-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QeAPcUk+5AIoVblYfNVQN7dy0s2BUCW5JbJNXopnNKUS7LgeicdqQujDt5jOiRb7 gGePQ2mc1PuGpps31Zegew== 0000950144-97-011475.txt : 19971105 0000950144-97-011475.hdr.sgml : 19971105 ACCESSION NUMBER: 0000950144-97-011475 CONFORMED SUBMISSION TYPE: 10-12G/A PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19971103 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMSURG CORP CENTRAL INDEX KEY: 0000895930 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HOSPITALS [8060] IRS NUMBER: 621493316 STATE OF INCORPORATION: TN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-12G/A SEC ACT: SEC FILE NUMBER: 000-22217 FILM NUMBER: 97706977 BUSINESS ADDRESS: STREET 1: ONE BURTON HILLS BLVD. STREET 2: STE 350 CITY: NASHVILLE STATE: TN ZIP: 37215 BUSINESS PHONE: 6156651283 MAIL ADDRESS: STREET 1: ONE BURTON HILLS BLVD. STREET 2: SUITE 350 CITY: NASHVILLE STATE: TN ZIP: 37215 10-12G/A 1 AMSURG CORPORATION FORM 10-12G/A 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 3, 1997 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10/A-3 GENERAL FORM FOR REGISTRATION OF SECURITIES PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934 --------------------- AMSURG CORP. (Exact name of registrant as specified in its charter) TENNESSEE 62-1493316 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) ONE BURTON HILLS BOULEVARD SUITE 350 NASHVILLE, TN 37215 (Address of principal executive offices) (Zip code)
(615) 665-1283 Registrant's telephone number, including area code SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Class A Common Stock, no par value Class B Common Stock, no par value ================================================================================ 2 [AMERICAN HEALTHCORP LOGO] One Burton Hills Boulevard Nashville, Tennessee 37215 November 3, 1997 Dear Fellow Stockholder: This Information Statement contains important information regarding AmSurg Corp. ("AmSurg"), and how American Healthcorp, Inc. ("AHC") will distribute all of the AmSurg Common Stock owned by AHC to the holders of AHC common stock (the "Distribution"). AHC currently owns approximately 58% of the outstanding AmSurg common stock. The Distribution will result in your ownership of shares of two independent public companies: AHC, which will focus its business strategy on operating hospital-based diabetes treatment centers and providing diabetes disease management services for managed care organizations and other third party payors, and AmSurg, which will focus its business strategy on the acquisition, development and operation of practice-based ambulatory surgery centers and the development and operation of start-up specialty physician networks associated with these centers. We are excited about the prospects of both companies. Your Board of Directors believes that the Distribution by AHC will enable AHC and AmSurg to develop, finance and manage their businesses more effectively and should better position the two companies to provide greater total value to stockholders. Prior to the Distribution, AmSurg will effect a recapitalization (the "Recapitalization"), pursuant to which every three shares of outstanding AmSurg common stock will be converted into one share of AmSurg Class A common stock, no par value ("Class A Common Stock"). Immediately following the Recapitalization, AHC will exchange (the "Exchange") a portion of its shares of Class A Common Stock for shares of AmSurg Class B common stock, no par value ("Class B Common Stock"). The sole purposes for the Recapitalization and the Exchange are (i) to reduce the number of outstanding shares of AmSurg common stock on a one for three basis through a reverse stock split to permit such shares to trade at proportionally higher per share prices and to increase the voting power of AHC in AmSurg prior to the Distribution to the extent required in order for the Distribution to qualify for substantially tax-free treatment for federal income tax purposes and (ii) to have, to the extent possible, an equal number of shares of each class of AmSurg Common Stock available to be traded in the public markets. The shares of Class A Common Stock will have one vote per share on all matters, while the shares of Class B Common Stock will have ten votes per share on the election and removal of directors of AmSurg and one vote per share on all other matters. The Class A Common Stock and the Class B Common Stock will be identical in all other respects. The Distribution to AHC stockholders will be of the Class A Common Stock and Class B Common Stock held by AHC. Application has been made for listing of the Class A Common Stock and the Class B Common Stock on the Nasdaq National Market under the symbols "AMSGA" and "AMSGB", respectively. If you are a holder of AHC common stock on November , 1997, the record date for the Distribution, you will receive, in the Distribution, approximately 9.21 shares of Class A Common Stock and approximately 59.36 shares of Class B Common Stock for every 100 shares of AHC common stock you own on that date, as such ratio may be adjusted for issuances of AHC common stock after September 30, 1997. Holders of AHC common stock will receive cash in lieu of any fractional shares of Class A Common Stock or Class B Common Stock. AHC stockholders will be subject to federal income taxation with respect to approximately 1.5% of the aggregate shares of the Class A Common Stock and Class B Common Stock received by them in the Distribution, the exact amount of which will be provided by AHC along with other information concerning this taxable amount. Receipt of the remaining 98.5% of the shares by the AHC stockholders is expected to be exempt from federal income taxation. Consummation of the Distribution is expected to occur on December 3, 1997. Consummation of the Distribution is subject to the satisfaction or waiver of various conditions described in this Information Statement. This Information Statement also sets forth information about AmSurg and the rights of the Class A Common Stock and Class B Common Stock, and contains financial statements and other financial information. Due to the importance of the information contained in this document, you are urged to read the Information Statement carefully. STOCKHOLDERS OF RECORD ON THE RECORD DATE FOR THE DISTRIBUTION WILL BE ENTITLED AUTOMATICALLY TO PARTICIPATE IN THE DISTRIBUTION AND ARE NOT REQUIRED TO DO ANYTHING TO BECOME ENTITLED TO SO PARTICIPATE. YOU DO NOT NEED TO TURN IN YOUR AHC STOCK CERTIFICATE. NO STOCKHOLDER APPROVAL OF THE DISTRIBUTION IS REQUIRED OR SOUGHT. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE NOT REQUESTED TO SEND US A PROXY. SINCERELY, /s/ THOMAS G. CIGARRAN -------------------------------------- THOMAS G. CIGARRAN Chairman and Chief Executive Officer 3 [AMSURG LETTERHEAD] November 3, 1997 Dear American Healthcorp, Inc. Stockholder: Upon the distribution by American Healthcorp, Inc. ("AHC") of the shares of AmSurg Common Stock owned by AHC (the "Distribution"), each of you will become holders of AmSurg Corp. ("AmSurg") Class A common stock, no par value, and Class B common stock, no par value. As an AHC stockholder you have indirectly owned an interest in AmSurg because it has operated as a majority-owned subsidiary of AHC since 1992. As a result of the Distribution, AmSurg will be an independent public company with the ability to develop, finance and manage its business separately from AHC. We appreciate your past support of AmSurg and would like to welcome you as a direct stockholder in AmSurg at this exciting moment in the company's history. We expect to continue our business as a leader in the development, acquisition and operation of practice-based ambulatory surgery centers. We believe the Distribution will position us to maximize our growth potential. AmSurg was formed in April 1992 for the purpose of developing, acquiring and operating practice-based ambulatory surgery centers, in partnerships with physician practice groups, throughout the United States. Each of the surgery centers provides a narrow range of high volume, lower-risk surgical procedures, generally in a single specialty, and has been designed with a cost structure that enables AmSurg to charge fees which management believes are generally less than those charged by hospitals and freestanding outpatient surgery centers for similar services performed on an outpatient basis. While the majority of AmSurg's existing ambulatory surgery centers specialize in gastroenterology, AmSurg's growth strategy focuses on the development and acquisition of practice-based ambulatory surgery centers and the development of start-up specialty physician networks in five specialties: gastroenterology, ophthalmology, orthopaedic surgery, urology and otolaryngology. We are excited about operating AmSurg as an independent publicly traded company and the opportunities for future development and growth of our business. We expect these opportunities to translate into greater value to you and all AmSurg stockholders. Sincerely, /s/ KEN P. MCDONALD ----------------------- Ken P. McDonald President 4 CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT AND ITEMS OF FORM 10
FORM 10 ITEM NUMBER AND CAPTION CAPTION IN INFORMATION STATEMENT - ------------------------------- -------------------------------- 1. Business..................................... Summary; Risk Factors; Selected Historical and Pro Forma Financial Data of AmSurg; Management's Discussion and Analysis of Financial Condition and Results of Operations of AmSurg; Business of AmSurg 2. Financial Information........................ Summary; Risk Factors; Selected Historical and Pro Forma Financial Data of AmSurg; Management's Discussion and Analysis of Financial Condition and Results of Operations of AmSurg; Business of AmSurg 3. Properties................................... Business of AmSurg 4. Security Ownership of Certain Beneficial Owners and Management...................... Security Ownership of Certain Beneficial Owners and Management 5. Directors and Executive Officers............. Management of AmSurg 6. Executive Compensation....................... Management of AmSurg 7. Certain Relationships and Related Transactions............................... The Distribution; Certain Relationships and Related Transactions 8. Legal Proceedings............................ Business of AmSurg 9. Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters........................ Summary; Description of Capital Stock; Security Ownership of Certain Beneficial Owners and Management 10. Recent Sales of Unregistered Securities...... Recent Sales of Unregistered Securities 11. Description of Registrant's Securities to be Registered................................. Description of Capital Stock 12. Indemnification of Directors and Officers.... Management of AmSurg; Description of Capital Stock 13. Financial Statements and Supplementary Data....................................... Selected Historical and Financial Data of AmSurg; Management's Discussion and Analysis of Financial Condition and Results of Operations of AmSurg; Index to Financial Statements 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..... Not Applicable 15. Financial Statements and Exhibits............ Index to Financial Statements; Index to Exhibits
