursed for expenses incurred in attending meetings of the board of directors and committees.

We adopted a Non-Employee Directors Stock Option Plan in March 2002, under which options to purchase shares of our common stock are available for issuance to the non-employee members of our board of directors. The plan is intended to maintain our ability to attract to our board and retain the services of experienced and highly-qualified individuals and to align their interests with the interests of our company and our stockholders. The Compensation Committee administers the plan and grants awards to eligible directors. The maximum number of shares available for issuance under the plan is the lesser of 1,687,500 or 0.75% of the total number of shares of our common stock then outstanding on a fully diluted basis, subject to adjustment in the event of a stock split, consolidation or stock dividend of our common stock. The exercise price of the options is the fair market value of our common stock on the date of grant. Each option may be exercised at any time after one year from the date of grant. Options expire ten years after the date of grant or, if sooner, immediately upon a director’s termination on account of fraud, dishonesty or other acts detrimental to us. In the event of any other termination of a director, any vested options granted to the director may be exercised for a period of 12 months after termination. Upon a change in the control of our company, as described in the plan, all options become immediately vested and exercisable. As of September 30, 2003, options to purchase a total of 320,000 shares of our common stock were outstanding under the plan, all of which were exercisable.

The following table summarizes the compensation earned by our chief executive officer and our other executive officers for services rendered in all capacities to us for the year ended December 31, 2002:


(1)	Perquisites and other personal benefits paid to each of the named executive officers is less than $50,000 or 10% of the total salary and bonus reported for the named executive officers and, therefore, the amount of that other annual compensation is not reported.

The following table sets forth information concerning the stock options granted to our executive officers during 2002:


(1)	Amounts represent hypothetical gains that could be achieved for the respective options if exercised at the end of the option term and based upon assumed rates of appreciation in the market price of our common stock of 5% and 10% compounded annually from the date of grant to the expiration date. There was no public market for our common stock as of the date of grant. Accordingly, the market price of the common stock on the date of grant was determined by the Board of Directors to be $3.13 per share. Actual gains, if any, upon the exercise of stock options will depend on the future performance of the common stock and the date on which the options are exercised.
(2)	Options were granted pursuant to the Symbion, Inc. Stock Incentive Plan and become exercisable in 25% increments at the anniversary date of the grant over a four year period.


(1)	There was no public trading market for our common stock as of December 31, 2002. Accordingly, these values have been calculated on the basis of an assumed initial public offering price of $ per share of our common stock.

We have entered into employment agreements with three of our executive officers, Richard E. Francis, Jr., Clifford G. Adlerz and William V. B. Webb. These employment agreements provide for base salaries of $295,260 for Mr. Francis, $234,869 for Mr. Adlerz and $213,451 for Mr. Webb, subject to annual increases in the discretion of our Compensation Committee. The employment agreements also provide for an incentive bonus payment upon achievement of goals set by our Compensation Committee, and entitle the employees to participate in our employee benefit programs and stock incentive plans.

The initial term of each of these agreements is three years, which is automatically extended so that the term is three years until terminated. We may terminate each employment agreement for cause, including the employee’s willful misconduct, fraud or intentional neglect or material inattention to his duties that is not corrected within 30 days after we give notice. In addition, either party may terminate the employment agreement at any time by giving prior written notice to the other party. However, we must pay the employee a severance benefit if we terminate his employment without cause or if the employee terminates his employment upon the occurrence of certain events specified in the agreement, including a change in the control of our company and our material breach of the agreement that is not cured within 90 days. The severance benefit is generally equal to three times the employee’s highest base salary and incentive bonus amount during the preceding year. If the employee receives severance payments following a change in control that are subject to tax under Section 4999 of the Internal Revenue Code, we or the acquiror are to pay additional amounts to offset the effect of such taxes on the employee. Each of the employment agreements also includes a covenant not to compete, in which the employee agrees that, during the term of the employment agreement and for a period of one year thereafter, he will not own or work for any other company that is predominantly engaged in the ownership and management of surgery centers.

Stock Incentive Plan. We adopted a Stock Incentive Plan under which we may grant options to purchase shares of our common stock and award shares of restricted stock that may be subject to risks of forfeiture. The maximum number of shares available for issuance under the plan is the lesser of 28,125,000 or 12.5% of the total number of shares of our common stock outstanding on a fully diluted basis, subject to adjustment for stock splits, consolidations or stock dividends. Under the plan, the Compensation Committee may grant to our directors, officers, employees, consultants and advisors options to purchase our common stock. The Compensation Committee determines the exercise price and the number of shares subject to each option. The exercise prices for incentive stock options, however, within the meaning of Section 422 of the Internal Revenue Code, may not be less than the fair market value of our common stock on the date of grant (110% in the case of a 10% stockholder). The exercise prices for options that do not qualify as incentive stock options may not be less than 85% of the fair market value of our common

Ambulatory Resource Centres Stock Option Plans. Upon our acquisition of Ambulatory Resource Centres, Inc. in June 1999, we adopted the Ambulatory Resource Centres, Inc. 1997 Stock Option Plan and the Ambulatory Resource Centres, Inc. Nonqualified Initial Option Plan, and options granted under those plans were converted to options to purchase shares of our common stock. Options granted under the 1997 Stock Option Plan are for terms not longer than 15 years for non-qualified stock options and ten years for incentive stock options. Options granted under the Nonqualified Initial Option Plan are for terms not longer than ten years for both non-qualified and incentive stock options. Under both plans, the exercise period is subject to earlier termination upon termination of the employment, director, advisor or consultant relationship of the option holder. As of September 30, 2003, options to purchase a total of 909,021 shares of our common stock were outstanding under these plans, all of which were exercisable. We do not intend to grant any additional options under these plans.

Severance Plan. We adopted an Executive Change in Control Severance Plan in December 1997, which currently provides for severance benefits for 32 of our employees, including two of our executive officers, Kenneth C. Mitchell and R. Dale Kennedy. Eligible individuals are those identified in the severance plan and whose employment by us is terminated in connection with a change in the control of our company, as defined in the severance plan, and who are not offered employment by our company or a successor employer that is substantially equivalent to or better than the position held with our company immediately prior to the change in control and the position is not maintained for at least 12 months. The benefits provided are cash compensation equal to the eligible employee’s annual pay or one-half of the eligible employee’s annual pay, as set forth in the severance plan, and participation in medical, life, disability and similar benefit plans that are offered to our active employees or those of our successor for a period of six or 12 months, as provided in the severance plan. The severance plan does not cover individuals who are subject to individual employment agreements that address severance on a change in our control.

Employee Stock Purchase Plan. We adopted an Employee Stock Purchase Plan in March 2002, under which shares of our common stock are available to be purchased by our employees. The right to purchase stock under this plan becomes effective upon the completion of this offering. The purpose of the plan is to provide our employees with an additional incentive by permitting them to purchase our common stock and to secure for us and our stockholders the benefits inherent in the ownership of our common stock by employees. The plan is administered by the Compensation Committee of the board of directors. The maximum number of shares of common stock available for issuance under the plan is 1,650,000, subject to adjustment in the event of a stock split, consolidation or stock dividends of our common stock. Our employees are eligible to participate in the plan after six months of continuous service. Employees cannot participate in the plan whose customary employment is 20 hours or less per week or five months or less in a calendar year, or who own more than 5% of the combined voting power of all classes of our stock or stock of a subsidiary, are not eligible to participate in the plan.

On October 1 of each year, each eligible employee will receive an option to purchase common stock for the lesser of (1) 85% of the market price on the grant date, and (2) 85% of the market price on the date of exercise. The option is limited each year to the least of (a) the number of shares that can be acquired with 10% of the participant’s eligible compensation for the year, (b) 25,000 shares, and (c) the number of shares that has a fair market value equivalent to $25,000 on the grant date. Options are exercised on the September 30 that follows each October 1 grant date. To exercise the option,

The Compensation Committee of the board of directors during 2002 consisted of Messrs. Bryant, Wilds and Martin. Mr. Francis, the Chairman of the Board, Chief Executive Officer and a director of Symbion, served on the committee until May 16, 2002.

Since our formation, our officers, directors and stockholders owning more than 5% of our outstanding common stock and persons and entities associated with our officers, directors and those stockholders have purchased an aggregate of 31,485,631 shares of our common stock in private placements. In addition,
we issued 4,311,786 shares of our Series A convertible preferred stock and 2,587,061 shares of our Series B convertible preferred stock in our acquisition of Physicians Surgical Care in April 2002 to J.H. Whitney III, L.P., J.H. Whitney IV, L.P. and Whitney Strategic Partners III, L.P. See “Principal Stockholders.” We also entered into a director nomination agreement with Whitney & Co., LLC and its affiliates in connection with our acquisition of Physicians Surgical Care. When we issued these shares to our officers, directors and stockholders owning more than 5% of our outstanding common stock, we entered into an investors’ rights agreement with each of these parties granting them rights not otherwise offered to our stockholders. Under a voting agreement to which Messrs. Francis, Adlerz and Martin are parties, some of our stockholders have agreed to elect our chief executive officer, chief operating officer and a designee of Mr. Martin to our board of directors. This agreement will terminate upon completion of this offering. See “Description of Capital Stock.”

Pursuant to an agreement dated as of July 18, 2003, DLJ Investment Partners II, L.P. and its affiliates agreed to purchase, from time to time, our 14 3/4% Senior Subordinated Notes due 2008 in the aggregate principal amount of up to $40.0 million. DLJ Investment Partners II, L.P. and its affiliates are affiliates of Credit Suisse First Boston LLC. We made an initial issuance of notes in the aggregate principal amount of about $15.1 million and used the proceeds to refinance outstanding indebtedness. On August 15, 2003, pursuant to the terms of the purchase agreement, the DLJ purchasers sold to affiliates of Messrs. Bryant, Tyrrell, Burton and Wilds and ABS Capital Partners, L.P., Richland Ventures II, L.P. and Richland Ventures III, L.P. notes in the aggregate principal amount of about $1.8 million and the related commitment to purchase additional notes from us in the aggregate principal amount of about $2.9 million, in the event that we decide to sell additional notes. See “Use of Proceeds” and “Description of Indebtedness.”

In January 2003, Vanguard Health Systems, Inc. acquired substantially all of the assets of, and formed a partnership with, Baptist Health System, Inc., with which we own and operate a surgery center in San Antonio, Texas. Charles N. Martin, Jr., one of our directors, is Chairman and Chief Executive Officer and a stockholder of Vanguard Health Systems, Inc.

The following table provides information as of September 30, 2003 about the ownership of our common stock by (1) each person who we know to be the beneficial owner of more than 5% of the outstanding shares of our common stock, (2) each of our directors and executive officers and (3) all of our directors and executive officers as a group. The table gives effect to the conversion of all outstanding shares of our Series A convertible preferred stock and Series B convertible preferred stock and our subordinated convertible debentures. Except as otherwise indicated, the beneficial owners listed below have sole voting and investment power with respect to all shares owned by them, except to the extent such power is shared by a spouse under applicable law.


	*	Less than 1%


	(1)	Includes 100,000 shares held in a family trust and options to acquire 310,000 shares which are presently exercisable or will become exercisable within 60 days of September 30, 2003.
	(2)	The address of each of Messrs. Francis, Adlerz, Webb, Mitchell and Kennedy is 40 Burton Hills Boulevard, Suite 500, Nashville, Tennessee 37215.
	(3)	Includes options to acquire 260,000 shares which are currently exercisable or will become exercisable within 60 days following September 30, 2003.
	(4)	Includes options to acquire 758,586 shares which are currently exercisable or will become exercisable within 60 days following September 30, 2003.
	(5)	Includes options to acquire 87,500 shares which are currently exercisable or will become exercisable within 60 days following September 30, 2003.
	(6)	Includes options to acquire 97,500 shares which are currently exercisable or will become exercisable within 60 days following September 30, 2003.
	(7)	Consists of 6,506,463 shares held by ABS Capital Partners, L.P. as to which Mr. Bryant may be deemed to have beneficial ownership and options to acquire 40,000 shares granted to Mr. Bryant


		which are currently exercisable or will become exercisable within 60 days following September 30, 2003. Mr. Bryant is a retired partner of ABS Partners, L.P., the general partner of ABS Capital Partners, L.P.
	(8)	The address for Mr. Bryant is 40 Burton Hills Boulevard, Suite 500, Nashville, Tennessee 37215 and the address for ABS Capital Partners is 400 E. Pratt Street, Suite 910, Baltimore, Maryland 21202.
	(9)	Consists of 1,757,708 shares owned by South Atlantic Private Equity Fund IV, Limited Partnership, 2,427,321 shares owned by South Atlantic Private Equity Fund IV (QP), Limited Partnership, 68,431 shares owned by The Burton Partnership, Limited Partnership and 205,295 shares owned by The Burton Partnership (QP), Limited Partnership as to which Mr. Burton may be deemed to have beneficial ownership and options to acquire 40,000 shares granted to Mr. Burton which are currently exercisable or will become exercisable within 60 days following September 30, 2003. Mr. Burton is chairman of South Atlantic Private Equity Fund IV, LP and manages The Burton Partnership.


(10)	The address for Mr. Burton and South Atlantic is 614 West Bay Street, Tampa, Florida 33606.
(11)	Consists of 4,221,450 shares held by Pacific Venture Group, L.P. and 197,910 shares owned by PVG Associates, L.P. as to which Ms. Kurtin may be deemed to have beneficial ownership and options to acquire 40,000 shares granted to Ms. Kurtin which are currently exercisable or will become exercisable within 60 days following September 30, 2003. Ms. Kurtin is a Managing Member of PVG Equity Partners, LLC which is the General Partner of both Pacific Venture Group, L.P. and PVG Associates, L.P.
(12)	The address for Ms. Kurtin and for Pacific Venture Group, L.P. is 16830 Ventura Blvd., Suite 244, Encino, California 91436.
(13)	Includes 722,264 shares held by The Martin Companies, Inc., Mr. Martin’s personal holding company, as to which Mr. Martin may be deemed to have beneficial ownership and options to acquire 80,000 shares granted to Mr. Martin which are exercisable or will become exercisable within 60 days following September 30, 2003. The address for Mr. Martin and The Martin Companies, Inc. is 20 Burton Hills Blvd., Suite 100, Nashville, Tennessee 37215.
(14)	Consists of 3,091,069 shares owned by Richland Ventures II, L.P. and 3,191,489 shares owned by Richland Ventures III, L.P. as to which Mr. Tyrrell may be deemed to have beneficial ownership and options to acquire 40,000 shares granted to Mr. Tyrrell which are currently exercisable or will become exercisable within 60 days following September 30, 2003. Mr. Tyrrell is the managing partner of Richland Ventures II, L.P. and Richland Ventures III, L.P.
(15)	The address for Mr. Tyrrell and Richland Ventures II, L.P. and Richland Ventures III, L.P. is 1201 16th Avenue South, Nashville, Tennessee 37212.
(16)	Consists of 1,924,806 shares owned by First Avenue Partners, L.P. as to which Mr. Wilds is a managing director and may be considered to have beneficial ownership and options to acquire 40,000 shares granted to Mr. Wilds which are currently exercisable or will become exercisable within 60 days following September 30, 2003. The address for Mr. Wilds and First Avenue Partners, L.P. is 138 Second Avenue North, Suite 200, Nashville, Tennessee 37201.
(17)	The address of each of J.H. Whitney III, L.P., J.H. Whitney IV, L.P. and Whitney Strategic Partners III, L.P. is 177 Broad Street, Suite 1500, Stamford, Connecticut 06901.
(18)	Includes options to acquire 1,097,500 shares which are currently exercisable or will become exercisable within 60 days following September 30, 2003.

We currently have outstanding indebtedness to the lenders under our senior credit facility, the holders of our senior subordinated notes and other lenders, including DVI Financial Services, Southwest Bank of Texas and Synergy Bank. We intend to use a portion of the net proceeds from this offering to repay a portion of the indebtedness outstanding under our senior credit facility and all of the indebtedness under our outstanding senior subordinated notes. The following is a description of our existing indebtedness:

In July 2003, we entered into a senior credit facility with a syndicate of financial institutions led by Bank of America, N.A. We are the borrower under the senior credit facility and all of our active and existing wholly-owned subsidiaries are guarantors. Under the terms of the senior credit facility, entities that become our wholly-owned subsidiaries must also guarantee the debt.

The senior credit facility provides senior secured financing of up to $110.0 million, through a revolving credit line. As of November 17, 2003, we had outstanding indebtedness under the senior credit facility of about $42.7 million. Provided that we are not in default under the senior credit facility, we are entitled, at any time prior to January 18, 2005, to request an increase in commitments of up to $20.0 million more, subject to the consent of the administrative agent, lenders having at least 51% of the commitments under the senior credit facility and all lenders providing such commitment increase. Up to $2.0 million of the senior credit facility is available for the issuance of standby letters of credit, and up to $5.0 million of the senior credit facility is available for swing line loans. The swing line loans are made available by Bank of America as the swing line lender on a same-day basis in minimum amounts of $100,000. We are required to repay each swing line loan in full upon the demand of the swing line lender. The senior credit facility terminates and is due and payable on July 18, 2006.

We have entered into a purchase agreement to acquire a majority ownership interest in one surgery center. We intend to use borrowings under the senior credit facility to fund the purchase price for this acquisition. We intend to use about $ million of the estimated net proceeds from this offering to repay a portion of the outstanding indebtedness under the senior credit facility.

Borrowings under the senior credit facility bear interest at a rate equal to a LIBOR rate or a base rate, each plus an applicable margin. The applicable margin for both the LIBOR rate and the base rate varies depending upon our leverage ratio. In addition to paying interest on outstanding principal under the senior credit facility, we pay a commitment fee to the lenders under the senior credit facility for unused commitments at a rate that varies depending upon our leverage ratio.

Any amounts outstanding under the senior credit facility are subject to mandatory prepayments with:


	•	100% of the net cash proceeds of all asset sales by us or any of our subsidiaries, subject to certain exclusions for asset sales yielding gross proceeds below a specified threshold and reinvestment provisions;

	•	100% of the net cash proceeds from the issuance of any debt by us or any of our subsidiaries, subject to certain exclusions for permitted debt; and

	•	100% of the net cash proceeds of the issuance of equity by us or our subsidiaries, subject to certain exclusions for syndication activity, repayments under the senior subordinated notes and redemption payments under our Series A and Series B preferred stock.

We may voluntarily prepay the senior credit facility at any time without penalty, subject to reimbursement of any lender’s breakage or redeployment costs in the case of prepayment of any LIBOR borrowings and maintenance of an unpaid minimum balance of $2.5 million in the case of partial prepayments of LIBOR borrowings. We have the right to cancel in whole or in part any unutilized portion of the commitments under the senior credit facility (in excess of any outstanding loans and letters of credit) at any time.

The obligations under the senior credit facility and the related documents are secured by a first priority lien upon substantially all of our and our subsidiary guarantors’ real and personal property, a pledge of all the capital stock or other ownership interests in each of our wholly-owned subsidiaries, and a pledge of our ownership interests in all but one of our majority-owned subsidiaries. Our obligations under the senior credit facility are guaranteed by all of our wholly-owned subsidiaries.

The senior credit facility contains customary covenants including specified financial ratios and tests, including a minimum fixed charge coverage ratio, maximum leverage ratios, maximum debt-to-EBITDA ratios and minimum net worth. In addition, the senior credit facility contains restrictive covenants which limit, among other things, our ability to (1) incur additional indebtedness or incur liens, (2) sell assets, (3) acquire or develop additional surgery centers, (4) pay dividends, redeem or otherwise reacquire our capital stock or subordinated indebtedness, (5) issue preferred stock or permit our subsidiaries to issue equity interests, (6) change our business, (7) make capital expenditures, (8) engage in transactions with affiliates, (9) cancel or amend material contracts or (10) enter into a transaction which is likely to have a material adverse effect on us or the senior credit facility. The events of default under the senior credit facility are customary for credit facilities of this type.

The notes are our unsecured obligations. Our active and existing wholly-owned subsidiaries guarantee the notes. Entities that become our subsidiaries and guarantors under the senior credit facility or of our other indebtedness or indebtedness of another subsidiary in excess of $500,000 must also guarantee the notes. A commitment fee of 0.5% of the outstanding, undrawn commitment is payable semi-annually, so long as the commitment is available. We may redeem the notes, in whole or in part, at any time at specified redemption prices. We intend to redeem the notes using a portion of the proceeds from this offering. The redemption price will be 102.5% of the principal amount outstanding.

The indenture governing the notes contains restrictive covenants which limit, among other things, our ability to (1) incur additional indebtedness, (2) issue preferred stock, (3) sell assets, (4) engage in transactions with affiliates, (5) pay dividends, redeem or otherwise reacquire our capital stock or subordinated indebtedness, (6) create restrictions on the ability of our subsidiaries to pay dividends, make loans or transfer assets to us, (7) merge with another company or (8) incur liens. The indenture prohibits the incurrence of subordinated debt that is senior to the notes. The events of default under the notes are consistent with, and no more restrictive than, those under our senior credit facility.

In connection with our acquisition of Physicians Surgical Care, we issued subordinated convertible debentures to various persons in exchange for their ownership interests in certain of Physician Surgical Care’s surgery centers. The aggregate principal amount of outstanding debentures was about $3.1 million as of September 30, 2003. The debentures bear interest at 4.0% per year and are unsecured obligations. These debentures mature on April 1, 2005 and will automatically convert into shares of our common stock at $3.13 per share upon completion of this offering.

Our authorized capital stock consists of 225,000,000 shares of common stock, $0.01 par value, and 16,946,316 shares of preferred stock, $0.01 par value, of which 4,341,726 shares are designated as Series A convertible preferred stock and 2,604,590 shares are designated as Series B convertible preferred stock. The following descriptions of our capital stock and provisions of our certificate of incorporation and bylaws are summaries of their material terms and provisions and are qualified by reference to our certificate of incorporation and bylaws, copies of which have been filed with the SEC as exhibits to the registration statement of which this prospectus is a part.

As of September 30, 2003, there were 47,020,211 shares of our common stock outstanding held of record by 252 stockholders. Holders of our common stock are entitled to one vote per share on all matters on which stockholders are entitled to vote. Because holders of our common stock do not have cumulative voting rights, the holders of a majority of shares of our common stock represented at a meeting can elect all of the directors. Holders of our common stock are entitled to receive dividends, if any, as may from time to time be declared by our board of directors. The holders of our common stock have no preemptive, conversion, redemption or sinking fund rights. In the event that we liquidate, dissolve or wind up, our remaining assets are to be distributed among the holders of our common stock and holders of our preferred stock on a pro rata basis. Our outstanding shares of common stock are fully paid and nonassessable.

As of September 30, 2003, there were 4,341,726 shares of Series A convertible preferred stock outstanding held of record by eight stockholders and 2,604,590 shares of Series B convertible preferred stock outstanding held of record by four stockholders. Upon the completion of this offering, all outstanding shares of our Series A convertible preferred stock and Series B convertible preferred stock will be converted into shares of common stock and the holders of the convertible preferred stock will be entitled to receive an aggregate cash payment equal to about $31.8 million. Thereafter, our board of directors will have the authority, without further action by the stockholders, to issue up to 10,000,000 shares of preferred stock in one or more series and to designate the rights, preferences, privileges and restrictions of each series. The issuance of preferred stock could have the effect of restricting dividends on the common stock, diluting the voting power of the common stock, impairing the liquidation rights of the common stock or delaying or preventing our change in control without further action by the stockholders. We have no current plans to issue any shares of preferred stock.

We granted registration rights to some of our stockholders under an investors’ rights agreement, which are summarized below.

Demand Rights. Upon completion of this offering, if we receive a written request from certain stockholders that are party to the investors’ rights agreement that we file a registration statement under the Securities Act covering the registration of their shares of common stock having an aggregate offering price to the public of not less than $1.0 million, then we are to use our best efforts to effect the registration of the shares requested to be registered. We are not required to effect more than two of these registrations. Additionally, we are not required to effect such a registration if (1) within 30 days of receipt of a request for such a registration, we notify the stockholders of our intention of making a qualifying public offering within 90 days, or (2) we issue a certificate executed by the chairman of our board of directors stating that our board of directors has in good faith determined that effecting that registration statement would be seriously detrimental to us, in which case we may defer filing the registration statement for 90 days. We may not exercise our right to delay filing of the registration statement more than once in any 12 month period.

Piggyback Registration. The stockholders that are a party to the investors’ rights agreement are entitled to include all or part of their shares of our common stock in any of our registration statements under the Securities Act, excluding registration statements relating to employee benefit plans, corporate transactions or transactions subject to Rule 145 under the Securities Act. If any registration statement is pursuant to an underwritten offering, these rights would be conditioned upon the stockholder’s participation in the underwriting, including the right of the underwriters to limit the number of shares included in the offering.

Registration on Form S-3. Upon receipt of a written request from certain of the stockholders who are a party to the investors’ rights agreement, we are to file and effect a registration with respect to any of the shares of our common stock owned by these stockholders. We are not, however, required to effect any such registration if (1) Form S-3 or any successor form is not available for that offering, (2) the aggregate offering price of the securities to be registered is less than $1.0 million or (3) we issue a certificate executed by the chairman of our board of directors stating that the board of directors has in good faith determined that effecting that registration statement would be seriously detrimental to us, in which case we may defer filing the registration statement for 90 days. We may not exercise our right to delay the filing of the registration statement more than once in any 12 month period. Additionally, we are not required to effect that registration statement in any state in which we would be required to qualify to do business or execute a general consent to service of process.

Termination. All registration rights under the investors’ rights agreement terminate upon the earlier of (1) seven years following the completion of this offering and (2) the date on which all of the parties’ shares of common stock may immediately be sold under Rule 144 under the Securities Act during any 90 day period.

We entered into a director nomination agreement with Whitney & Co., LLC and its affiliates, which provides Whitney the right to designate two nominees to our board of directors. However, Whitney has not designated directors to serve on our board of directors at this time. Upon completion of this offering, Whitney will have the right to designate only one nominee. This right will terminate on the first anniversary of the completion of this offering. However, if, at the first anniversary of the completion of this offering, Whitney beneficially owns 10% or more of our outstanding equity securities, Whitney will have the right to designate a director nominee for one additional year following the first anniversary of the completion of this offering. Any director nominee who is not employed by Whitney is subject to our approval. If we request, Whitney’s nominees are to resign from the board of directors if we are no longer required to provide a board seat for them.


	•	warrants to purchase 250,000 shares of our common stock at an exercise price of $1.88 per share, which expire in August 2004;

	•	warrants to purchase 75,210 shares of our common stock at exercise prices ranging from $1.53 to $1.83 per share, which expire on various dates in April 2004 and August 2008;

	•	warrants to purchase 549,371 shares of our common stock at an exercise price of $0.1223 per share, which expire in May 2009;

	•	warrants to purchase 82,884 shares of our common stock at an exercise price of $4.31 per share, which expire in January 2004;

	•	warrants to purchase an aggregate of 1,112,894 shares of our common stock that expire on the earlier to occur of April 1, 2005 or the first anniversary of the effective date of the registration statement of which this prospectus is a part, and of which warrants to purchase 212,900 shares of


		our common stock have an exercise price of $3.13 per share and the remaining warrants have an exercise price of $2.50 per share;

	•	warrants to purchase 45,586 shares of our common stock at exercise prices ranging from $2.41 per share to $6.03 per share, some of which expire in December 2003 and the remainder of which expire in November 2006; and

	•	warrants to purchase 62,500 shares of our common stock at an exercise price of $3.13 per share, which expire on various dates in March 2007, October 2007, November 2007 and November 2008.

We issued a series of subordinated convertible debentures in the aggregate principal amount of about $3.2 million to certain owners of Physicians Surgical Care’s limited partnerships and limited liability companies. During 2003, the holders of debentures in an aggregate principal amount of about $100,000 converted the debentures into shares of common stock. The debentures bear interest at a rate of 4.0% per year. Accrued interest on the debentures is payable annually in arrears on April 1 of each year. The principal amount of the debentures is not amortized. There is no sinking fund or other provision for reserving funds to repay the debentures. The debentures are unsecured.

The debentures will convert automatically into our common stock at a price per share of $3.13 upon completion of this offering. We will pay accrued but unpaid interest on the principal amount converted up to and including the date of conversion.

Our certificate of incorporation and bylaws allow us to eliminate the personal liability of our directors and to indemnify directors and officers to the fullest extent authorized by Delaware law.

A number of provisions in our certificate of incorporation and bylaws may make it more difficult to acquire control of us. These provisions could deprive the stockholders of opportunities to realize a premium on the shares of common stock owned by them. In addition, these provisions may adversely affect the prevailing market price of our common stock.

Classified Board of Directors. Our board of directors is divided into three classes serving staggered three-year terms, with one-third of the board of directors being elected each year. Our classified board, together with certain other provisions of our certificate of incorporation and bylaws authorizing the board of directors to fill vacant directorships, may prevent or delay stockholders from removing incumbent directors and simultaneously gaining control of the board of directors by filling vacancies created by that removal with their own nominees.

Removal of Directors by the Stockholders. Our certificate of incorporation and bylaws provide that the stockholders may remove directors only for cause. We believe that the removal of directors by the stockholders only for cause, together with the classification of the board of directors, will promote continuity and stability in our management and policies and that this continuity and stability will facilitate long-range planning.

No Stockholder Action by Written Consent. Our certificate of incorporation and bylaws preclude our stockholders from taking action by written consent without a meeting.

Special Meeting of the Stockholders. Our certificate of incorporation and bylaws provide that, in order for a special meeting of our stockholders to be called by the stockholders, it must be called by the holders of at least 10% of the votes to be cast on any issue proposed to be considered at the proposed special meeting.

Amendment of Certificate of Incorporation and Bylaws. Our certificate of incorporation provides that any amendment to the sections of our certificate of incorporation addressing amendment of our bylaws and meetings of our stockholders requires the affirmative vote of the holders of not less than 67% of our outstanding capital stock. Our certificate of incorporation and bylaws also provide that any amendment to our bylaws by our stockholders requires the affirmative vote of the holders of not less than 67% of our outstanding capital stock. Our certificate of incorporation also provides that our board of directors may repeal or amend any provision of our bylaws unless (1) the Delaware General Corporation Law reserves this power exclusively to the stockholders or (2) the stockholders, in amending or repealing a particular bylaw, provide expressly that the board of directors may not amend or repeal that particular bylaw.

Advance Notice for Stockholder Proposals or Nominations. Our bylaws establish an advance notice procedure with regard to stockholder proposals and nominations of candidates for election to our board of directors. In general, notice of a stockholder proposal or a director nomination for an annual meeting of stockholders must be delivered to us at our executive offices not less than 90 days nor more than 120 days before the first anniversary of the date on which we first mailed our proxy statement to stockholders in connection with the preceding year’s annual meeting of stockholders. However, if the date of the annual meeting is changed by more than 30 days from that anniversary date, the stockholder proposal or director nomination must be delivered to us no later than the close of business on the tenth day following the earlier of the date on which notice of the date of the annual meeting was mailed or public disclosure of the meeting date was made. The stockholder’s notice also must contain specified information and conform to certain requirements, as set forth in our bylaws. Notice of a director nomination for a special meeting must be received by us no later than the close of business on the tenth day following the earlier of the date on which notice of the date of the annual meeting was mailed or public disclosure of the meeting date was made. If the presiding officer at any meeting of stockholders determines that a stockholder proposal or director nomination was not made in accordance with the bylaws, we may disregard the proposal or nomination. These provisions may preclude a nomination for the election of directors or preclude the conduct of business at a particular annual meeting if the proper procedures are not followed. Furthermore, these provisions may discourage or deter a third party from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempting to obtain control of our company, even if the conduct of the solicitation or attempt might be beneficial to us and our stockholders.

We anticipate that, immediately upon completion of this offering, our board of directors will declare, pursuant to a rights agreement, a dividend distribution of one preferred stock purchase right for each outstanding share of our common stock. Each right will entitle the registered holder to purchase from us one-thousandth of a share of our Series A junior participating preferred stock, $0.01 par value, after the distribution date defined below at a price per share to be determined by our board of directors. The purchase price is expected to be significantly higher than the trading price of our common stock. Therefore, the dividend will have no initial value and no impact on our financial statements. The following summary of the rights does not purport to be complete and is qualified in its entirety by reference to the rights agreement, a form of which is an exhibit to the registration statement of which this prospectus is a part.

Initially, no separate certificates representing the rights will be distributed. The rights will separate from our common stock upon the distribution date, which is defined as the earlier of:


	•	ten business days following a public announcement that an acquiring person (which is defined in the rights agreement generally as a person or group of affiliated or associated persons, not including our company, any of our subsidiaries, any employee benefit plan of our company or of any of our subsidiaries or any trustee or fiduciary of one of our employee benefit plans, that is beneficial owner of 15% or more of the then outstanding shares of our common stock or other voting stock) has become an acquiring person; or


	•	ten business days following the commencement of, or after the date of the first public announcement of the intention to commence, a tender offer or exchange offer that would result in a person or group becoming an acquiring person.


	•	with respect to any shares of our common stock outstanding on the date that we issue the rights, the rights will be evidenced (A) with respect to shares of our common stock that are held in certificated form, by the certificates representing the shares and (B) with respect to shares of our common stock that are held in book-entry form, by a notation in the records of the rights agent and the records of our transfer agent, if different from the rights agent;

	•	the rights will be transferable with and only with shares of our common stock;

	•	new common stock certificates issued after the date we issue the rights, upon transfer or new issuance of shares of the common stock, will contain a notation incorporating the rights agreement by reference;

	•	the surrender for transfer or exchange (A) of any certificates for common stock outstanding as of the date that we issue the rights, even without the notation or a copy of a summary of rights provided by us being attached thereto and (B) of any shares of our common stock held in book-entry form, will also constitute the surrender for transfer or exchange of the rights associated with the common stock represented by the certificate; and

	•	if we purchase or acquire any shares of our common stock, any rights associated with the purchased or acquired shares will be deemed canceled so that we will not be entitled to exercise any rights associated with the common stock that is no longer outstanding.

The rights are not exercisable until after the distribution date and will expire ten years after the closing of this offering, unless we redeem them earlier.

If a person or group becomes an acquiring person, each right then outstanding and not owned by an acquiring person would become a right to buy that number of shares of our common stock, or under specified circumstances, the equivalent number of one one-thousandths of a Series A junior preferred share, that at the time of the acquisition would have a market value of two times the purchase price of the right. For example, at an exercise price of $100 per right, each right not owned by an acquiring person following an event described above would entitle its holder to purchase from us $200 worth of common stock, or in specified circumstances, the equivalent number of one one-thousandths of a Series A junior preferred share, for $100. Assuming that our common stock had a market price per share of $20 at that time, the holder of each valid right would be entitled to purchase ten shares of common stock for $100. However, following the acquisition of 15% or more of the then outstanding shares of our common stock by a person or group who is an acquiring person as defined in the rights agreement, all rights that are, or, under circumstances specified in the rights agreement were, beneficially owned by that acquiring person will be null and void.

In the event that, at any time following the first date of public announcement that a person has become an acquiring person, which is referred to as a shares acquisition date, we


	•	consolidate with or merge with or into any other person in a transaction in which we are not the surviving entity;

	•	consolidate with or merge with or into any other person in a transaction pursuant to which we are the surviving entity but all or a part of the shares of our common stock are changed into or exchanged for stock or other securities of another person, other securities of ours or cash or other property; or

	•	sell or otherwise transfer 50% or more of our assets or assets producing more than 50% earning power;

each holder of a right, except rights that previously have been voided as described above, will thereafter have the right to receive, upon exercise and in lieu of Series A junior preferred shares, shares of capital stock of the acquiring person having a value equal to two times the exercise price of the right.

After a person or group becomes an acquiring person, and before the acquisition by a person or group not including us, any of our subsidiaries, any employee benefit plan of our company or of any of our subsidiaries or any trustee or fiduciary of one of our employee benefit plans, of 50% or more of our outstanding voting shares, our board of directors may, at its option, issue shares of common stock in mandatory redemption of, and in exchange for, all or part of the then outstanding and exercisable rights, other than rights owned by an acquiring person. The exchange would be made at an exchange ratio of one share of common stock for each two shares of common stock for which each right is then exercisable.

The purchase price payable and the number and kind of shares of capital stock issuable upon exercise of the rights are subject to adjustment from time to time if we at any time after the date of the rights agreement:


	•	declare a dividend on the Series A junior preferred shares payable in junior preferred shares;

	•	subdivide the outstanding Series A junior preferred shares;

	•	combine the outstanding Series A junior preferred shares into a smaller number of junior preferred shares; or

	•	issue any shares of our capital stock in a reclassification of the Series A junior preferred shares, including any reclassification in connection with a consolidation or merger in which we are the continuing or surviving corporation.

No adjustment to the purchase price will be required until cumulative adjustments require an adjustment of at least one percent to the purchase price. Upon the exercise of a right, we will not be required to issue fractional Series A junior preferred shares or fractional shares of our common stock, other than fractions in multiples of one one-thousandths of a Series A junior preferred share, and, in lieu thereof, an adjustment in cash may be made based on the market price of the Series A junior preferred shares or our common stock on the last trading date prior to the date of exercise.

At any time prior to the time any person becomes an acquiring person, our board of directors may redeem all but not less than all of the then outstanding rights at a price of $0.00001 per right. The redemption of the rights may be made effective at the time, on the basis and with the conditions as our board of directors in its sole discretion may establish. Immediately upon the action of our board of directors ordering redemption of the rights, the right to exercise the rights will terminate and the only right of the holders of rights will be to receive the $0.00001 redemption price.

Until a right is exercised, the holder of the right will not have any rights as a stockholder, based on ownership of the right, including the right to vote or to receive dividends. While the distribution of the rights will not be taxable to stockholders or to us, stockholders may, depending upon the circumstances, recognize taxable income in the event that any of the rights are exercised for our common stock, or other consideration, or for common stock or other securities of an acquiring company as described above.

The terms of the rights may be amended or supplemented by our board of directors without the consent of the holders of the rights, including an amendment to extend the expiration date of the rights, and, provided that it is not a time when the rights are not redeemable, to extend the period during which the rights may be redeemed. However, after any person becomes an acquiring person, no amendment or supplement may materially and adversely affect the interests of the holders of the rights other than an acquiring person or transferee of any acquiring person.

The rights have several anti-takeover effects. The rights will cause substantial dilution to any person or group that attempts to acquire us without conditioning the offer on our redemption of the rights. The rights should not interfere with any merger or other business combination approved by our board of directors because the board of directors may, at its option, at any time prior to the time any person

We are a Delaware corporation and, upon completion of this offering, will be subject to Section 203 of the Delaware General Corporation Law. Generally, Section 203 prohibits a publicly held Delaware corporation from engaging in a merger or other “business combination” with an “interested stockholder” for a period of three years after the time such stockholder became an interested stockholder, unless, as described below, specified conditions are satisfied. This may make it more difficult for someone to effect a change in our control or management. The prohibitions in Section 203 do not apply if:


	•	prior to the time the stockholder became an interested stockholder, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;

	•	upon the consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, subject to exclusions; or

	•	at or subsequent to the time the stockholder became an interested stockholder, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders by the affirmative vote of at least 66 2/3% of the outstanding voting stock that is not owned by the interested stockholder.

Under Section 203 of the Delaware General Corporation Law, an “interested stockholder” generally is defined to include:


	•	any person that owns 15% or more of the outstanding voting stock of the corporation;

	•	any person that is an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the corporation at any time within the three-year period prior to the date on which it is sought to be determined whether such person is an interested stockholder; and

	•	the affiliates or associates of any such person.

The provisions of Section 203 of the Delaware General Corporation Law described above could have the following effects, among others:


	•	delaying, deferring or preventing a change in our control;

	•	delaying, deferring or preventing the removal of our existing management;

	•	deterring potential acquirers from making an offer to our stockholders; and

	•	limiting any opportunity of our stockholders to realize premiums over prevailing market prices of our common stock in connection with offers by potential acquirers.

This could be the case even if a majority of our stockholders might benefit from a change of control or offer.

We have applied to have our common stock approved for quotation on the Nasdaq National Market under the symbol “SMBI.”

Prior to this offering, there has been no public market for our common stock. Future sales of substantial amounts of common stock in the public market could adversely affect the market price of our common stock. After this offering is completed, the number of shares available for future sale into the public markets will be subject to legal and contractual restrictions, some of which are described below. The lapsing of these restrictions will permit sales of substantial amounts of our common stock in the public market or could create the perception that these sales could occur, which could adversely affect the market price for our common stock. These factors could also make it more difficult to raise funds through future offerings of common stock.

After this offering, shares of common stock will be outstanding, or shares if the underwriters’ exercise their over-allotment option in full. Of these shares:


	•	the shares sold in this offering, plus any shares issued upon exercise of the underwriters over-allotment option, will be freely tradable without restriction under the Securities Act, unless purchased by our “affiliates” as that term is defined in Rule 144 under the Securities Act; and

	•	the remaining shares of common stock that will be outstanding after this offering are “restricted securities” within the meaning of Rule 144.

Upon completion of this offering, we intend to file one or more registration statements under the Securities Act to register the shares of common stock to be issued under our stock incentive plans, our director stock option plan and our employee stock purchase plan and, as a result, all shares of common stock acquired upon exercise of stock options and other equity-based awards granted under these plans will also be freely tradable under the Securities Act unless purchased by our affiliates. Restricted securities generally may be sold only if they are registered under the Securities Act or are sold under an exemption from registration, including the exemptions provided by Rules 144 and 701 under the Securities Act, which are summarized below. Subject to the lock-up agreements described below, shares held by our affiliates that are not restricted securities may be sold subject to compliance with Rule 144 of the Securities Act without regard to the prescribed holding period under Rule 144.

Our officers, directors and certain other stockholders, who together own about shares of our common stock, have agreed that they will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, enter into a transaction that would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our common stock, whether any of these transactions are to be settled by delivery of our common stock or other securities, in cash or otherwise, or publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement, without, in each case, the prior written consent of Credit Suisse First Boston LLC for a period of 180 days following the date of this prospectus.

As a result of these “lock-up” agreements and the rules under the Securities Act, the restricted shares will be available for sale in the public market, subject in most cases to volume and other restrictions, as follows:

At various times thereafter upon the expiration of the applicable holding periods, the remaining restricted shares will become eligible for sale under Rule 144.

Some of our securityholders have the right to require us to register shares of common stock for resale in some circumstances. See “Description of Capital Stock — Registration Rights.”

In general, under Rule 144 as currently in effect, any person or persons whose shares are aggregated, including an affiliate, who has beneficially owned restricted securities for a period of at least one year is entitled to sell, within any three-month period commencing 90 days after the date of this prospectus, a number of shares that does not exceed the greater of:


	•	1% of the then outstanding shares of common stock, which will equal about shares immediately after this offering; or

	•	the average weekly trading volume in our common stock on The Nasdaq National Market during the four calendar weeks preceding the date on which the notice of the sale is filed with the Securities and Exchange Commission.

Sales under Rule 144 are also subject to provisions relating to notice and manner of sale and the availability of current public information about us.

Under Rule 144(k), a person who is not deemed to have been one of our affiliates at any time during the 90 days preceding a sale, and who has beneficially owned the shares for at least two years, including the holding period of any prior owner other than an “affiliate,” is entitled to sell the shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144.

Subject to limitations on the aggregate offering price of a transaction and other conditions, Rule 701 under the Securities Act may be relied upon for the resale of our common stock originally issued by us before the date of this prospectus to our employees, directors, officers, consultants or advisers under written compensatory benefit plans, including our stock option plans, or contracts relating to the compensation of these persons. Shares of our common stock issued in reliance on Rule 701 are “restricted securities” and, beginning 90 days after the date of this prospectus, may be sold by non-affiliates subject only to the manner of sale provisions of Rule 144 and by affiliates under Rule 144 without compliance with the one-year holding period, in each case subject to the lock-up agreements described in “Underwriting.”

The following is a general discussion of the material U.S. federal income and estate tax considerations of the ownership and disposition of our common stock by a non-U.S. holder that acquires our common stock in this offering. This discussion is limited to non-U.S. holders that hold our common stock as a capital asset (generally, property held for investment). As used in this discussion, the term “non-U.S. holder” means a beneficial owner of our common stock that is not, for U.S. federal income tax purposes:


	•	an individual who is a citizen or resident of the United States;

	•	a corporation (including any entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States or of any political subdivision of the United States;

	•	an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or

	•	a trust (1) that is subject to the primary supervision of a United States court and the control of one or more United States persons or (2) that has a valid election in effect under applicable Treasury regulations to be treated as a United States person.

This discussion does not address the tax consequences for partnerships or persons who hold their interests through a partnership or other entity classified as a partnership for U.S. federal income tax purposes.

An individual may be treated as a resident of the United States in any calendar year for U.S. federal income tax purposes, instead of a nonresident, by, among other ways, being present in the United States on at least 31 days in that calendar year and for an aggregate of at least 183 days during a three-year period ending in the current calendar year. For purposes of this calculation, you would count all of the days present in the current year, one-third of the days present in the immediately preceding year and one-sixth of the days present in the second preceding year. Residents are taxed for U.S. federal income purposes in the same manner as U.S. citizens.


	•	U.S. state and local or non-U.S. tax consequences;

	•	specific facts and circumstances that may be relevant to a particular non-U.S. holder’s tax position;

	•	the tax consequences for the stockholders or beneficiaries of a non-U.S. holder;

	•	special tax rules that may apply to particular non-U.S. holders, such as financial institutions, insurance companies, tax-exempt organizations, certain former citizens or former long-term residents of the United States, broker-dealers and traders in securities; or

	•	special tax rules that may apply to a non-U.S. holder that holds our common stock as part of a “straddle,” “hedge,” “conversion transaction,” “synthetic security” or other integrated investment.

The following discussion is based on current provisions of the Internal Revenue Code of 1986, as amended, applicable U.S. Treasury regulations and administrative and judicial interpretations, all as in effect and generally available as of the date hereof, and all of which are subject to change, retroactively or prospectively.

Prospective investors are urged to consult their own tax advisors regarding the U.S. federal, state, local and non-U.S. income and other tax considerations with respect to owning and disposing of shares of our common stock.

As previously discussed, we do not anticipate paying any dividends on our common stock in the foreseeable future. See “Dividend Policy.” In the event, however, that we pay dividends on our common stock that are not effectively connected with a non-U.S. holder’s conduct of a trade or business in the United States, we generally will have to withhold U.S. federal income tax at a rate of 30%, or a lower rate under an applicable income tax treaty, from the gross amount of the dividends paid to such non-U.S. holder. Non-U.S. holders should consult their tax advisors regarding their entitlement to benefits under a relevant income tax treaty.

Under applicable U.S. Treasury regulations, for purposes of the withholding discussed above and for purposes of determining the applicability of a tax treaty rate, a non-U.S. holder who claims the benefit of an applicable income tax treaty rate generally will be required to satisfy certain certification and other requirements. In the case of common stock held by a foreign trust, the certification requirement will generally be applied to the trust or the beneficial owners of the trust depending on whether the trust is a “foreign complex trust,” “foreign simple trust,” or “foreign grantor trust” as defined in the U.S. Treasury regulations. Look-through rules will apply for “foreign simple trusts” and “foreign grantor trusts.”

Dividends that are effectively connected with a non-U.S. holder’s conduct of a trade or business in the United States and, if an income tax treaty applies, attributable to a permanent establishment in the United States, are taxed on a net income basis at the regular graduated U.S. federal income tax rates in much the same manner as if the non-U.S. holder were a resident of the United States. In such cases, the dividends will not be subject to any U.S. federal withholding tax if the non-U.S. holder complies with applicable certification and disclosure requirements. A “branch profits tax” may be imposed at a 30% rate, or a lower rate under an applicable income tax treaty, on dividends received by a corporate non-U.S. holder that are effectively connected with the conduct of a trade or business in the United States.

In order to claim the benefit of an income tax treaty or to claim exemption from withholding because the income is effectively connected with the conduct of a trade or business in the United States, the non-U.S. holder must provide a properly executed IRS Form W-8BEN, for treaty benefits, or W-8ECI, for effectively connected income (or such successor forms as the IRS designates), respectively, prior to the payment of dividends. These forms must be periodically updated. If our common stock is traded on an established securities market, a non-U.S. holder who is claiming the benefits of a treaty will not be required to obtain and provide a U.S. taxpayer identification number on the IRS Form W-8BEN. In certain circumstances, in lieu of providing an IRS Form W-8BEN, a non-U.S. holder may provide certain documentary evidence to establish residence in a foreign country in order to claim treaty benefits.

A non-U.S. holder that is eligible for a reduced rate of U.S. federal withholding tax under an income tax treaty may obtain a refund or credit of any excess amounts withheld by filing an appropriate claim for a refund together with the required information with the IRS.

A non-U.S. holder generally will not be subject to U.S. federal income or withholding tax with respect to any gain realized on a sale or other disposition of our common stock unless one of the following applies:


	•	the gain is effectively connected with the non-U.S. holder’s conduct of a trade or business in the United States (and, if required by an income tax treaty, the gain is attributable to a permanent establishment maintained by the non-U.S. holder in the United States); in these cases, the non-U.S. holder will generally be taxed on its net gain derived from the disposition at the regular graduated U.S. federal income tax rates and in the manner applicable to U.S. persons and, if the non-U.S. holder is a foreign corporation, the “branch profits tax” described above may also apply;

	•	the non-U.S. holder is an individual who holds our common stock as a capital asset, is present in the United States for 183 days or more in the taxable year of the disposition and meets certain other requirements; in that case, the non-U.S. holder will be subject to a flat 30% tax on its net


		gain, if any, from the sale or other disposition of all such non-U.S. holder’s capital assets sold or otherwise disposed of during the taxable year; or

	•	we are or have been a “United States real property holding corporation” for U.S. federal income tax purposes at any time during the shorter of the five year period ending on the date of such disposition or the period that the non-U.S. holder held our common stock. Generally, a corporation is a “United States real property holding corporation” if the fair market value of its “United States real property interests” equals or exceeds 50% of the sum of the fair market value of its worldwide property interests plus its other assets used or held for use in a trade or business. If we are, or were to become, a United States real property holding corporation, gain realized upon a disposition of our common stock by a non-U.S. holder that did not directly or indirectly own more than 5% of our common stock during the shorter of the five year period ending on the date of disposition or the period that the non-U.S. holder held our common stock generally would not be subject to U.S. federal income tax, provided that our common stock is “regularly traded on an established securities market” within the meaning of the Section 897(c)(3) of the Internal Revenue Code. If we are, or were to become, a U.S. real property holding corporation and a non-U.S. holder owned directly or indirectly more than 5% of our common stock during the period described above or our common stock is not “regularly traded on an established securities market,” then a non-U.S. holder would generally be subject to U.S. federal income tax on its net gain derived from the disposition of our common stock as though the non-U.S. holder was engaged in a business in the United States and the gain was effectively connected with such business. We believe that we have not been and are not currently, and we do not anticipate becoming in the future, a “United States real property holding corporation” for U.S. federal income tax purposes.

Common stock owned or treated as owned by an individual who is not a citizen or resident of the United States at the time of death will be included in the individual’s gross estate for U.S. federal estate tax purposes, unless an applicable estate tax or other treaty provides otherwise and, therefore, may be subject to U.S. federal estate tax.

We must report annually to the IRS and to each non-U.S. holder the amount of dividends paid to that holder and the amount of tax, if any, withheld from those dividends. These information reporting requirements apply even if withholding was not required because the dividends were effectively connected dividends or withholding was reduced or eliminated by an applicable income tax treaty. Copies of the information returns reporting those dividends and withholding may also be made available to the tax authorities in the country in which the non-U.S. holder is a resident under the provisions of an applicable income tax treaty or agreement.

Under some circumstances, U.S. Treasury regulations require additional information reporting and backup withholding on reportable payments on common stock. Generally, information reporting and backup withholding of U.S. federal income tax (currently imposed at a rate of 28%) may apply to dividends made by us or our paying agents, in their capacities as such, to non-U.S. holders if the payee fails to make the appropriate certification that the holder is a not a U.S. person.

The payment of the proceeds of the sale or other disposition of our common stock by a non-U.S. holder to or through the U.S. office of any broker, U.S. or non-U.S., generally will be reported to the IRS and reduced by backup withholding, unless the non-U.S. holder certifies its status as a non-U.S. holder under penalties of perjury or otherwise establishes an exemption. The payment of the proceeds of the sale or other disposition of our common stock by a non-U.S. holder to or through a non-U.S. office of a non-U.S. broker will not be reduced by backup withholding or reported to the IRS, unless the non-U.S. broker has certain enumerated connections with the United States. In general, the payment of proceeds from the sale or other disposition of our common stock by or through a non-U.S. office of a

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a non-U.S. holder can be refunded or credited against the non-U.S. holder’s U.S. federal income tax liability, if any, provided that the required information is furnished to the IRS in a timely manner. These backup withholding and information reporting rules are complex and non-U.S. holders are urged to consult their own tax advisors regarding the application of these rules to them.

The preceding discussion of certain U.S. federal income and estate tax considerations is for general information only and is not tax advice. Accordingly, each prospective non-U.S. holder should consult that holder’s own tax adviser with respect to the federal, state, local and non-U.S. tax consequences of the ownership and disposition of our common stock.

Under the terms and subject to the conditions contained in an underwriting agreement dated , 2004, we have agreed to sell to the underwriters named below, for whom Credit Suisse First Boston LLC are acting as representatives, the following respective numbers of shares of common stock:

The underwriting agreement provides that the underwriters are obligated to purchase all of the shares of common stock in the offering if any are purchased, other than those shares covered by the over-allotment option described below. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may be increased or the offering may be terminated.

We have granted to the underwriters a 30-day option to purchase on a pro rata basis up to additional shares at the initial public offering price less the underwriting discounts and commissions. The option may be exercised only to cover any over-allotments of common stock.

The underwriters propose to offer the shares of common stock initially at the public offering price on the cover page of this prospectus and to selling group members at that price less a selling concession of $ per share. The underwriters and selling group members may allow a discount of $ per share on sales to other broker/dealers. After the initial public offering the representatives may change the public offering price and concession and discount to broker/dealers.

The following table summarizes the compensation and estimated expenses we will pay:

We intend to use more than 10% of the net proceeds from the sale of the common stock to repay indebtedness owed by us to DLJ Investment Partners II, L.P. and its affiliates, which are affiliates of Credit Suisse First Boston LLC, and indebtedness under our senior credit facility owed by us to, among others, Bank of America, N.A., an affiliate of Banc of America Securities LLC, and affiliates of Credit Suisse First Boston LLC and Raymond James & Associates, Inc. and to make cash payments in connection with the conversion of shares of our convertible preferred stock beneficially owned by affiliates of Credit Suisse First Boston LLC, Banc of America Securities LLC and Raymond James & Associates, Inc. Accordingly, the offering is being made in compliance with the requirements of Rule 2710(c)(8) of the National Association of Securities Dealers, Inc. Conduct Rules. This rule provides generally that if more than 10% of the net proceeds from the sale of stock, not including underwriting compensation, is paid to the underwriters or their affiliates, the initial public offering price of the stock may not be higher than that recommended by a “qualified independent underwriter” meeting certain standards. Accordingly, Merrill Lynch, Pierce, Fenner & Smith Incorporated is assuming the responsibilities of acting as the qualified independent underwriter in pricing the offering and conducting due diligence. The initial public

The representatives have informed us that the underwriters do not expect discretionary sales to exceed 5% of the shares of common stock being offered.

We have agreed that we will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the Securities Act relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, without the prior written consent of Credit Suisse First Boston LLC, for a period of 180 days after the date of this prospectus.

Our officers and directors have agreed that they will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, enter into a transaction that would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our common stock, whether any of these transactions are to be settled by delivery of our common stock or other securities, in cash or otherwise, or publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement, without, in each case, the prior written consent of Credit Suisse First Boston LLC, for a period of 180 days after the date of this prospectus.

The underwriters have reserved for sale at the initial public offering price up to shares of the common stock for employees, directors and other persons associated with us who have expressed an interest in purchasing common stock in the offering. The number of shares available for sale to the general public in the offering will be reduced to the extent these persons purchase the reserved shares. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same terms as the other shares.

We have agreed to indemnify the underwriters against liabilities under the Securities Act, or contribute to payments that the underwriters may be required to make in that respect.

We have applied to list the shares of common stock on the Nasdaq National Market, under the symbol “SMBI.”

Some of the underwriters and their affiliates have provided and may in the future provide services and engage in commercial and investment banking transactions with us for which they have been, and will be, paid customary fees and commissions. Banc of America Securities LLC is the sole lead arranger and sole book manager for our senior credit facility. In addition, Bank of America, N.A., an affiliate of Banc of America Securities LLC, is the administrative agent and issuing bank, and Credit Suisse First Boston (Cayman Islands Branch), an affiliate of Credit Suisse First Boston LLC, is the syndication agent for the facility. Bank of America, N.A. and affiliates of Credit Suisse First Boston LLC and Raymond James & Associates, Inc. are lenders under our senior credit facility.

Certain affiliates of Credit Suisse First Boston LLC beneficially own approximately 78,989 shares of our common stock, 76,090 shares of our Series A convertible preferred stock and 34,306 shares of our Series B convertible preferred stock through their interests in investment partnerships that own shares of our common stock and our convertible preferred stock, and an affiliate of Credit Suisse First Boston LLC also holds currently exercisable warrants to purchase 250,000 shares of our common stock. Certain affiliates of Banc of America Securities LLC beneficially own approximately 360,674 shares of our common stock, 50,726 shares of our Series A convertible preferred stock and 26,744 shares of our Series B convertible preferred stock through its interests in investment partnerships that own shares of our common stock and our convertible preferred stock. In addition, two officers of Raymond James & Associates, Inc. beneficially own 17,964 shares of our Series A convertible preferred stock, and an affiliate of Raymond James & Associates, Inc. beneficially owns approximately 56,311 shares of our common stock through its interest in an investment partnership that owns shares of our common stock.

We entered into an agreement to issue, at our option, up to $40.0 million of 14 3/4% Senior Subordinated Notes due 2008 to DLJ Investment Partners II, L.P. and its affiliates, of which we have issued about $15.1 million of notes. DLJ Investment Partners II, L.P. and its affiliates are affiliates of Credit Suisse First Boston LLC.

Prior to this offering, there has been no established market for our common stock. The initial public offering price for the shares of our common stock offered by this prospectus will be determined by negotiation between us and the representatives. The principal factors in determining the initial public offering price will include:


	•	the information presented in this prospectus and otherwise available to the representatives;

	•	the history of and the prospects for our industry;

	•	the abilities of our management;

	•	our past and present operations;

	•	our historical results of operations;

	•	our prospects for future operational results;

	•	the recent market prices of, and the demand for, publicly traded common stock of generally comparable companies;

	•	market conditions for initial public offerings; and

	•	the general condition of the securities markets at the time of this offering.

We cannot be sure that the initial public offering price will correspond to the price at which the common stock will trade in the public market following this offering or that an active trading market for the common stock will develop and continue after this offering.

In connection with the offering, the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate covering transactions, penalty bids and passive market making in accordance with Regulation M under the Securities Exchange Act of 1934.


	•	Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum.

	•	Over-allotment involves sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any covered short position by either exercising their over-allotment option and/or purchasing shares in the open market.

	•	Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. If the underwriters sell more shares than could be covered by the over- allotment option, a naked short position, the position can only be closed out by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering.


	•	Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.

	•	In passive market making, market makers in the common stock who are underwriters or prospective underwriters may, subject to limitations, make bids for or purchases of our common stock until the time, if any, at which a stabilizing bid is made.

These stabilizing transactions, syndicate covering transactions, penalty bids and passive market making may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of the common stock. As a result the price of our common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on the Nasdaq National Market or otherwise and, if commenced, may be discontinued at any time.

A prospectus in electronic format may be made available on the websites maintained by one or more of the underwriters, or selling group members, if any, participating in this offering, and one or more of the underwriters participating in this offering may distribute prospectuses electronically. The representatives may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriters and selling group members that will make Internet distributions on the same basis as other allocations.

The legality of the shares of common stock issued in this offering will be passed upon for us by Waller Lansden Dortch & Davis, A Professional Limited Liability Company, Nashville, Tennessee. Various legal matters related to the sale of the common stock issued in this offering will be passed upon for the underwriters by Dewey Ballantine LLP, New York, New York.

Ernst & Young LLP, independent auditors, have audited our consolidated financial statements at December 31, 2001 and 2002, and for each of the three years in the period ended December 31, 2002, as set forth in their report. We have included our financial statements in this prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP’s report, given on their authority as experts in accounting and auditing.

Ernst & Young LLP, independent auditors, have audited the consolidated financial statements of Physicians Surgical Care, Inc. at December 31, 2001, and for each of the two years in the period ended December 31, 2001, as set forth in their report. We have included the financial statements of Physicians Surgical Care, Inc. in this prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP’s report, given on their authority as experts in accounting and auditing.

We have filed with the SEC a registration statement on Form S-1 under the Securities Act for the registration of the common stock we are offering. This prospectus, which is part of the registration statement, does not contain all the information included in the registration statement because we have omitted certain parts of the registration statement as permitted by SEC rules and regulations. For further information about us and our common stock, you should refer to the registration statement. Statements contained in this prospectus as to any contract, agreement or other document referred to are not necessarily complete. Where the contract or other document is an exhibit to the registration statement, each statement is qualified by the provisions of that exhibit.

When we complete this offering, we will be required to file annual, quarterly and special reports, proxy statements and other information with the SEC. You can obtain our SEC filings, including the registration statement, over the Internet at the SEC’s website at http://www.sec.gov. You may also read and copy any document we file with the SEC at its public reference facilities at 450 Fifth Street, N.W., Washington, D.C. 20549. You may also obtain copies of these documents at prescribed rates by writing to the Public Reference Room of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0300 for further information on the operation of the public reference facilities.

We have audited the accompanying consolidated balance sheets of Symbion, Inc. as of December 31, 2001 and 2002, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Symbion, Inc. at December 31, 2001 and 2002, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States.

As discussed in Note 2 to the consolidated financial statements, in 2001 the Company changed its method of accounting for business combinations, and in 2002 the Company changed its method of accounting for goodwill and other intangible assets.

During 2003, employees surrendered Common Stock valued at $349 in exchange for the Company withholding estimated income taxes on stock option exercises on their behalf.

During 2001, shares of Common Stock and related stockholder notes receivable valued at $12 were forfeited as a result of employee terminations.

During 2000 and 2001, the Company issued 5,000 shares and 30,054 shares, respectively, of Common Stock valued at $13 and $35, respectively, as contingent consideration for previous years’ acquisitions.

Symbion, Inc. (the “Company”), through its wholly-owned subsidiaries, owns interests in limited partnerships and limited liability companies (“LLCs”) which own and operate surgery centers in joint-ownership with physicians and physician groups, hospitals and hospital networks. In addition, the Company operates a diagnostic center and provides development and management services on a contract basis to non-affiliated surgery centers and manages physician networks. As of December 31, 2002, the Company operated and managed 34 surgery centers and managed three physician networks.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, as well as its interest in limited partnerships and limited liability companies controlled by the Company through ownership of a majority voting interest or other rights granted to the Company by contract as the sole general partner to manage and control the ordinary course of the affiliate’s business. The limited partner or minority member responsibilities are to supervise the delivery of medical services with their rights being restricted to those that protect their financial interests. Under certain of the partnership and operating agreements governing these limited partnerships and limited liability companies, the Company could be removed as the sole general partner or managing member for certain events such as material breach, gross negligence or bankruptcy. These protective rights do not preclude consolidation of the respective limited partnerships and limited liability companies. All significant intercompany balances and transactions are eliminated in consolidation.

The accompanying unaudited consolidated balance sheet as of September 30, 2003 and the related unaudited consolidated statements of operations and cash flows for the nine months ended September 30, 2002 and September 30, 2003, and the unaudited consolidated statement of stockholders’ equity for the nine months ended September 30, 2003 have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the interim results have been included.

The unaudited interim consolidated financial statements should be read in conjunction with the audited December 31, 2002 consolidated financial statements appearing herein. The results of the nine months ended September 30, 2003 may not be indicative of operating results for the full year.

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Company maintains its cash and cash equivalent balances at high credit quality financial institutions.

The Company had $500 and $1,000 of restricted cash equivalents related to long-term obligations as of December 31, 2001 and 2002, respectively. See Note 7 for further discussion.

Accounts receivable consist of receivables from federal and state agencies (under the Medicare and Medicaid programs), managed care health plans, commercial insurance companies, employers and patients. The Company recognizes that revenues and receivables from government agencies are significant to its operations, but it does not believe that there are significant credit risks associated with these government agencies. Accounts receivable are recorded net of allowances for bad debts to reflect accounts receivable at net realizable value. Accounts receivable at December 31 were as follows:

Changes in the allowance for doubtful accounts and the amounts charged to revenues, costs and expenses were as follows:


(1)	Relates to allowances for doubtful accounts recorded under the purchase method of accounting for acquired entities.

(2)	Charged to costs and expenses was $1,717 to bad debt expense, $325 to contractual deductions and $206 to other operating expenses.

Inventories are stated at the lower of cost or market value. Cost is determined using the first-in, first-out method.

Property and equipment are stated at cost or, if obtained through acquisition, at fair value determined on the date of acquisition, and depreciated on a straight-line basis over the useful lives of the assets, generally three to five years for computers and software and five to seven years for furniture and equipment. Leasehold improvements are depreciated on a straight-line basis over the shorter of the lease term or the estimated useful life of the assets. Routine maintenance and repairs are charged to expenses as incurred, while expenditures that increase capacities or extend useful lives are capitalized.

Depreciation expense, including the amortization of assets under capital leases, was $5,495, $6,172 and $7,765 for the years ended December 31, 2000, 2001 and 2002, respectively.

Goodwill represents the excess of purchase price over fair value of net tangible assets acquired. Through December 31, 2001, goodwill was amortized on a straight-line basis over the expected periods to be benefited, generally twenty years. In June 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that the purchase method of accounting be used for business combinations initiated after June 30, 2001 and

prohibits the use of the pooling-of-interests method of accounting for those business combinations. Under SFAS No. 141, goodwill of $9,800 relating to acquisitions after June 30, 2001 was not amortized in 2001. In addition, effective January 1, 2002, the amortization of all goodwill was discontinued upon the adoption of SFAS No. 142. SFAS No. 142 no longer permits the amortization of goodwill and other indefinite lived intangible assets over a set period, rather these assets must be tested for impairment at least annually using a fair value method. The Company performed a transitional goodwill impairment test noting no impairment. Impairment is measured at the reporting unit level using a discounted cash flows model to determine the fair value of the reporting units. The Company will perform a goodwill impairment test whenever events or changes in facts or circumstances indicate that impairment may exist, or at least annually during the fourth quarter each year. Goodwill resulting from acquisitions in 2000, 2001 and 2002 is deductible for tax purposes over a 15-year period.

For the year ended December 31, 2001, the Company identified and recorded impairment charges to goodwill of $130 related to three surgery centers. As of December 31, 2002, in the opinion of management, there has been no other impairment.

Service agreement rights represent the exclusive right to operate the physician network during the 20-year term of the agreement. The service agreement right is amortized over 20 years. See Note 4 regarding dispositions and impairment of service agreement rights during the years ended December 31, 2000 and 2001.

The Company accounts for assets of a long term nature (“long-lived assets”) in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which requires that companies consider whether events or changes in facts and circumstances, both internally and externally, may indicate that an impairment of long-lived assets held for use are present. The Company adopted SFAS No. 144 effective January 1, 2002. Under SFAS No. 144, impairment is measured at the reporting unit level based on discounted future cash flows from the reporting unit including the long-lived assets. The cash flow estimates and discount rates incorporate management’s best estimates, using appropriate and customary assumptions and projections at the date of evaluation.

Through December 31, 2001, long-lived assets were accounted for in accordance with SFAS No. 121, Accounting for the Impairment of Long-lived Assets and Long-lived Assets to be Disposed-of. In accordance with SFAS No. 121, the Company reviewed internal and external factors to determine whether events or changes in facts or circumstances were present and indicative of an impairment of long-lived assets. Under SFAS No. 121, the review included estimates of future cash flows related to such long-lived assets. See Note 4 for a discussion of impairments and loss on disposal of assets during the years ended December 31, 2000 and 2001.

The consolidated financial statements include all assets, liabilities, revenues and expenses of controlled surgery centers. Accordingly, the Company has recorded minority interests in the earnings (losses) of such surgery centers.

Investments in and advances to affiliates at December 31, 2002 include approximately $4,500 of advances to, net investments in and a note receivable from a surgery center that the Company manages

and are secured by substantially all of the assets of the related surgery center. In addition, the Company holds non-controlling interests in certain surgery centers where it exercises significant influence. Accordingly, the Company accounts for such investments under the equity method.

Other assets at December 31, 2002 include approximately $1,900 of costs associated with the Company’s planned initial public offering. These costs will either be reclassified to equity upon the Company’s completion of an initial public offering or expensed.

Patient service revenues are recorded at the time health care services are provided at estimated amounts due from patients and third-party payors. A fee is charged for surgical procedures performed in each of the Company’s surgery centers. The fee varies depending on the procedure, but usually includes all charges for usage of an operating room, a recovery room, special equipment, supplies, nursing staff and medications. The fee does not include professional fees charged by the patient’s surgeon, anesthesiologist or other attending physician, which are billed directly by such physicians to the patient or third-party payor. The Medicare program and most other payors pay surgery centers in accordance with a fee schedule that is prospectively determined. Accordingly, there is no retroactive cost report settlement process. Revenues from surgery centers are recognized on the date of service, net of estimated contractual adjustments and discounts from third party payors including Medicare and Medicaid. Changes in estimated contractual adjustments and discounts are recorded in the period of change. During the years ended December 31, 2000, 2001 and 2002, 23%, 20% and 18%, respectively, of the Company’s patient service revenues were derived from the provision of services to patients covered under Medicare and Medicaid. Concentration of credit risk with respect to other payors is limited due to the large number of such payors.

The Company derives all of its physician service revenues from physician networks with which it has service agreements. Physician service revenues from physician networks consist of reimbursed expenses, plus participation in the excess of revenue over expenses of the physician networks, as defined in the service agreements. Reimbursed expenses include the costs of personnel, supplies and other expenses incurred to provide the management services to the physician networks. The Company recognizes physician service revenues in the period in which reimbursable expenses are incurred and in the period in which the Company has rights to a percentage of the amount by which a physician network’s revenues exceed its expenses. Physician service revenues are based on net billings with any changes in estimated contractual adjustments and bad debts reflected in service revenues in the subsequent period. The Company’s physician service revenues would be impacted by changes in estimated contractual adjustments and bad debts recorded by the physician networks. As required by the service agreements, the Company

purchases patient accounts receivable on a monthly basis from the physician networks at estimated net realizable value (i.e., net of estimated contractual adjustments and bad debts) to provide liquidity to the physician networks and collects amounts from the responsible payor as described under Accounts Receivable in Note 2. As of December 31, 2002, the Company had such an obligation to only one group of three physicians included in one of the three physician networks the Company manages (see Note 4). Such activity is reflected as cash flows from operating activities in the Consolidated Statements of Cash Flows. Accounts receivable are a function of clinic revenue generated by the physician networks, rather than physician service revenues of the Company.

Physician service revenues consist of the following amounts for the years ended December 31:

The following sets forth the percentage of revenues generated under management agreements accounting for more than 10% of the Company’s revenues for the years ended December 31:

The Company has elected to record stock options in accordance with Accounting Principles Board Opinion No. 25 “Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations thereof and, accordingly, recognizes no compensation expense for options granted when the exercise price equals, or is greater than, the market price of the underlying stock on the date of grant (the “intrinsic value method”).

Had the Company used the Black-Scholes estimates to determine compensation expense for options granted, net income (loss) and net income (loss) per share attributable to common stockholders would have been reduced to the following pro forma amounts:

The effect of applying SFAS No. 123 for providing pro forma disclosure is not likely to be representative of the effect on reported net income for future years.

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

Income taxes are computed based on the liability method of accounting whereby deferred tax assets and liabilities are determined based upon differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the accompanying consolidated financial statements and notes. Actual results could differ from those estimates.

The following methods and assumptions were used by the Company in estimating its fair value disclosures for the following financial instruments:

For cash, accounts receivable and accounts payable, the carrying amounts reported in the accompanying Consolidated Balance Sheets approximate fair value because of their short-term nature. For long-term debt and capitalized leases, the carrying amounts reported in the accompanying Consolidated Balance Sheets approximates fair value based upon the borrowing rates available to the Company.

Certain reclassifications have been made to the prior year financial statements to conform to the 2002 presentation.

In June 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 146, Accounting for Costs Associated with Exit or Disposal Activities (“SFAS No. 146”). SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and supercedes EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring) (“Issue 94-3”). SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue 94-3, a liability for an exit cost as generally defined in Issue 94-3 was recognized at the date of an entity’s commitment to an exit plan. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. The Company adopted SFAS No. 146 effective July 1, 2002, and it did not have a material effect on the Company’s consolidated financial position or results from operations.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure, which amends SFAS No. 123. SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value-based method of accounting for stock-based employee compensation and amends the disclosure requirements of SFAS No. 123 to require more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. SFAS No. 148 is effective for financial statements issued for fiscal years ending after December 15, 2002, and interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. The Company has elected to account for stock-based compensation plans under the intrinsic value-based method of accounting prescribed by Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, that does not utilize the fair value method. However, the Company has adopted the disclosure requirements of SFAS 123, and the Company has adopted the additional disclosure requirements as specified in SFAS No. 148 for the year-ended December 31, 2002, as disclosed in Note 2 and Note 8.

In November 2002, the FASB issued Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an Interpretation of FASB Statements No. 5, 57 and 107 and Rescission of FASB Interpretation No. 34 (“FIN 45”). The interpretation requires that upon issuance of a guarantee, the entity must recognize a liability for the fair value of the obligation it assumes under that obligation. This interpretation is intended to improve the comparability of financial reporting by requiring identical accounting for guarantees issued with separately identified consideration and guarantees issued without separately identified consideration. The initial recognition and measurement provisions of FIN 45 were applicable to guarantees issued or modified after December 31, 2002. The adoption of FIN 45 did not have a material effect on the Company’s consolidated financial position or results of operations.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities (“VIEs”), an Interpretation of Accounting Research Bulletin No. 51 (“FIN 46”). FIN 46 requires certain VIEs to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new VIEs created or acquired after January 31, 2003. For VIEs created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after December 15, 2003. The Company is currently evaluating the effects, if any, that the provisions of FIN 46 will have on the Company’s results of operations or financial position.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (“SFAS No. 150”). This statement generally requires liability classification for two broad classes of financial instruments. Under SFAS No. 150, instruments that represent, or are indexed to, an obligation to buy back the issuer’s shares, regardless whether the instrument is settled on a net-cash or gross physical basis are required to be classified as liabilities. Obligations that can be settled in shares, but either derive their value predominately from some other underlying, have a fixed value, or have a value to the counterparty that moves in the opposite direction as the issuer’s shares, are also required to be classified as liabilities under this statement. SFAS No. 150 must be applied immediately to instruments entered into or modified after May 31, 2003 and to all other instruments that exist as of the beginning of the first interim financial reporting period beginning after June 15, 2003. On November 5, 2003 the FASB agreed to defer indefinitely the effective date of the Statement for certain types of noncontrolling interests that are classified as equity in the financial statements of the subsidiary but would be classified as a liability in the parent’s financial statements. As a result of the deferral, companies should continue to account for these interests as minority interests. The Company has determined that the provisions of SFAS No. 150 will have no material impact on the Company’s results of operations or financial position.

The Company, through wholly-owned subsidiaries and in separate transactions, acquired a majority interest in three surgery centers during each of the years ended 2000, 2001 and 2002. Additionally, in 2002, the Company acquired Physicians Surgical Care, Inc. The following table summarizes the allocation of the aggregate purchase price of these acquisitions for the years ended December 31:

The cash for the acquisitions was funded primarily through bank loans with the remainder funded from the operations of the Company.

These acquisitions were accounted for under the purchase method of accounting and, accordingly, the results of operations of the acquired businesses are included in the accompanying consolidated financial statements from their respective dates of acquisitions. These acquisitions placed the Company in new markets or expanded the Company’s presence in current markets.

The Company paid $208, $89 and $263 in additional consideration related to previous years’ acquisitions in 2000, 2001 and 2002, respectively, which are reflected as additions to goodwill in the accompanying Consolidated Balance Sheets.

Included in the acquisitions discussed above were the following individually significant transactions:

On July 31, 2001, the Company acquired a 51% interest in Physicians Surgery Center, LLC, an outpatient surgery center located in Fort Myers, Florida. This is the Company’s first facility in Fort Myers. The interest in the surgery center was acquired for consideration of $10,222 in cash and 126,811 shares of Company common stock, valued at $350. The acquisition resulted in the following purchase allocation:

On March 7, 2002, the Company entered into an agreement and plan of merger with Physicians Surgical Care, Inc. (“PSC”), pursuant to which a subsidiary of the Company was to merge with and into PSC in a stock-for-stock merger. The merger was approved by the respective shareholders of the Company and PSC on March 28, 2002 and was effective April 1, 2002. In the merger, the outstanding shares of PSC’s capital stock converted into shares of the Company’s capital stock, and all options, warrants or other rights to acquire shares of PSC’s capital stock converted into comparable rights to acquire shares of the Company’s capital stock, with the number of shares and rights representing, in the aggregate, 19.1% of the Company’s capital stock on a fully diluted basis, subject to certain adjustments specified in the merger agreement. Under the terms of the merger agreement with PSC, the Company issued 2,770,748 shares of its Common Stock (of which 277,053 were held in escrow at December 31, 2002), 4,341,726 shares of its Series A convertible preferred stock (of which 434,169 were held in escrow at December 31, 2002), 2,604,590 shares of its Series B convertible preferred stock (of which 260,457 were held in escrow at December 31, 2002), options to purchase 283,887 shares of its Common Stock and warrants to purchase 128,470 shares of its common stock to PSC stockholders. In conjunction with the merger, the Company

acquired additional ownership interests and certain physician owners terminated their rights to acquire additional interests in certain PSC surgery centers. The Company issued warrants to purchase 1,112,984 shares of Common Stock, paid $2,122 in cash, issued convertible debentures in the aggregate principal amount of $3,171 and issued promissory notes in the aggregate principal amount of $595 as consideration.

The purchase price, comprised of common and preferred stock, stock options and warrants issued ($32,688), cash, notes payable and convertible debentures issued ($5,888) and acquisition costs incurred ($3,681), allocated to the acquired assets and liabilities assumed at April 1, 2002 is as follows:

All options and warrants issued were recorded as purchase price at their fair value, which was calculated using the Black-Scholes option-pricing model.

In addition, the Company agreed to issue up to an additional 2,189,887 shares of its Common Stock, which would be recorded as an addition to goodwill, to the former stockholders of PSC based on the 2003 financial results of one of the acquired PSC surgery centers. The Series A convertible preferred stock and Series B convertible preferred stock have certain conversion rights upon certain events. In the event these rights are exercisable, the Company will be required to make an additional cash payment of $31,831. This amount will be reflected as additional purchase price and recorded as an addition to goodwill. See Note 8 for additional information related to the Series A convertible preferred stock and Series B convertible preferred stock.

The following represents the unaudited pro forma results of consolidated operations as if the acquisitions discussed above had occurred at the beginning of the immediately preceding period, after giving effect to certain pro forma adjustments, for the years ended December 31:

The pro forma results of operations do not purport to be indicative of what the Company’s results of operations would have been if the acquisitions or merger had in fact occurred at the beginning of the periods presented, and is not intended to be a projection of the impact on future results or trends.

In 2003, the Company acquired additional ownership interests in certain of its consolidated surgery centers in exchange for $3,348 in cash, which resulted in additions to goodwill of $1,594 and additions to investments in and advances to affiliates of $750.

In 2000, the Company reviewed the carrying value of service agreement rights of its physician networks, consistent with SFAS No. 121. The review indicated that service agreement rights of five of the Company’s physician networks would not be recoverable based on the estimated future undiscounted cash flows of the entity. The Company recorded a charge to earnings of $6,043 to reduce the Company’s carrying value of the service agreement rights to the estimated fair value based on anticipated sales value.

During the first and second quarters of 2001, the Company terminated its management agreements with two of its physician networks (“Terminated Physician Networks”) and transferred its related assets and liabilities to the networks. In addition, the Company amended its management agreements with two additional physician networks (“Restructured Physician Networks”) to delete provisions that required the Company to provide the networks with capital and additional assets, in addition to management services, and transferred certain related accounts receivable, prepaid expenses and liabilities to the networks. The Company also agreed to transfer to the Restructured Physician Networks its existing equipment and other assets relating to the networks for no additional consideration, on an annual basis beginning in January 2006, for one of the networks, and September 2007, for the other network, as the assets become fully depreciated.

For 2001, the Terminated Physician Networks had generated the following results prior to their disposition:

In conjunction with the Restructured Physician Networks and one of the Terminated Physician Networks, the Company received consideration approximating the net carrying value of the assets disposed of and recorded as held for sale at December 31, 2000. In conjunction with the disposition of the other Terminated Physician Network, the Company received consideration of $2,346 in excess of the carrying amount of the related net assets. The gain on termination is included in gain on sale of long-lived assets in the accompanying Consolidated Statements of Operations for the year ended December 31, 2001.

In the fourth quarter of 2001, the Company initiated a plan to terminate its management agreement with another physician network and to transfer its related assets and liabilities to the network, which comprise net assets held for sale of $4,585 in the accompanying Consolidated Balance Sheets at December 31, 2001. The Company recorded an impairment and loss on disposal charge for these assets of $255. The net assets held were sold in January 2002.

The results of operations for the year ended December 31, 2001, derived from net assets held for sale at December 31, 2001, were as follows:

During 2003, the Company sold ownership interests in certain consolidated surgery centers for $1,659 in cash. The Company recorded an impairment and loss on disposal of long-lived assets of $162 and a gain on sale of long-lived assets of $162 in connection with these transactions. In connection with one sale, the buyer received the right to require the Company to repurchase the buyer’s interest in the center, and the Company recorded a long-term liability of $825 related to this redeemable feature.

In accordance with SFAS No. 142, the Company discontinued the amortization of goodwill effective January 1, 2002. A reconciliation of previously reported net income to the pro forma amounts adjusted for the exclusion of goodwill amortization net of the related income tax effect follows:

Amortization expense for the year ended December 31, 2002 was $71. Estimated amortization expense for each of the succeeding five fiscal years is $71.

The Company has entered into operating leases for surgery centers, office space and equipment, including surgery centers under development. The lease agreements generally require the lessee to pay all maintenance, property taxes, utilities, and insurance costs.

The future minimum lease payments under non-cancelable operating leases at December 31, 2002 are as follows:

Total rent and lease expense was $12,756, $8,738 and $9,906 for the years ended December 31, 2000, 2001 and 2002, respectively. The Company incurred rental expense of $1,875, $1,377 and $3,007 under operating leases with physician investors and other related parties for the years ended December 31, 2000, 2001 and 2002, respectively.

The Company has notes outstanding with Bank of America and U.S. Bank, used to acquire or develop certain surgery centers, maturing in 2004 and carrying interest at LIBOR plus 2.5% and LIBOR plus 3.5%, respectively. Each loan and security agreement (collectively, the “Loan Agreements”) is collateralized by a security interest in the accounts receivable and equipment of the borrower or the Company’s ownership interest in the related surgery center. The loan agreements contain various financial covenants applicable to specific surgery centers and the Company, as the guarantor, which include a fixed charge coverage ratio, minimum stockholders’ equity and cash balances and a maximum funded indebtedness to adjusted EBITDA ratio (all as defined in the Loan Agreements). At December 31, 2002, the Company was in compliance with all such covenants and had an outstanding principal balance of $27,993 and $35,562 at December 31, 2001 and 2002, respectively.

Additionally, the Company has outstanding loan agreements with Southwest Bank of Texas, used to finance the acquisition and development of certain surgery centers. Each note (collectively, the “SWBT Notes”) carries interest at the greater of Prime plus 1.0% or 5.50%, matures in 2004 and is collateralized by substantially all of the related surgery centers’ assets. Each SWBT Note contains restrictive covenants requiring the applicable surgery center and the Company, as guarantor, to maintain certain financial ratios and also restricts encumbrance of assets, creation of indebtedness, disposition of assets, investing activities and payment of distributions. At December 31, 2002, the surgery centers and the Company were in compliance with all such covenants, as amended, and had an outstanding principal balance of $0 and $1,790 at December 31, 2001 and 2002, respectively.

The Company has a mortgage note payable outstanding with Synergy Bank. The mortgage note is collateralized by the related surgery center’s real estate, carries interest at 9.15%, matures in 2005 and has an outstanding principal balance of $2,816 at December 31, 2002. The mortgage note contains various covenants to maintain certain financial ratios and also restricts encumbrance of assets, creation of indebtedness, investing activities and payment of distributions. At December 31, 2002, the surgery center and the Company were in compliance with all such covenants. On January 9, 2003, the Company refinanced the mortgage note payable to reduce the interest rate. As a result of the refinancing, the mortgage loan matures in 2008 and bears an interest rate of 6.7%.

The Company had additional outstanding principal balances on notes payable to other banks of $1,141 and $1,167 at December 31, 2001 and 2002, respectively. These promissory notes have interest rates ranging from 6.75% to 8.0% and maturity dates ranging from 2004 through 2010.

The Company has outstanding loan and security agreements with DVI Financial Services, Inc. (“DVI”). The proceeds of the loans were used to finance tenant improvements, medical, surgical and office equipment, and working capital. The notes bear interest ranging from 8.5% to 11.5%, with maturity dates ranging from 2006 to 2009, and have an outstanding principal balance of $11,868 and $16,070 at December 31, 2001 and 2002, respectively. One of the DVI loans is further collateralized by a $1,000 certificate of deposit on deposit with Southwest Bank of Texas, which is classified as restricted cash in the accompanying Consolidated Balance Sheets.

The Company had additional principal balances on secured term loans of $1,299 at December 31, 2002.

The Company is liable to various vendors for equipment leases, with interest rates from 7% to 12%, payable in installments through 2004. The carrying value of property and equipment under capital leases at December 31, 2001 and 2002 was $1,242 and $4,696, respectively.

In connection with the acquisition of PSC, the Company issued subordinated convertible debentures totaling $3,171 to various persons in exchange for additional ownership interests in certain of PSC’s surgery centers. The debentures carry interest at 4.0%, mature on April 1, 2005 and automatically convert at $3.13 per share upon the Company’s completion of an initial public offering.

In July 2003, the Company entered into a senior secured credit facility with a syndicate of financial institutions led by Bank of America, N.A. The Company is the borrower under the senior credit facility

and all of its active and existing wholly-owned subsidiaries are guarantors. Under the terms of the senior credit facility, entities that become wholly-owned subsidiaries must also guarantee the debt. At the date of closing, the Company borrowed $31.1 million to refinance existing debt.

The senior credit facility provides senior secured financing of up to $110.0 million, through a revolving credit line. Provided that the Company is not in default under the senior credit facility, it is entitled, at any time prior to January 18, 2005, to request an increase in commitments of up to $20.0 million more, subject to the consent of the administrative agent, lenders having at least 51% of the commitments under the senior credit facility and all lenders providing such commitment increase. Up to $2.0 million of the senior credit facility is available for the issuance of standby letters of credit, and up to $5.0 million of the senior credit facility is available for swing line loans. The swing line loans are made available by Bank of America as the swing line lender on a same-day basis in minimum purchase amounts of $100,000. The Company is required to repay each swing line loan in full upon the demand of the swing line lender. The credit facility terminates and is due and payable on July 18, 2006.

In July 2003, the Company entered into an agreement through which DLJ Investment Partners II, L.P. and its affiliates agreed to purchase the Company’s 14 3/4% Senior Subordinated Notes due 2008 in the aggregate principal amount of up to $40.0 million. The Company made an initial issuance of notes in the aggregate principal amount of about $15.1 million, and may issue additional notes at any time before July 18, 2005. On August 15, 2003, pursuant to the terms of the purchase agreement, the DLJ purchasers sold to certain stockholders of the Company notes in the aggregate principal amount of about $1.8 million and the related commitment to purchase additional notes from the Company in the aggregate principal amount of about $2.9 million, in the event that the Company decides to sell additional notes.

The notes are the Company’s unsecured obligations. The Company’s active and existing wholly-owned subsidiaries guarantee the notes. Entities that become the Company’s wholly-owned subsidiaries must also guarantee the notes. A commitment fee of 0.5% of the outstanding, undrawn commitment is payable semi-annually, so long as the committee is outstanding. The Company may redeem the notes, in whole or in part, at any time at specified redemption prices. If the notes are redeemed using the proceeds of an initial public offering prior to July 18, 2004, the redemption price will be 102.5% of the principal amount outstanding.

In March 2002, the Board of Directors approved the Amended and Restated Charter of Symbion, Inc., increasing authorized capital stock 225,000,000 shares of common stock, no par value; and 16,946,322 shares of preferred stock, $0.01 par value, of which 4,341,726 shares are designated as Series A Convertible Preferred Stock, 2,604,590 shares are designated as Series B Convertible Preferred Stock, and approximately 10,000,000 shares are undesignated.

Prior to approval of the Amended and Restated Charter, the authorized capital stock of the Company consisted of 60,000,000 shares of common stock, no par value; and 7,042,738 shares of preferred stock, no par value, of which 2,571,429 shares were designated as Series A Preferred Stock and 1,866,667 shares were designated as Series B Preferred Stock.

In September 2002, the Company reincorporated in the State of Delaware by merging into a wholly-owned subsidiary named Symbion, Inc. that was incorporated in Delaware (“Symbion-Delaware”). As a result of the reincorporation, each outstanding share of the Company’s common stock, no par value per share, was converted into the right to receive a share of common stock, $0.01 par value per share, of Symbion-Delaware, and each outstanding share of the Company’s Series A and Series B convertible

preferred stock, $0.01 par value per share, was converted into the right to receive a share of Series A and Series B convertible preferred stock, $0.01 par value per share, respectively, of Symbion-Delaware.

The holders of common stock are entitled to one vote per share on all matters on which stockholders are entitled to vote and do not have cumulative voting rights. The holders of common stock have no preemptive, conversion, redemption or sinking fund rights.

The holders of the Series A convertible preferred stock and Series B convertible preferred stock issued by the Company in the PSC merger (a) have the same voting rights as holders of the Company’s common stock on the same basis as if the preferred stock had been converted to common stock; (b) may convert each of their shares of convertible preferred stock at any time into one share of common stock, and each of their shares of convertible preferred stock would automatically convert into a share of the Company’s common stock and the right to receive a cash payment upon certain events such as an initial public offering; (c) have the same liquidation rights as the holders of the Company’s common stock on the same basis as if the preferred stock had been converted to common stock; and (d) have the same dividend rights as holders of the Company’s common stock on the same basis as if the preferred stock had been converted to common stock.

The Series A convertible preferred stock and Series B convertible preferred stock automatically convert into shares of common stock upon the completion of a qualified offering. When converted, each share of Series A convertible preferred stock and Series B convertible preferred stock will entitle the holder to receive one share of common stock and a cash payment of $4.20 for the Series A holders and $5.22 for the Series B holders, for a total cash payment of $31,831 (See Note 3).

During 2001, the redemption feature associated with 680,912 shares of Redeemable Common Stock expired. Accordingly, such shares valued at $1,197 were reclassified to common stock during 2001.

The Company has outstanding warrants to purchase 2,115,945 shares of Common Stock of the Company at exercise prices ranging from $0.12 to $6.03 per share. As of December 31, 2002, the warrants remained issued and outstanding and are currently exercisable. The warrants expire beginning January 2004 through May 2009.

Under the Company’s three stock option plans, the maximum number of shares of Common Stock reserved for the grant of options is 8,247,831. The maximum number of shares is calculated as the lesser of (i) 28,125,000 or 12.5% of common stock outstanding on a fully diluted basis for the employee plan, and (ii) the lesser of 1,687,500 or 0.75% of common stock outstanding on a fully diluted basis for the non-employee directors plan. All options have been granted at exercise prices, that equaled the fair value of the stock on the date of grant and vest over a four year period. The exercise periods range from ten to fifteen years.

The estimated weighted average fair values of the options at the date of grant using the Black-Scholes option-pricing model as promulgated by SFAS No. 123 in 2000, 2001 and 2002 were $0.88, $0.88 and

$2.17 per share, respectively, and $2.17 per share in the nine months ended September 30, 2002 and 2003. In applying the Black-Scholes model, the Company assumed the following:

For purposes of pro forma disclosure, the estimated fair value of the options is amortized to expense over the option’s vesting period.

At December 31, 2002, the Company had options to purchase 6,597,831 shares of common stock available for grant.

At December 31, 2000, 2001 and 2002, options to purchase 1,995,729 shares, 2,195,842 shares and 2,582,475 shares of common stock, respectively, were exercisable.

The following table summarizes information regarding the options outstanding at December 31, 2002:

Basic and diluted income (loss) per share are based on the weighted average number of common shares outstanding and the dilutive impact of outstanding options and warrants to purchase shares.

The effects of 3,241,791 employee stock options for 2000 and 874,581, 49,050 and 87,028 warrants for 2000, 2001 and 2002, respectively, were not included in the computation of diluted earnings per share because their effects would have been anti-dilutive.

The effects of 87,028 warrants for the nine months ended September 30, 2002 and 2003 were not included in the computation of earnings per share because their effects would have been anti-dilutive.

The Company and its subsidiaries file a consolidated federal income tax return. The limited partnerships and limited liability companies file separate income tax returns. The Company’s allocable portion of each partnership’s and limited liability company’s income or loss is included in the taxable income of the Company. The remaining income or loss of each partnership and limited liability company is allocated to the limited partners.

Income tax expense is comprised of the following for the years ended December 31:

The effective income tax rate differed from the federal statutory rate as follows for the years ended December 31:

The components of temporary differences and the approximate tax effects that give rise to the Company’s net deferred tax asset are as follows at December 31:

The Company has net operating losses of $17,200 at December 31, 2002. These losses expire from December 31, 2011 through 2022. Because of the uncertainty of the ultimate realization of the net deferred tax asset, the Company has established a valuation allowance for the entire amount of the asset. The change in the valuation allowance for 2002 was a decrease of $1,670. The valuation allowance decreased by $4,183 as a result of current year temporary differences, and increased by $2,513 as a result of the valuation allowance recorded against deferred tax assets acquired from PSC.

The Symbion, Inc. 401(k) Plan (the “Symbion Plan”) is a defined contribution plan whereby employees who have completed six months of service in which they have worked a minimum of 1,000 hours and are age 21 or older are eligible to participate. The Symbion Plan allows eligible employees to make contributions of varying percentages of their annual compensation, up to the maximum allowed amounts by the Internal Revenue Service. Eligible employees may or may not receive a match of their contributions. The match varies by surgery center and is determined prior to the start of each plan year. Generally employer contributions vest 20% after two years of service and continue vesting at 20% per year until fully vested. The Company’s matching expense for 2000, 2001 and 2002 was $1,410, $815 and $521, respectively.

Effective March 2002, the Company adopted an Employee Stock Purchase Plan (“Stock Purchase Plan”) to provide substantially all employees an opportunity to purchase shares of its Common Stock in amounts not to exceed 10% of eligible compensation, 25,000 shares of Common Stock or $25 of Common Stock each calendar year. Annually, the participant’s September 30 account balance is used to purchase shares of stock at the lesser of 85% of the fair market value of shares at the beginning of the plan year or

September 30. A total of 1,650,000 shares are available for purchase under the plan. The Stock Purchase Plan is effective upon the Company’s completion of an initial public offering.

The Company has guaranteed $600 of long-term debt incurred by an unconsolidated surgery center in which the Company has a 39% ownership interest. The proceeds from this debt were used to construct and equip the surgery center. This debt is payable in monthly installments of principal and interest over a period of seven years, and matures on dates ranging from 2006 to 2007. The debt is secured by substantially all of the assets of the surgery center.

The Company has also guaranteed $1,775 of operating lease payments of this 39% owned surgery center. The lease is related to the facility and is for a term through 2009.

The Company is subject to claims and legal actions in the ordinary course of business, including claims relating to patient treatment, employment practices and personal injuries. To cover these types of claims, the Company maintains general liability and professional liability insurance in excess of self-insured retentions through a commercial insurance carrier in amounts that the Company believes to be sufficient for its operations, although, potentially, some claims may exceed the scope of coverage in effect. Plaintiffs in these matters may request punitive or other damages that may not be covered by insurance. In the opinion of management, the ultimate resolution of such proceedings will not have a material adverse effect on the Company’s business, financial condition or results of operations. The Company expenses an estimate of the costs it expects to incur under the self-insured retention exposure for general and professional liability claims. As of December 31, 2001 and 2002, the Company’s professional and general liability accrual for asserted and unasserted claims was $260 and $1,579, respectively, of which $260 and $510 is included in other accrued expenses in the accompanying Consolidated Balance Sheets as of December 31, 2001 and 2002, respectively, and $1,069 is included in other liabilities in the accompanying Consolidated Balance Sheets as of December 31, 2002.

Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation. Compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties, and exclusion from the Medicare, Medicaid and other federal health care programs. From time to time, governmental regulatory agencies will conduct inquiries of the Company’s practices. It is the Company’s current practice and future intent to cooperate fully with such inquiries. The Company is not aware of any such inquiry that would have a material adverse effect on the Company’s results of operations or financial position.

The Company, through its wholly-owned subsidiaries or controlled partnerships and limited liability companies, has acquired and will continue to acquire surgical and diagnostic centers with prior operating histories. Such centers may have unknown or contingent liabilities, including liabilities for failure to comply with healthcare laws and regulations, such as billing and reimbursement, fraud and abuse and similar anti-referral laws. Although the Company attempts to assure itself that no such liabilities exist and obtains indemnification from prospective sellers covering such matters and institutes policies designed to conform centers to its standards following completion of acquisitions, there can be no assurance that the

Company will not become liable for past activities that may later be asserted to be improper by private plaintiffs or government agencies. There can be no assurance that any such matter will be covered by indemnification or, if covered, that the liability sustained will not exceed contractual limits or the financial capacity of the indemnifying party.

The Company cannot predict whether federal or state statutory or regulatory provisions will be enacted that would prohibit or otherwise regulate relationships which the Company has established or may establish with other health care providers or have materially adverse effects on its business or revenues arising from such future actions. The Company believes, however, that it will be able to adjust its operations so as to be in compliance with any regulatory or statutory provision as may be applicable.

Each physician investor in the partnerships and limited liability companies which operate surgery centers carries general and professional liability insurance on a claims-made basis. Each investee may, however, be liable for damages to persons or property arising from occurrences at the surgery centers. Although the various physician investors and other surgeons are required to obtain general and professional liability insurance with tail coverage, such individual may not be able to obtain coverage in amounts sufficient to cover all potential liability. Since most insurance policies contain exclusions, the physician investor will not be insured against all possible occurrences. In the event of an uninsured or underinsured loss, the value of an investment in the partnership interests or LLC membership units and the amount of distributions could be adversely affected.

We have audited the accompanying consolidated balance sheet of Physicians Surgical Care, Inc. as of December 31, 2001, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the two years in the period ended December 31, 2001. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Physicians Surgical Care, Inc. as of December 31, 2001, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.

The accompanying consolidated financial statements as of December 31, 2001 and for each of the two years in the period ended December 31, 2001 have been restated as discussed in Note 3 for Physicians Surgical Care, Inc.

Physicians Surgical Care, Inc. (“PSC” or collectively with its subsidiaries, the “Company”), was incorporated on October 10, 1996, as a C Corporation under the laws of the State of Delaware to develop, acquire and manage outpatient surgery centers and specialty surgical hospitals (referred to herein as “Surgery Centers”). During 1999, the Company acquired an interest in three Surgery Centers and opened an additional Surgery Center. During 2001, the Company acquired an interest in an unconsolidated Surgery Center and opened an additional Surgery Center. As of December 31, 2001, the Company manages and owns interests in six Surgery Centers and a specialty surgical hospital. Additionally, the Company has an agreement to develop and construct an outpatient surgery center. Once completed, the Company will provide comprehensive administrative and management services for this outpatient surgery center.

The Company focuses on operating Surgery Centers in conjunction with leading orthopedic surgeons and on structuring its Surgery Centers to best meet the clinical, operational and financial objectives of its physician partners. Typical Surgery Centers provide operating room space, nursing staff and other medical services to enable physicians to perform surgical procedures on their patients. Procedures performed in an outpatient surgery center are generally of a less critical and more routine nature than those performed at a hospital. Patients of the Company’s Surgery Centers are usually discharged within 24 hours from the time the surgery is performed.

The consolidated financial statements include the accounts and operations of the Company and its subsidiaries. Certain of the Company’s wholly-owned subsidiaries are sole general partners in limited partnerships which own and operate the related Surgery Centers. As these subsidiaries have controlling interests in the partnerships, the partnerships’ accounts and operations are included in the consolidated financial statements even if PSC owns less than a majority of the equity interests in a partnership. The limited partner or minority member responsibilities are to supervise the delivery of medical services with their rights being restricted to those that protect their financial interests. Under certain of the partnership and operating agreements governing the limited partnerships and limited liability companies that own and/or operate Surgery Centers, the Company could be removed as the sole general partner or managing member for certain events such as material breach, gross negligence or bankruptcy. These protective rights do not preclude consolidation of the respective limited partnerships and limited liability companies. All significant intercompany balances and transactions have been eliminated.

The Company’s investment in its unconsolidated affiliate is accounted for using the equity method as the Company exerts significant influence over the affiliate even though the Company owns less than a 20 percent interest. In this case, the Company exerts significant influence through board of manager representation, contractual participation rights in financial and operational decisions as well as through its agreement to manage the affiliate’s day-to-day operations.

The accompanying unaudited consolidated balance sheet as of March 31, 2002 and the related unaudited consolidated statements of operations and cash flows for the three months ended March 31, 2001 and 2002 have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management,

all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the interim results have been included.