5 INFORMATION STATEMENT [AMSURG LOGO] COMMON STOCK (NO PAR VALUE) This Information Statement/Registration Statement (the "Information Statement") is being furnished to stockholders of American Healthcorp, Inc., a Delaware corporation ("AHC"), in connection with the pro rata distribution (the "Distribution") by AHC to its stockholders of all of the common stock of AmSurg Corp., a Tennessee corporation ("AmSurg"), owned by AHC. The Distribution is expected to occur on December 3, 1997. Prior to the Distribution, AmSurg will effect a recapitalization (the "Recapitalization"), pursuant to which every three shares of AmSurg common stock will be converted into one share of AmSurg Class A common stock, no par value (the "Class A Common Stock"). The Recapitalization will reduce on a one for three basis the number of outstanding shares of common stock of AmSurg through a reverse stock split (the "Reverse Stock Split"). The sole purpose of the Reverse Stock Split is to permit the shares of AmSurg Common Stock to trade at proportionately higher per share prices following the Distribution. Immediately following the Recapitalization, AHC will exchange (the "Exchange") 4,787,131 of its shares of Class A Common Stock for the same number of shares of AmSurg Class B common stock, no par value (the "Class B Common Stock" and, together with the Class A Common Stock, the "AmSurg Common Stock"). The sole purposes for the Exchange are: (i) to increase the voting power of AHC in AmSurg prior to the Distribution to the extent required in order for the Distribution to qualify for substantially tax-free treatment for federal income tax purposes and (ii) to have, to the extent possible, an equal number of shares of each class of AmSurg Common Stock available to be traded in the public markets. The shares of Class A Common Stock will have one vote per share on all matters, while the shares of Class B Common Stock will have ten votes per share on the election and removal of directors of AmSurg and one vote per share on all other matters. The shares of Class A Common Stock and Class B Common Stock will be entitled to share ratably in any dividends other than dividends payable solely with respect to AmSurg preferred stock. In all other respects, the Class A Common Stock and Class B Common Stock are expected to be identical. No further shares of Class B Common Stock will be issued following the Distribution. In the Distribution, each holder of shares of AHC common stock, par value $.001 per share (the "AHC Common Stock"), on November , 1997 (the "Distribution Record Date") will receive a dividend of approximately 9.21 shares of Class A Common Stock and approximately 59.36 shares of Class B Common Stock for every 100 shares of AHC Common Stock owned by such holder on the Distribution Record Date, as such ratio may be adjusted for issuances of AHC Common Stock after September 30, 1997, with cash being paid in lieu of fractional interests in a share of AmSurg Common Stock. No consideration will be paid by AHC stockholders for the shares of AmSurg Common Stock to be received by them in the Distribution nor will they be required to surrender or exchange shares of AHC Common Stock in order to receive AmSurg Common Stock. There is currently no public trading market for the shares of AmSurg Common Stock. Application has been made for listing the Class A Common Stock on The Nasdaq Stock Market's National Market (the "Nasdaq National Market") under the symbol "AMSGA." Application has been made for listing the Class B Common Stock on the Nasdaq National Market under the symbol "AMSGB." The Distribution is subject to the satisfaction or waiver of a number of other conditions, as described in "THE DISTRIBUTION -- Conditions" in this Information Statement. A copy of the Distribution Agreement is set forth as Appendix A to this Information Statement. SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR CERTAIN MATTERS THAT SHOULD BE CONSIDERED WITH RESPECT TO THE SHARES OF AMSURG COMMON STOCK. --------------------- THIS INFORMATION STATEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES. ANY SUCH OFFERING MAY ONLY BE MADE BY MEANS OF A SEPARATE PROSPECTUS PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND OTHERWISE IN COMPLIANCE WITH APPLICABLE LAW. --------------------- THE SECURITIES TO BE ISSUED IN THE DISTRIBUTION HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Information Statement is November 3, 1997. 6 TABLE OF CONTENTS
PAGE ---- AVAILABLE INFORMATION....................................... 1 SUMMARY..................................................... 2 SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA OF AMSURG... 9 SUMMARY FINANCIAL DATA OF AHC............................... 11 RISK FACTORS................................................ 12 Prior Reliance on AHC..................................... 12 Dependence on Growth Strategy; Capital Needed for Growth................................................. 12 Ability to Manage Growth.................................. 12 Dependence on Relationships with Physician Partners; Risks of Conflicts of Interest, Disputes and Contingent Obligations............................................ 13 Contingent Repurchase Obligations......................... 13 Risks Associated with Capitated Payment Arrangements...... 13 Dependence on Third-Party Reimbursement; Risk of Fee Reductions or Exclusion from Managed Care Arrangements........................................... 14 Risks Associated with Medicare-Medicaid Illegal Remuneration ("anti-kickback") Laws.................... 14 Risks Associated with Physician Self-Referral Laws........ 15 Risks Related to Laws Governing Corporate Practice of Medicine............................................... 15 Risk of Potential Applicability of Insurance Regulations............................................ 15 Risks of Compliance with Other Government Regulation...... 16 Risks Related to Intangible Assets........................ 16 Competition............................................... 16 Risk Factors Regarding AHC after Distribution............. 16 Effect of the Distribution on the AHC Common Stock........ 17 Certain Federal Income Tax Considerations................. 17 Proposed Treasury Regulation Regarding Tax Deduction for Amortization of Goodwill............................... 18 No Prior Market for AmSurg Common Stock................... 18 Shares Eligible for Future Sale........................... 18 Dilution and Impact of AmSurg Preferred Stock............. 19 Certain Antitakeover Effects.............................. 19 Risks Associated With Forward-Looking Statements.......... 19 THE DISTRIBUTION............................................ 20 Background and Reasons for the Distribution............... 20 The Recapitalization and Exchange......................... 25 The Distribution Agreement................................ 26 Conditions................................................ 28 Manner of Effecting the Distribution...................... 28 Listing of Class A Common Stock and Class B Common Stock; Restrictions on Resale................................. 29 Interests of Certain Persons in the Distribution.......... 29 The Management Agreement.................................. 29 Adjustment of AHC Stock Options........................... 30 Accounting Treatment...................................... 30 Certain Federal Income Tax Consequences................... 31 SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA OF AMSURG.................................................... 34 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF AMSURG....................... 36 Overview.................................................. 36 Results of Operations..................................... 37 Liquidity and Capital Resources........................... 40 Recent Accounting Pronouncements.......................... 41
i 7
PAGE ---- CAPITALIZATION OF AMSURG.................................... 42 SELECTED FINANCIAL DATA OF AHC.............................. 43 BUSINESS OF AHC AFTER DISTRIBUTION.......................... 44 BUSINESS OF AMSURG.......................................... 45 Industry Overview......................................... 45 Strategy.................................................. 46 Acquisition and Development of Surgery Centers............ 46 Surgery Center Locations.................................. 49 Surgery Center Operations................................. 50 Specialty Physician Networks and Practices................ 50 Revenues.................................................. 51 Competition............................................... 52 Government Regulation..................................... 53 Properties................................................ 56 Employees................................................. 56 Legal Proceedings and Insurance........................... 56 MANAGEMENT OF AMSURG........................................ 57 Directors and Executive Officers.......................... 57 Committees of the Board of Directors...................... 58 Compensation of Directors................................. 59 Director and Officer Indemnification and Limitation of Liability.............................................. 59 Executive Compensation.................................... 61 Employment Agreements..................................... 62 Stock Incentive Plans..................................... 63 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 69 Management Agreement...................................... 69 Administrative Services Agreement......................... 69 Advisory Agreements....................................... 69 Lease Arrangement......................................... 70 Other Arrangements........................................ 70 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................................ 71 DESCRIPTION OF CAPITAL STOCK................................ 73 Authorized Capital Stock.................................. 73 1992 Stockholders' Agreement.............................. 75 Registration Agreement.................................... 76 Stockholders' Agreements.................................. 76 Certain Provisions of the Charter, Bylaws, and Tennessee Law.................................................... 76 SHARES ELIGIBLE FOR FUTURE SALE............................. 79 INDEX TO FINANCIAL STATEMENTS............................... F-1 APPENDICES Appendix A: Distribution Agreement Appendix B: Opinion of J.C. Bradford & Co. Appendix C: Opinion of Morgan Keegan & Co., Inc.
ii 8 AVAILABLE INFORMATION AmSurg has filed with the Securities and Exchange Commission (the "SEC") a registration statement on Form 10 (such registration statement, as it may be amended or supplemented, the "Registration Statement") under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), with respect to the shares of Class A Common Stock and Class B Common Stock. This Information Statement does not contain all of the information which is set forth in the Registration Statement and the exhibits and schedules thereto. The Registration Statement and the exhibits thereto are available for inspection and copying without charge at the Public Reference Section of the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as the Regional Offices of the SEC at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, Seven World Trade Center, Suite 1300, New York, New York 10048 and at 5670 Wilshire Boulevard, Suite 1100, Los Angeles, California 90036. Copies of such information are obtainable by mail from the Public Reference Section of the SEC at 450 Fifth Street N.W., Washington, D.C. 20549 at prescribed rates. Copies of such material may also be obtained from the SEC's web site (http://www.sec.gov). AmSurg is subject to the informational requirements of the Exchange Act and, in accordance therewith, files annual, quarterly and other reports, proxy statements and other information with the SEC. The reports, proxy statements and other information filed or to be filed by AmSurg with the SEC are available or will be available for inspection and copying at the SEC's Public Reference Section referred to above. Copies of such material will be obtainable by mail at prescribed rates by writing the Public Reference Section of the SEC at the address referred to above and from the SEC's web site (http://www.sec.gov). NO PERSON IS AUTHORIZED BY AHC OR AMSURG TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS INFORMATION STATEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. NEITHER THE DELIVERY OF THIS INFORMATION STATEMENT NOR CONSUMMATION OF THE DISTRIBUTION CONTEMPLATED HEREBY SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF AHC OR AMSURG SINCE THE DATE HEREOF, OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. 1 9 SUMMARY The following summary is not intended to be complete and is qualified in its entirety by reference to the more detailed information included in this Information Statement and the Distribution Agreement set forth as Appendix A to the Information Statement. Stockholders are urged to read this Information Statement and the Distribution Agreement in their entirety. Unless otherwise noted, the financial statements and other financial information relating to AHC and AmSurg and data and information as to the shares of AmSurg Common Stock included herein give effect to the Recapitalization, the Exchange and the Distribution. Unless the context otherwise requires, the term "AmSurg" refers to AmSurg and its subsidiaries and the term "AHC" refers to AHC and its subsidiaries following the Distribution. AMSURG AmSurg was formed in April 1992 for the purpose of developing, acquiring and operating practice-based ambulatory surgery centers, in partnerships with physician practice groups, throughout the United States. An AmSurg surgery center is typically located adjacent to or in the immediate vicinity of the specialty medical practice of a physician group partner's office. Each of the surgery centers offers a narrow range of high volume, lower-risk surgical procedures, generally in a single specialty, and has been designed with a cost structure that enables AmSurg to charge fees which management believes are generally less than those charged by hospitals and freestanding outpatient surgery centers for similar services performed on an outpatient basis. As of September 30, 1997, AmSurg owned a majority interest in 35 surgery centers in 15 states and the District of Columbia, and owned a majority interest in two physician practice groups. As of September 30, 1997, AmSurg also had 14 centers under development and had executed letters of intent to acquire or develop eight additional centers. AmSurg is utilizing selected surgery centers as a base to develop start-up specialty physician networks that are designed to serve large numbers of covered lives and thus strengthen AmSurg's position in dealing with managed care organizations. As of September 30, 1997, AmSurg had established three start-up specialty physician networks, located in the south Florida market and in Knoxville, Tennessee and Montgomery, Alabama. In recent years, government programs, private insurance companies, managed care organizations and self-insured employers have implemented various cost-containment measures to limit the growth of healthcare expenditures. These cost-containment measures, together with technological advances, have resulted in a significant shift in the delivery of healthcare services away from traditional inpatient hospitals to more cost-effective alternate sites, including ambulatory surgery centers. AmSurg believes that it is a leader in the development, acquisition and operation of practice-based ambulatory surgery centers. While the majority of AmSurg's existing ambulatory surgery centers specialize in gastroenterology, AmSurg's growth strategy focuses on the development and acquisition of practice-based ambulatory surgery centers and start-up specialty physician networks in five specialties: gastroenterology, ophthalmology, orthopaedic surgery, urology and otolaryngology. AmSurg believes that it can strengthen its position with managed care organizations through the development of single specialty physician networks in combination with practice-based ambulatory surgery centers strategically located throughout a medical market area. AmSurg markets its surgery centers and networks directly to third-party payors, including health maintenance organizations ("HMOs"), preferred provider organizations ("PPOs"), other managed care organizations and employers. Marketing activities emphasize the high quality of care, cost advantages and convenience of AmSurg's surgery centers and are focused on making each center an approved provider under local managed care plans. In addition, AmSurg is developing networks with selected physician groups in order to market to managed care payors a comprehensive specialty physician network that includes its surgery centers. AmSurg ambulatory surgery centers are typically owned through limited and general partnerships or limited liability companies in which a subsidiary of AmSurg is a general partner or member and holds a majority interest. The other partners of the partnerships and members of the limited liability companies are physicians or physician practice groups that generally have offices adjacent to or in close proximity to the 2 10 surgery center. In development projects, the capital contributed by the physicians and AmSurg, together with bank financing, provide the partnership or limited liability company with the funds necessary to construct and equip the surgery center and to provide initial working capital. The start-up specialty physician networks are also owned through limited partnerships or limited liability companies in which a subsidiary of AmSurg is a general partner or member and holds a majority interest. The other partners or members are individual physicians who will provide the medical services to the patient population covered by contracts which the network will seek to enter into with managed care payors. These entities are funded by AmSurg and the physicians on a pro rata basis based on their ownership interests. AmSurg is incorporated in Tennessee. Its principal executive offices are located at One Burton Hills Boulevard, Nashville, Tennessee 37215, and its telephone number is (615) 665-1283. AN INVESTMENT IN SHARES OF AMSURG COMMON STOCK IS SUBJECT TO VARIOUS RISKS. SEE "RISK FACTORS." THE DISTRIBUTION DISTRIBUTING COMPANY....... The distributing company is AHC. Following consummation of the Distribution, AHC, through its wholly-owned subsidiary, Diabetes Treatment Centers of America, Inc. ("DTCA"), will continue to operate hospital-based diabetes treatment centers and to provide diabetes disease management services for managed care organizations and other third party payors. DTCA's hospital-based diabetes treatment centers are designed to create centers of excellence for the treatment of diabetes in the community in which they are located and thereby increase the hospitals' market share of diabetes patients and lower the hospitals' cost of providing services to this population. DTCA's disease management products are designed to assist healthcare payors in reducing the total cost and improving the quality of care for individuals with diabetes through intensive diabetes education, patient support and treatment regimens, as well as comprehensive management of all care delivered to these individuals. AHC, through its wholly-owned subsidiary, Arthritis and Osteoporosis Care Center, Inc. ("AOCC"), operates two arthritis and osteoporosis treatment centers providing comprehensive treatment to individuals with arthritis and osteoporosis. On March 10, 1997, the last full trading day prior to the announcement of the expected Distribution, the closing sale price per share of AHC Common Stock was $13. PURPOSES OF THE DISTRIBUTION............. The Distribution is designed to separate the two principal operating businesses of AHC so that each may maximize its value by adopting strategies and pursuing objectives appropriate to its specific needs. The principal purpose of the Distribution for the AmSurg operating business is to enable it to have access to debt and equity capital markets as an independent, publicly traded company in order to finance the development and acquisition of ambulatory surgery centers and specialty physician networks. The principal purpose of the Distribution for AHC is to enable AHC to focus its capital resources on the development of DTCA's comprehensive diabetes disease management services for managed care organizations and other third party payors. The Distribution will enable management of both AHC and AmSurg to focus on each company's core business, provide liquidity for the AmSurg minority stockholders and permit AHC investors to choose more precisely and monitor their investments. See "THE DISTRIBUTION -- Background and Reasons for the Distribution." 3 11 SECURITIES TO BE DISTRIBUTED.............. 