The unaudited interim consolidated financial statements should be read in conjunction with the audited December 31, 2001 consolidated financial statements appearing herein. The results of the three months ended March 31, 2002 may not be indicative of operating results for the full year.

The Company believes that the fair values of its financial instruments approximate their carrying amounts. Financial instruments of the Company consist primarily of long-term debt and redeemable warrants.

The Company considers all investments with an original maturity of three months or less to be cash equivalents.

The Company has $2,500,000 of restricted cash equivalents related to long-term obligations (see Note 7 and Note 11).

Accounts receivable primarily consist of receivables from patients, insurers, government programs and other third-party payors for medical services provided to patients. Such amounts are reduced by an allowance for contractual adjustments and other uncollectible amounts. Contractual adjustments result from the differences between the rates charged by the Company for services provided and the amounts allowed by Medicare and Medicaid as well as other governmental and private insurers.

Inventories consist of medical and surgical supplies and are valued at the lower of cost or estimated market value (which is determined using the first-in, first-out method).

Intangible assets consist primarily of goodwill and other identifiable intangible assets acquired. Goodwill represents the excess of the aggregate purchase price paid by the Company for businesses acquired over the fair value of the tangible and identifiable intangible net assets acquired. Goodwill and other intangibles are amortized on a straight-line basis over periods ranging from five to 20 years. Amortization expense related to goodwill charged to operations totaled approximately $820,000 and $827,000 for the years ended December 31, 2000 and 2001, respectively.

The Company reviews long-lived and intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the asset’s carrying amount to determine if a write-down to market value is necessary. In the opinion of management, no impairment existed at December 31, 2001.

The Company incurs certain pre-opening costs related to Surgery Centers developed. It is the Company’s policy to expense these pre-opening costs as incurred. The pre-opening costs predominantly consist of the salaries and benefits of the employees hired prior to commencement of operations as well as the lease costs of the facilities. The Company incurred pre-opening costs totaling approximately $187,000 and $297,000 in 2000 and 2001, respectively, which are reflected as either Center Salaries and Benefits or Center Operating Expenses in the accompanying Consolidation Statements of Operations.

The Company incurs certain acquisition-related costs pertaining to potential acquisitions. It is the Company’s policy to capitalize and defer acquisition-related costs until the acquisition is consummated (at which time the costs are considered as purchase price) or negotiations are terminated (at which time the costs are expensed). Acquisition-related costs consist of direct, external costs related to proposed acquisitions, such as legal, accounting and travel expenses. The Company incurred acquisition-related costs totaling $354,000 in 2000, which were subsequently expensed in the third quarter of 2001, as management decided to terminate the acquisition negotiations. The $354,000 expense is reflected as a component of Corporate General and Administrative Expenses in the accompanying Consolidated Statements of Operations.

Net revenues are accounted for in the period the services are provided and consist of charges by the Company’s Surgery Centers for usage of operating rooms, medical equipment, recovery rooms and overnight stay facilities, as well as supplies and medications. Net revenues also include professional anesthesia charges. The revenues are reported at the estimated realizable amounts from patients, third-party payors and others. Provisions for third-party payor adjustments are estimated in the period the related services are provided. Medicare and other governmental programs reimburse the Company’s Surgery Centers based on fee schedules that are determined by the related governmental agency. Additionally, the Company’s Surgery Centers participate in agreements with managed-care organizations to provide services at negotiated rates.

Minority interests represent the equity interests of the minority investor in the Company’s Surgery Centers. The amount of the minority interests is adjusted for the minority investor’s share of the subsidiaries’ income or loss and is decreased by distributions paid to such minority investors. Minority interests in income (loss) of consolidated subsidiaries reflect the minority investors’ respective share of the income (loss) of the respective Surgery Centers.

The Company accounts for income taxes under Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes.” Under the asset and liability method of SFAS No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to

apply to taxable income in the fiscal years in which those temporary differences are expected to be recovered or settled. Under SFAS No. 109, the effect on the deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company accounts for stock-based compensation under SFAS No. 123, “Accounting for Stock-Based Compensation.” Under SFAS No. 123, companies which have stock-based compensation arrangements with employees are allowed to adopt a fair value basis of accounting for stock options and other equity instruments or to continue to apply the existing accounting rules under Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” but with additional financial statement disclosure. The Company has elected to account for stock-based compensation expense related to employee plans under APB Opinion No. 25 and make the required pro forma disclosures for compensation expense.

Through its Surgery Centers, the Company provides medical care to certain patients under government-sponsored programs for which payment is based on predetermined fee schedules. These programs represented approximately 15 percent and 15 percent of net revenues during the years ended December 31, 2000 and 2001. As a participant in such government-sponsored programs, the Company’s Surgery Centers are subject to potential changes in the laws and regulations or interpretations of existing laws and regulations, which could impact the level of reimbursement received as well as their organizational structure.

The healthcare industry is subject to numerous laws and regulations of federal, state and local governments. These laws and regulations include, but are not necessarily limited to, matters such as licensure, accreditation, government healthcare program participation requirements, reimbursement for patient services, and Medicare and Medicaid fraud and abuse. Management believes that the Company’s Surgery Centers are in compliance with fraud and abuse statutes as well as other applicable government laws and regulations. While no regulatory inquiries have been made, compliance with such laws and regulations can be subject to future government review and interpretation as well as regulatory actions unknown or unasserted at this time.

Through its Surgery Centers, the Company extends credit in the normal course of business to patients covered by governmental programs, private insurers and individual patients. The Company manages collection risk with these payors, and allowances for bad debts have been recorded for potential losses, where appropriate.

During the years ended December 31, 2000 and 2001, the Company had no individual private payor representing over 10 percent of its net revenues.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period as well as the carrying value of assets and liabilities. Actual results could differ from those estimates.

In July 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 addresses financial accounting and reporting for goodwill and other intangible assets acquired in a business combination at acquisition. SFAS No. 141 requires the purchase method of accounting to be used for all business combinations initiated after June 30, 2001, establishes specific criteria for the recognition of intangible assets separately from goodwill and requires unallocated negative goodwill to be written off immediately as an extraordinary gain (instead of being deferred and amortized).

SFAS No. 142 provides that goodwill and intangible assets which have indefinite useful lives will not be amortized but rather will be tested at least annually for impairment. It also provides that intangible assets that have finite useful lives will continue to be amortized over their useful lives, but those lives will no longer be limited to 40 years. The Company is required to adopt SFAS No. 142 effective January 1, 2002. Application of the nonamortization provisions of SFAS No. 142 is expected to result in an increase in net income of approximately $827,000 per year.

Amortization expense for the three months ended March 31, 2002 was approximately $186,000 (unaudited). Estimated amortization expense for each of the succeeding fiscal years is $745,000 for 2002, $745,000 for 2003 and $186,000 for 2004.

In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 establishes a single accounting model for long-lived assets to be disposed of by sale. The provisions of SFAS No. 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001.

Certain reclassifications have been made to prior-year balances to conform to current-year presentation.

Because Symbion, Inc. (Note 16) was unable to obtain a consent from Arthur Andersen LLP for use of its report on the Company’s previously issued financial statements included in the Symbion, Inc. Registration Statement on Form S-1 to be filed with the Securities and Exchange Commission, the Company engaged new independent auditors to reaudit its financial statements. The Company restated its audited financial statements as of December 31, 2001 and for the years ended December 31, 2000 and 2001, as well as its unaudited interim financial statements as of March 31, 2002 and for the quarters ended March 31, 2001 and 2002, primarily to restate the amortization of intangible assets, record compensation expense for options issued below fair value, record losses on sales of membership units and limited partnership interests, expense deferred costs and inducement costs associated with the conversion of debt to equity, record expense or income related to the increase or decrease in value of the redeemable warrants, revise the recording of the beneficial conversion feature of preferred stock, reclassify certain expenses and revenues and record other expenses required to be booked. After discussion with the Company’s new independent auditors, Ernst & Young LLP, the Company reconsidered its previous accounting treatment of these items and has determined that restatement is appropriate. Following is a summary of selected financial data affected by the restatement of the Company’s financial statements as of December 31, 2001 and for the years ended December 31, 2000 and 2001, as well as its unaudited interim financial statements as of March 31, 2002 and for the quarters ended March 31, 2001 and 2002:

Property and equipment are stated at cost. Property and equipment under capital lease is recorded at the lower of the present value of the future minimum lease payments or the fair value of the related equipment. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the related assets (ranging from three to 39 years). Lease amortization is included in depreciation expense. Routine maintenance and repairs are charged to expense as incurred, while costs of improvements are capitalized. Interest incurred during an asset’s construction period is capitalized as part of the asset’s cost.

During the year ended December 31, 2001, the Company capitalized interest in the amount of $18,000 in connection with construction projects.

In October 2001, PSC acquired a 10 percent membership interest in a Surgery Center located in Mountainside, New Jersey. In addition to its equity interest, PSC also entered into a 15-year agreement to manage the day-to-day operations of the center for a fee based on the center’s net revenues. Management fees are reflected as a component of net revenues and totaled $145,000 for the year ended December 31, 2001. PSC also has an option, callable on March 31, 2003, to acquire an additional 20 percent interest from the other members, at a price to be determined based on a prenegotiated formula. PSC paid $1,381,000 in cash as consideration for its investment.

The physician members of this Surgery Center have the right on March 31, 2003, to require the Company to purchase up to an additional 40 percent ownership in this center at a purchase price to be determined based upon a prenegotiated formula. Further, if on March 31, 2004, the Company owns less than a 50 percent interest in the center, the physician members have the right to require the Company to purchase an additional ownership percentage that will bring the Company’s ownership to a 50 percent interest at a purchase price to be determined based on a prenegotiated formula. The Company’s rights and obligations to purchase additional interests in this Surgery Center are based on a prenegotiated formula that represents fair value of the interests at the proposed transaction date. Consequently, these amounts are not reflected on the financial statements as there is no obligation to purchase additional interests at other than fair value. If the Company should default on either of these obligations, the physician members have the right to repurchase the Company’s then-existing ownership interest at a 30 percent discount from its original purchase price. If it becomes probable that the Company will default, the discount will be reflected as a charge to earnings.

The Company has guaranteed $4,600,000 of this Surgery Center’s outstanding long-term debt. These guarantees are not reflected in the Company’s financial statements as the Surgery Center has the intent and ability to make the scheduled debt payments. This debt is due in monthly payments over a six-year period, and the proceeds were used to construct and equip the center. This debt is also secured by substantially all the Surgery Center’s assets. To date, the Company has not made any loans to this Surgery Center.

South Shore Operating Company, LLC (“SSOC”), a 57 percent owned subsidiary of the Company, is party to a development agreement with South Shore Ambulatory Surgery Center, LLC (“SSASC”). The State of New York requires that naturalized persons be the shareholders of corporations licensed to operate Surgery Centers. SSASC is owned by three physicians who also own a combined 15 percent interest in SSOC. Under the term of the development agreement, SSOC is assisting SSASC in the construction and equipping of a Surgery Center located in Lynbrook, New York. As of December 31, 2001, SSOC has advanced SSASC $2,877,678 which represents the development, construction and equipment costs (the “Development Costs”) incurred to date. SSOC presently anticipates the center to open in the second quarter of 2002, and the remaining development costs are anticipated to be approximately $3,433,501. SSOC is primarily financing the Development Costs under a loan agreement with a financing institution, which provides total financing of $4,375,000. As of December 31, 2001, SSOC has $2,828,000 available for future borrowings under this loan agreement. The development agreement provides that all the Development Costs incurred by SSOC will be repaid by SSASC under a payment schedule which matches SSOC’s debt payments under its loan agreement. SSASC’s obligations to repay the Development Costs are secured by a pledge of SSASC’s nongovernment accounts receivable and by a pledge of the membership interest in SSASC held by the three physicians.

Upon opening of the Surgery Center, SSOC will also assist SSASC in the operation of the Surgery Center under the term of a 15-year consulting and administration service agreement (the “Services Agreement”). As compensation for its performance under the Services Agreement, SSOC will be paid a monthly fee of $358,000 for the first 12 months of operations (increasing in future periods).

SSOC has also agreed to advance SSASC up to $1,500,000 for general working capital purposes.

At December 31, 2001, PSC has available for future borrowings up to $715,000 under the term of a $1,500,000 line-of-credit arrangement with a bank. Subsequent to year-end, the Company borrowed the remaining $715,000 under this line of credit. PSC has collateralized the letter of credit with the pledge of a certificate of deposit in the amount of $1,500,000.

As of December 31, 2001, the aggregate amounts of annual principal maturities of long-term debt are as follows:

Certain of the debt agreements of the Company’s Surgery Centers outstanding at December 31, 2001, contain restrictive covenants which, among other things, require the applicable Surgery Center to maintain certain financial ratios and also restrict encumbrance of assets, creation of indebtedness, disposition of assets, investing activities and payment of distributions. At December 31, 2001, the Company’s Surgery Centers were in compliance with these covenants, as amended.

During January 2000, PSC exchanged a $2,250,000, 12 percent senior promissory note payable to a preferred shareholder for 953,390 shares of Series B convertible preferred stock.

During March 2002, certain of the Company’s Surgery Centers received extensions on the maturity dates of certain loan agreements. However, the bank lender made their consent to the merger discussed in Note 16 conditioned on the repayment of amounts due such lender within 90 days of the merger closing. Accordingly, the accompanying balance sheet reflects all amounts due this lender as a current liability.

In May 1998, PSC issued warrants to a financial institution, in connection with a loan, which was repaid in January 1999, to purchase 286,000 shares of PSC’s common stock at $0.01 per share. Under the terms of the warrant agreement, the number of shares shall be subject to adjustment in the event of a change in the number of shares outstanding or valuation of PSC’s common stock. The warrants expire on June 29, 2003.

The terms of the warrant agreement also provide for a redemption feature at the discretion of the warrant holder during the 30-day period prior to expiration of the warrants. Under the terms of the redemption feature, PSC would be required to redeem the shares subject to the warrants at fair market value at the redemption date. At December 31, 2001, the recorded value of the warrants equals the Company’s estimate of the warrants’ fair market value. The annual accretion (depreciation) of the recorded value of the warrants to adjust the recorded amount to fair market value is charged to interest expense in the related period.

The authorized preferred stock of 40,296,838 shares has been designated as follows: (a) 10,148,419 shares of Series A convertible preferred stock (“Series A Preferred”), (b) 10,148,419 shares of redeemable preferred stock, (c) 8,165,678 shares of Series B convertible preferred stock (“Series B Preferred”), (d) 8,165,678 shares of Series B redeemable preferred stock and (e) the remaining 3,668,644 shares are undesignated. Each designation of preferred stock has a par value of $0.001 per share.

During January 1999, PSC issued 10,148,419 shares of Series A Preferred for cash proceeds of $16,793,162 (net of issuance costs of $1,277,792) (the “Series A Offering”). During June 1999, PSC issued 2,966,102 shares of Series B Preferred in exchange for a 12 percent promissory note in the amount of $7,000,000. In January 2000, PSC issued 3,080,932 shares of Series B Preferred in exchange for $4,829,995 (net of offering costs of $191,005) in cash and the exchange of a 12 percent senior promissory note in the amount of $2,250,000. In December 2000, PSC issued an additional 40,974 shares of Series B Preferred in exchange for 40,974 shares of common stock.

The holders of the Series A Preferred and Series B Preferred have the following rights and preferences:

Voting — In addition to their voting rights as preferred shareholders, the Series A and Series B Preferred holders are entitled to vote with the common shareholders based on the number of shares they would receive upon conversion.

Conversion — The Series A and Series B Preferred holders may convert their shares at any time. Each share of Series A and Series B Preferred is convertible into one conversion unit. A conversion unit consists of (a) one share of common stock, subject to certain antidilution adjustments and (b) one share of redeemable preferred stock for the Series A Preferred holders and one share of Series B redeemable preferred stock for the Series B Preferred holders (collectively, the “Converted Securities”). The Series A and Series B Preferred shares automatically convert upon the occurrence of an initial public offering resulting in net proceeds to PSC of $40,000,000 and a minimum price of $4.72 per share, or a sale of the Company, resulting in gross proceeds to the shareholders of at least $104,500,000 (“Automatic Conversion Event”).

Liquidation — In the event of liquidation, dissolution or winding up of PSC, the Series A and Series B Preferred holders are entitled to an amount equal to the greater of (a) the liquidation preference per share ($1.79 per share for the Series A Preferred and $2.36 per share for the Series B Preferred, subject to antidilution adjustments), plus an amount equal to all accrued and unpaid dividends or (b) the amounts the Series A and Series B Preferred holders would be entitled to have received if all the shares of Series A and Series B Preferred had been converted immediately prior to liquidation, dissolution or winding up.

Dividends — The Series A and Series B Preferred holders shall be entitled to receive dividends if and when declared by the Board of Directors. Dividends payable of the Series A and Series B Preferred accrue and are cumulative at an annual rate of 8 percent based upon the respective liquidation preference per share described above.

The redeemable preferred stock (the “Redeemable Preferred”) and Series B redeemable preferred stock (Series B Redeemable Preferred) (collectively, the “Redeemable Preferred Stock”), if issued, would have the following rights and preferences:

Voting — Future holders of the Redeemable Preferred Stock would have no voting rights unless required by law.

Redemption — Upon the occurrence of an Automatic Conversion Event, all the then outstanding shares would be automatically redeemable at a redemption price of $13,593,750 for the Redeemable Preferred and $10,778,774 for the Series B Redeemable Preferred (each amount being referred to as the “Redemption Price”) plus accrued and unpaid dividends on the Redeemable Preferred Stock as well as any accrued and unpaid dividends on the Series A and Series B Preferred (the aggregate amount referred to as the “Redemption Liquidation Preference”). Due to the significant uncertainty of the future occurrence of the Redemption Liquidation Preference, the Company determined that the fair value at issuance of the beneficial conversion feature of this instrument was not material. If the Series A Preferred and Series B Preferred are converted, the Redemption Liquidation Preference will be recorded at the Automatic Conversion Event.

Liquidation — In the event of liquidation, dissolution or winding up of PSC, the Redeemable Preferred Stock holders would be entitled to receive an amount equal to the Redemption Liquidation Preference as described above.

Dividends — The future holders of Redeemable Preferred Stock would be entitled to receive dividends if and when declared by the Board of Directors. Dividends payable on the Redeemable Preferred Stock would accrue and would be cumulative at a rate of 10.67 percent based upon the respective Redemption Price as described above.

In conjunction with the Series A and B Offerings, PSC and certain of its common and preferred shareholders entered into a separate shareholders agreement. Under the terms of this shareholders agreement, a preferred shareholder is entitled to nominate two members to PSC’s Board of Directors.

Additionally, such preferred shareholder has special approval rights with respect to their approval of certain transactions or events including, among other things, future acquisitions which would fall outside certain financial parameters; a sale or merger of PSC’s which would result in a change of control; amendments to PSC’s articles of incorporation or bylaws; subsequent changes in PSC’s capital structure, total indebtedness or annual capital expenditures in excess of specified amounts, as well as consent to liquidation, or any distributions or redemptions of capital stock.

During 1997, PSC issued warrants to certain consultants to purchase 100,000 shares of common stock at an exercise price of $1.00 per share. These warrants expire in 2007.

In January 1999, PSC issued warrants to purchase an aggregate of 200,000 shares of common stock at a purchase price of $1.79 per share. The warrants were issued to an investment banking firm as consideration for arranging a financing transaction, are immediately exercisable and expire in January 2004.

The Company has a stock plan (the “Plan”) which provides for the issuance of options for up to 2,368,218 shares of common stock to eligible employees, officers, directors and medical advisory committee members of PSC and its subsidiaries. The specific provisions of individual options are determined at the discretion of the Company’s compensation committee but generally provided for an exercise price per share near or at its then-estimated fair market value, vesting terms of three to four years and expiration dates of 10 years from date of grant.

A summary of PSC’s stock options and warrants at December 31, 2001 and 2000, and changes during the years then ended are presented below:

Total compensation expense of approximately $77,000 and $454,000 was recorded for the years ended December 31, 2000 and 2001, respectively, in connection with option grants in 2000 and 2001. As of December 31, 2001, options covering 396,058 shares of common stock are available for future grants.

The Company accounts for grants to employees and directors under the provisions of APB Opinion No. 25. Had compensation expense for the stock options been determined consistent with SFAS No. 123, the net loss would have increased as indicated in the following pro forma amounts:

The fair value of each option and warrant grant was estimated on the date of grant using the minimum value approach. The following assumptions were used for the grants in the years ended December 31, 2000 and 2001: risk-free interest rates ranging from 4.4 percent to 7.03 percent, dividend rates of zero and expected lives of five to 10 years. The options and warrants outstanding at December 31, 2001, have a remaining contractual life of approximately seven years.

The minimum value option valuation model and other existing models were developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of, and are highly sensitive to, subjective assumptions. PSC’s stock options have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value estimate.

PSC has reserved 20,713,690 shares of its common stock for issuance in connection with the potential conversion of the outstanding Series A and Series B Preferred as well as the exercise of options and warrants.

PSC has granted a special conversion option to the partners of certain of its Surgery Centers. Under the terms of this conversion option, the partners may exchange up to a specified percentage of their current ownership interest in the related Surgery Center for shares of PSC’s common stock in the event of (a) an initial public offering of PSC’s common stock or (b) the merger or sale of PSC. The exchange ratio is to be determined upon the date of exchange in a manner that is neither accretive nor dilutive to the existing shareholders of PSC.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets (liabilities) are as follows:

SFAS 109 requires the Company to record a valuation allowance when it is “more likely than not that some portion or all of the deferred tax assets will not be realized.” It further states “forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years.” A 100% valuation allowance has been recorded equal to the deferred tax assets after considering deferred tax assets that can be realized through offsets to existing taxable temporary differences. Assuming the Company achieves sufficient profitability in future years to realize the deferred income tax assets, the valuation allowance will be reduced in future years through a credit to income tax expense. As of December 31, 2001, the valuation allowance is approximately $2,742,000, which represents an increase of approximately $306,000 from December 31, 2000.

At December 31, 2001, the Company has federal and state net operating loss carryforwards of approximately $7,686,000, which expire at various dates through 2021.

The effective income tax rate differed from the federal statutory rate as follows:

The Company maintains a defined contribution 401(k) savings plan covering substantially all employees. Under the 401(k) savings plan, participants may contribute up to 12 percent of their pretax earnings, subject to the Internal Revenue Service annual contribution limit. The Company pays all general and administrative expenses of the 401(k) savings plan. In addition, the Company may make discretionary contributions to the plan. Participants are fully vested for employee contributions and are vested for employer contributions after one year of active service. Contribution expense related to the plan totaled approximately $143,000 and $178,000 for the years ended December 31, 2000 and 2001, respectively.

The Company leases certain equipment, certain of the facilities in which its Surgery Centers operate as well as its executive offices. The facility and executive office leases generally provide for the payment of minimum annual rents (increasing at various rates over the lease term) in addition to insurance, operating costs and property taxes. Rent expense as reported by the Company excludes common area maintenance and other charges related to the facility leases. Commitments for minimum rentals under noncancelable leases are as follows:

Certain of the capital lease agreements of the Company’s Surgery Centers contain restrictive covenants which, among other things, require the Surgery Centers to maintain certain financial ratios and also restrict encumbrances of assets, creation of indebtedness as well as the disposition of assets. At December 31, 2001, the Company’s Surgery Centers were in compliance with these covenants, as amended.

In connection with a capital lease agreement between a financial institution and NorthStar Surgical Center, LP (“NorthStar”), NorthStar obtained a letter of credit (issued by a bank) in the amount of $1,000,000 to secure its obligations under the lease. NorthStar has collateralized the letter of credit with the pledge of a certificate of deposit in the amount of $1,000,000.

PSC has provided financial guarantees related to the Surgery Center’s capital lease obligations in the principal amount of approximately $6,908,000. Additionally, PSC has guaranteed certain of its Surgery Center’s facility leases. The future minimum lease payments on these leases amount to approximately $5,000,000 at December 31, 2001.

One of the Company’s Surgery Centers leases certain equipment under the terms of an agreement, which provides for the Surgery Center to pay a monthly rental based on the usage of the equipment. The agreement expires upon the attainment of a specified minimum usage level. The Surgery Center’s total commitment under this agreement is $437,000, and the minimum annual payment is $116,490. During 2001, the Surgery Center expensed approximately $81,000 related to equipment usage under this agreement. PSC has guaranteed the Surgery Center’s payment obligations under this agreement.

The Company, from time to time, is involved in legal actions and claims arising in the normal course of business. While the potential outcome of such matters cannot be predicted with certainty, management is presently not aware of any matters, which would have a material adverse effect on the Company’s consolidated financial position or results of operations.

PSC and its Surgery Centers are insured with respect to medical malpractice risks on a claims-made basis. Presently, management is unaware of any claims against it or its Surgery Centers which might have a material impact on the Company’s consolidated financial position or results of operations. However, it is possible that claims from unknown incidents could be asserted in the future.

The Company and its Surgery Centers are self-insured for employee healthcare coverage up to predetermined amounts for both individual claims and aggregate claims above which third-party insurance applies. Accruals have been established at December 31, 2001, which were estimated based on actual employee health claims experienced, as well as the predetermined claim limits, to adequately provide for the Company’s exposure under this arrangement.

In December 2000, PSC terminated the employment of three of its executive officers. As a result of such terminations, PSC accrued severance and related termination costs of $647,000 (included as a component of corporate general and administrative expenses). Of this amount, $347,000 was paid in 2001, and the remaining amount was paid in January 2002.

In October 2000, PSC settled a lawsuit filed against PSC by a former executive officer who was dismissed by the Company in 1999. Under the terms of this settlement, PSC paid to this former executive officer certain severance benefits and legal costs as well as repurchased 150,000 shares of common stock owned by this former executive officer. As a result of this settlement, PSC incurred a loss of $302,000. Such loss is included in the consolidated statement of operations for 2000 as corporate general and administrative expenses.

In April 2001, an affiliate completed the sale and leaseback of its land and building to an unrelated third party. The net proceeds of approximately $3,073,000 were partially used to repay the outstanding

mortgage on the facility with the remaining net proceeds being distributed to the Surgery Center’s partners. For financial statement purposes, the loss of approximately $65,000 incurred on the sale has been deferred and is being amortized over the 15-year lease term.

One of the Company’s Surgery Centers leases certain equipment from a company controlled by one of PSC’s executive officers who is also a significant PSC shareholder. This lease expired in October 2001, and the surgery center made payments during 2001 of $75,000 under this lease.

Three of the Company’s Surgery Centers lease their facilities from entities that are controlled by certain of the Surgery Center’s physician partners. Total lease payments on these leases amounted to $614,000 and $969,000 for the years ended December 31, 2000 and 2001, respectively.

On March 7, 2002, the Company entered into a merger agreement with Symbion, Inc. (“Symbion”), a Nashville, Tennessee-based owner/operator of outpatient surgery centers and related healthcare businesses under which the Company’s outstanding shares of common stock and preferred stock would be exchanged for common stock and preferred stock of Symbion (the “Merger”). On the same day, shareholders of the Company representing a majority of the outstanding voting securities of the Company signed a voting agreement agreeing to cast their vote in favor of the Merger. Likewise, shareholders of Symbion representing a majority of Symbion’s outstanding voting securities also signed a voting agreement agreeing to cast their vote in favor of the Merger. The respective shareholders of the Company and Symbion approved the Merger on March 28, 2002 and the Merger closed on April 1, 2002.

Prior to the execution of the Merger agreement, PSC obtained the agreement of certain owners of its Surgery Centers to amend their respective governance documents to provide, among other things, for the elimination of certain conversion rights held by such owners as well as to address certain governance provisions. In exchange for these amendments, PSC agreed to issue to certain owners cash of up to $925,000 or warrants to purchase up to 2,693,403 shares of PSC common stock. Further, in exchange for the purchase of all or a portion of certain of the physicians’ ownership interests in the related Surgery Centers, Symbion has offered cash, subordinated convertible debentures and promissory notes in the amount of $6,598,474.

Further, on March 7, 2002, the Company amended the terms of certain previously awarded stock option grants thereby reducing the number of shares granted under the affected options from 669,660 shares to 150,855 shares. Additionally, the Company agreed to lower the exercise price on the amended options to $.01 per share. As a result of these amendments, the Company incurred a compensation charge of approximately $196,000. Additionally, the Company agreed to pay a former executive officer (who was terminated in 2000) a lump-sum payment of $118,000 in order for such ex-officer to sign a noncompetition agreement required to be executed as part of the Merger closing conditions.

The accompanying consolidated financials statements do not reflect any adjustments related to the pending merger with Symbion, such as reflecting assets and liabilities at fair values.

The following table sets forth the estimated expenses payable by us in connection with the offering (excluding underwriting discounts and commissions):

Section 145 of the Delaware General Corporation Law provides that a Delaware corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with the action, suit or proceeding, provided the person acted in good faith and in a manner he reasonably believed to be in or not opposed to the corporation’s best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his conduct was unlawful. A similar standard of care is applicable in the case of actions by or in the right of the corporation, except that no indemnification may be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Delaware Court of Chancery or the court in which such action was brought determines that, despite the adjudication of liability but in view of all of the circumstances of the case, the person is fairly and reasonably entitled to indemnity for expenses that the Delaware Court of Chancery or other court shall deem proper.

Our certificate of incorporation and bylaws provide that we will indemnify and advance expenses to our directors, officers and employees to the fullest extent permitted by Delaware law in connection with any threatened, pending or completed action, suit or proceeding to which such person was or is a party or is threatened to be made a party by reason of the fact that he or she is or was our director, officer or employee, or is or was serving at our request as a director, officer, employee or agent of another corporation or enterprise.

We maintain a directors’ and officers’ liability insurance policy to insure our directors and officers against liability for actions or omissions occurring in their capacity as a director or officer, subject to certain exclusions and limitations.

In the three years preceding the filing of this registration statement, we have issued the following securities that were not registered under the Securities Act. Each of the transactions described below was conducted in reliance upon the exemptions from registration provided in Sections 3(b) and 4(2) of the Securities Act and Regulation D and the other rules and regulations promulgated thereunder. Each of these sales was made without the use of an underwriter, and the certificates and other documentation evidencing the securities issued in connection with these transactions bear a restrictive legend permitting transfer of the securities only upon registration under the Securities Act or pursuant to an exemption from registration.

During 2000, we issued an aggregate of 128,427 shares of our common stock to former employees in connection with the exercise of their stock options granted under our stock option plans for an aggregate amount of $142,092.

During 2001, we issued 94,705 shares of our common stock to former employees in connection with the exercise of their stock options granted under our stock option plans for an aggregate amount of $137,141.

On October 24, 2001, we issued 20,000 shares of our common stock to the State of Franklin Healthcare Association, PLLC in consideration of the modification of its practice management relationship with one of our subsidiaries.

On October 5, 2001, we issued 114,379 shares of our common stock to Lee Outpatient Surgical Team, Inc. in consideration of the cancellation of a promissory note dated July 31, 2001 in the principal amount of $315,686.

On October 5, 2001, we issued 12,432 shares of our common stock to Lee Health Ventures, Inc. in consideration of the cancellation of a promissory note dated July 31, 2001 in the principal amount of $34,314.

In connection with our acquisition of Physicians Surgical Care, Inc. on April 1, 2002, we issued 2,770,748 shares of our common stock, 4,341,726 shares of our Series A convertible preferred stock, 2,604,590 shares of our Series B convertible preferred stock, options to purchase 283,887 shares of our common stock, and warrants to purchase 128,470 shares of our common stock to stockholders of Physicians Surgical Care, Inc.

On April 1, 2002, we issued warrants to purchase 1,112,894 shares of our common stock to 71 individuals who each held an ownership interest in certain of our surgery centers in consideration for each individual agreeing to amend the governing documents of the surgery centers.

On April 1, 2002, we issued subordinated convertible debentures in the aggregate principal amount of $3,170,800, which are convertible into shares of our common stock, to 41 individuals who each held an ownership interest in certain of our surgery centers in consideration for a portion of each individual’s ownership interest in the surgery centers.

On May 16, 2002, we granted options to purchase an aggregate of 3,034,500 shares of our common stock under one of our stock option plans to employees at an exercise price of $3.13 per share.

On May 16, 2002, we granted options to purchase an aggregate of 320,000 shares of our common stock under one of our stock option plans to non-employee directors at an exercise price of $3.13 per share.

During May and June 2002, we issued 122,698 shares of our common stock to three of our employees for an aggregate of $156,564.

On May 22, 2002, we issued an aggregate of 15,318 shares of our common stock to former employees of Physicians Surgical Care for an aggregate of $12,840 in connection with the exercise of their stock options granted under Physicians Surgical Care’s stock option plans.

On June 7, 2002, we issued 31,878 shares of our common stock to a physician investor upon the conversion of a convertible debenture.

On July 1, 2002, we issued 1,554 shares of our common stock to a former employee of Physicians Surgical Care for an aggregate of $4,115 in connection with the exercise of stock options granted under Physicians Surgical Care’s stock option plans.

On September 1, 2002, we issued 6,667 shares of our common stock to one of our former employees for an aggregate of $12,534 in connection with the exercise of stock options granted under our stock option plans.

On September 30, 2002, we issued 8,288 shares of our common stock to a former employee of Physicians Surgical Care for an aggregate of $21,761 in connection with the exercise of stock options granted under Physicians Surgical Care’s stock option plans.

On March 31, 2003, we issued 20,000 shares of our common stock to a former employee for an aggregate of $37,600 upon exercise of stock options.

On May 7, 2003, we granted options to purchase an aggregate of 112,500 shares of our common stock under one of our stock option plans to employees at an exercise price of $3.13.

On July 8, 2003, we issued 60,639 shares of our common stock to a former employee for an aggregate of $17,199 upon exercise of stock options.

On July 21, 2003, we issued 14 3/4% Senior Subordinated Notes due 2008 in the aggregate principal amount of $15,106,000 to DLJ Investment Partners II, L.P. and its affiliates.

On August 5, 2003, we issued 314,286 shares of our common stock to a former employee for an aggregate of $38,441 upon exercise of stock options.

On November 17, 2003, we issued warrants to purchase 62,500 shares of our common stock to 23 individuals and two entities which each held an ownership interest in certain of the surgery centers we acquired from MediSphere Health Partners, Inc. in connection with such acquisition. The exercise price of these warrants is $3.13 per share.


*	Incorporated by reference to exhibits filed with the Registrant’s Registration Statement on Form S-1 (Registration No. 333-89554).

†	To be filed by amendment.

All schedules have been omitted because they are not required or because the required information is given in the financial statements or the notes to those statements.

The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this amendment to registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Nashville, State of Tennessee, on November 17, 2003.


	By:	/s/ RICHARD E. FRANCIS, JR.



	Richard E. Francis, Jr.
	Chairman of the Board
	and Chief Executive Officer

KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears below constitutes and appoints each of Richard E. Francis, Jr. and Clifford G. Adlerz such person’s true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, for such person and in such person’s name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement (or to any other registration statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act) and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that any said attorney-in-fact and agent or any substitute or substitutes of any of them, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this amendment to Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.


*	Incorporated by reference to exhibits filed with the Registrant’s Registration Statement on Form S-1 (Registration No. 333-89554).


†	To be filed by amendment.

EX-3.1 3 g85742s1exv3w1.txt EX-3.1 CERTIFICATE OF INCORPORATION EXHIBIT 3.1 CERTIFICATE OF INCORPORATION OF SYMBION, INC. The undersigned person, in order to form a corporation under the General Corporation Law of the State of Delaware (the "General Corporation Law"), adopts the following Certificate of Incorporation for such corporation: 1. NAME. The name of the corporation is Symbion, Inc. (the "Corporation"). 2. REGISTERED OFFICE. The address of the registered office of the Corporation in Delaware is 2711 Centerville Road, Suite 400, Wilmington, County of New Castle, Delaware 19808. The Corporation's registered agent at the registered office is Corporation Service Company. 3. PURPOSE. The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law. 4. CAPITAL STOCK. (a) The total number of shares of all classes of stock which the Corporation shall have authority to issue is 241,946,316, consisting of (i) 225,000,000 shares of common stock, $.01 par value per share (the "Common Stock"), and (ii) 16,946,316 shares of preferred stock, $.01 par value per share (the "Preferred Stock"), of which (x) 4,341,726 shall be shares of series A convertible preferred stock (the "Series A Preferred Stock"), (y) 2,604,590 shall be shares of series B convertible preferred stock (the "Series B Preferred Stock") and (z) 10,000,000 shall be undesignated shares of preferred stock. (b) The Board of Directors of the Corporation (the "Board of Directors") is expressly authorized to provide for the issue of shares of the Preferred Stock from time to time in one or more series, and to fix the number of shares and to determine or alter for each such series, such voting powers, full or limited, or no voting powers, and such designations, preferences, and relative, participating, optional or other rights and such qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issue of such shares and as may be permitted by the General Corporation Law. (c) Except as otherwise provided in the provisions establishing a class of capital stock, the number of authorized shares of any class of capital stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the then outstanding shares of capital stock of the Corporation entitled to vote (voting together on an as-if-converted basis). (d) The voting, dividend and liquidation rights of the holders of the Common Stock are subject to, and qualified by, the rights of the holders of Preferred Stock of any series as may be stated or expressed herein or designated by the Board of Directors upon any issuance of Preferred Stock of any series. (e) The holders of the Common Stock are entitled to one vote for each share held at all meetings of stockholders (and written actions in lieu of meetings). There shall be no cumulative voting. (f) Dividends may be declared and paid on the Common Stock from funds lawfully available therefor as and when determined by the Board of Directors, subject, however, to any preferential or any other dividend rights of any then outstanding series of Preferred Stock. 5. NO REISSUANCE OF PREFERRED STOCK. No share or shares of Series A Preferred Stock or Series B Preferred Stock acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be canceled, retired and eliminated from the shares which the Corporation shall be authorized to issue. 6. PREEMPTIVE RIGHTS. The stockholders of the Corporation shall not have preemptive rights except as granted by the Corporation pursuant to written agreements. 7. LIABILITY OF DIRECTORS. A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (a) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under Section 174 of the General Corporation Law or (d) for any transaction from which the director derived an improper personal benefit. If the General Corporation Law is amended to authorize corporate action eliminating or further 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 General Corporation Law, as so amended. Any repeal or modification of the foregoing by the stockholders shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. Until the foregoing provisions become effective, the liability of the directors shall be limited to the full extent permitted by law. 8. INDEMNIFICATION. The Corporation shall indemnify, and upon request shall advance expenses to, in the manner and to the fullest extent authorized or permitted by the General Corporation Law (as now or hereafter in effect), any person (or the estate of any person) who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether or not by or in the right of the Corporation, and whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director, officer or employee of the Corporation, or is or was serving at the request of the Corporation as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise. The indemnification provided herein shall not be deemed to limit the right of the Corporation to indemnify any other person for any such expenses to the fullest extent authorized or permitted by the General Corporation Law (as now or hereafter in effect), nor shall it be deemed exclusive of any other rights to which any person seeking indemnification from the Corporation may have or hereafter acquire under this Certificate of Incorporation or the Bylaws of the Corporation or under any agreement or vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. Any repeal or modification of the foregoing by amendment or 2 operation of law shall not adversely affect any right of a director, officer or employee of the Corporation existing at the time of such repeal or modification. 9. BOARD OF DIRECTORS. A. The initial members of the Board of Directors of the Corporation, who shall serve until the first annual meeting of the stockholders of the Corporation or until their successors are elected and qualified, shall consist of two directors, and their names and addresses are as follows:

B. The Board of Directors shall consist of such number of members not less than one (1) nor more than eleven (11), the exact number to be fixed and determined from time to time by resolution of a majority of the Board of Directors. At such time as the Corporation shall have three (3) or more directors, the Board of Directors shall be divided into three (3) classes (the "Classified Directors") with the first class ("Class I"), the second class ("Class II") and the third class ("Class III") to consist as nearly as practicable of an equal number of directors. The term of office of the Class I directors shall expire at the 2003 annual meeting of stockholders, the term of the Class II directors shall expire at the 2004 annual meeting of stockholders, and the term of office of the Class III directors shall expire at the 2005 annual meeting of the stockholders, with each director to hold office until his or her successor shall be duly elected and qualified. At each annual meeting of stockholders, the Classified Directors elected to succeed those Classified Directors whose terms then expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders following their election. Any vacancy arising for any reason and any newly created directorships resulting from any increase in the authorized number of directors shall be filled by vote of the remaining directors then in office, although less than a quorum, or by the sole remaining director, and such director shall hold office until the next election of the class for which such director shall have been chosen and until his successor shall have been elected and qualified. C. Any director or the entire Board of Directors may be removed but only for cause and only by the holders of a majority of the shares then entitled to vote at an election of directors. For purposes of removal of a director of the Corporation, "cause" shall mean (a) a final conviction of a felony involving moral turpitude or (b) willful misconduct that is materially and demonstrably injurious economically to the Corporation. For purposes of this definition of "cause," no act, or failure to act, by a director shall be considered "willful" unless committed in bad faith and without a reasonable belief that the act or failure to act was in the best interest of the Corporation or any Affiliate of the Corporation. "Cause" shall not exist unless and until the Corporation has delivered to the director a written notice of the act or failure to act that constitutes "cause" and such director shall not have cured such act or omission within ten (10) days after the delivery of such notice. As used in this Certificate of Incorporation, "Affiliate" has the meaning given such term under Rule 12b-2 of the Securities Exchange Act of 1934, as amended. 3 D. The stockholders shall have no right to cumulate their votes in the election of directors. 10. MEETINGS OF THE STOCKHOLDERS. Meetings of the stockholders may be held within or outside the State of Delaware as the Bylaws may provide. A special meeting of the stockholders may be called, and business to be considered at any such meeting may be proposed, at any time by a majority of the members of the Board of Directors or the holders of at least ten percent (10%) of all the votes to be cast on any issue proposed to be considered at the proposed special meeting. No action required to be taken or that may be taken at any meeting of the holders of Common Stock may be taken without a meeting, and the power of holders of Common Stock to consent in writing, without a meeting, to the taking of any action is specifically denied. 11. AMENDMENT OF BYLAWS. All of the power of the Corporation, insofar as it may be lawfully vested by this Certificate of Incorporation in the Board of Directors, is hereby conferred upon the Board of Directors. The affirmative vote of the holders of at least sixty-seven percent (67%) of the outstanding shares of the Corporation then entitled to vote, voting together as a single class, shall be required to repeal or amend any provision of the Bylaws of the Corporation; provided, however, that the Board of Directors may repeal or amend any provision of the Bylaws of the Corporation unless (i) the General Corporation Law reserves this power exclusively to the stockholders or (ii) the stockholders, in amending or repealing a particular Bylaw, provide expressly that the Board of Directors may not amend or repeal that particular Bylaw. 12. AMENDMENT OF CERTIFICATE OF INCORPORATION. The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation in the manner now or hereinafter prescribed herein and by the laws of the State of Delaware, and all rights conferred upon stockholders herein are granted subject to this reservation. Notwithstanding the foregoing or anything contained in this Certificate of Incorporation to the contrary, (i) no amendment, modification or waiver shall be binding or effective with respect to Sections 10 or 11 or this Section 12 without the affirmative vote of the holders of at least sixty-seven percent (67%) of the voting power of the shares of the then outstanding voting stock of the Corporation, voting together as a single class and (ii) no such action under this Section 12 shall change (A) the redemption, conversion, voting or other rights of any class or series of Preferred Stock without the affirmative vote of the holders of a majority of each such class or series of Preferred Stock then outstanding or (B) the percentage required to approve any amendment, modification or waiver described herein, without the affirmative vote of the holders of that percentage of the class or series of capital stock then required to approve such amendment, modification or waiver. 13. INCORPORATOR. The name of the incorporator is James H. Nixon III and his address is 511 Union Street, Suite 2100, Nashville, Tennessee 37219. 4 IN WITNESS WHEREOF, I have signed this Certificate of Incorporation this 12th day of September, 2002 and acknowledge the same to be my act and deed and the facts stated herein to be true. /s/ James H. Nixon III ------------------------------------- James H. Nixon III 5 EX-3.2 4 g85742s1exv3w2.txt EX-3.2 CERTIFICATE OF DESIGNATION OF RIGHTS EXHIBIT 3.2 CERTIFICATE OF DESIGNATION OF RIGHTS AND PREFERENCES OF SERIES A CONVERTIBLE PREFERRED STOCK AND SERIES B CONVERTIBLE PREFERRED STOCK OF SYMBION, INC. It is hereby certified that: 1. The name of the corporation is Symbion, Inc. (the "Corporation"). 2. The Certificate of Incorporation of the Corporation authorizes the issuance of 16,946,316 shares of Preferred Stock, $.01 par value per share (the "Preferred Stock"), and expressly vests in the Board of Directors of the Corporation the authority provided therein to issue any or all of said shares in one or more series and by resolution or resolutions to establish the designation, number, full or limited voting powers, or the denial of voting powers, preferences and relative, participating, optional, and other special rights and the qualifications, limitations, restrictions, and other distinguishing characteristics of each series to be issued. 3. The Corporation has not issued, as of the date hereof, any shares of Preferred Stock. 4. The Board of Directors of the Corporation, pursuant to the authority expressly vested in it as aforesaid, has adopted the following resolutions creating Series A Convertible Preferred Stock and Series B Convertible Preferred Stock: RESOLVED, that of the 16,946,316 authorized shares of Preferred Stock of the Corporation, 4,341,726 shall be shares of series A convertible preferred stock (the "Series A Preferred Stock") and 2,604,590 shall be shares of series B convertible preferred stock (the "Series B Preferred Stock") and each series shall possess the rights and privileges set forth below: 1. Designation. The Series A Preferred Stock and the Series B Preferred Stock shall have the rights, preferences, powers, privileges and restrictions, qualifications and limitations set forth in these resolutions. Notwithstanding anything to the contrary contained in the Certificate of Incorporation of the Corporation, the vote of the holders of a majority of the Series A Preferred Stock and the Series B Preferred Stock shall be a prerequisite to the designation or issuance of any shares of capital stock of the Corporation ranking senior to any of the common stock, $.01 par value per share ("Common Stock"), the Series A Preferred Stock or the Series B Preferred Stock in the event of any voluntary or involuntary liquidation under applicable bankruptcy or reorganization legislation, or the dissolution or winding up of the Corporation (a "Liquidation"). 2. Dividends. If the Corporation declares and pays a cash dividend on the Common Stock, then, in that event, the holders of shares of Series A Preferred Stock and Series B Preferred Stock shall be entitled to share in such dividends on a pro rata basis, as if their shares had been converted into shares of Common Stock pursuant to Section 5 below immediately prior to the record date for determining the stockholders of the Corporation eligible to receive such dividends. 3. Liquidation. (a) Liquidation Rights. Upon a Liquidation, after the distribution to the holders of any class or series of capital stock of the Corporation ranking senior to each of the Common Stock, the Series A Preferred Stock and the Series B Preferred Stock of the full preferential amount to which they shall be entitled pursuant to the terms of such class or series of capital stock, if assets remain in the Corporation, the remaining assets of the Corporation available for distribution to stockholders shall be distributed among the holders of the Series A Preferred Stock, the Series B Preferred Stock, the holders of any series of preferred stock entitled to a participating payment and the holders of Common Stock pro rata based on the number of shares of the Common Stock held by each (assuming conversion of all such Series A Preferred Stock and Series B Preferred Stock in accordance with Section 5 below). (b) Notice. Written notice of a Liquidation stating a payment or payments and the place where such payment or payments shall be payable, shall be delivered in person, mailed by certified mail, return receipt requested, mailed by overnight mail or sent by telecopier, not less than ten (10) days prior to the earliest payment date stated therein, to the holders of record of shares of Series A Preferred Stock and Series B Preferred Stock, such notice to be addressed to each such holder at its address as shown in the records of the Corporation. 4. Voting Rights. Each outstanding share of Series A Preferred Stock and Series B Preferred Stock shall entitle the holder thereof to vote, in person or by proxy, at all meetings of stockholders (and written actions in lieu of meetings), on all matters entitled to be voted on by holders of shares of Common Stock voting together as a single class with the Common Stock (and with other shares entitled to vote thereon, if any). With respect to any such vote, each share of Series A Preferred Stock or Series B Preferred Stock, as the case may be, shall entitle the holder thereof to cast that number of votes per share as is equal to the number of votes that such holder would be entitled to cast had such holder converted its shares of Series A Preferred Stock or Series B Preferred Stock, as the case may be, into shares of Common Stock pursuant to Section 5 below on the record date for determining the stockholders of the Corporation eligible to vote on any such matters. 5. Conversion. (a) Optional Conversion. (i) Any holder of shares of Series A Preferred Stock shall have the right, at its option, at any time and from time to time, to convert, subject to the terms and provisions of this Section 5, any or all of such holder's shares of Series A Preferred Stock into such number of fully paid and non-assessable shares of Common Stock as is equal to the product of the number of shares of Series A Preferred Stock being so converted multiplied by the quotient of (i) the Series A Original Issuance Price divided by (ii) the conversion price of $3.13 per share, subject to adjustment as provided in 2 Section 5(d) below (such price in clause (ii), the "Series A Conversion Price"). The "Series A Original Issuance Price" for each share of Series A Preferred Stock shall be $3.13. Such conversion right shall be exercised by the surrender of certificate(s) representing the shares of Series A Preferred Stock to be converted to the Corporation at any time during usual business hours at its principal place of business to be maintained by it (or such other office or agency of the Corporation as the Corporation may designate by notice in writing to the holders of shares of Series A Preferred Stock), accompanied by written notice that the holder elects to convert such shares of Series A Preferred Stock and specifying the name or names (with address) in which a certificate or certificates for shares of Common Stock are to be issued and (if so required by the Corporation) by a written instrument or instruments of transfer in form reasonably satisfactory to the Corporation duly executed by the holder or its duly authorized legal representative and transfer tax stamps or funds therefor, if required pursuant to Section 5(i) below. All certificates representing shares of Series A Preferred Stock surrendered for conversion shall be delivered to the Corporation for cancellation and canceled by it. As promptly as practicable after the surrender of any shares of Series A Preferred Stock, the Corporation shall (subject to compliance with the applicable provisions of federal and state securities laws) deliver to the holder of such shares so surrendered certificate(s) representing the number of fully paid and nonassessable shares of Common Stock into which such shares are entitled to be converted and, to the extent funds are legally available therefor, an amount equal to all accrued and unpaid dividends, if any, payable with respect to such shares in accordance with Section 2 above. At the time of the surrender of such certificate(s), the person in whose name any certificate(s) for shares of Common Stock shall be issuable upon such conversion shall be deemed to be the holder of record of such shares of Common Stock on such date, notwithstanding that the share register of the Corporation shall then be closed or that the certificates representing such Common Stock shall not then be actually delivered to such person. (ii) Any holder of shares of Series B Preferred Stock shall have the right, at its option, at any time and from time to time, to convert, subject to the terms and provisions of this Section 5, any or all of such holder's shares of Series B Preferred Stock into such number of fully paid and non-assessable shares of Common Stock as is equal to the product of the number of shares of Series B Preferred Stock being so converted multiplied by the quotient of (i) the Series B Original Issuance Price divided by (ii) the conversion price of $3.13 per share, subject to adjustment as provided in Section 5(d) below (such price in clause (ii), the "Series B Conversion Price"). The "Series B Original Issuance Price" for each share of Series B Preferred Stock shall be $3.13. Such conversion right shall be exercised by the surrender of certificate(s) representing the shares of Series B Preferred Stock to be converted to the Corporation at any time during usual business hours at its principal place of business to be maintained by it (or such other office or agency of the Corporation as the Corporation may designate by notice in writing to the holders of shares of Series B Preferred Stock), accompanied by written notice that the holder elects to convert such shares of Series B Preferred Stock and specifying the name or names (with address) in which a 3 certificate or certificates for shares of Common Stock are to be issued and (if so required by the Corporation) by a written instrument or instruments of transfer in form reasonably satisfactory to the Corporation duly executed by the holder or its duly authorized legal representative and transfer tax stamps or funds therefor, if required pursuant to Section 5(i) below. All certificates representing shares of Series B Preferred Stock surrendered for conversion shall be delivered to the Corporation for cancellation and canceled by it. As promptly as practicable after the surrender of any shares of Series B Preferred Stock, the Corporation shall (subject to compliance with the applicable provisions of federal and state securities laws) deliver to the holder of such shares so surrendered certificate(s) representing the number of fully paid and nonassessable shares of Common Stock into which such shares are entitled to be converted and, to the extent funds are legally available therefor, an amount equal to all accrued and unpaid dividends, if any, payable with respect to such shares in accordance with Section 2 above. At the time of the surrender of such certificate(s), the person in whose name any certificate(s) for shares of Common Stock shall be issuable upon such conversion shall be deemed to be the holder of record of such shares of Common Stock on such date, notwithstanding that the share register of the Corporation shall then be closed or that the certificates representing such Common Stock shall not then be actually delivered to such person. (iii) In no event will the exercise of the optional conversion right, as provided in this Section 5(a), provide any holder of Series A Preferred Stock or Series B Preferred Stock with the right to receive the Series A Redemption Payment or the Series B Redemption Payment, respectively, prior to the occurrence of a Triggering Event (as such terms are defined below). (b) Automatic Conversion. (i) Each outstanding share of Series A Preferred Stock shall automatically be converted, with no further action required to be taken by the Corporation or the holder thereof upon the occurrence of a Triggering Event, into the following: (A) the right to receive an amount in cash per share equal to $4.20 (the "Series A Redemption Payment"); and (B) the number of fully paid and non-assessable shares of Common Stock equal to the product of the number of shares of Series A Preferred Stock being converted and the quotient of (x) the Series A Original Issuance Price divided by (y) the Series A Conversion Price then in effect (after giving effect to any adjustments pursuant to Section 5(d) below). (ii) Each outstanding share of Series B Preferred Stock shall automatically be converted, with no further action required to be taken by the Corporation or the holder thereof upon the occurrence of a Triggering Event, into the following: 4 (A) the right to receive an amount in cash per share equal to $5.22 (the "Series B Redemption Payment"); and (B) the number of fully paid and non-assessable shares of Common Stock equal to the product of the number of shares of Series B Preferred Stock being converted and the quotient of (x) the Series B Original Issuance Price divided by (y) the Series B Conversion Price then in effect (after giving effect to any adjustments pursuant to Section 5(d) below). Such Series A Redemption Payment or Series B Redemption Payment shall be paid in cash by wire transfer of immediately available funds to the account or accounts designated in writing by the holders of shares of Series A Preferred Stock and Series B Preferred Stock, as the case may be. For the purposes of this Certificate of Incorporation, "Triggering Event" shall mean either (a) the closing of an initial public offering (the "Initial Public Offering") pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "Securities Act"), covering the offer and sale of the capital stock of the Corporation or any of its subsidiaries or affiliates or (b) any consolidation or merger of the Corporation or any of its subsidiaries or affiliates with or into any other corporation or other entity or person resulting in the receipt by the Corporation's stockholders of cash or capital stock (or comparable equity interests of such corporation, entity or person) which has been registered under the Securities Act. Immediately upon conversion as provided herein, each holder of shares of Series A Preferred Stock or Series B Preferred Stock shall be deemed to be the holder of record of the Common Stock issuable upon conversion of such holder's shares of Series A Preferred Stock or Series B Preferred Stock, as the case may be, notwithstanding that the share register of the Corporation shall then be closed or that certificates representing the Common Stock shall not then actually be delivered to such person. Upon written notice from the Corporation, each holder of shares of Series A Preferred Stock or Series B Preferred Stock so converted shall promptly surrender to the Corporation at its principal place of business to be maintained by it (or at such other office or agency of the Corporation as the Corporation may designate by such notice to the holders of shares of Series A Preferred Stock or Series B Preferred Stock) certificates representing the shares so converted. (c) Termination of Rights. On the date of such optional conversion pursuant to Section 5(a) above or of such automatic conversion pursuant to Section 5(b) above, all rights with respect to the shares of Series A Preferred Stock or Series B Preferred Stock so converted, including the rights, if any, to receive notices and vote, shall terminate, except only the rights of holders thereof to (i) receive certificates for the number of shares of Common Stock into which such shares of Series A Preferred Stock or Series B Preferred Stock have been converted, (ii) receive the Series A Redemption Payment or the Series B Redemption Payment in 5 the case of an automatic conversion pursuant to Section 5(b) above, (iii) the payment of dividends, if any, pursuant to Section 2 above and (iv) exercise the rights to which they are entitled as holders of Common Stock. (d) Antidilution Adjustments. The Conversion Price, and the number and type of securities to be received upon conversion of shares of Series A Preferred Stock or Series B Preferred Stock, shall be subject to adjustment as follows: (i) Adjustment for Stock Splits and Combinations. In the event that the Corporation shall at any time or from time to time, prior to conversion of shares of Series A Preferred Stock and Series B Preferred Stock, effect a subdivision of the outstanding Common Stock without a corresponding subdivision of the Series A Preferred Stock or Series B Preferred Stock, the Series A Conversion Price or Series B Conversion Price, as the case may be, in effect immediately before that subdivision shall be proportionately decreased. Similarly, if the Corporation shall at any time or from time to time, prior to conversion of shares of Series A Preferred Stock and Series B Preferred Stock, combine the outstanding shares of Common Stock into a smaller number of shares without a corresponding combination of the Series A Preferred Stock or Series B Preferred Stock, the Series A Conversion Price or the Series B Conversion Price, as the case may be, in effect immediately before the combination shall be proportionately increased. Any adjustment under this Section 5(d)(i) shall become effective at the close of business on the date the subdivision or combination becomes effective. (ii) Adjustment for Common Stock Dividends and Distributions. (A) In the event that the Corporation shall at any time or from time to time, prior to conversion of shares of Series A Preferred Stock, make, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, in each such event the Series A Conversion Price that is then in effect shall be decreased as of the time of such issuance or, in the event such record date is fixed, as of the close of business on such record date, by multiplying the Series A Conversion Price then in effect by a fraction (x) the numerator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (y) the denominator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, that if such record date is fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Series A Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Series A Conversion Price shall be adjusted pursuant to this Section 5(d)(ii)(A) to reflect the actual payment of such dividend or distribution. 6 (B) In the event that the Corporation shall at any time or from time to time, prior to conversion of shares of Series B Preferred Stock, make, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, in each such event the Series B Conversion Price that is then in effect shall be decreased as of the time of such issuance or, in the event such record date is fixed, as of the close of business on such record date, by multiplying the Series B Conversion Price then in effect by a fraction (x) the numerator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (y) the denominator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, that if such record date is fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Series B Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Series B Conversion Price shall be adjusted pursuant to this Section 5(d)(ii)(B) to reflect the actual payment of such dividend or distribution. (iii) Adjustment for Other Dividends and Distributions. In the event that the Corporation shall at any time or from time to time, prior to conversion of shares of Series B Preferred Stock, make, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation other than shares of Common Stock, in each such event provision shall be made so that the holders of the Series A Preferred Stock or the Series B Preferred Stock shall receive upon conversion thereof, in addition to the number of shares of Common Stock receivable thereupon, the amount of other securities of the Corporation which they would have received had their Series A Preferred Stock or Series B Preferred Stock been converted into Common Stock on the date of such event and had they thereafter, during the period from the date of such event to and including the conversion date, retained such securities receivable by them as aforesaid during such period, subject to all other adjustments called for during such period under this Section 5(d) with respect to the rights of the holders of the Series A Preferred Stock or the Series B Preferred Stock or with respect to such other securities by their terms. (iv) Reorganization, Reclassification. Except upon a Triggering Event where the Series A Preferred Stock and Series B Preferred Stock is converted pursuant to Section 5(b), in case of any merger or consolidation of the Corporation or any capital reorganization, reclassification or other change of outstanding shares of Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value or any other change for which another adjustment is provided in this Section 7 5(d)) (each, a "Transaction"), the Corporation shall execute and deliver to each holder of shares of Series A Preferred Stock or Series B Preferred Stock at least twenty (20) days prior to effecting such Transaction a certificate, signed by (i) the Chief Executive Officer of the Corporation and (ii) the Chief Financial Officer of the Corporation, stating that the holder of each share of Series A Preferred Stock and Series B Preferred Stock shall have the right to receive in such Transaction, in exchange for each share of Series A Preferred Stock or Series B Preferred Stock, as the case may be, a security identical to (and not less favorable than) the Series A Preferred Stock and the Series B Preferred Stock, as the case may be, and provision shall be made therefor in the agreement, if any, relating to such Transaction. Any certificate delivered pursuant to this Section 5(d)(iv) shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 5(d). The provisions of this Section 5(d)(iv) and any equivalent thereof in any such certificate similarly shall apply to successive transactions. (v) Other Changes. In case the Corporation at any time or from time to time, prior to the conversion of shares of Series A Preferred Stock or Series B Preferred Stock, shall take any action affecting its Common Stock similar to or having an effect similar to any of the actions described in any of Sections 5(d)(i) through 5(d)(iv) above (but not including any action described in any such Section) and it would be equitable in the circumstances to adjust the Series A Conversion Price or the Series B Conversion Price, as the case may be, as a result of such action, then, and in each such case, the Series A Conversion Price or the Series B Conversion Price, as the case may be, shall be adjusted in such manner and at such time as the Board of Directors in good faith determines would be equitable in the circumstances (such determination to be evidenced in a resolution, a certified copy of which shall be mailed to the holders of shares of Series A Preferred Stock and Series B Preferred Stock). (vi) No Adjustment. Notwithstanding anything herein to the contrary, no adjustment under this Section 5(d) need be made to the Series A Conversion Price or the Series B Conversion Price, as the case may be, if the Corporation receives written notice from holders of all of the outstanding shares of Series A Preferred Stock and Series B Preferred Stock, as the case may be, that no such adjustment is required. (e) Certificate as to Adjustments. In each case of an adjustment or readjustment of the Series A Conversion Price or the Series B Conversion Price, as the case may be, for the number of shares of Common Stock or other securities issuable upon conversion of the Series A Preferred Stock or the Series B Preferred Stock, as the case may be, if the Series A Preferred Stock or the Series B Preferred Stock is then convertible pursuant to this Section 5, the Corporation, at its expense, shall compute such adjustment or readjustment in accordance with the provisions hereof and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to each registered holder of Series A Preferred Stock or Series B Preferred Stock at the holder's address as shown in the Corporation's books. The certificate shall set forth such 8 adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (1) the Series A Conversion Price or the Series B Conversion Price, as the case may be, at the time in effect, and (2) the type and amount, if any, of other property which at the time would be received upon conversion of the Series A Preferred Stock or the Series B Preferred Stock, as the case may be. (f) Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of Series A Preferred Stock or Series B Preferred Stock. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one share of Series A Preferred Stock or Series B Preferred Stock by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance of any fractional share, the Corporation shall, in lieu of issuing any fractional share, pay cash equal to the product of such fraction multiplied by the Common Stock's fair market value (as determined in good faith by the Board of Directors) on the date of conversion. (g) Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series A Preferred Stock and the Series B Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series A Preferred Stock and the Series B Preferred Stock. If at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series A Preferred Stock and the Series B Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. (h) Notices. In case at any time or from time to time: (w) the Corporation shall declare a dividend (or any other distribution) on its shares of Common Stock; (x) the Corporation shall authorize the granting to all of the holders of its Common Stock of rights or warrants to subscribe for or purchase any shares of stock of any class or of any other rights or warrants; (y) there shall be any Transaction; or (z) there shall occur any Triggering Event; then the Corporation shall mail to each holder of shares of Series A Preferred Stock and Series B Preferred Stock at such holder's address as it appears on the transfer books of the Corporation, as promptly as possible but in any event at least ten (10) days prior to the applicable date hereinafter specified, a notice stating (A) the date on which a record is to be taken for the purpose of such dividend, distribution or 9 granting of rights or warrants or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution or granting of rights or warrants are to be determined, or (B) the date on which such Transaction or Triggering Event is expected to become effective and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their Common Stock for shares of stock or other securities or property or cash deliverable upon such Transaction or Triggering Event. Notwithstanding the foregoing, in the case of any event to which Section 5(d)(iv) above is applicable, the Corporation shall also deliver the certificate described in Section 5(d)(iv) above to each holder of shares of Series A Preferred Stock and Series B Preferred Stock at least twenty (20) days prior to effecting such reorganization or reclassification as aforesaid. (i) Payment of Taxes. The Corporation will pay all taxes (other than taxes based upon income) and other governmental charges that may be imposed with respect to the issue or delivery of shares of Common Stock upon conversion of shares of Series A Preferred Stock or Series B Preferred Stock, excluding any tax or other charge imposed in connection with any transfer involved in the issue and delivery of shares of Common Stock in a name other than that in which the shares of Series A Preferred Stock or Series B Preferred Stock so converted were registered. 6. No Reissuance of Series A Preferred Stock or Series B Preferred Stock. No share or shares of Series A Preferred Stock or Series B Preferred Stock acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be canceled, retired and eliminated from the shares which the Corporation shall be authorized to issue. 7. Certain Remedies. Any registered holder of shares of Series A Preferred Stock or Series B Preferred Stock shall be entitled to an injunction or injunctions to prevent breaches of the provisions of the Certificate of Incorporation and to enforce specifically the terms and provisions of the Certificate of Incorporation in any court of the United States or any state thereof having jurisdiction, this being in addition to any other remedy to which such holder may be entitled at law or in equity. 8. No Impairment. The Corporation will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other action, avoid or seek to avoid the observance or performance of any term of the Certificate of Incorporation, but will at all times in good faith assist in carrying out of all such terms and in taking of all such action as may be necessary or appropriate in order to protect the rights of the holders of Series A Preferred Stock and Series B Preferred Stock against dilution or other impairment. Without limiting the generality of the foregoing, the Corporation (a) will at all times reserve and keep available the maximum number of its authorized shares of Common Stock, free from all preemptive rights therein, which will be sufficient to permit the full conversion of the Series A Preferred Stock and Series B Preferred Stock, and (b) will take such action as may be necessary or appropriate in order that all shares of Common Stock as may be issued pursuant to the conversion of the Series A Preferred Stock and Series B Preferred Stock will, upon issuance, be duly and validly issued, fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issue thereof. 10 FURTHER RESOLVED, that the statements contained in the foregoing resolutions creating and designating the Series A Preferred Stock and Series B Preferred Stock and fixing the number, powers, preferences and relative, optional, participating and other special rights and the qualifications, limitations, restrictions and other distinguishing characteristics thereof shall, upon the effective date of said series, be deemed to be included in and be a part of the Certificate of Incorporation of the Corporation pursuant to the laws of the State of Delaware. September 16, 2002. /s/ R. Dale Kennedy ---------------------------------------- R. Dale Kennedy Secretary 11 EX-3.3 5 g85742s1exv3w3.txt EX-3.3 BYLAWS EXHIBIT 3.3 BYLAWS OF SYMBION, INC. ARTICLE I. OFFICES 1.1 REGISTERED OFFICE. The registered office of Symbion, Inc., a Delaware corporation (the "Corporation"), shall be at 2711 Centerville Road, Suite 400, Wilmington, County of New Castle, Delaware 19808, and its registered agent at such office shall be Corporation Service Company, or such other officer or registered agent as the Board of Directors of the Corporation (the "Board of Directors") shall from time to time select. 1.2 OTHER OFFICES. The Corporation may have such other offices, either within or without the State of Delaware, as the Board of Directors may designate or as the business of the Corporation may require from time to time. ARTICLE II. MEETINGS OF STOCKHOLDERS 2.1 ANNUAL MEETING. An annual meeting of the stockholders of the Corporation shall be held on such date and at such time as may be designated by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice of such meeting. The business to be transacted at such annual meeting shall be the election of directors and such other business as shall be properly brought before the meeting. Except as otherwise permitted by law, no stockholder of the Corporation shall require the Board of Directors to call an annual meeting of stockholders of the Corporation. Failure to hold the annual meeting of stockholders at the designated time shall not affect the validity of any corporate action. 2.2 SPECIAL MEETINGS. A special meeting of the stockholders of the Corporation may be called, and business to be considered at any such meeting may be proposed, at any time by a majority of the members of the Board of Directors or the holders of at least ten percent (10%) of all the votes to be cast on any issue proposed to be considered at the proposed special meeting. Any written notice of a special meeting or duly executed waiver of notice of such special meeting shall state the purpose(s) of the proposed meeting. Only such business as is specified in the notice of any special meeting of the stockholders shall come before such meeting. 2.3 PLACE OF MEETINGS. The Board of Directors may designate any place, either within or without the State of Delaware, as the place of meeting for any annual meeting or special meeting of stockholders. If no place is fixed by the Board of Directors, the meeting shall be held at the principal office of the Corporation. The Board of Directors may, in its sole discretion, determine that a meeting of stockholders shall not be held at any place, but 1 may instead be held solely by means of remote communication in a manner consistent with Delaware law. 2.4 NOTICE OF MEETINGS; WAIVER. (a) NOTICE OF MEETINGS. Except as otherwise provided by applicable law, written notice of the place, if any, date and hour of each annual and special meeting of the stockholders, the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, and, in the case of a special meeting, a description of the purpose(s) for which the meeting is called, shall be delivered no fewer than ten (10) days nor more than sixty (60) days before the date of the meeting, either personally or by mail or by electronic communication to the extent permitted by Delaware law to each stockholder entitled to vote at such meeting. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder's address as it appears on the records of the Corporation. (b) WAIVER. Whenever notice is required to be given under any provision of the General Corporation Law of Delaware (the "General Corporation Law"), the Certificate of Incorporation of the Corporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time stated in such notice, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice or any waiver by electronic transmission unless so required by the Certificate of Incorporation or these Bylaws. 2.5 ADVANCE NOTICE OF STOCKHOLDER BUSINESS AT ANNUAL MEETING. (a) BUSINESS TO BE CONDUCTED AT ANNUAL MEETING. At an annual meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting (i) pursuant to the Corporation's notice of meeting, (ii) by or at the direction of a majority of the members of the Board of Directors, or (iii) by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice provided for in this Section 2.5, who shall be entitled to vote at such meeting and who complies with the notice procedures set forth in paragraph (b) of this Section 2.5. (b) BUSINESS BROUGHT BEFORE THE ANNUAL MEETING BY A STOCKHOLDER. For business to be properly brought before an annual meeting of stockholders by a stockholder pursuant to clause (iii) of paragraph (a) of this Section 2.5, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation at the Corporation's principal place of business. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than ninety (90) days nor more than one hundred twenty (120) days prior to the first anniversary of the date on which the Corporation first mailed its proxy statement to stockholders in connection with the preceding year's annual meeting; provided, however, that in the event that the date of the meeting is changed by more than 2 thirty (30) days from such anniversary date, notice by the stockholder to be timely must be received no later than the close of business on the tenth (10th) day following the earlier of the day on which notice of the date of the meeting was mailed or Public Disclosure (as defined below) of the meeting date was made. A stockholder's notice to the Secretary with respect to business to be brought at an annual meeting shall set forth (1) the nature of the proposed business with reasonable particularity, including the exact text of any proposal to be presented for adoption, and the reasons for conducting that business at the annual meeting, (2) with respect to each such stockholder, that stockholder's name and address (as they appear on the records of the Corporation), business address and telephone number, residence address and telephone number, and the class and number of shares of each class of capital stock of the Corporation owned beneficially or of record by that stockholder, and (3) any interest of the stockholder in the proposed business. For the purposes of these Bylaws, "Public Disclosure" means disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). (c) BUSINESS NOT PROPERLY BROUGHT BEFORE THE ANNUAL MEETING. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section 2.5. The chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the procedures prescribed by these Bylaws, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Nothing in this Section 2.5 shall relieve a stockholder who proposes to conduct business at an annual meeting from complying with all applicable requirements of the Exchange Act and the rules and regulations thereunder. 2.6 RECORD DATE. In determining the stockholders entitled to notice of and to vote at any annual or special meeting of stockholders or any adjournment thereof, the Board of Directors may fix a date which shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors and which is no more than sixty (60) days nor less than ten (10) days before the date of the meeting as a record date. A record date fixed for a meeting of stockholders is effective for any adjournment of such meeting unless the Board of Directors fixes a new record date. 2.7 STOCKHOLDERS' LIST. At least ten (10) days before every meeting of stockholders, the Secretary or other officer of the Corporation who has charge of the Corporation's stock ledger shall prepare and make a complete list of the names of all stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. The Corporation shall not be required to include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, for a period of at least ten (10) days prior to the meeting: (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting; or (ii) during ordinary business hours, at the principal place of business of the Corporation. In the event that the Corporation determines to make the list available on an 3 electronic network, the Corporation may take reasonable steps to ensure that such information is available only to stockholders of the Corporation. If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting. 2.8 QUORUM. Except as otherwise provided by the General Corporation Law, a majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of stockholders. Once a share is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting, notwithstanding the withdrawal of a number of stockholders so that less than a quorum remains. 2.9 ADJOURNMENTS. If a quorum shall not be present, in person or by proxy, at any meeting of stockholders or any adjournment thereof, the chairman of the meeting or a majority in interest of the stockholders entitled to vote thereat who are present, in person or by proxy, may adjourn the meeting from time to time, without notice other than announcement at the meeting (unless the Board of Directors, after such adjournment, fixes a new record date for the adjourned meeting), until a quorum shall be present, in person or by proxy. At any adjourned meeting at which a quorum shall be present, in person or by proxy, any business may be transacted which may have been transacted at the original meeting had a quorum been present, in person or by proxy; provided that, if the adjournment is for more than thirty (30) days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the adjourned meeting. 2.10 VOTING OF SHARES. Unless otherwise provided in the Certificate of Incorporation of the Corporation, a stockholder entitled to notice of and to vote at a meeting of stockholders shall be entitled to one vote for each share of capital stock of the Corporation standing in his name on the transfer books of the Corporation on the record date fixed for such meeting. When a quorum is present at any meeting, in all matters other than the election of directors, the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless the question is one which, under the General Corporation Law, the Certificate of Incorporation of the Corporation or these Bylaws, a different vote is required, in which case such express provision shall govern and control the decision of such question. 2.11 PROXIES. Each stockholder entitled to vote at a meeting of the stockholders may authorize another person or persons to act for him, her or it by proxy, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A stockholder may authorize another person or persons to act for him, her or it as proxy in the manner(s) provided under Section 212(c) of the General Corporation Law or as otherwise provided under Delaware law. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(e) of the General Corporation Law. 4 2.12 ORDER OF BUSINESS. The order of business at all meetings of stockholders shall be as determined by the chairman of the meeting. 2.13 CONDUCT OF MEETING. (a) CHAIRMAN AND SECRETARY OF MEETING. The Chairman of the Board shall act as chairman of, and preside at, all meetings of stockholders. The Secretary shall keep the records of each meeting of stockholders. In the absence or inability to act of any such officer, such officer's duties shall be performed by the officer given the authority to act for such absent or non-acting officer under these Bylaws or by such person as the Board of Directors appoints with respect to such meeting. (b) MOTIONS FROM THE FLOOR. Only stockholders of record will be permitted to present motions from the floor at any meeting of stockholders. (c) AUTHORITY OF THE CHAIRMAN OF THE MEETING. The chairman of the meeting shall preside over and conduct the meeting in a fair and reasonable manner, and all questions of procedure or conduct of the meeting shall be decided solely by the chairman of the meeting. The chairman of the meeting shall have all power and authority vested in a presiding officer by law or practice to conduct an orderly meeting. Among other things, the chairman of the meeting shall have the power to adjourn or recess the meeting, to silence or expel persons to ensure the orderly conduct of the meeting, to declare motions or persons out of order, to prescribe rules of conduct and an agenda for the meeting, to impose reasonable time limits on questions and remarks by any stockholder, to limit the number of questions a stockholder may ask, to limit the nature of questions and comments to one subject matter at a time as dictated by any agenda for the meeting, to limit the number of speakers or persons addressing the chairman of the meeting or the meeting, to determine when the polls shall be closed, to limit the attendance at the meeting to stockholders of record, beneficial owners of stock who present letters from the record holders confirming their status as beneficial owners, and the proxies of such record and beneficial holders, and to limit the number of proxies a stockholder may name. 2.14 INSPECTORS. The Board of Directors may, in advance of any meeting of stockholders, appoint one or more inspectors to act at such meeting or any adjournment thereof. If any of the inspectors so appointed shall fail to appear or act or if inspectors shall not have been so appointed by the Board of Directors, the chairman of the meeting shall appoint one or more inspectors. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his or her ability. The inspectors shall determine the number of shares of capital stock of the Corporation outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum and the validity and effect of proxies and shall receive votes or ballots hear and determine all challenges and questions arising in connection with the right to vote, retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, count and tabulate all votes and ballots, determine the results, certify their determination of the number of shares represented at the meeting and their count of all votes and ballots and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the chairman of the meeting, the inspectors shall make a report in writing of any challenge, request or matter 5 determined by them and shall execute a certificate of any fact found by them. No director or candidate for the office of director shall act as an inspector of an election of directors. Inspectors need not be stockholders. 2.15 NO STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. No action required to be taken or that may be taken at any meeting of the holders of Common Stock may be taken without a meeting, and the power of holders of Common Stock to consent in writing, without a meeting, to the taking of any action is specifically denied. ARTICLE III. BOARD OF DIRECTORS 3.1 POWERS AND DUTIES. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. 3.2 NUMBER AND QUALIFICATIONS; ELECTION. (a) NUMBER AND QUALIFICATIONS. The Board of Directors shall consist of such number of members not less than one (1) nor more than eleven (11), the exact number to be fixed and determined from time to time by resolution of a majority of the Board of Directors. At such time as the Corporation shall have three (3) or more directors, the Board of Directors shall be divided into three (3) classes (the "Classified Directors") with the first class ("Class I"), the second class ("Class II") and the third class ("Class III") to consist as nearly as practicable of an equal number of directors. The term of office of the Class I directors shall expire at the 2003 annual meeting of stockholders, the term of the Class II directors shall expire at the 2004 annual meeting of stockholders, and the term of office of the Class III directors shall expire at the 2005 annual meeting of the stockholders, with each director to hold office until his or her successor shall be duly elected and qualified. At each annual meeting of stockholders, the Classified Directors elected to succeed those Classified Directors whose terms then expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders following their election. None of the directors need be a stockholder of the Corporation or a resident of the State of Delaware. (b) ELECTION. Except as otherwise required by the General Corporation Law, the Certificate of Incorporation of the Corporation or these Bylaws, the directors of the Corporation shall be elected at an annual meeting of stockholders at which a quorum is present by a plurality of the votes of the shares present in person or represented by proxy and entitled to vote on the election of directors or a class of directors. 6 3.3 NOMINATION OF DIRECTOR CANDIDATES. (a) Nominations of persons for election to the Board of Directors of the Corporation at a meeting of stockholders may be made (i) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (ii) by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice provided for in this Section 3.3, who shall be entitled to vote for the election of the director so nominated and who complies with the notice procedures set forth in this Section 3.3. (b) Nominations by stockholders shall be made pursuant to timely notice in writing to the Secretary of the Corporation at the Corporation's principal place of business. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation (i) in the case of an annual meeting, not less than ninety (90) days nor more than one hundred twenty (120) days prior to the first anniversary of the date on which the Corporation first mailed its proxy statement to stockholders in connection with the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is changed by more than thirty (30) days from such anniversary date, notice by the stockholder to be timely must be so received not later than the close of business on the tenth (10th) day following the earlier of the date on which notice of the date of the meeting was mailed or Public Disclosure of the meeting date was made, and (ii) in the case of a special meeting at which directors are to be elected, not later than the close of business on the tenth (10th) day following the earlier of the day on which notice of the date of the meeting was mailed or Public Disclosure of the meeting date was made. Such notice shall set forth (i) as to each nominee for election as a director, the name, age, principal occupation, business experience during the past five years, business address and telephone number, and residence address and telephone number of such nominee, the number of shares of each class of the Corporation's capital stock owned beneficially or of record by such nominee, and all other information relating to such person that would be required to be disclosed in solicitations of proxies for election of directors, or that otherwise would be required, in each case consistent with Regulation 14A under the Exchange Act (including such person's written consent to serving as a director if elected and, if applicable, to being named in the proxy statement as a nominee), and (ii) as to the stockholder of record submitting such notice, (A) the name and address, as they appear on the records of the Corporation, of such stockholder of record, (B) the class and number of shares of the Corporation which are beneficially owned or owned of record by such stockholder of record, (C) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person(s) (including their names) pursuant to which the nomination was or is to be made and (D) a representation that the stockholder is a holder of record of capital stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate such person(s) named in such notice. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish the Secretary of the Corporation that information required to be set forth in the stockholder's notice of nomination which pertains to the nominee. (c) No person shall be eligible to serve as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 3.3. The election of any director in violation of this Section 3.3 shall be void and of no force or effect. The chairman of the meeting shall, if the facts warrant, determine and declare to the 7 meeting that a nomination was not made in accordance with the procedures prescribed by these Bylaws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Notwithstanding the foregoing provisions of this Section 3.3, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 3.3. 3.4 MEETINGS; NOTICE. The Board of Directors may hold regular and special meetings either within or without the State of Delaware. Directors may participate in a regular or special meeting of the Board of Directors by means of conference telephone or other communications equipment by means of which all persons participating in the meeting may simultaneously hear each other during the meeting. A director participating in a meeting by this means is deemed to be present in person at the meeting. (a) REGULAR MEETINGS. Regular meetings of the Board of Directors shall be held at such time and place as the Board of Directors may determine. Notice of such regular meetings shall not be required. (b) SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by the Chairman of the Board, the Chief Executive Officer, the President or any two (2) directors. Unless the Certificate of Incorporation of the Corporation otherwise provides, special meetings must be preceded by at least twenty-four (24) hours' notice of the date, time and place of the meeting but need not describe the purpose of such meeting. Except as provided by applicable law, notice may be delivered personally, by telephone or by electronic transmission or sent by first-class mail, overnight courier or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the Corporation. (c) WAIVER OF NOTICE. A director may waive any required notice before or after the date and time stated in the notice. A written waiver, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, shall be deemed equivalent to notice. A director's attendance at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors or a committee of the Board of Directors need be specified in any written waiver of notice or any waiver by electronic transmission unless so required by the Certificate of Incorporation or these Bylaws. 3.5 QUORUM. Unless the Certificate of Incorporation of the Corporation requires a greater number, a quorum of the Board of Directors consists of a majority of the number of directors in office immediately before the meeting begins. 3.6 ADJOURNMENT. If at any meeting of the Board of Directors there be less than a quorum present, a majority of those present or any director solely present may adjourn the meeting from time to time without further notice. Notice of an adjourned meeting need not be given if the time and place to which the meeting is adjourned are fixed at the meeting at which the adjournment is taken. 8 3.7 VOTING. If a quorum is present when a vote is taken, the affirmative vote of a majority of directors present is the act of the Board of Directors, unless the Certificate of Incorporation of the Corporation or these Bylaws require the vote of a greater number of directors. 3.8 ELECTION OF OFFICERS. The Board of Directors may elect officers of the Corporation at any meeting of the Board of Directors at which a quorum shall be present. 3.9 ACTION WITHOUT MEETING. Unless the Certificate of Incorporation of the Corporation otherwise provides, any action required or permitted by the General Corporation Law to be taken at a meeting of the Board of Directors may be taken without a meeting if all directors consent in writing or by electronic transmission and the writing(s) or electronic transmission(s) are filed with the minutes of proceedings of the Board of Directors. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form. Written consents may be executed in counterparts and through facsimile transmission and such counterparts and facsimile transmissions shall be effective for all purposes. 3.10 COMPENSATION. Directors and members of any committee created by the Board of Directors shall be entitled to such reasonable compensation for their services as directors and members of such committee as shall be fixed from time to time by the Board of Directors, and shall also be entitled to reimbursement for any reasonable expenses incurred in attending meetings of the Board or of any such committee meetings. Such compensation shall not preclude any director receiving such compensation from serving the Corporation in any other capacity and receiving reasonable compensation for such other services. 3.11 RESIGNATION. A director may resign at any time by delivering notice in writing or by electronic transmission to the Corporation; provided, however, that only notice to the Chairman of the Board, the Chief Executive Officer, the President or the Secretary of the Corporation shall be deemed to constitute notice to the Corporation. A resignation is effective when the notice is delivered unless the notice specifies a later effective date and, unless otherwise specified therein, acceptance of such resignation shall not be necessary to make it effective. 3.12 VACANCIES. Unless the Certificate of Incorporation of the Corporation otherwise provides, if a vacancy occurs on the Board of Directors for any reason, including a vacancy resulting from an increase in the number of directors or a vacancy resulting from the removal of a director, such vacancy may be filled only by the Board of Directors, acting by a majority of the remaining directors then in office; provided that, if the directors remaining in office constitute fewer than a quorum of the Board of Directors, they may fill such vacancy by the affirmative vote of a majority of all the directors or the sole director remaining in office. Any director chosen to fill a vacancy pursuant to this Section 3.12 shall hold office for the remainder of the full term of the class of directors for which such director shall have been chosen, and until his or her successor shall be elected and qualified, or until his or her earlier death, resignation or removal. 3.13 REMOVAL OF DIRECTORS. Except as otherwise provided in the Certificate of Incorporation of the Corporation, these Bylaws or the General Corporation Law, any 9 director or the entire Board of Directors may be removed but only for cause and only by the holders of a majority of the shares then entitled to vote at an election of directors. For purposes of removal of a director of the Corporation, "cause" shall mean (a) a final conviction of a felony involving moral turpitude or (b) willful misconduct that is materially and demonstrably injurious economically to the Corporation. For purposes of this definition of "cause," no act, or failure to act, by a director shall be considered "willful" unless committed in bad faith and without a reasonable belief that the act or failure to act was in the best interest of the Corporation or any Affiliate of the Corporation. "Cause" shall not exist unless and until the Corporation has delivered to the director a written notice of the act or failure to act that constitutes "cause" and such director shall not have cured such act or omission within ten (10) days after the delivery of such notice. As used in these Bylaws, "Affiliate" has the meaning given such term under Rule 12b-2 of the Exchange Act. ARTICLE IV. COMMITTEES Unless the Certificate of Incorporation of the Corporation otherwise provides, the Board of Directors may create one (1) or more committees, each consisting of one (1) or more members. All members of committees of the Board of Directors which exercise powers of the Board of Directors must be members of the Board of Directors and serve at the pleasure of the Board of Directors. In the event any member of any such committee ceases to be a director of the Corporation, such person shall simultaneously therewith cease to be a member of such committee(s). The creation of a committee and appointment of a member or members to it must be approved by the greater of (i) a majority of all directors in office when the action is taken or (ii) the number of directors required by the Certificate of Incorporation of the Corporation or these Bylaws to take action. Unless otherwise provided in the General Corporation Law, to the extent specified by the Board of Directors or in the Certificate of Incorporation of the Corporation or these Bylaws, each committee may exercise the authority of the Board of Directors. All such committees and their members shall be governed by the same requirements and provisions of the General Corporation Law, the Certificate of Incorporation of the Corporation and these Bylaws regarding meetings, action without meetings, notice and waiver of notice, quorum, voting requirements and resignation as are applicable to the Board of Directors and its members. ARTICLE V. OFFICERS 5.1 OFFICERS. The officers of the Corporation shall consist of a Chairman of the Board, Chief Executive Officer, President, Chief Financial Officer and a Secretary, each elected by the Board of Directors. In addition, the Board of Directors or the Chief Executive Officer may elect or appoint such other officers as deemed desirable or appropriate for the conduct of the business of the Corporation, including, but not limited to, a Chief Operating Officer and one or more Vice Presidents, Assistant Secretaries, Treasurers and Assistant Treasurers. One person may simultaneously hold more than one office. Officers need not be directors or stockholders of the Corporation. 10 5.2 TERM. Each officer elected by the Board of Directors shall serve at the pleasure of the Board of Directors and until his or her successor shall have been appointed, or until his death, resignation or removal. Each officer appointed by the Chief Executive Officer shall serve at the pleasure of the Chief Executive Officer or the Board of Directors and until such officer's successor shall have been elected and qualified, or until his earlier death, resignation or removal. 5.3 RESIGNATION AND REMOVAL. An officer may resign at any time by delivering notice to the Corporation; provided, however, that only notice to the Chairman of the Board, the Chief Executive Officer, the President or the Secretary of the Corporation shall be deemed to constitute notice to the Corporation. Such resignation is effective when such notice is delivered unless such notice specifies a later effective date. Acceptance of such resignation shall not be necessary to make it effective. If a resignation is made effective at a later date and the Corporation accepts the future effective date, the Board of Directors or Chief Executive Officer, depending on the office, may fill the pending vacancy before the effective date provided the successor does not take office until the effective date. The Board of Directors may remove any officer at any time with or without cause, and the Chief Executive Officer may remove any officer that is not elected by the Board of Directors at any time with or without cause. Such removal by the Board of Directors or the Chief Executive Officer shall be without prejudice to the contractual rights, if any, of the person so removed. 5.4 VACANCIES. Any vacancy in the offices of Chairman of the Board, Chief Executive Officer, President, Chief Financial Officer or Secretary from any cause shall be filled by the Board of Directors. Vacancies in any other offices may be filled only by the Board of Directors or the Chief Executive Officer. 5.5 DUTIES. (a) CHAIRMAN OF THE BOARD. The Chairman of the Board shall, if present, preside at all meetings of the Board of Directors and stockholders and shall have all powers and perform all duties incident to the office of Chairman of the Board, and such other powers and duties prescribed by the Board of Directors or these Bylaws. (b) CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall be the chief executive officer of the Corporation and, subject to the direction and control of the Board of Directors, shall have the general control and management of the business and affairs of the Corporation and be responsible for the active, executive management and supervision of the operations of the Corporation. The Chief Executive Officer shall have the full authority and responsibility for formulating the essential strategic plans and policies of the Corporation and for administering the same. The Chief Executive Officer shall have the general powers and duties of supervision and management usually vested in the office of the chief executive officer of a corporation and shall perform such other duties and have such other powers as the Board of Directors or these Bylaws may from time to time prescribe. The Chief Executive Officer shall report directly to the Board of Directors. (c) PRESIDENT. The President shall have such powers and duties as the Board of Directors or Chief Executive Officer or these Bylaws may from time to time prescribe. 11 (d) VICE PRESIDENT. The Vice President or Vice Presidents (if any) shall assist the Chief Executive Officer and President in the active management of the business, and shall perform such other duties as the Board of Directors, Chief Executive Officer or President or these Bylaws may from time to time prescribe. (e) CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall render statements of the financial affairs of the Corporation in such form and at such times as requested or required by the Board of Directors, the Chief Executive Officer or the President, and shall keep and maintain, or cause to be kept and maintained, adequate and accurate books and records of accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital and retained earnings. The Chief Financial Officer shall have the custody of the Corporation's funds and securities, shall keep or cause to be kept full and accurate account of receipts and disbursements in books belonging to the Corporation, and shall deposit or cause to be deposited all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors, Chief Executive Officer or President. The Chief Financial Officer shall disburse or cause to be disbursed the funds of the Corporation as required in the ordinary course of business or as may be ordered by the Board of Directors or the Chief Executive Officer or President, taking proper vouchers for such disbursements, and shall render to the Chief Executive Officer, President and directors at the regular meetings of the Board of Directors, or whenever they may require it, an account of all of his transactions as Chief Financial Officer and the financial condition of the Corporation. He shall perform such other duties as may be incident to his office or as prescribed from time to time by the Board of Directors, Chief Executive Officer or President or these Bylaws. (f) SECRETARY. The Secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and shall prepare and record all votes and all minutes of all such meetings in a book to be kept for that purpose; he shall perform like duties for any committee when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors when required, and unless directed otherwise by the Board of Directors, shall keep, or cause to be kept, a stock record containing the names of all persons who are stockholders of the Corporation, showing their place of residence and the number of shares held by them respectively. The Secretary shall have the responsibility of authenticating records of the Corporation. The Secretary shall perform such other duties as may be prescribed from time to time by the Board of Directors, Chief Executive Officer or President. (g) OTHER OFFICERS. Other officers appointed or elected by the Board of Directors or Chief Executive Officer shall exercise such powers and perform such duties as may be prescribed in these Bylaws or by the Board of Directors or the Chief Executive Officer. (h) DELEGATION OF DUTIES. In case of the absence or disability of any officer of the Corporation or of any person authorized to act in his place, the Board of Directors or Chief Executive Officer, as appropriate, may from time to time delegate the powers and duties of such officer to any officer, or any director, or any other person whom it may select, during such period of absence or disability. 12 ARTICLE VI. SHARES OF STOCK 6.1 STOCK CERTIFICATES. The shares of any or all of the Corporation's classes or series of stock shall be represented by certificates, provided that the Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of the Corporation's stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the Corporation by the Chairman of the Board of Directors, or the President or Vice President, and by the Chief Financial Officer or the Secretary or an Assistant Secretary representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. 6.2 LEGENDS; SPECIAL DESIGNATIONS. The Board of Directors shall have the power and authority to provide the certificates representing shares of stock bear such legends as the Board of Directors deems appropriate in connection with the requirements of federal or state securities laws or other applicable law. If the Corporation is authorized to issue more than one (1) class of stock or more than one (1) series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. 6.3 TRANSFERS. Transfers of shares of the capital stock of the Corporation shall be made only on the books of the Corporation by (i) the holder of record thereof, (ii) by his legal representative, who, upon request of the Corporation, shall furnish proper evidence of authority to transfer, or (iii) his attorney, authorized by a power of attorney duly executed and filed with the Secretary of the Corporation or a duly appointed transfer agent. Such transfers shall be made only upon surrender, if applicable, of the certificate or certificates for such shares properly endorsed and with all taxes thereon paid. 6.4 LOST, DESTROYED OR STOLEN CERTIFICATES. No certificate for shares of capital stock of the Corporation shall be issued in place of any certificate alleged to have been lost, destroyed or stolen except on production of evidence, satisfactory to the 13 Corporation, of such loss, destruction or theft, and, if the Corporation so requires, upon the furnishing of an indemnity bond in such amount and with such terms and such surety as the Corporation may in its discretion require. ARTICLE VII. CORPORATE ACTIONS 7.1 CONTRACTS. Unless otherwise required or provided by the Board of Directors, the Chief Executive Officer and President may execute contracts or other instruments on behalf of and in the name of the Corporation. The Board of Directors and, subject to any specific directions of the Board of Directors, the Chief Executive Officer or President may from time to time authorize any other officer, assistant officer or agent to enter into any contract or execute any instrument in the name of and on behalf of the Corporation as it may deem appropriate, and such authority may be general or confined to specific instances. 7.2 LOANS. No loans shall be contracted on behalf of the Corporation and no evidence of indebtedness shall be issued in its name unless authorized by the Chief Executive Officer, President or the Board of Directors. Such authority may be general or confined to specific instances. 7.3 CHECKS, DRAFTS, ETC. Unless otherwise required by the Board of Directors, all checks, drafts, bills of exchange and other negotiable instruments of the Corporation shall be signed by either the Chief Executive Officer or President or such other officer, assistant officer or agent of the Corporation as may be authorized so to do by the Board of Directors or the Chief Executive Officer or President. Such authority may be general or confined to specific business, and, if so directed by the Board, the signatures of two or more such officers may be required. 7.4 DEPOSITS. All funds of the Company not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks or other depositories as the Board of Directors or Chief Executive Officer may authorize. 7.5 VOTING SECURITIES HELD BY THE CORPORATION. Unless otherwise required by the Board of Directors, the Chief Executive Officer and the President shall have full power and authority on behalf of the Corporation to attend any meeting of security holders, or to take action on written consent as a security holder, of other corporations in which the Corporation may hold securities. In connection therewith the Chief Executive Officer and the President shall possess and may exercise any and all rights and powers incident to the ownership of such securities which the Corporation possesses. The Board of Directors or the Chief Executive Officer or President may, from time to time, confer like powers upon any other person or persons. 7.6 DIVIDENDS. The Board of Directors may, from time to time, declare, and the Corporation may pay, dividends on its outstanding shares of capital stock in the manner and upon the terms and conditions provided by applicable law. The record date for the determination of share holders entitled to receive the payment of any dividend shall be determined by the Board of Directors, but which in any event shall not be less than ten (10) days nor more than sixty (60) days prior to the date of such payment. 14 ARTICLE VIII. INDEMNIFICATION 8.1 NATURE OF INDEMNITY. The Corporation shall indemnify, and upon request shall advance expenses to, in the manner and to the fullest extent authorized or permitted by the General Corporation Law (as now or hereafter in effect), any person (or the estate of any person) who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether or not by or in the right of the Corporation, and whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director, officer or employee of the Corporation, or is or was serving at the request of the Corporation as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise. The indemnification provided herein shall not be deemed to limit the right of the Corporation to indemnify any other person for any such expenses to the fullest extent authorized or permitted by the General Corporation Law (as now or hereafter in effect). Any repeal or modification of the foregoing by amendment or operation of law shall not adversely affect any right of a director, officer or employee of the Corporation existing at the time of such repeal or modification. 8.2 PROCEDURE FOR INDEMNIFICATION. Any indemnification of a director, officer or employee of the Corporation under Section 8.1 of this Article VIII or advance of expenses under Section 8.5 of this Article VIII shall be made promptly, and in any event within 30 days, upon the written request of the director, officer or employee. If a determination by the Corporation that the director, officer or employee is entitled to indemnification pursuant to this Article VIII is required, and the Corporation fails to respond within 60 days to a written request for indemnity, the Corporation shall be deemed to have approved the request. If the Corporation denies a written request for indemnification or advancing of expenses, in whole or in part, or if payment in full pursuant to such request is not made within 30 days, the right to indemnification or advances as granted by this Article VIII shall be enforceable by the director, officer or employee in any court of competent jurisdiction. Such person's costs and expenses incurred in connection with successfully establishing his or her right to indemnification, in whole or in part, in any such action shall also be indemnified by the Corporation. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the General Corporation Law for the Corporation to indemnify the claimant for the amount claimed, but the burden of such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. 15 8.3 ARTICLE NOT EXCLUSIVE. The rights to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article VIII shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the certificate of incorporation, bylaw, agreement, vote of stockholders or disinterested directors or otherwise. 8.4 INSURANCE. The Corporation may purchase and maintain insurance on its own behalf and on behalf of any person who is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify such person against such liability under this Article VIII. 8.5 EXPENSES. Expenses incurred by any person described in Section 8.1 of this Article VIII in defending a proceeding shall be paid by the Corporation in advance of such proceeding's final disposition unless otherwise determined by the Board of Directors in the specific case upon receipt of an undertaking by or on behalf of the person to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation. Such expenses incurred by agents may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate. 8.6 AGENTS. Persons who are not covered by the foregoing provisions of this Article VIII and who are or were agents of the Corporation, or who are or were serving at the request of the Corporation as agents of another corporation, partnership, joint venture, trust or other enterprise, may be indemnified to the extent authorized at any time or from time to time by the Board of Directors. 8.7 CONTRACT RIGHTS. The provisions of this Article VIII shall be deemed to be a contract right between the Corporation and each director, officer or employee who serves in any such capacity at any time while this Article VIII and the relevant provisions of the General Corporation Law or other applicable law are in effect, and any repeal or modification of this Article VIII or any such law shall not affect any rights or obligations then existing with respect to any state of facts or proceeding then existing. 8.8 MERGER OR CONSOLIDATION. For purposes of this Article VIII, references to "the Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under this Article VIII with respect to the resulting or surviving corporation as he or she would have with respect to such constituent corporation if its separate existence had continued. 16 ARTICLE IX. FISCAL YEAR The fiscal year of the Corporation shall be determined by the Board of Directors, and in the absence of such determination, shall be the calendar year. ARTICLE X. CORPORATE SEAL The Corporation shall not have a corporate seal. ARTICLE XI. AMENDMENT OF BYLAWS The affirmative vote of the holders of at least sixty-seven percent (67%) of the outstanding shares of the Corporation then entitled to vote, voting together as a single class, shall be required to repeal or amend any provision of these Bylaws of the Corporation; provided, however, that the Board of Directors may repeal or amend any provision of these Bylaws of the Corporation unless (i) the General Corporation Law reserves this power exclusively to the stockholders; or (ii) the stockholders, in amending or repealing a particular Bylaw, provide expressly that the Board of Directors may not amend or repeal that particular Bylaw. 17 EX-4.1 6 g85742s1exv4w1.txt EX-4.1 FORM OF COMMON STOCK CERTIFICATE EXHIBIT 4.1 Common Stock $.01 PAR VALUE NUMBER SHARES (SYMBION HEALTHCARE LOGO) SYMBION, INC. INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE SEE REVERSE FOR CERTAIN DEFINITIONS AND LEGENDS CUSIP 871507 10 9 THIS CERTIFIES THAT is the owner of FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $.01 PAR VALUE PER SHARE, OF SYMBION, INC. transferable in person or by duly authorized attorney on the books of the Corporation upon surrender of this certificate properly endorsed. This certificate and the shares represented hereby are issued and shall be held subject to the laws of the State of Delaware and the provisions of the Certificate of Incorporation and the Bylaws of the Corporation, as amended from time to time, to which the holder by acceptance hereof assents. This certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar. IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by the facsimile signatures of its duly authorized officers. DATED: R. Dale Kennedy Richard E. Francis, Jr. SECRETARY CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER COUNTERSIGNED AND REGISTERED. SUNTRUST BANK BY TRANSFER AGENT AND REGISTRAR AUTHORIZED SIGNATURE SYMBION, INC. THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS A STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH AUTHORIZED CLASS OF STOCK OR SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS. SUCH REQUEST MAY BE MADE TO THE CORPORATION OR TO ITS TRANSFER AGENT AND REGISTRAR. THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO CERTAIN RIGHTS AS SET FORTH IN A RIGHTS AGREEMENT BETWEEN THE CORPORATION AND SUNTRUST BANK, AS IT MAY BE AMENDED (THE "RIGHTS AGREEMENT"), THE TERMS OF WHICH ARE HEREBY INCORPORATED HEREIN BY REFERENCE AND A COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION. UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, SUCH RIGHTS WILL BE EVIDENCED BY SEPARATE CERTIFICATES AND WILL NO LONGER BE EVIDENCED BY THIS CERTIFICATE. THE CORPORATION WILL MAIL TO THE HOLDER OF THIS CERTIFICATE A COPY OF THE RIGHTS AGREEMENT WITHOUT CHARGE AFTER RECEIPT OF A WRITTEN REQUEST THEREFOR. AS DESCRIBED IN THE RIGHTS AGREEMENT, RIGHTS ISSUED TO, OR ACQUIRED BY ANY ACQUIRING PERSON OR ANY AFFILIATE OR ASSOCIATE THEREOF (EACH AS DEFINED IN THE RIGHTS AGREEMENT), WHETHER CURRENTLY HELD BY OR ON BEHALF OF SUCH PERSON OR BY ANY SUBSEQUENT HOLDER, SHALL, UNDER CERTAIN CIRCUMSTANCES, BECOME NULL AND VOID. The following abbreviations, when used in the inscription on the face of this Certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM -- as tenants in common UNIF GIFT MIN ACT--_________ Custodian _________ TEN ENT -- as tenants by the entireties (Cust) (Minor) JT TEN -- as joint tenants with right of under Uniform Gifts to Minors survivorship and not as tenants Act _________________________ in common (State)