743,000 shares of Class A Common Stock and all of the outstanding shares of Class B Common Stock, which is expected to be 4,787,131 shares of Class B Common Stock, will be distributed. As of September 30, 1997, AHC owned 58% of the outstanding shares of common stock of AmSurg. As of that date, 32% of the remaining shares of AmSurg common stock were owned by physicians who acquired their shares in connection with AmSurg's acquisition or development of ambulatory surgery centers and the remaining 10% were owned by management and certain other investors who acquired their shares in private transactions. See "THE DISTRIBUTION." DISTRIBUTION AGREEMENT..... The Distribution will be accomplished pursuant to the terms and conditions of the Amended and Restated Distribution Agreement, dated as of November 3, 1997, by and between AHC and AmSurg set forth as Appendix A hereto (the "Distribution Agreement"). DISTRIBUTION RATIO......... Approximately 9.21 shares of Class A Common Stock and approximately 59.36 shares of Class B Common Stock will be distributed for each 100 shares of AHC Common Stock outstanding on the Distribution Record Date, as such ratio may be adjusted for issuances of AHC Common Stock after September 30, 1997. Holders of AHC Common Stock will receive cash in lieu of any fractional shares of AmSurg Common Stock that would otherwise be distributed. No consideration will be paid by AHC stockholders for the shares of AmSurg Common Stock to be received by them, nor will they be required to surrender or exchange shares of AHC Common Stock in order to receive shares of AmSurg Common Stock. See "THE DISTRIBUTION." VOTING AND OTHER RIGHTS OF CLASS A COMMON STOCK AND CLASS B COMMON STOCK..... Each share of Class A Common Stock will have one vote per share on all matters, while each share of Class B Common Stock will have ten votes per share in the election and removal of directors of AmSurg and one vote per share on all other matters. The Class A Common Stock and Class B Common Stock will vote together as a single class on all matters except those that would adversely affect the rights of either class. The shares of Class A Common Stock and Class B Common Stock will be entitled to share ratably in any dividends other than dividends payable solely with respect to AmSurg preferred stock. AmSurg will not have the right to issue any Class B Common Stock following the Distribution. The Class A Common Stock and Class B Common Stock will be identical in all other respects. See "DESCRIPTION OF CAPITAL STOCK." TRADING MARKET............. Application has been made for listing the Class A Common Stock and the Class B Common Stock on the Nasdaq National Market under the symbols "AMSGA" and "AMSGB," respectively. See "THE DISTRIBUTION -- Listing of Class A Common Stock and Class B Common Stock; Restrictions on Resale." The combined trading prices of AHC Common Stock, Class A Common Stock and Class B Common Stock after the Distribution may be less than, equal to or greater than the trading price of AHC Common Stock before the Distribution. DISTRIBUTION RECORD DATE... November , 1997 DISTRIBUTION DATE.......... The Distribution will take place following the satisfaction or waiver of the conditions set forth in the Distribution Agreement. It is anticipated 4 12 that the Distribution will take place on December 3, 1997 (the "Distribution Date"). Stock certificates representing the shares of AmSurg Common Stock to be distributed will be mailed by the Distribution Agent as soon as practicable after the Distribution. No action of an AHC stockholder is necessary to receive the certificates. CONDITIONS TO DISTRIBUTION............. The Distribution is subject to a number of conditions, including the following: (i) the receipt of either: (a) a letter ruling from the Internal Revenue Service (the "IRS") or (b) the legal opinions of Bass, Berry & Sims PLC and Sutherland, Asbill & Brennan (the "Tax Opinions") with respect to the substantially tax-free status of the Distribution for federal income tax purposes; (ii) the listing of the Class A Common Stock and Class B Common Stock on a national securities exchange or for inclusion in the Nasdaq National Market or such other trading market as the parties may agree; (iii) the approval by the AmSurg stockholders of the amendment and restatement of AmSurg's Charter (the "AmSurg Charter"), the amendment and restatement of the AmSurg Bylaws (the "AmSurg Bylaws") and various other matters; (iv) the receipt by the Special Committee of the Board of Directors of AmSurg of the opinion of J.C. Bradford & Co. ("J.C. Bradford") that the Recapitalization, Exchange and the Distribution are fair, from a financial point of view, to the stockholders of AmSurg, other than AHC, and the receipt by the Board of Directors of AHC of the opinion of Morgan Keegan & Co., Inc. ("Morgan Keegan") that the Distribution, Recapitalization and Exchange are fair, from a financial point of view, to the AHC stockholders, and confirmation of such opinions prior to the Distribution; and (v) the approval of the Recapitalization and the Exchange by the holders of at least a majority of the voting power of the outstanding shares of capital stock of AmSurg, with the holders of no more than 5% of the outstanding shares exercising dissenters' rights of appraisal under Tennessee law. AHC, as the holder of a majority of the voting power of the capital stock of AmSurg on September 30, 1997, has agreed to vote in favor of the Recapitalization and the Exchange and the amendment and restatement of the AmSurg Charter and AmSurg Bylaws. The holders of AmSurg preferred stock also must approve the amendment and restatement of the AmSurg Charter. See "THE DISTRIBUTION -- Conditions." RECAPITALIZATION AND EXCHANGE................. Immediately prior to consummation of the Distribution, AmSurg will (a) undergo a Recapitalization, in which AmSurg will convert every three shares of AmSurg common stock held by all existing AmSurg stockholders, including AHC, into one share of Class A Common Stock and authorize the issuance of Class B Common Stock to AHC in the Exchange and (b) effect the Exchange by issuing 4,787,131 shares of Class B Common Stock to AHC in exchange for the same number of shares of Class A Common Stock. The AmSurg Common Stock held by AHC will have as of the date of the Distribution approximately 91% of the voting power of the capital stock of AmSurg in the election and removal of directors. As part of the Recapitalization, AmSurg also will convert every three shares of Series A Redeemable Preferred Stock, no par value (the "Series A Preferred Stock") and Series B Convertible Preferred Stock, no par value (the "Series B Preferred Stock" and together with the Series A Preferred Stock, the "AmSurg Preferred Stock") into one share of Series A Preferred Stock and Series B Preferred Stock, respectively. The sole purposes of the Recapitalization 5 13 and the Exchange are (a) to reduce the number of outstanding shares of AmSurg common stock on a one for three basis through a Reverse Stock Split so as to permit the shares of AmSurg Common Stock to trade at proportionately higher per share prices following the Distribution, (b) to increase the voting power of AHC immediately prior to the Distribution as required in order to effect the Distribution on a substantially tax-free basis for federal income tax purposes and (c) to have, to the extent possible, an equal number of shares of each class of AmSurg Common Stock available to be traded in the public markets. See "THE DISTRIBUTION -- The Recapitalization and Exchange." DISTRIBUTION AGENT, TRANSFER AGENT AND REGISTRAR................ SunTrust Bank, the transfer agent for the AHC Common Stock, will serve as the distribution agent (the "Distribution Agent") and as the transfer agent and registrar for the AmSurg Common Stock. FEDERAL INCOME TAX CONSEQUENCES............. It is anticipated that the Distribution will be substantially tax-free for federal income tax purposes under Section 355 of the Internal Revenue Code of 1986, as amended (the "Code"). Receipt of a ruling from the IRS or the Tax Opinions that the Distribution may be accomplished on a substantially tax-free basis for federal income tax purposes is a condition to the Distribution. Stockholders will be subject to federal income taxation with respect to approximately 1.5% of the shares of AmSurg Common Stock received by them. Receipt of the remaining 98.5% of the shares of AmSurg Common Stock by AHC stockholders is expected to be exempt from federal income taxation. Stockholders will be subject to federal income taxation with respect to any cash received in lieu of fractional shares. AHC will distribute as soon as practicable to its stockholders information regarding the taxable amount of ordinary income and of capital gain attributable to the Distribution. See "THE DISTRIBUTION -- Certain Federal Income Tax Consequences." Stockholders are urged to consult with their personal tax advisors concerning any state, local or foreign tax consequences of the Distribution. DIVIDENDS AFTER THE DISTRIBUTION............. AmSurg does not currently intend to declare or pay any cash dividends on the shares of Class A Common Stock and Class B Common Stock and its ability to do so will be subject to certain limitations. See "DESCRIPTION OF CAPITAL STOCK -- Authorized Capital Stock -- Dividend Policy." AHC does not currently intend to declare or pay any cash dividends on the shares of AHC Common Stock and its ability to do so will be subject to certain limitations. CERTAIN PROVISIONS OF AMSURG'S CHARTER, BYLAWS AND TENNESSEE LAW........ Certain provisions of AmSurg's Charter and Bylaws and Tennessee law may have the effect of delaying or making more difficult an acquisition of control of AmSurg in a transaction not approved by its Board of Directors. See "RISK FACTORS -- Certain Antitakeover Effects," and "DESCRIPTION OF CAPITAL STOCK -- Certain Provisions of the Charter, Bylaws and Tennessee Law." 6 14 ARRANGEMENTS BETWEEN AMSURG AND AHC AND CERTAIN OFFICERS OF AHC AFTER THE DISTRIBUTION............. In connection with the Distribution, AHC and AmSurg have entered into various agreements that will result in ongoing relationships between AHC and AmSurg. AmSurg and AHC have entered into a Management and Human Resources Agreement (the "Management Agreement"), pursuant to which AHC will provide certain financial and accounting services to AmSurg on a transitional basis for a period of up to one year to enable AmSurg to become self-sufficient in these areas. Thomas G. Cigarran, the Chairman and Chief Executive Officer of AHC, has agreed to serve as Chairman of the Board of AmSurg following the Distribution. Mr. Cigarran and Henry D. Herr, the Chief Financial Officer and a director of AHC, will serve as advisors to AmSurg for a period of two years following the Distribution pursuant to separate advisory agreements. The purpose of these agreements is to provide advisory services to AmSurg management in the areas of strategy, operations, management and organizational development for a two-year period following the Distribution. Mr. Herr and James A. Deal, Executive Vice President of AHC and President of DTCA, also will serve as directors of AmSurg. The Management Agreement and the advisory agreements were approved by a committee of independent directors of AmSurg (the "Special Committee") and were deemed by the Special Committee to be fair and in the best interests of AmSurg. AmSurg will continue to sublease its corporate headquarters from AHC pursuant to an existing Sublease Agreement that expires in December 1999. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." INTERESTS OF CERTAIN PERSONS IN THE DISTRIBUTION............. Certain directors and officers of AHC and AmSurg will have interests in the Distribution that are in addition to their interests as AHC stockholders generally and those interests may create potential conflicts of interest. These interests include positions with both companies prior to and after the Distribution. The terms of the Distribution and the related Recapitalization and Exchange have been approved by the Special Committee and the Board of Directors of AHC. See "THE DISTRIBUTION -- Interests of Certain Persons in the Distribution." RISK FACTORS............... Holders of AHC Common Stock should be aware that the Distribution and the ownership of AmSurg Common Stock involve certain risk factors, including (i) the risk that AmSurg will no longer be able to rely upon AHC for certain management, administrative and accounting services, except for certain financial and accounting services provided by AHC and for certain advisory services provided by Mr. Cigarran and Mr. Herr on a transitional basis; (ii) the risk that AmSurg may not be able to implement its growth strategy and to manage the growth it does achieve; and (iii) the risk that the market trading prices of AHC Common Stock and AmSurg Common Stock may not equal or exceed on a combined basis the current market trading prices of AHC Common Stock. See "RISK FACTORS." FAIRNESS OPINIONS.......... J.C. Bradford has delivered an opinion to the Special Committee that the Recapitalization, Exchange and Distribution are fair, from a financial point of view, to the stockholders of AmSurg, other than AHC. The 7 15 receipt of a confirmation of that opinion by the Board of Directors of AmSurg is a condition to the Distribution. A copy of the opinion is set forth as Appendix B hereto. Morgan Keegan has delivered an opinion to the AHC Board of Directors that the Recapitalization, Exchange and Distribution are fair, from a financial point of view, to the stockholders of AHC. The receipt of a confirmation of that opinion by the Board of Directors of AHC is a condition to the Distribution. A copy of the opinion is set forth as Appendix C hereto. See "THE DISTRIBUTION -- Background and Reasons for the Distribution; and -- Conditions." NO HOLDER OF AHC COMMON STOCK WILL BE REQUIRED TO PAY ANY CASH OR OTHER CONSIDERATION FOR THE SHARES OF AMSURG COMMON STOCK RECEIVED IN THE DISTRIBUTION OR TO SURRENDER OR EXCHANGE SHARES OF AHC COMMON STOCK OR TO TAKE ANY OTHER ACTION IN ORDER TO RECEIVE SHARES OF AMSURG COMMON STOCK IN THE DISTRIBUTION. STOCKHOLDERS WILL BE SUBJECT TO FEDERAL INCOME TAXATION WITH RESPECT TO APPROXIMATELY 1.5% OF THE SHARES OF THE AMSURG COMMON STOCK RECEIVED BY THEM AND ANY CASH RECEIVED IN LIEU OF FRACTIONAL SHARES. SEE "THE DISTRIBUTION -- MANNER OF EFFECTING THE DISTRIBUTION" AND "THE DISTRIBUTION -- CERTAIN FEDERAL INCOME TAX CONSEQUENCES." 8 16 SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA OF AMSURG The following table sets forth summary consolidated financial data which have been derived from the consolidated financial statements of AmSurg. The financial statements as of and for the periods ended December 31, 1992 through 1996 have been audited. The operating data and balance sheet data as of and for the nine months ended September 30, 1996 and 1997, are derived from unaudited financial statements which, in the opinion of management, include all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of financial condition and results of operations. Operating results for the nine months ended September 30, 1997 are not necessarily indicative of the results that may be expected for the year ended December 31, 1997. The pro forma combined statement of operations data for the year ended December 31, 1996 and the nine months ended September 30, 1997 set forth below reflect the effects of all acquisitions (five surgery centers and one physician practice in 1996 and five surgery centers and one physician practice in 1997) completed after the beginning of the period as if such transactions were completed at January 1, 1996. Except for The Endoscopy Center of Ocala, Inc., and The Endoscopy Center, Inc. which were acquired in 1996 and 1997, respectively, none of the businesses acquired individually exceeded the significant subsidiary tests requiring separate financial reporting under applicable SEC regulations. Comparability of data on a year to year basis is affected by the number of centers acquired in each year. All the information set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations of AmSurg" and the Consolidated Financial Statements and related notes included elsewhere herein. See "Index to Financial Statements." The historical and pro forma financial information may not be indicative of AmSurg's future performance and does not necessarily reflect the financial position and results of operations of AmSurg had AmSurg operated as a separate, stand-alone entity during the periods covered.
HISTORICAL PRO FORMA HISTORICAL PRO FORMA ------------------ ------------- ---------------------------------------------- ------------ NINE MONTHS NINE MONTHS YEAR ENDED DECEMBER 31, YEAR ENDED SEPTEMBER 30, ENDED ---------------------------------------------- DECEMBER 31, ------------------ SEPTEMBER 30, 1992(1) 1993 1994 1995 1996 1996 1996 1997 1997 ------- ------ ------- ------- ------- ------------ ------- ------- ------------- (IN THOUSANDS EXCEPT PER SHARE AND CENTER DATA) OPERATING DATA: Revenues..................... $ 576 $6,586 $13,826 $22,489 $35,007 $51,082 $24,075 $41,163 $43,784 ------ ------ ------- ------- ------- ------- ------- ------- ------- Expenses: Salaries and benefits...... 456 2,307 4,092 6,243 11,613 15,195 7,976 12,552 13,107 Other operating expenses... 288 3,002 5,091 7,563 11,547 17,482 7,914 14,564 15,260 Depreciation and amortization............. 51 665 1,309 2,397 3,000 4,101 2,096 3,511 3,708 Interest................... 3 30 193 722 948 1,981 668 1,141 1,365 Net loss on sale of assets(2)................ -- -- -- -- -- -- -- 1,494 1,494 Distribution cost(3)....... -- -- -- -- -- -- -- 458 458 ------ ------ ------- ------- ------- ------- ------- ------- ------- Total expenses....... 798 6,004 10,685 16,925 27,108 38,759 18,654 33,720 35,392 ------ ------ ------- ------- ------- ------- ------- ------- ------- Income (loss) before minority interest and income taxes...................... (222) 582 3,141 5,564 7,899 12,323 5,421 7,443 8,392 Minority interest in earnings of consolidated partnerships............. 87 1,121 2,464 3,938 5,433 8,690 3,756 6,447 7,072 ------ ------ ------- ------- ------- ------- ------- ------- ------- Income (loss) before income taxes...................... (309) (539) 677 1,626 2,466 3,633 1,665 996 1,320 Income tax expense......... -- -- 26 578 985 1,452 665 1,279 1,409 ------ ------ ------- ------- ------- ------- ------- ------- ------- Net income (loss)............ (309) (539) 651 1,048 1,481 2,181 1,000 (283) (89) Accretion of preferred stock discount........... -- -- -- -- 22 22 -- 210 210 ------ ------ ------- ------- ------- ------- ------- ------- ------- Net income (loss) attributable to common stockholders............... $ (309) $ (539) $ 651 $ 1,048 $ 1,459 $ 2,159 $ 1,000 $ (493) $ (299) ====== ====== ======= ======= ======= ======= ======= ======= ======= Net income (loss) per share attributable to common stockholders(4)............ $(0.24) $(0.11) $ 0.09 $ 0.12 $ 0.16 $ 0.22 $ 0.11 $ (0.05) $ (0.03) ====== ====== ======= ======= ======= ======= ======= ======= ======= Weighted average common shares and equivalents -- pro forma(4)................... 1,302 4,734 7,313 8,581 9,102 9,602 8,970 9,437 9,571
- --------------- See footnotes on following page 9 17
HISTORICAL HISTORICAL ---------------------------------------------- ------------------ AT DECEMBER 31, AT SEPTEMBER 30, ---------------------------------------------- ------------------ 1992 1993 1994 1995 1996 1996 1997 ------- ------ ------- ------- ------- ------- ------- (IN THOUSANDS EXCEPT PER SHARE AND CENTER DATA) BALANCE SHEET DATA: Cash and cash equivalents............................. $ 583 $ 738 $ 1,750 $ 3,470 $ 3,192 2,321 3,626 Working capital....................................... 1,166 993 2,557 2,931 4,732 2,348 6,407 Total assets.......................................... 9,552 14,637 27,065 35,106 54,653 46,853 72,669 Long-term debt........................................ 214 640 3,520 4,786 9,218 10,409 21,730 Minority interest..................................... 647 601 2,019 3,010 5,674 4,113 8,482 Preferred stock....................................... -- -- -- -- 4,982 -- 5,192 Stockholders' equity.................................. 8,440 12,055 19,558 22,479 28,374 26,501 29,542 GENERAL CENTER DATA: Procedures............................................ 1,146 16,051 30,922 55,344 71,323 49,640 75,028 Centers at period end................................. 4 6 14 18 27 23 35
- --------------- (1) Period from April 2, 1992 (inception) through December 31, 1992. (2) Reflects a loss attributable to the sale of a partnership interest, net of a gain on the sale of a surgery center building and equipment, which had an impact of reducing net income per share by $0.16 on the historical and pro forma results of operations for the nine months ended September 30, 1997. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of AmSurg" and "Notes to the Consolidated Financial Statements of AmSurg -- Note 10." (3) Reflects costs incurred to date related to the Distribution, which had an impact of reducing net income per share by $0.05 on the historical and pro forma results of operations for the nine months ended September 30, 1997. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of AmSurg" and "Notes to Consolidated Financial Statements of AmSurg -- Note 10." (4) Adjusted to give effect to the Recapitalization which includes a one for three reverse stock split. 10 18 SUMMARY FINANCIAL DATA OF AHC The summary unaudited financial data of AHC set forth below reflects certain adjustments to the previously reported historical consolidated financial statements of AHC for each of the fiscal years in the five year period ended August 31, 1997, to present AmSurg as a discontinued operation.