Additional abbreviations may also be used though not in the above list. For value received, _________________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFICATION NUMBER OF ASSIGNEE ______________________________________ _______________________________________________________________________________ _______________________________________________________________________________ please print or typewrite name and address, including postal zip code of assignee _______________________________________________________________________________ _______________________________________________________________________________ _________________________________________________________________________Shares of the Common Stock by the within Certificate and do hereby irrevocably constitute and appoint ________________________________________________________ ______________________________________________________________________ Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises. DATED __________________ _________________________________________________ NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER. SIGNATURE(S) GUARANTEED: ____________________________________________________________ THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. EX-4.12 7 g85742s1exv4w12.txt EX-4.12 FORM OF RIGHTS AGREEMENT EXHIBIT 4.12 FORM of RIGHTS AGREEMENT between SYMBION, INC. and SUNTRUST BANK as Rights Agent Dated as of _____________, 200_ TABLE OF CONTENTS
Page Section 1. CERTAIN DEFINITIONS................................................................. 1 Section 2. APPOINTMENT OF RIGHTS AGENT......................................................... 7 Section 3. ISSUE OF RIGHTS CERTIFICATES........................................................ 7 Section 4. FORM OF RIGHTS CERTIFICATES......................................................... 8 Section 5. EXECUTION, AUTHENTICATION AND DELIVERY.............................................. 10 Section 6. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE................................. 10 Section 7. MUTILATED, DESTROYED, LOST AND STOLEN RIGHTS CERTIFICATES........................... 11 Section 8. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF RIGHTS....................... 12 Section 9. CANCELLATION AND DESTRUCTION OF RIGHTS CERTIFICATES................................. 13 Section 10. RESERVATION AND AVAILABILITY OF SHARES.............................................. 14 Section 11. RECORD DATE......................................................................... 14 Section 12. ADJUSTMENT OF PURCHASE PRICE, NUMBER AND TYPE OF SHARES OR NUMBER OF RIGHTS......... 15 Section 13. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES.......................... 21 Section 14. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR EARNING POWER................ 21 Section 15. FRACTIONAL RIGHTS AND FRACTIONAL SHARES............................................. 22 Section 16. RIGHTS OF ACTION.................................................................... 23 Section 17. AGREEMENT OF RIGHTS HOLDERS......................................................... 24 Section 18. RIGHTS CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER.................................. 24 Section 19. CONCERNING THE RIGHTS AGENT......................................................... 25
Section 20. DUTIES OF RIGHTS AGENT.............................................................. 25 Section 21. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT........................... 27 Section 22. CHANGE OF RIGHTS AGENT.............................................................. 27 Section 23. ISSUANCE OF NEW RIGHTS CERTIFICATES................................................. 28 Section 24. REDEMPTION.......................................................................... 28 Section 25. MANDATORY REDEMPTION AND EXCHANGE................................................... 29 Section 26. NOTICE OF CERTAIN EVENTS............................................................ 30 Section 27. SECURITIES LAWS REGISTRATIONS....................................................... 31 Section 28. NOTICES............................................................................. 31 Section 29. SUPPLEMENTS AND AMENDMENTS.......................................................... 32 Section 30. SUCCESSORS.......................................................................... 33 Section 31. BENEFITS OF THIS AGREEMENT.......................................................... 33 Section 32. SEVERABILITY........................................................................ 33 Section 33. GOVERNING LAW....................................................................... 33 Section 34. COUNTERPARTS........................................................................ 33 Section 35. DESCRIPTIVE HEADINGS................................................................ 33 Section 36. BOARD OF DIRECTORS.................................................................. 33 EXHIBITS EXHIBIT A - Form of Certificate of Designation of Series A Junior Participating Preferred Stock of Symbion, Inc. EXHIBIT B - Form of Rights Certificate EXHIBIT C - Summary of Rights to Purchase Preferred Shares

A-3 RIGHTS AGREEMENT This Rights Agreement (this "Agreement"), dated as of _______________, 200_, is between Symbion, Inc., a Delaware corporation (the "Company"), and SunTrust Bank, as Rights Agent. WHEREAS, the Board of Directors, having determined its actions to be in the best interests of the Company, has authorized the creation of Rights, has authorized and directed the issuance to the holders of record of Common Shares of the Company outstanding as of the Close of Business on ___________, 200_ (the "Record Date"), of one Right with respect to each Common Share of the Company outstanding on the Record Date, and has further authorized and directed the issuance of one Right with respect to each Common Share that shall become outstanding between the Record Date and the earlier of the Distribution Date, the Redemption Date and the Final Expiration Date; and WHEREAS, the Board of Directors has authorized and directed that the terms and conditions under which the Rights are to be distributed, including without limitation those affecting the exercise thereof, the securities or other property to be acquired thereby and the purchase price to be paid therefor, shall be set forth in a written agreement between the Company and a rights agent. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereto agree as follows: Section 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the following terms shall have the meanings indicated: (a) "Acquiring Person" shall mean any Person who or which, together with all Affiliates and Associates of such Person, shall be the Beneficial Owner of 15% or more of the Voting Shares then outstanding, but shall not include the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company or any trustee of or fiduciary with respect to any such plan when acting in such capacity. Notwithstanding the foregoing: (y) no Person shall become an "Acquiring Person" solely as the result of an acquisition of Voting Shares by the Company which, by reducing the number of shares outstanding, increases the proportionate percentage of shares beneficially owned by such Person to the amount of Voting Shares necessary for such person to become an Acquiring Person; PROVIDED, HOWEVER, that, if a Person shall become the Beneficial Owner of the amount of Voting Shares necessary for such person to become an Acquiring Person by reason of share purchases by the Company and shall, after such share purchases by the Company and at a time when such Person is the Beneficial Owner of the amount of Voting Shares necessary for such person to become an Acquiring Person, become the Beneficial Owner of any additional Voting Shares, then such Person shall be deemed to be an "Acquiring Person"; and (z) if the Board of Directors determines in good faith that a Person who would otherwise be an "Acquiring Person," as defined pursuant to the foregoing provisions of this Section 1(a), has become such inadvertently (including, without limitation, because (i) such Person was unaware that he or it was the Beneficial Owner of a percentage of Voting Shares that would otherwise cause such person to be an "Acquiring Person" or (ii) such Person was aware of the extent to which he or it is the Beneficial Owner of Voting Shares but had no actual knowledge of the consequences of being such a Beneficial Owner under this Agreement) and without any intention of changing or influencing control of the Company, and such Person divests as promptly as practicable, but in any event within the time period directed by the Board of Directors, a sufficient number of Common Shares so that such Person would no longer be an "Acquiring Person," as defined pursuant to the foregoing provisions of this Section 1(a), then such Person shall not be deemed to be or to have become an "Acquiring Person" for any purposes of this Agreement during any period of time (1) prior to the time the members of the Board of Directors shall have become aware that such Person had become an "Acquiring Person" (but for the provisions of this subsection (z)), (2) during which the members of the Board of Directors are making the determination called for under this subsection (z), and (3) during which such Person is divesting himself or itself of a sufficient number of Voting Shares so that such Person would no longer be an "Acquiring Person". Nothing in this Section 1(a) shall affect the effect or application of Section 8(e). (b) "Agreement" shall mean this Rights Agreement as the same may be hereafter amended from time to time. (c) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Exchange Act as in effect on the date of this Agreement. (d) A Person shall be deemed the "Beneficial Owner" of and shall be deemed to "own beneficially" any securities which (without duplication): (1) such Person or any of such Person's Affiliates or Associates has the right to acquire (whether such right is exercisable immediately or only after the passage of time, compliance with regulatory requirements, the fulfillment of a condition or otherwise) pursuant to any oral or written agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling group members (A) with respect to a bona fide public offering of securities or (B) in connection with a placement of securities pursuant to Rule 144A under the Securities Act), or upon the exercise of conversion rights, exchange rights, rights (other than these Rights), warrants or options, or otherwise; or the right to vote pursuant to any agreement, arrangement or understanding; PROVIDED, HOWEVER, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, (i) securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange, or (ii) securities 2 issuable upon exercise of Rights at any time prior to any Person becoming an Acquiring Person; (2) such Person or any of such Person's Affiliates or Associates, directly or indirectly, has the right to vote or dispose of or has "beneficial ownership" of (as determined pursuant to Rule 13d-3 of the Exchange Act) or has a "pecuniary interest" or an "indirect pecuniary interest" in (as determined pursuant to Rule 16a-1(a)(2) of the Exchange Act), in either case including pursuant to any agreement, arrangement or understanding, whether or not in writing; PROVIDED, HOWEVER, that a Person shall not be deemed the Beneficial Owner of, or to "beneficially own," any security under this subparagraph (2) as a result of an agreement, arrangement or understanding to vote such security (A) which arises solely from a revocable proxy or consent given to such Person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations of the Exchange Act and (B) is not also then reportable on Schedule 13D under the Exchange Act (or any comparable or successor report); or (3) are beneficially owned, directly or indirectly, by any other Person with which such Person or any of such Person's Affiliates or Associates has any oral or written agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling group members (A) with respect to a bona fide public offering of securities or (B) in connection with a placement of securities pursuant to Rule 144A under the Securities Act) for the purpose of acquiring, holding, voting (other than voting pursuant to a revocable proxy as contemplated by the proviso to subparagraph (2) of this paragraph) or disposing of any securities of the Company. Notwithstanding anything in this definition to the contrary, the phrase "then outstanding," when used with reference to a Person's Beneficial Ownership of securities of the Company (or to the number of such securities "beneficially owned"), shall mean the number of such securities then issued and outstanding together with the number of such securities not then actually issued and outstanding which such Person would be deemed to own beneficially hereunder. (e) "Board of Directors" means the Board of Directors of the Company. (f) "Business Day" shall mean any day other than a Saturday, Sunday or a day on which banking institutions in the State of Georgia are authorized or obligated by law or executive order to close. (g) "Close of Business" on any given date shall mean 5:00 P.M., Atlanta, Georgia time, on such date; PROVIDED, HOWEVER, that if such date is not a Business Day it shall mean 5:00 P.M., Atlanta, Georgia time, on the next succeeding Business Day. (h) "Closing Price", with respect to any security, shall mean the last sale price, regular way, on a specific Trading Day or, in case no such sale takes place on such Trading Day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed 3 or admitted to trading on the New York Stock Exchange or, if such security is not then listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which such security is listed or admitted to trading or, if such security is not then listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotations System or such other system then in use, or, if on any such Trading Day such security is not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in such security selected by the Board of Directors. If such security is not publicly held or so listed or traded, "Closing Price" shall mean the fair value per unit of such security as determined in good faith by the Board of Directors, whose determination shall be described and the Closing Price set forth in a statement filed with the Rights Agent. (i) "Common Shares" when used with reference to the Company shall mean shares of capital stock of the Company which have no preference over any other class of stock with respect to dividends or assets, which are not redeemable at the option of the Company and with respect to which no sinking, purchase or similar fund is provided and shall initially mean the shares of Common Stock, $.01 par value per share, of the Company. "Common Shares" when used with reference to any Person other than the Company shall, if used with reference to a corporation, mean the capital stock (or equity interest) with the greatest voting power of such other Person or, if such other Person is a Subsidiary of another Person, the Person or Persons which ultimately control such first-mentioned Person and, if used with reference to any other Person, mean the equity interest in such Person (or, if the net worth determined in accordance with generally accepted accounting principles of another Person (other than an individual) which controls such first-mentioned Person is greater than such first-mentioned Person, then such other Person) with the greatest voting power or managerial power with respect to the business and affairs of such Person. Common Shares used without reference to the Company or any other Person shall be deemed to refer to Common Shares of the Company unless the context otherwise requires. (j) "Company" shall mean Symbion, Inc., a Delaware corporation, and its successors. (k) "Company Order" means a written request or order signed in the name of the Company by its Chairman of the Board, its President, its Chief Executive Officer or a Vice President, and by its Chief Financial Officer, its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Rights Agent. (l) "Corporate Trust Office" means the principal office of the Rights Agent at which it administers its corporate trust business, which, in the case of SunTrust Bank, shall, until hereafter changed, be its office at 58 Edgewood Avenue, Room 225, Atlanta, Georgia 30303. (m) "Distribution Date" shall mean the Close of Business on the earlier of (1) the tenth Business Day after the Shares Acquisition Date or (2) the tenth Business Day (or such later date as may be determined by action of the Board of Directors prior to such time 4 as any Person becomes an Acquiring Person) after the date of commencement by any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any trustee of or fiduciary with respect to any such plan when acting in such capacity) of, or after the date of the first public announcement of, the intent of any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any trustee of or fiduciary with respect to any such plan when acting in such capacity) to commence a tender or exchange offer, the consummation of which would result in any Person becoming an Acquiring Person; PROVIDED, HOWEVER, that an occurrence described in clause (2) of this definition above shall not cause the occurrence of the Distribution Date if the Board of Directors shall, prior to the Close of Business on such tenth Business Day (or such later date as described in clause (2) above), determine that such tender or exchange offer is spurious, unless, thereafter, the Board of Directors shall make a contrary determination, in which event the Distribution Date shall occur on the later to occur of the Close of Business on such tenth Business Day (or the Close of Business on such later date as described in clause (2) above) and the Close of Business on the date of such latter determination. (n) "Exchange Act" shall mean the Securities Exchange Act of 1934 and any successor statute thereto. (o) "Final Expiration Date" shall mean the Close of Business on _________________, 201_. (p) "Person" shall mean any individual, firm, corporation, partnership, limited partnership, limited liability company, joint venture, association, trust, unincorporated organization, group or other entity, and shall include any successor (by merger or otherwise) of such entity. (q) "Preferred Shares" shall mean shares of Series A Junior Participating Preferred Stock, $.01 par value per share, of the Company having the rights and preferences set forth in the form of Certificate of Designation of Series A Junior Participating Preferred Stock of Symbion, Inc. attached hereto as EXHIBIT A, and, to the extent that there is not a sufficient number of shares of Series A Junior Participating Preferred Shares outstanding to permit the full exercise of the Rights, any other authorized shares of preferred stock, $.01 par value per share, of the Company having rights and preferences substantially identical to such Series A Preferred Shares. (r) "Purchase Price" shall mean the initial price at which the holder of a Right may, subject to the terms and conditions of this Agreement, purchase one one-thousandth (1/1000) of a Preferred Share (which initial price is set forth in Section 8(b) hereof), as such price shall be adjusted pursuant to the terms of this Agreement. (s) "Record Date" shall have the meaning provided in the recitals to this Agreement. (t) "Redemption Date" shall mean the time at which the Rights are redeemed pursuant to Section 24 herein or the time at which all of the Rights are mandatorily redeemed and exchanged pursuant to Section 25 hereof. 5 (u) "Redemption Price" shall have the meaning specified in Section 24(b) herein. (v) "Right" shall mean one preferred share purchase right which initially represents the right of the registered holder thereof to purchase one one-thousandth (1/1000) of a Preferred Share upon the terms and subject to the conditions set forth herein. (w) "Rights Certificate" shall mean a certificate, in substantially the form of EXHIBIT B attached to this Agreement, evidencing the Rights registered in the name of the holder thereof. (x) "Rights Agent" shall mean SunTrust Bank and any successor thereto appointed in accordance with the terms hereof, in its capacity as agent for the Company and the holders of the Rights pursuant to this Agreement. (y) "Rights Register" and "Rights Registrar" shall have the meanings specified in Section 6. (z) "Securities Act" shall mean the Securities Act of 1933 and any successor statute thereto. (aa) "Shares Acquisition Date" shall mean the first date of public announcement (which for purposes of this definition shall include without limitation a report filed pursuant to Section 13 or Section 16 of the Exchange Act) by the Company or an Acquiring Person that an Acquiring Person has become such. (bb) "Subsidiary" of any Person shall mean any corporation or other entity of which a majority of the outstanding capital stock or other equity interests having ordinary voting power in the election of directors or similar officials is owned, directly or indirectly, by such Person. (cc) "Summary of Rights" shall mean a Summary of Rights to Purchase Preferred Shares in substantially the form attached as EXHIBIT C to this Agreement. (dd) "Trading Day" shall mean a day on which the principal national securities exchange on which any of the Voting Shares are listed or admitted to trading is open for the transaction of business or, if none of the Voting Shares is listed or admitted to trading on any national stock exchange, a Business Day. (ee) "Voting Shares" shall mean (1) the Common Shares of the Company and (2) any other shares of capital stock of the Company entitled to vote generally in the election of directors or entitled to vote together with the Common Shares in respect of any merger or consolidation of the Company, any sale of all or substantially all of the Company's assets or any liquidation, dissolution or winding up of the Company. Whenever any provision of this Agreement requires a determination of whether a number of Voting Shares comprising a specified percentage of such Voting Shares is, was or will be beneficially owned or has been voted, tendered, acquired, sold or otherwise disposed of or a determination of whether a Person has offered or proposed to acquire a number of Voting Shares comprising such specified percentage, the number of Voting Shares comprising such specified percentage of 6 Voting Shares shall in every such case be deemed to be the number of Voting Shares comprising the specified percentage of all the Company's then outstanding Voting Shares. (ff) "Wholly-Owned Subsidiary" of a Person shall mean any corporation or other entity all the outstanding capital stock or other equity interests of which having ordinary voting power in the election of directors or similar officials (other than directors' qualifying shares or similar interests) are owned, directly or indirectly, by such Person. Section 2. APPOINTMENT OF RIGHTS AGENT The Company hereby appoints the Rights Agent to act as agent for the Company and the holders of the Rights (who, in accordance with Section 3 hereof, shall prior to the Distribution Date also be the holders of the Common Shares of the Company) in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company may from time to time appoint such co-Rights Agents as it may deem necessary or desirable. Section 3. ISSUE OF RIGHTS CERTIFICATES. (a) Until the Distribution Date, (1) outstanding Rights will be evidenced (subject to the provisions of paragraph (b) of this Section 3) (A) with respect to Common Shares that are held in certificated form, by the certificates for outstanding Common Shares of the Company and not by separate Rights Certificates and (B) with respect to Common Shares that are held in book-entry form, by a notation in the records of the Rights Agent (and the records of the Company's transfer agent if different from the Rights Agent), and (2) the right to receive Rights Certificates will be transferable only in connection with the transfer of Common Shares of the Company. As soon as practicable after the Distribution Date, the Company will prepare and execute, and the Rights Agent will countersign and send, by first-class, insured, postage-prepaid mail, to each record holder of Common Shares of the Company as of the Close of Business on the Distribution Date, at the address of such holder shown on the stock transfer records of the Company, a Rights Certificate evidencing one Right for each Common Share so held, subject to adjustments as provided herein. From and after the Distribution Date, the Rights will be evidenced solely by such Rights Certificates. (b) On the Record Date, or as soon thereafter as practicable, the Company will send a copy of a Summary of Rights, by first-class, postage-prepaid mail, to each record holder of Common Shares of the Company as of the Close of Business on the Record Date, at the address of such holder shown on the stock transfer records of the Company. With respect to Common Shares outstanding on the Record Date, the certificates evidencing such Common Shares shall thereafter also evidence the outstanding Rights (as such Rights may be amended or supplemented) distributed with respect thereto until the Distribution Date and the registered holders of Common Shares shall also be the registered holders of the associated Rights. Until the Distribution Date (or, if earlier, the Redemption Date or Final Expiration Date), the surrender for registration of transfer or exchange of (1) any certificate for Common Shares outstanding as of the Close of Business on the Record Date, with or without a copy of the Summary of Rights attached thereto, and (2) any Common Shares held in book-entry form, shall also constitute the surrender for registration of transfer or exchange of the outstanding Rights associated with the Common Shares represented thereby. (c) The Company agrees that, at any time after the Record Date and prior to the Distribution Date (or, if earlier, the Redemption Date or Final Expiration Date) at which it 7 issues any of its Common Shares upon original issue or out of treasury, it will concurrently distribute to the holder of such Common Shares one Right for each such Common Share, which Right shall be subject to the terms and provisions of this Agreement and will evidence the right to purchase the same number of one one-thousandth (1/1000) of a Preferred Share at the same Purchase Price as the Rights then outstanding. (d) Certificates for Common Shares issued after the Record Date but prior to the earliest of the Distribution Date, the Redemption Date and the Final Expiration Date, whether upon registration of transfer or exchange of Common Shares outstanding on the Record Date or upon original issue or out of treasury thereafter, shall also be deemed to be certificates for the Rights and shall have impressed on, printed on, written on or otherwise affixed to them the following legend or such similar legend as the Company may deem appropriate and as is not inconsistent with the provisions of this Agreement: This certificate also evidences and entitles the holder hereof to certain Rights as set forth in a Rights Agreement between Symbion, Inc. (the "Company") and SunTrust Bank, as it may be amended (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of the Company. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. The Company will mail to the holder of this certificate a copy of the Rights Agreement without charge after receipt of a written request therefor. As described in the Rights Agreement, Rights issued to or acquired by any Acquiring Person or any Affiliate or Associate thereof (each as defined in the Rights Agreement), whether currently held by or on behalf of such Person or by any subsequent holder, shall, under certain circumstances, become null and void. With respect to certificates containing the foregoing legend, until the earlier of the Distribution Date or the Final Expiration Date, outstanding Rights associated with the Common Shares represented by such certificates shall be evidenced by such certificates alone, and the surrender of any such certificate for registration of transfer or exchange of the Common Shares evidenced thereby shall also constitute surrender for registration of transfer or exchange of the outstanding Rights (as such Rights may be amended or supplemented) associated with the Common Shares represented thereby. The failure to print the foregoing legend on any certificate or any other defect therein shall not affect in any manner whatsoever the application or interpretation of the provisions of Section 8(e) hereof. (e) If the Company purchases or acquires any of its Common Shares after the Record Date, but prior to the Distribution Date, any Rights associated with such Common Shares shall be deemed canceled and retired so that the Company shall not be entitled to exercise any Rights associated with the Common Shares which are no longer outstanding. Section 4. FORM OF RIGHTS CERTIFICATES. (a) The form of Rights Certificates (and the forms of election to purchase Preferred Shares (or other securities) and of assignment to be printed on the reverse thereof) shall in form and substance be substantially the same as EXHIBIT B hereto and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company 8 may deem appropriate and as are not inconsistent with the provisions of this Agreement, as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Rights may from time to time be listed or as may be necessary to conform to usage. Subject to the provisions of Section 23 hereof, the Rights Certificates, whenever issued, shall be dated as of the date of authentication thereof, but, regardless of any adjustments of the Purchase Price or the number of Preferred Shares (or other securities) as to which a Right is exercisable (whether pursuant to this Agreement or any future amendments or supplements to this Agreement), or both, occurring after the Record Date and prior to the date of such authentication, such Rights Certificates may, on their face, without invalidating or otherwise affecting any such adjustment, expressly entitle the holders thereof to purchase such number of Preferred Shares at the Purchase Price per one one-thousandth (1/1000) of a Preferred Share as to which a Right would be exercisable if the Distribution Date were the Record Date; no adjustment of the Purchase Price or the number of Preferred Shares (or other securities) as to which a Right is exercisable, or both, effected subsequent to the date of authentication of any Rights Certificate shall be invalidated or otherwise affected by the fact that such adjustment is not expressly reflected on the face or in the provisions of such Rights Certificate. (b) Pending the preparation of definitive Rights Certificates, the Company may execute, and upon Company Order the Rights Agent shall authenticate and send, by first-class, insured, postage-prepaid mail, to each record holder of Common Shares of the Company as of the Close of Business on the Distribution Date, temporary Rights Certificates which are printed, lithographed, typewritten, mimeographed or otherwise produced substantially of the tenor of the definitive Rights Certificates in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Rights Certificates may determine, as evidenced by their execution of such Rights Certificates. (c) If temporary Rights Certificates are issued, the Company will cause definitive Rights Certificates to be prepared without unreasonable delay. After the preparation of definitive Rights Certificates, the temporary Rights Certificates shall be exchangeable for definitive Rights Certificates, upon surrender of the temporary Rights Certificates at the Corporate Trust Office of the Rights Agent, without charge to the holder. Upon surrender for cancellation of any one or more temporary Rights Certificates, the Company shall execute and the Rights Agent shall authenticate and deliver in exchange therefor one or more definitive Rights Certificates, evidencing a like number of Rights. Until so exchanged, the temporary Rights Certificates shall in all respects be entitled to the same benefits under this Agreement as definitive Rights Certificates. (d) Any Rights Certificate issued pursuant to Section 3(a) or Section 23 hereof that represents Rights beneficially owned by (1) an Acquiring Person or any Associate or Affiliate of an Acquiring Person, (2) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee after the Acquiring Person becomes such, or (3) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring Person to holders of equity interests in such Acquiring Person or to any Person with whom such Acquiring Person has any continuing agreement, arrangement or 9 understanding regarding the transferred Rights or (B) a transfer which the Board of Directors has determined is part of a plan, arrangement or understanding which has as a primary purpose or effect avoidance of Section 8(e) hereof, and any Rights Certificate issued pursuant to Section 6 or Section 7 hereof upon transfer, exchange, replacement or adjustment of any other Rights Certificate referred to in this sentence, shall contain (to the extent feasible) the following legend: The Rights represented by this Rights Certificate are or were beneficially owned by a Person who was or became an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as such terms are defined in the Rights Agreement). Accordingly, this Rights Certificate and the Rights represented hereby may become null and void in the circumstances specified in Section 8(e) of such Agreement. Section 5. EXECUTION, AUTHENTICATION AND DELIVERY. (a) The Rights Certificates shall be executed on behalf of the Company by its Chairman of the Board, its President, its Chief Executive Officer or one of its Vice Presidents, attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Rights Certificates may be manual or facsimile. (b) Rights Certificates bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Rights Certificates or did not hold such offices at the date of authentication of such Rights Certificates. At any time and from time to time after the execution and delivery of this Agreement and prior to the Distribution Date, the Company may deliver Rights Certificates executed by the Company to the Rights Agent for authentication, together with a Company Order for the authentication and delivery of such Rights Certificates; and the Rights Agent in accordance with such Company Order shall authenticate and deliver such Rights Certificates as provided in this Agreement and not otherwise. (c) No Rights Certificate shall be entitled to any benefit under this Agreement or be valid or obligatory for any purpose unless there appears on such Rights Certificate a certificate of authentication substantially in the form provided for herein executed by the Rights Agent by manual signature, and such certificate upon any Rights Certificate shall be conclusive evidence, and the only evidence, that such Rights Certificate has been duly authenticated and delivered hereunder. Section 6. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE. From and after the Distribution Date and prior to the earlier of the Redemption Date and the Final Expiration Date, the Company shall cause to be kept at the Corporate Trust Office of the Rights Agent a rights register (a "Rights Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Rights Certificates and of transfers of Rights. The Rights Agent is hereby appointed the registrar and transfer agent (the "Rights Registrar") for the purpose of registering Rights Certificates and transfers of Rights as herein provided and the Rights Agent agrees to maintain such Rights Register in accordance with such regulations so long as it continues to be designated as Rights Registrar hereunder. 10 Upon surrender to the Rights Agent for registration of transfer of any Rights Certificate, the Company shall execute, and the Rights Agent shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Rights Certificates evidencing a like number of Rights. At the option of the holder, Rights Certificates may be exchanged for other Rights Certificates upon surrender of the Rights Certificates to be exchanged to the Rights Agent. Whenever any Rights Certificates are so surrendered for exchange, the Company shall execute, and the Rights Agent shall authenticate and deliver, the Rights Certificates which the holder making the exchange is entitled to receive. All Rights Certificates issued upon any registration of transfer or exchange of Rights Certificates shall be the valid obligations of the Company, evidencing the same Rights, and entitled to the same benefits under this Agreement, as the Rights Certificates surrendered upon such registration of transfer or exchange. Every Rights Certificate presented or surrendered for registration of transfer or exchange shall (if so required by the Company or the Rights Agent) be duly endorsed, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Rights Registrar duly executed, by the holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of Rights Certificates, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Rights Certificates, other than exchanges not involving any transfer. The provisions of this Section 6 shall be subject to the provisions of Section 4(d), Section 8(e) and Section 15. Section 7. MUTILATED, DESTROYED, LOST AND STOLEN RIGHTS CERTIFICATES. (a) If any mutilated Rights Certificate is surrendered to the Rights Agent, the Company shall execute and the Rights Agent shall authenticate and deliver in exchange therefor a new Rights Certificate of like tenor, for a like number of Rights and bearing a registration number not contemporaneously outstanding. (b) If there shall be delivered to the Company and the Rights Agent (1) evidence to their satisfaction of the destruction, loss or theft of a Rights Certificate and (2) such security or indemnity, if any, as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Rights Agent that such Rights Certificate has been acquired by a bona fide purchaser, the Company shall execute and upon its request the Rights Agent shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Rights Certificate, a new Rights Certificate of like tenor, for a like number of Rights and bearing a registration number not contemporaneously outstanding. (c) Upon the issuance of any new Rights Certificate under this Section 7, the Company may require the payment of a sum sufficient to cover any tax or other 11 governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Rights Agent) connected therewith. (d) Every new Rights Certificate issued pursuant to this Section 7 in lieu of any destroyed, lost or stolen Rights Certificate shall constitute an additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Rights Certificate shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Agreement equally and proportionately with any and all other Rights Certificates duly issued hereunder. (e) The provisions of this Section 7 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Rights Certificates. Section 8. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF RIGHTS. (a) Subject to the provisions of Section 8(e) hereof, the registered holder of any Rights Certificate may exercise the Rights evidenced thereby (except as otherwise provided herein) in whole or in part at any time after the Distribution Date upon surrender of the Rights Certificate, with the form of election to purchase on the reverse side thereof duly executed, to the Rights Agent at its Corporate Trust Office, together with payment of the Purchase Price for each one one-thousandth (1/1000) of a Preferred Share (or other securities) as to which the Rights are exercised, at or prior to the earliest of (1) the Close of Business on the Final Expiration Date, (2) the time of redemption on the Redemption Date or (3) the time at which such Rights are mandatorily redeemed and exchanged as provided in Section 25 hereof. (b) The Purchase Price for each one one-thousandth (1/1000) of a Preferred Share pursuant to the exercise of a Right shall initially be $____________, shall be subject to adjustment from time to time as provided in Sections 12 and 14 hereof and shall be payable in lawful money of the United States of America in accordance with paragraph (c) below. (c) Upon receipt of a Rights Certificate representing exercisable Rights, with the form of election to purchase duly executed, accompanied by payment of the Purchase Price for the securities to be purchased and an amount equal to any applicable transfer tax required to be paid by the holder of such Rights Certificate in accordance with Section 10 in cash, or by certified check or cashier's check payable to the order of the Company, the Rights Agent shall thereupon promptly (1) (A) requisition from any transfer agent of the Preferred Shares (or other securities) certificates for such number of one one-thousandths of a Preferred Share (or other securities) as are to be purchased and registered in such name or names as may be designated by the registered holder of such Rights Certificate or, if appropriate, in the name of a depositary agent or its nominee, and the Company hereby irrevocably authorizes its transfer agent to comply with all such requests, or (B) if the Company shall have elected to deposit the total number of Preferred Shares issuable upon exercise of the Rights hereunder with a depositary agent, requisition from such depositary agent appointed by the Company, depositary receipts representing such number of one one-thousandths of a Preferred Share as are to be purchased and registered in such name or names as may be designated by such holder (in which case certificates for the Preferred Shares represented by such receipts shall be deposited by the transfer agent with such depositary agent), and the Company hereby directs such depositary agent to comply with 12 all such requests, (2) when appropriate, requisition from the Company the amount of cash to be paid in lieu of issuance of fractional shares in accordance with Section 15 hereof, (3) promptly after receipt of such certificates or depositary receipts registered in such name or names as may be designated by such holder, cause the same to be delivered to or upon the order of the registered holder of such Rights Certificate and (4) when appropriate, after receipt, promptly deliver such cash to or upon the order of such holder. In the event that the Company is obligated to issue other securities (including Common Shares) of the Company, pay cash and/or distribute other property pursuant to Section 12(a) hereof, the Company will make all arrangements necessary so that other securities, cash and/or other property are available for distribution by the Rights Agent, if and when appropriate. (d) If the registered holder of the Rights Certificate shall exercise less than all the Rights evidenced thereby, a new Rights Certificate evidencing Rights equal to the Rights remaining unexercised shall be issued by the Rights Agent to the registered holder of such Rights Certificate or to his duly authorized assigns, subject to the provisions of Section 15 hereof. (e) Notwithstanding anything in this Agreement to the contrary, if any Person shall become an Acquiring Person, thereafter any Rights beneficially owned by (1) such Acquiring Person or an Associate or Affiliate of such Acquiring Person, (2) a transferee of such Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee after the Acquiring Person becomes such, or (3) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring Person to holders of equity interests in such Acquiring Person or to any Person with whom the Acquiring Person has any continuing agreement, arrangement or understanding regarding the transferred Rights or (B) a transfer which at least a majority of the Board of Directors has determined is part of a plan or an agreement, arrangement or understanding which has as a primary purpose or effect the avoidance of this Section 8(e), shall become null and void without any further action and no holder of such Rights shall have any rights whatsoever with respect to such Rights, whether under any provision of this Agreement or otherwise. The Company shall use all reasonable efforts to insure that the provisions of this Section 8(e) and Section 4(d) hereof are complied with, but shall have no liability to any holder of Rights Certificates or other Person as a result of its failure to make any determinations with respect to any Acquiring Person or its Affiliates, Associates or transferees hereunder. Section 9. CANCELLATION AND DESTRUCTION OF RIGHTS CERTIFICATES. All Rights Certificates surrendered for the purpose of exercise, transfer, split up or exchange shall, if surrendered to the Company or to any of its other agents, be delivered to the Rights Agent for such purpose and for cancellation or, if surrendered to the Rights Agent for such purpose, shall be canceled by it. No Rights Certificates shall be authenticated in lieu of or in exchange for any Rights Certificates canceled as provided in this Section 9 except as expressly permitted by any of the provisions of this Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any other Rights Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shall deliver all canceled Rights Certificates to the Company, or shall, pursuant to a Company Order, 13 destroy such canceled Rights Certificates and in such case shall deliver a certificate of destruction thereof to the Company. Section 10. RESERVATION AND AVAILABILITY OF SHARES. (a) The Company covenants and agrees that it will cause to be reserved and kept available out of its authorized and unissued Preferred Shares or any Preferred Shares held in its treasury, the number of Preferred Shares that will be sufficient to permit the exercise in full of all outstanding Rights. (b) The Company further covenants and agrees that it will, from and after the Distribution Date, cause to be reserved and kept available out of its authorized and unissued Common Shares or any Common Shares held in its treasury, the number of Common Shares of the Company that will be sufficient to permit the exercise in full of all outstanding Rights if adjusted pursuant to Section 12(a)(2). (c) The Company covenants and agrees that it will take all such action as may be necessary to ensure that all Preferred Shares or Common Shares of the Company issued upon exercise of Rights shall (subject to payment of the Purchase Price) at the time of delivery of the certificates representing any such Preferred Shares or Common Shares be duly authorized, validly issued, fully paid and nonassessable. The Company further covenants and agrees that it will pay when due and payable any and all federal and state transfer taxes and charges which may be payable in respect of the issuance or delivery of the Rights Certificates or of any Preferred Shares (or depositary receipts therefor) or Common Shares of the Company upon the exercise of Rights. The Company shall not, however, be required to pay any transfer tax which may be payable in respect of any transfer or delivery of Rights Certificates to a Person other than, or in respect of the issuance or delivery of certificates or depositary receipts for the Preferred Shares or Common Shares of the Company upon exercise of Rights evidenced by Rights Certificates in a name other than that of, the registered holder of the Rights Certificate evidencing Rights surrendered for transfer or exercise or to issue or deliver any certificates or depositary receipts for Preferred Shares or Common Shares of the Company upon the exercise of any Rights until any such tax shall have been paid (any such tax being payable by the holder of such Rights Certificate at the time of surrender thereof) or until it has been established to the Company's satisfaction that no such tax is due. (d) So long as the Common Shares issuable and deliverable upon the exercise of the Rights may be listed on any national securities exchange, the Company shall use its best efforts to promptly cause, from and after such time as the Rights become exercisable, all Common Shares and other securities reserved for such issuance to be listed on such exchange upon official notice of issuance upon such exercise. Section 11. RECORD DATE. Each Person in whose name any certificate for Preferred Shares or Common Shares of the Company is issued upon the exercise of, or upon mandatory redemption and exchange of, Rights shall for all purposes be deemed to have become the holder of record of the Preferred Shares or Common Shares represented thereby on, and such certificate shall be dated, (a) in the case of the exercise of Rights, the date upon which the Rights Certificate evidencing such Rights was duly surrendered and payment of the Purchase Price (and any applicable transfer taxes) was made, or (b) in the case of the mandatory redemption and exchange of Rights, the date of such mandatory 14 redemption and exchange; PROVIDED, HOWEVER, that, if the date of such surrender and payment or mandatory redemption and exchange is a date upon which the transfer books of the Company for its Preferred Shares or Common Shares, as the case may be, are closed, such Person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next succeeding Business Day on which such transfer books of the Company are open. Prior to the exercise of (or the mandatory redemption and exchange of) the Rights evidenced thereby, the holder of a Rights Certificate shall not be entitled to any rights of a holder of Preferred Shares (or Common Shares of the Company) for which the Rights shall be exercisable, including without limitation the rights to vote, to receive dividends or other distributions or to exercise any preemptive rights, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein. Section 12. ADJUSTMENT OF PURCHASE PRICE, NUMBER AND TYPE OF SHARES OR NUMBER OF RIGHTS. The Purchase Price, the number and kind of shares of capital stock of the Company covered by each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 12. (a) (1) If the Company shall at any time after the date of this Agreement (A) declare a dividend on the Preferred Shares payable in Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine the outstanding Preferred Shares into a smaller number of Preferred Shares or (D) issue any shares of its capital stock in a reclassification of the Preferred Shares (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving corporation), except as otherwise provided in this Section 12(a), the Purchase Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification, and the number and kind of shares of capital stock issuable on such date, shall be proportionately adjusted so that the holder of any Right exercised thereafter shall be entitled to receive, upon payment of the Purchase Price for the number of one one-thousandths of a Preferred Share for which a Right was exercisable immediately prior to such date, the aggregate number and kind of shares of capital stock which, if such Right had been duly exercised immediately prior to such date (at a time when the Preferred Shares transfer books of the Company were open), such holder would have acquired upon such exercise and been entitled to receive upon payment or effectuation of such dividend, subdivision, combination or reclassification; PROVIDED, HOWEVER, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of one Right. If an event occurs which would require an adjustment under both Section 12(a)(1) and Section 12(a)(2), the adjustment provided for in this Section 12(a)(1) shall be in addition to, and shall be made prior to, any adjustment required pursuant to Section 12(a)(2). (2) Subject to action of the Board of Directors pursuant to Section 25 of this Agreement, if any Person shall become an Acquiring Person, unless the event causing such Person to become an Acquiring Person is (A) a transaction described in Section 14 hereof, or (B) an acquisition of Common Shares pursuant to a tender offer or an exchange offer for all outstanding Common Shares at a price and on terms determined by the Board of Directors (excluding members of the Board of Directors who are representatives, nominees or Affiliates of an Acquiring Person), after receiving advice from one or more investment banking firms, to be (i) at a price that is fair to stockholders (taking into account all factors that such members of the Board deem relevant including, without limitation, prices that 15 could reasonably be achieved if the Company or its assets were sold on an orderly basis designed to realize maximum value) and (ii) otherwise in the best interests of its stockholders, each holder of a Right shall thereafter have a right to receive, upon exercise thereof at a price equal to the then current Purchase Price multiplied by the number of one one-thousandths of a Preferred Share for which a Right is then exercisable, in accordance with the terms of this Agreement and in lieu of Preferred Shares, such number of Common Shares of the Company as shall equal the result obtained by (x) multiplying the then current Purchase Price by the number of one one-thousandths of a Preferred Share for which a Right is then exercisable and dividing that product by (y) 50% of the then current per share market price of the Company's Common Shares (determined pursuant to Section 12(d)) on the date such Person became an Acquiring Person. If any Person shall become an Acquiring Person and the Rights shall then be outstanding, the Company shall not take any action which would eliminate or diminish the benefits intended to be afforded by the Rights. (3) In the event that the number of Common Shares that are authorized by the Company's certificate of incorporation but not outstanding or reserved for issuance for purposes other than upon exercise of the Rights are not sufficient to permit the exercise in full of the Rights in accordance with the foregoing subparagraph (2) of this Section 12(a), the Company shall: (A) determine the excess of (1) the value of the Common Shares issuable upon the exercise of a Right (the "Current Value"), over (2) the Purchase Price (such excess, the "Spread"), and (B) with respect to each Right, make adequate provision to substitute for such Common Shares, upon exercise of the Rights and payment of the applicable Purchase Price, (1) cash, (2) a reduction in the Purchase Price, (3) Common Shares or other equity securities of the Company (including, without limitation, shares, or units of shares, of preferred stock which the Board of Directors of the Company has deemed to have the same value as shares of Common Shares (such shares of preferred stock, "Common Share Equivalents")), (4) debt securities of the Company, (5) other assets, or (6) any combination of the foregoing, having an aggregate value equal to the Current Value, where such aggregate value has been determined by the Board of Directors of the Company based upon the advice of a nationally recognized investment banking firm selected by the Board of Directors of the Company; PROVIDED, HOWEVER, that if the Company shall not have made adequate provision to deliver value pursuant to clause (B) above within thirty days following the first occurrence of a Shares Acquisition Date, then the Company shall be obligated to deliver, upon the surrender for exercise of a Right and without requiring payment of the Purchase Price, Common Shares (to the extent available) and then, if necessary, cash, which shares and/or cash have an aggregate value equal to the Spread. If the Board of Directors of the Company shall determine in good faith that it is likely that sufficient additional Common Shares could be authorized for issuance upon exercise in full of the Rights, the thirty-day period set forth above may be extended to the extent necessary, but not more than ninety days after the Shares Acquisition Date, in order that the Company may seek stockholder approval for the authorization of such additional shares (such period, as it may be extended, the "Substitution Period"). To the extent that the Company determines that some action need be taken pursuant to the first and/or second sentences of this Section 12(a)(3), the Company (x) shall provide, subject to Section 8(e) hereof, that such action shall apply uniformly to all outstanding Rights, and (y) may suspend the exercisability of the Rights until the expiration of the Substitution Period in order to seek any authorization of additional shares and/or to decide the appropriate form of distribution to be made pursuant to such first sentence and to determine the value thereof. 16 In the event of any such suspension, the Company shall promptly notify the Rights Agent in writing of such suspension and shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect (with prompt written notice to the Rights Agent that such suspension is no longer in effect). For purposes of this Section 12(a)(3), the value of Common Shares shall be the current market price (as determined pursuant to Section 12(d) hereof) per share of the Common Shares on the Shares Acquisition Date and the value of any Common Stock Equivalent shall be deemed to have the same value as the Common Shares on such date. (b) If the Company shall fix a record date for the issuance of rights, options or warrants to all holders of Preferred Shares entitling them (for a period expiring within 45 calendar days after such record date) to subscribe for or purchase Preferred Shares (or shares having the same rights, privileges and preferences as the Preferred Shares ("equivalent preferred shares")) or securities convertible into or exchangeable for Preferred Shares or equivalent preferred shares at a price per Preferred Share or equivalent preferred share (together with any additional consideration required upon conversion or exchange in the case of a security convertible into or exchangeable for Preferred Shares or equivalent preferred shares), less than the current per share market price of the Preferred Shares (determined pursuant to Section 12(d) on such record date), the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of Preferred Shares outstanding on such record date plus the number of Preferred Shares which the aggregate offering price of the total number of Preferred Shares and/or equivalent preferred shares so to be offered (together with the aggregate of any additional consideration required upon conversion or exchange in the case of any convertible or exchangeable securities so to be offered) would purchase at such current market price and the denominator of which shall be the number of Preferred Shares outstanding on such record date plus the number of additional Preferred Shares and/or equivalent preferred shares to be offered for subscription or purchase (or into or for which the convertible or exchangeable securities so to be offered are initially convertible or exchangeable); PROVIDED, HOWEVER, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon the exercise of one Right. In case all or part of such subscription or purchase price may be paid in a form other than cash, the value of such consideration shall be as determined in good faith by the Board of Directors, whose determination shall be described in a statement filed with the Rights Agent. Preferred Shares owned by or held for the account of the Company or any of its Subsidiaries shall not be deemed outstanding for the purpose of any computation described in this Section 12(b). The adjustment described in this Section 12(b) shall be made successively whenever such a record date is fixed; and, if none of such rights, options or warrants are so issued, the Purchase Price shall be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. (c) If the Company shall fix a record date for the making of a distribution to all holders of the Preferred Shares (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing or surviving corporation) of evidences of indebtedness or assets (other than a regular quarterly cash dividend or a dividend payable in Preferred Shares) or subscription rights or warrants (excluding those 17 referred to in Section 12(b)), the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the then current per share market price of the Preferred Shares (determined pursuant to Section 12(d)) on such record date, less the fair market value (as determined in good faith by the Board of Directors, whose determination shall be described in a statement filed with the Rights Agent) of the portion of the assets or evidences of indebtedness so to be distributed or of such subscription rights or warrants applicable to one Preferred Share and the denominator of which shall be such current per share market price of the Preferred Shares; PROVIDED, HOWEVER, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of capital stock of the Company issuable upon exercise of one Right. Such adjustments shall be made successively whenever such a record date is fixed; and, if such distribution is not so made, the Purchase Price shall again be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. (d) (1) For the purpose of any computation hereunder, the "current per share market price" of any security (a "Security" for the purpose of this Section 12(d)) on any date shall be deemed to be the average of the daily Closing Prices per share of such Security for the 30 consecutive Trading Days immediately prior to, but not including, such date; PROVIDED, HOWEVER, that, if the issuer of such Security announces (A) a dividend or distribution on such Security payable in shares of such Security or Securities convertible into such Security or (B) any subdivision, combination or reclassification of such Security, and the ex-dividend date for such dividend or distribution, or the record date for such subdivision, combination or reclassification, occurs during such period of 30 Trading Days, then, and in each such case, the current per share market price of such Security shall be appropriately adjusted to reflect the current market price per share equivalent of such Security. (2) For the purpose of any computation hereunder, the "current per share market price" of the Preferred Shares shall be determined in the same manner as set forth above for Common Shares in paragraph (1) of this Section 12(d). If the current per share market price of the Preferred Shares cannot be determined in the manner provided above, the "current per share market price" of the Preferred Shares shall be conclusively deemed to be the current per share market price of the Common Shares (determined in the manner provided above) multiplied by one thousand. (e) No adjustment in the Purchase Price shall be required unless such adjustment would require an increase or decrease of at least 1% in the Purchase Price; PROVIDED, HOWEVER, that any adjustments which by reason of this Section 12(e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 12 shall be made to the nearest cent or to the nearest ten-thousandth of a Common Share or other share or one ten-millionth of a Preferred Share, as the case may be, and references herein to the "number of one one-thousandths of a Preferred Share" (or similar phrases) shall be construed to include fractions of one one-thousandth of a Preferred Share. Notwithstanding the first sentence of this Section 12(e), any adjustment required by this Section 12 shall be made no later than the earlier of (1) three years from the date of the transaction which requires such adjustment or (2) the thirtieth day preceding the Final Expiration Date. 18 (f) If as a result of an adjustment made pursuant to Section 12(a), the holder of any Right thereafter exercised shall become entitled to receive any shares of capital stock of the Company other than Preferred Shares, thereafter the number of such other shares so receivable upon exercise of any Right shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the shares contained in this Section 12, and the provisions of this Agreement, including without limitation Sections 8, 10, 11 and 14, with respect to the Preferred Shares shall apply on like terms to any such other shares. (g) All Rights originally issued by the Company subsequent to any adjustment made to the Purchase Price hereunder shall, whether or not the Rights Certificate evidencing such Rights reflects such adjusted Purchase Price, evidence the right to purchase, at the adjusted Purchase Price, the number of one one-thousandths of a Preferred Share purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein. (h) Unless the Company shall have exercised its election as provided in Section 12(i), upon each adjustment of the Purchase Price pursuant to Section 12(b) or 12(c), each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price per one one-thousandth of a Preferred Share, that number of one one-thousandths of a Preferred Share obtained by (1) multiplying (x) the number of one-thousandths of a share covered by a Right immediately prior to this adjustment by (y) the Purchase Price in effect immediately prior to such adjustment of the Purchase Price and (2) dividing the product so obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price. (i) The Company may elect on or after the date of any adjustment of the Purchase Price to adjust the number of Rights outstanding in lieu of any adjustment in the number of one one-thousandths of a Preferred Share purchasable upon the exercise of a Right. Each Right outstanding after such adjustment of the number of Rights shall be exercisable for the number of one one-thousandths of a Preferred Share for which a Right was exercisable immediately prior to such adjustment of the Purchase Price. Each Right held of record prior to such adjustment of the number of Rights shall become that number of Rights (calculated to the nearest one ten-thousandth) obtained by dividing the Purchase Price in effect immediately prior to adjustment of the Purchase Price by the Purchase Price in effect immediately after adjustment of the Purchase Price. The Company shall make a public announcement of its election to adjust the number of Rights, indicating the record date for the adjustment, and, if known at the time, the amount of the adjustment to be made. This record date may be the date on which the Purchase Price is adjusted or any day thereafter, but, if the Rights Certificates have been issued, shall be at least 10 days later than the date of the public announcement. Until such record date, however, any adjustment in the number of one one-thousandths of a Preferred Share for which a Right shall be exercisable made as required by this Agreement shall remain in effect. If Rights Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Section 12(i), the Company shall, as promptly as practicable, cause to be distributed to holders of record of Rights Certificates on such record date Rights Certificates evidencing, subject to Section 15 hereof, the additional Rights to which such holders shall be entitled as a result of such adjustment, or, at the option of the Company, shall cause to be distributed to such holders of record in substitution and replacement for the Rights Certificates held by 19 such holders prior to the date of adjustment, and upon surrender thereof, if required by the Company, new Rights Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment. Rights Certificates so to be distributed shall be issued, executed and authenticated in the manner provided for herein and shall be registered in the names of the holders of record of Rights Certificates on the record date specified in the public announcement. (j) Irrespective of any adjustment or change in the Purchase Price or the number of one one-thousandths of a Preferred Share issuable upon the exercise of the Rights, the Rights Certificates theretofore and thereafter issued may continue to express the Purchase Price and the number of one one-thousandths of a Preferred Share which were expressed in the initial Rights Certificates issued hereunder. (k) Before taking any action that would cause an adjustment reducing the Purchase Price below one one-thousandth of the amount of consideration per Preferred Share determined by the Board of Directors to be capital, or below one one-thousandth of the par value, if any, per Preferred Share issuable upon exercise of the Rights, the Company agrees to take such corporate action as is within its power, including without limitation appropriate action by its Board of Directors, and which is, in the opinion of its counsel, necessary in order that the Company may validly and legally issue fully paid and nonassessable one one-thousandths of Preferred Shares at such adjusted Purchase Price. (l) In any case in which this Section 12 shall require that an adjustment in the Purchase Price be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event the issuance to the holder of any Right exercised after such record date of the Preferred Shares or other capital stock or securities of the Company, if any, issuable upon such exercise over and above the Preferred Shares or other capital stock or securities of the Company, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior to such adjustment; PROVIDED, HOWEVER, that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional securities upon the occurrence of the event requiring such adjustment. (m) Anything in this Section 12 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Purchase Price, in addition to those adjustments expressly required by this Section 12, as and to the extent that it in its sole discretion shall determine to be advisable in order that any combination or subdivision of the Preferred Shares, issuance wholly for cash of any of the Preferred Shares at less than the current market price, issuance wholly for cash of Preferred Shares or securities which by their terms are convertible into or exchangeable for Preferred Shares, dividends on Preferred Shares payable in Preferred Shares or issuance of rights, options or warrants referred to in subsection (b) of this Section 12, hereafter effected by the Company to holders of its Preferred Shares shall not be taxable to such stockholders. (n) If at any time prior to the Distribution Date, the Company shall (1) declare or pay any dividend on the Common Shares payable in Common Shares or (2) effect a subdivision or combination of the Common Shares (by reclassification or otherwise than by payment of dividends in Common Shares) into a greater or lesser number of Common Shares, then in any such case (A) the Purchase Price in effect at the time of the record date 20 for such dividend or of the effective date of such subdivision or combination shall be adjusted by multiplying such Purchase Price by a fraction, the numerator of which is the number of Common Shares outstanding immediately before such event and the denominator of which is the number of Common Shares outstanding immediately after such event, and (B) the number of Rights outstanding immediately after such event shall be adjusted, either through cancellation of outstanding Rights or through distribution of additional Rights (but without duplication of the Company's obligations under Section 3(c)), so that the certificate evidencing each Common Share outstanding immediately after such event shall also evidence the associated Right to purchase the same number of one one-thousandths of a Preferred Share as to which a Right would have entitled the holder thereof to purchase immediately prior to such event. The adjustment provided for in this Section 12(n) shall be made successively whenever such a dividend is declared or paid or such a subdivision or combination is effected. If an event occurs which would require an adjustment under Section 12(a)(2) and this Section 12(n), the adjustments provided for in this Section 12(n) shall be in addition and prior to any adjustment required pursuant to Section 12(a)(2). Section 13. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES. Whenever an adjustment is made as provided in Section 12 or 14 hereof, the Company shall (a) promptly prepare a certificate setting forth such adjustment, and a brief statement of the facts accounting for such adjustment, (b) promptly file with the Rights Agent and with each transfer agent for the Common Shares of the Company and the Preferred Shares a copy of such certificate and (c) mail a brief summary thereof to each holder of record of a Rights Certificate in accordance with Section 28 hereof. Section 14. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR EARNING POWER. If, directly or indirectly at any time after a Person has become an Acquiring Person, (a) the Company shall consolidate with, or merge with and into, any other Person and the Company is not the continuing or surviving corporation, (b) any Person shall merge with and into the Company and the Company shall be the continuing or surviving corporation of such merger and, in connection with any such merger, all or part of the Common Shares of the Company shall be changed into or exchanged for stock or other securities of any other Person (or the Company) or cash or any other property, or (c) the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer), in one or a series of two or more transactions, assets of the Company or its Subsidiaries which constitute more than 50% of the assets or which produce more than 50% of the earning power of the Company and its Subsidiaries (taken as a whole) to any Person or any Affiliate or Associate of such Person other than the Company or one or more of its Wholly-Owned Subsidiaries, then, and in each such case, the Company agrees that, as a condition to engaging in any such transaction, it will make or cause to be made proper provision so that (1) each holder of a Right (except as otherwise provided herein) shall thereafter have the right to receive, upon the exercise thereof in accordance with the terms of this Agreement and in lieu of Preferred Shares, such number of Common Shares of such other Person (including the Company as successor thereto or as the surviving corporation) or, if such other Person is a Subsidiary of another Person, of the Person or Persons (other than individuals) which ultimately control such first-mentioned Person, as shall be equal to the result obtained by (x) multiplying the then current Purchase Price by the number of one one-thousandths of a Preferred Share for which a Right is then exercisable (without taking into account any adjustment previously made pursuant to Section 12(a)(2)) and dividing 21 that product by (y) 50% of the current per share market price of the Common Shares of such other Person (determined pursuant to Section 12(d) hereof) on the date of consummation of such consolidation, merger, sale or transfer; (2) the issuer of such Common Shares shall thereafter be liable for, and shall assume, by virtue of such consolidation, merger, sale or transfer, all the obligations and duties of the Company pursuant to this Agreement; (3) the term "Company," as used herein, shall thereafter be deemed to refer to such issuer; and (4) such issuer shall take such steps (including without limitation the reservation of a sufficient number of shares of its Common Shares in accordance with Section 10) in connection with such consummation as may be necessary to assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to the Common Shares thereafter deliverable upon the exercise of the Rights. The Company shall not enter into any transaction of the kind referred to in this Section 14 if at the time of such transaction there are outstanding any rights, warrants, instruments or securities or any agreement, understanding or arrangements which, as a result of the consummation of such transaction, would substantially diminish or otherwise eliminate the benefits intended to be afforded by the Rights. The Company shall not consummate any such consolidation, merger, sale or transfer unless prior thereto the Company and such issuer shall have executed and delivered to the Rights Agent an agreement supplemental to this Agreement complying with the provisions of this Section 14. The provisions of this Section 14 shall similarly apply to successive mergers or consolidations or sales or other transfers. For the purposes of this Section 14, 50% of the assets of the Company and its Subsidiaries shall be determined by reference to the book value of such assets as set forth in the most recent consolidated balance sheet of the Company and its Subsidiaries (which need not be audited) and 50% of the earning power of the Company and its Subsidiaries shall be determined by reference to the mathematical average of the operating income resulting from the operations of the Company and its Subsidiaries for the two most recent full fiscal years as set forth in the consolidated and consolidating financial statements of the Company and its Subsidiaries for such years; PROVIDED, HOWEVER, that, if the Company has, during such period, engaged in a transaction or series of transactions that individually or in the aggregate involved a significant amount of assets (determined by reference to Item 2, Instruction 4 to Form 8-K), the determination of the earning power of the Company shall be made by reference to the pro forma operating income of the Company and its Subsidiaries giving effect to such transactions as if they had occurred at the commencement of such two-year period. Section 15. FRACTIONAL RIGHTS AND FRACTIONAL SHARES. (a) The Company shall not be required to issue or distribute Rights Certificates which evidence fractional Rights. If, on the Distribution Date or thereafter, as a result of any adjustment effected pursuant to Section 12(i) or otherwise hereunder, a Person would otherwise be entitled to receive a Rights Certificate evidencing a fractional Right, the Company shall, in lieu thereof, pay or cause to be paid to such Person an amount in cash equal to the same fraction of the current market value of a whole Right. For the purpose of this Section 15(a), the current market value of a whole Right shall be the Closing Price of the Rights for the Trading Day immediately prior to, but not including, the date on which such fractional Rights would have been otherwise issuable. (b) The Company shall not be required to issue fractions of Preferred Shares (other than fractions which are integral multiples of one one-thousandth of a Preferred Share) upon exercise of the Rights or to distribute certificates which evidence fractional 22 Preferred Shares (other than fractions which are integral multiples of one one-thousandth of a Preferred Share). Fractions of Preferred Shares in integral multiples of one one-thousandth of a Preferred Share may, at the election of the Company, be evidenced by depositary receipts, pursuant to an appropriate agreement between the Company and a depositary selected by it, provided that such agreement shall provide that the holders of such depositary receipts shall have all the rights, privileges and preferences to which they are entitled as beneficial owners of the Preferred Shares. If, on the Distribution Date or thereafter, as a result of any adjustment effected hereunder in the number of one one-thousandths of a Preferred Share as to which a Right has become exercisable, a Person would otherwise be entitled to receive a fractional Preferred Share that is not an integral multiple of one one-thousandth of a Preferred Share, the Company shall, in lieu thereof, pay to such Person at the time such Right is exercised as herein provided an amount in cash equal to the same fraction (which is not an integral multiple of one one-thousandth of a Preferred Share) of the current market value of one Preferred Share. For purposes of this Section 15(b), the current market value of a Preferred Share shall be the Closing Price of a Preferred Share for the Trading Day immediately prior to, but not including, the date of such exercise. (c) Should any adjustment contemplated by Section 12(a)(2) or any mandatory redemption and exchange contemplated by Section 25 occur, the Company shall not be required to issue fractions of Common Shares upon exercise of the Rights or to distribute certificates which evidence fractional Common Shares. If after any such adjustment or mandatory redemption and exchange, a Person would otherwise be entitled to receive a fractional Common Share of the Company upon exercise of any Rights Certificate or upon mandatory redemption and exchange as contemplated by Section 25, the Company shall, in lieu thereof, pay to such Person at the time such Right is exercised as herein provided or upon such mandatory redemption and exchange an amount in cash equal to the same fraction of the current market value of one Common Share. For purposes of this Section 15(c), the current market value of a Common Share shall be the Closing Price of a Common Share for the Trading Day immediately prior to the date of such exercise or the date of such mandatory redemption and exchange. (d) The holder of a Right by the acceptance thereof expressly waives his right to receive any fractional Rights or any fractional shares upon exercise or mandatory redemption and exchange of a Right (except as provided above). Section 16. RIGHTS OF ACTION. (a) All rights of action in respect of the obligations and duties owed to the holders of the Rights under this Agreement are vested in the registered holders of the Rights; and, without the consent of the Rights Agent or of the holder of any other Rights, any registered holder of any Rights may, in his own behalf and for his own benefit, enforce, and may institute and maintain any suit, action or proceeding, judicial or otherwise, against the Company to enforce, or otherwise to act in respect of, such holder's right to exercise such Rights in the manner provided in the Rights Certificate evidencing such Rights and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and will be entitled to specific performance of the obligations under, and injunctive relief against actual or threatened violations of, the obligations of any Person subject to this Agreement. 23 (b) No right or remedy herein conferred upon or reserved to the registered holder of Rights is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy, whether hereunder or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. (c) No delay or omission of any registered holder of Rights to exercise any right or remedy accruing hereunder shall impair any such right or remedy or constitute a waiver of any default hereunder or an acquiescence therein. Every right and remedy given hereunder or by law to such holders may be exercised from time to time, and as often as may be deemed expedient, by such holders. Section 17. AGREEMENT OF RIGHTS HOLDERS. Every holder of a Right, by accepting the same, consents and agrees with the Company and the Rights Agent and with every other holder of a Right that: (a) prior to the Distribution Date, the Rights will be transferable only in connection with the transfer of the Common Shares of the Company; (b) after the Distribution Date, the Rights Certificates are transferable only on the registry books of the Rights Agent if surrendered at the Corporate Trust Office of the Rights Agent duly endorsed or accompanied by a proper instrument of transfer; (c) the Company and the Rights Agent may deem and treat the Person in whose name the Rights Certificate (or, prior to the Distribution Date, the associated Common Shares certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Rights Certificates or the associated Common Shares certificate made by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent shall be affected by any notice to the contrary; and (d) notwithstanding anything in this Agreement to the contrary, neither the Company nor the Rights Agent shall have any liability to any holder of a Right or other Person as a result of its inability to perform any of its obligations under this Agreement by reason of any preliminary or permanent injunction or other order, decree, judgment or ruling (whether interlocutory or final) issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, or any statute, rule, regulation or executive order promulgated or enacted by any governmental authority, prohibiting or otherwise restraining performance of such obligation; PROVIDED, HOWEVER, the Company must use its best efforts to have any such order, decree, judgment or ruling lifted or otherwise overturned as soon as possible. Section 18. RIGHTS CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. No holder, as such, of any Right (whether or not then evidenced by a Rights Certificate) shall be entitled to vote, receive dividends or be deemed for any purpose the holder of Preferred Shares, Common Shares of the Company or any other securities of the Company which may at any time be issuable on the exercise (or mandatory redemption 24 and exchange) of the Rights represented thereby, nor shall anything contained herein or in any Rights Certificate be construed to confer upon any such holder, as such, any of the rights of a stockholder of the Company, including without limitation any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, to give or withhold consent to any corporate action, to receive notice of meetings or other actions affecting stockholders (except as provided in Section 26) or to receive dividends or subscription rights or otherwise. Section 19. CONCERNING THE RIGHTS AGENT. (a) The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability or expense, incurred without gross negligence, bad faith or willful misconduct on the part of the Rights Agent, for anything done or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending against any claim of liability in the premises. (b) The Rights Agent shall be protected and shall incur no liability for, or in respect of any action taken, suffered or omitted by it in connection with, its administration of this Agreement in reliance upon any Rights Certificate or certificate for Preferred Shares, Common Shares or other securities of the Company, Company Order, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document believed by it to be genuine and to be executed and, where necessary, verified or acknowledged, by the proper person or persons, or otherwise upon the advice of its counsel as set forth in Section 20 hereof. Section 20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Rights Certificates, by their acceptance thereof, shall be bound: (a) The Rights Agent may consult with legal counsel (who may be legal counsel for the Company), and the opinion of such counsel shall be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion. (b) Whenever in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by any one of the Chairman of the Board, the President, any Vice President, the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of the Company and delivered to the Rights Agent; and such certificate shall be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate. 25 (c) The Rights Agent shall be liable hereunder to the Company or any other Person only for its own gross negligence, bad faith or willful misconduct. Anything in this Agreement to the contrary notwithstanding, in no event shall the Rights Agent be liable for special, indirect or consequential loss or damage of any kind whatsoever (including, but not limited to, lost profits), even if the Rights Agent has been advised of the likelihood of such loss or damage and regardless of the form of action. (d) The Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Rights Certificates (except its authentication thereof) or be required to verify the same, but all such statements and recitals are and shall be deemed to have been made by the Company only. (e) The Rights Agent shall not have any responsibility with respect to the validity of this Agreement or the execution and delivery hereof (except the due execution hereof by the Rights Agent) or with respect to the validity or execution of any Rights Certificate (except its authentication thereof); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Rights Certificate; nor shall it be responsible for any change in the exercisability of the Rights (including the Rights becoming void pursuant to Section 12(a)(2) hereof) or any adjustment in the terms of the Rights (including the manner, method or amount thereof) provided for in Sections 3, 12, 14, 24 and 25, or the ascertainment of the existence of facts that would require any such change or adjustment (except with respect to the exercise of Rights evidenced by Rights Certificates after actual notice that such change or adjustment is required); nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any Preferred Shares or Common Shares to be issued pursuant to this Agreement or any Rights Certificate or as to whether any Preferred Shares or Common Shares will, when issued, be duly authorized, validly issued, fully paid and nonassessable. (f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement. (g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from any one of the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of the Company, and to apply to such officers for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered to be taken by it in good faith in accordance with instructions of any such officer. (h) The Rights Agent and any stockholder, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company. 26 (i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss of the Company resulting from any such act, default, neglect or misconduct provided reasonable care was exercised in the selection and continued employment thereof. Section 21. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT. Any corporation into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any Person resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any Person succeeding to the corporate trust or stock transfer business of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided that such Person would be eligible for appointment as a successor Rights Agent under the provisions of Section 22. If at the time such successor Rights Agent shall succeed to the agency created by this Agreement any of the Rights Certificates shall have been authenticated but not delivered, any such successor Rights Agent may adopt the authentication of the predecessor Rights Agent and deliver such Rights Certificates so authenticated, and, if at that time any of the Rights Certificates shall not have been authenticated, any successor Rights Agent may authenticate such Rights Certificates either in the name of the predecessor Rights Agent or in the name of the successor Rights Agent; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement. If at any time the name of the Rights Agent shall be changed and at such time any of the Rights Certificates shall have been authenticated but not delivered, the Rights Agent may adopt the authentication under its prior name and deliver Rights Certificates so authenticated; and, in case at that time any of the Rights Certificates shall not have been authenticated, the Rights Agent may authenticate such Rights Certificates either in its prior name or in its changed name; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement. Section 22. CHANGE OF RIGHTS AGENT. The Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Agreement upon 30 days notice in writing mailed to the Company and to each transfer agent for the Common Shares of the Company and the Preferred Shares by registered or certified mail, and to the holders of the Rights Certificates by first-class mail. The Company may remove the Rights Agent or any successor Rights Agent upon 30 days notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent for the Common Shares of the Company and the Preferred Shares by registered or certified mail, and to the holders of the Rights Certificates by first-class mail. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointment within a period of 30 days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the registered holder of a Rights Certificate (or, prior to the Distribution Date, of Common Shares), then any registered holder of a Rights Certificate (or, prior to the Distribution Date, of Common Shares) may apply to any court of competent jurisdiction for 27 the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be either (a) a Person organized and doing business under the laws of the United States or of any state of the United States, which is authorized under such laws to exercise corporate trust or stock transfer powers and is subject to supervision or examination by federal or state authority and which has at the time of its appointment as Rights Agent a combined capital and surplus of at least $50 million or (b) an Affiliate of a Person described in clause (a) of this sentence. After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment, the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent for the Common Shares of the Company and the Preferred Shares, and mail a notice thereof in writing to the registered holders of the Rights Certificates. Failure to give any notice provided for in this Section 22, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be. Section 23. ISSUANCE OF NEW RIGHTS CERTIFICATES. Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Rights Certificates evidencing Rights in such form as may be approved by its Board of Directors to reflect any adjustment or change in the Purchase Price per share and the number or kind or class of shares or other securities purchasable under the Rights Certificates made in accordance with the provisions of this Agreement. Section 24. REDEMPTION. (a) The Rights may be redeemed by action of the Board of Directors pursuant to paragraph (b) of this Section 24, or may be redeemed and exchanged by action of the Board of Directors pursuant to Section 25 herein, but shall not be redeemed in any other manner. (b) The Board of Directors may, at its option, at any time prior to the time any Person becomes an Acquiring Person redeem all but not less than all of the then outstanding Rights at a redemption price of one thousandth of one cent ($0.00001) per Right then outstanding, appropriately adjusted to reflect any adjustment in the number of Rights outstanding pursuant to Section 12(i) herein (such redemption price being hereinafter referred to as the "Redemption Price"). Any such redemption of the Rights by the Board of Directors may be made effective at such time, on such basis and with such conditions as the Board of Directors in its sole discretion may establish. (c) The right of the registered holders of Rights Certificates to exercise the Rights evidenced thereby or, if the Distribution Date has not theretofore occurred, the inchoate right of the registered holders of Rights to exercise the same shall, without notice to such holders or to the Rights Agent and without further action, terminate and be of no further force or effect effective as of the time of adoption by the Board of Directors of a resolution authorizing and directing the redemption of the Rights pursuant to paragraph (b) of this Section 24 (or, alternatively, if the Board of Directors qualified such action as to time, basis or conditions, then at such time, on such basis and with such conditions as the 28 Board of Directors may have established pursuant to such paragraph (b)); thereafter, the only right of the holders of Rights shall be to receive the Redemption Price. The Company shall promptly give public notice of any redemption resolution pursuant to paragraph (b) of this Section 24; PROVIDED, HOWEVER, that the failure to give, or any defect in, any such notice shall not affect the validity of such redemption. Within 10 days after the adoption of any redemption resolution pursuant to paragraph (b) of this Section 24, the Company shall give notice of such redemption to the holders of the then outstanding Rights by mailing such notice to all such holders at their last addresses as they appear upon the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of the transfer agents for the Common Shares. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of redemption shall state the method by which the payment of the Redemption Price will be made. (d) Neither the Company nor any of its Affiliates or Associates may acquire (other than, in the case of such Affiliates and Associates, in their capacity as holders of Common Shares of the Company), redeem or purchase for value any Rights at any time in any manner other than as specifically set forth in this Section 24 or in Section 25 herein, and other than in connection with the purchase of Common Shares prior to the Distribution Date. Section 25. MANDATORY REDEMPTION AND EXCHANGE. (a) The Board of Directors may, at its option, at any time after any Person becomes an Acquiring Person, issue Common Shares of the Company in mandatory redemption of, and in exchange for, all or part of the then outstanding and exercisable Rights (which shall not include Rights that have become null and void pursuant to the provisions of Section 8(e) hereof) at an exchange ratio of one Common Share for each two Common Shares for which each Right is then exercisable pursuant to the provisions of Section 12(a)(2) hereof. Notwithstanding the foregoing, the Board of Directors shall not be empowered to effect such redemption and exchange at any time after any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any such Subsidiary, or any trustee of or fiduciary with respect to any such plan when acting in such capacity), together with all Affiliates and Associates of such Person, becomes the Beneficial Owner of 50% or more of the Voting Shares then outstanding. (b) Immediately upon the action of the Board of Directors ordering the mandatory redemption and exchange of any Rights pursuant to subsection (a) of this Section 25 and without any further action and without any notice, the right to exercise such Rights shall terminate and the only right thereafter of a holder of such Rights shall be to receive such number of Common Shares as is provided in paragraph (a) of this Section 25. The Company shall promptly give public notice of any such redemption and exchange; PROVIDED, HOWEVER, that the failure to give, or any defect in, such notice shall not affect the validity of such redemption and exchange. The Company promptly shall mail a notice of any such redemption and exchange to all the holders of such Rights at their last addresses as they appear upon the registry books of the Rights Agent. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of mandatory redemption and exchange shall state the method by which the redemption and exchange of the Common Shares for Rights will be effected and, in the event of any partial redemption and exchange, the number of Rights 29 which will be redeemed and exchanged. Any partial redemption and exchange shall be effected pro rata based on the number of Rights (other than Rights which have become null and void pursuant to the provisions of Section 8(e) hereof) held by each holder of Rights. (c) In any mandatory redemption and exchange pursuant to this Section 25, the Company, at its option, may substitute Preferred Shares (or equivalent preferred shares, as such term is defined in Section 12(b) hereof) for Common Shares, at the initial rate of one one-thousandth of a Preferred Share (or equivalent preferred share) for each Common Share, as appropriately adjusted. (d) In any exchange pursuant to this Section 25, the Company, at its option, may substitute for any Common Shares exchangeable for a Right (i) Common Share Equivalents, (ii) cash, (iii) debt securities of the Company, (iv) other assets, or (v) any combination of the foregoing, having an aggregate value which the Board of Directors shall have determined in good faith to be equal to the current market price of one Common Share (determined pursuant to Section 12(d) hereof) on the Trading Day immediately preceding the date of exchange pursuant to this Section 25. Section 26. NOTICE OF CERTAIN EVENTS. If the Company shall, on or after the Distribution Date, propose (a) to pay any dividend or other distribution payable in stock of any class of the Company or any Subsidiary of the Company to the holders of its Preferred Shares, (b) to distribute to the holders of its Preferred Shares rights or warrants to subscribe for or to purchase any additional Preferred Shares or shares of stock of any class or any other securities, rights or options, (c) to make any other distribution to the holders of its Preferred Shares (other than a regular quarterly cash dividend), (d) to effect any reclassification of its Preferred Shares (other than a reclassification involving only the subdivision of outstanding Preferred Shares), (e) to effect any consolidation or merger into or with, or to effect any sale or other transfer (or to permit one or more of its Subsidiaries to effect any sale or other transfer), in one or more transactions, of more than 50% of the assets or earning power of the Company and its Subsidiaries (determined as provided in Section 14 herein) to, any other Person (other than the Company or a Wholly-Owned Subsidiary or Wholly-Owned Subsidiaries), (f) to effect the liquidation, dissolution or winding up of the Company or (g) if the Rights have theretofore become exercisable with respect to Common Shares pursuant to Section 12(a)(2) herein, to declare or pay any dividend or other distribution on the Common Shares payable in Common Shares or in stock of any other class of the Company or any Subsidiary of the Company or to effect a subdivision or combination of the Common Shares (by reclassification or otherwise than by payment of dividends in Common Shares) then, in each such case, the Company shall give to each holder of a Rights Certificate, in accordance with Section 28 hereof, notice of such proposed action, which shall specify the date of authorization by the Board of Directors of, and record date for, such stock dividend or such distribution of rights or warrants or the date on which such reclassification, consolidation, merger, sale, transfer, liquidation, dissolution, winding up, subdivision or combination is to take place and the date of participation therein by the holders of the Common Shares of the Company or the Preferred Shares, or both, if any such date is to be fixed. Such notice shall be so given in the case of any action covered by clause (a), (b) or (g) above at least 20 days prior to the record date for determining holders of the Preferred Shares or of the Common Shares of the Company, as the case may be, for purposes of such action, and in the case of any such other action, at least 20 days prior to the date of the taking of such proposed action or the date of 30 participation therein by the holders of the Preferred Shares or Common Shares of the Company, as the case may be, whichever shall be the earlier. If any of the events set forth in Section 12(a)(2) of this Agreement shall occur, then, in any such case, the Company shall as soon as practicable thereafter give to each holder of a Rights Certificate, in accordance with Section 28 hereof, a notice of the occurrence of such event, which shall specify the event and the consequences of the event to holders of Rights under Section 12(a)(2) hereof. Section 27. SECURITIES LAWS REGISTRATIONS. To the extent legally required, the Company agrees that it will prepare and file, as soon as practicable following the Distribution Date, and will use its best efforts to cause to be declared effective, a registration statement under the Securities Act registering the offering, sale and delivery of the Preferred Shares issuable upon exercise of the Rights, and the Company will, thereafter, use its best efforts to maintain such registration statement (or another) continuously in effect so long as any Rights remain outstanding and exercisable with respect to Preferred Shares. Should the Rights become exercisable with respect to securities of the Company or one of its Subsidiaries other than Preferred Shares, the Company agrees that it will, to the extent legally required, promptly thereafter prepare and file, or cause to be prepared and filed, and will use its best efforts to cause to be declared effective, a registration statement under such Act registering the offering, sale and delivery of such other securities and the Company will, thereafter, use its best efforts to maintain such registration statement (or another) continuously in effect so long as any outstanding Rights are exercisable with respect to such securities. The Company further agrees to use its best efforts, from and after the Distribution Date, to qualify or register for sale the Preferred Shares or other securities of the Company or one of its Subsidiaries issuable upon exercise of the Rights under the securities or "blue sky" laws (to the extent legally required thereunder) of all jurisdictions in which registered holders of Rights Certificates reside determined by reference to the Rights Register. The Company may temporarily suspend, for a period of time not to exceed ninety days after the Distribution Date, the exercisability of the Rights in order to prepare and file such registration statement and permit it to become effective. Upon any such suspension the Company shall promptly notify the Rights Agent in writing of such suspension and shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect (with prompt written notice to the Rights Agent that such suspension is no longer in effect). Notwithstanding any provision of this Agreement to the contrary, the Rights shall not be exercisable in any jurisdiction if the requisite qualification in such jurisdiction shall not have been obtained, the exercise thereof shall not be permitted under applicable law or a registration statement shall not have been declared effective. Section 28. NOTICES. Notices or demands authorized by this Agreement to be given or made by the Rights Agent or by the holder of any Rights Certificate to or on the Company shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows: Symbion, Inc. 40 Burton Hills Boulevard, Suite 500 Nashville, Tennessee 37215 31 Subject to the provisions of Section 22 hereof, any notice or demand authorized by this Agreement to be given or made by the Company or by the holder of any Rights Certificate to or on the Rights Agent shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Company) as follows: SunTrust Bank Stock Transfer Department 58 Edgewood Avenue, Room 225 Atlanta, Georgia 30303 Attn: Department Manager Telephone: (404) 588-7622 Notices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Rights Certificate shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the Rights Register of the Company or, prior to the Distribution Date, on the stock transfer records for the Common Shares of the Company. Section 29. SUPPLEMENTS AND AMENDMENTS. The Company may from time to time supplement or amend this Agreement (which supplement or amendment shall be evidenced by a writing signed by the Company and the Rights Agent) without the approval of any holders of any certificates representing Common Shares or any holders of Rights Certificates in order to cure any ambiguity, to correct or supplement any provision contained herein which may be defective or inconsistent with any other provisions herein, to make any other provisions in regard to matters or questions arising hereunder, or to add, delete, modify or otherwise amend any provision, which the Company may deem necessary or desirable, including without limitation extending the Final Expiration Date; PROVIDED THAT the period during which the Rights may be redeemed may not be extended at a time when the Rights are not then redeemable; PROVIDED FURTHER, HOWEVER, that, from and after the Shares Acquisition Date, any such amendment or supplement shall not materially and adversely affect the interests of the holders of Rights Certificates other than an Acquiring Person or transferees of such Acquiring Person. Without limiting the foregoing, the Board of Directors may by resolution adopted at any time prior to such time as any Person becomes an Acquiring Person amend this Agreement to lower the threshold set forth in the definition of Acquiring Person herein from 15% to a percentage not less than the greater of any percentage greater than the largest percentage of the outstanding Voting Shares then known to the Company to be beneficially owned by any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any trustee of or fiduciary with respect to any such plan when acting in such capacity) and 10%, if the Board of Directors shall determine that a Person whose interests are adverse to the Company and its stockholders may seek to acquire control of the Company. Upon the delivery of a certificate from an appropriate officer of the Company, which states that the proposed supplement or amendment is in compliance with the terms of this Section 29 and, provided such supplement or amendment does not change or increase the Rights Agent's rights, duties, liabilities or obligations hereunder, the Rights Agent shall execute such supplement or amendment. 32 Section 30. SUCCESSORS. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. Section 31. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be construed to give to any Person other than the Company, the Rights Agent and the registered holders of the Rights any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the registered holders of the Rights. Section 32. SEVERABILITY. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. Section 33. GOVERNING LAW. This Agreement and each Rights Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts to be made and performed entirely within such State. Section 34. COUNTERPARTS. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. Section 35. DESCRIPTIVE HEADINGS. Descriptive headings of the several Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. Section 36. BOARD OF DIRECTORS. The Board of Directors shall have the exclusive power and authority to administer this Agreement and to exercise the rights and powers specifically granted to the Board of Directors or to the Company. All such actions, calculations, interpretations and determinations that are done or made by the Board of Directors in good faith shall be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights, as such, and all other Persons. The Rights Agent shall always be entitled to assume that the Company's Board of Directors acted in good faith and shall be fully protected and incur no liability in reliance thereon. 33 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and attested, all as of the day and year first above written. SYMBION, INC. By: ____________________________ Attest: Richard E. Francis, Jr. Chairman and Chief Executive Officer By: _____________________ R. Dale Kennedy Secretary SUNTRUST BANK By: ____________________________ Attest: Title: _________________________ By: _____________________ Title: __________________ 34 EXHIBIT A FORM OF CERTIFICATE OF DESIGNATION OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK OF SYMBION, INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware Symbion, Inc., a Delaware corporation (the "Corporation"), through the undersigned duly authorized officer, in accordance with the provisions of Sections 103 and 151 of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: That, the Board of Directors of the Corporation on _____, 200_, pursuant to the authority conferred upon the Board of Directors by the Certificate of Incorporation of the Corporation (the "Certificate of Incorporation") and in accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware, adopted the following resolution creating a series of ______ shares of Preferred Stock, par value $.01 per share: RESOLVED, that, pursuant to the authority expressly granted to and vested in the Board of Directors of the Corporation in accordance with the provisions of Section 4(b) of the Certificate of Incorporation, a series of the Preferred Stock of the Corporation, par value $.01 per share, be, and it hereby is, created and that the voting powers, designations, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof are as follows: SERIES A JUNIOR PARTICIPATING PREFERRED STOCK: (a) DESIGNATION AND AMOUNT. The shares of such series shall be designated as "Series A Junior Participating Preferred Stock" (the "Series A Junior Preferred Stock") and the number of shares constituting the Series A Junior Preferred Stock shall be ________. Such number of shares may be increased or decreased by resolution of the Board of Directors; PROVIDED, that no decrease shall reduce the number of shares of Series A Junior Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series A Junior Preferred Stock. (b) DIVIDENDS AND DISTRIBUTIONS. (i) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series A Junior Preferred Stock with respect to dividends, the holders of shares of Series A Junior Preferred Stock, in preference to the holders of Common Stock, $.01 par value per share (the "Common Stock"), of the Corporation, and of any other junior A-1 stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable on the first business day of February, May, August and November in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date") as provided in paragraphs (ii) and (iii) of this Section (b) in an amount per share (rounded to the nearest cent) equal to the greater of (A) $1.00 in cash or (B) subject to the provision for adjustment hereinafter set forth, 1,000 times the aggregate per share amount (payable in cash) of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Junior Preferred Stock. If the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series A Junior Preferred Stock were entitled immediately prior to such event under clause (B) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that was outstanding immediately prior to such event. (ii) The Corporation shall declare a dividend or distribution on the Series A Junior Preferred Stock as provided in paragraph (i) of this Section (b) immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); PROVIDED that, if no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share payable in cash on the Series A Junior Preferred Stock shall nevertheless accrue and be cumulative on the outstanding shares of Series A Junior Preferred Stock as provided in paragraph (iii) of this Section (b). (iii) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Junior Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Junior Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Junior Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata A-2 on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Junior Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. (c) Voting Rights. The holders of shares of Series A Junior Preferred Stock shall have the following voting rights: (i) Subject to the provisions for adjustment hereinafter set forth, each share of Series A Junior Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters submitted to a vote of the stockholders of the Corporation. If the Corporation shall at any time declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or combination of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series A Junior Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that was outstanding immediately prior to such event. (ii) Except as otherwise provided herein, in the Certificate of Incorporation, as it may be amended from time to time, in any other Certificate of Designation creating a series of Preferred Stock or any similar stock, or by law, the holders of shares of Series A Junior Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (iii) Except as set forth herein or as otherwise provided by law, holders of Series A Junior Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. (d) CERTAIN RESTRICTIONS. (i) Whenever quarterly dividends or other dividends or distributions payable on the Series A Junior Preferred Stock as provided in Section (b) are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Junior Preferred Stock outstanding shall have been paid in full, or declared and a sum sufficient for the payment therefor be set apart for payment and be in the process of payment, the Corporation shall not: (A) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Preferred Stock; A-3 (B) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Preferred Stock, except dividends paid ratably on the Series A Junior Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (C) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Preferred Stock, PROVIDED that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (as to both dividends and upon dissolution, liquidation or winding up) to the Series A Junior Preferred Stock; or (D) redeem or purchase or otherwise acquire for consideration any shares of Series A Junior Preferred Stock or any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the holders of the respective series or classes. (ii) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (i) of this Section (d), purchase or otherwise acquire such shares at such time and in such manner. (e) REACQUIRED SHARES. Any shares of Series A Junior Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Certificate of Incorporation, or in any other Certificate of Designation creating a series of Preferred Stock or any similar stock or as otherwise required by law. (f) LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (i) to the holders of shares of stock ranking junior (either as to dividends or as to amounts payable upon liquidation, dissolution or winding up) to the Series A Junior Preferred Stock unless, prior thereto, the holders of Series A Junior Preferred Stock shall have received an amount per share (rounded to the nearest cent) equal to the greater of (A) $1,000 per share, or (B) an amount per share, subject to the provision for adjustment hereinafter set forth, equal to A-4 1,000 times the aggregate amount to be distributed per share to holders of Common Stock, plus, in either case, an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, or (ii) to the holders of stock ranking on a parity (either as to dividends or as to amounts payable upon liquidation, dissolution or winding up) with the Series A Junior Preferred Stock, except distributions made ratably on the Series A Junior Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such Shares are entitled upon such liquidation, dissolution or winding up. If the Corporation shall at any time declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Junior Preferred Stock were entitled immediately prior to such event under the proviso in clause (i)(B) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that was outstanding immediately prior to such event. (g) CONSOLIDATION, MERGER, ETC. If the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash or any other property, or any combination thereof, then in any such case each share of Series A Junior Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000 times the aggregate amount of stock, securities, cash or any other property (payable in kind), or any combination thereof, as the case may be, into which or for which each share of Common Stock is changed or exchanged. If the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Junior Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that was outstanding immediately prior to such event. (h) REDEMPTION. The shares of Series A Junior Preferred Stock shall not be redeemable. So long as any shares of Series A Junior Preferred Stock remain outstanding, the Corporation shall not purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Preferred Stock unless the Corporation shall substantially concurrently also purchase or acquire for consideration a proportionate number of shares of Series A Junior Preferred Stock. (i) RANK. The Series A Junior Preferred Stock shall rank, with respect to payment of dividends and the distribution of assets, junior to all series of any other class of the Corporation's Preferred Stock; provided that any class or series of the Corporation's Preferred Stock hereafter created may expressly provide that such class or series shall be A-5 pari passu with the Series A Preferred Stock with respect to the payment of dividends and distributions, voting rights and/or distributions upon liquidation, dissolution or winding up of the Corporation. (j) AMENDMENT. The Certificate of Incorporation of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences, privileges or special rights of the Series A Junior Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A Junior Preferred Stock, voting together as a single class. IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf of the Corporation by its President, and attested by its Secretary, this ______ day of _____________, 200_. SYMBION, INC. By:________________________________________ Richard E. Francis, Jr. Chairman and Chief Executive Officer ATTEST: ___________________________________________ R. Dale Kennedy Secretary A-6 EXHIBIT B Form of Rights Certificate Certificate No. R -__________ _____ Rights NOT EXERCISABLE AFTER ____________, 201_ OR EARLIER IF REDEMPTION OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.00001 PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY ACQUIRING PERSONS (AS DEFINED IN SECTION 1 OF THE RIGHTS AGREEMENT) OR ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. Rights Certificate SYMBION, INC. This certifies that _____________________________, or registered assigns, is the registered owner of the number of Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Rights Agreement, dated as of _____________, 200_ (the "Rights Agreement"), between SYMBION, INC., a Delaware corporation (the "Company"), and SunTrust Bank (the "Rights Agent"), to purchase from the Company at any time after the Distribution Date (as such term is defined in the Rights Agreement) and prior to 5:00 p.m., Nashville, Tennessee time, on ____________, 201_, at the Corporate Trust Office of the Rights Agent (or at the office of its successor as Rights Agent), one one-thousandth (1/1000) of a fully paid non-assessable share of Series A Junior Participating Preferred Stock, $.01 par value per share (the "Preferred Shares"), of the Company, at a purchase price of $________ per one one-thousandth (1/1000) of a Preferred Share (the "Purchase Price"), upon presentation and surrender of this Rights Certificate with the Form of Election to Purchase duly executed. The number of Rights evidenced by this Rights Certificate (and the number of one one-thousandths of a Preferred Share which may be purchased upon exercise hereof) set forth above, and the Purchase Price set forth above, are the number and Purchase Price as of ____________, 200_, based on the Preferred Shares as constituted at such date. As provided in the Rights Agreement, the Purchase Price and the number of one one-thousandths of a Preferred Share which may be purchased upon the exercise of the Rights evidenced by this Rights Certificate are subject to modification and adjustment upon the happening of certain events. This Rights Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Rights Certificates. Copies of the Rights Agreement are on file at the principal executive offices of the Company and the Corporate Trust Office of the Rights Agent. This Rights Certificate, with or without other Rights Certificates, upon surrender at the Corporate Trust Office of the Rights Agent, may be exchanged for another Rights B-1 Certificate or Rights Certificates of like tenor and date evidencing Rights entitling the holder to purchase a like aggregate number of Preferred Shares as the Rights evidenced by the Rights Certificate or Rights Certificates surrendered shall have entitled such holder to purchase. If this Rights Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Rights Certificate or Rights Certificates for the number of whole Rights not exercised. Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate (i) may be redeemed by the Company at a redemption price of $.00001 per Right or (ii) may be exchanged by the Company in whole or in part for Preferred Shares or shares of the Company's common stock, $.01 par value per share. No fractional Preferred Shares will be issued upon the exercise of any Right or Rights evidenced hereby (other than fractions which are integral multiples of one one-thousandth of a Preferred Share, which may, at the election of the Company, be evidenced by depositary receipts), but in lieu thereof a cash payment will be made, as provided in the Rights Agreement. No holder of this Rights Certificate shall be entitled to vote or receive dividends or be deemed for any purpose the holder of the Preferred Shares or of any other securities of the Company which may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by this Rights Certificate shall have been exercised as provided in the Rights Agreement. This Rights Certificate shall not be entitled to any benefit under the Rights Agreement or be valid or obligatory for any purpose until it shall have been authenticated by the Rights Agent. WITNESS the facsimile signatures of the proper officers of the Company and its corporate seal. Dated as of ___________________, ____. ATTEST: SYMBION, INC. _____________________________________ By:________________________ Name:________________________________ Name:______________________ Title:_______________________________ Title:_____________________ B-2 Authentication: This is one of the Rights Certificates referred to in the within-mentioned Rights Agreement. SunTrust Bank, as Rights Agent By:______________________________ Authorized Signature [Form of Reverse Side of Rights Certificate] FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the Rights Certificate) FOR VALUE RECEIVED, _______________________ hereby sells, assigns and transfers unto _________________________________________________________ (Please print name and address of transferee) this Rights Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint __________________ Attorney, to transfer the within Rights Certificate on the books of the within-named Company, with full power of substitution. B-3 Dated as of ___________________, ____. ___________________________ Signature Signature Guaranteed: Signatures must be guaranteed by a member firm of a registered national securities exchange, a member of NASD Regulation, Inc., or a commercial bank or trust company having an office or correspondent in the United States. ---------------------------------------------------- [To be executed if statement is correct] The undersigned hereby certifies that the Rights evidenced by this Rights Certificate are not beneficially owned by an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement). ___________________________ Signature [Form of Reverse Side of Rights Certificate -- continued] FORM OF ELECTION TO PURCHASE (To be executed if holder desires to exercise the Rights Certificate) TO SYMBION, INC. The undersigned hereby irrevocably elects to exercise _____________ Rights represented by this Rights Certificate to purchase the Preferred Shares (or other securities) issuable upon the exercise of such Rights and requests that certificates for such Preferred Shares (or other securities) be issued in the name of: B-4 Please insert social security or other identifying number: - --------------------- - -------------------------------------------------------- (Please print name and address) If such number of Rights shall not be all the Rights evidenced by this Rights Certificate, a new Rights Certificate for the balance remaining of such Rights shall be registered in the name of and delivered to: Please insert social security or other identifying number: - --------------------- - -------------------------------------------------------- (Please print name and address) Dated as of _____________, ____. ___________________________ Signature [Form of Reverse Side of Rights Certificate -- continued] Signature Guaranteed: Signatures must be guaranteed by a member firm of a registered national securities exchange, a member of NASD Regulation, Inc., or a commercial bank or trust company having an office or correspondent in the United States. - -------------------------------------------------------- [To be executed if statement is correct] The undersigned hereby certifies that the Rights evidenced by this Rights Certificate are not beneficially owned by an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement). ___________________________ Signature - -------------------------------------------------------- B-5 NOTICE The signature in the foregoing Form of Assignment or Form of Election to Purchase must conform to the name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever. In the event the certification set forth above in the Form of Assignment or the Form of Election to Purchase, as the case may be, is not completed, the Company and the Rights Agent will deem the beneficial owner of the Rights evidenced by this Rights Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement) and such Assignment or Election to Purchase will not be honored. B-6 EXHIBIT C SUMMARY OF RIGHTS TO PURCHASE PREFERRED STOCK On _____________, 200_, the Board of Directors of Symbion, Inc. (the "Company"), authorized the issuance of one preferred share purchase right (a "Right") with respect to each outstanding share of common stock, $.01 par value (the "Common Shares"), of the Company. The rights were issued on ____________, 200_ to the holders of record of Common Shares on that date. Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, $.01 par value (the "Preferred Shares"), of the Company at a price of $____ per one one-thousandth of a Preferred Share (the "Purchase Price"), subject to adjustment. The description and terms of the Rights are set forth in a Rights Agreement (the "Rights Agreement") dated as of ____________, 200_, between the Company and SunTrust Bank, as Rights Agent (the "Rights Agent"). DETACHMENT OF RIGHTS; EXERCISE. Initially, the Rights will attach to all Common Share certificates representing outstanding shares and no separate Rights Certificate will be distributed. The Rights will separate from the Common Shares and a "Distribution Date" will occur upon close of Business (as defined in the Rights Agreement) on the earlier of (i) 10 business days following a public announcement that a person or group of affiliated or associated persons has become an Acquiring Person, or (ii) 10 business days following the commencement or announcement of an intention to commence a tender offer or exchange offer the consummation of which would result in a person or group becoming an Acquiring Person, subject to the right of the Board of Directors to defer the occurrence of a Distribution Date upon the occurrence of an event described in this clause (ii). In general, a person becomes an Acquiring Person if such person or a group of which such person is a member becomes the beneficial owner of 15% or more of the Company's outstanding common stock. Until the Distribution Date (or earlier redemption or expiration of the Rights) (i) the Rights will be evidenced with respect to any of the Common Shares outstanding on ______________, 200_, by the certificates representing such Common Shares with a copy of this Summary of Rights attached thereto, (ii) the Rights will be transferred with and only with the Common Shares, (iii) new Common Share certificates issued after ______________, 200_, upon transfer or new issuance of the Common Shares will contain a notation incorporating the Rights Agreement by reference, and (iv) the surrender for transfer of any certificates for Common Shares outstanding as of ______________, 200_, even without such notation or a copy of this Summary of Rights being attached thereto, will also constitute the transfer of the Rights associated with the Common Shares represented by such certificate. As soon as practicable following the Distribution Date, separate certificates evidencing the Rights (the "Rights Certificates") will be mailed to holders of record of the Common Shares as of the close of business on the Distribution Date and such separate Rights Certificates alone will thereafter evidence the Rights. C-1 The Rights are not exercisable until the Distribution Date. The Rights will expire on ____________, 201_ (the "Final Expiration Date"), unless the Final Expiration Date is extended or the Rights are earlier redeemed or exchanged by the Company as described below. If a person or group were to become an Acquiring Person, then each Right then outstanding (other than Rights beneficially owned by the Acquiring Person which would become null and void) would become a right to buy that number of Common Shares (or under certain circumstances, the equivalent number of one one-thousandths of a Preferred Share or other assets or securities of the Company) that at the time of such acquisition would have a market value of two times the Purchase Price of the Right. At any time after a person or group of affiliated or associated persons becomes an Acquiring Person, if the Company were acquired in a merger or other business combination transaction or more than 50% of its consolidated assets or earning power were sold, proper provision will be made so that each holder of a Right will thereafter have the right to receive, upon the exercise thereof at the then current Purchase Price of the Right, that number of shares of common stock of the acquiring company which at the time of such transaction would have a market value of two times the Purchase Price of the Right. PREFERRED SHARES. The dividend and liquidation rights, and the non-redemption feature, of the Preferred Shares are designed so that the value of one one-thousandth of a Preferred Share purchasable upon exercise of each Right will approximate the value of one Common Share. The Preferred Shares issuable upon exercise of the Rights will be non-redeemable and rank junior to all other series of the Company's preferred stock. Each whole Preferred Share will be entitled to receive a quarterly preferential dividend in an amount per share equal to the greater of (i) $1.00 in cash, or (ii) in the aggregate, 1,000 times the dividend declared on each Common Share. In the event of liquidation, the holders of the Preferred Shares will be entitled to receive a preferential liquidation payment equal to the greater of (i) $1,000 per share, or (ii) in the aggregate, 1,000 times the payment made on each Common Share. In the event of any merger, consolidation or other transaction in which Common Shares are exchanged for or changed into other stock or securities, cash or other property, each whole Preferred Share will be entitled to receive 1,000 times the amount received per Common Share. Each whole Preferred Share shall be entitled to 1,000 votes on all matters submitted to a vote of the stockholders of the Company, and Preferred Shares shall generally vote together as one class with the Common Stock and any other capital stock entitled to vote thereon on all matters submitted to a vote of stockholders of the Company. The offer and sale of the Preferred Shares issuable upon exercise of the Rights will be registered with the Securities and Exchange Commission and such registration will not be effective until the Rights become exercisable. ANTIDILUTION AND OTHER ADJUSTMENTS. The number of one one-thousandths of a Preferred Share or other securities or property issuable upon exercise of the Rights, and the Purchase Price payable, are subject to customary adjustments from time to time to prevent dilution. C-2 The number of outstanding Rights and the number of one one-thousandths of a Preferred Share issuable upon exercise of each Right are also subject to adjustment in the event of a stock split of the Common Shares or a stock dividend on the Common Shares payable in Common Shares or subdivisions, consolidations or combinations of the Common Shares occurring, in any such case, prior to the Distribution Date. EXCHANGE OPTION. At any time after a person or group of affiliated or associated persons has become an Acquiring Person and before the acquisition by a person or group of 50% or more of the outstanding Voting Shares, the Board of Directors may, at its option, issue Common Shares (or Preferred Shares) in mandatory redemption of, and in exchange for, all or part of the then outstanding and exercisable Rights (other than Rights owned by such person or group which would become null and void) at an exchange ratio of one Common Share (or one one-thousandth of a Preferred Share) for each two Common Shares for which each Right then outstanding is then exercisable, subject to adjustment. REDEMPTION OF RIGHTS. At any time prior to the time that a person or group has become an Acquiring Person, the Board of Directors of the Company may redeem all but not less than all the then outstanding Rights at a price of $0.00001 per Right (the "Redemption Price"). The redemption of the Rights may be made effective at such time, on such basis and with such conditions as the Board of Directors in its sole discretion may establish. Immediately upon the action of the Board of Directors ordering redemption of the Rights, the right to exercise the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price. NO RIGHTS AS STOCKHOLDER. Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends. AMENDMENT OF RIGHTS. The terms of the Rights may be amended by the Board of Directors of the Company without the consent of the holders of the Rights, including an amendment to extend the Final Expiration Date, and, provided a Distribution Date has not occurred, to extend the period during which the Rights may be redeemed, except that after the first public announcement that a person or group has become an Acquiring Person, no such amendment may materially and adversely affect the interests of the holders of the Rights other than the Acquiring Person and transferees of the Acquiring Person. THIS SUMMARY DESCRIPTION OF THE RIGHTS DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE RIGHTS AGREEMENT, WHICH IS HEREBY INCORPORATED HEREIN BY REFERENCE. A copy of the Rights Agreement has been filed with the Securities and Exchange Commission as an Exhibit to a Registration Statement on Form 8-A dated _________________, 200_. A copy of the Rights Agreement is available free of charge from the Company. C-3 EX-10.12 8 g85742s1exv10w12.txt EX-10.12 SECURITIES PURCHASE AGREEMENT EXHIBIT 10.12 SYMBION, INC., THE GUARANTORS NAMED HEREIN AND THE PURCHASERS NAMED HEREIN SECURITIES PURCHASE AGREEMENT Senior Subordinated Notes due 2008 of Symbion, Inc. Dated as of July 18, 2003 TABLE OF CONTENTS (NOT PART OF AGREEMENT)
Page ---- PARAGRAPH 1. AUTHORIZATION OF ISSUE OF SECURITIES.................................. 1 PARAGRAPH 2. PURCHASE AND SALE OF SECURITIES....................................... 1 PARAGRAPH 3. CONDITIONS PRECEDENT.................................................. 2 PARAGRAPH 4. COVENANTS............................................................. 4 PARAGRAPH 5. REPRESENTATIONS AND WARRANTIES........................................ 5 PARAGRAPH 6. ACKNOWLEDGEMENTS, REPRESENTATIONS AND AGREEMENT OF THE PURCHASERS..... 9 PARAGRAPH 7. DEFINITIONS........................................................... 11 PARAGRAPH 8. MISCELLANEOUS......................................................... 14