FOR THE YEAR ENDED AND AT AUGUST 31, ----------------------------------------------- 1993 1994 1995 1996 1997 ------- ------- ------- ------- ------- (IN THOUSANDS EXCEPT PER SHARE DATA) OPERATING DATA: Revenues.......................... $39,682 $41,144 $36,583 $31,403 $30,537 ------- ------- ------- ------- ------- Expenses: Salaries and benefits........... 16,972 18,699 18,878 19,866 21,437 Other operating expenses........ 11,771 12,271 10,865 7,254 8,702 Depreciation and amortization... 1,340 1,293 1,339 1,273 1,342 Interest........................ 8 6 7 5 6 ------- ------- ------- ------- ------- Total expenses.......... 30,091 32,269 31,089 28,398 31,487 ------- ------- ------- ------- ------- Income (loss) before income taxes and discontinued operations..... 9,591 8,875 5,494 3,005 (950) Income tax expense (benefit)(1)... 3,884 3,586 2,252 544 (207) ------- ------- ------- ------- ------- Income (loss) from continuing operations...................... 5,707 5,289 3,242 2,461 (743) Discontinued operations(3)...... (170) 38 674 799 (940) ------- ------- ------- ------- ------- Net income (loss)................. $ 5,537 $ 5,327 $ 3,916 $ 3,260 $(1,683) ======= ======= ======= ======= ======= Income (loss) per share from continuing operations(2)........ $ 0.68 $ 0.63 $ 0.40 $ 0.30 $ (0.09) Income (loss) per share from discontinued operations(2)...... (0.02) 0.00 0.08 0.10 (0.12) ------- ------- ------- ------- ------- Net income (loss) per share(2).... $ 0.66 $ 0.63 $ 0.48 $ 0.40 $ (0.21) ======= ======= ======= ======= ======= Weighted average common shares and equivalents..................... 8,404 8,461 8,211 8,161 8,022
AS ADJUSTED(4) ----------- BALANCE SHEET DATA: Cash and cash equivalents......... $ 9,016 $ 9,909 $11,076 $12,562 $12,227 $12,227 Working capital................... 12,772 11,972 11,089 13,324 11,564 11,179 Net assets of discontinued operations...................... 5,354 11,475 14,695 16,361 16,407 -- Total assets...................... 36,848 43,354 45,873 48,943 49,373 34,416 Long-term liabilities............. 1,892 2,138 2,156 2,657 2,186 2,186 Stockholders' equity.............. 30,850 36,460 38,299 41,611 40,441 25,099
- --------------- (1) Includes nonrecurring income tax benefit in fourth quarter of fiscal 1996 of $760,000 or $.09 per share. (2) Per share information does not give effect to the increase in weighted average number of shares outstanding that is expected to occur as a result of the adjustment of AHC stock options in connection with the Distribution. See "THE DISTRIBUTION -- Adjustments of AHC Stock Options; and -- Accounting Treatment." (3) Includes an impairment loss of $1,364,000, or $(0.17) per share, the gain on a sale of AmSurg's interest in a surgery center building and equipment of $210,000, or $0.03 per share, and distribution costs of $882,000 or $(0.11) per share. (4) Adjusted to give effect to the Distribution, including estimated additional distribution cost of $385,000 and estimated non-cash compensation expense of $3,750,000 ($2,300,000 net of income taxes) that is expected to be recognized as a result of the adjustment of AHC stock options in connection with the Distribution. See "THE DISTRIBUTION -- Adjustments of AHC Stock Options; and -- Accounting Treatment." 11 19 RISK FACTORS In addition to the other information contained in this Information Statement, holders of AHC Common Stock should carefully consider the following information concerning AmSurg, AHC, the Recapitalization, Exchange and Distribution. In addition to the historical information included herein, this Information Statement includes certain forward-looking statements that are based on management's beliefs as well as on assumptions made by and information currently available to management. These statements, which have been included in reliance on the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 (the "Litigation Reform Act"), are subject to a number of risks and uncertainties, including but not limited to the factors identified below. Actual results may differ materially from those anticipated in any such forward-looking statements. The Litigation Reform Act does not apply to initial public offerings. PRIOR RELIANCE ON AHC. AmSurg has historically relied upon AHC for certain corporate management, administrative and accounting services. After the Distribution, AmSurg will be responsible for maintaining its own management, administrative and accounting functions, except for certain financial and accounting services provided by AHC on a transitional basis for up to one year pursuant to the Management Agreement and for certain advisory services provided by members of AHC senior management pursuant to two-year advisory agreements. In particular, Thomas G. Cigarran, who was the Chairman and Chief Executive Officer of AmSurg prior to the Distribution, will no longer serve as an officer of AmSurg, although he will continue to serve as Chairman of the Board of Directors and will serve as an advisor to AmSurg. Henry D. Herr, who was Vice President and Secretary of AmSurg prior to the Distribution, will serve as a director and an advisor to AmSurg after the Distribution, but will no longer serve as an officer of AmSurg. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." DEPENDENCE ON GROWTH STRATEGY; CAPITAL NEEDED FOR GROWTH. AmSurg intends to increase its revenues and earnings, in part, by continuing to develop and to acquire practice-based ambulatory surgery centers, and by developing specialty physician networks and, where appropriate, by acquiring ownership interests in physician practices. There can be no assurance that AmSurg will be able to acquire or develop additional surgery centers, or develop and place in operation specialty physician networks. There can also be no assurance that the assets acquired by AmSurg in the future will ultimately produce returns that justify their related investment or implementation by AmSurg. None of the start-up specialty physician networks developed by AmSurg has yet entered into a contract with a managed care payor and there can be no assurance that AmSurg will be able to negotiate successfully such contracts. AmSurg's growth strategy also requires substantial capital investment. Capital will be needed not only for the acquisition of the assets of surgery centers and physician practices, but also for their development, effective integration, operation and expansion. AmSurg may finance future acquisitions by raising additional capital through debt or equity financings or using shares of its capital stock for all or a portion of the consideration to be paid in such acquisitions. In the event that the Class A Common Stock does not maintain a sufficient valuation, or potential acquisition candidates are unwilling to accept Class A Common Stock as part of the consideration for the sale of the assets of their businesses, AmSurg may be required to utilize more of its cash resources, if available, or rely solely on additional financing arrangements in order to pursue its acquisition strategy. In such an instance, if AmSurg does not have sufficient capital resources, its growth could be limited and its operations impaired. There can be no assurance that AmSurg will be able to obtain financing or that, if available, such financing will be on terms acceptable to AmSurg. See "BUSINESS OF AMSURG -- Strategy." ABILITY TO MANAGE GROWTH. AmSurg has recently experienced rapid growth that has resulted in new and increased responsibilities for management personnel and has placed increased demands on AmSurg's management, operational and financial systems and resources. To accommodate this recent growth and to compete effectively and manage future growth, AmSurg will be required to continue to implement and improve its operational, financial and management information systems and to expand, train, motivate and manage its workforce. There can be no assurance that AmSurg's personnel, systems, procedures and controls will be adequate to support AmSurg's operations. Any failure to implement and improve AmSurg's 12 20 operational, financial and management systems or to expand, train, motivate or manage employees could have a material adverse effect on AmSurg's financial condition and results of operation. DEPENDENCE ON RELATIONSHIPS WITH PHYSICIAN PARTNERS; RISKS OF CONFLICTS OF INTEREST, DISPUTES AND CONTINGENT OBLIGATIONS. AmSurg's business depends upon, among other things, the efforts and success of the physicians who provide medical services at the surgery centers or who are employed by AmSurg physician practices and the strength of AmSurg's relationship with such physicians. AmSurg's business could be adversely affected by any failure of these physicians to maintain the quality of medical care or otherwise adhere to required professional guidelines at AmSurg surgery centers and physician practices, any damage to the reputation of a key physician or group of physicians, or the impairment of AmSurg's relationship with a key physician or group of physicians. AmSurg's ownership interests in practice-based ambulatory surgery centers and specialty physician networks generally are structured through limited and general partnerships or limited liability companies. AmSurg maintains a majority interest in each partnership or limited liability company, with physicians or physician practice groups holding minority limited partnership interests or serving as minority members. AmSurg, as owner of majority interests in such partnerships and limited liability companies, owes a fiduciary duty to the minority interest holders in such entities and may encounter conflicts between the respective interests of AmSurg and the minority holders. In such cases, AmSurg's directors are obligated to exercise reasonable, good-faith judgment to resolve the conflicts and may not be free to act solely in the best interest of AmSurg. AmSurg, in its role as general partner or as the chief manager of the limited liability company, generally exercises its discretion in managing the business. Disputes may arise between AmSurg and its physician partners with respect to a particular business decision or as to the interpretation of the provisions of the partnership or limited liability company operating agreements, in which event the agreements provide for arbitration as a dispute resolution process. No assurances can be given that any such dispute will be resolved or if resolved will be done so on terms satisfactory to AmSurg. In the limited partnerships in which AmSurg is the general partner, AmSurg is liable for 100% of the debts and other obligations of the partnership; however, the partnership agreement requires the physician partners to guarantee their pro rata share of any indebtedness or lease agreements to which the partnership is a party, based on the limited partner's ownership interest in the partnership. AmSurg has similar liability with respect to the bank debt incurred by the