Exhibits - -------- Exhibit A - Form of Note Exhibit B-1 - Closing Documents Exhibit B-2 - Form of Opinion of Counsel Exhibit C - Form of Investment Representation Letter Exhibit D - Form of Board Observation Rights Letter Agreement
-i- SYMBION, INC. SECURITIES PURCHASE AGREEMENT Ladies and Gentlemen: Each of the undersigned, SYMBION, INC., a Delaware corporation (the "Company"), and the guarantors named on the signature pages hereto (the "Guarantors" and, together with the Company, the "Issuers"), hereby agrees, jointly and severally, with the parties named on the signature pages hereto (collectively, the "Purchasers") as follows: PARAGRAPH 1. AUTHORIZATION OF ISSUE OF SECURITIES. 1A. GENERAL. The 14 3/4% Senior Subordinated Notes of the Company (including the Indenture attached thereto, the "Notes") are being issued and sold (i) to refinance outstanding indebtedness of the Company and its subsidiaries; (ii) to pay fees and expenses incurred in connection with the issuance and sale of the Notes; and (iii) for general corporate purposes, including acquisitions. Capitalized terms used herein and not otherwise defined have the meanings specified in Paragraph 7. 1B. AUTHORIZATION OF NOTES. The Company has authorized the issuance of the Notes in the aggregate initial principal amount of up to $40,000,000, of which an aggregate initial principal amount of $15,106,000 will be issued on the Initial Date of Closing, to be dated the date of issuance thereof, to mature on July 18, 2008, and to be in the form of Exhibit A attached hereto. The term "Notes" as used in this agreement (this "Agreement") shall include the promissory notes delivered pursuant to this Agreement on each Date of Closing, additional notes issued as pay-in-kind interest in lieu of cash interest pursuant to the terms of the Notes and each such promissory note delivered in substitution or exchange for any other Note pursuant to any such provision hereof or of such Note. 1C. AUTHORIZATION OF GUARANTEES. In connection with the issuance of the Notes, each of the Guarantors has authorized the issuance of its unconditional senior subordinated guarantee of the Notes in the form of Guarantee attached to Exhibit A hereto (the "Guarantees"). PARAGRAPH 2. PURCHASE AND SALE OF SECURITIES. 2A. PURCHASE OF SECURITIES. Subject to and upon the terms and conditions herein set forth, the Issuers shall issue, sell and deliver to each Purchaser, and each Purchaser agrees, severally and not jointly, to purchase from the Issuers Securities (the "Initial Securities") as set forth on the signature page hereto of such Purchaser, on the date designated -2- by the Company to the Purchasers no later than 1:00 p.m. (New York time) on such date (the "Initial Date of Closing"). 2B. PURCHASE OF ADDITIONAL SECURITIES. In addition to the Initial Securities to be issued and sold to the Purchasers on the Initial Date of Closing, at any time prior to the second anniversary of the Initial Date of Closing, the Company may, on one or more occasions (each such occasion, a "Subsequent Date of Closing") and upon no less than five (5) nor more than thirty (30) days' notice given to the Purchasers, draw down any remaining Commitment (the "Additional Securities"); provided that on such Subsequent Date of Closing (i) the Company is then able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with Section 4.12 of the Indenture, including in such calculation the Additional Securities to be purchased on such Subsequent Date of Closing; (ii) the aggregate principal amount of Securities sold pursuant to this Agreement shall not exceed $40,000,000; and (iii) the DLJ Purchasers (as defined herein) shall not be requested to purchase less than $1,000,000 or integral multiples thereof on any such date. The Securities purchased by the Purchasers on any such Subsequent Date of Closing shall be allocated among the Purchasers on a pro rata basis unless a Purchaser defaults on its obligation to purchase Additional Securities, in which case the Securities shall be allocated among the non-defaulting Purchasers on a pro rata basis provided that in no event shall any Purchaser be obligated to purchase Securities in excess of its Commitment on such date. PARAGRAPH 3. CONDITIONS PRECEDENT. 3. CONDITIONS TO CLOSING. The obligation of each Purchaser to purchase and pay for the Securities to be purchased by it is subject to the satisfaction of the following conditions: 3A. DOCUMENTS TO BE DELIVERED. The Purchasers shall have received all of the following, duly executed and delivered: (i) On or before each Date of Closing, the Securities being purchased on such date by each Purchaser in the name and denomination set forth on the signature page hereto of such Purchaser; (ii) On or before the Initial Date of Closing, a copy of the Credit Agreement substantially in the form to be executed and delivered on or before the Initial Date of Closing; (iii) On or before the Initial Date of Closing, certificates of the Secretary, Assistant Secretary or other appropriate officer of the Issuers dated the Initial Date of Closing, which shall contain the names and signatures of the officers of each of the Issuers authorized to execute this Agreement and the Securities and which shall certify to the truth, correctness and completeness of the following exhibits attached hereto as -3- Exhibit B-1: (a) a copy of resolutions duly adopted by the Board of Directors (or equivalent governing body) of each of the Issuers, in each case in full force and effect at the time this Agreement is entered into, authorizing the execution of this Agreement and the other Transaction Documents delivered or to be delivered in connection herewith on the part of the Issuers and the consummation of the transactions contemplated herein and therein, (b) a copy of the charter documents of each of the Issuers and all amendments thereto, certified by the appropriate official of the state of organization, and (c) a copy of the bylaws, limited partnership agreement, operating agreement or similar organizational documents of each of the Issuers in effect on the Initial Date of Closing; (iv) On or before the Initial Date of Closing, (A) a certificate (or certificates) as to the valid existence and good standing of each of the Issuers in its respective state of organization, issued by the appropriate authorities of such jurisdiction and (B) certificates of each of the Issuers' good standing and due qualification to do business, issued by appropriate officials in any states where such Issuer's ownership or leasing of its properties or the conduct of its business requires such qualification; (v) On or before the Initial Date of Closing, a favorable opinion of (a) Waller Lansden Dortch & Davis, PLLC, counsel to the Issuers, dated the Initial Date of Closing and substantially in the form set forth in Exhibit B-2, and (b) local counsel to the Issuers that are rendering opinions to the lenders under the Credit Agreement (which may be reliance letters) with respect to the valid existence and good standing of certain of the Issuers, in each case subject only to such qualifications, limitations or exceptions as may be reasonably acceptable to each of the Purchasers; and (vi) On or before each Date of Closing, a certificate of the Chief Executive Officer, President or Chief Financial Officer of the Company dated such Date of Closing, in which such officer certifies to the satisfaction of the conditions set out in subsections (i) and (ii) of Paragraph 3B and, with respect to each Subsequent Date of Closing, Paragraph 2B. 3B. REPRESENTATIONS; NO DEFAULT. (i) All representations and warranties made by the Issuers in this Agreement shall be true and correct on and as of each Date of Closing as if such representations and warranties had been made on and as of such date, unless such representation and warranty expressly indicates that it is being made as of any other specific date in which case on and as of such other date. (ii) The Issuers shall have performed and complied with all agreements and conditions required in this Agreement to be performed or complied with by them on or -4- prior to such Date of Closing, and no Default or Event of Default has occurred and is continuing. 3C. PURCHASE PERMITTED BY APPLICABLE LAWS. On each Date of Closing, the offer by the Issuers of, and the purchase of and payment for, the Securities, on the terms and conditions herein provided (including the use of the proceeds of the sale of the Securities by the Issuers) shall not violate any applicable law or governmental regulation (including, without limitation, Section 5 of the Securities Act or Regulation T, U or X of the Board of Governors of the Federal Reserve System) and shall not subject any Purchaser to any tax, penalty, liability or other onerous condition under or pursuant to any applicable law or governmental regulation. 3D. PROCEEDINGS. On each Date of Closing, all corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incident thereto shall be reasonably satisfactory in substance and form to the Purchasers, and the Purchasers shall have received all such counterpart originals or certified or other copies of such documents as they may reasonably request. 3E. OBLIGATIONS. The Issuers shall have satisfied any other obligations to the Purchasers required to be paid or complied with by them on or prior to such Date of Closing. PARAGRAPH 4. COVENANTS. 4. COVENANTS. To induce the Purchasers to enter into this Agreement and purchase the Securities, the Issuers, jointly and severally, warrant, covenant and agree as follows: 4A. INDEMNITY. Each of the Issuers, jointly and severally, agrees to indemnify each of the Purchasers, as debtholders, shareholders, board observers, directors and/or officers of the Issuers, upon demand, from and against any and all liabilities, obligations, claims, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements (including reasonable fees of attorneys, accountants, experts and advisors) of any kind or nature whatsoever (in this section collectively called "liabilities and costs") which to any extent (in whole or in part) may be imposed on, incurred by, or asserted against any of the Purchasers arising out of, resulting from or in any other way associated with the execution, delivery or performance of the Transaction Documents or such Purchaser's being a debtholder, stockholder, board observer, director or officer of the Issuers but, with respect to directors and officers, only to the extent permitted by such Issuer's organizational documents and applicable state law. The foregoing indemnification shall apply whether or not such liabilities and costs are in any way or to any extent caused, in whole or in part, by any negligent act or omission of any kind by such holder, provided only that no Purchaser shall be entitled under this paragraph to receive indemnification for that portion, if any, of any -5- liabilities and costs which is proximately caused by such Purchaser's gross negligence or willful misconduct. If any Person (including the Issuers or any of their Affiliates) ever alleges such gross negligence or willful misconduct by a Purchaser, the indemnification provided for in this Paragraph 4A shall nonetheless be paid upon demand, subject to later adjustment or reimbursement, until such time as a court of competent jurisdiction enters a final judgment as to the extent and effect of the alleged gross negligence or willful misconduct. For the avoidance of doubt, the Issuers acknowledge that they have determined that no action be taken under the Company's Amended and Restated Investors' Rights Agreement with respect to the sale of the Securities. As used in this Paragraph 4A the term "Purchaser" shall refer also to each director, officer, agent, attorney, employee, representative and Affiliate of such Purchaser. 4B. COMMITMENT FEE. So long as any Commitment is available, the Company shall pay to each Purchaser a fee, payable in cash in immediately available funds, semiannually on each January 15 and July 15, commencing January 15, 2004, in the amount of 0.5% of the total Commitment of such Purchaser at such date; provided that any Purchaser that defaults on its obligation to purchase Additional Securities on a Subsequent Date of Closing shall refund any fees received by it pursuant to this Paragraph 4B to the Company since the immediately preceding Date of Closing; and provided, further, that any Person that purchases Additional Securities on behalf of a defaulted Purchaser shall be entitled to receive from the Company all commitment fees related thereto since the immediately preceding Date of Closing. Nothing herein shall be deemed to relieve any Purchaser from its obligation to fulfill its Commitment or to prejudice or impair any rights (including any right of offset) that the Company may have against any Purchaser as a result of any default by such Purchaser. 4C. ADDITIONAL INFORMATION. The Issuers agree to furnish to the Purchasers such documents, opinions, certificates and schedules or instruments relating to the business, corporate, legal and financial affairs of the Company and its subsidiaries as they shall reasonably request from time to time. PARAGRAPH 5. REPRESENTATIONS AND WARRANTIES. 5. REPRESENTATIONS AND WARRANTIES. To induce the Purchasers to enter into this Agreement and to purchase the Securities, the Issuers, jointly and severally, represent and warrant as follows: 5A. ORGANIZATION AND GOOD STANDING. Each of the Company and its Subsidiaries is duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, has the power and authority to carry on its business as it is currently being conducted and to own, lease and operate its properties, and is duly qualified and is in good standing as an entity authorized to do business in each jurisdiction in which the nature of its business or its ownership or leasing of property requires such qualification, -6- except where the failure to be so qualified, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. 5B. AUTHORIZATION. Each of the Issuers has taken all action necessary to authorize the execution and delivery by it of each of this Agreement and the other Transaction Documents to which it is a party and to authorize the consummation of the transactions contemplated hereby and thereby and the performance of its obligations hereunder and thereunder. 5C. NO CONFLICTS OR CONSENTS. The execution, delivery and performance of the Transaction Documents, compliance by each of the Issuers with all the provisions hereof and thereof (to which it is a party) and the consummation of the transactions contemplated hereby and thereby will not require any consent, approval, authorization or other order of any court, regulatory body, administrative agency or other governmental body (except as have been obtained prior to the Initial Date of Closing) and will not conflict with or constitute a breach of any of the terms or provisions of, or a default under, the charter or bylaws of the Company or any of its Subsidiaries or any agreement, indenture or other instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries or their respective property is bound, or violate or conflict with any laws, administrative regulations or rulings or court decrees applicable to the Company or any of its Subsidiaries or their respective property, except to the extent that any such violation or conflict could not reasonably be expected to have a Material Adverse Effect. 5D. ENFORCEABLE OBLIGATIONS. Each of the Transaction Documents constitutes a valid and legally binding agreement of each of the Issuers (to which it is a party), enforceable against it in accordance with its terms (assuming due authorization, execution and delivery of each Transaction Document by any other party thereto), except that enforcement thereof may be subject to (a) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (b) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity) and the discretion of any court before which any proceeding therefor may be brought. 5E. NOTES. The Notes have been duly and validly authorized by the Company and, when executed by the Company in accordance with the provisions thereof, and delivered to and paid for by the Purchasers in accordance with the terms hereof, will be entitled to the benefits thereof and will constitute valid and binding obligations of the Company enforceable against it in accordance with their terms, except that the enforcement thereof may be subject to (a) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (b) general principles of equity (regardless of whether enforceability is considered in a proceeding at law -7- or in equity) and the discretion of any court before which any proceeding therefor may be brought. 5F. GUARANTEES. The Guarantees have been duly and validly authorized by each of the Guarantors and, when executed by each Guarantor and affixed to the Notes, will be entitled to the benefits thereof and will constitute valid and binding obligations of each such Guarantor enforceable against it in accordance with their terms, except that the enforcement thereof may be subject to (a) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (b) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity) and the discretion of any court before which any proceeding therefor may be brought. 5G. NO CONFLICT. Neither the Company nor any of its Subsidiaries is in violation of its respective organizational documents or in default in the performance of any obligation, agreement or condition contained in any bond, debenture, note or any other evidence of indebtedness or in any other agreement, indenture or instrument material to the conduct of the business of the Company and its Subsidiaries, taken as a whole, to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries or property is bound except for such violations or defaults which, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. 5H. FINANCIAL STATEMENTS. (a) The consolidated balance sheets of the Company and its subsidiaries as of December 31 of each of 2000, 2001 and 2002 and the related consolidated statements of income, shareholders' equity and cash flows for each of the Fiscal Years then ended, including the opinions of Ernst & Young LLP with respect thereto, together with the unaudited consolidating balance sheets of the Company and its subsidiaries as of the end of such Fiscal Year and the unaudited consolidating statements of income of the Company and its subsidiaries for such Fiscal Year, copies of all of which have been furnished to the Purchasers, are complete and correct and fairly present the assets, liabilities and consolidated financial position of the Company and its subsidiaries as at each such date and the consolidated results of their operations and their cash flows for each of the Fiscal Years then ended. (b) The consolidated balance sheets of PSC and its subsidiaries as of December 31 of each of 2000 and 2001 and the related consolidated statements of income, shareholders' equity and cash flows for each of the Fiscal Years then ended, including the opinions of Ernst & Young LLP with respect thereto, together with the unaudited consolidating balance sheets of PSC and its subsidiaries as of the end of such Fiscal Year and the unaudited consolidating statements of income of PSC and its subsidiaries for such Fiscal Year, copies of all of which have been furnished to the Purchasers, are complete and correct and fairly present the assets, liabilities and consolidated financial position of PSC and its -8- subsidiaries as at each such date and the consolidated results of their operations and their cash flows for each of the Fiscal Years then ended. (c) The unaudited consolidated and consolidating balance sheet of the Company and its subsidiaries as of March 31, 2003, together with the related consolidated and consolidating statements of income and the related consolidated statements of shareholders' equity and cash flows for the period commencing at the beginning of the current Fiscal Year and ending with the end of the Fiscal Quarter ended on such date, copies of all of which have been furnished to the Purchasers, are complete and correct and, subject to customary year-end adjustments that are not anticipated to be material, fairly present the assets, liabilities and consolidated financial position of the Company and its subsidiaries as at such date and the consolidated results of their operations and their cash flows for such period. (d) the financial statements described in the preceding Paragraphs 5H(a), (b) and (c), including the related schedules and notes thereto, have been prepared in conformity with GAAP applied consistently throughout the periods involved. Neither the Company nor any of its subsidiaries has any material indebtedness, obligation or other unusual forward or long-term commitment that is not fairly reflected in the foregoing financial statements or in the notes thereto. (e) After giving effect to the consummation of the transactions contemplated by this Agreement and the other Transaction Documents, each of the Issuers is Solvent. 5I. NO UNDISCLOSED LIABILITIES. Except as fully reflected or reserved against in the financial statements and the notes thereto referred to in Paragraph 5H, there are no liabilities or obligations with respect to the Company or any of its Subsidiaries of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether or not due) which, either individually or in the aggregate, would be material to the Company and its Subsidiaries, taken as a whole. The Issuers do not know of any basis for the assertion against the Company or any of its Subsidiaries of any liability or obligation of any nature whatsoever that is not fully reflected in such financial statements which, either individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. 5J. FULL DISCLOSURE. None of the Issuers is aware of any fact that has not been disclosed to the Purchasers which, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. 5K. INVESTMENT COMPANY. Neither the Company nor any of its Subsidiaries is, or upon application of the proceeds from the sale of the Securities will be, an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. -9- 5L. OFFERING OF SECURITIES. Except for solicitations to offerees reasonably believed by the Issuers to be "accredited investors" as such term is defined in Regulation D of the Securities Act, neither the Issuers nor any agent acting on their behalf has, directly or indirectly, offered the Securities or any similar security of the Issuers for sale to, or solicited any offers to buy the Securities or any similar security of the Issuers from, any Person other than the Purchasers, and neither the Issuers nor any agent acting on their behalf has taken or will take any action which would subject the issuance or sale of the Securities to the provisions of Section 5 of the Securities Act or to the registration provisions of any securities or Blue Sky law of any applicable jurisdiction in such a manner as to require that the Securities actually be registered. 5M. USE OF PROCEEDS. Neither the Company nor any of its Subsidiaries owns or has any present intention of acquiring any "margin stock" as defined in Regulation U of the Board of Governors of the Federal Reserve System ("margin stock"). The proceeds of sale of the Securities will be used as set forth in Paragraph 1A. None of such proceeds will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any margin stock or for the purpose of maintaining, reducing or retiring any indebtedness which was originally incurred to purchase or carry any stock that is currently a margin stock or for any other purpose which might constitute this transaction a "purpose credit" within the meaning of such Regulation U. Neither the Company nor any agent acting on its behalf has taken or will take any action which could reasonably be expected to cause this Agreement or the Securities to violate Regulation T, Regulation U or any other regulation of the Board of Governors of the Federal Reserve System or to violate the Exchange Act, in each case as in effect now or as the same may hereafter be in effect. 5N. OTHER REPRESENTATIONS AND WARRANTIES. The representations and warranties contained in the Credit Agreement are true and correct, except to the extent that a representation or warranty is made as of a specific date, in which event such representation or warranty shall remain true and correct as of such earlier date, and except to the extent that a representation or warranty is no longer correct by virtue of changes in facts and circumstances permitted by the terms of the Credit Agreement (as in effect on the Initial Date of Closing), this Agreement or the Notes. Any certificate signed by any officer of any Issuer pursuant to this Agreement and delivered to any Purchaser or to counsel for the Purchasers shall be deemed a representation and warranty by the Issuers to each Purchaser as to the matters covered thereby. PARAGRAPH 6. ACKNOWLEDGEMENTS, REPRESENTATIONS AND AGREEMENT OF THE PURCHASERS. 6A. ACKNOWLEDGMENTS OF THE PURCHASERS. Each Purchaser understands and acknowledges to the Issuers that: -10- (i) the offering and sale of the Securities is intended to be exempt from registration under the Securities Act by virtue of the provisions of Section 4(2) of the Securities Act; (ii) there is no existing public or other market for the Securities and there can be no assurance that such Purchaser will be able to sell or dispose of such Purchaser's Securities; (iii) the Securities have not been registered under the Securities Act and must be held indefinitely unless they are subsequently registered under the Securities Act or such sale is permitted pursuant to an available exemption from such registration requirement; (iv) if any transfer of the Securities is to be made in reliance on an exemption under the Securities Act, the Issuers may require an opinion of counsel reasonably satisfactory to them that such transfer may be made pursuant to an exemption under the Securities Act; (v) the Securities may not be transferred without the written consent of the Company, which consent shall not be unreasonably withheld or delayed; and (vi) the Securities will have the legends contained on the forms thereof attached as exhibits hereto. 6B. REPRESENTATIONS OF THE PURCHASERS. Each Purchaser, severally and not jointly, represents and warrants to the Issuers that: (i) the Securities to be acquired by it pursuant to this Agreement are being acquired for its own account, not as a nominee or agent for any other Person, and without a view to the distribution of such Securities or any interest therein in violation of the Securities Act; (ii) it is an "Accredited Investor" as such term is defined in Regulation D under the Securities Act and has such knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of its investment in the Securities, and such Purchaser is capable of bearing the economic risks of such investment and is able to bear a complete loss of its investment in the Securities; (iii) it has been provided, to its satisfaction, the opportunity to ask questions concerning the terms and conditions of the offering and sale of the Securities, has had all such questions answered to its satisfaction and has been supplied all additional information as it has requested; and -11- (iv) the execution, delivery, and performance of this Agreement is within such Purchaser's powers (corporate or otherwise) and has been duly authorized by all requisite action (corporate or otherwise). 6C. AGREEMENT OF THE DLJ PURCHASERS. The DLJ Purchasers agree, for a period of thirty (30) days following the Initial Date of Closing, to assign up to 15% of the Securities purchased by them on the Initial Date of Closing (and a pro rata portion of the Commitment) to stockholders of the Company or their designated affiliates who (1) are accredited investors, (2) are entitled to nominate one or more members of the Board of Directors of the Company pursuant to the terms of the Amended and Restated Voting Agreement, dated as of June 25, 1999, as amended, by and among the Company and the stockholders named therein, (3) beneficially own (together with such stockholder's affiliates) shares of capital stock of the Company representing a minimum of 3.0% of the outstanding shares of the Company's common stock (assuming (a) conversion of all outstanding shares of the Company's Series A and Series B convertible preferred stock and the Company's outstanding subordinated convertible debentures and (b) exercise of all options held by such stockholder which are exercisable), (4) are not executive officers of the Company and (5) are designated by the Company; provided that (i) the purchase price shall be 100% of the principal amount together with interest accrued to the date of sale, (ii) all transferees of Securities pursuant to this Section 6C shall execute and deliver to the DLJ Purchasers and the Company a representation letter in the form attached hereto as Exhibit C and such other documentation relating to such assignments as reasonably required by (and in a form reasonably satisfactory to) the DLJ Purchasers and the Company, and (iii) the Company shall pay the reasonable out-of-pocket expenses of the DLJ Purchasers in connection with such assignments. PARAGRAPH 7. DEFINITIONS. 7. Definitions. For the purpose of this Agreement, capitalized terms used herein but not defined herein shall have the respective meanings set forth in the Indenture. The following terms shall have the meanings specified with respect thereto below (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "ADDITIONAL SECURITIES" has the meaning set forth in Paragraph 2B. "AGREEMENT" has the meaning set forth in Paragraph 1B. "BOARD OBSERVATION RIGHTS LETTER AGREEMENT" means the board observation rights letter agreement between the Company and DLJ Investment Partners II, L.P., in the form of Exhibit D. "COMMITMENT" means, as to any Purchaser at any time, the aggregate principal amount of Notes such Purchaser is committed to purchase, as set forth on the -12- signature page hereto of such Purchaser, less the aggregate principal amount of Notes previously purchased by such Purchaser. "COMPANY" has the meaning set forth in the introductory paragraph to this Agreement. "CREDIT AGREEMENT" means the credit agreement, dated as of July 18, 2003, among the Company, Bank of America, N.A., as administrative agent and issuing bank, and the other lenders party thereto, together with the instruments, documents and agreements related thereto (including, without limitation, any guarantee agreements and security documents), in each case as such instruments, documents and agreements may be amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any instrument, document or agreement extending the maturity of, refinancing, replacing or otherwise restructuring all or any portion of the indebtedness under such agreement or any successor or replacement agreement and whether by the same or any other agent, lender or group of lenders. "DATE OF CLOSING" means the Initial Date of Closing and any Subsequent Date of Closing. "DEFAULT" has the meaning set forth in Section 1.01 of the Indenture. "DLJ PURCHASERS" means DLJ Investment Partners II, L.P., DLJ Investment Partners, L.P., DLJIP II Holdings, L.P., and their respective successors and assigns permitted under this Agreement. "EVENT OF DEFAULT" has the meaning set forth in Section 6.01 of the Indenture. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "FISCAL QUARTER" means each of the accounting periods of approximately three (3) months ending on March 31, June 30, September 30 and December 31, respectively, of each year. "FISCAL YEAR" means the twelve (12) month period ending on December 31 of each year. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession of the United States, as amended or modified from time to time. -13- "GUARANTEES" has the meaning set forth in Paragraph 1C. "GUARANTORS" has the meaning set forth in the introductory paragraph to this Agreement. "HOLDER" means any holder of Securities from time to time. "INDEBTEDNESS" has the meaning set forth in Section 1.01 of the Indenture. "INDENTURE" means the indenture attached as Exhibit A to the Notes. "INITIAL DATE OF CLOSING" has the meaning set forth in Paragraph 2A. "ISSUERS" has the meaning set forth in the introductory paragraph to this Agreement. "MATERIAL ADVERSE EFFECT" means a material adverse effect to the business, condition (financial or otherwise), assets, liabilities, results of operations or prospects of the Company and its subsidiaries, taken as a whole, or the ability or obligation of the Issuers to perform on a timely basis their obligations under this Agreement or the other Transaction Documents. "NOTES" has the meaning set forth in Paragraph 1A. "PERMITTED INDEBTEDNESS" has the meaning set forth in Section 1.01 of the Indenture. "PERSON" means an individual, corporation, partnership, limited partnership, limited liability company, limited liability limited partnership, trust, business trust, association, joint stock company, joint venture, pool, syndicate, sole proprietorship, unincorporated organization or other form of entity not specifically listed herein. "PSC" means Physicians Surgical Care, Inc., a Delaware corporation that has become a subsidiary of the Company by virtue of merging with a subsidiary of the Company and being the surviving corporation in the merger. "PURCHASERS" has the meaning set forth in the introductory paragraph to this Agreement and shall include Transferees of such Persons. "SECURITIES" means each of the Notes and the Guarantees. "SECURITIES ACT" means the Securities Act of 1933, as amended. -14- "SOLVENT" means, with respect to any Person on any particular date, that on such date (a) the fair value of the assets of such Person (both at fair valuation and at present fair saleable value) is, on the date of determination, greater than the total amount of liabilities, including contingent and unliquidated liabilities, of such Person, (b) such Person is able to pay all contingent and unliquidated liabilities of such Person as they mature, and (c) such Person does not have unreasonably small capital with which to carry on its business. In computing the amount of contingent or unliquidated liabilities at any time, such liabilities will be computed at the amount that, in light of all the facts and circumstances existing at the time, represents the amount that can be reasonably expected to become an actual or mature liability. "SUBSEQUENT DATE OF CLOSING" has the meaning set forth in Paragraph 2B. "TRANSACTION DOCUMENTS" means this Agreement, the Notes, the Guarantees, the Management Rights Letter Agreement and all other agreements, certificates, documents, instruments and writings at any time delivered in connection herewith or therewith. "TRANSFEREE" means any direct or indirect transferee of all or any part of any Security purchased under this Agreement. 7A. TERMS AND DETERMINATIONS. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all determinations with respect to accounting matters hereunder shall be made, and all unaudited financial statements and certificates and reports as to financial matters required to be furnished hereunder shall be prepared in accordance with GAAP. PARAGRAPH 8. MISCELLANEOUS. 8. MISCELLANEOUS. 8A. EXPENSES. The Issuers, jointly and severally, agree, whether or not the transactions contemplated hereby or the other Transaction Documents shall be consummated, to pay, and save the Purchasers and any Transferee harmless against liability for the payment of, all reasonable out-of-pocket expenses arising in connection with such transactions promptly (and, in any event, within 30 days after any invoice or other statement or notice), including (i) all reasonable fees and expenses of Cahill Gordon & Reindel LLP, special counsel to the Purchasers, in connection with this Agreement, the other Transaction Documents and the transactions contemplated hereby and thereby, (ii) all document production and duplication charges and the reasonable fees and expenses of counsel engaged by the Purchasers or such Transferees in connection with any subsequent proposed modification of, or proposed consent under, this Agreement or the other Transaction Documents whether or not such proposed modification shall be effected or proposed consent granted, and (iii) the costs and expenses, including reasonable attorneys' fees, incurred by the Purchasers or such Transferee in enforcing (or determining whether or how to enforce) any -15- rights under this Agreement or the other Transaction Documents or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement, the other Transaction Documents or the transactions contemplated hereby or thereby or by reason of the Purchasers' or such Transferee's having acquired any Security, including without limitation costs and expenses incurred in any bankruptcy case. The obligations of the Issuers under this Paragraph 8A shall survive the transfer of any Security or portion thereof or interest therein by any Purchaser or any Transferee, and the payment of any Security. 8B. CONSENT TO AMENDMENTS. Except as otherwise expressly provided herein, the provisions of this Agreement may be amended and an Issuer may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if such Issuer has obtained the written consent of Holders of a majority in principal amount of the Securities then outstanding, or, if prior to the Initial Date of Closing, all of the Purchasers. 8C. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT. All representations and warranties contained herein or made in writing by or on behalf of the Issuers in connection herewith shall survive the execution and delivery of this Agreement, the Securities, the transfer by any Purchaser of any Security or portion thereof or interest therein, the payment of any Security, and may be relied upon by any Transferee, regardless of any investigation made at any time by or on behalf of any Purchaser or any Transferee. Subject to the preceding sentence, this Agreement and the other Transaction Documents embody the entire agreement and understanding between each Purchaser and the Issuers and supersede all prior agreements and understandings relating to the subject matter hereof. 8D. SUCCESSORS AND ASSIGNS. All covenants and other agreements in this Agreement contained by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and permitted assigns of the parties hereto (including, without limitation, any Transferee) whether so expressed or not; provided that no Purchaser may transfer Securities, other than to an affiliate of such Purchaser, without the written consent of the Company, which consent shall not be unreasonably withheld or delayed. 8E. NOTICES. All notices or other communications provided for hereunder shall be in writing and sent by telecopy or nationwide overnight delivery service (with charges prepaid) and (i) if to any Purchaser, addressed to it at the address specified for such communications on the signature pages hereof, or at such other address as such Purchaser shall have specified to the Company in writing, (ii) if to any other Holder, addressed to such other Holder at such address as such other Holder shall have specified to the Company in writing or, if any such other Holder shall not have so specified an address to the Company, then addressed to such other Holder in care of the last Holder which shall have so specified an address to the Company and (iii) if to the Issuers, addressed to the Company at 40 Burton Hills Boulevard, Suite 500, Nashville, Tennessee 37215, Attention: Chief Financial Officer, -16- or at such other address as the Company shall have specified to the Holder of each Security in writing. 8F. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS (OTHER THAN NEW YORK GENERAL OBLIGATIONS LAW Section 5-1401). Any legal action or proceeding with respect to this Agreement or any other Transaction Document may be brought in the courts of the State of New York or of the United States for the Southern District of New York, and, by execution and delivery of this Agreement, each of the Issuers hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts. Each of the Issuers further irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to it at its address for notices pursuant to Paragraph 8E, such service to become effective five (5) days after such mailing. Nothing herein shall affect the right of any Holder to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the Company in any other jurisdiction. Each of the Issuers hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Agreement or any other Transaction Document brought in the courts referred to above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. 8G. SEVERABILITY. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 8H. DESCRIPTIVE HEADINGS. The descriptive headings of the several paragraphs of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 8I. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. If you are in agreement with the foregoing, please sign the form of acceptance on the enclosed counterpart of this letter and return the same to the Company whereupon this letter shall become a binding agreement by and among the Issuers and each of you. Very truly yours, SYMBION, INC. By: /s/ Kenneth C. Mitchell ------------------------------ Name: Kenneth C. Mitchell Title: Chief Financial Officer GUARANTORS: AMBULATORY RESOURCE CENTRES INVESTMENT COMPANY, INC. AMBULATORY RESOURCE CENTRES OF FLORIDA, INC. AMBULATORY RESOURCE CENTRES OF MASSACHUSETTS, INC. AMBULATORY RESOURCE CENTRES OF TEXAS, INC. AMBULATORY RESOURCE CENTRES OF WASHINGTON, INC. AMBULATORY RESOURCE CENTRES OF WILMINGTON, INC. ARC DEVELOPMENT CORPORATION ARC DRY CREEK, INC. ARC FINANCIAL SERVICES CORPORATION HOUSTON PSC - I, INC. LUBBOCK SURGICENTER, INC. PHYSICIANS SURGICAL CARE, INC. PHYSICIANS SURGICAL CARE MANAGEMENT, INC. SARC/ASHEVILLE, INC. SARC/CIRCLEVILLE, INC. SARC/DELAND, INC. SARC/FT. MYERS, INC. SARC/FW, INC. SARC/JACKSONVILLE, INC. SARC/KNOXVILLE, INC. SARC/LARGO, INC. SARC/LARGO ENDOSCOPY, INC. SARC/METAIRIE, INC. SARC/VINCENNES, INC. SARC/WORCESTER, INC. SI/DRY CREEK, INC. SURGICARE OF DELAND, INC. SYMBION AMBULATORY RESOURCE CENTRES, INC. SYMBIONARC MANAGEMENT SERVICES, INC. SYMBION IMAGING, INC. TEXARKANA SURGERY CENTER GP, INC. UNIPHY HEALTHCARE OF JOHNSON CITY VI, INC. UNIPHY HEALTHCARE OF LOUISVILLE, INC. UNIPHY HEALTHCARE OF MEMPHIS I, INC. UNIPHY HEALTHCARE OF MEMPHIS III, INC. UNIPHY HEALTHCARE OF MEMPHIS IV, INC. VILLAGE SURGICENTER, INC. By: /s/ Kenneth C. Mitchell ------------------------------ Name: Kenneth C. Mitchell Title: Vice President ARC OF BELLINGHAM, L.P. By: AMBULATORY RESOURCE CENTRES OF WASHINGTON, INC., its General Partner By: /s/ Kenneth C. Mitchell -------------------------- Name: Kenneth C. Mitchell Title: Vice President WILMINGTON SURGERY CENTER, LP By: AMBULATORY RESOURCE CENTRES OF WILMINGTON, INC., its General Partner By: /s/ Kenneth C. Mitchell ---------------------- Name: Kenneth C. Mitchell Title: Vice President PSC DEVELOPMENT COMPANY, LLC PSC OF NEW YORK, L.L.C. PSC OPERATING COMPANY, LLC SARC/SAN ANTONIO, LLC SARC/WEST HOUSTON, LLC By: /s/ Kenneth C. Mitchell ------------------------------ Name: Kenneth C. Mitchell Title: Vice President SIGNATURE PAGE TO PURCHASE AGREEMENT Accepted and Agreed as of the date first above written: DLJ INVESTMENT PARTNERS II, L.P. By: DLJ INVESTMENT PARTNERS II, INC., Commitment: $22,731,000.00 as managing general partner By: /s/ Mike Isikon Principal Amount of Notes To Be ----------------------- Purchased on Initial Date of Closing: Name: Mike Isikon $8,584,000.00 Title: Auth. Sig. Address of Purchaser: Mr. Doug Ladden DLJ Investment Partners Eleven Madison Avenue New York, NY 10010 Telecopy No.: (212) 538-0422 Designated Bank: Citibank, N.A. ABA Number: 021-000-089 Address: New York, NY Account No.: 30537554 Attention: Ruchi Pinniger Taxpayer I.D. Number: 13-4048184 (if registered in the name of a nominee, the nominee Taxpayer I.D. Number) Nominee (name in which Securities are to be registered, if different than name of Purchaser) SIGNATURE PAGE TO PURCHASE AGREEMENT Accepted and Agreed as of the date first above written: DLJ INVESTMENT PARTNERS, L.P. By: DLJ INVESTMENT PARTNERS II, INC., Commitment: $10,102,000.00 as managing general partner By: /s/ Mike Isikon Principal Amount of Notes To Be ----------------------- Purchased on Initial Date of Closing: Name: Mike Isikon $3,815,000.00 Title: Auth. Sig. Address of Purchaser: Mr. Doug Ladden DLJ Investment Partners Eleven Madison Avenue New York, NY 10010 Telecopy No.: (212) 538-0422 Designated Bank: Citibank, N.A. ABA Number: 021-000-089 Address: New York, NY Account No.: 30537562 Attention: Ruchi Pinniger Taxpayer I.D. Number: 13-3868693 (if registered in the name of a nominee, the nominee Taxpayer I.D. Number) Nominee (name in which Securities are to be registered, if different than name of Purchaser) ____________________ SIGNATURE PAGE TO PURCHASE AGREEMENT Accepted and Agreed as of the date first above written: DLJIP II HOLDINGS, L.P. By: DLJ INVESTMENT PARTNERS II, INC., Commitment: $7,167,000.00 as managing general partner By: /s/ Mike Isikon Principal Amount of Notes To Be ----------------------- Purchased on Initial Date of Closing: Name: Mike Isikon $2,707,000.00 Title: Auth. Sig. Address of Purchaser: Mr. Doug Ladden DLJ Investment Partners Eleven Madison Avenue New York, NY 10010 Telecopy No.: (212) 538-0422 Designated Bank: Citibank, N.A. ABA Number: 021-000-089 Address: New York, NY Account No.: 30537589 Attention: Ruchi Pinniger Taxpayer I.D. Number: 13-4192504 (if registered in the name of a nominee, the nominee Taxpayer I.D. Number) Nominee (name in which Securities are to be registered, if different than name of Purchaser) ____________________ EX-10.13 9 g85742s1exv10w13.txt EX-10.13 FORM OF 14 3/4% SENIOR SUBORDINATED NOTE EXHIBIT 10.13 THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE NEXT SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER: (1) ACKNOWLEDGES THAT THIS NOTE IS SUBJECT TO RESTRICTIONS ON TRANSFER CONTAINED IN THIS NOTE AND THE SECURITIES PURCHASE AGREEMENT DATED AS OF JULY 18, 2003, BY AND AMONG SYMBION, INC. AND THE PURCHASERS NAMED THEREIN, AND AGREES TO COMPLY WITH SUCH RESTRICTIONS, (2) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT HAS ACQUIRED THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A) OF REGULATION D UNDER THE SECURITIES ACT (AN "AI")), (3) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (E) TO AN AI THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE COMPANY A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER OF THIS NOTE (THE FORM OF WHICH IS ATTACHED HERETO) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (4) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATIONS UNDER THE SECURITIES ACT. FORM OF SYMBION, INC. 14 3/4% SENIOR SUBORDINATED NOTE DUE 2008 No. _______ $_______ SYMBION, INC., a Delaware corporation (the "Company," which term includes any successor entity), for value received promises to pay ______, to or registered assigns, the principal sum of _________ ($______) on, plus accrued and unpaid interest to but excluding, July 18, 2008. Interest Payment Dates: July 15 and January 15 Interest Payment Record Dates: July 1 and January 1 Reference is made to the further provisions of this Note contained on the reverse hereof or elsewhere herein, which will for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this Note to be signed manually or by facsimile by its duly authorized officer. SYMBION, INC. By: ___________________________________ Name: Title: Dated: July 18, 2003 14 3/4% SENIOR SUBORDINATED NOTE DUE 2008 1. Incorporation by Reference of Provisions of the Indenture. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the form of Indenture (as amended in accordance herewith, the "Indenture") attached hereto as Exhibit A. All of the terms and conditions of the Indenture shall be and are hereby incorporated by this reference in the Notes as if fully set forth herein, and shall be binding upon the Company and, by its acceptance of a Note, each Holder, and inure to the benefit of the Holders of the Notes. 2. Interest. Symbion, Inc., a Delaware corporation (the "Company," which term includes any successor entity), promises to pay interest on the principal amount of this Note at the rate of 14 3/4% per annum. Interest on the Notes will accrue from the most recent date on which interest has been paid or, if no interest has been paid, from the date of initial funding with respect to this Note (the "Issue Date"). The Company will pay interest semiannually in arrears on each Interest Payment Date, commencing January 15, 2004. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal from time to time on demand at the rate borne by the Notes plus 2% per annum and on overdue installments of interest (without regard to any applicable grace periods) to the extent lawful. Interest is payable at the rate of 14 3/4% at the option of the Company, (i) in cash or (ii)(x) in cash at the rate of at least 12% per annum and (y) by the issuance of additional Notes at the rate of up to 2 3/4% per annum (valued at 100% of the principal amount thereof); provided that, in connection with any redemption or repurchase of the Notes as permitted or required by the Indenture and upon acceleration of the Notes, all accrued interest shall be payable solely in cash. 3. Method of Payment. The Company shall pay interest on the Notes (except defaulted interest) to the Persons who are the registered Holders at the close of business on the Interest Payment Record Date immediately preceding the Interest Payment Date even if the Notes are canceled on registration of transfer or registration of exchange after such Interest Payment Record Date. Holders must surrender Notes to the Company to collect principal payments. The Company shall pay principal and interest to each Holder in immediately available funds in money of the United States that at the time of payment is legal tender for payment of public and private debts by wire transfer to the account of such Holder set forth in the Securities Purchase Agreement. 4. Subordination. The Notes are subordinated in right of payment, in the manner and to the extent set forth in the Indenture, to the prior payment in full in cash or Cash Equivalents of all Senior Debt of the Company, whether outstanding on the Issue Date or thereafter created, incurred, assumed or guaranteed. The Guarantees in respect of the Notes are subordinated in right of payment, in the manner and to the extent set forth in the Indenture, to the prior payment in full in cash or Cash Equivalents of all Guarantor Senior Debt of each Guarantor, whether outstanding on the Issue Date or thereafter created, incurred, assumed or guaranteed. Each Holder by its acceptance hereof agrees to be bound by such provisions and authorizes and expressly directs the Company, on its behalf, to take such action as may be necessary or appropriate to effectuate the subordination provided for in the Indenture and appoints the Company its attorney-in-fact for such purposes. 5. Redemption. (a) Optional Redemption. The Company, at its option, may redeem this Note, in whole at any time or in part from time to time, at redemption prices equal to the following (expressed as of percentage of principal amount):
Redemption Date Price --------------- ----- Prior to July 18, 2004 102.50% On or after July 18, 2004 and prior to July 18, 101.00% 2005 On and after July 18, 2005 and prior to July 100.50% 18, 2006 On and after July 18, 2006 and prior to July 100.50% 18, 2007 On and after July 18, 2007 100.00%
plus, in each case, accrued and unpaid interest hereon, if any, to the date of redemption. (b) Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Notes to be redeemed at such Holder's registered address. Notes in denominations larger than $1,000 may be redeemed in part. Unless the Company defaults in the payment of the Redemption Price plus accrued and unpaid interest, if any, the Notes called for redemption will cease to bear interest from and after such Redemption Date and the only right of the Holders of such Notes will be to receive payment of the Redemption Price plus accrued and unpaid interest, if any. 6. Offers to Purchase. Sections 4.15 and 4.16 of the Indenture require the Company to make offers to purchase amounts of the Notes at the times and in accordance with the provisions set forth in the Indenture. 7. Denominations; Transfer; Exchange. The Notes are in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000, except as may be required to issue additional Notes as provided in Paragraph 2. A Holder shall register the transfer of or exchange Notes in accordance with the Indenture and Paragraph 6A of the Securities Purchase Agreement. The Company may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay certain transfer taxes or similar governmental charges payable in connection therewith as permitted by the Indenture. The Company need not register the transfer of or exchange of any Notes or portions thereof selected for redemption. 8. Persons Deemed Owners. The registered Holder of a Note shall be treated as the owner of it for all purposes. 9. Amendment; Supplement; Waiver. Subject to certain exceptions set forth in Section 9.02(b) of the Indenture, the Indenture or the Notes may be amended or supplemented with the written consent of the Holders of at least a majority in aggregate principal amount of the Notes then outstanding, and any existing Default or Event of Default or noncompliance with any provision may be waived with the written consent of the Holders of a majority in aggregate principal amount of the Notes then outstanding. Without notice to or consent of any Holder, the Company and the Guarantors may amend or supplement the Indenture or the Notes to cure any ambiguity, defect or inconsistency, provide for uncertificated Notes in addition to or in place of certificated Notes, or comply with Article Five of the Indenture, make any change that would provide any additional benefit or rights to the Holders, make any other change that does not adversely affect in any material respect the rights of any Holder of a Note or add or remove Guarantors as provided in the Indenture. 10. Restrictive Covenants. The Indenture imposes certain limitations on the ability of the Company and its Subsidiaries to, among other things, incur additional Indebtedness, make payments in respect of its Capital Stock or certain Indebtedness, enter into transactions with Affiliates, create dividend or other payment restrictions affecting Subsidiaries, merge or consolidate with any other Person, sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets or adopt a plan of liquidation. Such limitations are subject to a number of important qualifications and exceptions. The Company must annually report to the Holders on compliance with such limitations. 11. Successors. When a successor assumes, in accordance with the Indenture, all the obligations of its predecessor under the Notes and the Indenture, the predecessor will be released from those obligations. 12. Defaults and Remedies. Events of Default shall be as set forth in the Indenture. If an Event of Default occurs and is continuing, the Required Holders may declare all the Notes to be due and payable in the manner, at the time and with the effect provided in the Indenture, except that in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes become due and payable immediately without further action or notice. Holders of Notes may not enforce the Indenture or the Notes except as provided in the Indenture. 13. No Recourse Against Others. No stockholder, director, officer, employee or incorporator, as such, of the Company shall have any liability for any obligation of the Company under the Notes or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of a Note by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 14. Governing Law. THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN THIS NOTE AND THE INDENTURE, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS (OTHER THAN NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1401). 15. Abbreviations and Defined Terms. Customary abbreviations may be used in the name of a Holder of a Note or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 16. Provisions of Indenture. Each Holder, by accepting a Note, agrees to be bound by all of the terms and provisions of the Indenture, as the same may be amended from time to time. The Company will furnish to any Holder of a Note upon written request and without charge a copy of the Indenture, which has the text of this Note in larger type. Requests may be made to: Symbion, Inc., 40 Burton Hills Boulevard, Suite 500, Nashville, Tennessee 37215, Attn: Chief Financial Officer. ASSIGNMENT FORM If you the Holder want to assign this Note, fill in the form below and have your signature guaranteed. The Company must consent to any transfer, other than a transfer to one or more of your affiliates. The Company has agreed not to unreasonably withhold or delay its consent. I or we assign and transfer this Note to: _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ (Print or type name, address and zip code and social security or tax ID number of assignee) and irrevocably appoint_______________________________, agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. Date: ________________ Signed:___________________________ (Sign exactly as your name appears on the other side of this Note) Signature Guarantee:__________________________________________ Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. In connection with any transfer of this Note occurring prior to the date which is the earlier of (i) the date of the declaration by the SEC of the effectiveness of a registration statement under the Securities Act of 1933, as amended (the "Securities Act"), covering resales of this Note (which effectiveness shall not have been suspended or terminated at the date of the transfer) and (ii) July 18, 2005, the undersigned confirms that it has not utilized any general solicitation or general advertising in connection with the transfer and that this Note is being transferred: [Check One] (1) __ to the Company or a subsidiary thereof; or (2) __ pursuant to and in compliance with Rule 144A under the Securities Act; or (3) __ to an "accredited investor" (as defined in Rule 501(a) under the Securities Act) that has furnished to the Company a signed letter containing certain representations and agreements (the form of which is attached below); or (4) __ outside the United states to a "foreign person" in compliance with Rule 904 of Regulation S under the Securities Act; or (5) __ pursuant to the exemption from registration provided by Rule 144 under the Securities Act; or (6) __ pursuant to another available exemption from the registration requirements of the Securities Act. Unless one of the boxes is checked, the Company will refuse to register any of the Notes evidenced by this certificate in the name of any person other than the registered Holder thereof; provided that if box (3), (4), (5) or (6) is checked, the Company may require, prior to registering any such transfer of the Notes, in its sole discretion, such legal opinions (except with respect to transfers of at least $250,000 if box (3) is checked), certifications (including an investment letter in the case of box (3) or (4)) and other information as the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. If none of the foregoing boxes is checked, the Company shall not be obligated to register this Note in the name of any person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein shall have been satisfied. Date: ___________________ Signed:__________________________ (Sign exactly as your name appears on the other side of this Note) Signature Guarantee: _____________________________________ Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Date: __________________ __________________________________ NOTICE: To be executed by an executive officer [FORM OF LETTER TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED] Ladies and Gentlemen: 1. The undersigned understands that any subsequent transfer of the Notes is subject to certain restrictions and conditions set forth in the Notes and in the Indenture and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes except in compliance with, such restrictions and conditions and the Securities Act. 2. The undersigned understands that the offer and sale of the Notes have not been registered under the Securities Act, and that the Notes may not be offered or sold except as permitted in the following sentence. The undersigned agrees, on its own behalf and on behalf of any accounts for which it is acting as hereinafter stated, that if it should sell, pledge or otherwise transfer any Notes it will do so only (1) (w) inside the United States to a person who the seller reasonably believes is a qualified institutional buyer within the meaning of Rule 144A under the Securities Act in a transaction meeting the requirements of Rule 144A, or in accordance with Rule 144 under the Securities Act, or pursuant to another exemption from the registration requirements of the Securities Act (and based upon an opinion of counsel, if the Company so requests), (x) to the Company, (y) outside the United States to a foreign person in a transaction meeting the requirements of Rule 904 under the Securities Act or (z) pursuant to an effective registration statement under the Securities Act and (2) in each case, in accordance with the applicable securities laws of any state of the United States or any other applicable jurisdiction, and the undersigned further agrees to provide to any person purchasing any of the Notes from us a notice advising such purchaser that resales of the Notes are restricted as stated herein. 3. The undersigned understands that, on any proposed resale of any Notes, it may be required to furnish the Company such certification and other information as the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. The undersigned further understands that the Notes purchased by it will bear a legend to the foregoing effect. 4. The undersigned is an "accredited investor" (as defined in Rule 501(a) under the Securities Act) and has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and the undersigned and any accounts for which it is acting are each able to bear the economic risk of our or its investment, as the case may be. 5. The undersigned is acquiring the Notes purchased by us for our account or for one or more accounts (each of which is an "accredited investor") as to each of which the undersigned exercises sole investment discretion. Date:________________________________ _____________________________________ NOTICE: To be signed by an executive officer [OPTION OF HOLDER TO ELECT PURCHASE] If you want to elect to have this Note purchased by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, check the appropriate box: Section 4.15 [ ] Section 4.16 [ ] If you want to elect to have only part of this Note purchased by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state the amount you elect to have purchased: $_____________________ Dated: _______________ ____________________________________ NOTICE: The signature on this assignment must correspond with the name as it appears upon the face of the within Note in every particular without alteration or enlargement or any change whatsoever and be guaranteed by the endorser's bank or broker. Signature Guarantee: ___________________________________________________________ Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. SENIOR SUBORDINATED GUARANTEE Each of the undersigned (the "Guarantors") unconditionally guarantees on a senior subordinated basis (such guarantee by each Guarantor being referred to herein as the "Guarantee") (i) the due and punctual payment of the principal of and interest on the Notes, whether at maturity, by acceleration or otherwise and the due and punctual payment of interest on the overdue principal and interest, if any, on the Notes, to the extent lawful, all in accordance with the terms set forth in Article Eleven of the Indenture and (ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Notes. All of the terms and conditions of the Indenture shall be and are hereby incorporated by this reference in this Guarantee as if fully set forth herein, and shall be binding upon each Guarantor and inure to the benefit of the Holders. The obligations of each Guarantor to the Holders pursuant to the Guarantee and the Indenture are expressly set forth and are expressly subordinated and subject in right of payment to the prior payment in full in cash or Cash Equivalents of all Guarantor Senior Debt of such Guarantor, to the extent and in the manner provided in Article Eleven of the Indenture, and reference is hereby made to such Indenture for the precise terms of the Guarantee therein made. This Guarantee is limited under the Indenture to the extent necessary not to constitute a fraudulent conveyance. No past, present or future stockholder, officer, director, employee or incorporator, as such, of any of the Guarantors shall have any liability under the Guarantees by reason of such person's status as stockholder, officer, director, employee or incorporator. Each holder of a Note by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Guarantees. The Guarantee shall not be valid or obligatory for any purpose until the Notes upon which the Guarantee is noted shall have been executed by the Company by the manual signature of one of its authorized officers. GUARANTORS: AMBULATORY RESOURCE CENTRES INVESTMENT COMPANY, INC. AMBULATORY RESOURCE CENTRES OF FLORIDA, INC. AMBULATORY RESOURCE CENTRES OF MASSACHUSETTS, INC. AMBULATORY RESOURCE CENTRES OF TEXAS, INC. AMBULATORY RESOURCE CENTRES OF WASHINGTON, INC. AMBULATORY RESOURCE CENTRES OF WILMINGTON, INC. ARC DEVELOPMENT CORPORATION ARC DRY CREEK, INC. ARC FINANCIAL SERVICES CORPORATION HOUSTON PSC - I, INC. LUBBOCK SURGICENTER, INC. PHYSICIANS SURGICAL CARE, INC. PHYSICIANS SURGICAL CARE MANAGEMENT, INC. SARC/ASHEVILLE, INC. SARC/CIRCLEVILLE, INC. SARC/DELAND, INC. SARC/FT. MYERS, INC. SARC/FW, INC. SARC/JACKSONVILLE, INC. SARC/KNOXVILLE, INC. SARC/LARGO, INC. SARC/LARGO ENDOSCOPY, INC. SARC/METAIRIE, INC. SARC/VINCENNES, INC. SARC/WORCESTER, INC. SI/DRY CREEK, INC. SURGICARE OF DELAND, INC. SYMBION AMBULATORY RESOURCE CENTRES, INC. SYMBIONARC MANAGEMENT SERVICES, INC. SYMBION IMAGING, INC. TEXARKANA SURGERY CENTER GP, INC. UNIPHY HEALTHCARE OF JOHNSON CITY VI, INC. UNIPHY HEALTHCARE OF LOUISVILLE, INC. UNIPHY HEALTHCARE OF MEMPHIS I, INC. UNIPHY HEALTHCARE OF MEMPHIS III, INC. UNIPHY HEALTHCARE OF MEMPHIS IV, INC. VILLAGE SURGICENTER, INC. By: _______________________________ Name: Kenneth C. Mitchell Title: Vice President ARC OF BELLINGHAM, L.P. By: AMBULATORY RESOURCE CENTRES OF WASHINGTON, INC., its General Partner By: __________________________ Name: Kenneth C. Mitchell Title: Vice President WILMINGTON SURGERY CENTER, LP By: AMBULATORY RESOURCE CENTRES OF WILMINGTON, INC., its General Partner By: __________________________ Name: Kenneth C. Mitchell Title: Vice President PSC DEVELOPMENT COMPANY, LLC PSC OF NEW YORK, L.L.C. PSC OPERATING COMPANY, LLC SARC/SAN ANTONIO, LLC SARC/WEST HOUSTON, LLC By: _______________________________ Name: Kenneth C. Mitchell Title: Vice President [Exhibit A to Senior Subordinated Notes due 2008 of Symbion, Inc.] SYMBION, INC., as Issuer, and ITS SUBSIDIARIES THAT ARE GUARANTORS INDENTURE Initial Issuance of up to $40,000,000 14 3/4% Senior Subordinated Notes due 2008 TABLE OF CONTENTS
Page ---- ARTICLE ONE. DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions............................................................................ 1 SECTION 1.02. Rules of Construction.................................................................. 18 ARTICLE TWO. THE NOTES SECTION 2.01. Form and Dating........................................................................ 19 SECTION 2.02. Execution; Aggregate Principal Amount.................................................. 19 SECTION 2.03. Company To Maintain Office............................................................. 19 SECTION 2.04. [Reserved.]............................................................................ 19 SECTION 2.05. Noteholder Lists....................................................................... 19 SECTION 2.06. Transfer and Exchange.................................................................. 19 SECTION 2.07. Replacement Notes...................................................................... 20 SECTION 2.08. Outstanding Notes...................................................................... 20 SECTION 2.09. Treasury Notes......................................................................... 21 SECTION 2.10. Temporary Notes........................................................................ 21 SECTION 2.11. Cancellation........................................................................... 21 SECTION 2.12. Payment of Interest; Defaulted Interest................................................ 21 SECTION 2.13. [Reserved.]............................................................................ 21 SECTION 2.14. Persons Deemed Owners.................................................................. 21 ARTICLE THREE. REDEMPTION SECTION 3.01. [Reserved.]............................................................................ 22 SECTION 3.02. Selection of Notes To Be Redeemed...................................................... 22 SECTION 3.03. Notice of Redemption................................................................... 22 SECTION 3.04. Effect of Notice of Redemption......................................................... 23 SECTION 3.05. Payment of Redemption Price............................................................ 23 SECTION 3.06. Notes Redeemed in Part................................................................. 23 ARTICLE FOUR. COVENANTS SECTION 4.01. Payment of Notes....................................................................... 23 SECTION 4.02. Maintenance of Office or Agency........................................................ 24
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Page ---- SECTION 4.03. Corporate Existence.................................................................... 24 SECTION 4.04. Payment of Taxes and Other Claims...................................................... 24 SECTION 4.05. Maintenance of Properties and Insurance................................................ 25 SECTION 4.06. Compliance Certificate; Notice of Default.............................................. 25 SECTION 4.07. Compliance with Laws................................................................... 26 SECTION 4.08. SEC Reports............................................................................ 26 SECTION 4.09. Waiver of Stay, Extension or Usury Laws................................................ 27 SECTION 4.10. Limitation on Restricted Payments...................................................... 27 SECTION 4.11. Limitation on Transactions with Affiliates............................................. 30 SECTION 4.12. Limitation on Incurrence of Additional Indebtedness and Issuance of Preferred Stock.... 31 SECTION 4.13. Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries........... 32 SECTION 4.14. Prohibition on Incurrence of Senior Subordinated Debt.................................. 33 SECTION 4.15. Change of Control...................................................................... 33 SECTION 4.16. Limitation on Asset Sales.............................................................. 34 SECTION 4.17. Limitation on Liens.................................................................... 37 SECTION 4.18. Additional Guarantors.................................................................. 37 SECTION 4.19. Conduct of Business.................................................................... 38 ARTICLE FIVE. SUCCESSOR CORPORATION SECTION 5.01. Merger, Consolidation and Sale of Assets............................................... 38 SECTION 5.02. Successor Corporation Substituted...................................................... 40 ARTICLE SIX. DEFAULT AND REMEDIES SECTION 6.01. Events of Default...................................................................... 40 SECTION 6.02. Acceleration........................................................................... 41 SECTION 6.03. Other Remedies......................................................................... 42 SECTION 6.04. Waiver of Past Defaults................................................................ 42 SECTION 6.05. Control by Majority.................................................................... 43 SECTION 6.06. [Reserved.]............................................................................ 43 SECTION 6.07. Rights of Holders to Receive Payment................................................... 43 SECTION 6.08. [Reserved.]............................................................................ 43 SECTION 6.09. [Reserved.]............................................................................ 43 SECTION 6.10. Priorities............................................................................. 43 SECTION 6.11. Undertaking for Costs.................................................................. 44 SECTION 6.12. Qualification of Rights................................................................ 44
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Page ---- ARTICLE SEVEN. [RESERVED.] ARTICLE EIGHT. [RESERVED] ARTICLE NINE. AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 9.01. Without Consent of Holders............................................................. 44 SECTION 9.02. With Consent of Holders................................................................ 45 SECTION 9.03. Effect on Senior Debt.................................................................. 46 SECTION 9.04. Revocation and Effect of Consents...................................................... 46 SECTION 9.05. Notation on or Exchange of Notes....................................................... 47 ARTICLE TEN. SUBORDINATION SECTION 10.01. Notes Subordinated to Senior Debt...................................................... 47 SECTION 10.02. No Payment on Notes in Certain Circumstances........................................... 47 SECTION 10.03. Delay of Acceleration and Remedies..................................................... 48 SECTION 10.04. Payment Over of Proceeds upon Dissolution, Etc......................................... 49 SECTION 10.05. Payments May Be Paid Prior to Dissolution.............................................. 50 SECTION 10.06. Subrogation............................................................................ 50 SECTION 10.07. Obligations of the Company Unconditional............................................... 51 SECTION 10.08. Notice to Holders...................................................................... 51 SECTION 10.09. Reliance on Judicial Order or Certificate of Liquidating Agent......................... 51 SECTION 10.10. [Reserved.]............................................................................ 52 SECTION 10.11. Subordination Rights Not Impaired by Acts or Omissions of the Company or Holders of Senior Debt................................................................ 52 SECTION 10.12. Noteholders Agee to Effectuate Subordination of Notes.................................. 52 SECTION 10.13. This Article Ten Not To Prevent Events of Default...................................... 53 ARTICLE ELEVEN. GUARANTEES SECTION 11.01. Unconditional Guarantee................................................................ 53 SECTION 11.02. Subordination of Guarantee............................................................. 54 SECTION 11.03. Severability........................................................................... 54 SECTION 11.04. Release of a Guarantor................................................................. 54 SECTION 11.05. Limitation of Guarantor's Liability.................................................... 55
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Page ---- SECTION 11.06. Guarantors May Consolidate, Etc. on Certain Terms...................................... 55 SECTION 11.07. Contribution........................................................................... 56 SECTION 11.08. Execution of Guarantee................................................................. 56 SECTION 11.09. No Payment on Guarantees in Certain Circumstances...................................... 56 SECTION 11.10. Payment Over of Proceeds upon Dissolution, Etc......................................... 57 SECTION 11.11. Payments May Be Paid Prior to Dissolution.............................................. 59 SECTION 11.12. Subrogation............................................................................ 59 SECTION 11.13. Obligations of Each Guarantor Unconditional............................................ 59 SECTION 11.14. Notice to Holders...................................................................... 59 SECTION 11.15. Reliance on Judicial Order or Certificate of Liquidating Agent......................... 60 SECTION 11.16. [Reserved]............................................................................. 60 SECTION 11.17. Subordination Rights Not Impaired by Acts or Omissions of a Guarantor or Holders of Guarantor Senior Debt...................................................... 60 SECTION 11.18. Noteholders Agree To Effectuate Subordination of Guarantees............................ 61 SECTION 11.19. This Article Eleven Not To Prevent Events of Default................................... 61 ARTICLE TWELVE. MISCELLANEOUS SECTION 12.01. [Reserved.]............................................................................ 61 SECTION 12.02. Notices................................................................................ 62 SECTION 12.03. [Reserved.]............................................................................ 63 SECTION 12.04. Certificate as to Conditions Precedent................................................. 63 SECTION 12.05. Statements Required in Certificate..................................................... 63 SECTION 12.06. [Reserved.]............................................................................ 64 SECTION 12.07. Legal Holidays......................................................................... 64 SECTION 12.08. Governing Law.......................................................................... 64 SECTION 12.09. No Adverse Interpretation of Other Agreements.......................................... 64 SECTION 12.10. No Recourse Against Others............................................................. 64 SECTION 12.11. Successors............................................................................. 65 SECTION 12.12. Severability........................................................................... 65 Schedules Schedule 1 - Indebtedness Outstanding on Initial Issue Date Schedule 2 - List of Investments Schedule 3 - Description of Warrants and Convertible Debentures
Note: This Table of Contents shall not, for any purpose, be deemed to be part of the Indenture. -iv- Symbion, Inc., a Delaware corporation (the "Company") has duly authorized the creation of an issue of 14 3/4% Senior Subordinated Notes due 2008 (the "Notes") and, to provide for the terms thereof in more detail, the Company has duly authorized this Indenture to be attached to the Notes and incorporated by reference therein. All things necessary to make the Notes, when duly issued and executed by the Company, and delivered hereunder, the valid obligations of the Company have been done. Each of the Company and the Guarantors agrees as follows for the benefit of the other parties and for the equal and ratable benefit of the Holders of the Notes. ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions. "Acceleration Notice" has the meaning provided in Section 6.02(a). "Acquired Indebtedness" means Indebtedness of a Person or any of its Subsidiaries (a) existing at the time such Person becomes a Subsidiary of the Company or at the time it merges or consolidates with the Company or any of its Subsidiaries or (b) assumed in connection with the acquisition of assets from such Person and in each case not incurred by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Subsidiary of the Company or such acquisition, merger or consolidation. "Affiliate" means, with respect to any specified Person, any other Person who directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative of the foregoing. "Affiliate Transaction" has the meaning provided in Section 4.11. "Asset Acquisition" means (a) an Investment by the Company or any Subsidiary of the Company in any other Person pursuant to which such Person shall become a Subsidiary of the Company or any Subsidiary of the Company or shall be merged with or into the Company or any Subsidiary of the Company, or (b) the acquisition by the Company or any Subsidiary of the Company of the assets of any Person (other than a Subsidiary of the Company) which constitute all or substantially all of the assets of such Person or comprise any division or line of business of such Person or any other properties or assets of such Person other than in the ordinary course of business. S-1 "Asset Sale" means any direct or indirect sale, issuance, conveyance, transfer, lease (other than operating leases entered into in the ordinary course of business), assignment or other transfer for value by the Company or any of its Subsidiaries (including any Sale and Leaseback Transaction) to any Person other than the Company or a Wholly Owned Subsidiary of the Company of (a) any Capital Stock of any Subsidiary of the Company or (b) any other property or assets of the Company or any Subsidiary of the Company other than in the ordinary course of business; provided, however, that Asset Sales shall not include (i) a transaction or series of related transactions for which the Company or its Subsidiaries receive aggregate consideration of less than $1,000,000, (ii) the sale, lease, conveyance, disposition or other transfer of all or substantially all of the assets of the Company as permitted under Section 5.01, (iii) the creation (but not the foreclosure) of any Lien not prohibited by Section 4.17, (iv) a disposition that constitutes a Restricted Payment permitted by Section 4.10(10) and (v) sales of Capital Stock of a Subsidiary of the Company or a Permitted Non-Guarantor Entity in connection with the syndication of such Person in the ordinary course of business and consistent with past practice. "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal, state or foreign law for the relief of debtors. "Blockage Period" has the meaning provided in Section 10.02. "Board of Directors" means, as to any Person, the board of directors of such Person or any duly authorized committee thereof. "Board Resolution" means, with respect to any Person, a copy of a resolution certified by the Secretary or an Assistant Secretary of such Person to have been duly adopted by the Board of Directors of such Person and to be in full force and effect on the date of such certification, and delivered to the Holders. "Business Day" means a day that is not a Legal Holiday. "Capital Stock" means (i) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated and whether or not voting) of such Person's corporate stock, including each class of Common Stock and Preferred Stock of such Person and (ii) with respect to any Person that is not a corporation, any and all partnership or other equity interests of such Person. "Capitalized Lease" means, with respect to any Person, any lease of property by such Person as lessee that would be capitalized on a balance sheet of such Person prepared in conformity with GAAP. "Capitalized Lease Obligations" means, as to any Person, the obligations of such Person under a lease that are required to be classified and accounted for as capital lease obligations under GAAP and, for purposes of this definition, the amount of such obligations at any date shall be the capitalized amount of such obligations that is included on a balance sheet of such Person at such date, determined in accordance with GAAP. S-2 "Cash Equivalents" means (i) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poor's Ratings Service ("S&P") or Moody's Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by (1) any Lender (as defined in the Credit Agreement) or (2) any bank organized under the laws of the United States of America or any state thereof or the District of Columbia or any U.S. branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $500,000,000; (v) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i), (ii) or (iii) above entered into with any bank meeting the qualifications specified in clause (iv) above; and (vi) investments in money market funds which invest substantially all their assets in securities of the types described in clauses (i) through (v) above. "Center" means a surgery center, a diagnostic imaging center, a surgical hospital or a hospital that provides only surgical services and services directly related thereto. "Certificate of Designation (Series A and Series B Preferred Stock)" means the Certificate of Designation of Rights and Preferences of Series A Convertible Preferred Stock and Series B Convertible Preferred Stock of Symbion, Inc., dated September 16, 2002, filed with the Secretary of State of Delaware on September 16, 2002 (020575294 - 3531259), as the same is in effect on the Initial Issue Date. "Change of Control" means the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company (whether or not otherwise in compliance with the provisions of this Indenture); (ii) the liquidation or dissolution of the Company (whether or not otherwise in compliance with the provisions of this Indenture); (iii) any Person or group (as defined in Section 13(d) of the Exchange Act) shall become the owner, directly or indirectly, beneficially or of record, of shares representing more than 30% of the aggregate ordinary voting power represented by the issued and outstanding Capital Stock (the "Voting Stock") of the Company; (iv) the replacement of a majority of the Board of Directors of the Company over a two-year period from the directors who constituted the Board of Directors of the Company at the beginning of such period, and such replacement shall not have been approved by a vote of at least a majority of the Board of Directors of the Company then still in office who either were members of such Board of Directors at the beginning of such period or whose election as a member of such Board of Directors was previously so approved by members of such Board of Directors; or (v) the merger or consolidation of the Company with or into another Person or the merger of another Person S-3 with or into the Company, other than a transaction following which holders of securities that represented 100% of the Voting Stock of the Company immediately prior to such transaction (or other securities into which such securities are converted as part of such merger or consolidation transaction) own directly or indirectly at least a majority of the voting power of the Voting Stock of the surviving Person in such merger or consolidation transaction immediately after such transaction and in substantially the same proportion as before the transaction. Notwithstanding the foregoing, a Change of Control shall not be deemed to occur for purposes of clause (iii) or (v) so long as, following the occurrence of, or in connection with, any such event, (A) no Default has occurred and is continuing, (B) the services of Richard E. Francis, Jr. and Clifford G. Adlerz are retained in the same capacity such individuals hold with the Company on the Initial Issue Date and (C) with respect to clause (iii), existing stockholders of the Company do not receive cash or Cash Equivalents except for cash in lieu of fractional shares. "Change of Control Date" has the meaning provided in Section 4.15. "Change of Control Offer" has the meaning provided in Section 4.15. "Common Stock" of any Person means any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or non-voting) of such Person's common stock, whether outstanding on the Initial Issue Date or issued after the Initial Issue Date, and includes, without limitation, all series and classes of such common stock. "Company" means the party named as such in this Indenture until a successor replaces it pursuant to this Indenture and thereafter means such successor. "Consolidated EBITDA" means, with respect to any Person, for any period, the sum of Consolidated Net Income plus the following, without duplication and to the extent deducted in computing Consolidated Net Income: (i) Consolidated Interest Expense, (ii) federal, state, local and foreign income, value-added and similar tax expense, (iii) depreciation, (iv) amortization of intangible assets, and (v) other non-cash charges, less any non-cash items increasing Consolidated Net Income for such period (except to the extent cash relating to such item has been received after the Initial Issue Date). "Consolidated Funded Indebtedness" means, with respect to any Person, on a consolidated basis, (i) all Indebtedness of such Person and its Subsidiaries of the types described in clauses (i) through (viii) of the definition of "Indebtedness" in this Indenture, and (ii) without duplication, all Contingent Obligations the primary obligation of which is Indebtedness of the type described in the foregoing clause (i). "Consolidated Interest Expense" means, with respect to any Person, for any period, the sum of, without duplication: (i) interest expense and amortization of deferred loan costs (calculated without regard to any limitations on the payment thereof) excluding interest that is paid solely by issuing additional Notes in accordance with the terms of the Securities Purchase Agreement, (ii) imputed interest on Capitalized Lease Obligations and on synthetic S-4 leases, tax retention operating leases, off-balance sheet loans and similar off-balance sheet financing transactions, (iii) commissions, discounts and other fees and charges owed with respect to letters of credit and unused commitments, and (iv) net costs under Hedge Agreements and any other interest rate protection agreements, all as determined in conformity with GAAP (except with respect to synthetic leases and similar items, which will be determined in conformity with calculations for federal income tax purposes). "Consolidated Leverage Ratio" means, with respect to any Person, the ratio of Consolidated Funded Indebtedness of such Person as of the date of the transaction giving rise to the need to calculate the Consolidated Leverage Ratio (the "Transaction Date") to Consolidated EBITDA of such Person during the four full fiscal Quarters (the "Four Quarter Period") ending on or prior to the Transaction Date. In addition to and without limitation of the foregoing, for purposes of this definition, "Consolidated EBITDA" shall be calculated after giving effect on a pro forma basis for the period of such calculation to any Asset Sales or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of such Person or one of its Subsidiaries (including any Person who becomes a Subsidiary as a result of the Asset Acquisition) incurring, assuming or otherwise becoming liable for Acquired Indebtedness and also including any Consolidated EBITDA (including any pro forma expense and cost reductions calculated on a basis consistent with Regulation S-X under the Securities Act) attributable to the assets which are the subject of the Asset Acquisition or Asset Sale during the Four Quarter Period) occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such Asset Sale or Asset Acquisition (including the incurrence, assumption or becoming liable for any such Indebtedness or Acquired Indebtedness) occurred on the first day of the Four Quarter Period. "Consolidated Net Income" means, with respect to any Person, for any period, the net income (or loss) after taxes of such Person and its Subsidiaries for such period taken as a single accounting period on a consolidated basis determined in accordance with GAAP; provided that there shall be excluded therefrom (i) customary exclusions with respect to extraordinary and nonrecurring items (and corresponding tax consequences), (ii) the net income (but not loss) of any Subsidiary of the referent Person to the extent that the declaration of dividends or similar distributions by that Subsidiary of that income is actually restricted by contract or operation of law, except to the extent of cash dividends or distributions actually paid by that Subsidiary to the referent Person or a Wholly Owned Subsidiary of the referent Person, and (iii) income or loss attributable to discontinued operations. "Consolidated Net Worth" means, with respect to any Person for any date of determination, stockholders' or owner's equity, determined in conformity with GAAP. "Contingent Obligations" means, with respect to any Person, any contingent obligation calculated in conformity with GAAP, and in any event shall include (without duplication) all indebtedness, obligations or other liabilities of such Person guaranteeing or in effect guaranteeing the payment or performance of any indebtedness, obligation or other liability, whether or not contingent (collectively, the "primary obligations"), of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including any S-5 indebtedness, obligation or other liability of such Person (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (A) for the purchase or payment of any such primary obligation or (B) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (iv) otherwise to assure or hold harmless the owner of such primary obligation against loss with respect thereto. "Credit Agreement" means the credit agreement, dated as of July 18, 2003, among the Company, Bank of America, N.A., as administrative agent and as issuing bank, and the other lenders party thereto, together with the instruments, documents and agreements related thereto (including, without limitation, any guarantee agreements and security documents), in each case as such instruments, documents and agreements may be amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any instrument, document or agreement extending the maturity of, refinancing, replacing or otherwise restructuring all or any portion of the Indebtedness under such agreement or any successor or replacement agreement and whether by the same or any other agent, lender or group of lenders; provided that no such amendment, supplement or other modification shall increase the aggregate amount of available borrowings or letter of credit exposure thereunder to an amount in excess of the amount otherwise permitted under clause (ii) of the definition of "Permitted Indebtedness." "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. "Default" means an event or condition the occurrence of which is, or with the lapse of time or the giving of notice or both would be, an Event of Default. "Disqualified Capital Stock" means that portion of any Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the sole option of the holder thereof on or prior to the final maturity date of the Notes; provided that contractual provisions contained in employment agreements, charter documents, limited liability agreements, partnership agreements, operating agreements or similar organizational documents of Subsidiaries of the Company that require or permit the repurchase or redemption of Capital Stock by such Subsidiary upon the occurrence of specified events shall not be deemed Disqualified Capital Stock so long as such provisions were entered into in the ordinary course of business of the Company and consistent with past practice. "Event of Default" has the meaning provided in Section 6.01. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any successor statute or statutes thereto. S-6 "fair market value" means, with respect to any asset or property, the price which could be negotiated in an arm's-length, free market transaction, for cash, between a willing seller and a willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair market value shall be determined by the Board of Directors of the Company acting reasonably and in good faith. "Funding Guarantor" has the meaning provided in Section 11.07. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession of the United States, as amended or modified from time to time. "guarantee" means, with respect to any Person, any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Indebtedness of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness of such other Person (whether by agreement to keep-well or to maintain financial condition or otherwise). "Guarantee" means the guarantee of the Company's Obligations hereunder made by a Guarantor in favor of the Holders pursuant to the terms of Article 11 hereof. "Guarantor Blockage Period" has the meaning set forth in Section 11.10. "Guarantor Senior Debt" means, with respect to any Guarantor, the principal of, premium, if any, interest (including any interest accruing subsequent to the filing of, or which would have accrued but for the filing of, a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on, and all other amounts owing in respect of, all monetary obligations (including guarantees thereof) of every nature of such Guarantor under the Senior Guarantees. "Guarantors" means the Subsidiaries of the Company who are borrowers or guarantors under the Credit Agreement as of the Initial Issue Date and any Person who becomes a Guarantor pursuant to Section 4.18, in each case, until such Person is released from its Guarantee in accordance with the provisions hereof. "Hedge Agreements" means, with respect to any Person, all interest rate swaps, caps or collar agreements, interest rate insurance and other similar agreements or arrangements entered into by such Person to obtain protection against fluctuations in interest rates or currency exchange rates or the exchange of nominal interest obligations, either generally or under specific contingencies. "Holder" or "Noteholder" means the Person in whose name a Note is registered on the Company's books. S-7 "incur" has the meaning provided in Section 4.12. "Indebtedness" means, with respect to any Person, all items that in conformity with GAAP would be shown on the balance sheet of such Person as a liability and in any event shall include (without duplication) (i) indebtedness for borrowed money or for notes, debentures or other debt securities, (ii) notes payable and drafts accepted representing extensions of credit regardless of whether the same represent obligations for borrowed money, (iii) reimbursement obligations (regardless of whether due) in respect of letters of credit issued for the account of such Person (including any such obligations in respect of any drafts drawn thereunder), (iv) liabilities for all or any part of the deferred purchase price of property or services, including Purchase Money Debt and all other liabilities arising from conditional sales contracts and similar title retention debt instruments, (v) liabilities secured by any Lien on any property or asset owned or held by such Person regardless of whether the indebtedness secured thereby shall have been assumed by or is a primary liability of such Person, (vi) Capitalized Lease Obligations, (vii) the principal component of any synthetic lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing pursuant to which such Person is the obligor to the extent such transaction is considered indebtedness for federal income tax purposes but is classified as an Operating Lease in accordance with GAAP, (viii) all Indebtedness described in clauses (i) through (vii) of any partnership or unincorporated joint venture to the extent such Person is legally obligated therefor or with respect to which such Person reasonably expects that it will be liable with respect thereto, (ix) Contingent Obligations, (x) for the purposes of Section 6.01(4) only, all obligations of such Person in respect of Hedge Agreements, and (xi) the liquidation value of any mandatorily redeemable preferred Capital Stock of such Person or its Subsidiaries held by any Person other than such Person and its Wholly Owned Subsidiaries. "Indenture" means this Indenture, as amended or supplemented from time to time in accordance with the terms hereof. "Independent Financial Advisor" means a firm (i) which does not, and whose directors, officers and employees or Affiliates do not, have a direct or indirect material financial interest in the Company and (ii) which, in the judgment of the Board of Directors of the Company, is otherwise independent and qualified to perform the task for which it is to be engaged. "Initial Issue Date" means the Issue Date (as defined in the Notes). "Intercompany Indebtedness" means Indebtedness between the Company and its Subsidiaries, or between Subsidiaries. "Interest Payment Date" means the stated maturity of an installment of interest on the Notes. "Interest Payment Record Dates" means the Interest Payment Record Dates specified in the Notes, whether or not a Legal Holiday. S-8 "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended to the date hereof and from time to time hereafter. "Investment" means the making of any loan, advance, extension of credit or capital contribution to, or the acquisition of any stock, bonds, notes, debentures or other obligations or securities of, or the acquisition of any other interest in or the making of any other investment in, any Person. For the purposes of Section 4.10, the amount of any Investment shall be the original cost of such Investment plus the cost of all additional Investments by the Company or any of its Subsidiaries, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment, reduced by any repayment of principal or a return of capital, as the case may be, and by the payment of dividends or distributions in connection with such Investment or any other amounts received in respect of such Investment; provided that no such repayment of principal, return of capital, payment of dividends or distributions or receipt of any such other amounts shall reduce the amount of any Investment if such repayment of principal, return of capital, payment of dividends or distributions or receipt of any such amounts would be included in Consolidated Net Income. If the Company or any Subsidiary of the Company sells or otherwise disposes of any Capital Stock of any direct or indirect Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person ceases to be a Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Capital Stock of such former Subsidiary not sold or disposed of. "Junior Security" means any Qualified Capital Stock, any Qualified Rights and any Indebtedness of the Company that is (i) subordinated in right of payment to Senior Debt at least to the same extent as the Notes, as applicable, (ii) has no scheduled installment of principal due, by redemption, sinking fund payment or otherwise, on or prior to the stated maturity of the Notes and (iii) has no terms more beneficial in the aggregate to the holders thereof than those in effect with respect to the Notes on the Initial Issue Date. "Legal Holiday" has the meaning provided in Section 11.07. "Lien" means, with respect to any property, any lien, mortgage, deed of trust, pledge, security interest, charge or encumbrance of any kind thereon (including any conditional sale or other title retention agreement, any lease in the nature thereof and any agreement to give any security interest) and any assignment or other conveyance of a right to receive income or profits therefrom. "Material Adverse Effect" means, with respect to any Person, a material adverse effect on (i) the properties, business, prospects, operations, management or financial condition of such Person and its Subsidiaries, taken as a whole, (ii) the ability of such Person and its Subsidiaries, taken as a whole, to pay and perform their Obligations or (iii) the validity or enforceability of this Indenture. "Maturity Date" means July 18, 2008. S-9 "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds thereof in the form of cash and Cash Equivalents (including any such proceeds received by way of deferred payment of principal pursuant to a note or installment receivable or purchase price adjustment receivable or otherwise, but only as and when received), net of reasonable and customary attorneys' fees, accountants' fees, investment banking fees, amounts required to be applied to the repayment of Indebtedness secured by a Lien expressly permitted hereunder on any asset that is the subject of such Asset Sale (other than any Lien securing Senior Debt or Guarantor Senior Debt) and other reasonable and customary fees and expenses, in each case, to the extent actually incurred in connection therewith and net of taxes paid or reasonably estimated to be payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements). "Net Proceeds Offer" has the meaning provided in Section 4.16. "Net Proceeds Offer Amount" has the meaning provided in Section 4.16. "Net Proceeds Offer Payment Date" has the meaning provided in Section 4.16. "Net Proceeds Offer Trigger Date" has the meaning provided in Section 4.16. "Nonpayment Default Notice" has the meaning provided in Section 10.02. "Notes" has the meaning provided in the preamble to this Indenture. "Obligations" means all obligations for principal, premium, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing or otherwise relating to any Indebtedness, including with respect to any rights to rescission. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the Chief Operating Officer, the President, any Vice President, the Chief Financial Officer, the Treasurer, the Controller, or the Secretary of such Person, or any other officer designated by the Board of Directors serving in a similar capacity. "Officers' Certificate" means, with respect to any Person, a certificate signed by two Officers or by an Officer and either an Assistant Treasurer or an Assistant Secretary of such Person and otherwise complying with the requirements of Sections 12.04 and 12.05, as they relate to the making of an Officers' Certificate. "Operating Lease" means, with respect to any Person, any lease of property (whether real, personal or mixed) by such Person as lessee that is not a Capitalized Lease. "Opinion of Counsel" means a written opinion from legal counsel, who may be counsel for the Company and who is reasonably acceptable to the Required Holders, and not rendered by any employee of the Company or any of its Affiliates or Subsidiaries complying with the requirements of Sections 12.04 and 12.05, as they relate to the giving of an Opinion of Counsel. S-10 "Payment Default Notice" has the meaning provided in Section 10.03. "Permitted Indebtedness" means, without duplication, each of the following: (i) Indebtedness under the Notes, Guarantees and this Indenture, and Refinancing Indebtedness thereof; (ii) Senior Debt incurred by the Company and the Guarantors pursuant to or in connection with the Credit Agreement in an aggregate principal amount at any time outstanding not to exceed $130 million (A) less the amount of all scheduled amortization payments and mandatory principal payments, whether or not actually made by the Company, in respect of term loans thereunder and (B) in the case of a revolving credit facility, reduced by any required permanent repayments (which are accompanied by a corresponding permanent commitment reduction) thereunder, in each case, less, without duplication, proceeds from Asset Sales applied to reduce the amount of Senior Debt pursuant to Section 4.16(a)(iii)(A); (iii) [Reserved.] (iv) Intercompany Indebtedness for so long as such Indebtedness is held by the Company or a Guarantor, in each case subject to no Lien (other than Liens securing Senior Debt) held by a Person other than the Company or a Guarantor; provided that if as of any date any Person other than the Company or a Guarantor owns or holds any such Indebtedness or holds a Lien in respect of such Indebtedness, Indebtedness not permitted by this clause (iv) shall be deemed to be incurred on such date; (v) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (including in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business; provided, however, that such Indebtedness is extinguished within five Business Days of incurrence; (vi) Indebtedness of the Company or any of its Subsidiaries represented by letters of credit for the account of the Company or such Subsidiary, as the case may be, in order to provide security for workers' compensation claims, payment obligations in connection with self-insurance, performance bonds, surety bonds or similar requirements in the ordinary course of business; (vii) Purchase Money Debt and Capitalized Lease Obligations of the Company or any of its Subsidiaries incurred to acquire property in the ordinary course of business in an aggregate amount not to exceed $7,000,000 at any one time outstanding; (viii) current liabilities incurred in the ordinary course of business and not represented by any note, bond, debenture or other instrument, and which are not past due for a period of more than ninety (90) days, or if overdue for more than ninety (90) days, which are being contested in good faith and by appropriate actions and for which S-11 adequate reserves in conformity with GAAP have been established on the books of the primary obligor with respect thereto; (ix) Indebtedness consisting of (i) the endorsement by the Company or any of its Subsidiaries of negotiable instruments payable to such Person for deposit or collection in the ordinary course of business, and (ii) guarantees executed by the Company or any of its Guarantors with respect to lease obligations or Indebtedness of the Company and its Subsidiaries otherwise permitted by this Indenture; (x) Indebtedness consisting of the indemnification by the Company or any of its Subsidiaries of (i) the officers, directors, employees and agents of the Company or such Subsidiary, to the extent permissible under the corporation law of the jurisdiction in which the Company or such Subsidiary is organized, (ii) commercial banks, investment bankers and other independent consultants or professional advisors pursuant to agreements relating to the underwriting of the Company's or such Subsidiary's securities or the rendering of banking or professional services to the Company or such Subsidiary and (iii) landlords, licensors, licensees and other parties pursuant to agreements entered into in the ordinary course of business by the Company or such Subsidiary; (xi) Indebtedness with respect to financed insurance premiums not past due; (xii) Indebtedness existing on the Initial Issue Date and set forth on Schedule 1 hereto and Refinancing Indebtedness thereof; and (xiii) Indebtedness consisting of indemnification, adjustment of purchase price or similar obligations, in each case, incurred or assumed in connection with the acquisition or disposition of any business, assets or a Subsidiary, other than guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or Subsidiary for the purpose of financing such acquisition; provided, however, that (A) such Indebtedness is not reflected on the balance sheet of the Company or its Subsidiaries (contingent obligations referred to in a footnote to financial statements and not otherwise reflected on the balance sheet will not be deemed to be reflected on such balance sheet for purposes of this clause (A)) and (B) if a disposition, the maximum assumable liability in respect of all such Indebtedness shall at no time exceed the gross proceeds including non-cash proceeds (the fair market value of such non-cash proceeds being measured at the time received and without giving effect to any subsequent changes in value) actually received by the Company and its Subsidiaries in connection with such disposition. For the purpose of determining compliance with Section 4.12, (A) in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described in the above clauses, the Company, in its sole discretion, shall classify such item of Indebtedness and only be required to include the amount and type of such Indebtedness in one of such clauses, (B) the amount at any time of Indebtedness issued at a price which is less than the principal amount thereof shall be equal to the amount at such time of the liability in respect S-12 thereof determined in accordance with GAAP and (C) so as to avoid duplication in determining the amount of Permitted Indebtedness under any clause of this definition, guarantees of, or obligations in respect of letters of credit supporting, Indebtedness otherwise included in the determination of such amount shall not also be included. "Permitted Investments" means: (i) Investments by the Company or any Subsidiary of the Company in any Person that is or will become immediately after such Investment a Subsidiary or that will merge or consolidate into the Company or a Subsidiary; provided that such Subsidiary is not restricted from making dividends or similar distributions by contract or operation of law; (ii) Investments in the Company by any Subsidiary of the Company; provided that any Indebtedness evidencing such Investment is unsecured (except for Liens securing Senior Debt) and, to the extent practicable, subordinated, pursuant to a written agreement, to the Company's obligations under the Notes and this Indenture; (iii) Investments in cash and Cash Equivalents; (iv) loans and advances to employees and officers of the Company and its Subsidiaries in the ordinary course of business for bona fide business purposes not in excess of $100,000 at any one time outstanding; (v) Hedge Agreements entered into in the ordinary course of the Company's or its Subsidiaries' businesses and otherwise in compliance with this Indenture; (vi) Investments (x) constituting accounts receivable if credited or acquired in the ordinary course of business, (y) resulting from settlements or compromises of accounts receivable or trade payables in the ordinary course of business, and (z) in securities of trade creditors or customers received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors or customers; (vii) Investments consisting of non-cash proceeds, or made by the Company or its Subsidiaries as a result of consideration, received in connection with an Asset Sale made in compliance with Section 4.16; (viii) Investments consisting of amounts potentially due from a seller of assets in an Asset Acquisition that (a) relate to customary post-closing adjustments with respect to accounts receivable, accounts payable and similar items typically subject to post-closing adjustments in similar transactions, and (b) are outstanding for a period of one hundred twenty (120) days or less following the closing of such an Asset Acquisition; (ix) Investments set forth on Schedule 2 hereto; and (x) Investments not otherwise permitted by clauses (i)-(ix) in an aggregate amount not exceeding $500,000 outstanding at any one time. "Permitted Liens" means the following types of Liens: (i) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money), including, in any such case, any Lien securing letters of credit issued in the ordinary course of business consistent with past practice in connection therewith; (ii) Liens securing Capitalized Lease Obligations and Purchase Money Debt which may be incurred under Section 4.12; provided, however, that in each case S-13 any such Lien attaches only to the specific item(s) of property or asset(s) financed with Capitalized Lease Obligations or Purchase Money Debt; and (iii) Liens securing Acquired Indebtedness incurred in accordance with Section 4.12; provided that (A) such Liens secured such Acquired Indebtedness at the time of and prior to the incurrence of such Acquired Indebtedness by the Company or a Subsidiary of the Company and were not granted in connection with, or in anticipation of, the incurrence of such Acquired Indebtedness by the Company or a Subsidiary of the Company and (B) such Liens do not extend to or cover any property or assets of the Company or of any of its Subsidiaries other than the property or assets that secured the Acquired Indebtedness prior to the time such Indebtedness became Acquired Indebtedness of the Company or a Subsidiary of the Company and are no more favorable to the lienholders than those securing the Acquired Indebtedness prior to the incurrence of such Acquired Indebtedness by the Company or a Subsidiary of the Company. "Permitted Non-Guarantor Entity" means a Person that meets all of the following requirements: (i) such Person shall be a Person in which the Company and its Subsidiaries own Capital Stock, but is not a Subsidiary of the Company, and the remaining Capital Stock of which is owned by a hospital or hospital system or individual physicians or entities owned and controlled by individual physicians; (ii) there shall be no restriction on the ability of such Person to pay dividends or make distributions of its available cash (i.e., cash remaining after debt service, payment of expenses and the establishment of reasonable reserves) to holders of its Capital Stock, other than pursuant to the law under which such Person is organized; and (iii) such Person shall be engaged exclusively in the ownership or operation of a Center. "Person" means an individual, partnership, corporation, unincorporated organization, trust or joint venture, or a governmental agency or political subdivision thereof. "Preferred Stock" of any Person means any Capital Stock of such Person that has preferential rights to any other Capital Stock of such Person with respect to dividends or redemptions or upon liquidation. "principal" of any Indebtedness (including the Notes) as of any date means the outstanding principal amount of such Indebtedness plus the premium, if any, that would be payable on such Indebtedness were the principal amount thereof repaid on such date. "pro forma" means, with respect to any calculation made or required to be made pursuant to the terms of this Indenture, a calculation in accordance with Article 11 of S-14 Regulation S-X under the Securities Act, as determined by the Board of Directors of the Company, or such other calculation as may be agreed by the Required Holders. "Purchase Money Debt" means (i) Indebtedness of the Company or any of its Subsidiaries that, within thirty (30) days of the purchase of equipment in which neither the Company nor any of its Subsidiaries at any time prior to such purchase had any interest, is incurred to finance part or all of (but not more than) the purchase price of such equipment, and that bears interest at a rate per annum that is commercially reasonable at the time, and (ii) Indebtedness that constitutes a renewal, extension, refunding or refinancing of, but not an increase in the principal amount of, Purchase Money Debt that is such by virtue of clause (i), is binding only upon the obligor or obligors under the Purchase Money Debt being renewed, extended or refunded and bears interest at a rate per annum that is commercially reasonable at the time. "Qualified Capital Stock" means any Capital Stock that is not Disqualified Capital Stock. "Qualified Rights" means options, warrants or other rights to purchase Capital Stock (other than Disqualified Capital Stock), other than any such rights that, by their terms or upon the happening of any event, are mandatorily redeemable or redeemable at the sole option of the holder thereof on or prior to the final maturity date of the Notes. "Quarter" means, with respect to any Person, a fiscal quarterly period of such Person. If during the 45-day period immediately following the completion of any Quarter (or, if the Quarter is the last Quarter of the fiscal year, then the 90-day period immediately following the completion of such Quarter), a calculation is required to be made under Article Four and financial statements of such Person for such Quarter are unavailable, any calculation for the immediately preceding four Quarters required under Article Four shall be based instead upon the four Quarters immediately preceding the Quarter for which such financial statements are not available (giving effect to all adjustments required under Article Four in respect of events occurring subsequent to the close of such Quarters on which such calculation is to be based). "Redemption Date," when used with respect to any Note to be redeemed, means the date fixed for such redemption pursuant to this Indenture and the Notes. "Redemption Price," when used with respect to any Note to be redeemed, means the price fixed for such redemption pursuant to this Indenture and the Notes. "Reference Date" has the meaning provided in Section 4.10. "Refinance" means, in respect of any security or Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a security or Indebtedness in exchange or replacement for, such security or Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have correlative meanings. S-15 "Refinancing Indebtedness" means, with respect to any Indebtedness, any Refinancing thereof that does not (1) result in an increase in the aggregate principal amount of Indebtedness of such Person as of the date of such proposed Refinancing (plus the amount of any premium and accrued interest required to be paid under the terms of the instrument governing such Indebtedness and plus the amount of reasonable expenses incurred by the Company in connection with such Refinancing) or (2) except with respect to Indebtedness outstanding on the Initial Issue Date, create Indebtedness with (A) a Weighted Average Life to Maturity that is less than the Weighted Average Life to Maturity of the Indebtedness being Refinanced or (B) a final maturity earlier than the final maturity of the Indebtedness being Refinanced; provided that (x) if such Indebtedness being Refinanced is Indebtedness of the Company, then such Refinancing Indebtedness shall be Indebtedness solely of the Company and (y) if such Indebtedness being Refinanced is pari passu or subordinate or junior to the Notes, then such Refinancing Indebtedness shall be pari passu with or subordinate to, as the case may be, the Notes at least to the same extent and in the same manner as the Indebtedness being Refinanced. "Replacement Assets" has the meaning provided in Section 4.16. "Representative" means the administrative agent or other representative in respect of the Credit Agreement or any successor Person appointed pursuant to the terms of such agreement; provided that if, and for so long as, the Credit Agreement lacks such a representative, then the Representative shall be the holders of a majority in outstanding principal amount of such Indebtedness. "Required Holders" means the Holders of a majority in principal amount of outstanding Notes. "Responsible Officer" means, with respect to any Person, either (a) its president, chief executive officer or chief financial officer, or (b) with respect to financial matters, its president, chief executive officer, chief financial officer or any vice president designated in writing by the chief executive officer to the Holders. "Restricted Payment" has the meaning provided in Section 4.10. "Sale and Leaseback Transaction" means any direct or indirect arrangement with any Person or to which any such Person is a party, providing for the leasing to the Company or a Subsidiary of any property, whether owned by the Company or any Subsidiary at the Initial Issue Date or later acquired, which has been or is to be sold or transferred by the Company or such Subsidiary to such Person or to any other Person from whom funds have been or are to be advanced by such Person on the security of such Property. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended, or any successor statute or statutes thereto. S-16 "Securities Purchase Agreement" means the Securities Purchase Agreement dated as of July 18, 2003 among the Company and the parties named therein, as the same may be amended or modified from time to time in accordance with the terms thereof. "Senior Debt" means the principal of, premium, if any, interest (including any interest accruing subsequent to the filing of, or which would have accrued but for the filing of, a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on, and all other amounts owing in respect of, (x) all monetary obligations (including guarantees thereof) of every nature of the Company and its Subsidiaries under, pursuant to or in connection with the Credit Agreement, including, without limitation, obligations to pay principal and interest, reimbursement obligations under letters of credit, fees, expenses and indemnities and all other "Obligations" as defined in the Credit Agreement, and (y) all Interest Swap Obligations (including guarantees thereof) to the extent incurred in connection with the Company's obligations under the Credit Agreement, in each case whether outstanding on the Initial Issue Date or thereafter incurred, and all renewals, extensions, modifications, amendments and refinancings thereof. "Senior Guarantee and Security Agreement" shall mean the Guarantee and Security Agreement (as such term is defined in the Credit Agreement). "Senior Guarantees" means each of the guarantees set forth in the Senior Guarantee and Security Agreement guarantying payment or performance of the Senior Debt. "Significant Subsidiary" shall mean, at any date of determination, (a) any Subsidiary that satisfies the criteria for a "significant subsidiary" set forth in Rule 1-02 of Regulation S-X under the Exchange Act (except that references to 10% in such definition shall be changed to 5%), and (b) for purposes of Section 6.01 hereof, any Subsidiary which, when aggregated with all other Subsidiaries that are not otherwise Significant Subsidiaries and as to which any event described in clause (6) or (7) of Section 6.01 hereof has occurred and is continuing, would constitute a Significant Subsidiary under clause (a) of this definition. "Standstill Termination Date" has the meaning provided in Section 10.03. "Subsidiary" shall mean, as to any Person, (i) a corporation, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or other ownership interests having such power only by reason of the occurrence of a contingency) to elect a majority of the board of directors or other managers thereof are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person, or (ii) a partnership in which such Person is the controlling general partner or the management of which is otherwise controlled, directly or indirectly, through one or more intermediaries or both, by such Person. "Surviving Entity" has the meaning provided in Section 5.01. S-17 "U.S. Government Obligations" means direct obligations of, and obligations guaranteed by, the United States of America for the payment of which the full faith and credit of the United States of America is pledged. "U.S. Legal Tender" means such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts. "Weighted Average Life to Maturity" means, when applied to any Indebtedness or Disqualified Capital Stock, as the case may be, at any date, the number of years obtained by dividing (a) the then outstanding aggregate principal amount of such Indebtedness into (b) the sum of the total of the products obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required payment of principal, including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) which will elapse between such date and the making of such payment. "Wholly Owned Subsidiary" of any Person means any Subsidiary of such Person of which all the outstanding voting securities (other than in the case of a foreign Subsidiary, directors' qualifying shares or an immaterial amount of shares required to be owned by other Persons pursuant to applicable law) are owned by such Person or any Wholly Owned Subsidiary of such Person. SECTION 1.02. Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP as in effect on the date hereof; (3) "or" is not exclusive; (4) words in the singular include the plural, and words in the plural include the singular; and (5) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. S-18 ARTICLE TWO. THE NOTES SECTION 2.01. Form and Dating. The Notes shall have such legends relating to restrictions on transfer as the Company deems appropriate and may have such other notations, legends or endorsements as are required by law, stock exchange rule or depository rule or usage. The Company and the Required Holders shall approve the form of the Notes and any notation, legend or endorsement on them. Each Note shall be dated the date of its issuance. SECTION 2.02. Execution; Aggregate Principal Amount. An Officer shall sign the Notes for the Company by manual or facsimile signature. Each Guarantor, if any, shall execute the Guarantee in the manner set forth in Section 11.08. The aggregate principal amount of Notes outstanding at any time may not exceed $40,000,000, except as provided in Section 2.07 and in paragraph 2 of the Notes. The Notes shall be issuable in fully registered form only, without coupons, in denominations of $1,000 and any integral multiple thereof, except as may be required by Paragraph 2 of the Notes. SECTION 2.03. Company To Maintain Office. The Company shall maintain an office or agency where (a) Notes may be presented or surrendered for registration of transfer or for exchange, (b) Notes may be presented or surrendered for payment and (c) notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company shall keep a register of the Notes and of their transfer and exchange. SECTION 2.04. [Reserved.] SECTION 2.05. Noteholder Lists. The Company shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of the Holders. SECTION 2.06. Transfer and Exchange. When Notes are presented to the Company with a request to register the transfer of such Notes or to exchange such Notes for an equal principal amount of Notes of other authorized denominations, the Company shall register the transfer or make the exchange as requested if its requirements for such transaction are met; provided, however, that the Notes presented or surrendered for registration of transfer or exchange shall be duly endorsed S-19 or accompanied by a written instrument of transfer in form satisfactory to the Company, duly executed by the Holder thereof or his attorney duly authorized in writing. To permit registrations of transfer and exchanges, the Company shall execute Notes. No service charge shall be made for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchanges or transfers pursuant to Sections 2.10, 3.06, 4.15, or 4.16, in which event the Company shall be responsible for the payment of such taxes). The Company shall not be required to register the transfer of or exchange of any Note (i) during a period beginning at the opening of business 15 days before the mailing of a notice of redemption of Notes and ending at the close of business on the day of such mailing and (ii) selected for redemption in whole or in part pursuant to Article Three, except the unredeemed portion of any Note being redeemed in part. The Notes shall be subject to the restrictions on transfer set forth in the Securities Purchase Agreement. SECTION 2.07. Replacement Notes. If a mutilated Note is surrendered to the Company or if the Holder of a Note claims that the Note has been lost, destroyed or wrongfully taken, the Company shall issue a replacement Note. If required by the Company, such Holder must provide an affidavit of lost certificate and an indemnity bond or other indemnity, sufficient in the judgment of the Company, to protect the Company from any loss which it may suffer if a Note is replaced. The Company may charge such Holder for its reasonable out-of-pocket expenses in replacing a Note, including reasonable fees and expenses of counsel. Every replacement Note shall constitute an additional obligation of the Company, and shall be entitled to the benefits of this Indenture. SECTION 2.08. Outstanding Notes. Notes outstanding at any time are all the Notes that have been executed by the Company except those cancelled by it, those delivered to it for cancellation and those described in this Section as not outstanding. Subject to the provisions of Section 2.09, a Note does not cease to be outstanding because the Company or any of its Affiliates holds the Note. If a Note is replaced pursuant to Section 2.07 (other than a mutilated Note surrendered for replacement), it ceases to be outstanding unless the Company receives an Opinion of Counsel that the replaced Note is held by a bona fide purchaser. A mutilated Note ceases to be outstanding upon surrender of such Note and replacement thereof pursuant to Section 2.07. S-20 SECTION 2.09. Treasury Notes. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver, consent or notice, Notes owned by the Company or any of its Affiliates shall be considered as though they are not outstanding. SECTION 2.10. Temporary Notes. Until definitive Notes are ready for delivery, the Company may prepare temporary Notes. Temporary Notes shall be substantially in the form of definitive Notes but may have variations that the Company considers appropriate for temporary Notes. Without unreasonable delay, the Company shall prepare definitive Notes in exchange for temporary Notes. SECTION 2.11. Cancellation. The Company at any time may cancel Notes that it holds and shall cancel any Notes surrendered to it for transfer, exchange or payment. Subject to Section 2.07, the Company may not issue new Notes to replace Notes that it has cancelled. If the Company shall acquire any of the Notes, such acquisition shall not operate as a redemption or satisfaction of the Indebtedness represented by such Notes unless and until the same are cancelled pursuant to this Section 2.11. SECTION 2.12. Payment of Interest; Defaulted Interest. Interest on any Note which is payable, and is punctually paid, on any Interest Payment Date shall be paid to the Person in whose name that Note is registered in the register maintained by the Company at the close of business on the Interest Payment Record Date for such interest. If the Company defaults in a payment of interest on the Notes, such interest shall forthwith cease to be payable to the Holder on the relevant Interest Payment Record Date by virtue of having been such Holder, and the Company shall pay the defaulted interest, plus (to the extent lawful) any interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, which date shall be the fifteenth day next preceding the date fixed by the Company for the payment of defaulted interest, or the next succeeding Business Day if such date is not a Business Day. At least 15 days before the subsequent special record date, the Company shall mail to each Holder, as of a recent date selected by the Company, a notice that states the subsequent special record date, the payment date and the amount of defaulted interest, and interest payable on such defaulted interest, if any, to be paid. SECTION 2.13. [Reserved.] SECTION 2.14. Persons Deemed Owners. Prior to due presentment of a Note for registration of transfer, the Company may treat the Person in whose name such Note is registered in the register maintained by the S-21 Company as the owner of such Note for the purpose of receiving payment of principal of and (subject to Section 2.12) interest on such Note and for all other purposes whatsoever, whether or not such Note be overdue, and the Company shall not be affected by notice to the contrary. ARTICLE THREE. REDEMPTION SECTION 3.01. [Reserved.] SECTION 3.02. Selection of Notes To Be Redeemed. If fewer than all of the Notes are to be redeemed, selection of the Notes to be redeemed will be made on a pro rata basis; provided that Notes in denominations of $1,000 or less may be redeemed only in whole. Provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. SECTION 3.03. Notice of Redemption. At least 30 days but not more than 60 days before a Redemption Date, the Company shall mail or cause to be mailed a notice of redemption by first class mail, postage prepaid, to each Holder whose Notes are to be redeemed. Each notice for redemption shall identify the Notes to be redeemed and shall state: (1) the Redemption Date; (2) the Redemption Price and the amount of accrued interest, if any, to be paid; (3) that Notes called for redemption must be surrendered to the Company to collect the Redemption Price plus accrued interest, if any; (4) that, unless the Company defaults in making the redemption payment, interest on Notes called for redemption ceases to accrue on and after the Redemption Date, and the only remaining right of the Holders of such Notes is to receive payment of the Redemption Price plus accrued interest, if any, to the Redemption Date, upon surrender to the Company of the Notes redeemed; (5) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the Redemption Date, and upon S-22 surrender of such Note, a new Note or Notes in the aggregate principal amount equal to the unredeemed portion thereof will be issued; and (6) if fewer than all the Notes are to be redeemed, the identification of the particular Notes (or portion thereof) to be redeemed, as well as the aggregate principal amount of Notes to be redeemed and the aggregate principal amount of Notes to be outstanding after such partial redemption. SECTION 3.04. Effect of Notice of Redemption. Once notice of redemption is mailed in accordance with Section 3.03, Notes called for redemption become due and payable on the Redemption Date and at the Redemption Price plus accrued interest, if any. Upon surrender to the Company, such Notes called for redemption shall be paid at the Redemption Price (which shall include accrued interest thereon to the Redemption Date), but installments of interest, the maturity of which is on or prior to the Redemption Date, shall be payable to Holders of record at the close of business on the relevant record dates referred to in Section 2.12. SECTION 3.05. Payment of Redemption Price. On or before 11:00 a.m. New York City time on the Redemption Date, the Company shall pay, in immediately available funds, the Holders U.S. Legal Tender equal to the Redemption Price plus accrued interest, if any, of all Notes to be redeemed on that date. Unless the Company defaults in the payment of such Redemption Price plus accrued interest, if any, interest on the Notes to be redeemed will cease to accrue on and after the applicable Redemption Date, whether or not such Notes are presented for payment. SECTION 3.06. Notes Redeemed in Part. Upon surrender of a Note that is to be redeemed in part, the Company shall execute for the Holder a new Note or Notes equal in principal amount to the unredeemed portion of the Note surrendered. ARTICLE FOUR. COVENANTS SECTION 4.01. Payment of Notes. The Company shall pay the principal of and interest on the Notes on the dates and in the manner provided in the Notes and in this Indenture. The Company shall pay, to the extent such payments are lawful, interest on overdue principal and on overdue installments of interest (without regard to any applicable S-23 grace periods) from time to time on demand at the rate borne by the Notes plus 2% per annum. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. SECTION 4.02. Maintenance of Office or Agency. The Company shall maintain the office or agency required under Section 2.03. The Company shall give prior written notice to the Holders of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Holders with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Company set forth in Securities Purchase Agreement. SECTION 4.03. Corporate Existence. Except as otherwise permitted by Article Five and Section 4.16, the Company shall do or cause to be done, at its own cost and expense, all things necessary to preserve and keep in full force and effect its corporate existence and the existence of each of its Subsidiaries in accordance with the respective organizational documents of each such Subsidiary and the material rights (charter and statutory) and franchises of the Company and each such Subsidiary; provided, however, that the Company shall not be required to preserve any such right or franchise, or the corporate, partnership or other existence of the Company or any Subsidiary of the Company, if (i) at the time of such dissolution such Subsidiary has no assets, engages in no business and otherwise has no activities other than activities related to the maintenance of its existence and good standing, or (ii) the Board of Directors of the Company shall determine in good faith (which such determination shall be evidenced by a Board Resolution) that the preservation thereof is no longer desirable in the conduct of the business of the Company and its respective Subsidiaries taken as a whole and the loss thereof is not adverse in any material respect to the Holders; and provided, further, that any Subsidiary of the Company may consolidate with, merge into, or transfer or distribute all or part of its properties and assets to, the Company or any Wholly Owned Subsidiary of the Company; provided, further, that, so long as any such Person that is a Guarantor is in compliance with Section 5.1, any non-Wholly Owned Subsidiary may consolidate with, merge into, or transfer or distribute all or part of its properties and assets to any Person so long as any Indebtedness owned by such Subsidiary to the Company or any other Subsidiary is fully satisfied prior to or in connection with such transaction. SECTION 4.04. Payment of Taxes and Other Claims. The Company shall pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (i) all taxes, assessments and governmental charges (including withholding taxes and any penalties, interest and additions to taxes) levied or imposed upon it or any of its Subsidiaries or properties of it or any of its Subsidiaries and (ii) all lawful claims for labor, materials and supplies that, if unpaid, might by law become a Lien upon the property of it or any of its Subsidiaries; provided, however, that the Company or any of its Subsidiaries shall not be required to pay or discharge or cause to be paid or S-24 discharged any such tax, assessment, charge or claim (y) whose amount, applicability or validity is being contested in good faith by appropriate proceedings properly instituted and diligently conducted for which adequate reserves have been taken to the extent required by GAAP or (z) the failure to pay or discharge, or cause to be paid or discharged such tax, assessment, charge or claim would not reasonably be expected to result in a material adverse effect on the business operations or financial condition of the Company and its Subsidiaries, taken as a whole. SECTION 4.05. Maintenance of Properties and Insurance. (a) The Company shall, and shall cause each of its Subsidiaries to, maintain its material properties in good working order and condition (subject to ordinary wear and tear) and make all necessary repairs, renewals, replacements, additions, betterments and improvements thereto and actively conduct and carry on its business; provided, however, that nothing in this Section 4.05 shall prevent the Company or any of its Subsidiaries from discontinuing the operation and maintenance of any of its properties, if such discontinuance is, in the good faith judgment of the Board of Directors of the Company or the Subsidiary, as the case may be, desirable in the conduct of their respective businesses and is not disadvantageous in any material respect to the Holders. (b) The Company shall provide or cause to be provided, for itself and each of its Subsidiaries, insurance against loss or damage of the kinds that, in the good faith judgment of the Board of Directors of the Company, are adequate and appropriate for the conduct of the business of the Company and such Subsidiaries in a prudent manner, with reputable insurers or with the government of the United States of America or an agency or instrumentality thereof, in such amounts, with such deductibles, and by such methods as shall be customary, in the good faith judgment of the Board of Directors of the Company, for companies similarly situated in the industry. SECTION 4.06. Compliance Certificate; Notice of Default. (a) The Company shall deliver to the Holders, within 90 days after the end of the Company's fiscal year, an Officers' Certificate stating that a review of its activities and the activities of its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture and further stating, as to each such Officer signing such certificate, that to the best of such Officer's knowledge the Company during such preceding fiscal year has kept, observed, performed and fulfilled each and every such covenant and no Default or Event of Default occurred during such year and at the date of such certificate there is no Default or Event of Default that has occurred and is continuing or, if such signers do know of such Default or Event of Default, the certificate shall describe the Default or Event of Default and its status with particularity. The Officers' Certificate shall also notify the Holders should the Company elect to change the manner in which it fixes its fiscal year end. S-25 (b) (i) If any Default or Event of Default has occurred and is continuing or (ii) if any Holder seeks to exercise any remedy hereunder with respect to a claimed Default under this Indenture or the Notes, the Company shall deliver to the Holders an Officers' Certificate specifying such event, notice or other action within five Business Days of its becoming aware of such occurrence. (c) The Company shall deliver within 45 days after each of the Company's fiscal Quarters (90 days with respect to the Company's fourth fiscal Quarter) to the Holders an Officers' Certificate stating that the incurrence of such Indebtedness, or the making of such Restricted Payment, during such Quarter complies with this Indenture and setting forth in reasonable detail the computations demonstrating compliance with the covenants contained in this Indenture. SECTION 4.07. Compliance with Laws. The Company shall comply, and shall cause each of its Subsidiaries to comply, with all applicable statutes, rules, regulations, orders and restrictions of the United States of America, all states and municipalities thereof, and of any governmental department, commission, board, regulatory authority, bureau, agency and instrumentality of the foregoing, in respect of the conduct of their respective businesses and the ownership of their respective properties, except for such noncompliances as are not in the aggregate reasonably likely to have a Material Adverse Effect. SECTION 4.08. SEC Reports. (a) So long as the Notes are outstanding, if the Company is required to file annual or quarterly reports with the SEC under Section 13 or 15(d) of the Exchange Act, the Company (at its own expense) shall file with the SEC and shall mail to the Holders, promptly after it files them with the SEC, copies of the quarterly and annual reports and of the information, documents, and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) required to be filed pursuant to Section 13 or 15(d) of the Exchange Act. (b) At the Company's expense, the Company shall cause an annual report, if furnished by it to its stockholders generally, and each quarterly or other financial report if furnished by it to its stockholders generally, to be mailed to the Holders. (c) For so long as any Senior Debt is outstanding and the Company is required to provide annual and quarterly financial statements to the holders of the Senior Debt, the Company shall cause such financial statements including notes thereto and each related auditor's report and compliance certificates pursuant to the Credit Agreement to be so mailed to the Holders within 90 days after the end of each fiscal year and within 45 days after the end of each of the Company's first three fiscal Quarters in each fiscal year. If no Senior Debt is outstanding, or the Company is not required to provide such financial statements to the holders of Senior Debt, and the Company is not required to file annual or quarterly reports with the SEC under Section 13 or 15(d) of the Exchange Act for any fiscal period ending after S-26 the Initial Issue Date, the Company shall cause its consolidated financial statements, including any notes thereto (and, in the case of a fiscal year end, an auditor's report by an accounting firm of nationally established reputation), and a "Management's Discussion and Analysis of Financial Condition and Results of Operations" comparable to that which would have been required to appear in annual or quarterly reports filed under Section 13 or 15(d) of the Exchange Act if the Company had a class of securities listed on a national securities exchange, to be so mailed to the Holders within 90 days after the end of each fiscal year and within 45 days after the end of each of the Company's first three fiscal Quarters in each fiscal year. (d) The Company shall provide to any Holder any information reasonably requested by such Holder concerning the Company (including financial statements) necessary in order to permit such Holder to sell or transfer Notes in compliance with Rule 144A under the Securities Act; provided that such information is in the possession of, or reasonably available to, the Company. SECTION 4.09. Waiver of Stay, Extension or Usury Laws. The Company and each Guarantor covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive the Company or any such Guarantor, as the case may be, from paying all or any portion of the principal of or interest on the Notes or performing its Guarantee, as the case may be and as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) the Company and each Guarantor, if any, hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not hinder, delay or impede the execution of any power herein granted to the Holders, but shall suffer and permit the execution of every such power as though no such law had been enacted. SECTION 4.10. Limitation on Restricted Payments. The Company shall not, and shall not cause or permit any of its Subsidiaries to, directly or indirectly, (a) declare or pay any dividend or make any distribution (other than dividends or distributions payable (y) to the Company or a Subsidiary of the Company or (z) in Qualified Capital Stock or Qualified Rights of the Company and the Company may distribute cash in lieu of fractional shares otherwise distributable by this Section 4.10(a)(z)) on or in respect of shares of its Capital Stock to holders of such Capital Stock, (b) purchase, redeem or otherwise acquire or retire for value any Capital Stock or any warrants, rights or options to purchase or acquire shares of any class of such Capital Stock (other than amounts paid solely to the Company or a Subsidiary), S-27 (c) make any principal payment on, purchase, defease, redeem, prepay, decrease or otherwise acquire or retire for value, prior to any scheduled final maturity, scheduled repayment or scheduled sinking fund payment, any Indebtedness of the Company that is subordinate or junior in right of payment to the Notes; or (d) make any Investment (other than Permitted Investments) (each of the foregoing actions set forth in clauses (a), (b) (c) and (d) being referred to as a "Restricted Payment"), if at the time of such Restricted Payment or immediately after giving effect thereto, (i) a Default or an Event of Default shall have occurred and be continuing; or (ii) the Company is not able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with Section 4.12; or (iii) the aggregate amount of Restricted Payments (including such proposed Restricted Payment) made subsequent to the Initial Issue Date (the amount expended for such purposes, if other than in cash, being the fair market value of such property) shall exceed the sum of: (x) 50% of the cumulative Consolidated Net Income (or if cumulative Consolidated Net Income shall be a loss, minus 100% of such loss) of the Company earned subsequent to the Initial Issue Date and on or prior to the date the Restricted Payment occurs (the "Reference Date") (treating such period as a single accounting period); plus (y) 100% of (1) the aggregate net cash proceeds received by the Company from any Person (other than a Subsidiary of the Company) from the issuance and sale subsequent to the Initial Issue Date and on or prior to the Reference Date of Qualified Capital Stock of the Company and (2) the aggregate net proceeds (as defined below) received by the Company from any Person (other than a Subsidiary of the Company) from the issuance subsequent to the Initial Issue Date and on or prior to the Reference Date of Qualified Capital Stock of the Company upon conversion or exchange of Indebtedness of the Company (other than such Indebtedness that is subordinate or junior in right of payment to the Notes); plus (z) without duplication and to the extent amounts would not be included in Consolidated Net Income, the sum of (1) the aggregate amount returned in cash on or with respect to Investments (other than Permitted Investments) made subsequent to the Initial Issue Date, and (2) the net cash proceeds received by the Company or any Subsidiary from the disposition of all or any portion of such Investments (other than to the Company or a Subsidiary of the Company); provided, however, that with respect to all S-28 Investments, the sum of clauses (1) and (2) above with respect to such Investments shall not exceed the aggregate amount of all such Investments made subsequent to the Initial Issue Date. For the purposes of this Section 4.10, the net proceeds from the issuance of shares of Qualified Capital Stock of the Company upon conversion or exchange of Indebtedness shall be deemed to be an amount equal to the net book value of such Indebtedness (plus the additional amount required to be paid upon such conversion, if any), less any cash payment on account of fractional shares; the "net book value" of Indebtedness shall be the amount received by the Company on the incurrence of such Indebtedness, as adjusted on the books of the Company to the date of conversion or exchange. Notwithstanding the foregoing, clauses (ii) and (iii) set forth in the first paragraph of this Section do not prohibit: (1) the payment of any dividend within 60 days after the date of declaration of such dividend if the dividend would have been permitted on the date of declaration; (2) the acquisition or retirement for value of any shares of Capital Stock of the Company or warrants, rights or options to purchase or acquire shares of any class of such Capital Stock, either (i) solely in exchange for shares of Qualified Capital Stock or Qualified Rights of the Company or (ii) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of shares of Qualified Capital Stock or Qualified Rights of the Company; (3) the acquisition or retirement for value of any Indebtedness of the Company that is subordinate or junior in right of payment to the Notes solely in exchange for, or using proceeds received from a substantially concurrent issue of, shares of Qualified Capital Stock or Qualified Rights of the Company or in exchange for, or using proceeds received from a substantially concurrent issue of, new Indebtedness that is subordinate or junior in right of payment to the Notes; (4) the purchase, redemption, acquisition or other retirement for value of shares of Capital Stock of the Company held by directors, officers or employees of the Company or any of its Subsidiaries or options on any such shares or related stock appreciation rights or similar securities owned by such directors, officers or employees upon death, disability, retirement, termination of employment or pursuant to the terms of such stock option plan or any other agreement under which such shares of Capital Stock, options, related rights or similar securities were issued in an aggregate amount not to exceed $2,500,000 in the aggregate; (5) any non-Wholly Owned Subsidiary may declare and deliver dividends and make distributions payable equally and ratably to all holders of its Capital Stock; S-29 (6) the Company may issue its Common Stock and options, warrants or other equity awards with respect to its Common Stock under any stock option, stock incentive or similar plan approved by the stockholders of the Company, including (i) the Symbion Stock Incentive Plan, (ii) the Symbion Non-Employee Directors Stock Option Plan, (iii) the Symbion Employee Stock Purchase Plan, (iv) the Ambulatory Resource Centres, Inc. Nonqualified Initial Option Plan, as adopted by the Company, and (v) the Ambulatory Resource Centres, Inc. 1997 Stock Option Plan, as adopted by the Company; (7) payments under the outstanding warrants and convertible debentures of the Company described on Schedule 3 hereto; (8) the Company may make Series A Redemption Payments and Series B Redemption Payments upon the occurrence of a Triggering Event (as such terms are defined in the Certificate of Designation); provided that all funds used to make such payments represent proceeds of a substantially concurrent issue or sale of shares of the Company's Capital Stock or other contribution to the capital of the Company; (9) Investments in Permitted Non-Guarantor Entities incurred after the Initial Issue Date in an amount not to exceed $15,000,000 plus the aggregate face amount of any Contingent Obligation of the Company and its Subsidiaries incurred after the date hereof with respect to Indebtedness of such Persons, which shall not exceed $5,000,000; (10) the acquisition or retirement for value of any shares of Capital Stock of any non-Wholly Owned Subsidiary of the Company or warrants, rights or options to purchase or acquire shares of any class of such Capital Stock, either (i) solely in exchange for shares of Capital Stock or rights of such non-Wholly Owned Subsidiary or (ii) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of shares of Capital Stock or rights of such non-Wholly Owned Subsidiary; or (11) any Subsidiary of the Company may make Restricted Payments to the Company or any Guarantor. In determining the aggregate amount of Restricted Payments made subsequent to the Initial Issue Date in accordance with clause (iii) of the first paragraph of this Section, (y) amounts expended pursuant to clauses (1), (2)(ii), (4), (7), (8) and (9) shall be included in such calculation and (z) amounts expended pursuant to clauses (2)(i), (3), (5), (6), (10) and (11) shall be excluded from such calculation. SECTION 4.11. Limitation on Transactions with Affiliates. (a) The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, enter into any transaction or series of related transactions (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of S-30 any service) with, or for the benefit of, any of its Affiliates (each an "Affiliate Transaction"), other than (x) Affiliate Transactions permitted under paragraph (b) below, (y) Affiliate Transactions conducted in good faith, the terms of which are fair and reasonable to the Company or such Subsidiary and which are no less favorable to the Company or such Subsidiary than those that might reasonably have been obtained in a comparable transaction at such time on an arm's-length basis from a Person that is not an Affiliate of the Company or such Subsidiary and (z) the transactions contemplated by the Securities Purchase Agreement. All Affiliate Transactions (and each series of related Affiliate Transactions which are similar or part of a common plan) between the Company and its Subsidiaries, on the one hand, and any director, executive officer or 5% stockholder of the Company, on the other hand, involving aggregate payments or other property with a fair market value in excess of $250,000 shall be approved by the Board of Directors of the Company or such Subsidiary, as the case may be, including a majority of the disinterested Directors, if any, such approval to be evidenced by a Board Resolution stating that such Board of Directors has determined that such transaction complies with the foregoing provisions. If the Company or any Subsidiary of the Company enters into an Affiliate Transaction (or a series of related Affiliate Transactions related to a common plan) between the Company and its Subsidiaries, on the one hand, and any director, executive officer or 5% stockholder of the Company, on the other hand, that involves an aggregate fair market value or payments to an Affiliate, as the case may be, of more than $2,500,000, the Company or such Subsidiary, as the case may be, shall, prior to the consummation thereof, obtain a favorable opinion as to the fairness of such transaction or series of related transactions to the Company or the relevant Subsidiary, as the case may be, from a financial point of view, from an Independent Financial Advisor and deliver copies of such opinion to the Holders. (b) The foregoing restrictions shall not apply to: (i) reasonable compensation and out-of-pocket expenses paid to and indemnity provided on behalf of, officers, directors or employees of the Company or any Subsidiary of the Company as determined in good faith by the Company's Board of Directors or senior management; (ii) transactions between or among the Company and one or more of its Subsidiaries or exclusively between or among one or more of the Company's Subsidiaries; provided that such transactions are not otherwise prohibited by this Indenture; (iii) Restricted Payments permitted by this Indenture. SECTION 4.12. Limitation on Incurrence of Additional Indebtedness and Issuance of Preferred Stock. The Company shall not directly or indirectly, (a)(y) create, incur, assume, guarantee, acquire, become liable, contingently or otherwise, with respect to, or otherwise S-31 become responsible for payment of (collectively, "incur") any Indebtedness (other than Permitted Indebtedness) nor (z) issue any shares of Disqualified Capital Stock, nor (b) permit any of its Subsidiaries, directly or indirectly, to incur any Indebtedness (other than Permitted Indebtedness) or issue any shares of Disqualified Capital Stock or Preferred Stock; provided, however, that if no Default or Event of Default shall have occurred and be continuing at the time or as a consequence of the incurrence of any such Indebtedness, the Company or any Guarantor may incur Indebtedness or issue shares of Disqualified Capital Stock or Preferred Stock, and any Subsidiary may incur Acquired Indebtedness, in each case if on the date of the incurrence of such Indebtedness or the issuance of such Disqualified Capital Stock or Preferred Stock, after giving effect to the incurrence thereof, the Consolidated Leverage Ratio of the Company is less than or equal to 3.75 to 1.0 for Indebtedness incurred prior to December 31, 2003, and less than 3.5 to 1.0 for Indebtedness incurred thereafter. SECTION 4.13. Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries. The Company shall not, and shall not cause or permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or permit to exist or become effective any encumbrance or restriction on the ability of any Subsidiary of the Company to (a) pay dividends or make any other distributions on or in respect of its Capital Stock; (b) make loans or advances or to pay any Indebtedness or other obligation owed to the Company or any other Subsidiary of the Company; or (c) transfer any of its property or assets to the Company or any other Subsidiary of the Company, except for such encumbrances or restrictions existing under or by reason of: (1) applicable law; (2) this Indenture; (3) customary non-assignment provisions of any contract or lease governing a leasehold or ownership interest of any Subsidiary of the Company; (4) any instrument governing Acquired Indebtedness, which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person or the properties or assets of the Person so acquired or relating to any property acquired by the Company or any of its Subsidiaries after the Initial Issue Date; provided that such encumbrance or restriction exists at the time such property is acquired, relates only to the property which is acquired and was not incurred in connection with, or in anticipation or contemplation of, such acquisition; (5) the Credit Agreement; S-32 (6) an agreement governing Indebtedness incurred to Refinance the Indebtedness issued, assumed or incurred pursuant to an agreement referred to in clause (2) or (4) above; provided, however, that the provisions relating to such encumbrance or restriction contained in any such Indebtedness are no less favorable to the Company in any material respect than the provisions relating to such encumbrance or restriction contained in agreements referred to in such clause (2) or (4); (7) contractual provisions contained in charter documents, limited liability agreements, partnership agreements, operating agreements or similar organizational documents of Subsidiaries of the Company in existence on the Initial Issue Date, and similar provisions entered into by Subsidiaries of the Company thereafter in the ordinary course of business; provided, however, that such provisions are no less favorable to the Company or any Subsidiary in any material respect than the provisions in existence on the Initial Issue Date; or (8) agreements restricting the sale or other disposition of any property securing Indebtedness which constitutes a Permitted Lien on such property. SECTION 4.14. Prohibition on Incurrence of Senior Subordinated Debt. The Company shall not, and shall not permit any Guarantor to, incur or suffer to exist Indebtedness that is senior in right of payment to the Notes or any Guarantee and subordinate in right of payment to any other Indebtedness of the Company or any Guarantor. SECTION 4.15. Change of Control. The Company shall make an offer to purchase no later than the date upon which a Change of Control occurs (the "Change of Control Date") all outstanding Notes (the "Change of Control Offer") at a purchase price equal to 101% of the principal amount thereof plus accrued interest, if any, to the date of purchase, but installments of interest, the maturity of which is on or prior to the Change of Control Date, shall be payable to Holders of record at the close of business on the relevant record dates referred to in Section 2.12. The Company may utilize such procedures in connection with the Change of Control Offer as the Board of Directors deems appropriate; provided, however, that at least 10 Business Days prior to the Change of Control Date, the Holders shall have received all material information concerning such Change of Control as is reasonably available to the Company. On or before the Change of Control Date, the Company shall accept for payment Notes or portions thereof tendered pursuant to the Change of Control Offer. The Company shall promptly mail to the Holders of Notes so accepted payment in an amount equal to the purchase price plus accrued interest, if any, and shall promptly execute and mail to such Holders new Notes equal in principal amount to any unpurchased portion of the Notes surrendered. Any Notes not so accepted shall be promptly mailed by the Company to the Holder thereof. For the avoidance of doubt, payments by the Company pursuant to the provisions of this Section 4.15 are subject to the provisions of Article Ten. S-33 The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Notes pursuant to a Change of Control Offer. To the extent the provisions of any securities laws or regulations conflict with this Section 4.15, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section 4.15 by virtue thereof. The Company's obligation to purchase the Notes pursuant to the Change of Control Offer is conditioned upon the Change of Control being effected. SECTION 4.16. Limitation on Asset Sales. (a) The Company shall not, and shall not permit any of its Subsidiaries to, consummate an Asset Sale unless: (i) the Company or the applicable Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold or otherwise disposed of (as determined in good faith by the Company's or the Subsidiary's Board of Directors or other governing body, as applicable); (ii) at least 75% of the consideration received by the Company or the Subsidiary, as the case may be, from such Asset Sale shall be in the form of cash or Cash Equivalents (provided that the amount of any liabilities (as shown on the Company's or such Subsidiary's most recent balance sheet) of the Company or any such Subsidiary (other than liabilities that are by their terms subordinated to the Notes) that are assumed by the transferee of any such assets shall be deemed to be cash for the purposes of this provision); and (iii) upon the consummation of an Asset Sale, the Company shall apply, or cause such Subsidiary to apply, the Net Cash Proceeds relating to such Asset Sale due and owing to the Company or such Subsidiary (but, with respect to any such Subsidiary, only the Company's proportionate interest in any non-Wholly Owned Subsidiary) within 365 days of receipt thereof either: (A) to prepay Senior Debt in accordance with the terms of the Credit Agreement and effect a permanent reduction in the availability under such Credit Agreement, (B) to the extent permitted by the Credit Agreement, to make an investment in properties and assets that replace the properties and assets that were the subject of such Asset Sale or in properties and assets that will be used in the business of the Company and its Subsidiaries as described in Section 4.19 ("Replacement Assets"), or (C) to a combination of prepayment and investment permitted by the foregoing clauses (iii)(A) and (iii)(B). S-34 Subject to the last sentence of this paragraph, on the 366th day after an Asset Sale or such earlier date, if any, as the Board of Directors of the Company or of such Subsidiary determines not to apply the Net Cash Proceeds relating to such Asset Sale as set forth in clause (iii)(A), (iii)(B) or (iii)(C) of the next preceding sentence (each, a "Net Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds which have not been applied on or before such Net Proceeds Offer Trigger Date as permitted in clauses (iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence (each a "Net Proceeds Offer Amount") shall be applied by the Company or such Subsidiary to make an offer to purchase (the "Net Proceeds Offer") on a date (the "Net Proceeds Offer Payment Date") not less than 30 nor more than 45 days following the applicable Net Proceeds Offer Trigger Date, from all Holders on a pro rata basis, that amount of Notes equal to the Net Proceeds Offer Amount at a price equal to 100% of the principal amount of the Notes to be purchased, plus accrued and unpaid interest thereon, if any, to the date of purchase, but installments of interest, the maturity of which is on or prior to the Proceeds Purchase Date, shall be payable to Holders of record at the close of business on the relevant record dates referred to in Section 2.12; provided, however, that if at any time any non-cash consideration received by the Company or any Subsidiary of the Company, as the case may be, in connection with any Asset Sale is converted into or sold or otherwise disposed of for cash (other than interest received with respect to any such non-cash consideration), then such conversion or disposition shall be deemed to constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be applied in accordance with this covenant. The Company may defer the Net Proceeds Offer until there is an aggregate unutilized Net Proceeds Offer Amount equal to or in excess of $1,000,000 resulting from one or more Asset Sales (at which time, the entire unutilized Net Proceeds Offer Amount, and not just the amount in excess of $1,000,000, shall be applied as required pursuant to the preceding paragraph). In the event of the transfer of substantially all (but not all) of the property and assets of the Company and its Subsidiaries as an entirety to a Person in a transaction permitted under Section 5.01, the successor entity shall be deemed to have sold such portion, if any, of the properties and assets of the Company and its Subsidiaries not so transferred the fair market value of which exceeds the fair market value (as determined in good faith by the Company's Board of Directors) of the property and assets of such successor entity immediately prior to consummation of such transaction for purposes of this covenant, and shall comply with the provisions of this covenant with respect to such deemed sale as if it were an Asset Sale. In addition, the fair market value of such properties and assets of the Company or its Subsidiaries deemed to be sold as aforesaid shall be deemed to be Net Cash Proceeds for purposes of this Section 4.16. Each Net Proceeds Offer will be mailed to the record Holders as shown on the register of Holders within 25 days following the Net Proceeds Offer Trigger Date and shall comply with the procedures set forth in this Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may elect to tender their Notes in whole or in part in exchange for cash. To the extent Holders properly tender Notes in an amount exceeding the Net Proceeds Offer Amount, Notes of tendering Holders will be purchased on a pro rata basis (based on amounts tendered). To the extent that the aggregate amount of Notes tendered pursuant to a S-35 Net Proceeds Offer is less than the Net Proceeds Offer Amount, the Company may use such excess Net Proceeds Offer Amount for general corporate purposes or for any other purpose not prohibited by this Indenture. Upon completion of any such Net Proceeds Offer, the Net Proceeds Offer Amount shall be reset at zero. A Net Proceeds Offer shall remain open for a period of 20 Business Days or such longer period as may be required by law. (b) Subject to the deferral of the Net Proceeds Offer Trigger Date contained in the second paragraph of subsection (a) above, each notice of a Net Proceeds Offer pursuant to this Section 4.16 shall be mailed or caused to be mailed, by first class mail, by the Company not more than 25 days after the Net Proceeds Offer Trigger Date to all Holders at their last registered addresses as of a date within 15 days of the mailing of such notice. The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Net Proceeds Offer and shall state the following terms: (1) that the Net Proceeds Offer is being made pursuant to Section 4.16 and that all Notes tendered will be accepted for payment; provided, however, that if the aggregate principal amount of Notes tendered in a Net Proceeds Offer exceeds the aggregate amount of the Net Proceeds Offer, the Company shall select the Notes to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company with respect to Notes in denominations of less than $1,000); (2) the purchase price (including the amount of accrued interest) and the Net Proceeds Offer Payment Date (which shall be 20 Business Days from the date of mailing of notice of such Net Proceeds Offer, or such longer period as required by law); (3) that any Note not tendered will continue to accrue interest; (4) that, unless the Company defaults in making payment therefor, any Note accepted for payment pursuant to the Net Proceeds Offer shall cease to accrue interest after the Net Proceeds Offer Payment Date; (5) that Holders electing to have a Note purchased pursuant to a Net Proceeds Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Company at the address specified in the notice prior to the close of business on the third Business Day prior to the Net Proceeds Offer Payment Date; (6) that Holders will be entitled to withdraw their election if the Company receives, not later than two Business Days prior to the Net Proceeds Offer Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Notes the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased; and S-36 (7) that Holders whose Notes are purchased only in part will be issued new Notes in a principal amount equal to the unpurchased portion of the Notes surrendered. On or before the Net Proceeds Offer Payment Date, the Company shall accept for payment Notes or portions thereof tendered pursuant to the Net Proceeds Offer which are to be purchased in accordance with item (b)(1) above. The Company shall promptly pay, by wire transfer in immediately available funds, to the Holders of Notes so accepted payment in an amount equal to the purchase price plus accrued interest, if any. The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the provisions of any securities laws or regulations conflict with this Section 4.16, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section 4.16 by virtue thereof. SECTION 4.17. Limitation on Liens. The Company shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Liens securing Indebtedness of any kind against or upon any property or assets of the Company or any of its Subsidiaries whether owned on the Initial Issue Date or acquired thereafter, or any proceeds therefrom, unless, except in the case of Liens securing Indebtedness that is subordinate or junior in right of payment to the Notes, which shall not be permitted, the Notes are equally and ratably secured, except for: (i) Liens existing as of the Initial Issue Date to the extent and in the manner such Liens are in effect on such date; (ii) Liens securing Senior Debt and Guarantor Senior Debt; (iii) Liens securing Intercompany Indebtedness; (iv) Liens securing Refinancing Indebtedness which is incurred to Refinance Indebtedness which has been secured by a Lien permitted under this Indenture and which has been incurred in accordance with the provisions of this Indenture; provided, however, that such Liens (x) are no less favorable to the Holders and are no more favorable to the lienholders with respect to such Liens than the Liens in respect of the Indebtedness being Refinanced and (y) do not extend to or cover any property or assets of the Company or any of its Subsidiaries not securing the Indebtedness so Refinanced; and (v) Permitted Liens. S-37 SECTION 4.18. Additional Guarantors. The Company shall cause any of its Subsidiaries that (a) becomes a borrower or a guarantor under the Credit Agreement or (b) guarantees any Indebtedness of the Company or Indebtedness in excess of $500,000 of any Subsidiary, to execute and deliver a guarantee in the form attached to the form of Note hereto. SECTION 4.19. Conduct of Business. The Company shall continue, and cause its Subsidiaries to continue, to engage solely in the business of owning and operating Centers and businesses that directly enhance or support that primary business activity. ARTICLE FIVE. SUCCESSOR CORPORATION SECTION 5.01. Merger, Consolidation and Sale of Assets. (a) The Company shall not, in a single transaction or a series of related transactions, consolidate with or merge with or into any Person (other than the merger of a Wholly Owned Subsidiary of the Company into the Company), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the Company's properties and assets (determined on a consolidated basis for the Company and its Subsidiaries) to any Person whether as an entirety or substantially as an entirety unless: (1) either (A) the Company shall be the surviving or continuing corporation or (B) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person which acquires by sale, assignment, transfer, lease, conveyance or other disposition the properties and assets of the Company and its Subsidiaries substantially as an entirety (the "Surviving Entity") (x) shall be a corporation or limited liability company organized and validly existing under the laws of the United States or any State thereof or the District of Columbia and (y) shall expressly assume, by an agreement (in form and substance reasonably satisfactory to the Required Holders), executed and delivered to the Holders, the due and punctual payment of the principal of and premium, if any, and interest on all of the Notes and the performance of every covenant of the Notes and this Indenture on the part of the Company to be performed or observed; (2) immediately after giving effect to such transaction and the assumption contemplated by clause (1)(B)(y) above (including giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction), the Company or such Surviving Entity, as the case may be, (i) shall be able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with Section 4.12 and (ii) shall have a S-38 Consolidated Net Worth at least equal to the Consolidated Net Worth of the Company immediately prior to such transaction; (3) immediately before and immediately after giving effect to such transaction and the assumption contemplated by clause (1)(B)(y) above (including, without limitation, giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred and any Lien granted in connection with or in respect of the transaction), no Default or Event of Default shall have occurred and be continuing; and (4) the Company or the Surviving Entity, as the case may be, shall have delivered to the Holders an Officers' Certificate stating that such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition comply with the applicable provisions of this Indenture and that all conditions precedent in this Indenture relating to such transaction have been satisfied. (b) For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties and assets of one or more Subsidiaries of the Company, the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. (c) Each Guarantor (other than any Guarantor whose Guarantee is to be released in accordance with the terms of the Guarantee and this Indenture in connection with any transaction complying with the provisions of Section 4.16) shall not, and the Company shall not cause or permit any Guarantor to, consolidate with or merge with or into any Person other than the Company or any other Guarantor unless: (i) the entity formed by or surviving any such consolidation or merger (if other than the Guarantor) or to which such sale, lease, conveyance or other disposition shall have been made is a corporation or limited liability company organized and existing under the laws of the United States or any State thereof or the District of Columbia; (ii) such entity expressly assumes all of the obligations of the Guarantor on the Guarantee; (iii) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; and (iv) immediately after giving effect to such transaction and the use of any net proceeds therefrom on a pro forma basis, the Company could satisfy the provisions of clause (2) of Section 5.01(a). Any merger or consolidation of a Guarantor with and into the Company (with the Company being the surviving entity) or another Guarantor that is a Wholly Owned Subsidiary of the Company need only comply with clause (4) of Section 5.01(a). When a successor assumes all of the obligations of the Company under the Notes and this Indenture in a transaction permitted by this Section 5.01, the Company will be deemed to be released from those obligations. S-39 SECTION 5.02. Successor Corporation Substituted. Upon any consolidation, combination or merger or any transfer of all or substantially all of the assets of the Company in accordance with the foregoing, in which the Company is not the continuing corporation, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, lease or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture and the Notes with the same effect as if such surviving entity had been named as such. ARTICLE SIX. DEFAULT AND REMEDIES SECTION 6.01. Events of Default. Each of the following constitutes an "Event of Default": (1) failure to pay interest on any Notes when the same becomes due and payable and such failure continues for a period of ten days (whether or not such payment shall be prohibited by Article Ten of this Indenture); or (2) failure to pay the principal on any Notes when such principal becomes due and payable, at maturity, upon redemption or otherwise (including the failure to make a payment to purchase Notes tendered pursuant to a Change of Control Offer or a Net Proceeds Offer) (whether or not such payment shall be prohibited by Article Ten); or (3) a default in the observance or performance of any other covenant or agreement contained in this Indenture which default continues for a period of 30 days after the Company receives written notice specifying the default (and demanding that such default be remedied) from the Required Holders (except in the case of a failure to comply with Section 4.10, 4.12, 4.14, 4.15, 4.16 or 5.01, which shall constitute Events of Default upon notice but without passage of time); or (4) the Company fails to pay at final stated maturity (giving effect to any applicable grace periods and any extensions thereof) the principal amount of any Indebtedness for borrowed money of the Company or any Subsidiary of the Company, or the acceleration of the final stated maturity of any such Indebtedness if the aggregate principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness not paid at final stated maturity or which has been accelerated aggregates $750,000 or more at any time; or (5) one or more judgments for the payment of money in an aggregate amount in excess of $750,000 shall have been rendered against the Company or any of S-40 its Subsidiaries and such judgments remain undischarged, unpaid or unstayed for a period of 30 days after such judgment or judgments become final and non-appealable; or (6) the Company or any Significant Subsidiary of the Company (A) commences a voluntary case or proceeding under any Bankruptcy Law with respect to itself, (B) consents to the entry of a judgment, decree or order for relief against it in an involuntary case or proceeding under any Bankruptcy Law, (C) consents to the appointment of a Custodian of it or for substantially all of its property, (D) consents to or acquiesces in the institution of a bankruptcy or an insolvency proceeding against it, (E) makes a general assignment for the benefit of its creditors, or (F) takes any corporate action to authorize or effect any of the foregoing; or (7) a court of competent jurisdiction enters a judgment, decree or order for relief in respect of the Company or any Significant Subsidiary of the Company in an involuntary case or proceeding under any Bankruptcy Law, which shall (A) approve as properly filed a petition seeking reorganization, arrangement, adjustment or composition in respect of the Company or any such Significant Subsidiary, (B) appoint a Custodian of the Company or any such Significant Subsidiary or for substantially all of its property or (C) order the winding-up or liquidation of its affairs; and such judgment, decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (8) the lenders under the Credit Agreement commence proceedings to foreclose upon any assets of the Company or any of its Subsidiaries as a result of a default with respect to Obligations of at least $750,000; or (9) any Guarantee ceases to be in full force and effect, any Guarantee is declared to be null and void and unenforceable, or any Guarantee is found to be invalid or any Guarantor denies its liability under its Guarantee (other than by reason of release of a Guarantee in accordance with Section 11.06); or (10) any material breach by the Company of a representation or warranty (as of any Date of Closing, as defined in the Securities Purchase Agreement) or covenant contained in the Securities Purchase Agreement (if such breach continues for a period of thirty (30) days after the earlier of (i) written notice from Required Holders to the Company of the existence of such Default, or (ii) the date any Responsible Officer of the Company first obtains knowledge of such failure). SECTION 6.02. Acceleration. (a) If an Event of Default (other than an Event of Default specified in Section 6.01(6) or (7) with respect to the Company) occurs and is continuing and has not been waived pursuant to Section 6.04, then the Required Holders may declare the principal of, premium, if any, and accrued and unpaid interest on all the Notes to be due and payable by notice in writing to the Company specifying the respective Event of Default and that it is a S-41 "notice of acceleration" (the "Acceleration Notice"), and the same shall become immediately due and payable. Upon any such declaration, but subject to the immediately preceding sentence, such amount shall be immediately due and payable. (b) If an Event of Default specified in Section 6.01(6) or (7) occurs and is continuing with respect to the Company, all unpaid principal of, premium, if any, and accrued and unpaid interest on all of the outstanding Notes shall ipso facto become and be immediately due and payable without any declaration or other act on the part of any Holder. (c) In the case of any Event of Default occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of any premium that the Company would have had to pay if the Company then had elected to redeem the Notes pursuant to Paragraph 7(a) of the Notes, then the Notes shall be and become due and payable at the relevant Redemption Price. (d) At any time after a declaration of acceleration with respect to the Notes in accordance with Section 6.02(a), the Required Holders may, on behalf of the Holders of all of the Notes, rescind and cancel such declaration and its consequences (i) if the rescission would not conflict with any judgment or decree, (ii) if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of the acceleration, (iii) to the extent the payment of such interest is lawful, interest on overdue installments of interest and overdue principal, which has become due otherwise than by such declaration of acceleration, has been paid and (iv) in the event of the cure or waiver of an Event of Default of the type described in Section 6.01(6) or (7), the Holders shall have received an Officers' Certificate that such Event of Default has been cured or waived. No such rescission shall affect any subsequent Default or impair any right consequent thereto. (e) No later than concurrently with the taking of any of the actions described in Section 6.02 or 10.03, the Required Holders will give notice to the holders of the Senior Debt (or their Representative) of the commencement of the taking of such action. SECTION 6.03. Other Remedies. If an Event of Default occurs and is continuing, the Required Holders may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of or interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture. A delay or omission by any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative to the extent permitted by law. SECTION 6.04. Waiver of Past Defaults. Subject to Sections 2.09, 6.07 and 9.02, the Required Holders may waive an existing Default or Event of Default and its consequences, except a Default in the payment of S-42 principal (other than principal due by reason of acceleration) of or interest on any Note as specified in clauses (1) and (2) of Section 6.01. When a Default or Event of Default is waived, it is cured and ceases. SECTION 6.05. Control by Majority. Subject to Section 2.09, the Required Holders may direct the time, method and place of conducting any proceeding for any remedy available to the Holders or exercising any trust or power conferred on them, including, without limitation, any remedies provided for in Section 6.03. SECTION 6.06. [Reserved.] SECTION 6.07. Rights of Holders to Receive Payment. Subject to Articles Ten and Eleven, but notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal of and interest on a Note, on or after the respective due dates expressed in such Note, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. SECTION 6.08. [Reserved.] SECTION 6.09. [Reserved.] SECTION 6.10. Priorities. If the Holders collect any money or property pursuant to this Article Six, they shall pay out the money in the following order: First: to Holders for their reasonable collection costs; Second: to Holders for amounts due and unpaid on the Notes for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal and interest, respectively; and S-43 Third: to the Company, the Guarantors, if any, or any other obligor on the Notes, as their interests may appear, or as a court of competent jurisdiction may direct. SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. Such costs shall not apply to, and such costs shall not be assessed in connection with a suit by a Holder pursuant to Section 6.07. SECTION 6.12. Qualification of Rights. All the provisions of this Article Six, including, without limitation, rights of acceleration, remedies and priority of payments, are subject to the terms and provisions of Articles Ten and Eleven hereof relating to the subordination of the Obligations on the Notes and the Guarantors' Obligations. ARTICLE SEVEN. [RESERVED.] ARTICLE EIGHT. [RESERVED] ARTICLE NINE. AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 9.01. Without Consent of Holders. The Company and the Guarantors, together, may amend or supplement this Indenture or the Notes without notice to or consent of any Holder: S-44 (1) to cure any ambiguity, defect or inconsistency; provided that such amendment or supplement does not adversely affect the rights of any Holder in any material respect; (2) to comply with Article Five; (3) to provide for uncertificated Notes in addition to or in place of certificated Notes; (4) to make any change that would provide any additional benefit or rights to the Holders or that does not adversely affect the rights of any Holder in any material respect; or (5) to reflect a Guarantor ceasing to be liable on the Guarantees because it is no longer a Subsidiary of the Company or has been released from the Senior Guarantee or to reflect additional Guarantors. SECTION 9.02. With Consent of Holders. (a) Subject to Section 6.07 and Section 9.02(b), the Company and the Guarantors, together, with the written consent of the Required Holders, may amend or supplement this Indenture, the Notes or any Guarantee, without notice to any other Holders. Subject to Section 6.07 and Section 9.02(b), the Required Holders may waive compliance by the Company or the Guarantors with any provision of this Indenture, the Notes or the Guarantees without notice to any other Holder. (b) No amendment, supplement or waiver, including a waiver pursuant to Section 6.04, shall, without the consent of each Holder of each Note affected thereby: (1) reduce the amount of Notes whose Holders must consent to an amendment; (2) reduce the rate of or extend or have the effect of extending the time for payment of interest, including defaulted interest, on any Notes; (3) reduce the principal of or extend or have the effect of extending the fixed maturity of any Notes, or extend the date on which any Notes may be subject to redemption or repurchase, or reduce the redemption or repurchase price therefor; (4) make any Notes payable in money other than that stated in the Notes; (5) impair the right of any Holder to receive payment of principal of and interest on such Note or Guarantee on or after the due date thereof or to bring suit to enforce such payment, or impair the right of Holders of a majority in principal amount of Notes to waive Defaults or Events of Default, other than ones with respect to the payment of principal of or interest on the Notes; S-45 (6) amend, modify, change or waive any provision of this Section 9.02; (7) amend, modify or change in any material respect the obligation of the Company to make or consummate a Change of Control Offer in the event of a Change of Control or make and consummate a Net Proceeds Offer in respect of any Asset Sale that has been consummated or modify any of the provisions or definitions with respect thereto after a Change of Control has occurred or the subject Asset Sale has been consummated; (8) release any Guarantor from any of its obligations under its Guarantee or this Indenture otherwise than in accordance with the terms hereof; or (9) modify Article Ten or Eleven or the definitions used in Article Ten or Eleven to adversely affect the Holders of the Notes in any material respect. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section 9.02 becomes effective, the Company shall mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. SECTION 9.03. Effect on Senior Debt. No amendment of this Indenture shall adversely affect the rights of any holder of Senior Debt under Article Ten of this Indenture or Guarantor Senior Debt under Article Eleven of this Indenture, without the written consent of such holder. SECTION 9.04. Revocation and Effect of Consents. Until an amendment, waiver or supplement becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. Subject to the following paragraph, any such Holder or subsequent Holder may revoke the consent as to such Holder's Note or portion of such Note by notice to the Company received before the date on which the Holders receives an Officers' Certificate certifying that the Holders of the requisite principal amount of Notes have consented (and not theretofore revoked such consent) to the amendment, supplement or waiver. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment, supplement or waiver, which record date shall be at least 30 days prior to the first solicitation of such consent. If a record date is fixed, then notwithstanding the last sentence of the immediately S-46 preceding paragraph, those Persons who were Holders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to revoke any consent previously given, whether or not such Persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date. After an amendment, supplement or waiver becomes effective, it shall bind every Holder, unless it makes a change described in any of clauses (1) through (9) of Section 9.02(b), in which case, the amendment, supplement or waiver shall bind only each Holder of a Note who has consented to it and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note. SECTION 9.05. Notation on or Exchange of Notes. If an amendment, supplement or waiver changes the terms of a Note, the Company may require the Holder of such Note to deliver it to the Company in exchange for a new Note that reflects the changed terms. Any such notation or exchange shall be made at the sole cost and expense of the Company. ARTICLE TEN. SUBORDINATION SECTION 10.01. Notes Subordinated to Senior Debt. The Company covenants and agrees, and each Holder of the Notes, by its acceptance thereof, likewise covenants and agrees, that all Notes shall be issued subject to the provisions of this Article Ten; and each Person holding any Note, whether upon original issue or upon transfer, assignment or exchange thereof, accepts and agrees that the payment of all Obligations on the Notes by the Company shall, to the extent and in the manner herein set forth, be subordinated and junior in right of payment to the prior payment in full in cash or Cash Equivalents of all Obligations on the Senior Debt; that the subordination is for the benefit of, and shall be enforceable directly by, the holders of Senior Debt, and that each holder of Senior Debt whether now outstanding or hereafter created, incurred, assumed or guaranteed shall be deemed to have acquired Senior Debt in reliance upon the covenants and provisions contained in this Indenture and the Notes. SECTION 10.02. No Payment on Notes in Certain Circumstances. (a) Unless Section 10.04 shall be applicable, if at any time a default has occurred and is continuing in the payment when due, whether at maturity, upon redemption, by declaration or otherwise, of any principal of, interest on or unpaid drawings for letters of credit issued in respect of any Senior Debt, and such default shall not have ceased to exist or have been cured or waived by or on behalf of the holders of such Senior Debt in accordance with the Credit Agreement, no payment of any kind or character by set-off or otherwise, shall S-47 be made by, or on behalf of, the Company or any other Person on its behalf with respect to any Obligations on the Notes, or to acquire any of the Notes for cash or property or otherwise, in each case, other than payments in Junior Securities. (b) In addition, unless Section 10.04 shall be applicable, if any other event of default occurs and is continuing with respect to any Senior Debt, as such event of default is defined in the instruments creating or evidencing such Senior Debt, permitting the holders of such Senior Debt then outstanding to accelerate the maturity thereof and if the Representative for the Senior Debt gives notice of the event of default to the Holders (a "Nonpayment Default Notice"), then, unless and until all events of default have been cured or waived or have ceased to exist in accordance with the Credit Agreement or the Holders receive notice thereof from the Representative for the respective issue of Senior Debt terminating the Blockage Period (as defined below), during the 179 days after the delivery of such Nonpayment Default Notice (the "Blockage Period"), neither the Company nor any other Person on its behalf shall (x) make any payment of any kind or character, by set-off or otherwise, with respect to any Obligations on the Notes or (y) acquire any of the Notes for cash or property or otherwise, in each case, other than payments in Junior Securities. Notwithstanding anything herein to the contrary, in no event will a Blockage Period extend beyond 179 days from the date the payment on the Notes was due and only one such Blockage Period may be commenced within any 360 consecutive days. No event of default which existed or was continuing on the date of the commencement of any Blockage Period with respect to the Senior Debt shall be, or be made, the basis for the commencement of a second Blockage Period by the Representative of the Senior Debt whether or not within a period of 360 consecutive days, unless such event of default shall have been cured or waived for a period of not less than 90 consecutive days. (c) Notwithstanding anything herein or in the Notes to the contrary, until the Senior Debt has been paid in full in cash or Cash Equivalents and all commitments to extend credit in respect of the Senior Debt have expired or terminated, no payments of principal may be made in respect of any Obligations on the Notes, or to acquire any of the Notes for cash or property or otherwise, except payments in Junior Securities. (d) In the event that, notwithstanding the foregoing, any payment shall be received by any Holder when such payment is prohibited by this Article Ten, such payment shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Debt (pro rata to such holders on the basis of the respective amounts of Senior Debt held by such holders) or their respective Representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Debt may have been issued, as their respective interests may appear, for application to the payment of Senior Debt remaining unpaid until all such Senior Debt has been paid in full in cash or Cash Equivalents. The Holders shall be entitled to rely on information regarding amounts then due and owing on the Senior Debt, if any, received from the holders of Senior Debt (or their Representatives). SECTION 10.03. Delay of Acceleration and Remedies. (a) If the Representative for the Senior Debt gives notice to the Holders of a payment default under Section 10.02 (a "Payment Default Notice") or a Nonpayment S-48 Default Notice has been delivered to the Holders, no action may be taken by the Holders to accelerate the payment of the Notes or the Guarantees or to enforce or collect payment on the Notes or the Guarantees or to commence, or join with any other creditor (other than the holders of the Senior Debt or their Representative) in commencing, any bankruptcy, receivership, reorganization, liquidation or insolvency proceeding, until the earliest to occur of any of the following (a "Standstill Termination Date"): (i) the date of termination of the Credit Agreement and payment in full of the loans and other Obligations outstanding thereunder; (ii) the date on which the Indebtedness outstanding under the Credit Agreement is accelerated and becomes due and payable in full; and (iii) forty-five (45) days after the delivery of a Payment Default Notice or a Nonpayment Default Notice. (b) Following the occurrence of the Standstill Termination Date, the Holders may take any action or remedy available hereunder or otherwise available under applicable law to enforce the Company's obligations of payment with respect to the Notes or the Guarantees, subject, however, to the applicable provisions of Section 10.02. (c) Not later than concurrently with the taking of any of the actions described in Section 10.03(a), the Holders will give notice to the holders of the Senior Debt (or their Representative) of the commencement of the taking of such action. SECTION 10.04. Payment Over of Proceeds upon Dissolution, Etc. (a) Upon any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any total or partial liquidation, dissolution, winding-up, reorganization, assignment for the benefit of creditors or marshaling of assets of the Company or in a bankruptcy, reorganization, insolvency, receivership or other similar proceeding relating to the Company or its property, whether voluntary or involuntary, all Obligations due or to become due upon all Senior Debt shall first be paid in full in cash or Cash Equivalents, or such payment duly provided for to the satisfaction of the holders of Senior Debt, before any payment or distribution of any kind or character is made on account of any Obligations on the Notes, or for the acquisition of any of the Notes for cash or property or otherwise, other than payments or distributions in Junior Securities. Upon any such dissolution, winding-up, liquidation, reorganization, receivership or similar proceeding, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, other than payments or distributions in Junior Securities, to which the Holders of the Notes under this Indenture would be entitled, except for the provisions of this Article Ten, shall be paid by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the Holders under this Indenture if received by them, directly to the holders of Senior Debt (pro rata to such holders on the basis of the respective amounts of Senior Debt S-49 held by such holders) or their respective Representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Debt may have been issued, as their respective interests may appear, for application to the payment of Senior Debt remaining unpaid until all such Senior Debt has been paid in full in cash or Cash Equivalents after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of Senior Debt. (b) To the extent any payment of Senior Debt (whether by or on behalf of the Company, as proceeds of security or enforcement of any right of set-off or otherwise) is declared to be fraudulent or preferential, set aside or required to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person under any bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, then, if such payment is recovered by, or paid over to, such receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person, the Senior Debt or part thereof originally intended to be satisfied shall be deemed to be reinstated and outstanding as if such payment had not occurred. (c) In the event that, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, other than in Junior Securities, shall be received by any Holder when such payment or distribution is prohibited by Section 10.04(a), such payment or distribution shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Debt (pro rata to such holders on the basis of the respective amount of Senior Debt held by such holders) or their respective Representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Debt may have been issued, as their respective interests may appear, for application to the payment of Senior Debt remaining unpaid until all such Senior Debt has been paid in full in cash or Cash Equivalents, after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of such Senior Debt. (d) The consolidation of the Company with, or the merger of the Company with or into, another corporation or the liquidation or dissolution of the Company following the conveyance or transfer of all or substantially all of its assets, to another corporation upon the terms and conditions provided in Article Five hereof and as long as permitted under the terms of the Senior Debt shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section if such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, assume the Company's obligations hereunder in accordance with Article Five hereof. SECTION 10.05. Payments May Be Paid Prior to Dissolution. Nothing contained in this Article Ten or elsewhere in this Indenture shall prevent the Company, except under the conditions described in Sections 10.02 and 10.03, from making payments at any time of principal of and interest on the Notes. S-50 SECTION 10.06. Subrogation. Subject to the prior payment in full in cash or Cash Equivalents of all Senior Debt, the Holders of the Notes shall be subrogated to the rights of the holders of Senior Debt to receive payments or distributions of cash, property or securities of the Company applicable to the Senior Debt until the Notes shall be paid in full; and, for the purposes of such subrogation, no such payments or distributions to the holders of the Senior Debt by or on behalf of the Company or by or on behalf of the Holders by virtue of this Article Ten which otherwise would have been made to the Holders shall, as between the Company and the Holders of the Notes, be deemed to be a payment by the Company to or on account of the Senior Debt, it being understood that the provisions of this Article Ten are and are intended solely for the purpose of defining the relative rights of the Holders of the Notes, on the one hand, and the holders of the Senior Debt, on the other hand. SECTION 10.07. Obligations of the Company Unconditional. Nothing contained in this Article Ten or elsewhere in this Indenture or in the Notes is intended to or shall impair, as among the Company, its creditors other than the holders of Senior Debt, and the Holders, the obligation of the Company, which is absolute and unconditional, to pay to the Holders the principal of and any interest on the Notes as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders and creditors of the Company other than the holders of the Senior Debt, nor shall anything herein or in the Notes prevent the Holders from exercising all remedies otherwise permitted by all applicable law upon default under this Indenture and the Notes, subject to the provisions of Sections 10.02, 10.03 and 10.04 and the rights of holders of Senior Debt in respect of cash, property or securities of the Company received upon exercise of such remedy. SECTION 10.08. Notice to Holders. The Company shall give prompt written notice to the Holders of any fact known to the Company which would prohibit the making of any payment to the Holders in respect of the Notes pursuant to the provisions of this Article Ten. In the event that the Required Holders determine in good faith that any evidence is required with respect to the right of any Person as a holder of Senior Debt to participate in any payment or distribution pursuant to this Article Ten, the Required Holders may request such Person to furnish evidence to the reasonable satisfaction of the Required Holders as to the amounts of Senior Debt held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article Ten, and if such evidence is not furnished the Required Holders may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. S-51 SECTION 10.09. Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets of the Company referred to in this Article Ten, the Holders of the Notes shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which any insolvency, bankruptcy, receivership, dissolution, winding-up, liquidation, reorganization or similar case or proceeding is pending, or upon a certificate of the receiver, trustee in bankruptcy, liquidating trustee, receiver, assignee for the benefit of creditors, agent or other person making such payment or distribution, delivered to the Holders of the Notes, for the purpose of ascertaining the persons entitled to participate in such payment or distribution, the holders of the Senior Debt and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Ten. SECTION 10.10. [Reserved.] SECTION 10.11. Subordination Rights Not Impaired by Acts or Omissions of the Company or Holders of Senior Debt. No right of any present or future holders of any Senior Debt to enforce subordination as provided herein shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms of this Indenture, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Debt may, at any time and from time to time, without the consent of or notice to the Holders, without incurring responsibility to the Holders of the Notes and without impairing or releasing the subordination provided in this Article Ten or the obligations hereunder of the Holders of the Notes to the holders of the Senior Debt, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Debt, or otherwise amend or supplement in any manner Senior Debt, or any instrument evidencing the same or any agreement under which Senior Debt is outstanding; (ii) receive, sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Debt; (iii) release any Person liable in any manner for the payment or collection of Senior Debt or any collateral therefor; and (iv) exercise or refrain from exercising any rights or remedies against the Company or any other Person or any collateral. S-52 SECTION 10.12. Noteholders Agee to Effectuate Subordination of Notes. Each Holder of Notes by its acceptance of them expressly agrees to take such action as may be necessary or appropriate to effectuate, as between the holders of Senior Debt and the Holders of Notes, the subordination provided in this Article Ten. If any Holder does not file a proper claim or proof of debt in the form required in such proceeding prior to 15 days before the expiration of the time to file such claim or claims, then the holders of the Senior Debt or their Representative are or is hereby authorized to have the right (but not the obligation) to file and are or is hereby authorized to file an appropriate claim for and on behalf of the Holders of said Notes. Nothing herein contained shall be deemed to authorize the holders of Senior Debt or their Representative to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the holders of Senior Debt or their Representative to vote in respect of the claim of any Holder in any such proceeding. SECTION 10.13. This Article Ten Not To Prevent Events of Default. The failure to make a payment on account of principal of or interest on the Notes by reason of any provision of this Article Ten will not be construed as preventing the occurrence of an Event of Default. ARTICLE ELEVEN. GUARANTEES SECTION 11.01. Unconditional Guarantee. Each Guarantor hereby unconditionally, jointly and severally, guarantees to each Holder of a Note and its successors and assigns that: (i) the principal of and interest on the Notes will be promptly paid in full when due, subject to any applicable grace period, whether at maturity, by acceleration or otherwise and interest on the overdue principal, if any, and interest on any interest, to the extent lawful, of the Notes and all other obligations of the Company to the Holders hereunder or thereunder will be promptly paid in full, all in accordance with the terms hereof and thereof; and (ii) in case of any extension of time of payment or renewal of any Notes or of any such other obligations, the same will be promptly paid in full when due in accordance with the terms of the extension or renewal, subject to any applicable grace period, whether at stated maturity, by acceleration or otherwise, subject, however, in the case of clauses (i) and (ii) above, to the limitations set forth in Section 11.05. Each Guarantor hereby agrees that its Obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes S-53 with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstances which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenants that this Guarantee will not be discharged except by complete performance of the obligations contained in the Notes, this Indenture and in this Guarantee. If any Noteholder is required by any court or otherwise to return to the Company, any Guarantor, or any custodian, trustee, liquidator or other similar official acting in relation to the Company or any Guarantor, any amount paid by the Company or any Guarantor to such Noteholder, this Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect as to such amount only. Each Guarantor further agrees that, as between each Guarantor, on the one hand, and the Holders, on the other hand, (x) the maturity of the Obligations guaranteed hereby may be accelerated as provided in Article Six for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Obligations guaranteed hereby, and (y) in the event of any acceleration of such obligations as provided in Article Six, such Obligations (whether or not due and payable) shall forthwith become due and payable by each Guarantor for the purpose of this Guarantee. SECTION 11.02. Subordination of Guarantee. Each Guarantor agrees, and each Holder by accepting a Guarantee agrees, that all Obligations owed under and in respect of such Guarantees are, to the extent and in the manner herein set forth, subordinated and junior in right of payment to the prior payment in full in cash or Cash Equivalents of all Obligations on Guarantor Senior Debt of such Guarantor, that the subordination is for the benefit of, and shall be enforceable directly by, the holders of Guarantor Senior Debt, and that each holder of Guarantor Senior Debt whether now outstanding or hereafter created, incurred, assumed or guaranteed shall be deemed to have acquired Guarantor Senior Debt in reliance upon the covenants and provisions contained in this Indenture. SECTION 11.03. Severability. In case any provision of this Guarantee shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 11.04. Release of a Guarantor. Upon the sale or disposition of a Guarantor (or all or substantially all of its assets) to an entity which is not a Subsidiary of the Company in compliance with this Indenture, or upon the release of any Guarantor from its Senior Guarantee Obligations (other than a release at final maturity of Indebtedness under the Credit Agreement and the expiration or termination of all commitments to extend credit in respect of the Senior Debt), such Guarantor shall be deemed released from all its obligations under this Article Eleven and its S-54 Guarantee; provided, however, that any such termination shall occur only to the extent that all Obligations of such Guarantor under all of its guarantees of, and under all of its pledges of assets or other security interests which secure, Senior Debt of the Company shall also terminate upon such release, sale or transfer. If reasonably requested by the Company, the Holders shall deliver an appropriate instrument evidencing such release upon receipt of a written request by the Company accompanied by an Officers' Certificate certifying as to the compliance with this Section 11.04 and the other provisions of this Indenture. Any Guarantor not so released remains liable for the full amount of principal of and interest on the Notes as provided in this Article Eleven. SECTION 11.05. Limitation of Guarantor's Liability. Each Guarantor and by its acceptance hereof each Holder hereby confirms that it is the intention of all such parties that the guarantee by such Guarantor pursuant to its Guarantee not constitute a fraudulent transfer or conveyance for purposes of the Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar Federal or state law. To effectuate the foregoing intention, the Holders and such Guarantor hereby irrevocably agree that the Obligations of such Guarantor under its Guarantee shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guarantee or pursuant to Section 11.07, result in the Obligations of such Guarantor under its Guarantee not constituting such fraudulent transfer or conveyance. SECTION 11.06. Guarantors May Consolidate, Etc. on Certain Terms. (a) Nothing contained in this Indenture or in any of the Notes shall prevent any consolidation or merger of a Guarantor with or into the Company or another Guarantor or shall prevent any sale or conveyance of the assets of a Guarantor to the Company or another Guarantor. Upon any such consolidation, merger, sale or conveyance, the Guarantee given by such Guarantor shall no longer have any force or effect. (b) Except as set forth in Articles Four and Five, nothing contained in this Indenture or in any of the Notes shall prevent any consolidation or merger of a Guarantor with or into a corporation or corporations other than the Company or another Guarantor (whether or not affiliated with the Guarantor), or successive consolidations or mergers in which a Guarantor or its successor or successors shall be a party or parties, or shall prevent any sale or conveyance of all or substantially all of the assets of a Guarantor to a corporation other than the Company or another Guarantor (whether or not affiliated with the Guarantor); provided, however, that, subject to Sections 11.04 and 11.06(a), either (x) the transaction is an Asset Sale consummated in accordance with Section 4.16, or (y) (i) immediately after such transaction, and giving effect thereto, no Default or Event of Default shall have occurred as a result of such transaction and be continuing, and (ii) each Guarantor hereby covenants and agrees that, upon any such consolidation, merger, sale or conveyance, the Guarantee of such Guarantor set forth in this Article Eleven, and the due and punctual performance and S-55 observance of all of the covenants and conditions of this Indenture to be performed by such Guarantor, shall be expressly assumed (in the event that the Guarantor is not the surviving corporation in such transaction), by supplemental indenture satisfactory in form to the Required Holders, executed and delivered to the Holders, together with an Officers' Certificate of the Company stating that the transaction and such supplemental indenture comply with this Indenture, by the corporation formed by such consolidation, or into which the Guarantor shall have merged, or by the corporation that shall have acquired such property. In the case of any such consolidation, merger, sale or conveyance that is not an Asset Sale consummated in accordance with Section 4.16, upon the assumption by the successor corporation, by supplemental indenture executed and delivered to the Holders and satisfactory in form to the Required Holders of the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Guarantor, such successor corporation shall succeed to and be substituted for the Guarantor with the same effect as if it had been named herein as a Guarantor. SECTION 11.07. Contribution. In order to provide for just and equitable contribution among the Guarantors, the Guarantors agree, inter se, that in the event any payment or distribution is made by any Guarantor (a "Funding Guarantor") under this Guarantee, such Funding Guarantor shall be entitled to a contribution from all other Guarantors in a pro rata amount based on the Consolidated Net Worth of each Guarantor (including the Funding Guarantor) for all payments, damages and expenses incurred by that Funding Guarantor in discharging the Company's obligations with respect to the Notes or any other Guarantor's Obligations with respect to this Guarantee. SECTION 11.08. Execution of Guarantee. To evidence their guarantee to the Noteholders specified in Section 11.01, the Guarantors hereby agree to execute the Guarantee in substantially the form attached to the Notes to be endorsed on each Note. Each Guarantor hereby agrees that its Guarantee set forth in Section 11.01 shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Guarantee. Each such Guarantee shall be signed on behalf of each Guarantor by one Officer (each of whom shall, in each case, have been duly authorized by all requisite corporate actions) and the delivery of such Note by the Company to a Holder, shall constitute due delivery of such Guarantee on behalf of such Guarantor. Such signatures upon the Guarantee may be by manual or facsimile signature of such officers and may be imprinted or otherwise reproduced on the Guarantee, and in case any such officer who shall have signed the Guarantee shall cease to be such officer before the Note on which such Guarantee is endorsed shall have been delivered by the Company, such Note nevertheless may be authenticated and delivered or disposed of as though the person who signed the Guarantee had not ceased to be such officer of the Guarantor. S-56 SECTION 11.09. No Payment on Guarantees in Certain Circumstances. (a) Unless Section 11.10 shall be applicable, if any time a default has occurred and is continuing in the payment when due, whether at maturity, upon redemption, by declaration or otherwise, of any principal of, interest on, or unpaid drawings for letters of credit issued in respect of any Guarantor Senior Debt or any Senior Debt guaranteed by a Guarantor (which Guarantee constitutes Guarantor Senior Debt of such Guarantor), no payment of any kind or character, by set-off or otherwise, shall be made by or on behalf of the Guarantor or any other Person on its behalf with respect to any Obligations on the Notes or any of the Obligations of such Guarantor on its Guarantee, or to acquire any of the Notes for cash or property or otherwise, in each case other than payments in Junior Securities. (b) In addition, unless Section 11.10 shall be applicable, if any Nonpayment Default Notice is delivered in accordance with Section 10.02, then, unless and until all events of default have been cured or waived or have ceased to exist or the Holders receive notice from the Representative for the respective issue of Senior Debt terminating the Guarantor Blockage Period (as defined below), during the 179 days after the delivery of such Nonpayment Default Notice (the "Guarantor Blockage Period"), no Guarantor or any other Person on its behalf shall (x) make any payment of any kind or character, by set-off or otherwise, with respect to any Obligations on the Notes or under its Guarantee or (y) acquire any of the Notes for cash or property or otherwise, in each case, other than payments in Junior Securities. Notwithstanding anything herein to the contrary, in no event will a Guarantor Blockage Period extend beyond 179 days from the date the payment on the Notes was due and only one such Guarantor Blockage Period may be commenced within any 360 consecutive days. No event of default which existed or was continuing on the date of the commencement of any Guarantor Blockage Period with respect to the Senior Debt shall be, or be made, the basis for the commencement of a second Guarantor Blockage Period by the Representative of such Senior Debt whether or not within a period of 360 consecutive days, unless such event of default shall have been cured or waived for a period of not less than 90 consecutive days. (c) Notwithstanding anything herein or in the Guarantees to the contrary, until the Senior Debt has been paid in full in cash or Cash Equivalents and all commitments to extend credit in respect of the Senior Debt have expired or terminated, no payments of principal may be made in respect of any Obligations on the Guarantees, or to acquire any of the Guarantees for cash or property or otherwise, except payments in Junior Securities. (d) In the event that, notwithstanding the foregoing, any payment shall be received by any Holder when such payment is prohibited by this Article Eleven, such payment shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Guarantor Senior Debt (pro rata to such holders on the basis of the respective amounts of Guarantor Senior Debt held by such holders) or their respective Representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Debt may have been issued, as their respective interests may appear, for application to the payment of Guarantor Senior Debt remaining unpaid until all such Guarantor Senior Debt has been paid in full in cash or Cash Equivalents. The Holders shall be entitled to rely on information S-57 regarding amounts then due and owing on the Guarantor Senior Debt, if any, received from the holders of Guarantor Senior Debt (or their Representatives). SECTION 11.10. Payment Over of Proceeds upon Dissolution, Etc. (a) Upon any payment or distribution of assets of any Guarantor of any kind or character, whether in cash, property or securities, to creditors upon any total or partial liquidation, dissolution, winding-up, reorganization, assignment for the benefit of creditors or marshaling of assets of such Guarantor or in a bankruptcy, reorganization, insolvency, receivership or other similar proceeding relating to any Guarantor or its property, whether voluntary or involuntary, all Obligations due or to become due upon all Guarantor Senior Debt shall first be paid in full in cash or Cash Equivalents, or such payment duly provided for to the satisfaction of the holders of Senior Debt, before any payment or distribution of any kind or character is made on account of any Obligations on the Notes, or for the acquisition of any of the Notes for cash or property or otherwise, other than payments or distributions in Junior Securities. Upon any such dissolution, winding-up, liquidation, reorganization, receivership or similar proceeding, any payment or distribution of assets of any Guarantor of any kind or character, whether in cash, property or securities, other than payments or distributions in Junior Securities, to which the Holders of the Notes under this Indenture would be entitled, except for the provisions of this Article Eleven, shall be paid by such Guarantor or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the Holders under this Indenture if received by them, directly to the holders of Guarantor Senior Debt (pro rata to such holders on the basis of the respective amounts of Guarantor Senior Debt held by such holders) or their respective Representatives, or to the trustee or trustees under any indenture pursuant to which any of such Guarantor Senior Debt may have been issued, as their respective interests may appear, for application to the payment of Guarantor Senior Debt remaining unpaid until all such Guarantor Senior Debt has been paid in full in cash or Cash Equivalents after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of Guarantor Senior Debt. (b) To the extent any payment of Guarantor Senior Debt (whether by or on behalf of such Guarantor, as proceeds of security or enforcement of any right of setoff or otherwise) is declared to be fraudulent or preferential, set aside or required to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent or other similar person under any bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, then, if such payment is recovered by, or paid over to, such receiver, trustee in bankruptcy, liquidating trustee, agent or other similar person, the Guarantor Senior Debt or part thereof originally intended to be satisfied shall be deemed to be reinstated and outstanding as if such payment had not occurred. (c) In the event that, notwithstanding the foregoing, any payment or distribution of assets of a Guarantor of any kind or character, whether in cash, property or securities, other than in Junior Securities, shall be received by any Holder when such payment or distribution is prohibited by Section 11.10(a), such payment or distribution shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Guarantor Senior Debt (pro rata to such holders on the basis of the respective amount of Guarantor Senior S-58 Debt held by such holders) or their respective Representatives, or to the trustee or trustees under any indenture pursuant to which any of such Guarantor Senior Debt may have been issued, as their respective interests may appear, for application to the payment of Guarantor Senior Debt remaining unpaid until all such Guarantor Senior Debt has been paid in full in cash or Cash Equivalents, after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of such Guarantor Senior Debt. SECTION 11.11. Payments May Be Paid Prior to Dissolution. Nothing contained in this Article Eleven or elsewhere in this Indenture shall prevent any Guarantor, except under the conditions described in Sections 11.09 and 11.10, from making payments at any time of principal of and interest on the Guarantees. Each Guarantor shall give prompt written notice to the Holders of any dissolution, winding-up, liquidation or reorganization of any Guarantor. SECTION 11.12. Subrogation. Subject to the prior payment in full in cash or Cash Equivalents of all Guarantor Senior Debt, the Holders of the Notes shall be subrogated to the rights of the holders of Guarantor Senior Debt to receive payments or distributions of cash, property or securities of such Guarantor applicable to the Guarantor Senior Debt of such Guarantor until the Notes shall be paid in full; and, for the purposes of such subrogation, no such payments or distributions to the holders of the Guarantor Senior Debt by or on behalf of such Guarantor or by or on behalf of the Holders by virtue of this Article Eleven which otherwise would have been made to the Holders shall, as between the Guarantors and the Holders of the Notes, be deemed to be a payment by such Guarantor to or on account of the Guarantor Senior Debt, it being understood that the provisions of this Article Eleven are and are intended solely for the purpose of defining the relative rights of the Holders of the Notes, on the one hand, and the holders of the Guarantor Senior Debt, on the other hand. SECTION 11.13. Obligations of Each Guarantor Unconditional. Nothing contained in this Article Eleven or elsewhere in this Indenture or in the Notes or the Guarantees is intended to or shall impair, as among any Guarantor, its creditors other than the holders of Guarantor Senior Debt, and the Holders of the Notes, the obligation of such Guarantor, which is absolute and unconditional, to pay to the Holders of the Notes the principal of and any interest on the Notes as and when the same shall become due and payable in accordance with the terms of the Guarantees, or is intended to or shall affect the relative rights of the Holders of the Notes and creditors of any Guarantor other than the holders of Guarantor Senior Debt, nor shall anything herein or in the Notes or Guarantees prevent the Holders from exercising all remedies otherwise permitted by all applicable law upon default under this Indenture and the Notes or the Guarantees, subject to the provisions of Sections 11.09 and 11.10 and the rights of holders of Senior Debt in respect of cash, property or securities of the Company received upon exercise of the such remedy. S-59 SECTION 11.14. Notice to Holders. The Company or any Guarantor shall give prompt written notice to the Holders of any fact known to the Company or any such Guarantor which would prohibit the making of any payment to the Holders in respect of the Guarantees pursuant to the provisions of this Article Eleven. In the event that the Required Holders determine in good faith that any evidence is required with respect to the right of any person as a holder of Guarantor Senior Debt to participate in any payment or distribution pursuant to this Article Eleven, the Required Holders may request such person to furnish evidence to the reasonable satisfaction of the Required Holders as to the amounts of Guarantor Senior Debt held by such person, the extent to which such person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such person under this Article Eleven, and if such evidence is not furnished the Required Holders may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. SECTION 11.15. Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets of any Guarantor referred to in this Article Eleven, the Holders of the Notes shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which bankruptcy, dissolution, winding-up, liquidation or reorganization proceedings are pending, or upon certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, delivered to the Holders of the Notes, for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of the Guarantor Senior Debt and other Indebtedness of such Guarantor, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Eleven. SECTION 11.16. [Reserved] SECTION 11.17. Subordination Rights Not Impaired by Acts or Omissions of a Guarantor or Holders of Guarantor Senior Debt. No right of any present or future holders of any Guarantor Senior Debt to enforce subordination as provided herein shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of any Guarantor or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by such Guarantor with the terms of this Indenture, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. S-60 Without in any way limiting the generality of the foregoing paragraph, the holders of Guarantor Senior Debt may, at any time and from time to time, without the consent of or notice to the Holders, without incurring responsibility to the Holders of the Notes and without impairing or releasing the subordination provided in this Article Eleven or the obligations hereunder of the Holders of the Notes to the holders of the Guarantor Senior Debt, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Guarantor Senior Debt, or otherwise amend or supplement in any manner Guarantor Senior Debt, or any instrument evidencing the same or any agreement under which Guarantor Senior Debt is outstanding; (ii) receive, sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Guarantor Senior Debt; (iii) release any Person liable in any manner for the payment or collection of Guarantor Senior Debt or any collateral therefor; and (iv) exercise or refrain from exercising any rights or remedies against such Guarantor or any other Person or any collateral. SECTION 11.18. Noteholders Agree To Effectuate Subordination of Guarantees. Each Holder of Notes by its acceptance of them authorizes and expressly agrees to take such action as may be necessary or appropriate to effectuate, as between the holders of Guarantor Senior Debt and the Holders of Notes, the subordination provided in this Article Eleven. If any Holder does not file a proper claim or proof of debt in the form required in such proceeding prior to 15 days before the expiration of the time to file such claim or claims, then the holders of the Guarantor Senior Debt or their Representative are or is hereby authorized to have the right to file and are or is hereby authorized to file an appropriate claim for and on behalf of the Holders of said Notes. Nothing herein contained shall be deemed to authorize the holders of Guarantor Senior Debt or their Representative to authorize or consent to or accept or adopt on behalf of any Holders any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the holders of Guarantor Senior Debt or their Representative to vote in respect of the claim of any Holder in any such proceeding. SECTION 11.19. This Article Eleven Not To Prevent Events of Default. The failure to make a payment on account of principal of or interest on the Notes by reason of any provision of this Article Eleven will not be construed as preventing the occurrence of an Event of Default. S-61 ARTICLE TWELVE. MISCELLANEOUS SECTION 12.01. [Reserved.] SECTION 12.02. Notices. Any notices or other communications required or permitted hereunder shall be in writing, and shall be sufficiently given if made by hand delivery, by commercial courier service, by telex, by telecopier or registered or certified mail, postage prepaid, return receipt requested, addressed as follows: if to the Company or any Guarantor: Symbion, Inc. 40 Burton Hills Boulevard, Suite 500 Nashville, Tennessee 37215 Facsimile No.: 615-234-7994 Attn: Kenneth C. Mitchell with a copy to: Waller Lansden Dortch & Davis, PLLC 511 Union Street, Suite 2100 P.O. Box 198966 Nashville, Tennessee 37219 Facsimile No.: 615-244-6380 Attn: J. Reginald Hill, Esq. if to the Holders to the address set forth in the Securities Purchase Agreement with a copy to: Cahill Gordon & Reindel LLP 80 Pine Street New York, New York 10005 Facsimile No.: 212-269-5420 Attn.: John Schuster S-62 if to the agent under the Credit Agreement: Bank of America, N.A. Agency Management (IL1-231-08-30) 231 South LaSalle Street Chicago, Illinois 60604 Facsimile No.: 877-206-8412 Attn: Kristine Thennes with a copy to: Bass Berry & Sims PLC 315 Deaderick Street, Suite 2700 Nashville, Tennessee 37238 Facsimile No.: 615-742-6293 Attn: James S. Tate, Jr. Each of the Company, the Guarantors, if any, and the agent under the Credit Agreement by written notice to each other such Person may designate additional or different addresses for notices to such Person. Any notice or communication to the Company, the Guarantors, if any, or the agent under the Credit Agreement shall be deemed to have been given or made as of the date so delivered if personally delivered; when receipt is confirmed if delivered by commercial courier service; when answered back, if telexed; when receipt is acknowledged, if faxed; and five (5) calendar days after mailing if sent by registered or certified mail, postage prepaid (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). Any notice or communication mailed to a Holder shall be mailed to him by first class mail or other equivalent means at his address as it appears on the registration books of the Company and shall be sufficiently given to him if so mailed within the time prescribed. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION 12.03. [Reserved.] SECTION 12.04. Certificate as to Conditions Precedent. Upon any request or application by the Company to the Holders to take any action under this Indenture, the Company shall furnish to the Holders an Officers' Certificate, in form and substance satisfactory to the Required Holders, stating that, in the opinion of the signers, all conditions precedent to be performed by the Company, if any, provided for in this Indenture relating to the proposed action have been complied with. S-63 SECTION 12.05. Statements Required in Certificate. Each certificate with respect to compliance with a condition or covenant provided for in this Indenture, other than the Officers' Certificate required by Section 4.06, shall include: (1) a statement that the Person making such certificate has read such covenant or condition and the definitions relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate are based; (3) a statement that, in the opinion of such Person, he has made such examination or investigation as is reasonably necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of each such Person, such condition or covenant has been complied with. SECTION 12.06. [Reserved.] SECTION 12.07. Legal Holidays. A "Legal Holiday" used with respect to a particular place of payment is a Saturday, a Sunday or a day on which banking institutions in New York, New York or at such place of payment are not required to be open. If a payment date is a Legal Holiday at such place, payment may be made at such place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. SECTION 12.08. Governing Law. THIS INDENTURE, THE NOTES AND THE GUARANTEES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS (OTHER THAN NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1401). EACH OF THE COMPANY AND EACH GUARANTOR AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE. S-64 SECTION 12.09. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or any of its Subsidiaries. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 12.10. No Recourse Against Others. A director, officer, employee, stockholder or incorporator, as such, of the Company, the Guarantors, if any, shall not have any liability for any obligations of the Company under the Notes or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. Such waiver and release are part of the consideration for the issuance of the Notes. SECTION 12.11. Successors. All agreements of the Company and the Guarantors, if any, in this Indenture, the Notes and the Guarantees, if any, shall bind their successors. SECTION 12.12. Severability. In case any one or more of the provisions in this Indenture or in the Notes or the Guarantees, if any, shall be held invalid, illegal or unenforceable, in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions shall not in any way be affected or impaired thereby, it being intended that all of the provisions hereof shall be enforceable to the full extent permitted by law. S-65 EX-10.14 10 g85742s1exv10w14.txt EX-10.14 CREDIT AGREEMENT EXHIBIT 10.14 ================================================================================ CREDIT AGREEMENT Dated as of July 18, 2003 Among SYMBION, INC., as the Borrower, the Lenders identified herein, and BANK OF AMERICA, N.A., as Administrative Agent and as Issuing Bank ----------------------------- $ 110,000,000 ----------------------------- CREDIT SUISSE FIRST BOSTON Syndication Agent KEY CORPORATE CAPITAL INC. Documentation Agent BANC OF AMERICA SECURITIES, LLC Sole Lead Arranger and Sole Book Manager ================================================================================ CREDIT AGREEMENT THIS CREDIT AGREEMENT (this "Agreement"), dated as of July 18, 2003, is made and entered into on the terms and conditions hereinafter set forth, by and among SYMBION, INC., a Delaware corporation ("Symbion"), those several lenders who are or become parties to this Agreement (collectively, the "Lenders" and, individually, a "Lender"), and BANK OF AMERICA, N.A., a national banking association ("Bank of America"), as administrative agent for the Lenders and the Issuing Bank (in such capacity, the "Administrative Agent") and as Issuing Bank. THE PARTIES HERETO AGREE AS FOLLOWS: ARTICLE 1. DEFINITIONS, ACCOUNTING TERMS AND PRINCIPLES OF CONSTRUCTION 1.1. Defined Terms. In addition to terms defined elsewhere herein, the following terms, as used in this Agreement, shall have the respective meanings set forth below (terms defined in the singular to have the same meaning when used in the plural, and vice versa, unless otherwise expressly indicated): "Accounting Changes" shall mean changes in accounting principles required or permitted by the promulgation of any rule, regulation, pronouncement or opinion by the Financial Accounting Standards Board of the American Institute of Certified Public Accountants or, if applicable, the Commission. "Administrative Agent" shall mean Bank of America or such successor Administrative Agent as may be appointed by the Lenders pursuant to Section 12.10. "Affiliate" shall mean, as to any Person, any other Person directly or indirectly controlling (including all directors, officers and employees of such Person), directly or indirectly controlled by or under direct or indirect common control with such Person. "Affiliate Transaction" shall have the meaning given such term in Section 9.10. "Agent-Related Persons" means the Administrative Agent, together with its Affiliates (including, in the case of Bank of America in its capacity as the Administrative Agent, the Arranger), and the officers, directors, employees, agents and attorneys-in-fact of such Persons and Affiliates. "Applicable Base Rate Margin" shall mean the margin to be added to the Base Rate for purposes of determining the interest rate(s) applicable to Base Rate Loans from time to time, which shall be determined as provided in Section 2.14. "Applicable Commitment Fee Percentage" shall mean the percentage to be used to calculate Commitment Fees from time to time, which shall be determined as provided in Section 2.14. "Applicable Letter of Credit Fee Percentage" shall mean the annualized percentage to be used to calculate Letter of Credit Fees from time to time, which shall be determined as provided in Section 2.14. "Applicable Eurodollar Rate Margin" shall mean the margin to be added to the Eurodollar Rate for purposes of determining the interest rate(s) applicable to Eurodollar Loans from time to time, which shall be determined as provided in Section 2.14. "Arranger" shall mean Banc of America Securities, LLC, in its capacity as sole lead arranger and sole book manager with respect to the Facilities. "Asset Acquisition" shall mean (a) any Investment by the Borrower or any of its Subsidiaries in any other Person pursuant to which such Person shall become a Subsidiary of the Borrower or any of its Subsidiaries or shall be merged with the Borrower or any of its Subsidiaries or (b) any acquisition by the Borrower or any of its Subsidiaries of the assets of any Person (other than a Subsidiary of the Borrower) that constitute all or substantially all of the assets of such Person or comprise any division or line of business of such Person or any other properties or assets of such Person other than in the ordinary course of business. "Asset Sale" shall mean any Disposition or series of related Dispositions of any asset(s) of the Borrower or any of its Subsidiaries, excluding any such Disposition permitted by subsections 9.3(a), (b) or (c), that yields gross proceeds to the Borrower or any such Subsidiary (valued at the initial principal amount thereof in the case of non-cash proceeds consisting of notes or other debt securities and valued at fair market value (as determined by the Administrative Agent) in the case of other non-cash proceeds) in excess of $1,000,000; provided, however, that any Asset Sale by a Majority Owned Center Subsidiary or a Permitted Non-Guarantor Entity shall be treated as an Asset Sale hereunder only to the extent of the interest(s) (direct or indirect) of the Borrower and the other Credit Parties in the transaction. "Assignment and Assumption" shall mean an assignment and assumption, substantially in the form of Exhibit 13.2, between a transferor Lender and a proposed transferee, regarding the sale, assignment, transfer or other disposition (other than the sale of a participation) of all or any amount of the Commitments, Revolving Loans and participations in the Letters of Credit of such Lender. "Base Rate" shall mean, for any period, the greater of (1) the fluctuating rate of interest per annum from time to time established by Bank of America as its "prime rate", regardless of whether published or publicly announced, or (2) a fluctuating rate of interest per annum equal to one-half of one percentage point (0.5%) in excess of the Federal Funds Rate in effect from time to time. Each change in the Base Rate shall be effective as of the opening of business on the day such change occurs. The parties hereto acknowledge that the rate established by Bank of America as its "prime rate" is an index or base rate and is not necessarily the lowest rate charged to its customers or other banks. In the event that Bank of America discontinues or abandons the practice of establishing a prime rate, or should the same become unascertainable, the Administrative Agent shall designate a comparable reference rate for use in determining the Base Rate for purposes hereof. "Base Rate Loans" shall mean Revolving Loans bearing interest at rates determined by reference to the Base Rate. "Borrower" shall mean Symbion. As used herein, "Borrower" shall include Symbion in its capacity as the successor to Symbion (Tennessee) by virtue of the merger of Symbion (Tennessee) with and into Symbion. "Borrower Healthcare Facility" shall have the meaning given such term in Section 7.24. "Borrowing" shall mean (1) a borrowing consisting of Revolving Loans made to the Borrower on the same day by the Lenders ratably according to their respective Revolving Credit Commitments pursuant to the provisions of Section 2.2, and (2) a borrowing consisting of a Swingline Loan made to the Borrower by the Swingline Lender according to the Swingline Commitment pursuant to the provisions of Section 2.3. "Business Day" shall mean any day other than a Saturday, a Sunday or any other day on which commercial banks in New York, New York, Charlotte, North Carolina or Nashville, Tennessee are either authorized or required by law or executive order to close; provided that for purposes of provisions of this Agreement relating to Eurodollar Loans, "Business Day" shall include only those days that meet the foregoing requirements and on which trading in Dollar deposits is conducted in the London interbank Eurodollar market. "Capital Expenditures" shall mean, as to any Person for any period, the aggregate of all expenditures by such Person and its Subsidiaries for the acquisition or leasing (pursuant to a Capitalized Lease) of fixed or capital assets or additions to equipment (including replacements, capitalized repairs and improvements during such period) that should be capitalized on a consolidated balance sheet of such Person and its Subsidiaries in conformity with GAAP, including charges in respect of Capitalized Lease Obligations exclusive of imputed interest on such Capitalized Lease Obligations. "Capital Stock" shall mean any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person other than a corporation and any and all warrants, rights or options to purchase any of the foregoing. "Capitalization" shall mean, for the Borrower and its Subsidiaries on a consolidated basis, the sum of Consolidated Funded Indebtedness, plus Consolidated Net Worth. "Capitalized Lease" shall mean, as to any Person, any lease of property by such Person as lessee that would be capitalized on a balance sheet of such Person prepared in conformity with GAAP. "Capitalized Lease Obligations" shall mean, as to any Person, the capitalized amount of the obligations of such Person and its Subsidiaries under all Capitalized Leases. "Cash Equivalents" shall mean, at any time, (a) certificates of deposit or time deposits having a maturity not exceeding ninety (90) days, and demand deposits, that are fully insured by the Federal Deposit Insurance Corporation and that are maintained with commercial banks organized and existing under, or chartered or otherwise qualified to do business under, the laws of the United States of America or any State thereof or the District of Columbia; (b) Government Obligations having a maturity not exceeding one (1) year; (c) commercial paper rated at least A-1 by S&P or P-1 by Moody's, having a maturity not exceeding ninety (90) days; (d) certificates of deposit or time deposits maintained with (i) the Lenders or (ii) other commercial banks having capital and undivided surplus of at least $500 million and issuing commercial paper rated as described in the preceding clause (c) and organized and existing under, or chartered or otherwise qualified to do business under, the laws of the United States of America or any State thereof or the District of Columbia, having a maturity not exceeding ninety (90) days; (e) repurchase agreements or investment contracts having a maturity not exceeding seven (7) days with a financial institution insured by the Federal Deposit Insurance Corporation, or any broker or dealer (as defined in the Securities Exchange Act of 1934) that is a dealer in government bonds and that is recognized by trades with and reports to, a Federal Reserve Bank as a primary dealer in government securities; provided that in any case (i) collateral is pledged for the repurchase agreement or investment contract, which collateral consists of (A) Government Obligations or evidences of ownership of proportionate interests in future interest and principal payments on Government Obligations held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor on such obligations, and which underlying obligations are held in a segregated account and not available to satisfy any claim of the custodian or any person claiming through the custodian or to whom the custodian may be obligated or (B) evidences of indebtedness issued by any of the following: Bank of Cooperatives, Export-Import Bank of the United States, Farmers Home Administration, Federal Financing Bank, Federal Home Loan Bank System, Federal Home Loan Mortgage Corporation (including participation certificates), Federal Housing Administration, Federal Farm Credit Banks, Federal National Mortgage Association, Government National Mortgage Association, Inter-American Development Bank, International Bank for Reconstruction and Development, Small Business Administration or any other agency or instrumentality of the United States of America created by an act of Congress that is substantially similar to the foregoing in its legal relationship to the United States of America, (ii) the current market value of the collateral securing the repurchase agreement or investment contract is at least equal to the amount of the repurchase agreement or investment contract and (iii) the current market value of the collateral is determined not less frequently than monthly; (f) investments in money market funds substantially all of whose assets consist of securities of the types described in the foregoing clauses (b) through (e); (g) investments in obligations the return with respect to which is excludable from gross income under Section 103 of the Code, having a maturity of not more than six (6) months or providing the holder the right to put such obligations for purchase at par upon not more than twenty-eight (28) days' notice, and which are rated at least A-1 by S&P or P-1 by Moody's; (h) investments in tax free money market funds all of whose assets consist of securities of the types described in the foregoing clause (g); and (i) investments, redeemable upon not more than seven (7) days' notice, in money market preferred municipal bond funds that are rated at least AAA by S&P or Aaa by Moody's. "Center" shall mean a surgery center, a diagnostic imaging center, a surgical hospital or a hospital that provides only surgical services and services directly related thereto. "Certificate of Designation (Series A and Series B Preferred Stock)" shall mean the Certificate of Designation of Rights and Preferences of Series A Convertible Preferred Stock and Series B Convertible Preferred Stock of Symbion, Inc., dated September 16, 2002, filed with the Secretary of State of Delaware on September 16, 2002 (020575294 - 3531259), as the same is in effect on the date of this Agreement. "Change of Control" means the occurrence of one or more of the following events: (a) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Borrower (regardless of whether otherwise in compliance with the provisions of this Agreement); (b) the liquidation or dissolution of the Borrower (regardless of whether otherwise in compliance with the provisions of this Agreement); (c) any Person or group (as defined in Section 13(d) of the Securities Exchange Act of 1934) shall become the owner, directly or indirectly, beneficially or of record, of shares representing more than 30% of the aggregate ordinary voting power represented by the issued and outstanding Capital Stock ("Voting Stock") of the Borrower; (d) the replacement of a majority of the board of directors of the Borrower over a two-year period from the directors who constituted the board of directors of the Borrower at the beginning of such period, and such replacement shall not have been approved by a vote of at least a majority of the board of directors of the Borrower then still in office who either were members of such board of directors at the beginning of such period or whose election as a member of such board of directors was previously so approved by members of such board of directors; or (e) the merger or consolidation of the Borrower with or into another Person or the merger of another Person with or into the Borrower, other than a transaction following which holders of securities that represented 100% of the Voting Stock of the Borrower immediately prior to such transaction (or other securities into which such securities are converted as part of such merger or consolidation transaction) own directly or indirectly at least a majority of the voting power of the Voting Stock of the surviving Person in such merger or consolidation transaction immediately after such transaction and in substantially the same proportion as before the transaction. Notwithstanding the foregoing, a Change of Control shall not be deemed to occur for purposes of the preceding clause (c) or (e) so long as, following the occurrence of, or in connection with, any such event, (i) no Default has occurred and is continuing, (2) the services of Richard E. Francis, Jr. and Clifford G. Adlerz are retained in the same capacity such individuals hold with the Borrower on the date of this Agreement, and (3) with respect to clause (e), existing shareholders of the Borrower do not receive cash or Cash Equivalents except for cash in lieu of fractional shares. "Code" shall mean the Internal Revenue Code of 1986. "Collateral" shall mean all property and interests in property, presently owned or hereafter acquired or presently existing or hereafter created by the Credit Parties, including any and all proceeds thereof, in which a security interest has been granted in favor of the Administrative Agent for the ratable benefit of the Lenders, the Issuing Bank and the Administrative Agent, whether under this Agreement, the Security Documents or any other Loan Document. "Collateral Account" shall mean the Collateral Account described in Section 11.3.1. "Collateral Real Estate Interests" shall mean the tracts or parcels of real property owned or leased by the Borrower or any Subsidiary Guarantor and designated as "Collateral Real Estate Interests" on Schedule 6.1.1A, together with each additional tract or parcel of real property owned or leased by the Borrower or any Subsidiary Guarantor and encumbered by a Mortgage delivered pursuant to Section 4.2. "Commission" shall mean the Securities and Exchange Commission or any successor entity. "Commitment Fees" shall have the meaning given such term in Section 2.12.3. "Commitment Period" shall mean that period commencing on the date hereof and continuing to, but not including, the Maturity Date. "Commitments" shall mean the Revolving Credit Commitments and the Letter of Credit Commitments, which collectively are in the initial aggregate amount set forth in Section 2.1 and in the case of each Lender are in the initial amount set forth with such Lender's signature on this Agreement or the Assignment and Assumption pursuant to which such Lender became a party hereto, and which are subject to adjustment as provided in Section 2.1. "Commonly Controlled Entity" shall mean a Person that is under common control with the Borrower within the meaning of subsection 414(b), (c), (m), (n) or (o) of the Code. "Compliance Certificate" shall mean a certificate signed by a Responsible Officer of the Borrower, substantially in the form of Exhibit 1.1A, duly completed, regarding, among other things, compliance with the financial covenants contained herein. "Consolidated Funded Indebtedness" shall mean, for the Borrower and its Subsidiaries on a consolidated basis, (1) all Indebtedness of the Borrower and its Subsidiaries of the types described in clauses (a) through (h) of the definition of "Indebtedness" in this Agreement, and (2) without duplication, all Contingent Obligations the primary obligation of which is Indebtedness of the type described in the foregoing clause (1). "Consolidated Net Income" shall mean, for the Borrower and its Subsidiaries on a consolidated basis for any period, the net income (or loss) after taxes of the Borrower and its Subsidiaries on a consolidated basis for such period taken as a single accounting period, determined in conformity with GAAP; provided that there shall be excluded therefrom (1) customary exclusions with respect to extraordinary and nonrecurring items (and corresponding tax consequences), (2) the net income (but not loss) of any Subsidiary of the Borrower to the extent that the declaration of dividends or similar distributions of that income by that Subsidiary is actually restricted by contract or operation of law, except to the extent of cash dividends or distributions actually paid by that Subsidiary to the Borrower or a Wholly Owned Subsidiary of the Borrower, and (3) income or loss attributable to discontinued operations. "Consolidated Net Worth" shall mean, for the Borrower and its Subsidiaries on a consolidated basis, shareholders' or owner's equity, determined in conformity with GAAP. "Contingent Obligations" shall mean, as to any Person, any contingent obligation calculated in conformity with GAAP, and in any event shall include (without duplication) all indebtedness, obligations or other liabilities of such Person guaranteeing or in effect guaranteeing the payment or performance of any indebtedness, obligation or other liability, whether or not contingent (collectively, the "primary obligations"), of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including any indebtedness, obligation or other liability of such Person, (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (d) otherwise to assure or hold harmless the owner of such primary obligation against loss with respect thereto. "Contractual Obligations" shall mean, as to any Person, any and all indebtedness, obligations or other liabilities of such Person, now existing or hereafter arising, whether due or not due, absolute or contingent, liquidated or unliquidated, direct or indirect, express or implied, individually or jointly with others, pursuant to the provisions of any document, instrument or agreement to which such Person is a party or by which such Person or any of its property is or may be bound or affected or pursuant to the provisions of any security issued by such Person. "Control" shall mean the possession, directly or indirectly (including through intermediaries), of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise, and the terms "controlling" and "controlled" have corresponding meanings. "Credit Fees" shall mean the credit fees payable as provided in Section 2.12. "Credit Parties" shall mean the Borrower and each existing and future Subsidiary Guarantor, individually and collectively. "Default" shall mean any of the events specified in Section 11.1, regardless of whether any requirement for the giving of notice (and if applicable, an opportunity to cure), the lapse of time or both has been satisfied. "Default Rate" shall mean the rate(s) per annum applicable to Loans from time to time pursuant to Tier 5 of Section 2.14, plus two percentage points (2.00%); provided, however, that in no event shall any Default Rate exceed the Highest Lawful Rate. "Disposition" shall mean any sale, lease, sale and leaseback, assignment, conveyance, transfer or other disposition of property, and the terms "Dispose" and "Disposed of" shall have correlative meanings. "Dollars" and "$" shall mean lawful money of the United States of America. "Domestic Subsidiary" shall mean any Subsidiary of the Borrower organized under the laws of any jurisdiction within the United States of America. "EBITDA" shall mean, for the Borrower and its Subsidiaries on a consolidated basis for any period, the sum of Consolidated Net Income plus (a) the following, without duplication and to the extent deducted in computing Consolidated Net Income: (1) Interest Expense, (2) federal, state, local and foreign income, value-added and similar tax expense, (3) depreciation, and (4) amortization of intangible assets and other non-cash charges, less (b) any non-cash items increasing Consolidated Net Income for such period (except to the extent cash relating to such item has been received after the date of this Agreement). "Environmental Laws" shall mean all federal, state, regional, county or local laws, statutes, rules, regulations or ordinances, now or hereafter in effect, relating to the generation, recycling, use, reuse, sale, storage, handling, transport, treatment or disposal of Hazardous Materials, including the Comprehensive Environmental Response Compensation Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. Section 9601 et seq., the Resource Conservation and Recovery Act of 1976, as amended by the Solid and Hazardous Waste Amendments of 1984, 42 U.S.C. Section 6901 et seq., the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq., the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Clean Air Act, 42 U.S.C. Section 7401 et seq., the Clean Water Act of 1977, 33 U.S.C. Section 1251 et seq., the Tennessee Hazardous Waste Management Act of 1977, Tenn. Code Ann. Section 68-212-101 et seq., the Tennessee Hazardous Waste Management Act of 1983, Tenn. Code Ann. Section 68-212-201 et seq., and any rules, regulations and guidance documents promulgated or published thereunder, and any state, regional, county or local statute, law, rule, regulation or ordinance now or hereafter in effect that relates to public health or safety, to the discharge, emission or disposal of Hazardous Materials in or to air, water, land or groundwater, to the withdrawal or use of groundwater, to the use, handling or disposal of asbestos, polychlorinated biphenyls, petroleum, petroleum derivatives or by-products, other hydrocarbons or urea formaldehyde, to the treatment, storage, disposal or management of Hazardous Materials, to exposure to Hazardous Materials or to the transportation, storage, disposal, management or release of gaseous or liquid substances, and any regulation, order, injunction, judgment, declaration, notice or demand issued thereunder. "ERISA" shall mean the Employee Retirement Income Security Act of 1974. "Eurocurrency Reserve Requirements" shall mean for any day as applied to a Eurodollar Loan, the aggregate (without duplication) of the maximum rates (expressed as a decimal fraction, carried to five decimal places) of the reserve requirements in effect on such day (including basic, supplemental, marginal and emergency reserves under any regulations of the Federal Reserve Board or any other banking authority or other Governmental Authority having jurisdiction with respect thereto) prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Federal Reserve Board) maintained by a member bank of the Federal Reserve System. Eurodollar Loans shall be deemed to constitute Eurocurrency Liabilities and as such shall be deemed to be subject to such reserve requirements without benefit or credit for proration, exceptions or offsets that may be available from time to time to any Lender under Regulation D. Eurocurrency Reserve Requirements shall be deemed adjusted automatically on and as of the effective date of any change in any reserve percentage. "Eurodollar Base Rate" shall mean, for each day during each Interest Period with respect to a Eurodollar Loan, the rate per annum for offered Dollar deposits in the London interbank Eurodollar market appearing on page 3750 of the TELERATE rate reporting system at approximately 11:00 a.m., Central time, on the Interest Rate Determination Date immediately prior to the beginning of such Interest Period, for the number of months comprised therein and in an amount equal to the amount of such Eurodollar Loan to be outstanding during such Interest Period. Without limiting the provisions of Section 2.15.3, in the event that prior to the Maturity Date TELERATE quotes for the Eurodollar Base Rate are discontinued or become unascertainable, the Administrative Agent may (1) determine the Eurodollar Base Rate with reference to the rate per annum for offered Dollar deposits in the interbank Eurodollar market appearing on the Reuters Screen LIBO Page at approximately 11:00 a.m., Central time, on the Interest Rate Determination Date immediately prior to the beginning of the Interest Period for the corresponding Eurodollar Loan, for the number of months comprised therein and in an amount equal to the amount of such Eurodollar Loan to be outstanding during such Interest Period (and if more than one such rate appears, the Administrative Agent may use the arithmetic mean of such rates), or (2) designate any other comparable resource for use in determining the Eurodollar Base Rate for purposes hereof. "Eurodollar Loans" shall mean Revolving Loans bearing interest at rates determined by reference to the Eurodollar Rate. "Eurodollar Rate" shall mean, for each day during each Interest Period with respect to a Eurodollar Loan, a rate per annum determined for such day in accordance with the following formula (rounded upward, if necessary, to the nearest 0.01%): Eurodollar Rate = Eurodollar Base Rate / (1.00 - Eurocurrency Reserve Requirements) "Event of Default" shall mean any of the events specified in Section 11.1, provided that any requirement for the giving of notice (and if applicable, an opportunity to cure), the lapse of time or both has been satisfied. "Excluded Foreign Subsidiary" shall mean any Foreign Subsidiary in respect of which either (1) the pledge of all of the Capital Stock of such Subsidiary as Collateral or (2) the guaranteeing by such Subsidiary of the Obligations, would, in the good faith judgment of the Borrower, result in material adverse tax consequences to the Borrower and its Subsidiaries, taken as a whole; provided, however, that a Foreign Subsidiary that is treated as a pass-through entity for United States federal income tax purposes shall not be an Excluded Foreign Subsidiary while so treated. "Excluded Prepayment Transaction" shall mean (1) the incurrence of any Indebtedness in accordance with subsections 9.1 (a), (b), (c), (d), (g), (h), (i) or (k) as in effect on the date of this Agreement, provided that the proceeds thereof are used in compliance with any applicable requirements of the applicable subsection, (2) the incurrence of Subordinated Indebtedness permitted by this Agreement, the proceeds of which are used in compliance with subsection 9.5(c) as in effect on the date of this Agreement, (3) the issuance of any Capital Stock pursuant to subsection 9.6(a), provided that the proceeds thereof are used in compliance with subsections 9.5(b), (c) or (j), all as in effect on the date of this Agreement, and (4) the issuance of any Capital Stock pursuant to any stock option, stock incentive or similar plan described in subsection 9.5(f). "Excluded Subsidiary" shall mean (1) each Excluded Foreign Subsidiary, (2) each Majority Owned Center Subsidiary and (3) any other Subsidiary of the Borrower that owns assets having a fair market value of $100,000 or less and whose assets do not include a direct or indirect interest in a Center or in a Person that owns or operates a Center; provided, however, that in no event shall any "Guarantor" (as defined in the 2003 Subordinated Note Indenture) be an Excluded Subsidiary. For avoidance of doubt, when used herein "Excluded Subsidiary" shall be deemed to refer also to each Permitted Non-Guarantor Entity. "Existing Liens" shall mean those certain Liens in existence on the date hereof that are described on Schedule 9.2. "Facilities" shall mean the Revolving Credit Facility, the Swingline Facility and the Letter of Credit Facility. "Federal Funds Rate" shall mean, for any period, a fluctuating interest rate per annum equal, for each day during such period, to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for each day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of New York. "Federal Reserve Board" shall mean the Board of Governors of the Federal Reserve System of the United States (or any successor). "Financing Statement" shall mean any Uniform Commercial Code financing statement filed in connection with this Agreement or any other Loan Document. "Fiscal Quarter" shall mean each of the accounting periods of approximately three (3) months ending on March 31, June 30, September 30 and December 31, respectively, of each year. "Fiscal Year" shall mean the twelve (12) month period ending on December 31 of each year. "Fixed Charge Coverage Ratio" shall mean, for the Borrower and its Subsidiaries on a consolidated basis, calculated as of any date of determination for the Last Four Fiscal Quarters, the ratio of (a) EBITDA, plus Rent Expense, less the Maintenance Capital Expenditure Adjustment, less income, value-added and similar tax expenses paid in cash, to (b) the sum of the portion of Interest Expense that was paid in cash or its equivalent during such period, plus the principal amount of Consolidated Funded Indebtedness that was paid or that matured or otherwise was payable during such period, plus Rent Expense. "Foreign Subsidiary" shall mean any Subsidiary of the Borrower that is not a Domestic Subsidiary. "Funded Indebtedness to Capitalization Ratio" shall mean, for the Borrower and its Subsidiaries on a consolidated basis, as of any date of determination, the ratio of Consolidated Funded Indebtedness to Capitalization. "Funded Indebtedness to EBITDA Ratio" shall mean, for the Borrower and its Subsidiaries on a consolidated basis, calculated as of any date of determination for the Last Four Fiscal Quarters after giving Pro Forma Effect to any relevant transaction occurring during such period, the ratio of Consolidated Funded Indebtedness to EBITDA. "Funding Date" shall mean each of the respective dates on which the funding of a Borrowing made under this Agreement occurs. "GAAP" shall mean generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and in the statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, as amended or modified from time to time, except that for purposes of Article 10, GAAP shall be determined on the basis of such principles in effect on the date hereof and consistent with those used in the preparation of the most recent audited financial statements described in Section 7.5. "Government Obligations" shall mean direct obligations of the United States of America or obligations for the full and prompt payment of which the full faith and credit of the United States of America are pledged. "Governmental Authority" shall mean any nation, province, state or other political subdivision thereof and any government or any natural person or entity exercising executive, legislative, regulatory or administrative functions of or pertaining to government. "Guarantee" shall mean the guarantee of the Obligations of the Borrower set forth in Article 2 of the Guarantee and Security Agreement. "Guarantee and Security Agreement" shall mean the Security Agreement (Including Guarantee), substantially in the form of Exhibit 4.1, to be executed and delivered by the Borrower and each Subsidiary Guarantor in favor of the Administrative Agent for the ratable benefit of the Lenders, the Issuing Bank and the Administrative Agent. "Hazardous Materials" shall mean gasoline, motor oil, fuel oil, waste oil, other petroleum or petroleum-based products, asbestos, polychlorinated biphenyls, medical and infectious wastes and any chemical, material or substance to which exposure is prohibited, limited or regulated by any federal, state, county, local or regional authority or which, even if not so regulated, is known to pose a hazard to health and safety, including but not limited to substances and materials defined or designated as "hazardous substances", "hazardous wastes", "pollutants", "contaminants", "hazardous materials" or "toxic substances" under any Environmental Law. "Hedge Agreements" shall mean, as to any Person, all interest rate swaps, caps or collar agreements, interest rate insurance and other similar agreements or arrangements entered into by such Person to obtain protection against fluctuations in interest rates or currency exchange rates or the exchange of nominal interest obligations, either generally or under specific contingencies. "Highest Lawful Rate" shall mean, with respect to each Lender, the maximum nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on debts outstanding hereunder or under the Notes, as the case may be, under the laws applicable to such Lender that are presently in effect or, to the extent allowed by law, under such applicable laws that may hereafter be in effect and that allow a higher maximum nonusurious interest rate than applicable laws now allow. "Indebtedness" shall mean, as to any Person, all items that in conformity with GAAP would be shown on the balance sheet of such Person as a liability and in any event shall include (without duplication) (a) indebtedness for borrowed money or for notes, debentures or other debt securities, (b) notes payable and drafts accepted representing extensions of credit regardless of whether the same represent obligations for borrowed money, (c) reimbursement obligations (regardless of whether due) in respect of letters of credit issued for the account of such Person (including any such obligations in respect of any drafts drawn thereunder), (d) liabilities for all or any part of the deferred purchase price of property or services, including Purchase Money Debt and all other liabilities arising from conditional sales contracts and similar title retention debt instruments, (e) liabilities secured by any Lien on any property or asset owned or held by such Person regardless of whether the indebtedness secured thereby shall have been assumed by or is a primary liability of such Person, (f) Capitalized Lease Obligations, (g) the principal component of any synthetic lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing pursuant to which such Person is the obligor to the extent such transaction is considered indebtedness for federal income tax purposes but is classified as an Operating Lease in accordance with GAAP, (h) all Indebtedness described in clauses (a) through (g) of any partnership or unincorporated joint venture to the extent such Person is legally obligated therefor or with respect to whom such Person reasonably expects that it will be liable with respect thereto, (i) Contingent Obligations, (j) for the purposes of Section 11.1.8 only, all obligations of such Person in respect of Hedge Agreements, and (k) the liquidation value of any mandatorily redeemable preferred Capital Stock of such Person or its Subsidiaries held by any Person other than such Person and its Wholly Owned Subsidiaries. "Independent Financial Advisor" shall mean a firm (a) that does not, and whose directors, officers and employees or Affiliates do not, have a direct or indirect material financial interest in the Borrower, and (b) that, in the judgment of the board of directors of the Borrower, is otherwise independent and qualified to perform the task for which it is to be engaged. "Interest Expense" shall mean, as to any Person and its Subsidiaries on a consolidated basis for any period, (a) interest expense and amortization of deferred loan costs (calculated without regard to any limitations on the payment thereof), excluding interest that is paid solely by issuing additional 2003 Subordinated Notes in accordance with the terms of the 2003 Subordinated Notes, (b) imputed interest on Capitalized Lease Obligations and on synthetic leases, tax retention operating leases, off-balance sheet loans and similar off-balance sheet financing transactions, (c) commissions, discounts and other fees and charges owed with respect to letters of credit and unused commitments, and (d) net costs under Hedge Agreements and any other interest rate protection agreements, all as determined in conformity with GAAP (except with respect to synthetic leases and similar items, which will be determined in conformity with calculations for federal income tax purposes). "Interest Payment Date" shall mean, (a) with respect to any Base Rate Loan or Swingline Loan, January 1, April 1, July 1 and October 1 of each year, commencing on the first such date after the applicable Funding Date, and (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to such Loan; provided, however, that with respect to any Interest Period of six (6) months "Interest Payment Date" also shall include the day that is three (3) months after the day on which that Interest Period commenced. "Interest Period" shall mean any interest period applicable to a Eurodollar Loan as determined pursuant to Section 2.15.1. "Interest Rate Determination Date" shall mean each date for calculating the Eurodollar Rate for purposes of determining the interest rate in respect of an Interest Period, which in each case shall be the second (2nd) Business Day prior to the first (1st) day of the corresponding Interest Period. "Investment" shall mean the making of any loan, advance, extension of credit or capital contribution to, or the acquisition of any stock, bonds, notes, debentures or other obligations or securities of, or the acquisition of any other interest in or the making of any other investment in, any Person. For purposes of Section 9.4, the amount of any Investment shall be the original cost of such Investment plus the cost of all additional Investments by the Borrower or any of its Subsidiaries, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment, reduced by any repayment of principal or a return of capital, as the case may be, and by the payment of dividends or distributions in connection with such Investment or any other amounts received in respect of such Investment; provided that no such repayment of principal, return of capital, payment of dividends or distributions or receipt of any such other amounts shall reduce the amount of any Investment if such repayment of principal, return of capital, payment of dividends or distributions or receipt of any such amounts would be included in Consolidated Net Income. If the Borrower or any Subsidiary of the Borrower Disposes of any Capital Stock of any direct or indirect Subsidiary of the Borrower such that, after giving effect to any such Disposition, such Subsidiary ceases to be a Subsidiary of the Borrower, the Borrower shall be deemed to have made an Investment on the date of any such Disposition equal to the fair market value of the Capital Stock of such Subsidiary not Disposed of. "Issuing Bank" shall mean Bank of America and any other financial institution that, subject to approval by the Administrative Agent and the Borrower, agrees to become a party to this Agreement and to issue Letters of Credit pursuant to Section 2.4. "Last Four Fiscal Quarters" shall mean, as of any date of determination, the Fiscal Quarter ending on such date or otherwise then most recently ended plus the immediately preceding three Fiscal Quarters. "Leased Property" shall mean real property in which the Borrower or a Subsidiary Guarantor has a leasehold interest only. "Lending Office" shall mean with respect to any Lender or the Administrative Agent, the office of each such Lender at the address specified on the signature pages hereto or in the Assignment and Assumption pursuant to which it became a Lender, or such other office as any such Lender from time to time may specify to the Borrower and the Administrative Agent. "Letter of Credit Commitments" shall mean, at any time, (a) the commitment of the Issuing Bank to issue Letters of Credit pursuant to the provisions of Section 2.4.1, and (b) the aggregate commitments of all the Lenders to purchase participations in the Letter of Credit Liabilities pursuant to the provision of Section 2.5; and the "Letter of Credit Commitment" of any Lender at any time shall mean an amount equal to such Lender's Percentage multiplied by the then effective aggregate Letter of Credit Commitments under clause (b) above. The Letter of Credit Commitments are in the aggregate amount set forth in Section 2.1. "Letter of Credit Facility" shall mean the letter of credit facility provided by the Lenders pursuant to the Letter of Credit Commitments as more particularly set forth in Section 2.4. "Letter of Credit Fees" shall have the meaning given such term in Section 2.12.4. "Letter of Credit Liabilities" shall mean all liabilities of the Borrower to the Issuing Bank in respect of Letters of Credit, regardless of whether any such liability is contingent, and shall consist of the sum, without duplication, of (a) the amount available to be drawn or that may become available to be drawn under outstanding Letters of Credit (including all amounts committed to be paid by the Issuing Bank thereunder), and (b) all amounts that have been paid or made available by the Issuing Bank thereunder if and to the extent the Issuing Bank has not received reimbursement from the Borrower pursuant to the terms hereof. "Letter of Credit Request" shall mean a request substantially in the form of Exhibit 2.4.2 with respect to the proposed issuance of a Letter of Credit hereunder. "Letter of Credit Supportable Obligations" shall mean (a) obligations of the Borrower or any of its Subsidiaries incurred in the ordinary course of business with respect to workers' compensation, surety bonds and other similar statutory obligations, and (b) such other obligations of the Borrower or any of its Subsidiaries as are reasonably acceptable to the Issuing Bank and the Administrative Agent and otherwise permitted to exist pursuant to the terms of this Agreement. "Letters of Credit" shall mean the letters of credit issued by the Issuing Bank pursuant to the provisions of Section 2.4.1. "Lien" shall mean, as to any asset, (a) any lien, charge, claim, mortgage, security interest, pledge, hypothecation or other encumbrance of any kind with respect to such asset, (b) any interest of a vendor or lessor under any conditional sale agreement, Capitalized Lease or other title retention agreement relating to such asset, (c) any reservation, exception, encroachment, easement, right-of-way, covenant, condition, restriction, lease or other title exception affecting such asset, or (d) any assignment, deposit, preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction). "Loan Documents" shall mean this Agreement, the Notes, the Letters of Credit, the Security Documents, the Specified Hedge Agreements and all other documents, instruments and agreements now or hereafter executed or delivered pursuant hereto or in connection herewith. "Loans" shall mean Revolving Loans and Swingline Loans. "Maintenance Capital Expenditure Adjustment" shall mean, for the Borrower and its Subsidiaries on a consolidated basis, as of any date of determination, an amount equal to the product obtained by multiplying $75,000 by the number of Centers owned or leased by the Borrower and its Subsidiaries as of such date, excluding Centers described in subsection 9.9(b). "Majority Owned Center Subsidiary" shall mean a Subsidiary of the Borrower (a) that is not a Wholly Owned Subsidiary of the Borrower and (b) whose assets consist (or upon the acquisition or completion of development thereof will consist) solely of a Center and assets directly related to the operations of such Center. "Material Adverse Change" shall mean a material adverse change in (a) the properties, business, prospects, operations, management or financial condition of the Borrower and its Subsidiaries, taken as a whole, or (b) the ability of the Borrower and its Subsidiaries, taken as a whole, to pay and perform the Obligations. "Material Adverse Effect" shall mean a material adverse effect on (a) the properties, business, prospects, operations, management or financial condition of the Borrower and its Subsidiaries, taken as a whole, (b) the ability of the Borrower and its Subsidiaries, taken as a whole, to pay and perform the Obligations, (c) the validity or enforceability of this Agreement or the other Loan Documents, (d) the validity, enforceability or priority of the Liens purported to be created by the Security Documents, or (e) or the rights or remedies of the Administrative Agent, any Lender or the Issuing Bank hereunder or under any of the other Loan Documents. "Material Contract" shall mean each contract to which the Borrower or any of its Subsidiaries is a party or a guarantor (or by which it is bound) that requires payments (either to or for the benefit of, or by or on behalf of, the Borrower or any of its Subsidiaries) in excess of $3,000,000 in any twelve-month period (a) the cancellation, non-performance or non-renewal of which by any party thereto would have a Material Adverse Effect, or (b) pursuant to which the Borrower or any of its Subsidiaries may incur Indebtedness for borrowed money or Capitalized Lease Obligations. "Maturity Date" shall mean the third (3rd) anniversary of the date of this Agreement, or such earlier date to which the maturity of the Obligations may be accelerated pursuant to the terms of this Agreement. "Moody's" shall mean Moody's Investors Service, Inc. and its successors. "Mortgage" shall mean a mortgage, deed of trust, deed to secure debt or other real property security instrument (including, in the discretion of the Administrative Agent, a collateral assignment of lease with respect to Leased Property) in favor of the Administrative Agent (or such other trustee as may be required or desired under applicable law), for the ratable benefit of the Lenders, the Issuing Bank and the Administrative Agent, encumbering a Collateral Real Estate Interest as security for the Obligations. "Multi-Employer Plan" shall mean any multiple employer plan, as defined in Section 4001(a)(3) of ERISA, that is maintained by the Borrower or any of its Subsidiaries or a Commonly Controlled Entity. "Net Cash Proceeds" shall mean (a) in connection with any Asset Sale or any Recovery Event, the proceeds thereof in the form of cash and Cash Equivalents (including any such proceeds received by way of deferred payment of principal pursuant to a note or installment receivable or purchase price adjustment receivable or otherwise, but only as and when received) of such Asset Sale or Recovery Event, net of reasonable and customary attorneys' fees, accountants fees, investment banking fees, amounts required to be applied to the repayment of Indebtedness secured by a Lien expressly permitted hereunder on any asset that is the subject of such Asset Sale or Recovery Event (other than any Lien pursuant to a Security Document) and other reasonable and customary fees and expenses, in each case, to the extent actually incurred in connection therewith and net of taxes paid or reasonably estimated to be payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), and (b) in connection with any issuance or sale of equity securities or debt securities or instruments or the incurrence of Indebtedness, the cash proceeds and any non-cash consideration received from such issuance or incurrence, net of reasonable and customary attorneys' fees, investment banking fees, accountants' fees, underwriting discounts and commissions and other reasonable and customary fees and expenses, in each case, to the extent actually incurred in connection therewith. "Notes" shall mean the Revolving Notes and the Swingline Note. "Notice of Borrowing" shall mean a notice substantially in the form of Exhibit 2.2.4 with respect to a proposed Borrowing of Revolving Loans. "Notice of Conversion/Continuation" shall mean a notice substantially in the form of Exhibit 2.8.2 with respect to a proposed conversion or continuation of Revolving Loans bearing interest at a rate determined by reference to one basis to Revolving Loans bearing interest at a rate determined by reference to an alternative basis pursuant to Section 2.8. "Obligations" shall mean the unpaid principal of and interest on (including interest accruing after the maturity of the Loans and Letter of Credit Liabilities and interest accruing after the commencement of any bankruptcy, insolvency, reorganization or similar case or proceeding with respect to any Credit Party, regardless of whether a claim for post-filing or post-petition interest is allowed in such case or proceeding) the Loans, the Letter of Credit Liabilities and all other indebtedness, obligations and liabilities of the Credit Parties to the Administrative Agent, any other Agent-Related Person, any Lender or the Issuing Bank (or, in the case of Specified Hedge Agreements, any Affiliate of any Lender or any Person that was a Lender or an Affiliate thereof when such Specified Hedge Agreement was entered into), whether direct or indirect, absolute or contingent, due or to become due or now existing or hereafter incurred, that arise under, out of or in connection with this Agreement, the Notes, the Letters of Credit, any other Loan Document, any Specified Hedge Agreement or any other document made, delivered or given in connection herewith or therewith, whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses (including all fees, charges and disbursements of counsel to the Administrative Agent, any other Agent-Related Person, any Lender or the Issuing Bank that are required to be paid by any Credit Party pursuant hereto or to any other Loan Document) or otherwise; provided that (a) Obligations of any Credit Party under any Specified Hedge Agreement shall be secured and guaranteed pursuant to the Security Documents only to the extent that, and for so long as, the other Obligations are so secured and guaranteed and (b) any release of Collateral or a Subsidiary Guarantor effected in a manner permitted by this Agreement shall not require the consent of Persons other than Lenders who hold obligations under Specified Hedge Agreements. "Operating Lease" shall mean, as to any Person, any lease of property (whether real, personal or mixed) by such Person as lessee that is not a Capitalized Lease. "PBGC" shall mean the Pension Benefit Guaranty Corporation established pursuant to subtitle A of Title IV of ERISA. "Percentage" shall mean, as to each Lender, the fraction, expressed as a percentage, obtained by dividing such Lender's Commitment by the aggregate Commitments. "Permitted Acquisition" shall mean any Asset Acquisition by the Borrower or any Subsidiary of the Borrower that complies with all of the following requirements, as applicable: (a) the assets to be acquired shall consist primarily of (i) a Center or (ii) the Capital Stock of a Person whose primary asset is (A) a Center or (B) Capital Stock of a Subsidiary of such Person whose primary asset is a Center; (b) the Borrower shall have complied with the provisions of Section 8.2.4; (c) the Borrower or a Subsidiary of the Borrower is the surviving entity in the transaction; (d) all assets acquired in the transaction are held or acquired by the Borrower or a Person who is or as a part of the transaction will become a Subsidiary of the Borrower and has complied with the provisions of Section 8.18 prior to or contemporaneously with the consummation of the transaction; (e) at the time of such Asset Acquisition and after giving Pro Forma Effect thereto and to any other relevant transaction occurring during the then most recent twelve (12) month period, (1) no Default shall have occurred or be continuing or would result therefrom, and (2) the Senior Funded Indebtedness to EBITDA Ratio shall not exceed 2.25 to 1.00, both as confirmed by a certificate of a Responsible Officer of the Borrower in form and substance satisfactory to the Administrative Agent; (f) with respect to an Asset Acquisition primarily in exchange for cash (including Indebtedness incurred or assumed) (1) the total consideration (including Indebtedness incurred or assumed) for any one Asset Acquisition made pursuant to this clause (f) shall not exceed $10,000,000, and (2) as of the date of such Asset Acquisition, the total consideration (including Indebtedness incurred or assumed) for such Asset Acquisition, together with all other Asset Acquisitions made pursuant to this clause (f) during the immediately preceding twelve months, shall not exceed EBITDA for the Last Four Fiscal Quarters (taking into account EBITDA during the Last Four Fiscal Quarters attributable to any Asset Acquisitions made during the Last Four Fiscal Quarters but without giving Pro Forma Effect to such Asset Acquisitions), as established pursuant to Compliance Certificates delivered to the Administrative Agent as provided herein; and (g) with respect to an Asset Acquisition primarily in exchange for Capital Stock of the Borrower, (1) if such Capital Stock consists of equity securities other than common stock, all terms, conditions and provisions of those equity securities shall be satisfactory to Requisite Lenders, in their discretion, and (2) as of the date of such Asset Acquisition, the total consideration (including Indebtedness incurred or assumed) for such Asset Acquisition, together with all other Asset Acquisitions made pursuant to this clause (g) during the immediately preceding twelve months, shall not exceed an amount equal to the difference between (x) one hundred fifty percent (150%) of EBITDA for the Last Four Fiscal Quarters (taking into account EBITDA during the Last Four Fiscal Quarters attributable to any Asset Acquisitions made during the Last Four Fiscal Quarters but without giving Pro Forma Effect to such Asset Acquisitions), as established pursuant to Compliance Certificates delivered to the Administrative Agent as provided herein, and (y) the total consideration (including Indebtedness incurred or assumed) paid in connection with all Asset Acquisitions made during such period pursuant to the preceding clause (f). "Permitted Liens" shall mean Liens permitted pursuant to the provisions of Section 9.2. "Permitted Non-Guarantor Entity" shall mean a Person that meets all of the following requirements: (a) Such Person shall be a Person in which the Borrower and its Subsidiaries own Capital Stock, but is not a Subsidiary of the Borrower, and the remaining Capital Stock of which is owned by a hospital or hospital system or individual physicians or Persons owned or controlled by individual physicians. (b) There shall be no restriction on the ability of such Person to pay dividends or make distributions of its available cash (i.e., cash remaining after debt service, payment of expenses and the establishment of reasonable reserves) to holders of its Capital Stock, other than pursuant to the law under which such Person is organized. (c) Such Person shall be engaged exclusively in the ownership or operation of a Center. (d) The aggregate amount of the Investments of the Borrower and its Subsidiaries contributed to or otherwise invested in all such Persons at any one time shall not exceed $15,000,000, plus the aggregate face amount of Contingent Obligations of the Borrower and its Subsidiaries incurred after the date hereof with respect to Indebtedness of such Persons, which shall not exceed $5,000,000. (e) At any one time there shall be no more than ten (10) Permitted Non-Guarantor Entities in which the Borrower or its Subsidiaries own Capital Stock or with respect to which the Borrower or its Subsidiaries have outstanding Contingent Obligations. "Person" shall mean an individual, corporation, partnership, limited partnership, limited liability company, limited liability limited partnership, trust, business trust, association, joint stock company, joint venture, pool, syndicate, sole proprietorship, unincorporated organization, Governmental Authority or other form of entity not specifically listed herein. "Plan" shall mean an employee pension benefit plan covered by Title IV of ERISA that is maintained by the Borrower or any of its Subsidiaries or a Commonly Controlled Entity, and shall include any Single Employer Plan or any Multi-Employer Plan. "Pledged Debt Securities" shall have the meaning given such term in the Guarantee and Security Agreement. "Pledged Notes" shall have the meaning given such term in the Guarantee and Security Agreement. "Pledged Securities" shall have the meaning given such term in the Guarantee and Security Agreement. "Pledged Stock" shall have the meaning given such term in the Guarantee and Security Agreement. "Pricing Tier Determination Date" shall mean the fifth (5th) Business Day following each deadline for delivering to the Administrative Agent the financial statements, financial reports, certificates and other financial information complying with the requirements of Section 8.1.1 or 8.1.2 and containing information sufficient to enable a calculation of the Funded Indebtedness to EBITDA Ratio for the purpose of determining the Applicable Base Rate Margin, the Applicable Eurodollar Rate Margin, the Applicable Letter of Credit Fee Percentage and the Applicable Commitment Fee Percentage pursuant to Section 2.14. "Principal Obligor" shall mean, with respect to a specific indebtedness or obligation, the Person creating, incurring, assuming or suffering to exist such indebtedness or obligation without becoming liable for same as a surety or guarantor. "Pro Forma Effect" shall mean, in making any calculation hereunder necessary to determine whether the Borrower is in compliance with Section 10.1.2 or Section 10.1.3 or whether a Default would result from any Asset Acquisition, (1) any Disposition of any asset(s) of the Borrower or any of the other Credit Parties made during the twelve (12) month period ending on and including the date of determination, other than a Disposition permitted by subsections 9.3(a), (b) or (c), shall be assumed to have occurred on the first day of such period, and (2) any Asset Acquisition made during the twelve (12) month period ending on and including the date of determination shall be assumed to have occurred on the first day of such period; provided that the Administrative Agent has been furnished with annual audited financial statements or interim financial statements regarding such Asset Acquisition that are in sufficient detail to provide a basis for determining the Pro Forma Effect thereof and that otherwise are in form and substance and prepared by Persons satisfactory to the Administrative Agent. "Projections" means the projected balance sheets, statements of income and statements of cash flows for the Borrower and its Subsidiaries for Fiscal Years 2003 through 2006, prepared or approved by the Borrower and furnished to the Administrative Agent, the Lenders and the Issuing Bank in connection with the transactions that are the subject of this Agreement. "PSC" shall mean Physicians Surgical Care, Inc., a Delaware corporation that has become a Subsidiary of the Borrower by virtue of merging with a Subsidiary of the Borrower and being the surviving corporation in the merger. "Purchase Money Debt" shall mean (a) Indebtedness of the Borrower or any of its Subsidiaries that, within thirty (30) days of the purchase of equipment in which neither the Borrower nor any of its Subsidiaries at any time prior to such purchase had any interest, is incurred to finance part or all of (but not more than) the purchase price of such equipment, and that bears interest at a rate per annum that is commercially reasonable at the time, and (b) Indebtedness that constitutes a renewal, extension, refunding or refinancing of, but not an increase in the principal amount of, Purchase Money Debt that is such by virtue of clause (a), is binding only upon the obligor or obligors under the Purchase Money Debt being renewed, extended or refunded and bears interest at a rate per annum that is commercially reasonable at the time. "Recovery Event" shall mean any settlement of or payment in respect of any property or casualty insurance claim or any eminent domain proceeding relating to any asset of the Borrower or any of its Subsidiaries, which settlement or payment yields gross proceeds to the Borrower or any such Subsidiary in excess of $1,000,000; provided, however, that any Recovery Event with respect to an asset of a Majority Owned Center Subsidiary or a Permitted Non-Guarantor Entity shall be treated as a Recovery Event hereunder only to the extent of the interest(s) (direct or indirect) of the Borrower and the other Credit Parties in the subject property. "Reinvestment Deferred Amount" shall mean, with respect to any Reinvestment Event, the aggregate Net Cash Proceeds received by the Borrower or any other Credit Party in connection therewith that are not applied to prepay Loans or reduce the Commitments pursuant to Section 2.1.3 as a result of the delivery of a Reinvestment Notice. "Reinvestment Event" shall mean any Asset Sale or Recovery Event in respect of which the Borrower has delivered a Reinvestment Notice. "Reinvestment Notice" shall mean a written notice executed by a Responsible Officer of the Borrower stating that no Default has occurred and is continuing and that either the recipient of Net Cash Proceeds of an Asset Sale or Recovery Event or the Borrower (directly or indirectly through a Wholly Owned Subsidiary to the extent otherwise permitted hereunder) intends and expects to use all or a specified portion of such Net Cash Proceeds to acquire assets useful in its business. "Reinvestment Prepayment Amount" shall mean, with respect to any Reinvestment Event, the Reinvestment Deferred Amount relating thereto less any amounts expended prior to the relevant Reinvestment Prepayment Date to acquire assets useful in the business of the Borrower and its Subsidiaries. "Reinvestment Prepayment Date" shall mean, with respect to any Reinvestment Event, the earlier of (a) the date occurring three hundred and sixty-five (365) days after such Reinvestment Event, and (b) the date on which the Borrower shall have determined not to acquire assets useful in the Borrower's or the applicable Subsidiary's business with all or any portion of the relevant Reinvestment Deferred Amount. "Rent Expense" shall mean, as to any Person for any period, the aggregate rent and lease expenses recorded by such Person and its Subsidiaries on a consolidated basis in conformity with GAAP pursuant to any Operating Lease. "Reportable Event" shall mean any of the events set forth under Section 4043(c) of ERISA or the PBGC regulations thereunder. "Required Appraisal" shall have the meaning given such term in Section 4.3. "Requirement of Law" shall mean, as to any Person (a) the partnership agreement, charter, certificate of incorporation, articles of incorporation, bylaws, operating agreement or other organizational or governing documents of such Person, (b) any federal, state or local law, treaty, ordinance, rule or regulation, and (c) any order, decree or determination of a court, arbitrator or other Governmental Authority; in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Requisite Lenders" shall mean, as of any date of determination, Lenders having at least fifty-one percent (51%) of the Commitments. "Responsible Officer" shall mean, as to any Person, either (a) its president, chief executive officer or chief financial officer, or (b) with respect to financial matters, its president, chief executive officer, chief financial officer or any vice president designated in writing by the chief executive officer to the Administrative Agent. "Restricted Payments" shall mean, as to any Person for any period: (a) dividends, other distributions and other payments or deliveries of property on account of the Capital Stock, or any warrants, options or other rights in respect of any Capital Stock, of such Person or its Subsidiaries, now or hereafter outstanding, that are recorded by such Person and its Subsidiaries on a consolidated basis (excluding any such dividends, distributions and other payments made solely to such Person or a Wholly Owned Subsidiary of such Person by a Subsidiary of such Person), (b) amounts paid to purchase, redeem, retire or otherwise acquire for value any of the Capital Stock, or any warrants, options or other rights in respect of any Capital Stock, of such Person or its Subsidiaries, now or hereafter outstanding (excluding any such amounts paid solely to such Person or a Wholly Owned Subsidiary of such Person by a Subsidiary of such Person), (c) any assets segregated or set apart by such Person or any of its Subsidiaries (including any money or property deposited with a trustee or other paying agent) for a sinking or analogous fund for the purchase, redemption or retirement or other acquisition of any Capital Stock, or any warrants, options or other rights in respect of any Capital Stock, of such Person or its Subsidiaries, now or hereafter outstanding (excluding any assets so segregated or set apart with respect to any stock, warrants, options or other rights held by a Wholly Owned Subsidiary of such Person), (d) payments made or required to be made by such Person with respect to any stock appreciation rights plan, equity incentive or achievement plan or any similar plan and any assets segregated or set apart for such purposes (including any money or property deposited with a trustee or other paying agent), and (e) any payment, purchase, redemption or acquisition of Subordinated Indebtedness and any assets segregated or set apart for such purposes (including any money or property deposited with a trustee or other paying agent), excluding, however, regularly scheduled payments of interest made according to the stated terms of such Subordinated Indebtedness; all as determined in conformity with GAAP. "Revolving Credit Commitments" shall mean, at any time, the commitment of all the Lenders, collectively, to make Revolving Loans to the Borrower during the Commitment Period pursuant to the provisions of Section 2.2, and the "Revolving Credit Commitment" of any Lender at any time shall mean an amount equal to such Lender's Percentage multiplied by the then effective aggregate Revolving Credit Commitments. The Revolving Credit Commitments are in the aggregate amount set forth in Section 2.1. "Revolving Credit Facility" shall mean the revolving credit facility provided by the Lenders pursuant to the Revolving Credit Commitments as more particularly set forth in Section 2.2. "Revolving Loans" shall mean the loans made by the Lenders to the Borrower pursuant to the provisions of Section 2.2. "Revolving Notes" shall mean the promissory notes, substantially in the form of Exhibit 2.9A, executed by the Borrower in favor of the Lenders, evidencing the indebtedness of the Borrower to the Lenders in connection with the Revolving Loans. "S&P" shall mean Standard & Poor's Ratings Service, a division of The McGraw-Hill Companies, and its successors. "Scheduled Acquisitions" shall mean the Asset Acquisitions identified as such on Schedule 9.4. "Security Documents" shall mean the Guarantee and Security Agreement, the Mortgages and the Financing Statements, together with all documents, instruments and agreements now or hereafter executed or delivered pursuant thereto or in connection therewith. "Senior Funded Indebtedness to EBITDA Ratio" shall mean, for the Borrower and its Subsidiaries on a consolidated basis, calculated as of any date of determination for the Last Four Fiscal Quarters after giving Pro Forma Effect to any relevant transaction occurring during such period, the ratio of (a) Consolidated Funded Indebtedness less Subordinated Indebtedness, to (b) EBITDA. "Single Employer Plan" shall mean any Plan that is not a Multi-Employer Plan. "Solvent" shall mean, with respect to any Person on any particular date, that on such date (a) the fair value of the assets of such Person (both at fair valuation and at present fair saleable value) is, on the date of determination, greater than the total amount of liabilities, including contingent and unliquidated liabilities, of such Person, (b) such Person is able to pay all liabilities of such Person as they mature, and (c) such Person does not have unreasonably small capital with which to carry on its business. In computing the amount of contingent or unliquidated liabilities at any time, such liabilities will be computed at the amount that, in light of all the facts and circumstances existing at such time, represents the amount that can be reasonably expected to become an actual or matured liability. "Specified Hedge Agreement" shall mean any Hedge Agreement (a) entered into by (i) the Borrower or any of its Subsidiaries and (ii) any Lender or any Affiliate thereof, or any Person that was a Lender or an Affiliate thereof when such Hedge Agreement was entered into as counterparty and (b) that has been designated by such Lender and the Borrower, by notice to the Administrative Agent not later than 90 days after the execution and delivery thereof by the Borrower or such Subsidiary, as a Specified Hedge Agreement; provided that the designation of any Hedge Agreement as a Specified Hedge Agreement shall not of itself create in favor of any Lender or Affiliate thereof that is a party thereto any rights in connection with the administration, management or release of any Collateral or of the obligations of any Subsidiary Guarantor under the Guarantee and Security Agreement. "Subordinated Indebtedness" shall mean (a) the Indebtedness of the Borrower and its Subsidiaries pursuant to the 2003 Subordinated Notes and the other 2003 Subordinated Note Documents, and (b) any other Indebtedness of the Borrower and its Subsidiaries that (i) is subordinated in right of payment to the Obligations as provided in Exhibit 1.1B or on other terms satisfactory to the Administrative Agent and Requisite Lenders, in their discretion, and (ii) does not mature or require any principal amortization prior to the day that is six (6) months after the Maturity Date. "Subsidiary" shall mean, as to any Person (a) a corporation, limited liability company or other entity of which shares of Capital Stock having ordinary voting power (other than Capital Stock having such power only by reason of the occurrence of a contingency) to elect a majority of the board of directors or other managers thereof are at the time owned, or which entity otherwise is controlled, directly or indirectly through one or more intermediaries or both, by such Person, or (b) a partnership in which such Person is the controlling general partner or that otherwise is controlled, directly or indirectly through one or more intermediaries or both, by such Person. "Subsidiary Guarantor" shall mean each Subsidiary of the Borrower, whether now in existence or hereafter created or acquired, other than an Excluded Subsidiary. "Swingline Commitment" shall mean the commitment of the Swingline Lender to make Swingline Loans pursuant to Section 2.3. "Swingline Facility" shall mean the swingline credit facility provided by the Swingline Lender pursuant to the Swingline Commitment as more particularly set forth in Section 2.3. "Swingline Lender" shall mean Bank of America and any other financial institution that, subject to approval by the Administrative Agent and the Borrower, agrees to become a party to this Agreement and to make Swingline Loans pursuant to Section 2.3. As used herein and in the other Loan Documents, "Lender" shall include the Swingline Lender except to the extent that the context requires otherwise. "Swingline Loans" shall mean the loans made to the Borrower by the Swingline Lender pursuant to Section 2.3. "Swingline Note" shall mean the promissory note, in substantially the form of Exhibit 2.9B, executed by the Borrower in favor of the Swingline Lender, evidencing the indebtedness of the Borrower to the Swingline Lender in connection with the Swingline Loans. "Symbion (Tennessee)" shall mean Symbion, Inc., a Tennessee corporation that was merged with and into Symbion. "Title Policy" means a policy of title insurance (ALTA Loan Policy - 1992 or local equivalent) in form, substance and amount and issued by a title insurance company satisfactory to the Administrative Agent, naming the Administrative Agent as the insured, insuring that the Mortgage that is the subject thereof constitutes a valid first lien on and security title to the real property described therein, free and clear of all defects and encumbrances except Permitted Liens, and containing: (a) full coverage against liens of mechanics, materialmen, laborers and any other parties who might claim statutory or common law liens; (b) no survey exceptions other than those approved by the Administrative Agent; (c) no exceptions for parties in possession under unrecorded instruments; (d) no exceptions for easements or claims of easements not shown by public records except for matters shown on the survey approved by the Administrative Agent; (e) no other exceptions except as approved by the Administrative Agent; (f) comprehensive, contiguity, restrictions, encroachments, zoning, survey, usury, creditor's rights, revolving credit, subsequent advance, tax, doing-business, access, street, variable rate, environmental protection, subdivision, tax deed, first loss, last dollar, tie-in and other endorsements to the extent applicable and available and reasonably required by the Administrative Agent; and (g) such affirmative insurance and reinsurance as the Administrative Agent in its discretion may require. "2003 Subordinated Note Documents" shall mean the 2003 Subordinated Notes, the 2003 Subordinated Note Indenture and the 2003 Subordinated Note Purchase Agreement, together with any other instruments and agreements entered into by the Borrower or any of its Subsidiaries in connection therewith. "2003 Subordinated Note Indenture" shall mean the Indenture (as defined in the 2003 Subordinated Notes). "2003 Subordinated Note Purchase Agreement" shall mean the Securities Purchase Agreement, dated or to be dated on or about July 18, 2003, entered into by the Borrower, certain Subsidiaries of the Borrower, as guarantors, and DLJ Investment Partners II, L.P., DLJ Investment Partners, L.P., and DLJIP II Holdings, L.P., as initial purchasers. "2003 Subordinated Notes" shall mean the 14 -3/4 % Senior Subordinated Notes Due 2008 of the Borrower issued from time to time pursuant to the 2003 Subordinated Note Purchase Agreement or the 2003 Subordinated Note Indenture. "UCC" shall mean the Uniform Commercial Code as in effect in the State of Tennessee or any other applicable jurisdiction, as the context may require. "Wholly Owned Subsidiary" shall mean, as to any Person, any other Person all of the Capital Stock of which (other than directors' qualifying shares required by law) is owned by the first Person directly or through one or more other Wholly Owned Subsidiaries of the first Person. 