limited liability companies, and guarantees are also required of the physician members. There can be no assurance that a third party lender or lessor would seek performance of the guarantees rather than look to AmSurg for repayment of any obligation of the partnership should it default thereunder or that the physician partners would have sufficient assets to satisfy their guarantee obligations. See "Notes to the Consolidated Financial Statements of AmSurg -- Note 8." CONTINGENT PURCHASE OBLIGATIONS. Upon the occurrence of certain fundamental regulatory changes, AmSurg will be obligated to purchase some or all of the minority interests of the physicians affiliated with AmSurg in the partnerships or limited liability companies which own and operate AmSurg's surgery centers. The regulatory changes that could trigger such an obligation include changes that: (i) make the referral of Medicare and other patients to AmSurg's surgery centers by physicians affiliated with AmSurg illegal; (ii) create the substantial likelihood that cash distributions from the partnership or limited liability company to the physicians associated therewith will be illegal; or (iii) cause the ownership by the physicians of interests in the partnerships or limited liability companies to be illegal. There can be no assurance that AmSurg's existing capital resources would be sufficient for it to meet the obligation, if it arises, to purchase minority interests held by physicians in the partnerships or limited liability companies which own and operate AmSurg's surgery centers. The determination of whether a triggering event has occurred is made by the concurrence of counsel for AmSurg and the physician partners or, in the absence of such concurrence, by independent counsel having an expertise in healthcare law and who is chosen by both parties. Such determination is therefore not within the control of AmSurg. While AmSurg has structured the purchase obligations to be as favorable as possible to AmSurg, the triggering of these obligations could have a material adverse effect on the financial condition and results of operations of AmSurg. See "BUSINESS OF AMSURG -- Acquisition and Development of Surgery Centers; and -- Government Regulation." RISKS ASSOCIATED WITH CAPITATED PAYMENT ARRANGEMENTS. In 1996, approximately 10% of AmSurg's total revenues were derived from capitated payment arrangements. A significant part of AmSurg's growth strategy involves assisting its surgery centers, owned physician practices and specialty physician networks in 13 21 obtaining capitated managed care contracts and managing the medical risk associated with such contracts. Such capitated managed care contracts typically are with HMOs. Under such contracts the provider accepts a pre-determined amount per patient per month, referred to as a "capitation" payment, and in return is responsible for providing all necessary specified covered services to the patients covered by the contract, thus shifting much of the risk of providing care from the payor to the provider. Such an arrangement results in a greater predictability of revenue, but exposes the provider to the risk of adequately predicting the costs of providing the services. To the extent that patients covered by such contracts require more frequent or extensive care than is anticipated, operating margins may be reduced and the revenue derived from such contracts may be insufficient to cover the costs of the services provided. There can be no assurance that AmSurg will be able to negotiate satisfactory risk-sharing or capitated arrangements on behalf of its surgery centers, owned physician practices and specialty physician networks. See "BUSINESS OF AMSURG." DEPENDENCE ON THIRD-PARTY REIMBURSEMENT; RISK OF FEE REDUCTIONS OR EXCLUSION FROM MANAGED CARE ARRANGEMENTS. AmSurg is dependent upon private and governmental third-party sources of reimbursement for services provided to patients in AmSurg's centers and physician practices. In addition to market and cost factors affecting the fee structure implemented by centers and practices operated by AmSurg, numerous Medicare and Medicaid regulations, cost containment and utilization decisions of third-party payors and other payment factors over which AmSurg has no control may adversely affect the amount of payment a center or practice may receive for its services. AmSurg derived approximately 39%, 37% and 36% of its revenues in 1994, 1995 and 1996, respectively, from governmental healthcare programs, including Medicare and Medicaid. The market share growth of managed care has resulted in some locations in substantial competition among providers of services for inclusion in managed care contracting. Exclusion from participation in a managed care contract in a specific location can result in material reductions in patient volume and reimbursement to a physician practice or to a practice-based ambulatory surgery center. AmSurg's financial condition and results of operations may be adversely affected by fixed fee schedules, capitation payment arrangements, reduced payments to physicians generally, exclusion from participation in managed care programs or other changes in payments for healthcare services. See "BUSINESS OF AMSURG -- Government Regulation -- Reimbursement." RISKS ASSOCIATED WITH MEDICARE-MEDICAID ILLEGAL REMUNERATION ("ANTI-KICKBACK") LAWS. Federal anti-kickback laws prohibit the offer, payment, solicitation or receipt of any form of remuneration in return for the referral of Medicare or state health program patients or patient care opportunities, or in return for the purchase, lease or order of items or services that are covered by Medicare or state health programs. The anti-kickback statute is very broad in scope and its provisions are not well defined by existing case law or regulation. Violations of the anti-kickback laws may result in substantial civil or criminal penalties for individuals or entities. A violation of the anti-kickback law is a felony punishable by a fine of up to $25,000 or imprisonment for up to five years, or both. A violation may also result in civil penalties of up to $10,000 for each violation, plus three times the amount claimed, and exclusion from participation in the Medicare and Medicaid programs. Such exclusion, if applied to AmSurg's surgery centers or networks, could result in significant loss of reimbursement and could have a material adverse effect on AmSurg. In July 1991 and September 1993, the Department of Health and Human Services ("DHHS") Inspector General issued final regulations identifying various "safe harbors," including two related to investment interests, which offer exemption from the anti-kickback laws. The structure of the partnerships and limited liability companies operating AmSurg centers and physician networks do not satisfy all of the requirements of either of the "investment interest" safe harbors and therefore are not immune from government review or prosecution. However, AmSurg believes that it conducts the operations of the networks and the centers in compliance with applicable law. Moreover, neither AmSurg nor any affiliated physician intends for the compensation arrangements or return on investment to constitute remuneration in exchange for or to induce the referral of business or patients between or among the parties. Notwithstanding AmSurg's belief that the relationship of physician partners to the AmSurg surgery centers should not constitute illegal remuneration under the anti-kickback laws, no assurances can be given that a federal or state agency charged with enforcement of the anti-kickback laws and similar laws or a private party might not assert a contrary position or that new federal or state laws might not be enacted that would cause the physician partners' relationships with the AmSurg centers to become illegal, or result in the imposition of penalties on AmSurg or certain of its facilities. Even 14 22 the assertion of a violation could have a material adverse effect upon the financial condition and results of operations of AmSurg. See "BUSINESS OF AMSURG -- Government Regulation -- Medicare-Medicaid Illegal Remuneration Provisions." RISKS ASSOCIATED WITH PHYSICIAN SELF-REFERRAL LAWS. At both the state and federal level, there are legislative restrictions on the ability of a physician to refer patients to healthcare entities when the physician (or immediate family member) has a financial relationship, directly or indirectly, with the entity receiving the referral. The financial relationship giving rise to prohibition on referrals may be either an ownership or investment interest or a compensatory arrangement. At the federal level, this legislation (42 USC sec. 1395nn) is known as the "Stark bill" because of its sponsor, Representative Pete Stark. Originally, the Stark bill applied only to entities providing clinical laboratory services. However, as of January 1, 1995, the ban on physician financial relationships with healthcare entities extended to entities providing certain defined "designated health services" ("Stark II"). AmSurg believes physician ownership of practice-based ambulatory surgery centers to which they refer patients and physician networks is not prohibited under Stark II or other similar statutes recently enacted at the state level. However, these statutes are not clearly written and are therefore subject to different interpretations with respect to many important provisions. Violations of these "self-referral" laws may result in substantial civil or criminal penalties for individuals or entities, including large civil monetary penalties and exclusion from participation in the Medicare and Medicaid programs. Such exclusion, if applied to AmSurg's surgery centers, could result in significant loss of reimbursement and could have a material adverse effect on AmSurg. There can be no assurances that further judicial or agency interpretation of existing law or further legislative restrictions on physician ownership of healthcare entities will not be issued which may have a material adverse effect upon the financial condition and results of operations of AmSurg. See "BUSINESS OF AMSURG -- Government Regulation -- Prohibition on Physician Ownership of Healthcare Facilities." RISKS RELATED TO LAWS GOVERNING CORPORATE PRACTICE OF MEDICINE. The laws of certain states in which AmSurg operates or may operate in the future do not permit general business corporations to practice medicine, exercise control over physicians who practice medicine or engage in certain business practices such as fee-splitting with physicians. AmSurg is not required to obtain a license to practice medicine in any jurisdiction in which it owns and operates an ambulatory surgery center, because the surgery centers are not engaged in the practice of medicine. The physician partners who utilize the center are licensed to practice medicine through their group practices, which with the exception of the