1.2. Accounting and Commercial Terms. As used in this Agreement, all accounting terms used but not otherwise defined herein shall have the respective meanings assigned to them in conformity with GAAP. All terms used but not otherwise defined herein that are defined or used in Article 9 of the UCC shall have the respective meanings assigned to them in such Article. 1.3. General Construction. As used in this Agreement, the masculine, feminine and neuter genders and the plural and singular numbers shall be deemed to include the others in all cases in which they would so apply. "Includes" and "including" are not limiting, and shall be deemed to be followed by "without limitation" regardless of whether such words or words of like import in fact follow same. The word "or" is not intended and shall not be construed to be exclusive, and unless the context clearly indicates otherwise, the disjunctive "or" shall include the conjunctive "and". 1.4. Defined Terms; Headings. The use of defined terms in the Loan Documents is for convenience of reference and shall not be deemed to be limiting or to have any other substantive effect with respect to the persons or things to which reference is made through the use of such defined terms. Article and section headings and captions in the Loan Documents are included in such Loan Documents for convenience of reference and shall not constitute a part of the applicable Loan Documents for any other purpose. 1.5. References to this Agreement and Parts Thereof. As used in this Agreement, unless otherwise specified the words "hereof," "herein" and "hereunder" and words of similar import shall refer to this Agreement including all schedules and exhibits hereto, as a whole, and not to any particular provision of this Agreement, and the words "Article", "Section", "Schedule" and "Exhibit" refer to articles, sections, schedules and exhibits of or to this Agreement. 1.6. Documentary References. Any reference herein to any instrument, document or agreement, by whatever terminology used, shall be deemed to include any and all amendments, modifications, supplements, extensions, renewals, substitutions or replacements thereof as the context may require. 1.7. Legal References. Any reference herein to any law shall be a reference to such law as in effect from time to time and shall include any rules and regulations promulgated or published thereunder and published interpretations thereof. ARTICLE 2. LOANS AND LETTERS OF CREDIT 2.1. Commitments. 2.1.1. Amounts of Commitments. (a) The aggregate amount of the Commitments shall be $110,000,000. Provided that no Default shall have occurred and be continuing and the Commitments have not been terminated, the Borrower shall be entitled, at any time prior to the day that is eighteen (18) months after the date hereof, with the written consent of the Administrative Agent, Requisite Lenders and all Lenders providing such increased amount, to request an increase in the Commitments of up to $20,000,0000 in the aggregate. In such event, this Agreement and the other Loan Documents may be amended, modified or supplemented by one or more agreements among the Borrower, the Administrative Agent, Requisite Lenders and all Lenders providing such increased amount, to the extent the Administrative Agent determines the same to be necessary but without the need for any further approval or consent from the other Lenders, to effectuate such increase and to cause all of the Lenders (including any new Lenders providing all or part of such increased amount) to participate in the extensions of credit hereunder in accordance with their respective Percentages after giving effect to any such increase in the Commitments. (b) The aggregate amount of the Revolving Credit Commitments at any time is equal to the aggregate amount of the Commitments in effect at such time less the aggregate amount of Letter of Credit Liabilities outstanding at such time. (c) The aggregate amount of the Letter of Credit Commitments at any time is equal to the lesser of: (1) the aggregate amount of the Commitments in effect at such time less the aggregate amount of Loans outstanding at such time, and (2) $2,000,000. 2.1.2. Voluntary Reductions of Commitments. The Borrower shall have the right, at any time and from time to time, to terminate in whole or permanently reduce in part, without premium or penalty, the Commitments in an amount up to the amount by which the Commitments exceed the aggregate amount of the then outstanding Loans and Letter of Credit Liabilities. The Borrower shall give not less than ten (10) Business Days' prior written notice to the Administrative Agent designating the date (which shall be a Business Day) of such termination or reduction and the amount of any reduction. Promptly after receipt of a notice of such termination or reduction, the Administrative Agent shall notify each Lender of the proposed termination or reduction. Such termination or reduction of the Commitments shall be effective on the date specified in the Borrower's notice and shall reduce the Commitment of each Lender in proportion to its Percentage of the Commitments. Any such reduction of the Commitments shall be in a minimum amount of $5,000,000 and in integral multiples of $1,000,000. 2.1.3. Mandatory Prepayments and Reductions of Commitments. (a) If on any date the Borrower or any of its Subsidiaries shall receive Net Cash Proceeds from any Asset Sale or Recovery Event then, unless a Reinvestment Notice shall have been delivered previously to the Administrative Agent in respect thereof, such Net Cash Proceeds shall be applied on such date to the prepayment of Loans and the reduction of the Commitments as set forth in subsection 2.1.3(b); provided that on each Reinvestment Prepayment Date, an amount equal to the Reinvestment Prepayment Amount with respect to the relevant Reinvestment Event shall be applied to the prepayment of Loans and the reduction of the Commitments as set forth in subsection 2.1.3(b). (b) Amounts to be applied in connection with prepayments and Commitment reductions made pursuant to this Section 2.1.3 shall be applied to the permanent reduction of the Commitments so long as any portion of the Commitments remains in effect, and after the Commitments have been reduced to zero and all Obligations have been satisfied, any remaining amounts shall be paid to the Borrower or such other Person as shall be lawfully entitled thereto. Contemporaneous with any such reduction of the Commitments, the Borrower shall prepay Loans to the extent, if any, that the aggregate amount of the then outstanding Loans and Letter of Credit Liabilities exceed the amount of the Commitments as so reduced, and if after such prepayment the aggregate principal amount of Letter of Credit Liabilities then outstanding exceeds the amount of the Commitments as so reduced, the Borrower shall, to the extent of the balance of such excess, replace outstanding Letters of Credit or deposit an amount in immediately available funds in a Collateral Account established with the Administrative Agent in accordance with the procedures specified in Section 11.3 in the same manner as if an Event of Default had occurred and was continuing. 2.2. Revolving Loans. 2.2.1. Commitment to Make Revolving Loans. Subject to all of the terms and conditions of this Agreement (including the conditions set forth in Sections 6.1 and 6.2) and in reliance upon the representations and warranties of the Borrower herein set forth, each Lender hereby severally agrees to make Revolving Loans to the Borrower from time to time during the Commitment Period, in amounts up to its Percentage of the aggregate Revolving Credit Commitments, for the purposes identified in Section 2.11; provided, however, that in no event shall (a) the aggregate principal amount of the Revolving Loans made by any Lender that are outstanding at any time exceed such Lender's Revolving Credit Commitment, (b) the aggregate principal amount of the Revolving Loans made by all Lenders and the Swingline Loans made by the Swingline Lender that are outstanding at any time exceed the Revolving Credit Commitments then in effect. Each Lender's Revolving Credit Commitment shall expire upon the expiration of the Commitment Period, and all Revolving Loans shall be paid in full no later than the Maturity Date. 2.2.2. Lenders' Obligations Several; Proportionate Loans. The obligations of the Lenders to make Revolving Loans under Section 2.2.1 shall be several and not joint and, subject to Section 2.15.4, all Revolving Loans under this Agreement shall be made by the Lenders simultaneously and proportionately to their respective Percentages of the Revolving Credit Commitments. It is understood and agreed that the failure of any Lender to make its Revolving Loan as part of any Borrowing under Section 2.2.1 shall not relieve any other Lender of its obligation to make its Revolving Loan as provided in Section 2.2.1 with respect to such Borrowing (or any future Borrowings under Section 2.2.1). Neither the Administrative Agent nor any Lender shall be responsible for the failure of any other Lender to make a Revolving Loan as provided herein nor shall the Revolving Credit Commitment of any Lender be increased as a result of the default by any other Lender in such other Lender's obligation to make Revolving Loans hereunder. 2.2.3. Revolving Credit; Minimum Borrowings. Amounts borrowed by the Borrower under the Revolving Credit Commitments may be prepaid and reborrowed from time to time to during the Commitment Period. The aggregate amount of Revolving Loans made on any Funding Date shall be in a minimum amount of $1,000,000 and in integral multiples of $100,000 in excess of that amount; provided, however, that the aggregate amount of Eurodollar Loans made on any Funding Date shall be in a minimum amount of $2,500,000 and in integral multiples of $100,000 in excess of that amount. 2.2.4. Notice of Borrowing. (a) Delivery of Notice. Whenever the Borrower desires to borrow under Section 2.2, it shall deliver to the Administrative Agent a Notice of Borrowing no later than 11:00 a.m. (Central time) at least one (1) Business Day in advance of the proposed Funding Date (in the case of Base Rate Loans) or three (3) Business Days in advance of the proposed Funding Date (in the case of Eurodollar Loans). The Notice of Borrowing shall specify (i) the proposed Funding Date (which shall be a Business Day), (ii) the amount of the proposed Borrowing, (iii) whether the proposed Borrowing shall be in the form of Base Rate Loans or Eurodollar Loans, and (iv) in the case of Eurodollar Loans, the requested Interest Period. In lieu of delivering a Notice of Borrowing, the Borrower may give the Administrative Agent telephonic notice by the required time of notice of any proposed Borrowing under this Section 2.2.4; provided, however, that such notice shall be promptly confirmed in writing by delivery of a Notice of Borrowing to the Administrative Agent on or prior to the Funding Date of the requested Revolving Loans. The execution and delivery of each Notice of Borrowing shall be deemed a representation and warranty by the Borrower that the requested Revolving Loans may be made in accordance with, and will not violate the requirements of, this Agreement, including those set forth in Section 2.2.1. (b) No Liability for Telephonic Notices. Neither the Administrative Agent nor any Lender shall incur any liability to the Borrower in acting upon any telephonic notice given pursuant to this Section 2.2.4 that the Administrative Agent believes in good faith to have been given by a duly authorized officer or other person authorized to borrow on behalf of the Borrower or for otherwise acting in good faith under this Section 2.2.4 and, upon the funding of Revolving Loans by the Lenders in accordance with this Agreement pursuant to any telephonic notice, the Borrower shall have effected a Borrowing of Revolving Loans hereunder. (c) Notice Irrevocable. A Notice of Borrowing for Eurodollar Loans (or a telephonic notice in lieu thereof) shall be irrevocable on and after the related Interest Rate Determination Date, and the Borrower shall be bound to make a Borrowing in accordance therewith. 2.2.5. Disbursement of Funds. Promptly after receipt of a Notice of Borrowing (or telephonic notice in lieu thereof), the Administrative Agent shall notify each Lender of the proposed Borrowing in writing, or by telephone promptly confirmed in writing. Each Lender shall make the amount of its Revolving Loan available to the Administrative Agent, in immediately available (same day) funds, at the Lending Office of the Administrative Agent, not later than 11:00 a.m. (Central time) on the Funding Date. The Administrative Agent shall make the proceeds of such Revolving Loans available to the Borrower on such Funding Date by causing an amount of immediately available (same day) funds equal to the proceeds of all such Revolving Loans received by the Administrative Agent to be credited to the account of the Borrower at such office of the Administrative Agent. 2.3. Swingline Loans. 2.3.1. Commitment to Make Swingline Loans. Subject to all of the terms and conditions of this Agreement (including the conditions set forth in Sections 6.1 and 6.2 and the limitations set forth in Section 2.2.1), and in reliance upon the representations and warranties of the Borrower set forth herein and the agreements of the other Lenders set forth in Sections 2.3.3 and 2.3.4, the Swingline Lender hereby agrees to make Swingline Loans to the Borrower from time to time during the Commitment Period, in an aggregate principal amount not to exceed $5,000,000 outstanding at any time, for the purposes identified in Section 2.11, notwithstanding the fact that the aggregate amount of the outstanding Swingline Loans, when added to the Swingline Lender's Percentage of the outstanding Revolving Loans and Letter of Credit Liabilities, from time to time may exceed the amount of such Lender's Commitment. Immediately upon the making of a Swingline Loan, each Lender shall be deemed to have purchased, and hereby irrevocably and unconditionally agrees to purchase, from the Swingline Lender a risk participation in such Swingline Loan in an amount equal to the product obtained by multiplying such Lender's Percentage by the amount of such Swingline Loan. Amounts borrowed by the Borrower under the Swingline Commitment may be prepaid and reborrowed from time to time during the Commitment Period. The Swingline Lender's commitment to make Swingline Loans as provided in this Section 2.3.1 shall expire upon the expiration of the Commitment Period, and all Swingline Loans shall be paid in full no later than the Maturity Date. 2.3.2. Funding Procedures for Swingline Loans. Except to the extent that funding of Swingline Loans is being administered through an automated cash management system mutually approved in writing by the Borrower and the Swingline Lender, the Borrower shall give to the Swingline Lender written notice (or telephonic notice to be confirmed promptly in writing) of a proposed Borrowing consisting of a Swingline Loan, specifying the amount of the requested Swingline Loan, not later than 11:00 a.m., Central time, on the Business Day of the proposed Borrowing. Each request for a Swingline Loan shall be deemed a representation and warranty by the Borrower that the requested Swingline Loan may be made in accordance with, and will not violate the requirements of, this Agreement, including those set forth in Section 2.3.1. Not later than 2:00 p.m., Central time, on the Business Day of the proposed Borrowing of a Swingline Loan, the Swingline Lender shall make the proceeds of the requested Swingline Loan available to the Borrower at the office of the Swingline Lender by crediting an account of the Borrower maintained at such office that has been designated for such purpose in writing by the Borrower to the Swingline Lender. Except to the extent that funding of Swingline Loans is being administered through an automated cash management system as aforesaid, each Swingline Loan shall be in a minimum amount of $100,000 and in integral multiples of $100,000 in excess of that amount. 2.3.3. Repayment of Swingline Loans With Revolving Loans. Regardless of whether the conditions set forth in Sections 6.1 and 6.2 have been or are capable of being satisfied, on any Business Day the Swingline Lender may, in its sole discretion, give notice to the Lenders that some part or all of the outstanding Swingline Loans are to be repaid on the next succeeding Business Day with a Borrowing of Revolving Loans constituting Base Rate Loans made pursuant to Section 2.2.1 (but not subject to Section 2.2.3) in the same manner and with the same force and effect as if the Borrower had submitted a Notice of Borrowing therefor pursuant to Section 2.2.4. Subject to and in accordance with Sections 2.2.1 and 2.2.2, each Lender shall make the amount of its Revolving Loan available to the Administrative Agent, in immediately available funds, at the Lending Office of the Administrative Agent, not later than 11:00 a.m. (Central time) on the applicable Funding Date. The Administrative Agent shall make the proceeds of such Revolving Loans available to the Swingline Lender on such Funding Date by causing an amount of immediately available funds equal to the proceeds of all such Revolving Loans received by the Administrative Agent to be credited to an account of the Swingline Lender at such office of the Administrative Agent, or shall make such proceeds available to the Swingline Lender in such other manner as shall be satisfactory to the Administrative Agent and the Swingline Lender. 2.3.4. Participations in Swingline Loans. If for any reason a requested Borrowing of Revolving Loans pursuant to Section 2.3.3 is not or cannot be effected, the Lenders will, as of the date such proposed Borrowing otherwise would have occurred but adjusted for any payments received in respect of such Swingline Loan(s) by or for the account of the Borrower on or after such date and prior to such purchase, immediately fund their respective participations in the outstanding Swingline Loans as necessary to cause the Lenders to share in such Swingline Loan(s) proportionately in accordance with their respective Percentages. Whenever, at any time after any Lender has purchased a participating interest in a Swingline Loan, the Swingline Lender receives any payment on account thereof, the Swingline Lender will distribute to such Lender its proportionate share of such amount (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Lender's participating interest was outstanding and funded); provided, however, that in the event any such payment received by the Swingline Lender is subsequently set aside or is required to be refunded, returned or repaid, such Lender will repay to the Swingline Lender its proportionate share thereof. 2.3.5. Failure to Pay by Lenders. If any Lender shall fail to perform its obligation to make a Revolving Loan pursuant to Section 2.3.3 or to purchase a participation in Swingline Loans pursuant to Section 2.3.4, the amount in default shall bear interest for each day from the day such amount is payable until fully paid at a rate per annum equal to the Federal Funds Rate or any other rate customarily used by banks for the correction of errors among banks, but in no event to exceed the Highest Lawful Rate, and such obligation may be satisfied by application by the Administrative Agent (for the account of the Swingline Lender) of any payment that such Lender otherwise is entitled to receive under this Agreement. Pending repayment, each such advance shall be secured by such Lender's participation interest, if any, in the Swingline Loans and any security therefor, and the Swingline Lender shall be subrogated to such Lender's rights hereunder in respect thereof. 2.3.6. Lenders' Obligations Absolute. The obligation of each Lender to make Revolving Loans pursuant to Section 2.3.3 and to purchase participations in Swingline Loans pursuant to Section 2.3.4 shall be unconditional and irrevocable, shall not be subject to any qualification or exception whatsoever, shall be made in accordance with the terms and conditions of this Agreement under all circumstances and shall be binding in accordance with the terms and conditions of this Agreement under all circumstances, including the following circumstances: (a) any lack of validity or enforceability of this Agreement, any of the other Loan Documents or any other instrument, document or agreement relating to the transactions that are the subject thereof; (b) the existence of any claim, defense, set-off or other right that the Borrower, any Guarantor or any Lender may have at any time against the any Agent-Related Person, the Swingline Lender, any other Lender, the Issuing Bank or any other Person, whether in connection with this Agreement, the transactions contemplated herein or any related transactions; (c) the surrender or impairment of any security for the performance or observance of any of the terms of this Agreement; (d) the occurrence or continuance of any Default; (e) any adverse change in the condition (financial or other) of the Borrower or any Guarantor; or (f) any other reason. 2.4. Letters of Credit. 2.4.1. Issuance of Letters of Credit. The Borrower may request the Issuing Bank at any time and from time to time during the Commitment Period to issue, and subject to and upon all of the terms and conditions of this Agreement (including the conditions set forth in Sections 6.1 and 6.2) and in reliance upon the representations and warranties of the Borrower herein set forth the Issuing Bank shall issue, for the account of the Borrower and for the benefit of the holder(s) (or any trustee, agent or other representative of such holder(s)) of Letter of Credit Supportable Obligations of the Borrower and its Subsidiaries, one or more irrevocable standby letters of credit in the form customarily used by such Issuing Bank, or in such other form as has been approved by the Issuing Bank and the Administrative Agent, in support of such Letter of Credit Supportable Obligations; provided, however, that (a) each Letter of Credit shall be in a minimum stated amount of $50,000, (b) each Letter of Credit by its terms shall terminate no later than three hundred sixty-five (365) days after the date of issuance (or the date of the most recent extension, as the case may be), nor later than thirty (30) days prior to the Maturity Date, and (c) in no event shall any Letter of Credit be issued if the issuance thereof would cause the aggregate amount of the then outstanding Letter of Credit Liabilities to exceed the aggregate amount of the Letter of Credit Commitments then in effect. 2.4.2. Letter of Credit Requests. At least five (5) Business Days prior to (a) the date on which the Borrower desires that a Letter of Credit be issued hereunder or (b) the date on which the Borrower desires that the expiration date of an outstanding Letter of Credit be extended, as the case may be, the Borrower shall deliver to the Issuing Bank (with copies to the Administrative Agent and each Lender) a Letter of Credit Request therefor. The execution and delivery of each Letter of Credit Request shall be deemed a representation and warranty by the Borrower that the requested Letter of Credit issuance or extension may be accomplished in accordance with, and will not violate the requirements of, this Agreement, including those set forth in Section 2.4.1. Unless the Issuing Bank has received notice from the Administrative Agent or Requisite Lenders before it issues or extends the requested Letter of Credit that a Default exists or that the requested issuance or extension would violate the requirements of this Agreement, including those set forth in Section 2.4.1, then the Issuing Bank may issue or extend, as the case may be, the requested Letter of Credit for the account of the Borrower in accordance with the Issuing Bank's usual and customary practices. Upon the issuance or extension of any Letter of Credit, the Issuing Bank shall promptly notify the Administrative Agent of such issuance or extension, which notice to the Administrative Agent shall be accompanied by a copy of the Letter of Credit so issued or the instrument(s) evidencing such extension. 2.5. Participations in Letter of Credit Liabilities. 2.5.1. Purchase of Participations by Lenders. Each Lender shall be deemed to have irrevocably and unconditionally purchased and received from the Issuing Bank, without recourse or warranty and without any further action on the part of any party, an undivided interest and participation to the extent of such Lender's Percentage in all Letter of Credit Liabilities as to each Letter of Credit and any security therefor or guarantee relating thereto. 2.5.2. Notification by Issuing Bank of Drawing. The Issuing Bank shall notify the Administrative Agent promptly after the presentation of any draft and certificate or equivalent documents to the Issuing Bank in connection with any drawing under a Letter of Credit not reimbursed by or on behalf of the Borrower on the date such drawing is made. The Administrative Agent shall notify each Lender of the same promptly after receipt of the aforesaid notice from the Issuing Bank. 2.5.3. Payments by Lenders Upon a Drawing or Payment Under a Letter of Credit; Adjustments. Each of the Lenders shall, on or before 11:00 a.m. (Central time) on the date on which the Issuing Bank honors a drawing under a Letter of Credit, unconditionally pay to the Administrative Agent, for distribution by the Administrative Agent to the Issuing Bank, such Lender's Percentage of such drawing; provided, however, that, if the Borrower should pay in full or in part such drawing on the date thereof, the obligation of each Lender to pay to the Issuing Bank pursuant to this Section 2.5.3 such Lender's Percentage of such drawing shall be reduced by the amount equal to such Lender's Percentage of such payment by the Borrower. Amounts paid in excess of the net amount so owed by each Lender to the Issuing Bank shall promptly be refunded by the Issuing Bank to the Administrative Agent for distribution by the Administrative Agent to the respective Lenders. 2.5.4. Failure to Pay by Lenders. If any Lender shall fail to pay its Percentage of any drawing under a Letter of Credit as provided in Section 2.5.3 above, the Issuing Bank shall be deemed to have advanced funds on behalf of such Lender. Any advance made by the Issuing Bank on behalf of a Lender hereunder and not paid by such Lender to the Issuing Bank shall bear interest for each day from the day such payment is due until such payment shall be paid in full at a rate per annum equal to the Federal Funds Rate or any other rate customarily used by banks for the correction of errors among banks, but in no event to exceed the Highest Lawful Rate, and shall be repaid by application by the Administrative Agent (for the account of the Issuing Bank) of any payment that such Lender otherwise is entitled to receive under this Agreement. Pending repayment, each such advance shall be secured by such Lender's participation interest in the Letter of Credit drawn upon, the Letter of Credit Liabilities arising therefrom and any security therefor, and the Issuing Bank shall be subrogated to such Lender's rights hereunder in respect thereof. 2.5.5. Lenders' Obligations Absolute. The obligation of each Lender to pay to the Administrative Agent, for the benefit of the Issuing Bank, its Percentage of each drawing under a Letter of Credit not indefeasibly repaid by the Borrower shall be unconditional and irrevocable, shall not be subject to any qualification or exception whatsoever, shall be made in accordance with the terms and conditions of this Agreement under all circumstances and shall be binding in accordance with the terms and conditions of this Agreement under all circumstances, including the following circumstances: (a) any lack of validity or enforceability of this Agreement, any of the other Loan Documents or any other instrument, document or agreement relating to the transactions that are the subject thereof; (b) the existence of any claim, set-off, defense or other right that the Borrower or any other Credit Party or any Lender may have at any time against any Agent-Related Person, the Issuing Bank, any Lender or any other Person, whether in connection with this Agreement, the transactions contemplated herein or any related transactions; (c) any draft, statement or other document presented under or in connection with any Letter of Credit, this Agreement or any other Loan Document proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (d) the surrender or impairment of any security for the performance or observance of any of the terms of this Agreement; (e) the occurrence or continuance of any Default; (f) payment by the Issuing Bank under a Letter of Credit against presentation of a draft or certificate that does not comply with the terms of the Letter of Credit, except for any such payment resulting from the Issuing Bank's gross negligence or willful misconduct; or (g) any other reason. 2.5.6. Information Regarding Letter of Credit Liabilities. Upon request by the Administrative Agent from time to time, the Issuing Bank shall advise the Administrative Agent as to the various amounts of the outstanding Letter of Credit Liabilities as shown on the records of the Issuing Bank. Upon request by the Lenders from time to time, the Administrative Agent shall provide to the Lenders the aforesaid information received from the Issuing Bank. 2.6. Borrower's Obligations Absolute. 2.6.1. Obligations Absolute. The obligations of the Borrower under this Agreement in respect of any Letter of Credit and under any other agreement or instrument relating to any Letter of Credit shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement and such other agreement or instrument under all circumstances, to the extent permitted by law, including the following circumstances: (a) any lack of validity or enforceability of this Agreement, any of the other Loan Documents or any other instrument, document or agreement relating to the transactions that are the subject thereof; (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the obligations of the Borrower in respect of the Letters of Credit or any other amendment or waiver of or any consent to departure from all or any of the Loan Documents; (c) any exchange or release of, or the non-perfection of any Lien on any Collateral, or any release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Letter of Credit Liabilities; (d) the existence of any claim, set-off, defense or other right that the Borrower or any other Credit Party may have at any time against any beneficiary or any transferee of a Letter of Credit (or any Persons for whom any such beneficiary or transferee may be acting), any Agent-Related Person, the Issuing Bank, any Lender or any other Person, whether in connection with this Agreement, any of the other Loan Documents or the transactions contemplated hereby or thereby or any unrelated transaction; (e) any draft, statement or other document presented under or in connection with any Letter of Credit, this Agreement or any other Loan Document proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (f) payment by the Issuing Bank under a Letter of Credit against presentation of a draft or certificate that does not comply with the terms of the Letter of Credit, except for any such payment resulting from the Issuing Bank's gross negligence or willful misconduct; (g) any consequences arising from causes beyond the control of the Issuing Bank; and (h) any other circumstances or happening whatsoever, regardless of whether similar to any of the foregoing, that might otherwise constitute a defense available to, or a discharge of, the Borrower or any other Credit Party. 2.6.2. No Liability. No action taken or omitted by the Issuing Bank under or in connection with the Letters of Credit or the related applications, agreements or certificates, if taken or omitted in good faith, shall put the Administrative Agent, the Issuing Bank or any Lender under any resulting liability to the Borrower. 2.7. Interest. 2.7.1. Interest Rate on Loans. Subject to Section 2.7.3, the unpaid principal balances of the Loans shall bear interest from their respective Funding Dates through maturity (whether by acceleration or otherwise) (including post-petition interest in any case or proceeding under applicable bankruptcy laws) at a rate determined by reference to the Base Rate or the Eurodollar Rate. The applicable basis for determining the rate of interest for Revolving Loans shall be selected by the Borrower at the time a Notice of Borrowing is given pursuant to Section 2.2.4 or at the time a Notice of Conversion/Continuation is given pursuant to Section 2.8.2. If on any day any Revolving Loan is outstanding with respect to which notice has not been delivered to the Administrative Agent in accordance with the terms of this Agreement specifying the basis for determining the rate of interest, then for that day such Revolving Loan shall bear interest determined by reference to the Base Rate. The Revolving Loans shall bear interest as follows: (a) if a Swingline Loan or a Base Rate Loan, then at a fluctuating rate per annum equal to the sum of the Base Rate, as it varies from time to time, plus the Applicable Base Rate Margin; or (b) if a Eurodollar Loan, then at a rate per annum equal to the sum of the Eurodollar Rate plus the Applicable Eurodollar Rate Margin. 2.7.2. Interest Rate on Unreimbursed Draws Under Letters of Credit. The unpaid principal amount of all draws under Letters of Credit not immediately repaid pursuant to Section 3.2 shall bear interest from the date of such drawing until the principal balance thereof is paid in full at the Default Rate applicable to Base Rate Loans. Interest accruing pursuant to this Section 2.7.2 shall be payable upon demand. 2.7.3. Default Rate. Upon the occurrence and during the continuance of an Event of Default, the unpaid principal balances of the Loans and, to the extent permitted by applicable law, any unpaid interest accrued in respect of the Loans shall bear interest at the Default Rate; provided, however, that in the case of Eurodollar Loans, upon the expiration of the Interest Period in effect at the time any such increase in interest rate is effective, such Eurodollar Loans shall thereupon become Base Rate Loans and thereafter bear interest at the corresponding Default Rate. Interest accruing pursuant to this Section 2.7.3 shall be payable upon demand. 2.7.4. Conclusive Determination. Each determination by the Administrative Agent of an interest rate under this Agreement shall be conclusive and binding for all purposes, absent manifest error. 2.8. Conversion or Continuation. 2.8.1. Option to Convert or Continue. Subject to the provisions of Section 2.15, the Borrower shall have the option (a) at any time to convert all or any part of any outstanding Base Rate Loans in an aggregate minimum amount of $2,500,000 and integral multiples of $500,000 in excess of that amount from Base Rate Loans to Eurodollar Loans, and (b) upon the expiration of any Interest Period applicable to a specific Borrowing of Eurodollar Loans, (i) to convert all or any portion of such Loans to Base Rate Loans, or (ii) to continue all or any portion of such Loans in an aggregate minimum amount of $2,500,000 and integral multiples of $500,000 in excess of that amount as Eurodollar Loans, and the succeeding Interest Period of such continued Eurodollar Loans shall commence on the expiration date of the Interest Period previously applicable thereto. 2.8.2. Notice of Conversion/Continuation. The Borrower shall deliver a Notice of Conversion/Continuation to the Administrative Agent no later than 11:00 a.m. (Central time) at least three (3) Business Days in advance of the proposed conversion/continuation date. A Notice of Conversion/Continuation shall specify (a) the proposed conversion/continuation date (which shall be a Business Day), (b) the aggregate amount of Loans to be converted/continued, (c) the nature of the proposed conversion/continuation, and (d) the requested Interest Period. In lieu of delivering a Notice of Conversion/Continuation, the Borrower may give the Administrative Agent telephonic notice by the required time of any proposed conversion/continuation under this Section 2.8; provided, however, that such notice shall be promptly confirmed in writing by a Notice of Conversion/Continuation delivered to the Administrative Agent on or before the proposed conversion/continuation date. The execution and delivery of each Notice of Conversion/Continuation shall be deemed a representation and warranty by the Borrower that the requested conversion/continuation may be made in accordance with, and will not violate the requirements of, this Agreement, including those set forth in Sections 2.8.1 and 2.15.1. 2.8.3. Notice to the Lenders. Promptly after receipt of a Notice of Conversion/Continuation (or telephonic notice in lieu thereof), the Administrative Agent shall notify each Lender of the proposed conversion or continuation. Neither the Administrative Agent nor any Lender shall incur any liability to the Borrower in acting upon any telephonic notice referred to above that the Administrative Agent believes in good faith to have been given by a duly authorized officer or other person authorized to act on behalf of the Borrower or for otherwise acting in good faith under this Section 2.8 and, upon conversion/continuation by the Administrative Agent in accordance with this Agreement pursuant to any telephonic notice, the Borrower shall have effected a conversion/continuation of Loans hereunder. 2.8.4. Notice Irrevocable. A Notice of Conversion/ Continuation shall be irrevocable on and after the related Interest Rate Determination Date, and the Borrower shall be bound to convert or continue such Loan in accordance therewith. 2.8.5. Automatic Conversion. In the event any Eurodollar Loan is unpaid upon the expiration of the Interest Period applicable thereto and a Notice of Conversion/Continuation has not been given in the manner provided in Section 2.8.2, such Eurodollar Loan shall, effective as of the last day of such Interest Period, become a Base Rate Loan. 2.9. Notes; Records of Payments. Each Revolving Loan made by a Lender to the Borrower pursuant to this Agreement shall be evidenced by a Revolving Note payable to the order of such Lender in an amount equal to such Lender's Percentage of the aggregate amount of the Commitments, and the Swingline Loans made by the Swingline Lender to the Borrower pursuant to this Agreement shall be evidenced by the Swingline Note. Each Lender (including the Swingline Lender) hereby is authorized to record and endorse the date and principal amount of each Loan made by it, and the amount of all payments and prepayments of principal and interest made to such Lender with respect to such Loans, on a schedule annexed to and constituting a part of the corresponding Note(s) of such Lender, which recordation and endorsement shall constitute prima facie evidence of such Loans made by such Lender to the Borrower and payments made by the Borrower to such Lender, absent manifest error; provided, however, that (a) failure by any Lender to make any such recordation or endorsement shall not in any way limit or otherwise affect the obligations of the Borrower or the rights and remedies of the Lenders under this Agreement or the Notes, and (b) payments of principal and interest on the Loans to the Lenders shall not be affected by the failure to make any such recordation or endorsement thereof. In lieu of making recordation or endorsement, the Lenders hereby are authorized, at their option, to record the payments or prepayments on their respective books and records in accordance with their usual and customary practice, which recordation shall constitute prima facie evidence of the Loans made by the Lenders to the Borrower and the payments and prepayments made by the Borrower to the Lenders, absent manifest error. 2.10. Administrative Agent's Right to Assume Funds Available. The Administrative Agent may assume that each Lender has made the proceeds of its Revolving Loans available to the Administrative Agent on the corresponding Funding Date in the event the applicable conditions precedent to funding the requested Revolving Loans set forth in Article 6 have been satisfied or waived in accordance with Section 14.3, and the Administrative Agent, in its sole discretion, may, but shall not be obligated to, advance all or any portion of the amount of any requested Borrowing of Revolving Loans on such Funding Date to the Borrower prior to receiving the proceeds of the corresponding Revolving Loans from the Lenders. If the Administrative Agent has advanced proceeds of any Revolving Loan to the Borrower on behalf of any Lender and such Lender fails to make available to the Administrative Agent its Percentage share of such Revolving Loan as required by Section 2.2, the Administrative Agent shall be entitled to recover such amount on demand from such Lender. If such Lender does not pay such amount forthwith upon the Administrative Agent's demand therefor, the Administrative Agent shall notify the Borrower and the Borrower shall pay such amount to the Administrative Agent. The Administrative Agent also shall be entitled to recover from such Lender interest on such amount so advanced on behalf of such Lender for each day from the date such amount was made available by the Administrative Agent to the Borrower to the date such amount is recovered by the Administrative Agent at a rate per annum equal to the Federal Funds Rate or any other rate customarily used by banks for the correction of errors among banks, but in no event to exceed the Highest Lawful Rate. Nothing herein shall be deemed to relieve any Lender from its obligation to fulfill such Lender's Commitments or to prejudice any rights that the Administrative Agent or the Borrower may have against any Lender as a result of any default by such Lender hereunder. 2.11. Use of Proceeds. The proceeds of the Loans will be used by the Borrower for working capital purposes and for other general corporate purposes, including the making of Capital Expenditures, the refinancing of Indebtedness of the Borrower and its Subsidiaries and the financing of Permitted Acquisitions, and will not be used by the Borrower for any purpose prohibited by the terms of this Agreement or by any law. 2.12. Credit Fees. In consideration for the obligations of the Administrative Agent, the Issuing Bank and the Lenders set forth herein, the Borrower shall pay the following credit fees: 2.12.1. Administrative Agent's Fees. Pursuant to one or more separate agreements with the Administrative Agent or the Arranger, the Borrower shall pay to the Administrative Agent the fees and charges specified therein for the services of the Administrative Agent in acting as such hereunder, and shall pay to the Arranger the fees and charges specified therein for the services of the Arranger in acting as such with respect to the Facilities. 2.12.2. Facility Initiation Fees. In consideration of each Lender's agreement to participate in the Facilities as provided herein, the Borrower shall pay to such Lender the fee(s) agreed upon by the Borrower and such Lender pursuant to one or more separate agreements between them. Upon payment, such fees shall be deemed to have been fully earned and are nonrefundable. 2.12.3. Commitment Fees. The Borrower agrees to pay to the Administrative Agent, for distribution to the Lenders in proportion to their respective Percentages, annual commitment fees during the Commitment Period equal to the average of the daily unused portion of the Commitments (i.e., the aggregate amount of the Commitments less the aggregate amount of Revolving Loans and Letter of Credit Liabilities outstanding, but without reduction for Swingline Loans) multiplied by the Applicable Commitment Fee Percentage ("Commitment Fees"). Commitment Fees shall be payable in quarter-annual installments, in arrears, on January 1, April 1, July 1 and October 1 of each year, commencing October 1, 2003, and on the Maturity Date. 2.12.4. Letter of Credit Fees. The Borrower agrees to pay to the Administrative Agent, for distribution to the Lenders in proportion to their respective Percentages, annual letter of credit fees for the period commencing on the date hereof to but excluding the Maturity Date equal to the average of the daily aggregate amount available to be drawn under issued and outstanding Letters of Credit (regardless of whether such amount then continues to remain available thereunder) multiplied by the Applicable Letter of Credit Fee Percentage ("Letter of Credit Fees"). Letter of Credit Fees shall be payable in quarter-annual installments, in arrears, on January 1, April 1, July 1 and October 1 of each year, commencing October 1, 2003, and on the Maturity Date. 2.12.5. Opening Fees; Amendment or Transfer Fees; Drawing Fees. Pursuant to one or more separate agreements with the Issuing Bank, Borrower shall pay to the Issuing Bank its fees for the issuance of Letters of Credit pursuant to this Agreement, together with the normal and customary fees charged by the Issuing Bank upon the establishment of any Letter of Credit, upon any amendment or transfer of a Letter of Credit and upon the payment of any drawing under any Letter of Credit. 2.13. Computations. To the extent permitted by applicable law, all computations of fees and interest under this Agreement payable in respect of any period shall be made by the Administrative Agent on the basis of a 360-day year, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such fees or interest are payable; provided, however, that computations regarding interest accruing with reference to the Base Rate shall be made on the basis of a 365-day (or 366-day, as applicable) year and the actual number of days (including the first day but excluding the last day) occurring in the period for which interest is payable. In computing interest on any Loan, the date of the making of such Loan or the first day of an Interest Period, as the case may be, shall be included and the date of payment or the expiration date of an Interest Period, as the case may be, shall be excluded; provided, however, that if a Loan is repaid on the same day on which it is made, one day's interest shall be paid on that Loan. 2.14. Interest and Fees Margins. For purposes of interest and fee computations hereunder involving the Applicable Base Rate Margin, the Applicable Eurodollar Rate Margin, the Applicable Letter of Credit Fee Percentage and the Applicable Commitment Fee Percentage, such margins and percentages shall be determined as follows:
Applicable Applicable Applicable Applicable Letter of Commitment Eurodollar Rate Base Rate Credit Fee Fee Tier Margin Margin Percentage Percentage - ---- --------------- ---------- ---------- ---------- 1 2.00% 0.25% 2.00% 0.375% 2 2.25% 0.50% 2.25% 0.500% 3 2.50% 0.75% 2.50% 0.500% 4 3.00% 1.25% 3.00% 0.500% 5 3.50% 1.75% 3.50% 0.625%
Except as expressly hereinafter provided, the applicable tier at any time shall be determined with reference to the Borrower's Funded Indebtedness to EBITDA Ratio, as follows: Tier Funded Indebtedness to EBITDA Ratio 1 Less than 1.50 to 1.00 2 Equal to or greater than 1.50 to 1.00 but less than 2.00 to 1.00 3 Equal to or greater than 2.00 to 1.00 but less than 2.50 to 1.00 4 Equal to or greater than 2.50 to 1.00 but less than 3.00 to 1.00 5 Equal to or greater than 3.00 to 1.00 From the date hereof to but not including the first Pricing Tier Determination Date occurring after June 30, 2003, Tier 4 shall be applicable. Any adjustment in the margins set forth above shall take effect on the first Pricing Tier Determination Date following the Last Four Fiscal Quarters as to which such ratio was calculated; provided, however, that following any failure of the Borrower to deliver to the Administrative Agent any of the financial statements, financial reports, certificates or other financial information required by Section 8.1.1 or Section 8.1.2 in a timely manner and until such failure is cured or corrected, and without limitation of or prejudice to any other right or remedy of the Administrative Agent, the Lenders or the Issuing Bank in respect of such failure, Tier 5 shall be applicable. 2.15. Special Provisions Governing Eurodollar Loans. Notwithstanding other provisions of this Agreement, the following provisions shall govern with respect to Eurodollar Loans as to the matters covered: 2.15.1. Determination of Interest Period. By giving a Notice of Borrowing pursuant to Section 2.2.4, the Borrower shall have the option, subject to the other provisions of this Section 2.15.1, to specify whether the Interest Period commencing on the date specified therein shall be a one, two, three or six month period; provided that: (a) in the case of immediately successive Interest Periods, each successive Interest Period shall commence on the day on which the next preceding Interest Period expires; (b) if any Interest Period otherwise would expire on a day that is not a Business Day, that Interest Period shall be extended to expire on the next succeeding Business Day; provided, however, that if any such Interest Period would otherwise expire on a day that is not a Business Day but is a day of the month after which no further Business Day occurs in that month, that Interest Period shall expire on the immediately preceding Business Day; (c) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to paragraphs (d), (e) and (f) below, end on the last Business Day of a calendar month; (d) with respect to any Loan that is the subject of a Specified Hedge Agreement, (1) no Interest Period may be chosen that would extend beyond any date on which principal is scheduled to be paid in respect of such Loan, (2) to the extent that such Loan is intended to be a Eurodollar Loan following the date of such scheduled principal payment, Interest Periods shall be selected such that the date of such scheduled principal payment shall coincide with the expiration of an Interest Period, and (3) a single initial Interest Period may be chosen that will not be a period of precisely one, two, three or six months (as applicable) but will end on a date that will accommodate the foregoing with respect to successive Interest Periods; (e) no Interest Period may be chosen that would extend beyond the date of any scheduled reduction of the Commitments or any date on which principal is scheduled to be paid in respect of the Loans unless, after giving effect to such Eurodollar Loan, the aggregate principal amount of Loans that are Base Rate Loans or that have Interest Periods that will expire on or before such date equals or exceeds the amount of any prepayment of Loans required in connection with such scheduled reduction of the Commitments or the amount of such scheduled principal payment, as the case may be; (f) no Interest Period shall extend beyond the Maturity Date; (g) if a Notice of Borrowing for Eurodollar Loans fails to specify an Interest Period, the Borrower shall be deemed to have selected a one-month Interest Period for such Eurodollar Loans. 2.15.2. Determination of Interest Rate. As soon as is practicable after 11:00 a.m. (Central time) on the Interest Rate Determination Date, the Administrative Agent shall determine (which determination shall, absent manifest error, be final, conclusive and binding upon all parties) the interest rate that shall apply to the Eurodollar Loans for which an interest rate is then being determined for the applicable Interest Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to the Borrower and to each Lender. 2.15.3. Inability to Determine Rate. In the event the Administrative Agent shall have determined (which determination shall be conclusive and binding absent manifest error) that by reason of circumstances affecting the London interbank Eurodollar market, adequate and reasonable means do not exist for ascertaining Eurodollar Base Rate, the Administrative Agent forthwith shall give telephonic notice of such determination, confirmed in writing, to the Borrower and to each Lender. If such notice is given, and until such notice has been withdrawn by the Administrative Agent, no additional Eurodollar Loans shall be made. 2.15.4. Illegality; Termination of Commitment to Make Eurodollar Loans. Notwithstanding any other provisions of this Agreement, if any law, treaty, rule or regulation or determination of a court or other governmental authority, or any change therein or in the interpretation or application thereof, shall make it unlawful for any Lender to make or maintain Eurodollar Loans, as contemplated by this Agreement, then, and in any such event, such Lender shall be an "Affected Lender" and shall promptly give notice (by telephone confirmed in writing) to the Borrower and the Administrative Agent (which notice the Administrative Agent shall promptly transmit to each Lender in writing, or by telephone confirmed in writing) of such determination, and the obligation of the Affected Lender to make Eurodollar Loans shall be terminated, and its obligation to maintain its Eurodollar Loans during such period shall be terminated at the earlier to occur of the termination of the last Interest Period then in effect or when required by law. Thereafter, and until such notice has been withdrawn by the Affected Lender, the Affected Lender shall have no obligation to make Eurodollar Loans, and any Eurodollar Loans of the Affected Lender then outstanding shall be converted into Base Rate Loans as of the end of the corresponding Interest Period for each. 2.15.5. Eurodollar Loans After Default. Unless all Lenders shall otherwise agree, after the occurrence of and during the continuance of a Default, the Borrower may not elect to have a Loan be made or continued as, or converted to, a Eurodollar Loan. 2.16. Expenses. The Borrower shall reimburse the Administrative Agent, on demand, for all reasonable attorneys' and paralegals' fees and expenses of counsel to the Administrative Agent, all fees and expenses for title, lien and other public records searches, all filing and recordation fees and taxes, all duplicating expenses, corporation search fees, appraisal fees and escrow agent fees and expenses and all other customary fees and expenses incurred in connection with (a) the negotiation, documentation and closing of the transactions contemplated hereby, (b) the perfection of or the continued perfection of the security interests contemplated hereby, and (c) the review and preparation of any documentation in connection with, and the approval by the Lenders of, any matter for which the Lenders' approval is requested or required hereunder. The obligations described in this Section 2.16 regarding the payment of expenses are independent of all other obligations of the Borrower hereunder, shall survive the expiration or termination of the Commitments and shall be payable regardless of whether the financing transactions contemplated by this Agreement shall be consummated. ARTICLE 3. PAYMENTS, PREPAYMENTS AND COMPUTATIONS 3.1. General Provisions Relating to Repayment of Loans. The Loans shall be repaid as provided in this Section 3.1. 3.1.1. Interest Payments. The interest accrued on each Loan shall be payable on each Interest Payment Date applicable to such Loan, upon any prepayment of any Eurodollar Loan (to the extent accrued on the amount being prepaid) and at maturity. 3.1.2. Principal Payments. (a) Optional Prepayments. (1) The Borrower may prepay Swingline Loans, in whole or in part, at any time and from time to time. Except to the extent that repayment of Swingline Loans is being administered through an automated cash management system mutually approved in writing by the Borrower and the Swingline Lender, the Borrower shall, prior to or contemporaneously with making any such prepayment, give the Swingline Lender such notice of prepayment (written notice or telephonic notice confirmed in writing to the Swingline Lender) as is sufficient to enable the Swingline Lender to apply such prepayment properly to the repayment of Swingline Loans. (2) The Borrower may, upon not less than one (1) Business Day's prior written or telephonic notice confirmed in writing to the Administrative Agent (in the case of Base Rate Loans), and upon not less than three (3) Business Days' prior written or telephonic notice confirmed in writing to the Administrative Agent (in the case of Eurodollar Loans) (each of which notices the Administrative Agent will promptly transmit to each Lender in writing, or by telephone confirmed in writing), at any time and from time to time prepay any Borrowing of Revolving Loans (as the Borrower may specify to the Administrative Agent) in whole or in part in integral multiples of $100,000; provided, however, that (A) Eurodollar Loans may only be prepaid in part if, after such prepayment, the unpaid portion of such Loans shall have aggregate minimum balances of $2,500,000, and (B) in connection with any prepayment of Eurodollar Loans, the Borrower shall pay to the Administrative Agent, for distribution to the Lenders, the accrued interest on such Eurodollar Loans required to be paid pursuant to Section 3.1.1 and any amounts required to be paid pursuant to Section 3.4.5. (b) Mandatory Prepayments. (1) If any Capital Stock shall be issued or Indebtedness shall be incurred by the Borrower or any of the other Credit Parties other than pursuant to an Excluded Prepayment Transaction, or if the Borrower or any of the other Credit Parties shall receive Net Cash Proceeds from any Asset Sale or Recovery Event, then an amount equal to 100% of the Net Cash Proceeds thereof shall be applied on the date of issuance, incurrence or receipt, as the case may be, to the prepayment of Loans. (2) The Borrower shall prepay Loans as required by Section 2.1.3 and otherwise shall prepay Loans as and to the extent necessary so that the aggregate principal amount of Loans and Letter of Credit Liabilities outstanding at any time does not exceed the Commitments in effect at such time. (3) Prepayments of Loans pursuant to the preceding paragraphs (1) and (2) shall be applied first to outstanding Swingline Loans to the full extent thereof, then to outstanding Revolving Loans that are Base Rate Loans to the full extent thereof and thereafter to Revolving Loans that are Eurodollar Loans, and in connection with any prepayment of Eurodollar Loans, the Borrower shall pay to the Administrative Agent, for distribution to the Lenders, the accrued interest on such Loan required to be paid pursuant to Section 3.1.1 and any amounts required to be paid pursuant to Section 3.4.5. 3.1.3. Final Maturity of Loans. In all events, the entire aggregate principal balances of, all accrued and unpaid interest on and all fees and other sums due and payable in respect of the Loans shall be due and payable in full on the Maturity Date if not sooner paid. 3.2. Repayment of Amounts Drawn Under Letters of Credit. On each day the Issuing Bank honors a drawing under a Letter of Credit, the Borrower shall, after the Issuing Bank has honored such drawing, immediately reimburse the Issuing Bank for the account of the Lenders, by 11:00 a.m. (Central time) (or as soon thereafter as the drawing has been honored) in an amount equal to the amount of such drawing. 3.3. Payments and Computations, Etc. 3.3.1. Time and Manner of Payments. Except as otherwise expressly set forth herein, all payments of principal, interest and fees hereunder and under the Notes shall be in lawful currency of the United States of America, in immediately available (same day) funds, and delivered to the Administrative Agent at its Lending Office for its account, the account of the Lenders, the account of the Swingline Lender or the account of the Issuing Bank, as the case may be (or, in the case of Swingline Loans and if so directed in writing by the Swingline Lender, delivered directly to the Swingline Lender), not later than 11:00 a.m. (Central time) on the date due. As soon as is practicable thereafter, the Administrative Agent shall cause to be distributed like funds relating to the payment of principal or interest or fees ratably to the Lenders in accordance with their respective Percentages (other than amounts payable pursuant to Sections 2.12.1, 3.4 and 3.5, which are to be distributed other than ratably). Funds received by the Administrative Agent after the time specified in the first sentence of this paragraph shall be deemed to have been paid by the Borrower on the next succeeding Business Day. 3.3.2. Payments on Non-Business Days. Whenever any payment to be made hereunder or under the Notes shall be stated to be due on a day that is not a Business Day, the payment shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of the payment of interest hereunder or under the Notes or of the fees payable hereunder, as the case may be; provided, however, that in the event that the day on which payment relating to a Eurodollar Loan is due is not a Business Day but is a day of the month after which no further Business Day occurs in that month, then the due date thereof shall be the next preceding Business Day. 3.3.3. Apportionment of Payments. Aggregated principal and interest payments shall be apportioned among all outstanding Revolving Loans to which such payments relate, and shall be apportioned ratably among the Lenders in proportion to the Lenders' respective Percentages of the corresponding Revolving Loans. The Administrative Agent shall promptly distribute to each Lender at its Lending Office its Percentage of all such payments received by the Administrative Agent. Notwithstanding the foregoing provisions of this Section 3.3.3, if, pursuant to the provisions of Section 2.15.4, any Notice of Borrowing is withdrawn as to any Affected Lender or if any Affected Lender makes Base Rate Loans in lieu of its Percentage of Eurodollar Loans, the Administrative Agent shall give effect thereto in apportioning payments received thereafter. 3.3.4. Assumption of Payments Made. Unless the Borrower or any Lender shall have notified the Administrative Agent, prior to the date any payment is required to be made by it to the Administrative Agent hereunder, that the Borrower or such Lender, as the case may be, will not make such payment, the Administrative Agent may assume that the Borrower or such Lender, as the case may be, has timely made such payment and may (but shall not be so required to), in reliance thereon, make available a corresponding amount to the Person entitled thereto. If and to the extent that such payment was not in fact made to the Administrative Agent in immediately available funds, then: (a) if the Borrower failed to make such payment, each Lender shall forthwith on demand repay to the Administrative Agent the portion of such assumed payment that was made available to such Lender in immediately available funds, together with interest thereon in respect of each day from and including the date such amount was made available by the Administrative Agent to such Lender to the date such amount is repaid to the Administrative Agent in immediately available funds at the Federal Funds Rate or any other rate customarily used by banks for the correction of errors among banks, but in no event to exceed the Highest Lawful Rate; and (b) if any Lender failed to make such payment, such Lender shall forthwith on demand pay to the Administrative Agent the amount thereof in immediately available funds, together with interest thereon for the period from the date such amount was made available by the Administrative Agent to the Borrower to the date such amount is recovered by the Administrative Agent (the "Compensation Period") at a rate per annum equal to the Federal Funds Rate or any other rate customarily used by banks for the correction of errors among banks, but in no event to exceed the Highest Lawful Rate. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender's Loan included in the applicable Borrowing. If such Lender does not pay such amount forthwith upon the Administrative Agent's demand therefor, the Administrative Agent may make a demand therefor upon the Borrower, and the Borrower shall pay such amount to the Administrative Agent, together with interest thereon for the Compensation Period at a rate per annum equal to the rate of interest applicable to the applicable Borrowing. Nothing herein shall be deemed to relieve any Lender from its obligation to fulfill its Commitment or to prejudice or impair any rights (including any right of offset) that the Administrative Agent or the Borrower may have against any Lender as a result of any default by such Lender hereunder. A notice of the Administrative Agent to any Lender or the Borrower with respect to any amount owing under this Section 3.3.4 shall be conclusive, absent manifest error. 3.3.5. Application of Proceeds. After the occurrence and during the continuance of an Event of Default, unless otherwise set forth in this Agreement or the other Loan Documents, all payments received by the Administrative Agent from the enforcement of remedies under the Loan Documents or otherwise with respect to the Obligations shall be applied (a) first, to the payment of any fees, expenses, reimbursements or indemnities then due from the Borrower to the Administrative Agent; (b) second, to the payment of any fees, expenses, reimbursements or indemnities then due from the Borrower to the Lenders, or any of them; (c) third, to the ratable payment of interest due from the Borrower with respect to any of the Loans and fees in respect of the Letters of Credit; (d) fourth, to the ratable payment of principal of any of the Loans of the Borrower and all obligations of the Borrower to reimburse the Issuing Bank and the Lenders in respect of drawings under Letters of Credit; (e) fifth, to be held as cash collateral by the Administrative Agent for the ratable benefit of the Lenders, the Issuing Bank and the Administrative Agent, as security for outstanding Letter of Credit Liabilities, and (f) sixth, to pay all other Obligations. 3.4. Increased Costs, Capital Requirements and Taxes. 3.4.1. Increased Costs. Except to the extent reimbursed pursuant to other provisions of this Section 3.4, in the event that either (i) the introduction of, or any change in, or in the interpretation of, any law or regulation or (ii) compliance with any guideline or request from any central bank or other Governmental Authority (regardless of whether having the force of law): (a) does or shall subject any Lender to any additional income, preference, minimum or excise tax or to any additional tax of any kind whatsoever with respect to this Agreement, the Notes, the Letters of Credit or any of the Loans or change the basis of taxation of payments to such Lender of principal, commitment fees, interest or any other amount payable hereunder (except for changes in the rate of tax on the overall gross or net income of that Lender or its foreign branch, agency or subsidiary); or (b) does or shall impose, modify or hold applicable any reserve, special deposit, compulsory loan, FDIC insurance or similar requirement against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Lender (except, with respect to Eurodollar Loans, to the extent that the reserve requirements are reflected in the definition of "Eurodollar Rate"); or (c) does or shall impose on that Lender any other condition; and the result of any of the foregoing is to increase the cost to that Lender of issuing or participating in the Letters of Credit or of making, renewing or maintaining the Loans or the Commitments or to reduce any amount receivable hereunder or thereunder; then, in any such case, the Borrower shall promptly pay to such Lender, upon demand, such additional amounts as are sufficient to compensate such Lender for any such additional cost or reduced amount received. 3.4.2. Capital Requirements - General. If either (i) the introduction of, or any change in, or in the interpretation of, any law or regulation or (ii) compliance with any guideline or request from any central bank or other Governmental Authority (regardless of whether having the force of law), affects or would affect in any way the amount of capital required or expected to be maintained by any Lender or any corporation controlling such Lender with the effect of reducing the rate of return on such capital to a level below the rate that such Lender or such other corporation could have achieved but for such introduction, change or compliance, and such Lender reasonably determines that such reduction is based on the existence of such Lender's Commitments hereunder and other commitments of this type, then upon demand by such Lender, the Borrower shall further pay to such Lender from time to time as specified by such Lender such additional amounts as are sufficient to compensate such Lender or other corporation for such reduction. 3.4.3. Capital Requirements - Letters of Credit. If the Issuing Bank or any Lender determines that either (i) the introduction of, or any change in, or in the interpretation of, any law or regulation or (ii) compliance with any guideline or request from any central bank or other Governmental Authority (regardless of whether having the force of law), affects or would affect in any way the amount of capital required or expected to be maintained by the Issuing Bank or such Lender or any corporation controlling the Issuing Bank or such Lender with the effect of reducing the rate of return on such capital below the rate that the Issuing Bank or such Lender or such other corporation could have achieved but for such introduction, change or compliance, and the Issuing Bank or such Lender reasonably determines that such reduction is based on the existence of the Letters of Credit issued hereunder and other commitments of this type, then upon demand by the Issuing Bank or such Lender, the Borrower shall further pay to the Issuing Bank and such Lender from time to time as specified by the Issuing Bank and such Lender such additional amounts as are sufficient to compensate the Issuing Bank and such Lender or other corporation for such reduction. 3.4.4. Increased Reserves - Letters of Credit. If either (i) the introduction of, or any change in, or in the interpretation of, any law or regulation or (ii) compliance with any guideline or request from any central bank or other Governmental Authority (regardless of whether having the force of law), shall either (a) impose, modify or deem applicable any reserve, special deposit or similar requirement against letters of credit or similar instruments issued by, or assets held by, or deposits in or for the account of, the Issuing Bank or any Lender, or (b) impose on the Issuing Bank or any Lender any other condition regarding this Agreement as it pertains to the Letters of Credit, or any letter of credit, and the result of any event referred to in the preceding clause (a) or (b) shall be to increase the cost to the Issuing Bank or any Lender of issuing or maintaining any Letter of Credit or any participation therein (which increase in cost shall be determined by the Issuing Bank's or such Lender's, as the case may be, reasonable allocations of the aggregate of such cost increases resulting from such event), then, upon demand by the Issuing Bank or such Lender, as the case may be, the Borrower shall forthwith pay to the Issuing Bank or such Lender, as the case may be, from time to time as specified by the Issuing Bank or such Lender, as the case may be, such additional amounts as are sufficient to compensate the Issuing Bank or such Lender, as the case may be, for such increased cost. 3.4.5. Breakage Costs - Eurodollar Loans. The Borrower shall indemnify and hold each Lender free and harmless from all losses, liabilities and reasonable expenses (including any loss sustained by that Lender in connection with the re-employment of such funds), that such Lender may sustain: (a) if for any reason (other than a default by such Lender) a Borrowing of Eurodollar Loans does not occur on a date specified therefor in a Notice of Borrowing or a telephonic request for borrowing or a continuation of or conversion to Eurodollar Loans does not occur on a date specified therefor in a Notice of Conversion/Continuation or in a telephonic request for conversion/continuation, (b) if any prepayment of any of its Eurodollar Loans occurs on a date that is not the last day of an Interest Period, (c) if any prepayment of any of its Eurodollar Loans is not made on any date specified in a notice of prepayment given by the Borrower, or (d) as a consequence of any other default by the Borrower to repay its Eurodollar Loans when required by the terms of this Agreement. 3.4.6. Eurodollar Rate Taxes. The Borrower shall indemnify and hold each Lender free and harmless from, and shall pay, prior to the date on which penalties attach thereto, all present and future income, stamp and other taxes, levies or costs and charges whatsoever imposed, assessed, levied or collected on or in respect of a Loan solely as a result of the interest rate being determined by reference to the Eurodollar Rate or the provisions of this Agreement related to the Eurodollar Rate or the recording, registration, notarization or other formalization of any thereof or any payments of principal, interest or other amounts made on or in respect of a Loan when the interest rate is determined by reference to the Eurodollar Rate (all such taxes, levies, costs and charges being herein collectively called "Eurodollar Rate Taxes"); provided, however, that Eurodollar Rate Taxes shall not include: taxes imposed on or measured by the overall gross or net income of such Lender or any foreign branch, agency or subsidiary of such Lender by the United States of America or any political subdivision or taxing authority thereof or therein, or taxes on or measured by the overall gross or net income of that Lender or any foreign branch, agency or subsidiary of that Lender by any foreign country or subdivision thereof in which that Lender, branch, agency or subsidiary is doing business. The Borrower also shall indemnify and hold each Lender free and harmless from, and shall pay such additional amounts equal to, increases in taxes payable by that Lender described in the foregoing proviso that are attributable to payments made by the Borrower described in the immediately preceding sentence or this sentence. Promptly after the date on which payment of any such Eurodollar Rate Tax is due pursuant to applicable law, the Borrower will, at the request of such Lender, furnish to such Lender evidence, in form and substance satisfactory to such Lender, that the Borrower has met its obligation under this Section 3.4.6; and the Borrower will indemnify each Lender against, and reimburse each Lender on demand for, any Eurodollar Rate Taxes payable by that Lender. Such Lender shall provide the Borrower with appropriate receipts for any payments or reimbursements made by the Borrower pursuant to this Section 3.4.6. 3.4.7. Notice of Increased Costs; Payment. Each Lender and the Issuing Bank will promptly notify the Administrative Agent (with a copy to the Borrower) of any event of which it has knowledge, occurring after the date hereof, that entitles such Lender or the Issuing Bank to compensation, reimbursement or indemnity pursuant to this Section 3.4 or Section 3.5, and shall furnish to the Administrative Agent (with a copy to the Borrower) a certificate of such Lender or the Issuing Bank claiming compensation, reimbursement or indemnity under this Section 3.4 or Section 3.5, setting forth in reasonable detail the additional amount or amounts to be paid to it hereunder if not theretofore paid by the Borrower as provided in Section 3.5 (which certificate shall be presumed correct and binding in the absence of manifest error). In determining such amount, such Lender and the Issuing Bank may use any reasonable averaging, attribution or allocation methods. Within fifteen (15) days following receipt of such notice, the Borrower shall pay to the Administrative Agent, for distribution to such Lender, or to the Issuing Bank, as the case may be, the amount shown to be due and payable by such certificate. 3.5. Taxes. 3.5.1. Taxes Generally. Any and all payments by the Borrower hereunder or under the Notes or the other Loan Documents shall be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect to such payments (including interest, additions to tax and penalties thereon), excluding, in the case of each Lender, the Administrative Agent and the Issuing Bank, (i) taxes imposed on or measured by its net income or, in the State of Tennessee, net assets, and franchise taxes imposed on it, by the jurisdiction of such Lender's Lending Office or any political subdivision or taxing authority thereof, and (ii) withholding taxes that are the subject of Sections 3.5.2 through 3.5.5. If the Borrower shall be required by law to deduct any such taxes from or in respect of any sum payable hereunder or under any Note or any other Loan Document to the Administrative Agent, any Lender or the Issuing Bank (a) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 3.5) the Administrative Agent, such Lender or the Issuing Bank (as the case may be) shall receive an amount equal to the sum it would have received had no such deductions been made, and (b) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. If and to the extent that any Lender subsequently shall be refunded or otherwise recover all or any part of any such deduction, it shall promptly refund to the Borrower the amount so recovered. 3.5.2. Withholding Tax Exemption. Each Lender that is not a citizen or resident of the United States of America, a corporation, partnership or other entity created or organized in or under the laws of the United States of America (or any jurisdiction thereof) or an estate or trust that is subject to federal income taxation regardless of the source of its income (a "Non-U.S. Lender") shall deliver to the Borrower and the Administrative Agent (and, in the case of a participant, to the Lender from which the related participation shall have been purchased) two copies of either U.S. Internal Revenue Service Form W-8BEN or Form W-8ECI, or, in the case of a Non-U.S. Lender claiming exemption from U.S. federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of "portfolio interest", a statement in form satisfactory to the Administrative Agent to the effect that such Lender is eligible for a complete exemption from withholding of U.S. taxes under Section 871(h) or 881(c) of the Code and a Form W-8BEN, or any subsequent versions thereof or successors thereto properly completed and duly executed by such Non-U.S. Lender claiming complete exemption from, or a reduced rate of, U.S. federal withholding tax on payments by the Borrower or any Subsidiary Guarantor under this Agreement and the other Loan Documents. Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement (or, in the case of any participant, on or before the date such participant purchases the related participation). In addition, each Non-U.S. Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Non-U.S. Lender. Each Non-U.S. Lender shall promptly notify the Borrower at any time it determines that it is no longer in a position to provide any previously delivered certificate to the Borrower (or any other form of certification adopted by the U.S. taxing authorities for such purpose). Notwithstanding any other provision of this paragraph, a Non-U.S. Lender shall not be required to deliver any form pursuant to this paragraph that such Non-U.S. Lender is not legally able to deliver. 3.5.3. Withholding Taxes. A Lender that is entitled to an exemption from or reduction of non-U.S. withholding tax under the law of the jurisdiction in which the Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement, shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law or reasonably requested by the Borrower, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate, provided that such Lender is legally entitled to complete, execute and deliver such documentation and in such Lender's reasonable judgment such completion, execution or submission will not materially prejudice the legal position of such Lender. 3.5.4. Indemnification. If the Internal Revenue Service or any authority of the United States or other jurisdiction asserts a claim that the Administrative Agent did not properly withhold tax from amounts paid to or for the account of any Lender (because the appropriate form was not delivered or was not properly executed, or because such Lender failed to notify the Administrative Agent of a change in circumstances that rendered the exemption from or reduction of withholding tax ineffective, or for any other reason) such Lender shall indemnify the Administrative Agent fully for all amounts paid, directly or indirectly, by the Administrative Agent as tax or otherwise, including penalties and interest, together with all expenses incurred, including legal expenses, allocated staff costs and any out-of-pocket expenses. 3.5.5. Subsequent Lenders. If any Lender sells, assigns, grants participations in or otherwise transfers its rights under this Agreement, the participant shall comply and be bound by the terms of Sections 3.5.2, 3.5.3 and 3.5.4 as though it were such Lender. 3.6. Booking of Loans. Any Lender may make, carry or transfer Loans at, to or for the account of, any of its branch or agency offices, provided, however, that in the event that any Lender transfers its Loans to another branch or agency office in a transaction that does not involve the transfer by such Lender of any of its other loans to such branch or agency office, such Lender shall not be entitled to reimbursement for additional costs or taxes with respect to such Loans pursuant to Section 3.4 or Section 3.5 if the Borrower would be subject to additional liability under Section 3.4 or Section 3.5 to which it would not be subject if such Lender's Loans were maintained at the office at which such Loans were carried prior to such transfer. The Borrower acknowledges and agrees that (a) each Lender's method of funding its Loans hereunder shall be in the sole discretion of such Lender, so long as such funding complies with all applicable requirements of this Agreement, and (b) for purposes of any determination to be made pursuant to Sections 2.15.4 or 3.4.5 of this Agreement, each Lender shall be presumed conclusively to have funded its Eurodollar Loans with the proceeds of Dollar deposits obtained by such Lender in the interbank Eurodollar market. ARTICLE 4. SECURITY 4.1. Initial Security. The Obligations of the Borrower shall be secured by: (a) the Guarantee and Security Agreement and the Loan Documents and other instruments, documents and agreements executed and delivered pursuant to the Guarantee and Security Agreement; (b) the Mortgages; and (c) the security interest in the Collateral Account herein granted in favor of the Administrative Agent for the ratable benefit of the Lenders, the Issuing Bank and the Administrative Agent, and the other Liens provided in this Agreement and the other Security Documents. 4.2. Additional Mortgages. In addition to the Mortgages provided pursuant to Section 6.1.1, the Borrower will, and will cause each of the Subsidiary Guarantors to, grant to or for the benefit of the Administrative Agent additional Mortgages with respect to such real property (excluding real property where the fair market value thereof is less than $100,000) of the Borrower or any of the Subsidiary Guarantors as are not encumbered by the original Mortgages, to the extent acquired after the date hereof, and as may be requested from time to time by the Administrative Agent or Requisite Lenders. All such additional Mortgages shall be granted pursuant to documentation substantially in the form of the original Mortgages or in such other form as is satisfactory to the Administrative Agent and shall satisfy each of the requirements of Section 6.1.1 applicable with respect to or in connection with the original Mortgages. 4.3. Appraisals of Collateral Real Estate Interests. In the event that the Administrative Agent, any Lender or the Issuing Bank determines in its reasonable discretion (whether as a result of a position taken by an applicable bank regulatory agency or official or otherwise) that real estate appraisals satisfying the requirements set forth in 12 C.F.R., Part 34 - Subpart C, or any successor regulation or similar Requirement of Law applicable to the Administrative Agent, any Lender or the Issuing Bank (any such appraisal, a "Required Appraisal"), are or were required to be obtained, or should be obtained, in connection with any Collateral Real Estate Interest, then within ninety (90) days after receiving written notice thereof from the Administrative Agent, any such Lender or the Issuing Bank, as the case may be, the Borrower shall cause such Required Appraisal to be delivered, at the expense of the Borrower, to the Administrative Agent, which Required Appraisal, and the respective appraiser, shall be reasonably satisfactory to the Administrative Agent, such Lender or the Issuing Bank, as the case may be, and without limiting the foregoing, shall (a) set forth in reasonable detail the assumptions on which such appraisal is based, the analytical methods used and the factors considered in arriving at the conclusions expressed therein, including relevant information with respect to the valuation of comparable properties, (b) comply with all Requirements of Law applicable to appraisals used by the Administrative Agent, the Lenders and the Issuing Bank in making extensions of credit such as the Facilities, and (c) comply with the requirements of the Administrative Agent's appraisal review division that are of general application to extensions of credit such as the Facilities. 4.4. Majority Owned Center Subsidiaries. All loans or advances by the Borrower or any of the other Credit Parties to a Majority Owned Center Subsidiary shall be evidenced by a Pledged Note and, except as otherwise expressly contemplated by Section 9.4, the Indebtedness evidenced by such Pledged Note shall be secured by perfected first-priority Liens encumbering substantially all of the assets (including both personal property and real property) of such Majority Owned Center Subsidiary. Such Pledged Note(s) and the Indebtedness evidenced thereby, together with all security therefor and all instruments, documents and agreements further evidencing, securing or otherwise relating thereto and all other supporting obligations for same, shall be included as a part of the Collateral subject to the Lien of the Guarantee and Security Agreement. 4.5. Further Assurances. Without limiting any of the foregoing, the Borrower shall, and shall cause its Subsidiaries to, at the sole cost and expense of the Borrower and its Subsidiaries, execute and deliver to the Administrative Agent, the Lenders and the Issuing Bank all such further documents, instruments and agreements and perform all such other acts that reasonably may be required in the opinion of the Administrative Agent to evidence, confirm and effectuate the transactions contemplated by this Agreement and the other Loan Documents, to accomplish the intents and purposes of this Agreement and the other Loan Documents and to enable the Administrative Agent, the Lenders and the Issuing Bank to exercise and enforce their respective rights as the secured parties under the Security Documents. To the extent permitted by applicable law, the Borrower hereby authorizes the Administrative Agent on behalf of itself, the Lenders and the Issuing Bank to file Financing Statements and continuation statements with respect to the security interests granted or assigned under the Security Documents and to execute such Financing Statements and continuation statements on behalf of the Borrower and its Subsidiaries. The Administrative Agent shall furnish to the Borrower copies of all such Financing Statements and continuation statements filed by the Administrative Agent on behalf of the Lenders pursuant to this Section 4.5. ARTICLE 5. [RESERVED] ARTICLE 6. CONDITIONS PRECEDENT 6.1. Conditions Precedent to Initial Loans and Letters of Credit. The effectiveness of this Agreement, the obligations of the Issuing Bank to issue Letters of Credit, the obligations of the Lenders to purchase participations in Letters of Credit and the obligations of the Lenders to make the Loans are all subject to the satisfaction by the Borrower and its Subsidiaries of the following conditions precedent, except to the extent that any of such conditions are to be satisfied after the date hereof pursuant to Section 8.20 or have been waived by the Lenders: 6.1.1. Deliveries to the Administrative Agent. The Administrative Agent shall have received, for the ratable benefit of the Lenders, the Issuing Bank and the Administrative Agent (and in such number of original counterparts or copies as the Administrative Agent reasonably may specify), each of the following, in form and substance satisfactory to the Administrative Agent, the Lenders, the Issuing Bank and their respective counsel: (a) Agreement. Counterpart originals of this Agreement, each duly and validly executed and delivered by or on behalf of all the Borrower; (b) Notes. The Notes, each duly and validly executed and delivered on behalf of the Borrower; (c) Guarantee and Security Agreement. The Guarantee and Security Agreement and the other instruments, documents and agreements to be executed and delivered pursuant to the Guarantee and Security Agreement, duly and validly executed and delivered by or on behalf of all the appropriate parties thereto; (d) Mortgages, Title Insurance, Surveys, Etc. (1) Fully executed counterparts of Mortgages with respect to the Collateral Real Estate Interests identified on Schedule 6.1.1A, together with evidence that counterparts of such Mortgages have been delivered to the title insurance company or companies insuring the Liens of such Mortgages (or other recording agent(s) selected by the Administrative Agent) for recording or filing in all places to the extent necessary or, in the reasonable opinion of the Administrative Agent, desirable to create or confirm a valid and enforceable first priority mortgage lien on, security title to or collateral assignment of each Collateral Real Estate Interest, subject only to Permitted Liens; (2) Title Policies (or, with respect to Leased Property, such other evidence of title as the Administrative Agent reasonably may specify) corresponding to each of the Mortgages; (3) A survey of each parcel of real property corresponding to a Collateral Real Estate Interest, in form and substance reasonably satisfactory to the Administrative Agent, dated a recent date acceptable to the Administrative Agent and certified in a manner reasonably satisfactory to the Administrative Agent by a licensed professional surveyor satisfactory to the Administrative Agent, which survey shall disclose and depict all improvements, easements and rights-of-way and shall indicate the flood zone designation, if any, in which the property is located; provided that the Administrative Agent, in its discretion, may waive this requirement with respect to Leased Property; (4) With respect to each parcel of real property corresponding to a Collateral Real Estate Interest, evidence reasonably satisfactory to the Administrative Agent that (A) such property is not contaminated with, nor threatened with contamination from outside sources by, Hazardous Materials, and (B) such property otherwise complies in all material respects with all applicable Environmental Laws, such evidence shall to include an inspection of the property and a report, in form and substance reasonably satisfactory to the Administrative Agent, by a qualified engineering firm or other consultant acceptable to the Administrative Agent, disclosing the absence of any such Hazardous Materials; provided that the Administrative Agent, in its discretion, may waive this requirement with respect to Leased Property; (5) With respect to each parcel of real property corresponding to a Collateral Real Estate Interest that is located in an area that has been identified as having special flood hazards, the Administrative Agent shall have received a policy of flood insurance written in an amount not less than the outstanding principal amount of the indebtedness secured by the corresponding Mortgage that is reasonably allocable to such property or the maximum limit of coverage made available with respect to the particular type of property under the National Flood Insurance Act of 1968, whichever is less, and that has a term ending not later than the Maturity Date, and (B) confirmation that the Borrower has received the notice required pursuant to Section 208(e)(3) of Regulation H of the Federal Reserve Board; provided that the Administrative Agent, in its discretion, may waive this requirement with respect to Leased Property; and (6) Duly authorized, fully executed, acknowledged and delivered landlord-lender agreements, owner-lender agreements, landlord consents and waivers and other documents relating to leaseholds that are material to the conduct of the business of the Borrower and its Subsidiaries and Affiliates or that are subject to a Mortgage, all as shall be required by, and in form and substance reasonably satisfactory to, the Administrative Agent, in its discretion; provided, however, that with respect only to those leaseholds that are held by the Borrower and its Subsidiaries and Affiliates as of the date of this Agreement, this condition shall be deemed satisfied if the Credit Parties have used their reasonable best efforts to obtain such agreements, consents, waivers and other documents, even though one or more of the same ultimately is not received; (e) Other Security Documents. Any other Security Documents, each duly and validly executed and delivered by or on behalf of all the appropriate parties thereto; (f) Recordings and Filings. (1) Acknowledgment copies of Financing Statements duly filed under the UCC of all jurisdictions necessary or, in the opinion of the Administrative Agent, desirable to perfect the security interests created by the Security Documents, (2) lien search reports from a search firm acceptable to the Administrative Agent, identifying all of the financing statements on file with respect to the Borrower or any other Credit Party in all jurisdictions referred to under the preceding item (1), indicating that no Person claims an interest in any of the Collateral described in such Financing Statements other than in respect of financing statements evidencing Permitted Liens, and (3) evidence of the public recording or filing of such of the Security Documents as the Administrative Agent deems it necessary or desirable to record or file publicly, in such offices as the Administrative Agent shall require, together with evidence satisfactory to the Administrative Agent of the priority of the Liens of such Security Documents; (g) Pledged Stock. Certificates evidencing the Pledged Stock, together with an appropriate stock power for each certificate, duly executed in blank by the Borrower or the appropriate Subsidiary Guarantor, as the case may be; (h) Pledged Notes. The Pledged Notes, together with appropriate instruments of assignment attached thereto, duly endorsed in blank by the Borrower or the appropriate Subsidiary Guarantor, as the case may be; (i) Perfected Security Interest. Evidence of Lien searches, through a date satisfactory to the Administrative Agent, showing no Liens affecting the Collateral other than Liens in favor of the Administrative Agent for the ratable benefit of the Lenders, the Issuing Bank and the Administrative Agent in connection herewith; (j) Organizational Documents. Copies of the charters, articles or certificates of incorporation, articles of organization or other organizational documents of the Borrower and each of its Subsidiaries, certified by the Secretary of State or other appropriate public official in each jurisdiction of organization, all in form and substance satisfactory to the Lenders; (k) Bylaws, Operating Agreements, Etc. Copies of the bylaws or operating agreements, and all amendments thereto, of the Borrower and each of its Subsidiaries, together with certificates of the respective Secretaries or Assistant Secretaries of the Borrower and each of such Subsidiaries, dated the date hereof, stating that such copy is complete and correct; (l) Good Standing and Authority. Certificates of the appropriate governmental officials of each jurisdiction as the Administrative Agent reasonably may request, dated within seventy-five (75) days of the date hereof, stating that the Borrower and each of its Subsidiaries exists, is in good standing with respect to the payment of franchise and similar taxes and is duly qualified to transact business therein; (m) Incumbency. Certificates of the respective Secretaries or Assistant Secretaries of the Borrower and each of the other Credit Parties, dated the date hereof, as to the incumbency and signature of all officers of the Borrower or such Subsidiary Guarantor authorized to execute or attest to this Agreement, the Notes and the other Loan Documents to which the Borrower or such Credit Party is a party, together with evidence of the incumbency of each such Secretary or Assistant Secretary; (n) Resolutions. With respect to the Borrower and each of the other Credit Parties (i) copies of the resolutions authorizing, approving and ratifying this Agreement, the Notes, the Security Documents and the other Loan Documents and the transactions contemplated herein and therein, duly adopted by the respective boards of directors or other managers of the Borrower and each of the other Credit Parties, together with (ii) certificates of the respective Secretaries or Assistant Secretaries of the Borrower and each of the other Credit Parties, dated the date hereof, stating that each such copy is a true and correct copy of resolutions duly adopted at a meeting, or by action taken on written consent, of the board of directors or other managers of the Borrower or such Credit Party and that such resolutions have not been modified, amended, rescinded or revoked in any respect and are in full force and effect as of the date hereof; (o) Legal Opinions of the Borrower's Counsel. The favorable legal opinion of Waller Lansden Dortch & Davis, PLLC, counsel to the Credit Parties, dated the date hereof, and addressed to the Administrative Agent, the Lenders and the Issuing Bank, substantially in the form of Exhibit 6.1.1B; (p) Evidence of Indebtedness. If requested by the Administrative Agent, (i) a copy of each indenture, loan agreement, guaranty, promissory note or other evidence of Indebtedness other than Contingent Obligations, Indebtedness incurred under the Loan Documents, trade debt incurred in the ordinary course of business and obligations under Operating Leases (together with all modifications, amendments, restatements or supplements thereto) to which the Borrower or any of its Subsidiaries is a party constituting a liability (contingent or otherwise) equal to or in excess of $500,000, the terms and conditions of which shall be satisfactory to the Administrative Agent, and (ii) a report certified by the respective chief executive officer of the Borrower describing any default or failure of performance or any event that with the giving of notice of, or the lapse of time, or both, would become a default by the Borrower or any of its Subsidiaries under any of such documents, instruments or agreements; (q) Year-End Financial Statements. The consolidated balance sheets of the Borrower and its Subsidiaries as of December 31 of each of 2000, 2001 and 2002, and of PSC and its Subsidiaries as of December 31 of each of 2000 and 2001, and the related consolidated statements of income, shareholders' equity and cash flows for each of the respective Fiscal Years ended on each such date, audited and reported upon, without qualification, by Ernst & Young LLP, together with unaudited consolidating balance sheets of the Borrower, PSC and their respective Subsidiaries as of the end of each such Fiscal Year and the related unaudited consolidating statements of income for each such Fiscal Year, prepared by such accountants and certified by a Responsible Officer of the Borrower; (r) March 31, 2003 Financial Statements. The unaudited consolidated and consolidating balance sheet of the Borrower and its Subsidiaries as of March 31, 2003 and the related consolidated and consolidating statement of income and the related consolidated statements of shareholders' equity and cash flows for the period commencing at the beginning of the current Fiscal Year and ending with the end of the Fiscal Quarter ended on such date, certified by a Responsible Officer of the Borrower; (s) Projections. The Projections; (t) Officer's Certificate. A certificate of a Responsible Officer of the Borrower, dated the date hereof, stating that (i) each of the representations and warranties contained in Article 7 is true and correct at and as of the date hereof with the same force and effect as if made on such date, (ii) all obligations, covenants, agreements and conditions contained in this Agreement and the other Loan Documents to be performed or satisfied by the Borrower or any of its Subsidiaries on or prior to the date hereof have been performed or satisfied in all respects, (iii) since December 31, 2002, there has been no Material Adverse Change, and (iv) no Default has occurred and is continuing, and in addition setting forth in such detail as shall be required by the Lenders calculations of the financial ratios and covenants contained in this Agreement showing that as of the date hereof and after giving effect to the transactions that are the subject hereof the Borrower and its Subsidiaries are in compliance with Article 10; (u) Solvency Certificate. A solvency certificate of a Responsible Officer of the Borrower, in substantially the form of Exhibit 6.1.1C (the "Solvency Certificate"); (v) Consents. Evidence that the Borrower and each of the other Credit Parties have obtained all requisite consents and approvals required to be obtained from any Person to permit the transactions contemplated by this Agreement, the Notes and the other Loan Documents to be consummated in accordance with their respective terms and conditions; and (w) Other Matters. All other documents, instruments, agreements, opinions, certificates, insurance policies, consents and evidences of other legal matters, in form and substance satisfactory to the Administrative Agent and its counsel, as the Administrative Agent reasonably may request. 6.1.2. Compliance with Laws. The Borrower and its Subsidiaries shall not be in violation of, and shall not have received notice of any violation of, any applicable Requirement of Law, including any building, zoning, occupational safety and health, fair employment, equal opportunity, pension, environmental control, health care, certificate of need, health care facility licensing or similar federal, state or local law, ordinance or regulation, relating to the ownership or operation of its business or assets, if such violation or non-compliance could have a Material Adverse Effect, and if requested by the Administrative Agent the Borrower or its Subsidiaries shall have furnished to the Administrative Agent and the Lenders copies of all required material approvals (including required operating licenses and permits) of any Governmental Authority. 6.1.3. No Material Adverse Change. Since December 31, 2002 no Material Adverse Change (as determined by the Administrative Agent, the Lenders and the Issuing Bank, in their sole discretion) shall have occurred. 6.1.4. No Material Misrepresentation. No material misrepresentation or omission shall have been made by or on behalf of the Borrower or any of the other Credit Parties to the Administrative Agent, the Lenders or the Issuing Bank with respect to the Borrower's or such Credit Party's business operations or financial or other condition. 6.1.5. Legal Proceedings. No action, suit, proceeding or investigation shall be pending before or threatened by any court or Governmental Authority with respect to the transactions contemplated hereby or that may have a Material Adverse Effect (as determined by the Administrative Agent, the Lenders and the Issuing Bank, in their sole discretion). 6.1.6. Subordinated Indebtedness. If requested by the Administrative Agent, any creditor holding Subordinated Indebtedness shall have entered into an intercreditor and subordination agreement with the Administrative Agent in form and substance satisfactory to the Lenders. 6.1.7. 2003 Subordinated Note Placement. The Borrower shall have consummated the placement of the 2003 Subordinated Notes pursuant to the 2003 Subordinated Note Documents and otherwise on terms and conditions reasonably acceptable to the Administrative Agent and Requisite Lenders, and as a result thereof (a) the Borrower shall have received Net Cash Proceeds thereof in a minimum amount of $15,000,000, and (b) the Borrower shall have the ability to receive upon request, in the absence of a default under the 2003 Subordinated Note Documents, additional proceeds thereof such that the total gross proceeds advanced or available to be advanced to or for the account of the Borrower shall be not less than $40,000,000. 6.2. Conditions Precedent to All Loans and Letters of Credit. The obligations of each of the Lenders to make any Loans (including Loans used to refinance or repay other Loans or Letter of Credit Liabilities) on any date (including the date hereof), and the obligations of the Issuing Bank to issue or extend a Letter of Credit on any date (including the date hereof), are subject to the satisfaction of the conditions set forth below in this Section 6.2. Each request for Loans or for a Letter of Credit hereunder shall constitute a representation and warranty by the Borrower to the Administrative Agent, the Lenders and the Issuing Bank, as of the date of the making of such Loans or the issuance of such Letter(s) of Credit, that the conditions in this Section 6.2 have been satisfied. 6.2.1. Satisfaction of Conditions Precedent to Initial Loans and Letters of Credit. The conditions precedent set forth in Section 6.1 shall have been satisfied. 6.2.2. Representations and Warranties. The representations and warranties of the Borrower and the other Credit Parties set forth in this Agreement, the Notes and the other Loan Documents and in any certificate, opinion or other statement provided at any time by or on behalf of the Borrower or any other Credit Party in connection herewith shall be true and correct on and as of the date of the making of such Loans or the issuance of such Letter(s) of Credit as if made on and as of such date, except to the extent that a representation or warranty is made as of a specific date, in which event such representation or warranty shall remain true and correct as of such earlier date, and except to the extent that a representation or warranty is no longer correct by virtue of changes in facts and circumstances permitted by the terms of this Agreement. 6.2.3. No Default. No Default shall have occurred and be continuing on the date of the requested Borrowing or Letter of Credit issuance or after giving effect to such Borrowing or Letter of Credit issuance. 6.2.4. No Violations. No law or regulation shall prohibit the making of the requested Loan or the issuance of the requested Letter of Credit and no order, judgment or decree of any court or Governmental Authority shall, and no litigation shall be pending that in the judgment of the Administrative Agent or Requisite Lenders would, enjoin, prohibit or restrain any Lender from making a requested Loan or the Issuing Bank from issuing a requested Letter of Credit. 6.2.5. Proceedings Satisfactory. All proceedings in connection with the making of any Loan, the issuance of any Letter of Credit and the other transactions contemplated by this Agreement, the Loan Documents and all documents incidental thereto shall be satisfactory to the Administrative Agent, and the Administrative Agent shall have received all such information and such counterpart originals or certified or other copies of such documents as the Administrative Agent reasonably may request. ARTICLE 7. REPRESENTATIONS AND WARRANTIES In order to induce the Administrative Agent, the Lenders and the Issuing Bank to enter into this Agreement, to make the Loans, to issue the Letters of Credit and to provide the other financial accommodations provided for herein, the Borrower hereby makes the following representations and warranties to the Administrative Agent, the Lenders and the Issuing Bank: 7.1. Existence and Power. The Borrower, its Subsidiaries and the Permitted Non-Guarantor Entities are entities of the types set forth on Schedule 7.1, and each is duly organized, validly existing and in good standing under the laws of the jurisdiction indicated next to its name on Schedule 7.1. The Borrower, its Subsidiaries and the Permitted Non-Guarantor Entities have the power, authority and legal right to own and operate their respective properties and assets, to lease the properties and assets they operate under lease and to carry on their respective businesses as they are now being conducted and intended to be conducted, and are duly qualified to transact business in, and in good standing under the laws of, each jurisdiction in which their ownership, lease or operation of property or the conduct of their respective businesses requires such qualification, except to the extent that failure to qualify to transact business will not have a Material Adverse Effect. 7.2. Authorization and Enforceability of Obligations. The Borrower and the other Credit Parties (a) have the power, authority and legal right to enter into this Agreement and the other Loan Documents to which each is a party and to enter into and perform their respective obligations hereunder and thereunder, and (b) have taken all necessary action on the part of each to authorize the execution and delivery of such documents, instruments and agreements and the performance of their respective obligations hereunder and thereunder. This Agreement, the Notes and the other Loan Documents have been duly executed and delivered on behalf of the Borrower and such of the other Credit Parties as are parties to such Loan Documents, and constitute legal, valid and binding obligations of and are enforceable against the Borrower and such other Credit Parties in accordance with their respective terms. 7.3. No Consents. Except as set forth on Schedule 7.3, all necessary consents, approvals and authorizations of, filings with and acts by or with respect to all Governmental Authorities and other Persons required to be obtained, made or taken in connection with the execution, delivery, performance, validity or enforceability of this Agreement, the Notes and the other Loan Documents, or otherwise in connection with the transactions contemplated hereby, have been obtained, made or taken and remain in effect. 7.4. No Conflict. The execution and delivery of this Agreement, the Notes and the other Loan Documents, the transactions contemplated hereby, the use of the proceeds of the Loans and the Letters of Credit and the performance by the Borrower and the other Credit Parties of their respective obligations hereunder under the Loan Documents to which they are parties (a) do not conflict with or violate any Requirement of Law or any Contractual Obligation of the Borrower or any Subsidiary of the Borrower, except to the extent that any such violation or conflict will not have a Material Adverse Effect, and (b) do not conflict with, constitute a default or require any consent under, or result in the creation of any Lien upon any property or assets of the Borrower or any Subsidiary of the Borrower pursuant to any Contractual Obligation of the Borrower or such Subsidiary (other than Liens in favor of the Administrative Agent, the Lenders and the Issuing Bank), except to the extent that any such conflict or default or the failure to obtain any necessary consent will not have a Material Adverse Effect. 7.5. Financial Statements; Projections; Solvency. (a) The consolidated balance sheets of the Borrower and its Subsidiaries as of December 31 of each of 2000, 2001 and 2002 and the related consolidated statements of income, shareholders' equity and cash flows for each of the Fiscal Years then ended, including the opinions of Ernst & Young LLP with respect thereto, together with the unaudited consolidating balance sheets of the Borrower and its Subsidiaries as of the end of such Fiscal Year and the unaudited consolidating statements of income of the Borrower and its Subsidiaries for such Fiscal Year, copies of all of which have been furnished to the Administrative Agent, are complete and correct and fairly present the assets, liabilities and consolidated financial position of the Borrower and its Subsidiaries as at each such date and the consolidated results of their operations and their cash flows for each of the Fiscal Years then ended. (b) The consolidated balance sheets of PSC and its Subsidiaries as of December 31 of each of 2000 and 2001 and the related consolidated statements of income, shareholders' equity and cash flows for each of the Fiscal Years then ended, including the opinions of Ernst & Young LLP with respect thereto, together with the unaudited consolidating balance sheets of PSC and its Subsidiaries as of the end of such Fiscal Year and the unaudited consolidating statements of income of PSC and its Subsidiaries for such Fiscal Year, copies of all of which have been furnished to the Administrative Agent, are complete and correct and fairly present the assets, liabilities and consolidated financial position of PSC and its Subsidiaries as at each such date and the consolidated results of their operations and their cash flows for each of the Fiscal Years then ended. (c) The unaudited consolidated and consolidating balance sheet of the Borrower and its Subsidiaries as of March 31, 2003, together with the related consolidated and consolidating statement of income and the related consolidated statements of shareholders' equity and cash flows for the period commencing at the beginning of the current Fiscal Year and ending with the end of the Fiscal Quarter ended on such date, copies of all of which have been furnished to the Administrative Agent, are complete and correct and, subject to customary year-end adjustments that are not anticipated to be material, fairly present the assets, liabilities and consolidated financial position of the Borrower and its Subsidiaries as at such date and the consolidated results of their operations and their cash flows for such period. (d) The financial statements described in the preceding paragraphs (a), (b) and (c), including the related schedules and notes thereto, have been prepared in conformity with GAAP applied consistently throughout the periods involved. Neither the Borrower nor any of its Subsidiaries has any material Indebtedness, obligation or other unusual forward or long-term commitment that is not fairly reflected in the foregoing financial statements or in the notes thereto. (e) In the opinion of the management of the Borrower, the assumptions used in the preparation of the Projections were reasonable when made and, as of the date hereof, the management of the Borrower continues to believe that such assumptions are reasonable and appropriate. In the opinion of the management of the Borrower, the Projections represent a reasonable estimate of the future performance and financial condition of the Borrower and its Subsidiaries for the periods included therein, subject to the uncertainties and approximations inherent in the making of any financial projections and without assurance that the projected performance and financial condition actually will be achieved. (f) After giving effect to the consummation of the transactions contemplated by this Agreement, the making of Loans hereunder, the issuance of Letters of Credit hereunder and the incurrence by the Borrower and the other Credit Parties of the Obligations incurred by each pursuant to the Loan Documents, each of the Credit Parties is Solvent. 7.6. Absence of Litigation. Except as otherwise set forth in Schedule 7.6, there are no actions, suits, proceedings or other litigation (including proceedings by or before any arbitrator or Governmental Authority) pending or threatened against or affecting the Borrower or any of its Subsidiaries, nor to the knowledge of the Borrower is there any basis therefor, (a) that challenge the validity or propriety of the transactions contemplated hereby, or (b) that reasonably can be expected to be adversely determined and, if adversely determined, to have a Material Adverse Effect, either individually or in the aggregate. 7.7. No Default. Neither the Borrower nor any of its Subsidiaries is in default (nor has any event occurred that with notice or lapse of time or both would constitute a default) under any of their respective Contractual Obligations, if such default or event could have a Material Adverse Effect. No Default has occurred and is continuing. 7.8. Security Documents. The Security Documents create in favor of the Administrative Agent, for the ratable benefit of the Lenders, the Issuing Bank and the Administrative Agent, valid, perfected security interests in the Collateral subject to no Liens other than Permitted Liens. The security interests granted in favor of the Administrative Agent as contemplated by this Agreement and the Security Documents do not constitute a fraudulent conveyance under the federal Bankruptcy Code or any applicable state law. 7.9. Capital Stock. The capitalization of the Borrower, each Subsidiary of the Borrower and each Permitted Non-Guarantor Entity consists of such number of shares of Capital Stock, authorized, issued and outstanding, of such classes and series, with or without such par value, as are set forth in Schedule 7.1. All such outstanding shares have been duly authorized and validly issued and are fully paid and nonassessable. There are no outstanding stock purchase warrants, subscriptions, options, securities, instruments or other rights of any type or nature whatsoever that are convertible into, exchangeable for or otherwise provide for the issuance of Capital Stock of the Borrower, any of its Subsidiaries or any Permitted Non-Guarantor Entity, except as described in Schedule 7.1. 7.10. Taxes. The Borrower and its Subsidiaries have filed all tax returns that were required to be filed in any jurisdiction and have paid all taxes shown thereon to be due or otherwise due in respect of the Borrower, any of its Subsidiaries or any of their respective properties, income or franchises, including interest, assessments, fees and penalties, or have provided adequate reserves for the payment thereof, except to the extent that the cumulative effect of noncompliance with the foregoing will not have a Material Adverse Effect. Neither the Borrower nor any of its Subsidiaries has received any written notice from any Governmental Authority claiming or asserting any delinquency or deficiency regarding, or indicating an intent to inquire into or investigate, any return referred to in this Section 7.10 that, if adversely determined, could have a Material Adverse Effect. 7.11. No Burdensome Restrictions. No Contractual Obligation or Requirement of Law relating to or otherwise affecting the Borrower, any of its Subsidiaries or any of their respective properties, businesses or operations has had or, insofar as the Borrower reasonably may foresee is likely to have, a Material Adverse Effect. 7.12. Judgments. There are no outstanding or unpaid judgments against the Borrower or any of its Subsidiaries. 7.13. Subsidiaries. All of the Subsidiaries of the Borrower and all of the Permitted Non-Guarantor Entities as of the date hereof are set forth in Schedule 7.1. Schedule 7.1 also shows as of the date hereof as to each such Subsidiary and Permitted Non-Guarantor Entity the jurisdiction of its incorporation or formation, the number of shares of each class of Capital Stock outstanding, the direct owner of the outstanding shares of each such class and the number of shares owned, and the jurisdictions in which such Subsidiary is qualified to do business as a foreign corporation. 7.14. ERISA. No "prohibited transaction" or "accumulated funding deficiency" (each as defined in ERISA) or Reportable Event has occurred with respect to any Single Employer Plan, or to the knowledge of the Borrower with respect to any Multi-Employer Plan. As of the most recent actuarial valuation of any such Plan, the actuarial present value of all benefits under each Plan (based on those assumptions used to fund the Plan) does not exceed the fair market value of the assets of the Plan allocable to such benefits. The Borrower, its Subsidiaries and each Commonly Controlled Entity are in compliance in all material respects with ERISA and the rules and regulations promulgated thereunder. 7.15. Margin Securities. Neither the Borrower nor any of its Subsidiaries is engaged principally in, nor has as one of its significant activities, the business of extending credit for the purpose of purchasing or carrying "margin stock" as that term is defined in Regulation U promulgated by the Federal Reserve Board, as now in effect. No part of the Indebtedness evidenced by the Notes, or otherwise created in connection with this Agreement or the other Loan Documents, has been or will be used, directly or indirectly, for the purpose of purchasing any such margin stock. If requested by the Administrative Agent or any of the Lenders, the Borrower shall furnish or cause to be furnished to the Administrative Agent and each such Lender a statement, in conformity with the requirements of Federal Reserve Form U-1 referred to in Regulation U, to the foregoing effect. 7.16. Investment Company Act. Neither the Borrower nor any of its Subsidiaries is an "investment company," or company "controlled" by an investment company within the meaning of the Investment Company Act of 1940, as now in effect. 7.17. Indebtedness and Contingent Obligations. Set forth on Schedule 7.17A hereto is a complete and correct list of all Indebtedness (other than Contingent Obligations, Indebtedness incurred under the Loan Documents, trade debt incurred in the ordinary course of business and obligations under Operating Leases) of the Borrower and its Subsidiaries and the aggregate principal amount thereof outstanding on the date hereof. Set forth on Schedule 7.17B is a complete and correct list of all Contingent Obligations (other than any Contingent Obligations created under the Loan Documents) of the Borrower and its Subsidiaries and the aggregate amount thereof outstanding on the date hereof. 7.18. Business Locations and Trade Names. Set forth on Schedule 7.18A is a complete and correct list of the locations where the Borrower, each Subsidiary of the Borrower and each Permitted Non-Guarantor Entity maintain their respective chief executive offices, their principal places of business, an office, a place of business or any material financial records. Set forth on Schedule 7.18B is a complete and correct list of each name under or by which the Borrower and its Subsidiaries presently conducts its business or has conducted its business during the past five years. 7.19. Title to Assets. The Borrower and its Subsidiaries have good and marketable title to (or, with respect to leased property, good and marketable leasehold interests in) all of their respective assets, subject to no Liens other than Permitted Liens. 7.20. Labor Matters. There are no disputes or controversies pending between the Borrower or any of its Subsidiaries and their respective employees, the outcome of which reasonably may be expected to have a Material Adverse Effect. 7.21. Business. There is no pending or threatened claim, action, suit, proceeding or other litigation against or affecting the Borrower or any of its Subsidiaries contesting the right of the Borrower or any of its Subsidiaries to conduct their businesses as presently conducted or as proposed to be conducted, and there are no other facts or circumstances that have had or reasonably may be expected to have a Material Adverse Effect. 7.22. Compliance with Laws. The Borrower and its Subsidiaries (a) have not been, are not and will not be in violation of any applicable Requirement of Law, including any building, zoning, occupational safety and health, fair employment, equal opportunity, pension, environmental control, health care, certificate of need, health care facility licensing or similar federal, state or local law, ordinance or regulation, relating to the ownership or operation of their respective businesses or assets, (b) have not failed to obtain any license, permit, certificate or other governmental authorization necessary for the conduct of their businesses or the ownership and operation of their assets, (c) have not received any notice from any Governmental Authority, and to their knowledge no such notice is pending or threatened, alleging that the Borrower or any of its Subsidiaries has violated, or has not complied with, any Requirement of Law, condition or standard applicable with respect to any of the foregoing, and (d) are not a party to any agreement or instrument, or subject to any judgment, order, writ, rule, regulation, code or ordinance, except to the extent that any violation, noncompliance, failure, agreement, judgment, etc. as described in this Section 7.22 will not have a Material Adverse Effect. 7.23. Governmental Authorizations; Permits, Licenses and Accreditation; Other Rights. The Borrower and its Subsidiaries have all licenses, permits, approvals, registrations, contracts, consents, franchises, qualifications, certificates of need, accreditations and other authorizations necessary for the lawful conduct of their respective businesses or operations wherever now conducted and as planned to be conducted, pursuant to all applicable statutes, laws, ordinances, rules and regulations of all Governmental Authorities having, asserting or claiming jurisdiction over the Borrower or any of its Subsidiaries or over any part of their respective operations, except to the extent that the cumulative effect of noncompliance with the foregoing will not have a Material Adverse Effect. Copies of all material licenses, permits, approvals, registrations, contracts, consents, franchises, qualifications, certificates of need, accreditations and other authorizations shall be provided to the Administrative Agent upon request. Neither the Borrower nor any of its Subsidiaries is in default under any of such licenses, permits, approvals, registrations, contracts, consents, franchises, qualifications, certificates of need, accreditations and other authorizations, and no event has occurred, and no condition exists, that with the giving of notice, the passage of time or both would constitute a default thereunder or would result in the suspension, revocation, impairment, forfeiture or non-renewal of any thereof, except to the extent that the cumulative effect of all such defaults, events, conditions, suspensions, revocations, impairments, forfeitures and non-renewals will not have a Material Adverse Effect. The continuation, validity and effectiveness of all such licenses, permits, approvals, registrations, contracts, consents, franchises, qualifications, certificates of need, accreditations and other authorizations will not be adversely affected by the transactions contemplated by this Agreement. The Borrower and its Subsidiaries know of no reason why they will not be able to maintain after the date hereof all licenses, permits, approvals, registrations, contracts, consents, franchises, qualifications, certificates of need, accreditations and other authorizations necessary or appropriate to conduct the businesses of the Borrower and its Subsidiaries as now conducted and presently planned to be conducted. 7.24. Medicare and Medicaid Participation, Licensing and Accreditation. (a) Each Center or other significant healthcare facility owned or operated as a continuing operation by the Borrower or any of its Subsidiaries (a "Borrower Healthcare Facility") is certified for enrollment or participation in the Medicare and Medicaid programs, has a current and valid provider contract with such programs, is in compliance with the conditions of participation in such programs and has received all approvals or qualifications necessary for reimbursement to the Borrower or its Subsidiaries, except to the extent that a failure to do so would not have a Material Adverse Effect. Neither the Borrower nor any of its Subsidiaries has received notice of any pending or threatened investigation from any Governmental Authority having jurisdiction with respect to such programs, and the Borrower has no reason to believe that any such investigation is pending, threatened or imminent. (b) Each Borrower Healthcare Facility is licensed by the proper state department of health to conduct its business in substantially the manner now conducted and, if applicable, is authorized to operate the number of beds used therein. Each Borrower Healthcare Facility is presently in compliance with all of the terms and conditions of all licenses, permits, approvals, registrations, contracts, consents, franchises, qualifications, certificates of need, accreditations and other authorizations applicable thereto, including requirements as to facilities, equipment, staffing and operations, except to the extent that the cumulative effect of all such noncompliances would not have a Material Adverse Effect. 7.25. No Material Adverse Change. Since December 31, 2002 no Material Adverse Change has occurred. 7.26. Employment and Investment Agreements. Set forth on Schedule 7.26 is a complete and accurate list, as of the date hereof, of (a) all employment agreements and executive compensation arrangements to which the Borrower or any of its Subsidiaries is a party and which provide for aggregate compensation (including bonuses) to any Person (assuming compliance with or satisfaction of all contingencies or conditions) of $250,000 or more per year, and (b) all agreements relating to the voting or disposition of any outstanding shares of Capital Stock of the Borrower's Subsidiaries and, to the Borrower's knowledge, of the Borrower. 7.27. Environmental Matters. Except as disclosed in Schedule 7.27, (a) neither the Borrower nor any of its Subsidiaries, nor any of the properties owned or leased thereby or operations thereof, nor, to the knowledge of the Borrower, any current or prior owner, lessor or operator (other than the Borrower or one of its Subsidiaries) of any properties owned or leased by Borrower or any of its Subsidiaries, is in violation of any applicable Environmental Law or any restrictive covenant or deed restriction relating to environmental matters (recorded or otherwise) or subject to any existing, pending or threatened investigation, inquiry or proceeding by any Governmental Authority or subject to any remedial obligations under any Environmental Law, except to the extent that the cumulative effect of all such violations, investigations, inquiries, proceedings and remedial obligations would not have a Material Adverse Effect; (b) all permits, licenses and approvals required of the Borrower or any of its Subsidiaries with respect to Hazardous Materials, including past or present treatment, storage, disposal or release of any Hazardous Materials or solid waste into the environment, have been obtained or filed; (c) all Hazardous Materials or solid waste generated by the Borrower or any of its Subsidiaries have in the past been, and will continue to be, transported, treated and disposed of only by carriers maintaining valid permits under all applicable Environmental Laws and only at treatment, storage and disposal facilities maintaining valid permits under applicable Environmental Laws, which carriers and facilities have been and are, to the knowledge of the Borrower, operating in compliance with such permits; (d) the Borrower and its Subsidiaries have taken all reasonable steps necessary to determine, and have determined, that no Hazardous Materials or solid wastes have been disposed of or otherwise released by them except in compliance with Environmental Laws; and (e) neither the Borrower nor any of its Subsidiaries has a material contingent liability in connection with any release of any Hazardous Materials or solid waste into the environment, and in connection herewith the Borrower hereby agrees to pursue diligently the resolution of any environmental issues disclosed in Schedule 7.27 by all necessary and appropriate actions and shall report to the Administrative Agent not less frequently than quarter-annually as to the status of the resolution of such issues. 7.28. Material Contracts. Set forth on Schedule 7.28 hereto is a complete and accurate list of all Material Contracts of the Borrower and Subsidiaries. Other than as set forth on Schedule 7.28, each such Material Contract is in full force and effect in accordance with the terms thereof and there are no material defaults by the Borrower or any of its Subsidiaries as are parties thereto or, to the knowledge of the Borrower, by any other party, under any such Material Contract. The Borrower has delivered to the Administrative Agent a true and complete copy of each Material Contract identified specifically on Schedule 7.28. 7.29. No Misstatements. Neither this Agreement nor any of the other Loan Documents, nor any agreement, instrument or other document executed pursuant hereto or thereto or in connection herewith or therewith, nor any certificate, statement or other information referred to herein or therein or furnished to the Administrative Agent, any Lender or the Issuing Bank pursuant hereto or thereto or in connection herewith or therewith, contains any misstatement of a material fact or omits to state any material fact necessary to make the statements contained herein or therein, in the light of the circumstances under which they were made, not misleading on the date hereof or on the date furnished, as the case may be, except as otherwise disclosed to the Administrative Agent, the Lenders and the Issuing Bank in writing on or prior to the date hereof. The Borrower is not aware of any fact that it has not disclosed in writing to the Administrative Agent that has had or reasonably may be expected to have a Material Adverse Effect. 7.30. Operating Leases. Schedule 7.30 sets forth each Operating Lease existing on the date hereof pursuant to which the Borrower or a Subsidiary of the Borrower is the lessee or tenant and which provides for annual lease payments in excess of $100,000. ARTICLE 8. AFFIRMATIVE COVENANTS So long as any Obligations are unpaid or outstanding, any Obligation under the Loan Documents is unperformed or any of the Commitments are in effect, the Borrower shall: 8.1. Financial Statements. 8.1.1. Annual Financial Statements and Reports. Furnish to the Administrative Agent and each Lender, as soon as available and in any event within ninety (90) days after the end of each Fiscal Year of the Borrower or, if applicable and earlier, within two (2) Business Days after the Borrower files with the Commission its Annual Report on Form 10-K for such Fiscal Year, a consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such Fiscal Year and the related consolidated statements of income, shareholders' equity and cash flows of the Borrower and its Subsidiaries for such Fiscal Year, audited and reported upon by Ernst & Young LLP or other independent certified public accountants of nationally recognized standing (whose opinion shall not be limited as to scope or qualified as to going concern status or contain any other material qualifications or exceptions), accompanied by an unaudited consolidating balance sheet of the Borrower and its Subsidiaries as of the end of such Fiscal Year and an unaudited consolidating statement of income for such Fiscal Year, certified by a Responsible Officer of the Borrower, together with (a) a written discussion and analysis by the management of the Borrower of the financial statements furnished in respect of such annual fiscal period, (b) a certificate signed by a Responsible Officer of the Borrower, in form satisfactory to the Administrative Agent and the Lenders, stating that no Default has occurred and is continuing or, if in the opinion of such officer, a Default has occurred and is continuing, stating the nature thereof and the action that the Borrower proposes to take with respect thereto, and (c) a Compliance Certificate demonstrating compliance with all financial covenants contained herein as of the end of such Fiscal Year and including the other information required to be included therein. 8.1.2. Quarterly Financial Statements and Reports. Furnish to the Administrative Agent and each Lender, as soon as available and in any event within forty-five (45) days after the end of each Fiscal Quarter of the Borrower (other than the last Fiscal Quarter in any Fiscal Year) or, if applicable and earlier, within two (2) Business Days after the Borrower files with the Commission its Quarterly Report on Form 10-Q for such Fiscal Quarter, an unaudited consolidated and consolidating balance sheet of the Borrower and its Subsidiaries as of the end of such Fiscal Quarter, the related consolidated and consolidating statement of income of the Borrower and its Subsidiaries for the period commencing at the beginning of the current Fiscal Year and ending with the end of such Fiscal Quarter and the related consolidated statements of shareholders' equity and cash flows of the Borrower and its Subsidiaries for such period, certified by a Responsible Officer of the Borrower, together with (a) a written discussion and analysis by the management of the Borrower of the financial statements furnished in respect of such period, (b) a certificate signed by a Responsible Officer of the Borrower, in form satisfactory to the Administrative Agent and the Lenders, stating that no Default has occurred and is continuing or, if in the opinion of such officer, a Default has occurred and is continuing, stating the nature thereof and the action that the Borrower proposes to take with respect thereto, and (c) a Compliance Certificate demonstrating compliance with all financial covenants contained herein as of the end of such period and including the other information required to be included therein. 8.1.3. GAAP. Take all actions necessary to cause all such financial statements to be complete and correct in all material respects and to be prepared in reasonable detail and in conformity with GAAP applied consistently throughout the periods reflected therein (except as may be approved by such accountants or Responsible Officer, as the case may be, and disclosed therein). 8.2. Certificates and Other Information. Furnish to the Administrative Agent and each Lender, each in form and substance acceptable to Requisite Lenders: 8.2.1. Management Letters. Within ten (10) days after the same are received by the Borrower, copies of management letters provided to the Borrower by its independent certified public accountants that describe or refer to any inadequacy, defect, problem, qualification or other lack of satisfactory accounting controls utilized by the Borrower or any of its Subsidiaries. 8.2.2. Shareholder Materials. (a) Within two (2) Business Days after the delivery of same to the shareholders of the Borrower, copies of all financial statements and reports that the Borrower or any of its Subsidiaries sends to the shareholders of the Borrower, and (b) within two (2) Business Days after the filing thereof, copies of all reports and statements of the Borrower and its Subsidiaries (including proxy and information statements, quarterly, annual and current reports and registration statements, but excluding those pertaining only to employee benefit plans) that it may make to, or file with, the Commission. 8.2.3. Budgets. As soon as available, and in any event not later than ninety (90) days after the end of each Fiscal Year of the Borrower, twelve (12) month budgeted financial statements (including balance sheets and statements of income, shareholders' equity and cash flows and a statement of budgeted Capital Expenditures, and including a reasonably detailed description of all underlying assumptions) of the Borrower and its Subsidiaries on a consolidated basis for the following Fiscal Year, and twelve (12) month consolidating budgeted statements of income of the Borrower and each of its Subsidiaries for the following Fiscal Year, all in a format reasonably acceptable to Requisite Lenders and certified by a Responsible Officer of the Borrower as being fairly stated in good faith. Any updates thereto shall be provided upon request of the Administrative Agent. 8.2.4. Asset Acquisitions. Not later than thirty (30) days prior to the consummation of any Asset Acquisition, notice of the pendency of such Asset Acquisition, and not later than ten (10) Business Days prior to the consummation of such Asset Acquisition, the following: (a) a reasonably detailed description of the operating profile for the assets to be acquired in such Asset Acquisition, and (b) a reasonably detailed description of the terms and conditions of such Asset Acquisition, including the proposed purchase price and the manner and structure of payment(s), accompanied by copies of the then-current drafts of the proposed acquisition agreement(s), and (c) copies of financial statements for the Person owning the assets to be acquired or in which Capital Stock is being purchased in the transaction for the two (2) most recent fiscal years, if available, and for any subsequent interim accounting periods, and (d) a certificate duly executed by a Responsible Officer of the Borrower, in form satisfactory to the Administrative Agent, certifying that no Default has occurred and is continuing or will result from such Asset Acquisition, certifying that after giving Pro Forma Effect to such Asset Acquisition and to any other relevant transaction occurring during the then most recent twelve (12) month period such Responsible Officer reasonably believes that such Asset Acquisition will not result in a violation of any of the financial covenants contained herein during the twelve (12) month period following such Asset Acquisition, and setting forth computations demonstrating compliance with all financial covenants contained herein as of the end of the Fiscal Quarter then most recently completed, after giving Pro Forma Effect to such Asset Acquisition and to any other relevant transaction occurring during the then most recent twelve (12) month period. 8.2.5. Acquisition Documents. Not later than fifteen (15) days after the consummation of any Asset Acquisition, copies of the executed documents evidencing the transaction. 8.2.6. Funded Indebtedness. Promptly upon request by the Administrative Agent, copies of all agreements, instruments or documents evidencing or otherwise related to any Consolidated Funded Indebtedness. 8.2.7. Employment and Investment Agreements. Promptly upon request by the Administrative Agent, a true and complete copy of each of the agreements required to be listed on Schedule 7.26. 8.2.8. Reports to Other Persons. Promptly after the furnishing thereof, copies of any statement or report furnished to any other holder of any Indebtedness of the Borrower or any of the Guarantors pursuant to the terms of any indenture, loan or credit or similar agreement and not otherwise furnished to the Administrative Agent or the Lenders pursuant to any other clause of Section 8.1 or this Section 8.2. 8.2.9. Additional Information. Promptly, such additional financial and other information as the Administrative Agent or any Lender from time to time reasonably may request. 8.3. Provision of Notices. Notify the Administrative Agent and each Lender of the occurrence of any of the following events not later than five (5) days after the Borrower or any Guarantor knows or has reason to know of such event: 8.3.1. Default. Any Default. 8.3.2. Other Default or Litigation. (a) Any default or event of default under any Contractual Obligation of the Borrower or any of its Subsidiaries that if adversely determined could result in liability equal to or greater than $100,000 or otherwise could have a Material Adverse Effect, (b) any litigation, investigation or proceeding that may exist at any time between the Borrower or any of its Subsidiaries and any Governmental Authority (excluding, however, audits and inquiries made in the ordinary course of business) or (c) any other litigation that if adversely determined would (i) if the relief sought does not include damages, have a Material Adverse Effect, or (ii) if the relief sought includes damages, would result in an uninsured liability to the Borrower or any of its Subsidiaries equal to or in excess of $100,000. 8.3.3. Reportable Events. (a) Any Reportable Event with respect to any Plan, (b) the institution of proceedings or the taking or expected taking of any other action by the PBGC, the Borrower, any of its Subsidiaries or any Commonly Controlled Entity to terminate, withdraw or partially withdraw from any Plan, and (c) with respect to any Multi-Employer Plan, the reorganization or insolvency of such Plan. In addition to such notice, the Borrower shall deliver or cause to be delivered to the Administrative Agent and each Lender whichever of the following may be applicable: (i) a certificate of a Responsible Officer of the Borrower setting forth details as to such Reportable Event and the action that it, such Subsidiary or the Commonly Controlled Entity proposes to take with respect thereto, together with the copy of any notice of such Reportable Event that may be required to be filed with the PBGC, or (ii) any notice delivered by the PBGC evidencing its intent to institute such proceedings or any notice to the PBGC that such Plan is to be terminated, as the case may be. 8.3.4. Environmental Matters. (a) Any event that makes any of the representations set forth in Section 7.27 inaccurate in any respect or (b) the receipt by the Borrower or any of its Subsidiaries of any notice, order, directive or other communication from a Governmental Authority alleging a violation of or noncompliance with any Environmental Laws. 8.3.5. Loss of License, Permit, Approval, Etc. The loss or, if known by the Borrower or any of its Subsidiaries, threatened loss, by the Borrower or any of its Subsidiaries, of any license, permit, approval, registration, contract, consent, franchise, qualification, certificate of need, accreditation or other authorization issued by any Governmental Authority referenced in Section 7.23 or in Section 7.24, if such loss reasonably could be expected to have a Material Adverse Effect. 8.3.6. Material Contracts. Any default or event of default under any Material Contract. 8.3.7. Casualty Losses. Any casualty loss or event not insured against in an amount in excess of $250,000. 8.4. Payment of Obligations and Performance of Covenants. (a) Make full and timely payment of the Obligations, including the Loans and Letter of Credit Liabilities, whether now existing or hereafter arising; (b) Comply, and cause its Subsidiaries to comply, with all terms, covenants and conditions of the Loan Documents applicable to each, at the times and places and in the manner set forth therein; and (c) Take, or cause to be taken, all action necessary to maintain the security interests provided for under this Agreement and the Security Documents as valid and perfected Liens on the property intended to be covered thereby, subject to no other Liens except Permitted Liens, and supply all information to the Administrative Agent or the Lenders necessary to accomplish same. 8.5. Payment of Taxes. Pay, and cause its Subsidiaries to pay, or cause to be paid, before the same shall become delinquent and before penalties have accrued thereon, all taxes, assessments and governmental charges or levies imposed on the income, profits, franchises, property or businesses of the Borrower and its Subsidiaries, except to the extent and so long as (a) the same are being contested in good faith by appropriate proceedings and (b) adequate reserves with respect thereto in conformity with GAAP have been provided on the books of the Borrower or any such Guarantor or Subsidiary, as appropriate. 8.6. Conduct of Business and Maintenance of Existence. Continue, and cause its Subsidiaries to continue, (a) to engage solely in the business of owning and operating Centers and businesses that directly enhance or support that primary business activity, and (b) except as permitted by Sections 9.3 and 9.7, to preserve, renew and keep in full force and effect their existence and present corporate, partnership or other organizational structure, as the case may be. 8.7. Compliance with Law. Observe and comply with, and cause its Subsidiaries to observe and comply with, all present and future Requirements of Law relating to the conduct of their businesses or to their properties or assets, except to the extent and so long as the nonobservance thereof or noncompliance therewith will not have a Material Adverse Effect. 8.8. Maintenance of Properties and Franchises. Maintain, preserve and keep and cause its Subsidiaries to maintain, preserve and keep (a) all of their buildings, tangible properties, equipment and other property and assets used and necessary in their businesses, whether owned or leased, in good repair, working order and condition, from time to time making all necessary and proper repairs and replacements so that at all times the utility, efficiency and value thereof shall not be impaired, and (b) all rights, privileges and franchises necessary or desirable in the normal conduct of their businesses. 8.9. Insurance. (a) Maintain and cause its Subsidiaries to maintain: (1) insurance (in addition to any insurance required under the Security Documents) on all insurable operations of and insurable property and assets owned or leased by the Borrower or any of its Subsidiaries in the manner, to the extent and against at least such risks (in any event including professional and comprehensive general liability, workers' compensation, employer's liability, automobile liability and physical damage, fiduciary liability, commercial fidelity, employee benefits liability, environmental impairment liability, all-risk property, business interruption and crime insurance) usually maintained by owners of similar businesses and properties in similar geographic areas; provided that the amounts of property insurance coverages shall not be less than the full replacement cost of all such insurable property and assets, except for coverage limitations with respect to flood, earthquake and windstorm perils that are acceptable to the Administrative Agent and Requisite Lenders, in their discretion; and (2) self-insurance reserves covering those risks for which the Borrower and its Subsidiaries presently self-insure in appropriate amounts as determined from time to time by independent insurance claims auditors acceptable to the Administrative Agent and Requisite Lenders. All such insurance shall be provided by insurers or reinsurers that (x) in the case of United States insurers and reinsurers, have an A.M. Best policyholders rating of not less than A- with respect to primary insurance and B+ with respect to excess insurance and (y) in the case of non-United States insurers or reinsurers, the providers of at least 80% of such insurance have either an ISI policyholders rating of not less than A, an A.M. Best policyholders rating of not less than A- or a surplus of not less than $500,000,000 with respect to primary insurance, and an ISI policyholders rating of not less than BBB with respect to excess insurance or, if the relevant insurance is not available from such insurers, such other insurers as the Administrative Agent may approve in writing. All such insurance shall be in such amounts and in such form as are reasonably satisfactory to the Administrative Agent and Requisite Lenders. Without limiting the foregoing, and unless otherwise approved by the Administrative Agent, all policies of property/casualty insurance shall provide that such insurance shall be payable to the Borrower, its Subsidiaries, the Administrative Agent, the Lenders and the Issuing Bank as their respective interests may appear, and all policies of liability insurance shall name the Administrative Agent, the Lenders and the Issuing Bank as additional insureds. (b) Furnish to the Administrative Agent not less frequently than annually and at any time upon written request, (i) full information as to such insurance carried, including the amounts of all self-insurance reserves of the Borrower and its Subsidiaries, and (ii) certificates of insurance from the insurance companies and certified copies of such insurance policies. All policies of insurance shall provide for not less than thirty (30) days' prior written notice to the Administrative Agent of the cancellation or any material alteration of the policy. 8.10. Use of Proceeds. Use, and cause its Subsidiaries to use, the proceeds of the Facilities for the purposes specified in Section 2.11 and for no other purpose. 8.11. Books and Records. Keep and maintain, and cause its Subsidiaries to keep and maintain, full and accurate books of record and accounts of their operations, dealings and transactions in relation to their business and activities, in conformity with GAAP and all Requirements of Law. 8.12. Inspection. Permit, and cause its Subsidiaries to permit, any employees, agents or other representatives of the Administrative Agent, the Lenders or the Issuing Bank and any attorneys, accountants or other agents or representatives designated by the Administrative Agent, the Lenders or the Issuing Bank to (a) have access to and visit and inspect any of the accounting systems, books of account, financial records and properties, real, personal or mixed, of the Borrower and its Subsidiaries, (b) examine and make abstracts from any such accounting systems, books and records, and (c) discuss the affairs, finances and accounts of the Borrower and its Subsidiaries with their officers, employees or agents, all at such reasonable business times as the Administrative Agent, the Lenders or the Issuing Bank deem necessary or advisable to protect their respective interests. 8.13. Compliance With Terms of Material Contracts. Comply, and cause its Subsidiaries to comply, with all agreements, covenants, terms, conditions and provisions of all Material Contracts, except to the extent and so long as noncompliance therewith will not have a Material Adverse Effect. 8.14. Compliance With Environmental Laws, Etc. (a) Employ, and cause its Subsidiaries to employ, in connection with the use of any real property, appropriate technology (including appropriate secondary containment measures) to maintain compliance with applicable Environmental Laws; (b) take, and cause its Subsidiaries to take, all actions necessary to comply with all Environmental Laws, including any actions identified as necessary in any environmental compliance reports delivered to the Administrative Agent pursuant to the provisions of this Agreement; (c) obtain and maintain, and cause its Subsidiaries to obtain and maintain, any and all permits required by applicable Environmental Laws in connection with the operations of the Borrower and its Subsidiaries and any Affiliates thereof; (d) dispose of, and cause its Subsidiaries to dispose of, any and all Hazardous Materials only at facilities and with carriers maintaining valid permits under applicable federal, state and local Environmental Laws; and (e) use best efforts to obtain, and cause its Subsidiaries to use their best efforts to obtain, certificates of disposal from all contractors employed by the Borrower or any of its Subsidiaries in connection with the transportation or disposal of any Hazardous Materials. 8.15. Environmental Monitoring. Establish and maintain, and cause its Subsidiaries to establish and maintain, systems to assure and monitor continued compliance with all applicable Environmental Laws, noncompliance with which would have a Material Adverse Effect. 8.16. Maintenance of Licenses, Permits, Approvals, Etc. Preserve and maintain, and cause its Subsidiaries to preserve and maintain, all licenses, permits, approvals, registrations, contracts, consents, franchises, qualifications, certificates of need, accreditations and other authorizations required under applicable state or local laws and regulations in connection with the ownership or operation of their businesses, except to the extent that a failure to preserve and maintain any of same will not have a Material Adverse Effect. 8.17. Intercompany Indebtedness; Pledged Notes. (a) Maintain, and cause its Subsidiaries to maintain, accounting systems, practices and procedures that enable the Borrower and its Subsidiaries to report to the Administrative Agent at any time upon its request the aggregate unpaid balance of any unsecured advances or loans owing to the Borrower or a Subsidiary Guarantor by any such Subsidiary; and (b) Cause all such advances or loans to be evidenced by Pledged Notes delivered to the Administrative Agent pursuant to the Guarantee and Security Agreement and, contemporaneously with the delivery to the Administrative Agent of any Pledged Note, assign and deliver to the Administrative Agent any loan agreement, mortgage, deed of trust, deed to secure debt, security agreement, financing statement or other instrument, document or agreement further evidencing, securing or otherwise relating to the indebtedness evidenced by such Pledged Note. 8.18. Additional Collateral, Etc. (a) With respect to any personal property acquired by any Credit Party after the date hereof, other than property described in subsections 8.18 (b), (c) or (d) and property subject to a Lien expressly permitted by subsection 9.2(f), as to which the Administrative Agent, for the ratable benefit of the Lenders, the Issuing Bank and the Administrative Agent, does not have a first priority perfected Lien, promptly (and, in any event, within 30 days following the date of such acquisition) (i) execute and deliver, or cause its Subsidiaries to execute and deliver, to the Administrative Agent such supplements or amendments to the Guarantee and Security Agreement and such other documents as the Administrative Agent deems necessary or advisable to grant to the Administrative Agent, for the ratable benefit of the Lenders, the Issuing Bank and the Administrative Agent, a security interest in such property, and (ii) take, or cause its Subsidiaries to take, all actions the Administrative Agent deems necessary or advisable to confirm to the Administrative Agent, for the ratable benefit of the Lenders, the Issuing Bank and the Administrative Agent, a perfected first priority Lien on such property, including the filing of Financing Statements in such jurisdictions as may be required by the Guarantee and Security Agreement or by law or as may be requested by the Administrative Agent. (b) With respect to any real property acquired by any Credit Party after the date hereof, comply, or cause its Subsidiaries to comply, with the provisions of Section 4.2. (c) With respect to any Subsidiary of the Borrower, other than an Excluded Subsidiary, created or acquired after the date hereof (which, for the purposes of this subsection, shall include any existing Subsidiary that ceases to be an Excluded Subsidiary and any Permitted Non-Guarantor Entity that becomes a Subsidiary other than an Excluded Subsidiary), promptly (and, in any event, within 30 days following such creation or acquisition) (i) execute and deliver, or cause its Subsidiaries to execute and deliver, to the Administrative Agent such supplements or amendments to the Guarantee and Security Agreement and such other documents as the Administrative Agent deems necessary or advisable to grant to the Administrative Agent, for the ratable benefit of the Lenders, the Issuing Bank and the Administrative Agent, a perfected first priority security interest in all of the Capital Stock of such Subsidiary, (ii) deliver, or cause its Subsidiaries to deliver, to the Administrative Agent any and all certificates representing such Capital Stock, together with undated stock powers, in blank, executed and delivered by the owner(s) of such Capital Stock, and take, or cause its Subsidiaries to take, all other actions the Administrative Agent deems necessary or desirable to perfect the security interest of the Administrative Agent therein, including the execution and delivery by all necessary Persons of control agreements and the filing of Financing Statements in such jurisdictions as may be required by the Guarantee and Security Agreement or by law or as may be requested by the Administrative Agent, (iii) cause such Subsidiary to (A) execute and deliver a Pledged Note, (B) become a party to the Guarantee and Security Agreement and any additional Security Documents contemplated thereby and (C) take all actions the Administrative Agent deems necessary or advisable to grant to the Administrative Agent, for the ratable benefit of the Lenders, the Issuing Bank and the Administrative Agent, a perfected first priority security interest in the Collateral described in the Guarantee and Security Agreement with respect to such Subsidiary, including the execution and delivery by all necessary Persons of control agreements and the filing of Financing Statements in such jurisdictions as may be required by the Guarantee and Security Agreement or by law or as may be requested by the Administrative Agent, and (iv) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. (d) With respect to any Excluded Subsidiary or Permitted Non-Guarantor Entity created or acquired after the date hereof by the Borrower or any of its Subsidiaries (which, for the purposes of this subsection, shall include any existing Subsidiary of the Borrower that becomes an Excluded Subsidiary or Permitted Non-Guarantor Entity in compliance with applicable provisions of this Agreement), promptly (and, in any event, within 30 days following such creation or the date of such creation or acquisition) (i) execute and deliver, or cause its Subsidiaries to execute and deliver, to the Administrative Agent such supplements or amendments to the Guarantee and Security Agreement and such other documents as the Administrative Agent deems necessary or advisable in order to grant to the Administrative Agent, for the ratable benefit of the Lenders, the Issuing Bank and the Administrative Agent, a perfected first priority security interest in all of the Capital Stock of such Excluded Subsidiary or Permitted Non-Guarantor Entity that is owned by the Borrower or any of the other Credit Parties (provided that not more than 65% of the total outstanding Capital Stock of any Excluded Foreign Subsidiary shall be required to be so pledged), (ii) deliver, or cause its Subsidiaries to deliver, to the Administrative Agent any and all certificates representing such Capital Stock, together with undated stock powers, in blank, executed and delivered by the owner(s) of such Capital Stock, and take, or cause its Subsidiaries to take, all other actions the Administrative Agent deems necessary or desirable to perfect the security interest of the Administrative Agent therein, including the execution and delivery by all necessary Persons of control agreements and the filing of Financing Statements in such jurisdictions as may be required by the Guarantee and Security Agreement or by law or as may be requested by the Administrative Agent, (iii) cause such Excluded Subsidiary or Permitted Non-Guarantor Entity to execute and deliver a Pledged Note (to the extent of any Indebtedness of such Permitted Non-Guarantor Entity to the Borrower or any Subsidiary Guarantor), and (iv) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. (e) Notwithstanding anything to the contrary in this Section 8.18, the preceding subsections (a), (b), (c) and (d) shall not apply to any property or Subsidiary created or acquired after the date hereof as to which the Administrative Agent has determined in its sole discretion that the collateral value thereof is insufficient to justify the difficulty, time, effort or expense of obtaining a perfected security interest therein. 8.19. Further Assurances. Perform, make, execute and deliver, and cause its Subsidiaries to perform, make, execute and deliver, all such additional and further acts, deeds, occurrences and instruments as the Administrative Agent, the Lenders or the Issuing Bank reasonably may require to document and consummate the transactions contemplated hereby and to vest completely in and to ensure the Administrative Agent, the Lenders and the Issuing Bank their respective rights under this Agreement, the Notes and the other Loan Documents. 8.20. Post-Closing Matters. Deliver to the Administrative Agent each item listed on Schedule 8.20 prior to the deadline therefor as set forth on said schedule. ARTICLE 9. NEGATIVE COVENANTS So long as any Obligations are unpaid or outstanding, any Obligation under the Loan Documents is unperformed or any of the Commitments are in effect, the Borrower shall not: 9.1. Indebtedness. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Indebtedness, except: (a) Indebtedness of the Borrower or any of the Guarantors under or pursuant to this Agreement and the other Loan Documents; (b) Indebtedness existing on the date hereof, as set forth in Schedules 7.17A and 7.17B, and any extensions, renewals, refundings or refinancings thereof on the same terms or other terms satisfactory to Requisite Lenders; provided, however, that neither the principal amount thereof nor the interest rate thereon shall be increased, nor shall the date for the making of any required payment of principal be accelerated nor the amount due on any such date increased; (c) Purchase Money Debt and Capitalized Lease Obligations (exclusive of Indebtedness described in clause (i) of Section 9.4) in an aggregate amount not to exceed $7,000,000 outstanding at any one time; (d) Current liabilities incurred in the ordinary course of business and not represented by any note, bond, debenture or other instrument, and which are not past due for a period of more than ninety (90) days, or if overdue for more than ninety (90) days, which are being contested in good faith and by appropriate actions and for which adequate reserves in conformity with GAAP have been established on the books of the primary obligor with respect thereto; (e) Contingent Obligations consisting of (i) the indorsement by the Borrower or any of its Subsidiaries of negotiable instruments payable to such Person for deposit or collection in the ordinary course of business, and (ii) guarantees executed by the Borrower or any of its Subsidiaries with respect to Operating Lease obligations or Indebtedness of the Borrower and its Subsidiaries otherwise permitted by this Agreement; (f) Contingent Obligations consisting of the indemnification by the Borrower or any of its Subsidiaries of (i) the officers, directors, employees and agents of the Borrower or such Subsidiary, to the extent permissible under the corporation law of the jurisdiction in which the Borrower or such Subsidiary is organized, (ii) commercial banks, investment bankers and other independent consultants or professional advisors pursuant to agreements relating to the underwriting of the Borrower's or such Subsidiary's securities or the rendering of banking or professional services to the Borrower or such Subsidiary and (iii) landlords, licensors, licensees and other parties pursuant to agreements entered into in the ordinary course of business by the Borrower or such Subsidiary; (g) Indebtedness with respect to financed insurance premiums not past due; (h) Indebtedness of the Borrower or a Subsidiary of the Borrower that is owed to the Borrower or a Subsidiary of the Borrower and that is described in clauses (d), (e) or (i) of Section 9.4; (i) Subordinated Indebtedness convertible into Capital Stock of the Borrower; (j) Subordinated Indebtedness incurred or assumed as a part of the consideration for a Permitted Acquisition, not otherwise described in this Section 9.1, in an aggregate amount not to exceed $10,000,000 outstanding at any one time; and (k) the Indebtedness evidenced by the 2003 Subordinated Notes and the corresponding guarantees thereof by the Subsidiary Guarantors as provided in the 2003 Subordinated Note Documents. 9.2. Liens. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Lien upon any real or personal property, fixtures, revenues or other assets whatsoever (including the Collateral), whether now owned or hereafter acquired, of the Borrower, the Guarantors or any of their respective Subsidiaries, except: (a) Liens securing the Obligations; (b) Existing Liens; (c) Liens for taxes not yet due or that are being contested in good faith and by appropriate actions and for which adequate reserves in conformity with GAAP have been established on the books of the Borrower or such Guarantor or Subsidiary; (d) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business that are not overdue for a period of more than thirty (30) days, or if overdue for more than thirty (30) days, (i) which are being contested in good faith and by appropriate proceedings, (ii) for which adequate reserves in conformity with GAAP have been established on the books of the Borrower or such Guarantor or Subsidiary; and (iii) with respect to which the obligations secured thereby are not material; (e) pledges or deposits in connection with workers' compensation insurance, unemployment insurance and like matters; (f) Liens securing Purchase Money Debt or Indebtedness arising under Capitalized Leases; provided, however, that in each case any such Lien attaches only to the specific item(s) of property or asset(s) financed with such Purchase Money Debt or Capitalized Lease; (g) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (h) easements, reservations, exceptions, rights-of-way, covenants, conditions, restrictions and other similar encumbrances incurred in the ordinary course of business that, in the aggregate, are not substantial in amount, and that do not in any case materially detract from the value of the property subject thereto or interfere with the ordinary conduct of business by the Borrower or such Guarantor or Subsidiary; (i) Liens in respect of any writ of execution, attachment, garnishment, judgment or judicial award in an amount less than $1,000,000, if (i) the time for appeal or petition for rehearing has not expired, an appeal or appropriate proceeding for review is being prosecuted in good faith and a stay of execution pending such appeal or proceeding for review has been secured, or (ii) the underlying claim is fully covered by insurance issued by an insurer satisfactory to the Administrative Agent, the insurer has acknowledged in writing its responsibility to pay such claim and no action has been taken to enforce such execution, attachment, garnishment, judgment or award; (j) Liens of lessors under or in connection with Operating Leases; (k) Liens securing Indebtedness permitted under clause (b) of Section 9.1, but only to the extent that such Indebtedness is currently secured as set forth on Schedule 9.2; (l) Liens described in clause (i) of Section 9.4 that encumber property of a Majority Owned Center Subsidiary to secure the Indebtedness evidenced by a Pledged Note; and (m) Other non-consensual Liens not securing Indebtedness, the existence of which in the aggregate will not have a Material Adverse Effect, provided that any Lien permitted by this clause (m) is permitted only for so long as is reasonably necessary for the Borrower or the affected Subsidiary, using its best efforts, to remove or eliminate such Lien. 9.3. Disposition of Assets. Dispose, or permit any of its Subsidiaries to Dispose, of any of their assets (including the Capital Stock of Subsidiaries and Permitted Non-Guarantor Entities) except: (a) sales of personal property assets in the ordinary course of business of the Borrower and its Subsidiaries; (b) the Disposition of obsolete or worn-out equipment or other property no longer required by or useful to the Borrower or any of its Subsidiaries in connection with the operation of their businesses; (c) the sale or transfer to the Borrower or any Subsidiary Guarantor of any asset owned by the Borrower or any of its Subsidiaries; (d) the Disposition of assets by a Majority Owned Center Subsidiary, provided that the Net Cash Proceeds of any such disposition, regardless of the transaction size, are applied first to satisfy the Indebtedness evidenced by any Pledged Note(s) executed by such Majority Owned Center Subsidiary; and (e) the sale of Capital Stock of a Subsidiary of the Borrower if after the sale of such Capital Stock (i) such Subsidiary would constitute a Majority Owned Center Subsidiary in compliance with all applicable provisions of this Agreement, or (ii) such Subsidiary would constitute a Permitted Non-Guarantor Entity in compliance with all applicable provisions of this Agreement and an Investment therein by the Borrower and its Subsidiaries, in an amount equal to the amount of their prior Investments in such Subsidiary, would then be permitted by Section 9.4. 9.4. Investments. Make, commit to make or suffer to exist, or permit any of its Subsidiaries to make, commit to make or suffer to exist, any Investment except: (a) Cash Equivalents; (b) Investments in existence on the date hereof and set forth in Schedule 9.4; (c) accounts receivable representing trade credit extended in the ordinary course of business; (d) unsecured loans or advances made by the Borrower or any Subsidiary Guarantor to (i) any Subsidiary Guarantor or the Borrower, or (ii) any Majority Owned Center Subsidiary; provided, however, that the aggregate amount of loans or advances permitted by this clause (d)(ii) that are outstanding at any one time shall not exceed $300,000 in the case of any one Majority Owned Center Subsidiary or $5,000,000 in the aggregate; (e) unsecured loans or advances made by any Subsidiary of the Borrower to the Borrower or any Subsidiary Guarantor; (f) Investments in Subsidiary Guarantors; (g) Investments in Permitted Non-Guarantor Entities that are permitted by the definition of that term; (h) Investments in Subsidiaries, not otherwise described in this Section 9.4, to the extent such Investments are in existence on the date of this Agreement; (i) Loans or advances from the Borrower or a Subsidiary Guarantor to Majority Owned Center Subsidiaries; provided that: (1) all Indebtedness of a Majority Owned Center Subsidiary to the Borrower or a Subsidiary Guarantor permitted by this clause (i) shall be evidenced by a Pledged Note; (2) except as set forth in the following subclause (3), such Indebtedness shall be secured by perfected first-priority Liens on substantially all of the assets (including both personal property and real property) of such Majority Owned Center Subsidiary; (3) with respect to a loan or advance made to a Majority Owned Center Subsidiary that constitutes Purchase Money Debt, such Indebtedness shall be secured by perfected first-priority Liens on only the assets financed therewith; and (4) all such Indebtedness, the corresponding Pledged Notes, all security therefor and all instruments, documents and agreements further evidencing, securing or otherwise relating thereto and all other supporting obligations for same shall be included as a part of the Collateral subject to the Lien of the Guarantee and Security Agreement; (j) Investments consisting of (1) Scheduled Acquisitions, (2) Permitted Acquisitions and (3) the acquisition by the Borrower or any other Credit Party of additional Capital Stock in a Majority Owned Center Subsidiary provided that the provisions of subsection 8.18(d) are complied with as to such additional Capital Stock; (k) advances, in an aggregate amount not to exceed $100,000 outstanding at any one time, made by the Borrower and its Subsidiaries to their respective employees for reimbursable expenses incurred or to be incurred by such employees in the ordinary course performance of their duties; (l) Investments consisting of amounts potentially due from a seller of assets in a Permitted Acquisition that (i) relate to customary post-closing adjustments with respect to accounts receivable, accounts payable and similar items typically subject to post-closing adjustments in similar transactions, and (ii) are outstanding for a period of one hundred twenty (120) days or less following the closing of such Permitted Acquisition; (m) Investments in assets useful in the Borrower's or the applicable Subsidiary's business made by the Borrower or any of its Subsidiaries with the proceeds of any Reinvestment Deferred Amount; (n) Investments consisting of Specified Hedge Agreements entered into in the ordinary course of business, and not for speculative purposes; and (o) Investments not otherwise permitted by this Section 9.4, in an aggregate amount not exceeding $500,000 outstanding at any one time. 9.5. Restricted Payments. Declare, pay or make, or permit any of their respective Subsidiaries to declare, pay or make any Restricted Payments except: (a) the Borrower may declare and deliver dividends and make distributions payable solely in common stock of the Borrower or in preferred stock of the Borrower that the Borrower is permitted to issue pursuant to Section 9.6, and may distribute cash in lieu of fractional shares otherwise distributable pursuant to this clause (a); (b) the Borrower may purchase or otherwise acquire shares of its Capital Stock by exchange for or out of the proceeds received from a substantially concurrent issue of new shares of its Capital Stock; (c) the Borrower may repay Subordinated Indebtedness using proceeds received from (i) a substantially concurrent incurrence of new Subordinated Indebtedness, or (ii) a substantially concurrent issue of new shares of its Capital Stock; (d) any Subsidiary of the Borrower may make Restricted Payments to the Borrower or any Subsidiary Guarantor; (e) any Majority Owned Center Subsidiary may declare and deliver dividends and make distributions payable equally and ratably to all holders of its Capital Stock; (f) the Borrower may issue its common stock and options, warrants or other equity awards with respect to its common stock under any stock option, stock incentive or similar plan approved by the shareholders of the Borrower, including (i) the Symbion Stock Incentive Plan, (ii) the Symbion Non-Employee Directors Stock Option Plan, (iii) the Symbion Employee Stock Purchase Plan, (iv) the Ambulatory Resource Centres, Inc. Nonqualified Initial Option Plan, as adopted by the Borrower, and (v) the Ambulatory Resource Centres, Inc. 1997 Stock Option Plan, as adopted by the Borrower; (g) payments under the outstanding warrants and convertible debentures of the Borrower described on Schedule 7.1; (h) any Majority Owned Center Subsidiary may purchase or otherwise acquire shares of its Capital Stock by exchange for or out of the proceeds received from a substantially concurrent issue of new shares of its Capital Stock; (i) the Borrower may redeem or repurchase shares of its Capital Stock owned by former employees of the Borrower and its Subsidiaries; provided that the aggregate amount of all such redemptions and repurchases shall not exceed $2,500,000; and (j) the Borrower may make Series A Redemption Payments and Series B Redemption Payments upon the occurrence of a Triggering Event (as such terms are defined in the Certificate of Designation); provided that all funds used to make such payments represent proceeds of a substantially concurrent issue or sale of shares of the Borrower's Capital Stock or other contribution to the capital of the Borrower. 9.6. Issuance of Stock. Issue any Capital Stock or permit any Subsidiary to issue any Capital Stock; provided, however, that (a) the Borrower may issue common stock and may issue preferred stock to the extent the aggregate of all preferred stock outstanding does not require the payment of dividends other than as permitted under Section 9.5, and provided such preferred stock is not redeemable, payable or subject to being required to be purchased or otherwise retired or extinguished (i) at a fixed or determinable date, whether by operation of a sinking fund or otherwise, (ii) at the option of any Person other than the Borrower or (iii) upon the occurrence of a condition not solely within the control of the Borrower, such as a redemption required to be made out of future earnings; and (b) any Subsidiary of the Borrower may issue Capital Stock to the Borrower or to any Subsidiary Guarantor; and (c) any Subsidiary of the Borrower may issue Capital Stock if after the issuance of such Capital Stock (i) such Subsidiary would constitute a Majority Owned Center Subsidiary in compliance with all applicable provisions of this Agreement, or (ii) such Subsidiary would constitute a Permitted Non-Guarantor Entity in compliance with all applicable provisions of this Agreement and an Investment therein by the Borrower and its Subsidiaries, in an amount equal to the amount of their prior Investments in such Subsidiary, would then be permitted by Section 9.4. 9.7. Fundamental Changes. Directly or indirectly (whether in one transaction or a series of transactions), or permit any of its Subsidiaries directly or indirectly (whether in one transaction or a series of transactions) to: (a) consummate any transaction of merger, consolidation or amalgamation; (b) liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution); (c) make any Asset Acquisition other than a Scheduled Acquisition or a Permitted Acquisition; or (d) make any material change in the business conducted by the Borrower and its Subsidiaries as set forth in Section 8.6; provided, however, that: (1) notwithstanding clause (a) of this Section 9.7, the merger, consolidation or amalgamation of any Subsidiary of the Borrower with any other Person as the method by which a Permitted Acquisition is accomplished shall be permitted, provided that either (A) the Borrower or such Subsidiary is the surviving entity in the transaction, or (B) such Person is the surviving entity in the transaction and has complied with the provisions of Section 8.18 prior to or contemporaneously with the consummation of the transaction; (2) notwithstanding clause (a) of this Section 9.7, the merger, consolidation or amalgamation of any Solvent Subsidiary of the Borrower with any Subsidiary Guarantor shall be permitted, provided that such Subsidiary Guarantor is the surviving entity in the transaction; (3) notwithstanding clause (a) of this Section 9.7, the merger, consolidation or amalgamation of any Solvent Subsidiary of the Borrower with the Borrower shall be permitted, provided that the Borrower is the surviving entity in the transaction; (4) notwithstanding clause (a) of this Section 9.7, the merger, consolidation or amalgamation of any Majority Owned Center Subsidiary with any Person shall be permitted, provided that the Indebtedness evidenced by any Pledged Note(s) executed by such Majority Owned Center Subsidiary is fully satisfied prior to or in connection with such transaction; and (5) notwithstanding clause (b) of this Section 9.7, the Borrower may permit the dissolution of any of its Subsidiaries (and any such Subsidiary may suffer such dissolution) if at the time of such dissolution such Subsidiary has no assets, engages in no business and otherwise has no activities other than activities related to the maintenance of its existence and good standing. 9.8. Capital Expenditures. Make or commit to make, or permit any of its Subsidiaries to make or permit to make, any Capital Expenditures except: (a) Capital Expenditures made in respect of Permitted Acquisitions; and (b) Capital Expenditures, not otherwise permitted by this Section 9.8, in an aggregate amount not to exceed, in any Fiscal Year, the amount indicated below for such Fiscal Year:
Fiscal Year Maximum Capital Expenditures - ----------- ---------------------------- 2003 $ 10,000,000 2004 15,000,000 2005 20,000,000 2006 20,000,000
9.9. Newly-Established Centers. Permit: (a) the aggregate development costs incurred by the Borrower and its Subsidiaries in connection with the development of new Centers (exclusive of any amounts contributed by Persons other than the Borrower and its Subsidiaries who hold interests in Majority Owned Center Subsidiaries) during any period of four consecutive Fiscal Quarters that ends on a date within a period specified below to exceed the amount specified for such period:
Period Amount ------ ----------- Closing Date through March 31, 2004 $15,000,000 April 1, 2004 through March 31, 2005 $19,000,000 April 1, 2005 and thereafter $23,000,000
For purposes of this subsection 9.9(a), "development costs" refers to expenses that would be capitalized on a balance sheet under GAAP and that, with respect to an individual Center, are incurred between the time that the Borrower or a Subsidiary of the Borrower has entered into an agreement without material contingencies to purchase or lease an interest in real estate for the purpose of developing and constructing such Center and the time that such Center is open for business. (b) the number of Centers (without duplication) that either (i) are under development (i.e., with respect to which the Borrower or a Subsidiary of the Borrower has entered into an agreement without material contingencies to purchase or lease an interest in real estate for the purpose of developing and constructing a Center), or (ii) have not yet achieved positive EBITDA for the then most recently reported Fiscal Quarter of operations (as established pursuant to the Compliance Certificate for such Fiscal Quarter delivered to the Administrative Agent), during any period specified below to be greater than the number specified for such period:
Period Number of Centers ------ ----------------- Closing Date through March 31, 2004 8 April 1, 2004 through March 31, 2005 9 April 1, 2005 and thereafter 10
9.10. Transactions With Affiliates. Enter into, or permit any of its Subsidiaries to enter into, any transaction or series of related transactions (including any purchase, sale, lease or exchange of any property or the rendering of any service) with, or for the benefit of, any of its Affiliates (each an "Affiliate Transaction"), other than (x) Affiliate Transactions permitted pursuant to the final paragraph of this Section 9.10, (y) Affiliate Transactions conducted in good faith, the terms of which are fair and reasonable to the Borrower or such Subsidiary and that are no less favorable to the Borrower or such Subsidiary than those that might reasonably have been obtained in a comparable transaction at such time on an arm's-length basis from a Person that is not an Affiliate of the Borrower or such Subsidiary, and (z) the transactions contemplated by the 2003 Subordinated Note Purchase Agreement. All Affiliate Transactions (and each series of related Affiliate Transactions that are similar or part of a common plan) between the Borrower and its Subsidiaries, on the one hand, and any director, executive officer or holder of more than five percent (5%) of the Capital Stock of the Borrower, on the other hand, involving aggregate payments or other property with a fair market value in excess of $250,000, shall be approved by the board of directors of the Borrower, including a majority of the disinterested directors, if any, such approval to be evidenced by a resolution stating that the board of directors has determined that such transaction complies with the foregoing provisions. If the Borrower or any Subsidiary of the Borrower enters into an Affiliate Transaction (or a series of related Affiliate Transactions that are similar or part of a common plan) between the Borrower and its Subsidiaries, on the one hand, and any director, executive officer or holder of more than five percent (5%) of the Capital Stock of the Borrower, on the other hand, that involves an aggregate fair market value or payments to an Affiliate, as the case may be, of more than $2,500,000, the Borrower or such Subsidiary, as the case may be, shall, prior to the consummation thereof, obtain a favorable opinion as to the fairness of such transaction or series of related transactions to the Borrower or the relevant Subsidiary, as the case may be, from a financial point of view, from an Independent Financial Advisor and deliver the same to the Administrative Agent. The foregoing restrictions of this Section 9.10 shall not apply to: (1) reasonable compensation and out-of-pocket expenses paid to, and indemnity provided on behalf of, officers, directors or employees of the Borrower or any Subsidiary of the Borrower as determined in good faith by the Borrower's board of directors or senior management; (2) transactions between or among the Borrower and one or more of its Subsidiaries or exclusively between or among one or more of the Borrower's Subsidiaries; provided that such transactions are not otherwise prohibited by this Agreement; (3) Restricted Payments not otherwise prohibited by this Agreement. 9.11. Agreements Restricting the Borrower and its Subsidiaries. Enter into or become a party to, or permit any of its Subsidiaries to enter into or become a party to, any agreement with any Person (excluding (i) this Agreement, (ii) the other Loan Documents, and (iii) the 2003 Subordinated Note Documents as in effect on the date of this Agreement) that in any way prohibits, restricts or limits the ability of the Borrower or any such Subsidiary to: (a) transfer cash or other assets to the Borrower or any of its Subsidiaries (excluding reasonable and customary restrictions on distributions regarding timing, reserves, available cash and the like that are contained in organizational documents of Majority Owned Center Subsidiaries in effect on the date hereof and those hereafter entered into in the ordinary course of business and consistent with past practices of the Borrower and its Subsidiaries), or (b) create, incur, assume or suffer to exist any Lien with respect to any real or personal property, fixtures, revenues or other assets whatsoever, whether now owned or hereafter acquired, of the Borrower or any such Subsidiary; provided, however, that a Majority Owned Center Subsidiary obligated in respect of Indebtedness described in subsection 9.1(c) may agree with the holder of such Indebtedness that while such Indebtedness is outstanding no Lien, other than Liens in favor of such holder, will be created or allowed to exist with respect to the specific property or assets financed with the proceeds of such Indebtedness. 9.12. ERISA. (a) terminate or permit any of its Subsidiaries to terminate any Plan so as to result in any material liability to the PBGC; (b) engage or permit any of its Subsidiaries to engage in any "prohibited transaction" (as defined in Section 4975 of the Code) involving any Plan that would result in a material liability for an excise tax or civil penalty in connection therewith; (c) incur or suffer to exist, or permit any of its Subsidiaries to incur or suffer to exist, any material "accumulated funding deficiency" (as defined in Section 302 of ERISA), regardless of whether waived, involving any Plan; or (d) allow or suffer to exist, or permit any of its Subsidiaries to allow or suffer to exist, any event or condition that presents a material risk of incurring a material liability to the PBGC by reason of the termination of any Plan. 9.13. Maintenance of Material Contracts. Without the prior written consent of Requisite Lenders, enter into, or permit any of its Subsidiaries to enter into, an agreement to cancel, terminate or surrender, or enter into any material amendment of, any Material Contract, unless the cumulative effect of all such cancellations, terminations, surrenders and amendments will not have a Material Adverse Effect. 9.14. Adverse Transactions. Enter into or become a party to, or permit any of its Subsidiaries to enter into or become a party to, any transactions the performance of which in the future is reasonably likely to have a Material Adverse Effect. 9.15. Subordinated Indebtedness. Modify, amend or in any way change the terms of any Subordinated Indebtedness or any instrument, document or agreement evidencing same or related thereto, if the effect of any such modification, amendment or change would be to (a) increase the interest rate applicable to such Subordinated Indebtedness, (b) accelerate the date for the making of any required payment of principal or increase the amount due on any such date, (c) modify the terms of subordination, as they apply to the Obligations, in a manner that would affect adversely the rights of the Administrative Agent, the Lenders or the Issuing Bank vis-a vis the holder(s) of such Subordinated Indebtedness, or (d) otherwise materially affect the rights of the Administrative Agent, the Lenders or the Issuing Bank vis-a-vis the holder(s) of such Subordinated Indebtedness. ARTICLE 10. FINANCIAL COVENANTS 10.1. Financial Covenants. So long as any Obligations are unpaid or outstanding, any Obligation under the Loan Documents is unperformed or any of the Commitments are in effect, the Borrower shall not: 10.1.1. Consolidated Net Worth. Permit Consolidated Net Worth as of the end of any Fiscal Quarter to be less than the sum of $78,000,000 plus (a) 75% of cumulative Consolidated Net Income for each Fiscal Quarter beginning with the Fiscal Quarter ending March 31, 2003, without reduction for any losses during any Fiscal Quarter, plus (b) 100% of the Net Cash Proceeds of any Capital Stock issued by the Borrower or any of the other Credit Parties after the date of this Agreement; provided, however, that the calculations made pursuant to this Section 10.1.1 shall be adjusted annually following receipt by the Administrative Agent of the financial statements furnished pursuant to Section 8.1.1 in order to take into account customary year-end adjustments to Consolidated Net Income consistent with the foregoing. 10.1.2. Funded Indebtedness to EBITDA Ratio. Permit the Funded Indebtedness to EBITDA Ratio (a) as of the end of any Fiscal Quarter ending prior to December 31, 2003 to be greater than 3.75 to 1.00, and (b) as of the end of any Fiscal Quarter ending on or after December 31, 2003 to be greater than 3.50 to 1.00. 10.1.3. Senior Funded Indebtedness to EBITDA Ratio. Permit the Senior Funded Indebtedness to EBITDA Ratio as of the end of any Fiscal Quarter to be greater than 2.50 to 1.00. 10.1.4. Funded Indebtedness to Capitalization Ratio. Permit the Funded Indebtedness to Capitalization Ratio as of the end of any Fiscal Quarter to be greater than 0.60 to 1.00. 10.1.5. Fixed Charge Coverage Ratio. Permit the Fixed Charge Coverage Ratio (a) as of the end of any Fiscal Quarter ending prior to December 31, 2003 to be less than 1.35 to 1.00, and (b) as of the end of any Fiscal Quarter ending on or after December 31, 2003 to be less than 1.50 to 1.00. 10.2. Guarantor Solvency. So long as any Obligations are outstanding, unpaid or unperformed or any of the Commitments are in effect, each of the Guarantors at all times shall be Solvent. ARTICLE 11. EVENTS OF DEFAULT AND LENDERS' REMEDIES 11.1. Events of Default. Any one or more of the following described events shall constitute an Event of Default hereunder, whether such occurrence shall be voluntary or involuntary, or come about or be effected by operation of law or otherwise: 11.1.1. Failure to Pay Loans, Etc. The Borrower shall fail to pay when due any principal of, interest on or other amount payable in respect of the Loans, the Letter of Credit Liabilities, the Credit Fees or any of the other Obligations. 11.1.2. Failure to Perform Certain Covenants. The Borrower shall fail to perform or observe any of its covenants and agreements set forth in Sections 8.6, 8.10 and 8.12 and in Articles 9 and 10. 11.1.3. Failure to Perform Agreements Generally. The Borrower or any other Credit Party shall fail to perform or observe any of its other covenants and agreements set forth in this Agreement (other than those described in Sections 11.1.1 and 11.1.2) or the other Loan Documents, and such failure shall continue for more than fifteen (15) days after the earlier of (a) written notice from the Administrative Agent to the Borrower or such Credit Party, as applicable, of the existence of such Default or (b) the date any Responsible Officer of the Borrower or such Credit Party, as applicable, first obtains knowledge of such failure. 11.1.4. Defaults Under Other Loan Documents. Any default or event of default shall occur under any other Loan Document, and, if subject to a cure right, shall fail to be cured or corrected within the applicable cure period. 11.1.5. False Statements. Any representation or warranty of the Borrower or any other Credit Party set forth in this Agreement, the Notes or the other Loan Documents or in any other certificate, opinion or other statement at any time provided by or on behalf of the Borrower or any Credit Party in connection herewith or therewith shall prove to be false or misleading in any material respect at the time made or given. 11.1.6. Voluntary Insolvency Proceedings, Etc. The Borrower, any other Credit Party or any of the Borrower's other Subsidiaries (a) shall commence a voluntary case or other proceeding seeking dissolution, liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a receiver, trustee, liquidator, custodian or other similar official with respect to it or any substantial part of its property, (b) shall consent to any such relief or to the appointment of, or the taking of possession of any of its property by, any such official in any involuntary case or other proceeding commenced against it, (c) shall make a general assignment for the benefit of creditors, (d) shall take any action to authorize any of the foregoing, or (e) shall become insolvent or fail generally to pay its debts as they become due. 11.1.7. Involuntary Insolvency Proceedings, Etc. Any involuntary case or other proceeding shall be commenced against the Borrower, any other Credit Party or any of the Borrower's other Subsidiaries seeking dissolution, liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a receiver, trustee, liquidator, custodian or other similar official with respect to it or any substantial part of its property, and (a) an order for relief (or the equivalent) shall be entered in such involuntary case or other proceeding or (b) such involuntary case or other proceeding shall remain undismissed and unstayed for a period of thirty (30) days after the commencement thereof. 11.1.8. Failure to Perform Other Obligations. The Borrower, any other Credit Party or any of the Borrower's other Subsidiaries shall (a) fail to pay any amount of any Indebtedness or interest thereon, or (b) fail to observe or perform any term, covenant or agreement contained in any Contractual Obligation (including Contractual Obligations evidencing, securing or relating to any Indebtedness) executed by it, which failure (i) would cause or permit the holder or holders or beneficiary or beneficiaries of such Indebtedness (or any agent or trustee on their behalf) to cause such Indebtedness to become due or otherwise payable prior to its stated maturity, so long as the aggregate principal amount of all such Indebtedness that would then become due or payable would equal or exceed $250,000, or (ii) would impair the Administrative Agent's, the Lenders' or the Issuing Bank's rights or the performance of the obligations of the Borrower, any other Credit Party or any of the Borrower's other Subsidiaries under this Agreement, the Notes or the other Loan Documents or the business or operations of the Borrower, any other Credit Party or any of the Borrower's other Subsidiaries; unless in the case of a Contractual Obligation that is not for borrowed money, such failure of performance is being contested by the Borrower or such Credit Party or other Subsidiary in good faith and adequate reserves with respect thereto have been established on the books of the Borrower or such Credit Party or other Subsidiary in conformity with GAAP. Without limiting the foregoing, the occurrence of any default or event of default under or in connection with the 2003 Subordinated Notes shall constitute an Event of Default under this Section, regardless of whether action by the holder(s) thereof is then prohibited or restricted by the terms of the 2003 Subordinated Note Documents. 11.1.9. Judgments; Legal Process. One or more judgments, decrees or orders for the payment of money shall be entered, or any judgment lien shall be filed, or any writ of execution, attachment, garnishment or other legal process shall be issued, against the Borrower, any other Credit Party or any of the Borrower's other Subsidiaries, or any of the property thereof, which by itself or together with all other such legal processes is for an amount in excess of $250,000, and which shall remain unvacated, unbonded or unstayed for a period of thirty (30) days, or in any event later than five (5) days prior to the date of any proposed sale thereunder. 11.1.10. Condemnation of Property. A material part of the property of the Borrower, any other Credit Party or any of the Borrower's other Subsidiaries shall be condemned, seized or otherwise appropriated, and the condemnation award is materially less than the book value of such property at the date hereof (if such property was owned by the Borrower, a Credit Party or another Subsidiary of the Borrower on the date hereof) or at the time such property was acquired by the Borrower or such Credit Party or other Subsidiary (if such property was acquired by the Borrower or such Subsidiary after the date hereof). 11.1.11. Suspension of Business. The Borrower, any other Credit Party or any of the Borrower's other Subsidiaries shall voluntarily suspend the transaction of its business for more than five (5) Business Days in any Fiscal Year without the prior express written consent of Requisite Lenders, unless such suspension would not have a Material Adverse Effect. 11.1.12. ERISA. (a) The Borrower or any Commonly Controlled Entity shall engage in any "prohibited transaction" (as defined in ERISA or Section 4975 of the Code) involving any Plan, (b) any "accumulated funding deficiency" (as defined in ERISA), regardless of whether waived, shall exist with respect to any Plan, (c) a Reportable Event shall occur with respect to, or a proceeding shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or proceeding presents a material risk of termination of such Plan for purposes of Title IV of ERISA, and, in the case of a Reportable Event, shall continue unremedied for ten (10) days after notice of such Reportable Event is given pursuant to Section 4043(a), (c) or (d) of ERISA and, in the case of such proceeding, shall continue for ten (10) days after commencement thereof, (d) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (e) the withdrawal or partial withdrawal by the Borrower or any Commonly Controlled Entity from any Multi-Employer Plan, or (f) the reorganization or insolvency of a Plan or any other event or condition shall occur or exist with respect to a Plan and in each case in clauses (a) through (f) above, such event or condition together with all other such events or conditions, if any, could subject the Borrower, any other Credit Party or any of the Borrower's other Subsidiaries to any tax, penalty or other liability in excess of $100,000 or otherwise would have a Material Adverse Effect. 11.1.13. Validity of Loan Documents. Any of the Loan Documents or any provision thereof, for any reason whatsoever, shall cease to be binding on the Borrower, any other Credit Party or any of the Borrower's other Subsidiaries as is a party thereto, or the Borrower or any such Credit Party or other Subsidiary shall so assert. 11.1.14. Guarantee Obligations. Any Subsidiary Guarantor shall default in the performance or observance of its guarantee under the Guarantee, or such guarantee for any reason whatsoever shall cease to be a valid and binding obligation of any such Subsidiary Guarantor, or any such Subsidiary Guarantor shall so assert. 11.1.15. Failure of Lien. Any Security Document, after delivery thereof pursuant to this Agreement, for any reason shall cease to create a valid Lien on any of the Collateral purported to be covered thereby or, after recordation of such Security Document as provided in this Agreement, shall cease to be a perfected and first priority Lien on such Collateral, subject only to Permitted Liens. 11.1.16. Defaults under Material Contracts. Any default or event of default shall occur under any Material Contract, and, if subject to a cure right, shall fail to be cured or corrected within the applicable cure period, unless such default would not have a Material Adverse Effect. 11.1.17. Material Adverse Change. Any Material Adverse Change shall occur. 11.1.18. Change of Control. An event, or series of events, shall occur that constitutes or results in a Change of Control. 11.2. Lenders' Remedies. Upon the occurrence of an Event of Default or at any time thereafter, and in each and every case, unless such Event of Default shall have been remedied or waived in writing by Requisite Lenders, any one or all of the following actions may be taken: (a) upon the request of Requisite Lenders, the Administrative Agent shall, by notice to the Borrower terminate any or all of the Commitments, whereupon such Commitments of the Lenders thereunder immediately shall terminate; provided, however, that upon the occurrence of any event specified in either Section 11.1.6 or Section 11.1.7 the Commitments shall terminate automatically without further action by the Administrative Agent, the Lenders or the Issuing Bank; (b) upon request of Requisite Lenders, the Administrative Agent shall declare all outstanding Obligations and other amounts owing under this Agreement, the Notes and the other Loan Documents to be due and payable immediately, and all such Obligations and other amounts immediately shall be due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived to the extent permitted by applicable law; provided, however, that upon the occurrence of any event specified in either Section 11.1.6 or Section 11.1.7 all such Obligations and other amounts immediately shall be due and payable in full without declaration or other notice; (c) the Administrative Agent immediately, and without expiration of any period of grace, may enforce payment of all Obligations, and the Administrative Agent shall be entitled to all remedies available hereunder or thereunder; and (d) the Administrative Agent shall be entitled to exercise, for the ratable benefit of the Lenders, the Issuing Bank and the Administrative Agent, all other rights, powers, privileges, options and remedies available under or by virtue of the Loan Documents or otherwise available at law or in equity. 11.3. Actions in Respect of Letters of Credit. 11.3.1. Collateral Account. If an Event of Default shall have occurred and be continuing, the Administrative Agent may, and upon the request of Requisite Lenders shall, whether in addition to the taking by the Administrative Agent of any of the actions described in Section 11.2 or otherwise, make demand upon the Borrower to, and forthwith upon such demand the Borrower will, pay to the Administrative Agent at its Lending Office, for the ratable benefit of the Lenders, the Issuing Bank and the Administrative Agent, in immediately available (same day) funds for deposit in a Collateral Account to be maintained for the ratable benefit of the Lenders, the Issuing Bank and the Administrative Agent at such place as shall be designated by the Administrative Agent, an amount equal to the amount of the Letter of Credit Liabilities. 11.3.2. Security Interest. The Borrower hereby pledges and assigns to the Administrative Agent, for the ratable benefit of the Lenders, the Issuing Bank and the Administrative Agent, and grants to the Administrative Agent for the ratable benefit of the Lenders, the Issuing Bank and the Administrative Agent, a lien on and a security interest in any Collateral Account established pursuant to Section 11.3.1, all cash deposited therein, all notes, certificates and instruments, if any, from time to time representing or evidencing the Collateral Account and all interest and other earnings thereon, additions thereto, substitutions therefor and proceeds thereof. The lien and security interest granted hereby secures the payment of all of the Obligations. 11.3.3. Application of Proceeds. The Borrower hereby authorizes the Administrative Agent to apply, from time to time after funds are deposited in the Collateral Account, funds then held in the Collateral Account to the payment of any amounts, in such order as the Administrative Agent may elect, as shall have become or shall become due and payable by the Borrower to the Lenders in respect of the Letter of Credit Liabilities and thereafter to the satisfaction of the other Obligations. 11.3.4. Investments. Neither the Borrower nor any other Credit Party, nor any Person claiming or acting on behalf of or through the Borrower or any other Credit Party, shall have any right to withdraw any of the funds held in the Collateral Account, except as provided in Section 11.3.8; provided, however, that with the consent of the Administrative Agent, and to the extent that there is an amount in excess of $100,000 in the Collateral Account at the end of any Business Day after taking into account applications of funds, if any, from the Collateral Account made pursuant to Section 11.3.8, the Administrative Agent may, at the written request of the Borrower, from time to time invest amounts on deposit in the Collateral Account in Cash Equivalents; provided further that in order to provide the Administrative Agent with a perfected security interest therein, each investment in Cash Equivalents shall be evidenced by negotiable certificates or instruments of which the Administrative Agent shall take physical possession. If the Borrower or any other Credit Party shall have the right to have any amounts on deposit in the Collateral Account invested by the Administrative Agent, but shall have failed to request the Administrative Agent to invest such amounts, the Administrative Agent will endeavor to invest such amounts in such Cash Equivalents as the Administrative Agent shall select; provided, however, that in order to provide the Administrative Agent with a perfected security interest therein, each such investment in Cash Equivalents shall be evidenced by negotiable certificates or instruments of which the Administrative Agent shall take physical possession. Any interest or other proceeds received by the Administrative Agent in respect of Cash Equivalents that are not invested or reinvested in Cash Equivalents as provided above shall be deposited and held in cash in the Collateral Account under the sole dominion and control of the Administrative Agent and shall be applied as provided in Section 11.3.3. 11.3.5. Further Liens. The Borrower will not sell or otherwise dispose of any interest in the Collateral Account or the funds on deposit therein or create or permit to exist any Lien on or with respect to the Collateral Account or the funds on deposit therein except for the security interest created by this Section 11.3. 11.3.6. Remedies. (a) Requisite Lenders, in their sole discretion, may without notice to the Borrower or any other Credit Party except as required by law and at any time and from time to time, direct any Lender to charge, set-off and otherwise apply all or any part of first, the Letter of Credit Liabilities and second, the other Obligations, against the Collateral Account, or any part thereof, in such order as the Administrative Agent shall elect. The Administrative Agent agrees to notify promptly the Borrower or such Guarantor after any such set-off and application made by any Lender, at the direction of Requisite Lenders, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Lenders under this Section 11.3.6 are in addition to other rights and remedies (including other rights of set-off) that any Lender may have. (b) The Administrative Agent, in its sole discretion, may exercise in respect of the Collateral Account, in addition to the other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party upon default under the UCC, and the Administrative Agent may, without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any office of the Administrative Agent or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Administrative Agent may deem commercially reasonable. The Borrower agrees that to the extent notice of sale shall be required by law, at least ten (10) days' notice of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notice. The Administrative Agent shall not be obligated to make any sale of the Collateral or any part thereof, regardless of notice of sale having been given. The Administrative Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (c) Any cash or other property held in the Collateral Account, and all proceeds received by the Administrative Agent in respect of any sale of, collection from or other realization upon all or any part of the Collateral Account may, in the discretion of the Administrative Agent, then or at any time thereafter be applied (after payment of any amounts payable pursuant to this Section 11.3) in whole or in part by the Administrative Agent for the ratable benefit of the Lenders, the Issuing Bank and the Administrative Agent against all or any part of the Obligations in such order as the Administrative Agent may elect. 11.3.7. Preservation of the Collateral. The Administrative Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral Account if the Collateral Account is accorded treatment substantially equal to that which the Administrative Agent accords its own property, it being understood that the Administrative Agent shall not have any responsibility or liability (a) for ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Cash Equivalents, regardless of whether the Administrative Agent has or is deemed to have knowledge of such matters, (b) for taking any necessary steps to preserve rights against any parties with respect to the Collateral Account, (c) for the collection of any proceeds from Cash Equivalents, (d) by reason of any invalidity, lack of value or uncollectability of any of the payments received by the Administrative Agent from obligors with respect to Cash Equivalents, (e) for any loss resulting from investments made in compliance with Section 11.3.4, except to the extent such loss was attributable to the Administrative Agent's gross negligence or willful misconduct in complying with Section 11.3.4, as determined by a final judgment of a court of competent jurisdiction, or (f) in connection with any investments made in compliance with Section 11.3.4 without a written request from the Borrower or any Guarantor, or any failure by the Administrative Agent to make any such investment. 11.3.8. Surplus Funds. Any surplus funds held in the Collateral Account and remaining after the Obligations are fully satisfied shall be paid to the Borrower or such other Person(s) as may be lawfully entitled to receive such surplus. ARTICLE 12. THE ADMINISTRATIVE AGENT 12.1. Appointment. Each Lender hereby (a) irrevocably appoints Bank of America as the Administrative Agent for such Lender and the other Lenders under this Agreement, the Notes and the other Loan Documents, and (b) irrevocably authorizes the Administrative Agent to take such action on its behalf under the provisions of this Agreement, the Notes and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of this Agreement, the Notes and the other Loan Documents, together with such other powers as are reasonably incidental thereto. The Administrative Agent shall, among other things, take such actions as the Administrative Agent is authorized to take pursuant to this Agreement, the Notes and the other Loan Documents. As to any matters not expressly provided for in this Agreement, the Administrative Agent may, but shall not be required to, exercise any discretion or take any action; however, the Administrative Agent shall be required to act or to refrain from acting upon the written instructions of Requisite Lenders if the Administrative Agent shall be indemnified to its satisfaction by the Lenders against any and all liability and expense that may be incurred by it by reason of so acting or refraining from acting. Notwithstanding anything to the contrary herein, the Administrative Agent shall have no duties, responsibilities or fiduciary relationships with any Lender except those expressly set forth in this Agreement, the Notes and the other Loan Documents, and no implied covenants, responsibilities, duties, obligations or liabilities shall be read into this Agreement, the Notes or the other Loan Documents or otherwise exist against the Administrative Agent. 12.2. Delegation of Duties. The Administrative Agent may exercise any of its powers or execute any of its duties under this Agreement, the Notes and the other Loan Documents by or through one or more agents or attorneys-in-fact and shall be entitled to obtain, and to rely on, advice of counsel concerning all matters pertaining to such rights and duties. The Administrative Agent may utilize the services of such agents and attorneys-in-fact as the Administrative Agent in its sole discretion reasonably determines, and all reasonable fees and expenses of such agents and attorneys-in-fact shall be paid by the Borrower on demand. The Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by the Administrative Agent in good faith. 12.3. Limitation of Liability. No Agent-Related Person shall be (a) liable for any waiver, consent or approval given or any action taken or omitted to be taken by any of them under or in connection with this Agreement, the Notes or the other Loan Documents, if authorized or permitted hereunder, except for its own gross negligence or willful misconduct, or (b) responsible for the consequences of any oversight or error in judgment by it whatsoever, except for its own gross negligence or willful misconduct. No Agent-Related Person shall be responsible for (i) the execution, validity, genuineness, effectiveness, sufficiency, enforceability, perfection or priority of this Agreement, the Notes or the other Loan Documents, (ii) the collectability of any amounts owing under this Agreement, the Notes or the other Loan Documents, (iii) the value, sufficiency, enforceability, perfection or collectability of any Collateral, (iv) the failure by the Borrower or any other Credit Party to perform its obligations under this Agreement, the Notes or the other Loan Documents or to observe any conditions hereof or thereof, (v) the truth, accuracy and completeness of the recitals, statements, representations or warranties made by the Borrower or any other Credit Party or any officer or agent thereof contained in this Agreement, the Notes or the other Loan Documents, or in any certificate, report, statement, document or other writing referred to or provided for in, or received by the Administrative Agent in connection with, this Agreement, the Notes or the other Loan Documents believed by the Administrative Agent to be genuine and correct and to have been signed, sent or made by the proper Person or Persons. 12.4. Reliance by the Administrative Agent. The Administrative Agent shall not have any obligation (a) to ascertain or to inquire as to the observance or performance of any of the conditions, covenants or agreements in this Agreement, the Notes or the other Loan Documents or in any document, instrument or agreement at any time constituting, or intended to constitute, Collateral, (b) to ascertain or inquire as to whether any notice, consent, waiver or request delivered to it shall have been duly authorized or is genuine, accurate and complete or (c) to inspect the properties, books or records of the Borrower or any other Credit Party. The Administrative Agent shall be entitled to rely, and shall be fully protected in relying (i) upon any note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, facsimile, telex or teletype message, statement, order or other document, instrument or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and (ii) upon advice and statements of legal counsel (including counsel to the Borrower and the other Credit Parties), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of the assignment, negotiation or transfer thereof, in accordance with the provisions of this Agreement, shall have been delivered to the Administrative Agent identifying the name of the subsequent payee or holder thereof. The Administrative Agent shall be entitled to fail or refuse, and shall be fully protected in failing or refusing, to take any action required or permitted by it under this Agreement, the Notes or the other Loan Documents unless (A) it first shall receive such advice or concurrence of Requisite Lenders as it deems appropriate, or (B) it first shall be indemnified to its satisfaction by the Lenders against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. In all cases the Administrative Agent shall be fully protected in acting, or in refraining from acting, under this Agreement, the Notes or the other Loan Documents in accordance with a request of Requisite Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Notes. 12.5. Notice of Default; Action by Administrative Agent. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default unless the Administrative Agent has received notice from a Lender, the Borrower or any other Credit Party referring to this Agreement, describing such Default and stating that such notice is a "Notice of Default". If the Administrative Agent receives such a notice, the Administrative Agent shall give telephonic and written notice thereof to the Lenders as soon as is practicable. The Administrative Agent shall take such action with respect to an Event of Default as shall be reasonably directed by Requisite Lenders; provided, however, that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Event of Default as it deems advisable in the best interests of the Lenders. 12.6. Non-Reliance on the Administrative Agent by the Other Lenders. Each Lender expressly acknowledges that no Agent-Related Person has made any representations or warranties to such Lender. No Agent-Related Person shall have any obligation, responsibility or liability to any of the Lenders regarding the creditworthiness or financial condition of the Borrower or any other Credit Party or for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectability, priority or sufficiency of this Agreement or any other Loan Document. No act by the Administrative Agent hereinafter taken, including any review of the Borrower or any other Credit Party, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Lender. Each Lender represents to the Administrative Agent that, independently and without reliance upon any Agent-Related Person or any other Lender and based on such documents and information as it has deemed appropriate, it has made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Borrower and the other Credit Parties and has made its own decision to enter into this Agreement and to make its Loans and otherwise participate in the transactions hereunder. Each Lender also represents that, independently and without reliance upon any Agent-Related Person or any other Lender, and based on such documents and information as it deems appropriate at the time, it shall continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement, the Notes and the other Loan Documents and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Borrower and the or any other Credit Parties. The Administrative Agent shall not be required to make any inquiry concerning the performance or observance of any of the terms, provisions or conditions of this Agreement or any other Loan Document, or the financial condition of the Borrower or any other Credit Party or the existence or possible existence of any Default. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall have no obligation or liability to provide any Lender with any credit or other information concerning the business, operations, property, financial and other condition or creditworthiness of the Borrower and the other Credit Parties that may come into the possession of any Agent-Related Person. 12.7. Indemnification. Each of the Lenders shall indemnify, defend and hold harmless each Agent-Related Person (to the extent not reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably according to their respective Percentages, from and against any and all claims, demands, lawsuits, costs, expenses, fees, liabilities, obligations, losses, damages, actions, recoveries, judgments, suits, costs, expenses or disbursements of any kind whatsoever, including interest, penalties and reasonable attorneys' and paralegals' fees and costs and amounts paid in settlement of any of the foregoing, whether direct, indirect, consequential or incidental, that at any time (including at any time following the satisfaction of the Obligations) may be imposed on, incurred by or asserted against any Agent-Related Person in any way relating to, resulting from or arising out of this Agreement, the Notes or the other Loan Documents, the transactions contemplated hereby or any action taken or omitted by the Administrative Agent under or in connection with any of the foregoing; provided, however, that no Lender shall be liable for the payment of any portion of such claims, demands, lawsuits, costs, expenses, fees, liabilities, obligations, losses, damages, actions, remedies, judgments, suits, costs, expenses or disbursements to the extent such result arose solely from the purportedly indemnified Person's gross negligence or willful misconduct. Action taken in accordance with the directions of Requisite Lenders in no event shall be deemed to constitute gross negligence or willful misconduct for purposes of this Section 12.7. The agreements in this Section 12.7 shall survive the repayment of the Loans and the satisfaction of the other Obligations and shall be in addition to and not in lieu of any other indemnification agreements set forth in the Loan Documents. 12.8. Payments. If in the opinion of the Administrative Agent, the distribution of any amount received by the Administrative Agent in such capacity under this Agreement, the Notes or the other Loan Documents might involve it in liability, the Administrative Agent may refrain from making the distribution thereof until the Administrative Agent's right to make such distribution shall have been adjudicated by a court of competent jurisdiction. If a court of competent jurisdiction shall adjudge that any amount received from and distributed by the Administrative Agent in such capacity as Administrative Agent is to be repaid, each Person to whom any such distribution shall have been made either (a) shall repay to the Administrative Agent its proportionate share of the amount so adjudged to be repaid, or (b) shall repay the same in such manner and to such Persons as shall be determined by such court. 12.9. Administrative Agent in Its Individual Capacity. The Administrative Agent in its individual capacity, and its Affiliates, may make loans and other financial accommodations to, accept deposits from and generally engage in any kind of business with the Borrower and its Subsidiaries as though the Administrative Agent were not the Administrative Agent hereunder. With respect to Loans made or renewed by it, any Notes issued to it and its participation in the Letter of Credit Liabilities, the Administrative Agent in its individual capacity shall have the same benefits, rights, powers and privileges under this Agreement, the Notes and the other Loan Documents as any other Lender and may exercise the same as though it were not the Administrative Agent, and the terms "Lender", "Lenders" and "Requisite Lenders" shall include the Administrative Agent in its individual capacity. 12.10. Successor Administrative Agent. The Administrative Agent may resign as such upon thirty (30) days' prior written notice to the Lenders. If the Administrative Agent shall resign as such under this Agreement, then Requisite Lenders shall appoint from among the Lenders a successor agent for the Lenders, which successor agent shall be reasonably acceptable to the Borrower; provided, however, that (i) acceptability to the Borrower shall not be required if a Default has occurred and is continuing, and (ii) if no successor agent has accepted appointment as Administrative Agent within thirty (30) days after the resigning Administrative Agent's notice of resignation, the notice of resignation nevertheless shall be effective and the Lenders shall perform the duties of the Administrative Agent hereunder until such time, if any, as Requisite Lenders have appointed a successor agent as provided above. Upon acceptance of its appointment as successor agent, (a) such successor agent shall succeed to the rights, powers, privileges and duties of the Administrative Agent, (b) the retiring Administrative Agent shall be discharged of all its obligations and liabilities in such capacity under this Agreement, the Notes and the other Loan Documents, (c) the term "Administrative Agent" shall mean such successor agent effective upon its appointment and (d) the retiring Administrative Agent's rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such retiring Administrative Agent or any of the parties to this Agreement or any holders of the Notes. After any retiring Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Article 12 shall continue to inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. 12.11. Other Agents, Arrangers and Managers. None of the Lenders or other Persons identified on the cover page or signature pages of this Agreement as a "syndication agent," "documentation agent", "co-agent", "co-documentation agent", "book manager", "lead manager", "arranger", "lead arranger" or "co-arranger" shall have any right, power, obligation, liability, responsibility or duty under this Agreement other than, in the case of such Lenders, those applicable to all Lenders as such. Without limiting the foregoing, none of the Lenders or other Persons so identified shall have or be deemed to have any fiduciary relationship with any Lender. Each Lender acknowledges that it has not relied, and will not rely, on any of the Lenders or other Persons so identified in deciding to enter into this Agreement or in taking or not taking action hereunder. ARTICLE 13. ASSIGNMENTS AND PARTICIPATIONS 13.1. Successors and Assigns. This Agreement, the Notes and the other Loan Documents shall be binding on and shall inure to the benefit of the Borrower, the Administrative Agent, the Lenders, the Issuing Bank and their respective successors and assigns, except as otherwise provided herein or therein. Neither the Borrower nor any other Credit Party may assign, transfer, hypothecate or otherwise convey any of its rights, benefits, obligations or duties hereunder or thereunder without the prior express written consent of the Lenders. Any purported assignment, transfer, hypothecation or other conveyance by the Borrower or any other Credit Party without the prior express written consent of all the Lenders shall be void. Neither the Administrative Agent nor any of the Lenders may sell, assign, transfer, grant a participation in or otherwise dispose of all or any portion of its interest in this Agreement, the Notes or the other Loan Documents except as expressly provided herein. 13.2. Assignments. 13.2.1. Assignments. With prior notice to the Borrower, each Lender may assign (other than the sale of a participation) up to one hundred percent (100%) of its right, title and interest under this Agreement, the Notes, the Letters of Credit and the other Loan Documents (including all or a portion of its Commitments and the same portion of the Loans at the time owing to it) to one or more banks or other financial institutions; provided, however, that (a) each such assignment shall be of a constant, and not a varying, percentage of all such Lender's right, title and interest hereunder and thereunder, (b) such share equals no less than $2,500,000 in the case of any one assignee, (c) any assignee shall execute and deliver to the Administrative Agent an Assignment and Assumption, and (d) a Lender may not assign any interest without the prior approval of the Administrative Agent, the Issuing Bank and, in the absence of a Default, the Borrower, which approval shall not be unreasonably withheld. Notwithstanding the foregoing, any Lender may assign, as collateral or otherwise, any of its rights (including such Lender's rights to payments of principal or interest on the Notes) under this Agreement to any Federal Reserve Bank without notice to or consent of the Administrative Agent, the Issuing Bank or the Borrower. 13.2.2. Procedure; Effect of Assignments. In connection with the sale, assignment, transfer or other disposition (other than the sale of a participation) of any of a Lender's right, title and interest under this Agreement, the Notes, the Letters of Credit and the other Loan Documents to any assignee in accordance with this Section 13.2, the appropriate parties shall execute and deliver an Assignment and Assumption and the Administrative Agent shall be paid a registration and processing fee of $3,500 by the assignee. Upon compliance with the foregoing and from and after the effective date specified in such Assignment and Assumption, (a) the transferor Lender no longer shall have the rights, benefits and obligations under this Agreement, the Notes, the Letters of Credit or the other Loan Documents to the extent of the interest transferred (except for such rights, benefits and obligations that such Lender would retain under or with respect to this Agreement, the Notes, the Letters of Credit or the other Loan Documents upon payment in full of the Obligations), and (b) the assignee shall become a Lender, shall succeed to the rights and benefits and assume the obligations of such transferor Lender hereunder and thereunder to the extent of the interest transferred. 13.2.3. Actions by the Borrower. The Borrower hereby agrees that it shall execute and deliver, at the request of the Administrative Agent (a) one or more substitute Notes to the order of such Lenders to evidence the portions of the Loans retained and sold and (b) any amendment to any Loan Document to effectuate the provisions of this Section 13.2. 13.3. Participations. Subject to the provisions of this Section 13.3, each Lender shall have the right at any time to sell undivided participating interests in all or any part of its Commitments, the Loans and the Letters of Credit to one or more banks or other financial institutions; provided, however, that (a) such sale or transfer shall not relieve such Lender of any obligation or liability hereunder, (b) such Lender shall make and receive all payments for the account of its participants and shall retain exclusively, and shall continue to exercise exclusively, all rights of approval and administration available hereunder with respect to such Lender's Commitments, the Loans and the Letters of Credit, even after giving effect to the sale of any such participation (although such Lender may at its option agree with its participants that it will not consent to any matter described in clauses (a) through (g) of Section 14.3.4 without their concurrence), and (c) such Lender shall make such arrangements with its participants as may be necessary to accomplish the foregoing. No such participant shall be a Lender for any purpose of this Agreement, other than for purposes of Section 14.13, without the consent of the Administrative Agent and the Issuing Bank. 13.4. Disclosure. In connection with any assignments, participations or offers therefor pursuant to this Article 13, each Lender may disclose to any assignee or participant or prospective assignee or participant such information pertaining to the Borrower, the Guarantors or any of their respective Subsidiaries as such Lender may deem appropriate or such assignee or participant or prospective assignee or participant may request; provided, however, that prior to any such disclosure such assignee or participant or prospective assignee or participant shall agree to preserve the confidentiality of any confidential information relating to the Borrower or its Subsidiaries received by it on the same basis as provided in this Section 13.4. 13.5. Assignments and Participations as Units. No Lender shall assign or sell any participation in its Commitments, the Loans or the Letters of Credit, except in the form of units consisting of pro rata interests in its Commitments, the Loans and the Letters of Credit. ARTICLE 14. GENERAL PROVISIONS 14.1. Notices. Any notice, request, demand or other communication required or permitted under this Agreement, the Notes or the other Loan Documents shall be in writing and shall be deemed to be properly given (a) when received, if personally delivered or sent by overnight courier with appropriate confirmation of delivery, (b) two (2) Business Days after deposit in the mail, if mailed by United States first class, certified or registered mail, postage prepaid, (c) one (1) Business Day after deposit with a public telegraph company for transmittal, charges prepaid, or (d) when received, if given by facsimile, with appropriate confirmation, each to the appropriate address set forth below or to such other address that any such party or the Administrative Agent may designate by written notice to other parties. If to the Borrower: Symbion, Inc. 40 Burton Hills Boulevard, Suite 500 Nashville, Tennessee 37215 Attn: Chief Financial Officer Facsimile No. (615) 234-5999 with a copy (which shall not constitute notice) to: Waller Lansden Dortch & Davis, PLLC 511 Union Street, Suite 2100 Nashville, Tennessee 37219 Attn: Robert L. Harris Facsimile No. (615) 244-6804 If to any of the Lenders: Their respective addresses as set forth with their signatures on this Agreement. If to Bank of America as Administrative Agent: Bank of America, N.A. Agency Management (IL1-231-08-30) 231 South LaSalle Street Chicago, Illinois 60604 Attn: Kristine Thennes Facsimile No. (877) 206-8412 with a copy (which shall not constitute notice) to: Bass, Berry & Sims PLC 315 Deaderick Street, Suite 2700 Nashville, Tennessee 37238 Attn: James S. Tate, Jr. Facsimile No. (615) 742-6293 If to Bank of America as Issuing Bank: Bank of America, N.A. Trade Finance Department (CA9-703-19-23) 333 South Beaudry Avenue Los Angeles, California 90017 Attn: Teela Yung Facsimile No. (213) 345-6710 14.2. Entire Agreement. The execution and delivery of this Agreement and the other Loan Documents supersede all the negotiations or stipulations concerning the matters that preceded or accompanied the execution and delivery hereof and thereof (other than with respect to fees payable pursuant to separate agreements among the Borrower, the Administrative Agent and the Issuing Bank). This Agreement, the Notes and the other Loan Documents also are intended, by the parties hereto and thereto, as a complete and exclusive statement of the terms and conditions hereof and thereof. 14.3. Amendments, Waivers and Consents. 14.3.1. Amendments. Except as otherwise set forth in this Agreement, the provisions of (a) this Agreement may not be modified, amended, restated or supplemented, except by a written instrument duly executed and delivered on behalf of the Borrower and Requisite Lenders, and (b) the Notes and all Loan Documents other than this Agreement may not be modified, amended, restated or supplemented, except by a written instrument duly executed and delivered on behalf of the Borrower and any of the other Credit Parties, to the extent that the Borrower or any other Credit Party is a signatory party to such Note or such Loan Document, and on behalf of the Administrative Agent, with the written consent of Requisite Lenders. Notwithstanding anything to the contrary herein, the Administrative Agent and Requisite Lenders may modify, amend, restate, supplement or waive any provision of Article 12 without the consent of the Borrower or any other Credit Party. 14.3.2. Waivers and Consents. Except as otherwise set forth in this Agreement, any waiver of the terms and conditions of this Agreement, the Notes or the other Loan Documents, or any waiver of any Default and its consequences hereunder or thereunder, and any consent or approval required or permitted by this Agreement, the Notes or the other Loan Documents to be given by the Lenders, may be made or given with, but only with, the written consent of Requisite Lenders on such terms and conditions as specified in the written instrument granting such waiver, consent or approval. A waiver, consent or approval, to be effective, must be in writing and signed by the party making the waiver, consent or approval. 14.3.3. Effect of Waivers. In the case of any waiver, the Borrower, the other Credit Parties, the Lenders, the Issuing Bank and the Administrative Agent shall be restored to their former positions and rights under this Agreement, the Notes and the other Loan Documents to the extent of such waiver, and any Default waived shall be deemed to be cured and not continued; provided, however, that no waiver shall constitute the waiver of any subsequent or other Default or impair any right consequent thereon. No failure or delay on the part of the Administrative Agent, any Lender or the Issuing Bank to exercise or enforce any right or remedy under or in connection with this Agreement, the Notes or the other Loan Documents, whether by their respective terms, at law, in equity or otherwise, shall operate as a waiver thereof. No single or partial exercise of any such right or remedy shall preclude other or further exercise thereof or the exercise of any other right or remedy. 14.3.4. Consent of All the Lenders. Without in each instance the prior express written consent of the Administrative Agent and all the Lenders, no such modification, amendment, restatement, supplement, waiver or consent shall: (a) increase the aggregate Commitments, or increase the Commitment of any Lender without such Lender's approval; (b) waive any mandatory reduction of the aggregate Commitments required by the terms hereof; (c) reduce the amounts or extend the dates for the payment of any Credit Fees that are payable ratably to all of the Lenders in accordance with their respective Percentages of the Commitments; (d) extend the maturity of the Notes or the date of any scheduled principal payments or mandatory prepayments hereunder or thereunder; (e) reduce the rate or extend the time of payment of interest hereunder or under the Notes; (f) waive the payment of any principal, interest or Credit Fees payable hereunder or under the Notes; (g) release a material portion of the Collateral or release any of the guarantees hereunder, except as expressly provided herein; (h) extend the termination dates of any of the Commitments or the Maturity Date except as expressly provided for in this Agreement; (i) consent to the assignment or transfer by the Borrower of any of its Obligations under this Agreement, the Notes or the other Loan Documents; or (j) amend or modify the definitions of "Percentages" or "Requisite Lenders" contained in this Agreement; provided, however, that notwithstanding the foregoing, this Agreement and the other Loan Documents may be amended, modified or supplemented as provided in subsection 2.1.1(a). 14.3.5. Binding Effect. Any such modification, amendment, restatement, supplement, waiver or consent shall apply equally to each of the Lenders and shall be binding upon the Borrower, the other Credit Parties, the Lenders, the Issuing Bank, the Administrative Agent and all future holders of the Notes. 14.4. Independence of Covenants. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or otherwise would be within the limitations of, another covenant shall not avoid the occurrence of a Default if such action is taken or condition exists. 14.5. Interpretation. Neither this Agreement, the Notes or the other Loan Documents, nor any uncertainty or ambiguity herein or therein, shall be construed or resolved against the Administrative Agent, the Lenders, the Issuing Bank, the Borrower or any of the other Credit Parties under any rule of construction or otherwise. This Agreement, the Notes and the other Loan Documents have been reviewed by all the parties hereto and thereto and shall be construed and interpreted according to the ordinary meaning of the words used as to accomplish fairly the purposes and intentions of all such parties. 14.6. Inconsistencies With Other Documents. In the event there is a conflict or inconsistency between this Agreement, the Notes or the other Loan Documents, the terms of this Agreement shall control; provided, however, that any provision of the Security Documents that imposes additional burdens on the Borrower or any other Credit Party or further restricts the rights of the Borrower or any other Credit Party or gives the Lenders additional rights shall not be deemed to be in conflict or inconsistent with this Agreement and shall be given full force and effect. 14.7. Severability. If any portion of this Agreement, the Notes or any of the other Loan Documents shall be judged by a court of competent jurisdiction to be unenforceable, the remaining portions shall be valid and enforceable to the extent that the remaining terms thereof provide for the creation of the Obligations and the consummation of the issuance of the Notes, the grant of collateral security therefor, the guarantee thereof and the payment of principal and interest in respect of the Obligations substantially on the same terms and subject to the same conditions as set forth herein and therein. 14.8. Governing Law. This Agreement, the Notes and the other Loan Documents, unless otherwise expressly set forth therein, shall be governed by, construed and enforced in accordance with the laws of the State of Tennessee, without reference to the conflicts or choice of law principles thereof, except to the extent that the laws of a particular jurisdiction govern the creation, perfection, priority and enforcement of liens on and security interests in the Collateral. Notwithstanding the foregoing, if at any time the laws of the United States of America permit any Lender to contract for, take, reserve, charge or receive interest or loan charges in amounts greater than are allowed by the laws of such state (whether such federal laws directly so provide or refer to the law of the state where such Lender is located), then such federal laws shall to such extent govern as to the interest and loan charges that such Lender is allowed to contract for, take, reserve, charge or receive under this Agreement, the Notes and the other Loan Documents. References to laws in this section are to such laws as are now in effect, and, with respect to usury laws, if any, applicable to any Lender and to the extent allowed thereby, to such laws as hereafter may be in effect that allow a higher maximum nonusurious interest rate than such laws now allow. 14.9. CONSENT TO JURISDICTION. THE BORROWER HEREBY IRREVOCABLY CONSENTS TO THE PERSONAL JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN DAVIDSON COUNTY, TENNESSEE IN ANY ACTION, CLAIM OR OTHER PROCEEDING ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS. THE BORROWER HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF A SUMMONS AND COMPLAINT AND OTHER PROCESS IN ANY ACTION, CLAIM OR PROCEEDING BROUGHT BY THE ADMINISTRATIVE AGENT, ANY LENDER OR THE ISSUING BANK IN CONNECTION WITH THIS AGREEMENT, THE NOTES OR THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS, ON BEHALF OF ITSELF OR ITS PROPERTY, IN THE MANNER SPECIFIED IN SECTION 14.1. NOTHING IN THIS SECTION 14.9 SHALL AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT, ANY LENDER OR THE ISSUING BANK TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT, ANY LENDER OR THE ISSUING BANK TO BRING ANY ACTION OR PROCEEDING AGAINST THE BORROWER, ANY OF THE OTHER CREDIT PARTIES OR THEIR RESPECTIVE PROPERTIES IN THE COURTS OF ANY OTHER JURISDICTIONS. 14.10. WAIVER OF JURY TRIAL. THE ADMINISTRATIVE AGENT, EACH LENDER, THE ISSUING BANK AND THE BORROWER HEREBY IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL WITH RESPECT TO ANY ACTION, CLAIM, COUNTERCLAIM OR OTHER PROCEEDING ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, THE NOTES OR THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS. The scope of this waiver is intended to be all-encompassing with respect to any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including without limitation contract claims, tort claims, breach of duty claims and all other common law and statutory claims. Each of the parties hereto (a) acknowledges that this waiver is a material inducement for the parties to the Loan Documents to enter into a business relationship, that the parties to the Loan Documents have already relied on this waiver in entering into same and the transactions that are the subject thereof, and that they will continue to rely on this waiver in their related future dealings, and (b) further warrants and represents that each has reviewed this waiver with its legal counsel and that each knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. This waiver is irrevocable, meaning that it may not be modified either orally or in writing, and this waiver shall apply to any subsequent amendments, modifications, supplements, extensions, renewals or replacements of this Agreement. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court. 14.11. Cumulative Remedies. All rights and remedies provided in or contemplated by this Agreement, the Notes and the other Loan Documents are cumulative and not exclusive of any right or remedy otherwise provide herein, therein, at law or in equity. 14.12. Expenses of Administration and Enforcement. The Borrower shall pay on demand all reasonable expenses of the Administrative Agent in connection with this Agreement, the Notes and the other Loan Documents, and the preparation of any modifications, amendments, restatements, supplements or waivers, including all attorneys' and paralegals' fees and expenses, all fees and expenses for title, lien and other public records searches, filing and recordation fees and taxes, duplicating expenses, corporation search fees, appraisal fees, escrow agent fees and expenses, and all other customary expenses. If a Default shall occur, all reasonable out-of-pocket expenses incurred by the Lenders and the Administrative Agent (including administrative expenses of the Administrative Agent and the Lenders and fees and disbursements of in-house and outside counsel) in connection with such Default and collection and other enforcement proceedings (including bankruptcy proceedings) resulting therefrom shall be paid by the Borrower, regardless of whether suit is actually commenced to obtain any relief provided hereunder. The Borrower shall indemnify, defend and hold harmless each Agent-Related Person, each of the Lenders and the Issuing Bank from and against any and all documentary or filing taxes, assessments or charges by any Governmental Authority by reason of the execution and delivery of this Agreement, the Notes and the other Loan Documents and the consummation of the transactions that are the subject thereof. 14.13. Indemnification. The Borrower shall indemnify, defend and hold harmless the each Agent-Related Person, each of the Lenders and the Issuing Bank (to the fullest extent permitted by law) from and against any and all claims, demands, lawsuits, costs, expenses, fees, obligations, liabilities, losses, damages, recoveries and deficiencies, including interest, penalties and reasonable attorneys' and paralegals' fees and costs and amounts paid in settlement of any of the foregoing, whether direct, indirect, consequential or incidental, that any Agent-Related Person, any Lender or the Issuing Bank may incur or suffer or that may arise out of, result from or relate to (a) this Agreement, the Notes, the Letters of Credit or the other Loan Documents or the transactions contemplated hereby or thereby (excluding actions arising out of the indemnified Person's own gross negligence or willful misconduct and actions arising out of claims made by the Administrative Agent, any Lender or the Issuing Bank against any of the others), or (b) any action under this Agreement, the Notes, the Letters of Credit or the other Loan Documents or the transactions contemplated hereby or thereby (excluding actions arising out of the indemnified Person's own gross negligence or willful misconduct and actions arising out of claims made by the Administrative Agent, any Lender or the Issuing Bank against any of the others). In no event shall any Agent-Related Person, any Lender or the Issuing Bank be liable to the Borrower or any other Credit Party for any matter or thing in connection with this Agreement, the Notes, the Letters of Credit or the other Loan Documents other than to account for monies it actually receives in accordance with the terms hereof. This Section 14.13 shall survive termination of this Agreement. 14.14. Adjustment. If any Lender (a "benefited Lender") at any time shall receive any payment of all or part of its Revolving Loans or its participation in the Letter of Credit Liabilities or the interest thereon or receive any collateral therefor, whether voluntarily or involuntarily, by set-off or otherwise, in an amount proportionately greater than any corresponding payment to or collateral received by any other Lender in respect of such other Lender's Revolving Loans or its participation in the Letter of Credit Liabilities or the interest thereon, such benefited Lender shall purchase for cash from the other Lenders such portion of each Lender's Revolving Loans and participation in the Letter of Credit Liabilities, or shall provide such other Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such benefited Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the Lenders; provided, however, that if all or any portion of such excess payment or benefits thereafter is recovered from such benefited Lender or set aside, such purchase shall be rescinded and the purchase price and benefit returned to the extent of such recovery, but without interest. Each Lender so purchasing a portion of another Lenders' Revolving Loans and participation in the Letter of Credit Liabilities may exercise all rights of payment (including rights of setoff) with respect to such portion as fully as if such Lender were the direct holder of such portion. 14.15. Setoff. In addition to any rights and remedies of the Lenders provided by law, the Lenders each shall have a security interest in any and all deposits of the Borrower (general or special, time or demand, provisional or final) at any time held by any Lender or any Affiliate thereof, which security interest shall secure the Obligations. Upon the occurrence and during the continuance of any Event of Default, with the consent of the Administrative Agent without prior notice to the Borrower or the Guarantors, any notice being specifically waived by the Borrower to the fullest extent permitted by applicable law, each Lender may set off and apply against any indebtedness, whether matured or unmatured, of the Borrower to the Lenders, any amount owing from any Lender or any Affiliate thereof to the Borrower at, or at any time after, the occurrence of an Event of Default (and each Affiliate of any Lender is irrevocably authorized to permit such setoff and application), and the aforesaid right of setoff may be exercised by any Lender against the Borrower or against any trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, receiver or execution, judgment, or attachment creditor of the Borrower, or against anyone else claiming through or against the Borrower or such trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, receiver or execution, judgment or other attachment creditor, notwithstanding the fact that such right of setoff shall not have been exercised by any Lender prior to the making, filing or issuance, or service upon any Lender of, or of notice of, any such petition, assignment for the benefit of creditors, appointment or application for the appointment of a receiver, or issuance of execution, subpoena, order or warrant. Each Lender promptly shall notify the Borrower and the Administrative Agent after any such setoff and application made by any Lender; provided, however, that failure to give such notice shall not affect the validity of such setoff and application. 14.16. Release of Collateral and Guarantee Obligations. (a) Notwithstanding anything to the contrary contained herein or in any other Loan Document, upon request of the Borrower in connection with any Disposition of property permitted by the Loan Documents, the Administrative Agent shall (without notice to or vote or consent of any Lender, or any Affiliate of any Lender that is a party to any Specified Hedge Agreement) take such actions as shall be required to release its security interest in any Collateral being Disposed of in such Disposition, and to release any guarantee obligations of a Person being Disposed of in such Disposition (including the guarantee obligations of any Subsidiary of the Borrower that is the subject of a transaction to which clause (e) of Section 9.3 or clause (c) of Section 9.6 applies), to the extent necessary to permit consummation of such Disposition in accordance with this Agreement and the other Loan Documents; provided that the Borrower shall have delivered to the Administrative Agent, at least five (5) Business Days prior to the date of the proposed release, a written request for release identifying the relevant Collateral being Disposed of in such Disposition and the terms of such Disposition in reasonable detail, including the date thereof, the price thereof and any expenses in connection therewith, together with a certification by the Borrower stating that such transaction is in compliance with this Agreement and the other Loan Documents and that the proceeds of such Disposition will be applied in accordance with this Agreement and the other Loan Documents. (b) If any Capital Stock of a Subsidiary of the Borrower shall be Disposed of in a transaction permitted by clause (e) of Section 9.3 or clause (c) of Section 9.6, such Capital Stock shall be released from the Liens of the Guarantee and Security Agreement automatically and without delivery of any request or instrument or performance of any act by any party, as more particularly set forth in subsection 8.14(c) of the Guarantee and Security Agreement. (c) Notwithstanding anything to the contrary contained herein or any other Loan Document, when all Obligations (other than Obligations in respect of any Specified Hedge Agreement) have been fully and finally paid, all Commitments have terminated or expired and no Letter of Credit shall be outstanding, upon request of the Borrower, the Administrative Agent shall (without notice to or vote or consent of any Lender, or any Affiliate of any Lender that is a party to any Specified Hedge Agreement) take such actions as shall be required to release its security interest in all Collateral, and to release all guarantee obligations provided for in any Loan Document, regardless of whether on the date of such release there may be outstanding Obligations in respect of Specified Hedge Agreements. 14.17. Accounting Changes. If any Accounting Change shall occur and such change results in a change in the method of calculation of financial covenants, standards or terms in this Agreement, then the Borrower and the Administrative Agent agree to enter into negotiations, in good faith, regarding the amendment of the affected provisions of this Agreement to take into account such Accounting Changes in an equitable manner so that the criteria used in this Agreement to evaluate the Borrower's financial condition in substance will be the same after such Accounting Changes as if such Accounting Changes had not occurred. Unless and until an amendment has been approved, executed and delivered by the Borrower, the Administrative Agent and Requisite Lenders, all financial covenants, standards and terms in this Agreement shall continue to be calculated or construed as if such Accounting Changes had not occurred. 14.18. Other Accommodations to the Borrower and its Subsidiaries; No Rights By Virtue of Cross-Collateralization. (a) Each Lender (including the Administrative Agent) may, without notice to or consent by any other Lender, make or participate in loans, extensions of credit or other financial accommodations to or for the benefit of the Borrower or any of its Subsidiaries on any terms that it deems desirable, and engage in other business transactions, in the same manner as if this Agreement were not in existence, all without limiting, waiving or otherwise impairing any rights of such Lender or any other Lender under this Agreement. Without limiting the generality of the foregoing, the Lenders acknowledge and agree that so long as a Lender acts in good faith and the other Lenders' interests in the Obligations and the Collateral are not impaired thereby, (i) such Lender may be preferred or secured in any manner that it deems advisable with respect to such other loans, extensions of credit, financial accommodations and transactions, (ii) such Lender shall be under no obligation to collect or attempt to collect any payments in respect of the Obligations in preference to the collection or enforcement of any other borrowings or obligations of the Borrower or its Subsidiaries to such Lender, and (iii) any amounts collected by such Lender from the Borrower or its Subsidiaries that are not expressly designated (or reasonably determinable to be intended) as being in payment of the Obligations may be applied to any of the obligations of such Person to such Lender in any manner deemed appropriate by such Lender. (b) The Lenders acknowledge and agree that the Collateral constitutes all of the collateral security for the Obligations and that, as among themselves, no Lender shall have any interest in (i) any property or interests of the Borrower or any of its Subsidiaries, other than the Collateral, that now or hereafter secures loans, extensions of credit, other financial accommodations and other transactions (excluding the Obligations), of the Borrower or any of its Subsidiaries with any other Lender, whether entered into directly or acquired by such Lender, (ii) any property of the Borrower or any of its Subsidiaries, other than the Collateral, now or hereafter in the possession or control of any other Lender, (iii) any deposit, not constituting Collateral, now or hereafter held by any other Lender, or (iv) any other indebtedness now or hereafter owing to any other Lender; any of which may be or become security for or otherwise available for payment or performance of the Obligations by reason of any cross-collateralization or any general description of secured indebtedness(es) or obligation(s) contained in any deed of trust, mortgage, security agreement or other security instrument or agreement held by any Lender, or by reason of the right of setoff, counterclaim or otherwise. Notwithstanding the foregoing, if any such property, deposit or indebtedness, or any proceeds thereof, in the discretion of the Lender holding same, is applied to the reduction of the Obligations, then all of the Lenders shall be entitled to their respective Percentages of such application in the manner provided in Sections 3.3 and 14.14. 14.19. Survival of Representations and Warranties. All representations and warranties of the Borrower and the other Credit Parties set forth in this Agreement, the Notes and the other Loan Documents and in any other certificate, opinion or other statement provided at any time by or on behalf of the Borrower and the other Credit Parties in connection herewith shall survive the execution of the delivery of this Agreement, the Notes and the other Loan Documents, the purchase and sale of the Notes hereunder and the payment or other satisfaction of the Obligations. 14.20. Relationship of the Parties. None of the Administrative Agent, the Lenders or the Issuing Bank shall be deemed partners or joint venturers with the Borrower or any of the other Credit Parties or any Affiliate thereof in making this Agreement or by any action taken hereunder. The Borrower shall indemnify, defend and hold harmless each Agent-Related Person, each of the Lenders and the Issuing Bank from and against any and all claims, demands, lawsuits, costs, expenses, fees, obligations, liabilities, losses, damages, recoveries and deficiencies, including interest, penalties and reasonable attorneys' fees and costs, whether direct, indirect, consequential or incidental, that any Agent-Related Person, any Lender or the Issuing Bank may incur or suffer or that may arise out of, result from or relate to such a construction of the parties and their relationship. This Section 14.20 shall survive termination of this Agreement. 14.21. Destruction of Records. Any documents, schedules, invoices or other papers delivered to any Agent-Related Person, any Lender or the Issuing Bank at their option may be destroyed or otherwise disposed of by them six (6) months after they are delivered to or received by them, unless the Borrower requests, in writing, the return of such documents, schedules, invoices or other papers and makes reasonably acceptable arrangements, at the Borrower's expense, for their return. 14.22. Execution in Counterparts; Effectiveness. (a) This Agreement may be executed in multiple counterparts, each of which shall be deemed an original hereof for all purposes, but all of which together shall constitute one and the same document. One or more counterparts of this Agreement may be executed by one or more of the parties hereto, and some different counterparts or copies executed by other parties. Each counterpart hereof executed by any party hereto shall be binding upon the party executing same even though other parties may execute one or more different counterparts, and all counterparts hereof so executed shall constitute but one and the same agreement. Each party hereto, by execution of a counterpart hereof, expressly authorizes and directs any other party hereto to detach the signature pages (and any corresponding acknowledgment pages) thereof from the counterpart hereof executed by the authorizing party and affix same to another identical counterpart hereof such that upon execution of multiple counterparts hereof by all parties hereto, there shall be one counterpart hereof to which is attached the signature pages (and any corresponding acknowledgment pages) containing signatures (and acknowledgments) of all parties hereto. (b) This Agreement shall become effective when (i) the Administrative Agent shall have received counterparts or signature pages executed by the Borrower, the Administrative Agent, the Lenders and the Issuing Bank, or (ii) in the case of any Lender, the Administrative Agent shall have received telecopied notice from such Lender that it has executed a counterpart hereof or signature page hereto and forwarded the same to the Administrative Agent by first class, registered or certified mail as set forth in Section 14.1. A set of the copies of this Agreement or counterparts signed by all of the parties shall be lodged with the Borrower and the Administrative Agent. 14.23. Interest and Loan Charges Not to Exceed Maximum Amounts Allowed by Law. It is the intention of the Borrower and the Lenders to conform strictly to all laws applicable to the Lenders that govern or limit the interest and loan charges that may be charged in respect of the Obligations. Anything in this Agreement, the Notes or any of the other Loan Documents to the contrary notwithstanding, in no event whatsoever, whether by reason of advancement of proceeds of the Loans or the Letters of Credit, acceleration of the maturity of the unpaid balance of any of the Obligations or otherwise, shall the interest and loan charges agreed to be paid to any of the Lenders for the use of the money advanced or to be advanced hereunder exceed the maximum amounts collectible by such Lender pursuant to applicable law. If for any reason whatsoever the interest or loan charges paid or contracted to be paid by the Borrower to any of the Lenders in respect of the Obligations shall exceed the maximum amounts collectible under the law applicable to such Lender, then, in that event, and notwithstanding anything to the contrary in this Agreement, the Notes or any other Loan Document: (a) the aggregate of all consideration that constitutes interest or loan charges under the law applicable to such Lender that is contracted for, taken, reserved, charged or received under this Agreement, the Notes or any other Loan Document or otherwise in connection with the Obligations under no circumstances shall exceed the maximum amounts allowed by such applicable law, and any excess shall be credited by such Lender on the principal amount of the Obligations (or, to the extent the principal amount outstanding under this Agreement, the Notes and the other Loan Documents has been or thereby would be paid in full, refunded to the Borrower); and (b) in the event that the maturity of any or all of the Obligations is accelerated by reason of an election of the Lenders resulting from any Default under this Agreement or otherwise, or in the event of any required or permitted prepayment, then such consideration that constitutes interest or loan charges under the law applicable to any Lender may never include more than the maximum amounts allowed by the law applicable to such Lender, and any excess interest or loan charges provided for in this Agreement or otherwise shall be canceled automatically as of the date of such acceleration or prepayment and, if theretofore paid, shall be credited by such Lender on the principal amount of the Obligations (or, to the extent the principal amount of the Obligations has been or thereby would be paid in full, refunded by such Lender to the Borrower). All sums paid or agreed to be paid to the Lenders for the use, forbearance or detention of sums due hereunder shall, to the extent permitted by applicable law, be prorated, allocated and spread throughout the full term of the Obligations until payment in full so that the rate or amount of interest and loan charges on account of the Obligations will not exceed any applicable legal limitation. The right to accelerate the maturity of the Obligations does not include the right to accelerate the maturity of any interest or loan charges not otherwise accrued on the date of such acceleration, and the Lenders do not intend to charge or collect any unearned interest or loan charges in the event of any such acceleration. 14.24. Final Agreement. This written agreement represents the final agreement between the parties and may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements of the parties. There are no unwritten oral agreements between the parties. [SIGNATURES BEGIN NEXT PAGE] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date first written above. BORROWER: SYMBION, INC. a Delaware corporation By: /s/ Kenneth C. Mitchell --------------------------------------------- Kenneth C. Mitchell, Vice President - Finance and Chief Financial Officer [ADMINISTRATIVE AGENT'S AND LENDERS' SIGNATURE PAGES FOLLOW] [Administrative Agent's Signature Page to $110,000,000 Symbion, Inc. Credit Agreement dated July 18, 2003] BANK OF AMERICA, N.A., as Administrative Agent By: /s/ Kristine Thennes ---------------------------------- Name: Kristine Thennes Title: Vice President Agency Management (IL1-231-08-30) 231 South LaSalle Street Chicago, Illinois 60604 Attn: Kristine Thennes Facsimile No. (877) 206-8412 [Lender's Signature Page to $110,000,000 Symbion, Inc. Credit Agreement dated July 18, 2003] BANK OF AMERICA, N.A., as a Lender and as Issuing Bank By: /s/ Elizabeth L. Knox ---------------------------------- Name: Elizabeth L. Knox Title: SVP Healthcare Banking Group (TN1-100-04-17) Bank of America Plaza 414 Union Street Nashville, Tennessee 37239-1697 Attn: Elizabeth L. Knox Facsimile No. (615) 749-4951 Commitment: $ 25,000,000 [Lender's Signature Page to $110,000,000 Symbion, Inc. Credit Agreement dated July 18, 2003] CREDIT SUISSE FIRST BOSTON, acting through its Cayman Islands Branch, as a Lender and as Syndication Agent By: /s/ Christopher Lally ----------------------------------------- Name: Christopher Lally Title: Vice President By: /s/ Jennifer A. Pieza ----------------------------------------- Name: Jennifer A. Pieza Title: Associate Eleven Madison Avenue New York, New York 10010 Attn: Ed Markowski Facsimile No. (212) 538-6851 Commitment: $ 20,000,000 [Lender's Signature Page to $110,000,000 Symbion, Inc. Credit Agreement dated July 18, 2003] KEY CORPORATE CAPITAL INC., as a Lender and as Documentation Agent By: /s/ Christopher A. Swindell ----------------------------------------- Name: Christopher A. Swindell Title: Portfolio Manager 4910 Tiedeman Road Brooklyn, Ohio 44144 Attn: Jennifer Butler Facsimile No. (216) 813-7511 Commitment: $ 20,000,000 [Lender's Signature Page to $110,000,000 Symbion, Inc. Credit Agreement dated July 18, 2003] LASALLE BANK NATIONAL ASSOCIATION, as a Lender By: /s/ Sarah Rusher ---------------------------------------- Name: Sarah Rusher Title: First Vice President 135 South LaSalle Street Chicago, Illinois 60603 Attn: Shirley Honesty Facsimile No. (312) 904-6373 Commitment: $ 15,000,000 [Lender's Signature Page to $110,000,000 Symbion, Inc. Credit Agreement dated July 18, 2003] U.S. BANK, NATIONAL ASSOCIATION, as a Lender By: /s/ S.W. Choppin ---------------------------------------- Name: S.W. Choppin Title: SVP 1850 Osborn Avenue Oshkosh, Wisconsin 54902 Attn: Connie Sweeney Facsimile No. (920) 237-7993 Commitment: $ 15,000,000 [Lender's Signature Page to $110,000,000 Symbion, Inc. Credit Agreement dated July 18, 2003] FIFTH THIRD BANK, as a Lender By: /s/ Sandy Hamrick ---------------------------------------- Name: Sandy Hamrick Title: Vice President Building 4, Suite 160 810 Crescent Centre Drive Franklin, Tennessee 37067 Attn: Jennifer Jannetty Facsimile No. (615) 771-5885 Commitment: $ 10,000,000 [Lender's Signature Page to $110,000,000 Symbion, Inc. Credit Agreement dated July 18, 2003] RAYMOND JAMES BANK, FSB, as a Lender By: /s/ William C. Beiler ---------------------------- Name: William C. Beiler Title: Executive Vice President 710 Carillon Parkway St. Petersburg, Florida 33716 Attn: Cheryl Buchanan Facsimile No. (727) 567-8519 Commitment: $ 5,000,000 SCHEDULES AND EXHIBITS SCHEDULES Schedule 6.1.1A Collateral Real Estate Interests Schedule 7.1 Borrower and Affiliated Entities - Capitalization and Jurisdictions of Organization and Foreign Qualification Schedule 7.3 Consents, Approvals and Authorizations Schedule 7.6 Pending Litigation Schedule 7.17A Indebtedness Schedule 7.17B Contingent Obligations Schedule 7.18A Business Locations Schedule 7.18B Trade Names Schedule 7.26 Employment Agreements and Executive Compensation Arrangements Schedule 7.27 Environmental Matters Schedule 7.28 Material Contracts Schedule 7.30 Operating Leases Schedule 8.20 Post-Closing Matters Schedule 9.2 Existing Liens Schedule 9.4 Existing Investments and Scheduled Acquisitions EXHIBITS Exhibit 1.1A Form of Compliance Certificate Exhibit 1.1B Subordination Provisions Exhibit 2.2.4 Form of Notice of Borrowing Exhibit 2.4.2 Form of Letter of Credit Request Exhibit 2.8.2 Form of Notice of Conversion/Continuation Exhibit 2.9A Form of Revolving Note Exhibit 2.9B Form of Swingline Note Exhibit 4.1 Form of Guarantee and Security Agreement Exhibit 6.1.1B Form of Opinion of Counsel to the Borrower and the Subsidiary Guarantors Exhibit 6.1.1C Form of Solvency Certificate Exhibit 13.2 Form of Assignment and Assumption EX-23.1 11 g85742s1exv23w1.txt EX-23.1 CONSENT OF ERNST & YOUNG LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of (1) our report dated March 6, 2003, with respect to the consolidated financial statements of Symbion, Inc., and (2) our report dated June 28, 2002, with respect to the consolidated financial statements of Physicians Surgical Care, Inc., in the Registration Statement (Form S-1) and related Prospectus of Symbion, Inc. for the registration of its common stock. 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M`+TC$FI'W!M%_"DU(U`-8"-0Q]KMR`^8T4S1TNRV@PP?.]D7SHUF.T4J:ZXK M!R_0[&`+&^1%FF[ZT+=/9:.2RC#C@/\G1N@)K;^\M..E.:+;<'-&OU<-D^RY ML&2@6:`+W=*?(/H:E]RRO`XAM0FH-Y\,`@V0$+CJ5K=Z03\"^"MPW=7X&>XO MIR3FHUQBC%*:.,3+3GO^>!'PXCQ[P\?^@C?K==A%6EX0\5-W4@0VI0V`,2R7 M37QNBE;:=@09S*V,%U(<&IZ.%S?.PS*6Q&-;\YN<4 MY6>`GNH0.0[I^V3ZUZ0>PC$E^R]/,((S8X#%,=P%*-S"!>`(2)S9N9W9T=[9 MP<#IJ='8P0`RD%_'B9B8I,>K#-/Y;-F`P5[E<)#]D((^>8(=P4'<,,)X&=TZ MJ`'P'-Z/E1O_X;Q!>J5;Y,%,NQ&?-SA>:@W!YG%>YW6>(X">H!C'<8!(EKW& MKA!4V7D1?^R:ZS%<[9$=Q?1>P]6-WKC0%>``%>#`%E;@A\F1W`&,S!C8\=T' M*:24:`42LQ7;*5`.(FP`'.#%S6C;H"3!"C((R/"5>M$#%QS5]\G@&@S5X^F8 MD9E8B1#=JV!46T0,I]T84V"#^SW=$<#?@,E?$;;'7*3:`G2`IUS,8S5")`1` M`];-V`D![]E>*IX`#$S@#-#>!*9).^"-#FSA#*1)%\;B%W(#^84A!F[8RZ!4 M&=89)TP7)N31\]B6]"4"!,#!Y(U.2=QA]I57&_"A@,`@/TQ2X@T._R&&@2&N M&PXBES?,0,1XB%(P@`]*8JA-HB-1&1%"V",@1R10GO!5P81@G0`$F]D-7!@Q MX0NT(@R8P`N,DV3LABQF#RW:XA;BHN%]D%ZU3*>L&4!EU\C5F?(LV"B9UC$V M"S/"@R,2@2MA7XY-X_;-BQ^2&S_LG#:"$C?J`Z5%7KLU&'Z,8W^=H\K\U],U ME/TH#OT982CDS"JH2A)17;E(('ED;0MHQS:H>)$HTA*P1[B(QFTE_>!14KFAOA]CTL* M'4P.UP;-I.;I03K>VR,TS[YI`D^FFBB((__V7,T&<`\D!$#MU,Z-I,Z[>$=D M2B8)P$[L0`WLQ$!E4L8#[43NY$X,Y)!5"A^5%1.=$5.-G9AAC8XWE.!8PD,3 M;4NV,5U(,L@:J&75=!\;J&04P"6$6$#WD9\W#I%=;I00Y&56>5K[_1>`>2"X MT(P17MTFT@I0=LP]/N:[8"=V2F9D9B?5N`YCELYFJ0/VB0E(L<"B%`4G6/]#68D2*@A88\,")3I=.>'WHB-="=XDBA.C"


Delaware	8011	62-1625480
(State or other jurisdiction of incorporation or organization)	(Primary standard industrial classification code number)	(I.R.S. Employer Identification No.)






		Proposed Maximum	Proposed Maximum
Title of Each Class of	Amount To Be	Offering Price	Aggregate	Amount of
Securities to be Registered	Registered	Per Unit	Offering Price(1)	Registration Fee(3)


Common Stock, $0.01 par value(2)	—	—	$115,000,000	$9,304


Premier Surgery Center Brunswick, Georgia		NorthStar Surgical Center Lubbock, Texas


Dry Creek Surgery Center Denver, Colorado		Deland Surgery Center Deland, Florida



			As of September 30, 2003

			Actual			As Adjusted


			(unaudited)
			(dollars in thousands)
Cash and cash equivalents			$	16,633		$

Current portion of long-term debt			$	4,410		$
Long-term debt:
	Senior debt			40,755
	Senior subordinated notes			15,106
	Convertible debentures			3,071

Total debt				63,342

Stockholders’ equity:
	Preferred stock, $0.01 par value; 16,946,316 shares authorized, actual; 10,000,000 shares authorized, as adjusted:
		Series A convertible preferred stock, 4,341,726 shares designated, issued and outstanding, actual; and no shares designated, issued or outstanding, as adjusted		13,590
		Series B convertible preferred stock, 2,604,590 shares designated, issued and outstanding, actual; and no shares designated, issued or outstanding, as adjusted		8,152
	Common stock, $0.01 par value; 225,000,000 shares authorized, 47,020,211 shares issued and outstanding, actual; and shares issued and outstanding, as adjusted			470
	Additional paid-in capital			61,333
	Stockholder notes receivable			(319	)
	Retained earnings			13,520

Total stockholders’ equity				96,746

Total capitalization			$	160,088		$



		Per Share

Assumed initial public offering price				$
	Actual net tangible book value at September 30, 2003		0.34
	Increase attributable to subordinated convertible debentures and preferred stock conversion		0.01

	Pro forma net tangible book value before this offering		0.35
	Increase attributable to new investors
Pro forma net tangible book value after this offering

Dilution per share to new investors(1)				$


Donald R. Moody, Esq. Waller Lansden Dortch & Davis, A Professional Limited Liability Company 511 Union Street, Suite 2100 Nashville, Tennessee 37219 (615) 244-6380		Morton A. Pierce, Esq. Dewey Ballantine LLP 1301 Avenue of the Americas New York, New York 10019 (212) 259-8000


	Page

PROSPECTUS SUMMARY		1
RISK FACTORS		9
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS		23
USE OF PROCEEDS		24
DIVIDEND POLICY		25
CAPITALIZATION		26
DILUTION		27
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA		29
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS		31
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		34
BUSINESS		51
GOVERNMENT REGULATION		62
MANAGEMENT		73
RELATED PARTY TRANSACTIONS		79
PRINCIPAL STOCKHOLDERS		80
DESCRIPTION OF INDEBTEDNESS		82
DESCRIPTION OF CAPITAL STOCK		85
SHARES ELIGIBLE FOR FUTURE SALE		92
MATERIAL U.S. FEDERAL INCOME AND ESTATE TAX CONSIDERATIONS FOR NON-U.S. HOLDERS		94
UNDERWRITING		98
LEGAL MATTERS		102
EXPERTS		102
WHERE YOU CAN FIND MORE INFORMATION		102
INDEX TO FINANCIAL STATEMENTS		F-1


	•	assumes no exercise of the over-allotment option granted to the underwriters;

	•	reflects the automatic conversion of shares of our Series A convertible preferred stock and Series B convertible preferred stock into shares of our common stock upon completion of this offering and payment of all amounts due on conversion;

	•	reflects the automatic conversion of our subordinated convertible debentures into 981,157 shares of our common stock upon completion of this offering; and

	•	gives effect to a 1-for- reverse stock split of our common stock to be effected prior to the completion of this offering.


	•	5,616,512 shares of common stock issuable upon the exercise of outstanding stock options granted by us with exercise prices ranging from $0.1222 to $3.13 per share and a weighted average exercise price of $2.43 per share;

	•	2,178,445 shares of common stock issuable upon the exercise of outstanding warrants issued by us with exercise prices ranging from $0.1223 to $6.03 per share and a weighted average exercise price of $1.97 per share;


	•	4,208,604 shares reserved for issuance under our stock option plans and employee stock purchase plan; and

	•	up to 2,189,887 shares of our common stock issuable to the former stockholders of Physicians Surgical Care, Inc., which we acquired in April 2002, based on the financial results of one of the Physicians Surgical Care surgery centers during 2003.


	•	the sale of shares of our common stock in this offering at an assumed initial public offering price of $ per share, after deducting the estimated underwriting discounts and commissions and our estimated offering expenses and the application of the estimated net proceeds as described in “Use of Proceeds”;

	•	the conversion of our Series A convertible preferred stock and Series B convertible preferred stock into shares of our common stock and the payment of all amounts due on conversion upon consummation of this offering; and

	•	the conversion of our subordinated convertible debentures into shares of our common stock upon consummation of this offering.


	(3)	Includes surgery centers that we manage but in which we do not have an ownership interest.
	(4)	Upon the completion of this offering, we anticipate that we will record additional purchase price adjustments to goodwill of $31.8 million. In connection with our merger with Physicians Surgical Care, we issued shares of Series A convertible preferred stock and Series B convertible preferred stock, as discussed in Note 3 to our consolidated financial statements. The Series A convertible preferred stock and Series B convertible preferred stock will automatically convert into shares of our common stock and the right to a cash payment upon completion of this offering. When converted, each share of Series A convertible preferred stock and Series B convertible preferred stock will entitle the holder to receive one share of our common stock and a cash payment of $4.20 for the Series A holders and $5.22 for the Series B holders, for a total cash payment of $31.8 million. This amount will be reflected as additional purchase price and recorded as an addition to goodwill.


(1)	If the underwriters’ over-allotment option is exercised in full, dilution per share to new investors will be $ .



					Total
	Shares Purchased				Consideration
									Average
	Number		Percent		Amount		Percent		Price Per Share


	(dollars in thousands, except per share amounts)
Existing common stockholders		47,020,211		%	$	61,484		%	$	1.31
Existing holders of preferred stock and subordinated convertible debentures upon conversion		7,927,473				24,813				3.13
New investors(1)

Total				100.0%	$			100.0%



																	Nine Months
		Years Ended December 31,															Ended September 30,

		1998(1)			1999(1)			2000			2001			2002			2002			2003


																	(unaudited)

		(dollars in thousands, except per share amounts)
Consolidated Statement Of Operations Data:
Revenues		$	5,656		$	58,120		$	126,942		$	104,704		$	144,688		$	102,776		$	128,797
Operating expenses(2)			7,745			57,415			115,430			89,437			112,322			80,263			98,859
Depreciation and amortization			353			3,351			7,503			7,743			7,836			5,655			6,854
Impairment and loss on disposal of long-lived assets			—			—			6,043			385			492			492			162
Gain on sale of long-lived assets			—			—			—			(2,346	)		(457	)		(457	)		(162	)

Operating income (loss)			(2,442	)		(2,646	)		(2,034	)		9,485			24,495			16,823			23,084
Minority interests in (income) loss of consolidated subsidiaries			124			647			526			(1,909	)		(7,353	)		(4,865	)		(7,749	)
Interest expense, net			(17	)		(1,189	)		(3,234	)		(2,600	)		(4,625	)		(3,541	)		(4,058	)

Income (loss) before income taxes			(2,335	)		(3,188	)		(4,742	)		4,976			12,517			8,417			11,277
Income taxes			—			72			135			287			215			162			959

Net income (loss)		$	(2,335	)	$	(3,260	)	$	(4,877	)	$	4,689		$	12,302		$	8,255		$	10,318

Net income (loss) per share:
	Basic	$	(1.75	)	$	(0.14	)	$	(0.11	)	$	0.11		$	0.27		$	0.18		$	0.22
	Diluted	$	(1.75	)	$	(0.14	)	$	(0.11	)	$	0.10		$	0.23		$	0.16		$	0.18
Weighted average number of common shares outstanding and common equivalent shares:
	Basic		1,336,218			22,982,064			43,914,680			43,897,395			45,851,695			45,617,685			46,660,203
	Diluted		1,336,218			22,982,064			43,914,680			45,814,112			53,802,184			52,957,151			56,107,222


Banc of America Securities LLC	Merrill Lynch & Co.


Jefferies & Company, Inc.	Raymond James



	As of December 31,
							As of
	2000		2001		2002		September 30, 2003

							(unaudited)

	(in thousands)
Consolidated Balance Sheet Data:
Working capital	$	35,347	$	21,706	$	24,839	$	20,282
Total assets		103,759		100,799		188,888		198,939
Total long-term debt, less current maturities		47,986		39,983		60,909		58,932
Total stockholders’ equity		37,127		41,610		86,677		96,746


							Physicians
							Surgical			Pro Forma
				Symbion			Care(a)			Adjustments			Pro Forma


				(dollars in thousands, except per share data)
Revenues				$	144,688		$	12,303		$	—		$	156,991
Operating expenses:
	Salaries and benefits				37,541			3,051			—			40,592
	Supplies				28,338			2,212			—			30,550
	Professional and medical fees				7,356			139			—			7,495
	Rent and lease expense				9,146			799			—			9,945
	Other operating expenses				11,311			2,032			—			13,343

		Cost of revenues			93,692			8,233			—			101,925
	General and administrative expense				14,328			1,049			—			15,377
	Depreciation and amortization				7,836			823			—			8,659
	Provision for doubtful accounts				4,843			422			—			5,265
	Income on equity investments				(541	)		—			—			(541	)
	Impairment and loss on disposal of long-lived assets				492			—			—			492
	Gain on sale of long-lived assets				(457	)		—			—			(457	)

			Total operating expenses		120,193			10,527			—			130,720

Income before minority interests and interest					24,495			1,776			—			26,271
Minority interests in (income) loss of consolidated subsidiaries					(7,353	)		(820	)		164 (b	)		(8,009	)
Interest expense, net					(4,625	)		(1,055	)		(41	)(c)		(5,721	)

Income (loss) before income taxes					12,517			(99	)		123			12,541
Income taxes					215			—			25 (d	)		240

Net income (loss)				$	12,302		$	(99	)	$	98		$	12,301

Net income per share:
	Basic			$	0.27								$	0.26
	Diluted			$	0.23								$	0.22
Weighted average number of common shares outstanding and common equivalent shares:
	Basic				45,851,695									46,475,119
	Diluted				53,802,184									56,296,976


(a)		Represents the unaudited statement of operations of Physicians Surgical Care, Inc. for the three months ended March 31, 2002.


		Twelve Months
		Ended
		December 31, 2002

(b)	Represents the pro forma adjustments to minority interests to record the reduction in minority interest related to our purchase of additional ownership interests in five existing Physicians Surgical Care centers concurrently with our acquisition of Physicians Surgical Care	$	164

(c)	Represents the pro forma adjustments to interest expense to record interest incurred related to the notes payable and convertible debentures issued to purchase additional ownership interests in five existing Physicians Surgical Care entities concurrently with our acquisition of Physicians Surgical Care. Incurred debt totaled $595 of notes payable and $3,171 of convertible debentures, at an annual interest rate of 6% and 4%, respectively	$	(41	)

(d)	Represents the pro forma adjustments to income taxes to record the state income tax effect from pro forma adjustments related to our acquisitions and sale of physician network assets. We have not reflected a federal income tax impact because we have sufficient net operating loss carryforwards to offset federal income taxes	$	25



										Nine
										Months Ended
	Years Ended December 31,									September 30,

	2000			2001			2002			2002			2003


										(unaudited)
Revenues		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Operating expenses(1)		95.7			83.5			77.7			78.1			76.8

EBITDA(2)		4.3			16.5			22.3			21.9			23.2
Minority interests in (income) loss of consolidated subsidiaries		0.4			(1.9	)		(5.0	)		(4.8	)		(6.0	)

EBITDA less minority interests(2)		4.7			14.6			17.3			17.1			17.2
Depreciation and amortization		5.9			7.4			5.4			5.5			5.3
Interest expense, net		(2.5	)		(2.4	)		(3.2	)		(3.4	)		(3.1	)

Income (loss) before income taxes		(3.7	)		4.8			8.7			8.2			8.8
Income taxes		0.1			0.3			0.2			0.2			0.8

Net income (loss)		(3.8	)%		4.5	%		8.5	%		8.0	%		8.0	%



				2002												2003

				First			Second			Third			Fourth			First			Second			Third
				Quarter			Quarter			Quarter			Quarter			Quarter			Quarter			Quarter


				(dollars in thousands)
				(unaudited)
Consolidated Statement of Operations Data:
Revenues				$	25,293		$	39,357		$	38,126		$	41,912		$	41,455		$	44,053		$	43,289
Operating expenses:
	Salaries and benefits				6,716			9,921			9,949			10,955			10,902			11,326			11,740
	Supplies				5,100			7,765			7,474			7,999			7,619			8,590			8,937
	Professional and medical fees				1,116			2,050			2,044			2,146			2,125			2,362			2,553
	Rent and lease expense				1,665			2,525			2,502			2,454			2,661			2,665			2,686
	Other operating expenses				2,280			2,977			3,235			2,819			3,283			3,519			4,434

		Cost of revenues			16,877			25,238			25,204			26,373			26,590			28,462			30,350
	General and administrative expenses				3,016			3,848			3,562			3,902			3,911			4,178			3,718
	Depreciation and amortization				1,558			2,140			1,957			2,181			2,239			2,273			2,342
	Provision for doubtful accounts				679			1,060			1,334			1,770			400			670			756
	Loss (income) on equity investments				(72	)		(303	)		(180	)		14			(103	)		(55	)		(18	)
	Impairment and loss on disposal of long-lived assets				—			112			380			—			—			—			162
	Gain on sale of long-lived assets				(351	)		(106	)		—			—			—			—			(162	)

			Total operating expenses		21,707			31,989			32,257			34,240			33,037			35,528			37,148
Operating income					3,586			7,368			5,869			7,672			8,418			8,525			6,141
Minority interests in income of consolidated subsidiaries					(985	)		(2,352	)		(1,528	)		(2,488	)		(2,894	)		(3,036	)		(1,819	)
Interest expense, net					(724	)		(1,254	)		(1,563	)		(1,084	)		(959	)		(1,138	)		(1,961	)

Income before income taxes					1,877			3,762			2,778			4,100			4,565			4,351			2,361
Income taxes					54			54			54			53			184			320			455

Net income				$	1,823		$	3,708		$	2,724		$	4,047		$	4,381		$	4,031		$	1,906

Other Data:
EBITDA(1)				$	5,144		$	9,508		$	7,826		$	9,853		$	10,657		$	10,798		$	8,483
EBITDA less minority interests (1)				$	4,159		$	7,156		$	6,298		$	7,365		$	7,763		$	7,762		$	6,664
Number of surgery centers operated as of the end of period(2)					27			33			32			34			34			35			37



		Payments Due by Period

				Less than						After 5
Contractual Obligations		Total		1 Year		1-3 Years		4-5 Years		Years


		(dollars in thousands)
Long-term debt (including interest expense)(1)		$	65,675	$	8,286	$	47,838	$	7,428	$	2,123
Capital lease obligations			7,834		2,527		3,482		1,825		—
Operating leases			94,150		8,565		16,238		15,803		53,544
Other long-term obligations (2)			—		—		—		—		—

	Total	$	167,659	$	19,378	$	67,558	$	25,056	$	55,667



		Amount of Commitment Expiration Per Period

		Total
Other Commercial Commitments		Amounts		Less than						After 5
Related to Unconsolidated Entities		Committed		1 Year		1-3 Years		4-5 Years		Years


		(dollars in thousands)
Long-term debt guarantees(1)		$	600	$	—	$	—	$	—	$	600
Operating lease guarantees			1,775		241		504		535		495

	Total	$	2,375	$	241	$	504	$	535	$	1,095


			Number of			Symbion
			Operating		Number of	Percentage
Facility		City	Rooms		Treatment Rooms	Ownership

Colorado
	Dry Creek Surgery Center	Denver		4	2		51	%(1)
Florida
	Deland Surgery Center	Deland		3	2		78	%(1)
	Diagnostic Clinic Center for Outpatient Surgery	Largo		4	3		51	%(1)
	Jacksonville Beach Surgery Center	Jacksonville		3	2		86	%(1)
	Lee Island Coast Surgery Center	Fort Myers		5	3		51	%(1)
	Orlando Surgery Center	Orlando		5	1 minor procedure room		56	%(1)
	Tampa Bay Regional Surgery Center	Largo		1	2		51	%(1)
	The Surgery Center of Ocala	Ocala		4	2		51	%(1)
Georgia
	Premier Surgery Center	Brunswick		3	1		51	%(1)
Indiana
	Vincennes Surgery Center	Vincennes		2	—		51	%(1)
Kansas
	Heartland Specialty Surgical Hospital(2)	Kansas City		7	19 hospital rooms		—	(3)
Kentucky
	DuPont Surgery Center	Louisville		5	—		62	%(1)
Louisiana
	Greater New Orleans Surgery Center	Metairie		2	—		30	%(1)
	Physicians Surgical Specialty Hospital(2)	Houma		4	4		56	%(1)
					10 hospital rooms
Massachusetts
	Worcester Surgery Center	Worcester		4	1 minor procedure room		77	%(1)
	Worcester ENT	Worcester		1	—		70	%(1)
Missouri
	Central Missouri Medical Park Surgical Center	Jefferson City		4	2		58	%(1)
Mississippi
	Physicians Outpatient Center	Oxford		4	2		—	(3)
New York
	South Shore Ambulatory Surgery Center	Lynbrook		3	1		—	(4)
North Carolina
	Orthopaedic Surgery Center of Asheville	Asheville		3	—		63	%(1)
	Wilmington SurgCare	Wilmington		6	4 minor procedure rooms		100	%(1)
Ohio
	Physicians Ambulatory Surgery Center	Circleville		2	4		76	%(1)
Oklahoma
	Lakeside Women’s Hospital(2)	Oklahoma City		3	14 hospital rooms		49	%
	Surgery Center of Edmond	Edmond		4	—		41	%(1)
Pennsylvania
	Village SurgiCenter	Erie		5	1		82	%(1)
Tennessee
	Baptist Germantown Surgery Center	Memphis		6	1		—	(3)
					3 overnight rooms
	Cool Springs Surgery Center	Franklin		3	1 overnight room		42	%
	East Memphis Surgery Center	Memphis		6	1		—	(3)
					4 overnight rooms
	Midtown Surgery Center	Memphis		6	—		—	(3)
	Union City Center	Union City		2	1		—	(3)



		Year Ended						Nine Months Ended
		December 31, 2002						September 30, 2003

Specialty		Historical			Pro Forma(1)			Historical

Ear, nose and throat			8	%		8	%		8	%
Gastrointestinal			18			18			16
General surgery			6			6			6
Obstetrics/gynecology			4			4			4
Ophthalmology			15			15			14
Orthopedic			18			18			20
Pain management			17			17			17
Plastic surgery			4			4			4
Other			10			10			11

	Total		100	%		100	%		100	%


Name	Age		Position

Richard E. Francis, Jr.		49	Chairman of the Board, Chief Executive Officer and Director
Clifford G. Adlerz		49	President, Chief Operating Officer and Director
William V. B. Webb		51	Chief Development Officer and Director
Kenneth C. Mitchell		53	Chief Financial Officer and Senior Vice President of Finance
R. Dale Kennedy		56	Senior Vice President of Management Services and Secretary
Frederick L. Bryant(1)		49	Director
Donald W. Burton(2)		59	Director
Eve M. Kurtin(2)		50	Director
Charles N. Martin, Jr.(1)		60	Director
Jack Tyrrell(2)		56	Director
David M. Wilds(1)		63	Director


								Long-Term
								Compensation
				Annual
				Compensation(1)				Securities
								Underlying
Name and Principal Position		Year		Salary($)		Bonus($)		Options (#)

Richard E. Francis, Jr.			2002	$	302,490	$	295,261		600,000
	Chairman of the Board and Chief Executive Officer
Clifford G. Adlerz			2002		242,098		234,869		480,000
	President and Chief Operating Officer
William V. B. Webb			2002		220,680		53,363		200,000
	Chief Development Officer
Kenneth C. Mitchell			2002		180,796		52,271		110,000
	Chief Financial Officer and Senior Vice President of Finance
R. Dale Kennedy			2002		181,367		52,241		110,000
	Senior Vice President of Management Services and Secretary



	Individual Grants

	Number of								Potential Realizable Value
	Securities		Percent of						at Assumed Annual Rates of
	Underlying		Total Options						Stock Price Appreciation for
	Options		Granted to		Exercise or				Option Term(1)
	Granted		Employees in		Base Price		Expiration
Name	(#)(2)		Fiscal Year		($/Sh)		Date		5%($)		10%($)

Richard E. Francis, Jr.		600,000		19.8%	$	3.13		5/16/12	$	1,181,054	$	2,993,048
Clifford G. Adlerz		480,000		15.8		3.13		5/16/12		944,851		2,394,439
William V.B. Webb		200,000		6.6		3.13		5/16/12		393,638		997,683
Kenneth C. Mitchell		110,000		3.6		3.13		5/16/12		216,528		548,726
R. Dale Kennedy		110,000		3.6		3.13		5/16/12		216,528		548,726



					Number of				Value of
					Securities Underlying				Unexercised
					Unexercised Options				In-the Money Options
					at Fiscal Year-End				at Fiscal Year-End(1)
	Shares Acquired on		Value
Name	Exercise(#)		Realized($)		Exercisable		Unexercisable		Exercisable	Unexercisable

Richard E. Francis, Jr.		—		—		120,000		640,000	$	$
Clifford G. Adlerz		—		—		105,000		515,000
William V. B. Webb		—		—		683,586		225,000
Kenneth C. Mitchell		—		—		45,000		125,000
R. Dale Kennedy		—		—		52,500		127,500



			Percent of
			Common Stock
			Beneficially Owned

	Shares		Before			After
	Beneficially		the			the
Name of Beneficial Owner	Owned		Offering			Offering

Richard E. Francis, Jr.(1)(2)		2,198,565		4.0	%		%
Clifford G. Adlerz(2)(3)		1,193,393		2.2
William V. B. Webb(2)(4)		1,264,403		2.3
Kenneth C. Mitchell(2)(5)		466,808		*
R. Dale Kennedy(2)(6)		334,744		*
Frederick L. Bryant(7)(8)		6,546,463		11.9
Donald W. Burton(9)(10)		4,498,755		8.2
Eve M. Kurtin(11)(12)		4,459,360		8.1
Charles N. Martin, Jr.(13)		4,029,362		7.3
Jack Tyrrell(14)(15)		6,322,558		11.5
David M. Wilds(16)		1,964,806		3.6
Pacific Venture Group, LP(12)		4,221,450		7.7
ABS Capital Partners, L.P.(8)		6,506,463		11.8
Richland Ventures II, L.P.(15)		3,091,069		5.6
Richland Ventures III, L.P.(15)		3,191,489		5.8
South Atlantic Private Equity Fund IV, Limited Partnership(10)		1,757,708		3.2
South Atlantic Private Equity Fund IV (QP), Limited Partnership(10)		2,427,321		4.4
J.H. Whitney III, L.P.(17)		5,851,459		10.6
J.H. Whitney IV, L.P.(17)		906,405		1.6
Whitney Strategic Partners III, L.P.(17)		140,983		*
All directors and executive officers as a group (11 persons)(18)		33,297,217		59.1	%		%


	Number of
	Shares
Days After the Effective Date	Eligible For Sale	Comment

Upon effectiveness			Shares not locked up and eligible for
			sale under Rule 144(k)
90 days			Shares not locked up and eligible for
			sale under Rule 144 or Rule 701
180 days			Lock-up released; shares eligible
			for sale under Rule 144 or Rule 701


		Number
Underwriter		of Shares

Credit Suisse First Boston LLC
Banc of America Securities LLC
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Jefferies & Company, Inc.
Raymond James & Associates, Inc.


	Total


	Page

Symbion, Inc.:
Report of Independent Auditors		F-2
Consolidated Balance Sheets as of December 31, 2001 and 2002 and as of September 30, 2003 (unaudited)		F-3
Consolidated Statements of Operations for the years ended December 31, 2000, 2001 and 2002, and for the nine months ended September 30, 2002 and 2003 (unaudited)		F-4
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2000, 2001 and 2002, and for the nine months ended September 30, 2003 (unaudited)		F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2000, 2001 and 2002, and for the nine months ended September 30, 2002 and 2003 (unaudited)		F-6
Notes to Consolidated Financial Statements		F-8

Physicians Surgical Care, Inc.:
Report of Independent Auditors		F-31
Consolidated Balance Sheets as of December 31, 2001, and as of March 31, 2002 (unaudited)		F-32
Consolidated Statements of Operations for the years ended December 31, 2000 and 2001, and for the three months ended March 31, 2001 and 2002 (unaudited)		F-33
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2000 and 2001, and for the three months ended March 31, 2002 (unaudited)		F-34
Consolidated Statements of Cash Flows for the years ended December 31, 2000 and 2001, and for the three months ended March 31, 2001 and 2002 (unaudited)		F-35
Notes to Consolidated Financial Statements		F-36



			December 31,
									September 30,
			2001			2002			2003

									(unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	15,235		$	20,648		$	16,633
	Restricted cash			500			1,000			—
	Accounts receivable, less allowance for doubtful accounts of $4,778, $11,632 and $11,005 at December 31, 2001, December 31, 2002 and September 30, 2003 (unaudited), respectively			9,334			18,732			17,443
	Inventories			2,149			4,350			5,003
	Prepaid expenses and other current assets			1,621			5,163			5,161
	Net assets held for sale			4,585			—			—

Total current assets				33,424			49,893			44,240
Property and equipment:
	Land			1,174			1,420			1,206
	Buildings and improvements			14,045			23,372			27,298
	Furniture and equipment			23,756			38,537			44,541
	Computers and software			4,804			5,595			6,693

				43,779			68,924			79,738
Less accumulated depreciation				(10,939	)		(17,855	)		(23,448	)

Property and equipment, net				32,840			51,069			56,290
Goodwill				31,641			77,942			79,579
Other intangible assets, net				1,164			1,093			1,039
Investments in and advances to affiliates				710			5,490			11,941
Other assets				1,020			3,401			5,850

Total assets			$	100,799		$	188,888		$	198,939

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	1,850		$	3,996		$	4,470
	Accrued payroll and benefits			3,060			4,741			6,550
	Other accrued expenses			4,073			7,699			8,528
	Current maturities of long-term debt			2,735			8,618			4,410

Total current liabilities				11,718			25,054			23,958
Long-term debt, less current maturities				39,983			57,738			55,861
Other liabilities				173			1,154			3,495
Convertible debentures				—			3,171			3,071
Minority interests				7,315			15,094			15,808
Stockholders’ equity:
	Preferred stock, $0.01 par value; no shares authorized at December 31, 2001 and 16,946,316 shares authorized at December 31, 2002 and September 30, 2003 (unaudited):
		Series A convertible preferred stock, 4,341,726 shares designated, issued and outstanding at December 31, 2002 and at September 30, 2003 (unaudited)		—			13,590			13,590
		Series B convertible preferred stock, 2,604,590 shares designated, issued and outstanding at December 31, 2002 and at September 30, 2003 (unaudited)		—			8,152			8,152
	Common stock, 60,000,000 shares, no par value, authorized at December 31, 2001 and 225,000,000 shares, $0.01 par value, authorized at December 31, 2002 and at September 30, 2003 (unaudited); 43,912,409 and 46,830,778 shares issued and outstanding at December 31, 2001 and December 31, 2002, respectively, and 47,020,211 shares issued and outstanding at September 30, 2003 (unaudited)			51,107			468			470
	Additional paid-in-capital			—			61,646			61,333
	Stockholder notes receivable			(397	)		(381	)		(319	)
	Retained earnings(deficit)			(9,100	)		3,202			13,520

Total stockholders’ equity				41,610			86,677			96,746

Total liabilities and stockholders’ equity			$	100,799		$	188,888		$	198,939



		Symbion, Inc.				Symbion, Inc.
		Series A Convertible				Series B Convertible				Symbion, Inc.
		Preferred Stock				Preferred Stock				Common Stock						Additional			Stockholder			Retained			Total
																Paid-In			Notes			Earnings			Stockholders’
		Shares		Amount		Shares		Amount		Shares			Amount			Capital			Receivable			(Deficit)			Equity

Balance at January 1, 2000			—	$	—		—	$	—		43,565,297		$	51,019		$	—		$	(373	)	$	(8,912	)	$	41,734
	Issuance of Symbion, Inc. Common Stock		—		—		—		—		104,677			74			—			(31	)		—			43
	Increase in redemption value of Redeemable Common Stock		—		—		—		—		—			(366	)		—			—			—			(366	)
	Expiration of redemption feature of Redeemable Common Stock		—		—		—		—		340,453			593			—			—			—			593
	Net loss		—		—		—		—		—			—			—			—			(4,877	)		(4,877	)

Balance at December 31, 2000			—		—		—		—		44,010,427			51,320			—			(404	)		(13,789	)		37,127
	Issuance of Symbion, Inc. Common Stock		—		—		—		—		237,994			484			—			7			—			491
	Stock received from disposition of physician networks		—		—		—		—		(1,016,924	)		(1,894	)		—			—			—			(1,894	)
	Expiration of redemption feature of Redeemable Common Stock		—		—		—		—		680,912			1,197			—			—			—			1,197
	Net income		—		—		—		—		—			—			—			—			4,689			4,689

Balance at December 31, 2001			—		—		—		—		43,912,409			51,107			—			(397	)		(9,100	)		41,610
	Issuance of Symbion, Inc. Common Stock in acquisition of Physicians Surgical Care, Inc.		—		—		—		—		2,770,748			8,672			—			—			—			8,672
	Issuance of Series A convertible preferred stock in acquisition of Physicians Surgical Care, Inc.		4,341,726		13,590		—		—		—			—			—			—			—			13,590
	Issuance of Series B convertible preferred stock in acquisition of Physicians Surgical Care, Inc.		—		—		2,604,590		8,152		—			—			—			—			—			8,152
	Issuance of Symbion, Inc. warrants and stock options in acquisition of Physicians Surgical Care, Inc.		—		—		—		—		—			2,274			—			—			—			2,274
	Issuance of Symbion, Inc. Common Stock		—		—		—		—		147,621			61			—			16			—			77
	Designation of Common Stock as $0.01 par value		—		—		—		—		—			(61,646	)		61,646			—			—			—
	Net income		—		—		—		—		—			—			—			—			12,302			12,302

Balance at December 31, 2002			4,341,726		13,590		2,604,590		8,152		46,830,778			468			61,646			(381	)		3,202			86,677
	Issuance of Symbion, Inc. Common Stock, net of repurchases (unaudited)		–		–		–		–		189,433			2			(313	)		62			–			(249	)
	Net income (unaudited)		–		–		–		–		–			–			–			–			10,318			10,318

Balance at September 30, 2003 (unaudited)			4,341,726	$	13,590		2,604,590	$	8,152		47,020,211		$	470		$	61,333		$	(319	)	$	13,520		$	96,746