two physician practices majority owned by AmSurg, are not affiliated with AmSurg other than through the physicians' ownership in the partnerships and limited liability companies that own the surgery centers. AmSurg owns a majority interest in two group practices in Florida, a state which permits physicians to practice medicine through an entity that is not wholly owned by physicians. A recent ruling by the Florida Board of Medicine that an agreement between a physician practice and a practice management company constituted impermissible fee-splitting, if upheld on judicial appeal, would cause AmSurg to restructure its relationship with one of the two group practices. AmSurg does not believe that any such restructuring would have a material adverse effect on AmSurg. There can be no assurance, however, that future changes in the law in Florida or any other state in which AmSurg may own an interest in a physician group practice will not require AmSurg to restructure its ownership of these group practices and that such restructuring will not have a material adverse effect on AmSurg. See "BUSINESS OF AMSURG -- Government Regulation -- Corporate Practice of Medicine." RISK OF POTENTIAL APPLICABILITY OF INSURANCE REGULATIONS. Laws in all states regulate the business of insurance and the operations of HMOs. Many states also regulate the establishment and operation of networks of healthcare providers. AmSurg believes that its operations are in compliance with these laws in the states in which it currently does business. The National Association of Insurance Commissioners ("NAIC") recently endorsed a policy proposing the state regulation of risk assumption by healthcare providers. The policy proposes prohibiting providers from entering into capitated payment or other risk sharing contracts except through HMOs or insurance companies. Several states have adopted regulations implementing the NAIC policy in some form. In states where such regulations have been adopted, practices affiliated with AmSurg will be precluded from entering into capitated contracts directly with employers, individuals and benefit plans unless they qualify to do business as HMOs or insurance companies. 15 23 AmSurg and its affiliated physician groups may in the future enter into contracts with managed care organizations, such as HMOs, whereby AmSurg and its affiliated physician groups would assume risk in connection with providing healthcare services under capitation arrangements. If AmSurg or its affiliated physician groups are considered to be in the business of insurance as a result of entering into such risk sharing arrangements, they could become subject to a variety of regulatory and licensing requirements applicable to insurance companies or HMOs, which could have a material adverse effect on AmSurg's ability to enter into such contracts. See "BUSINESS OF AMSURG -- Government Regulation -- Insurance Laws." RISKS OF COMPLIANCE WITH OTHER GOVERNMENT REGULATION. All facets of the healthcare industry are highly regulated at the federal and state levels. AmSurg's ability to be profitable may be adversely affected by licensing and certification requirements, reimbursement restrictions or reductions and other governmental regulatory factors. In addition, AmSurg's ability to expand its services in the future may be adversely affected by health planning laws, including certificate of need requirements, at the state and/or federal level. A number of other initiatives have developed during the past several years to reform various aspects of the healthcare system in the United States. There can be no assurance that current or future legislative initiatives or government regulation will not have a material adverse effect on the financial condition or results of operations of AmSurg or reduce the demand for its services. See "BUSINESS OF AMSURG -- Government Regulation -- CONs and State Licensing." RISKS RELATED TO INTANGIBLE ASSETS. As a result of purchase accounting for AmSurg's various acquisition transactions, AmSurg's balance sheet at September 30, 1997 contains an intangible asset designated as excess of cost over net assets of purchased operations totaling $41.0 million. Using an amortization period of 25 years, amortization expense relating to this intangible asset will be approximately $1.8 million per year. Purchases of interests in practice-based surgery centers or physician practices that result in the recognition of additional intangible assets would cause amortization expense to increase further. On an ongoing basis, AmSurg evaluates, based upon projected undiscounted cash flows, whether facts and circumstances indicate any impairment of value of intangible assets and if the amortization period continues to be appropriate. As the underlying facts and circumstances subsequent to the date of acquisition can change, there can be no assurance that the value of such intangible assets will be realized by AmSurg. Any determination that a significant impairment has occurred would require the write-off of the impaired portion of unamortized intangible assets, which could have a material adverse effect on AmSurg's results of operations. In that regard, during the nine months ended September 30, 1997, AmSurg recorded an impairment loss in connection with one partnership. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of AmSurg" and "Notes to the Consolidated Financial Statements -- Note 10." COMPETITION. The healthcare business is highly competitive and there are other companies in the same or similar business of developing, acquiring and operating practice-based ambulatory surgery centers, specialty physician networks and physician practices, or who may decide to enter the practice-based ambulatory surgery center business, the development of specialty physician networks or the acquisition of physician practices, who have greater financial, research, marketing and staff resources than AmSurg. In addition, AmSurg competes with other healthcare providers for contracting with managed care payors in each of its markets. There is no assurance AmSurg can compete effectively with such entities. See "BUSINESS OF AMSURG -- Competition." RISK FACTORS REGARDING AHC AFTER DISTRIBUTION. A material portion of AHC's operating revenues and revenue growth was generated by AmSurg prior to the Distribution. After the Distribution, AHC's business will consist of its hospital-based diabetes treatment services business, the management of diabetes care for managed care organizations and other third-party payors and the operation of arthritis and osteoporosis treatment centers. In the last fiscal year, revenues from this business have been adversely affected by termination of certain hospital contracts and development and implementation costs applicable to DTCA's development of diabetes disease management products for the managed care industry. AHC's ability to generate revenues and profits from its diabetes disease management contracts with managed care organizations and other third-party payors is dependent primarily on its ability to reduce overall healthcare costs for 16 24 individuals with diabetes while improving clinical outcomes for these individuals. While AHC believes that it can reduce the healthcare costs and improve clinical outcomes for individuals with diabetes through effective management of the disease, AHC's ability to produce the anticipated improvements in care and cost savings and thus operate these contracts in a manner that will produce profitability for AHC has not yet been established, because AHC's comprehensive healthcare management contracts for people with diabetes are believed to be the first of this type in the industry and have only been recently implemented or are in the process of being implemented. During fiscal 1996, 13 DTCA contracts for hospital services were discontinued or not renewed, and during fiscal 1997, nine DTCA contracts were discontinued or not renewed. Certain hospitals faced with pressures to make immediate cost reductions have decided to eliminate DTCA's treatment programs. While AHC believes this business is stabilizing, the general uncertainties associated with changes taking place in the healthcare industry and DTCA's client hospitals' reactions to the changes in the industry may continue to adversely affect revenues and contract retention in future periods. See "BUSINESS OF AHC AFTER DISTRIBUTION." Other risks associated with the business of AHC include regulatory risks for the healthcare industry as a whole, efforts by hospitals and third party payors to reduce costs, unusual and unforeseen patterns of healthcare utilizations by individuals with diabetes in the managed care organizations with which DTCA has executed an agreement, the ability or inability of such managed care organizations to maintain the covered lives in the plans serviced by DTCA and the ability or inability of DTCA to attract, retain and effectively manage the employees required to implement the agreements with managed care organizations. Following the Distribution, for a period of two years, Thomas G. Cigarran, the Chairman and Chief Executive Officer of AHC and Henry D. Herr, the Chief Financial Officer and a director of AHC, will provide advisory services to AmSurg. The services, while limited in scope, may impact the amount of time Messrs. Cigarran and Herr are able to devote to the business of AHC during this period. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -- Advisory Agreements." EFFECT OF THE DISTRIBUTION ON THE AHC COMMON STOCK. After the Distribution, the AHC Common Stock will continue to be traded on the Nasdaq National Market. As a result of the Distribution, AHC will no longer own any AmSurg Common Stock and accordingly its balance sheet and income statement will no longer reflect the assets and operation of AmSurg. AHC will be entirely dependent upon the operation of DTCA and AOCC for its earnings and, as a result, the trading prices of AHC Common Stock are expected to be lower than the trading prices of AHC Common Stock immediately prior to the Distribution and such trading prices may also be more volatile than they were prior to the Distribution. The combined trading prices of AHC Common Stock, Class A Common Stock and Class B Common Stock after the Distribution may be less than, equal to or greater than the trading prices of AHC Common Stock prior to the Distribution. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS. AHC has conditioned the Distribution on the receipt of either (i) a ruling from the IRS or (ii) the Tax Opinions to the effect that, among other things, the Distribution will be substantially tax-free under Section 355 of the Code. It should be noted that if a ruling from the IRS is not obtained and instead the Distribution is made in reliance on the Tax Opinions, the Tax Opinions are not binding on the IRS, and no assurance can be given that the IRS will not challenge the substantially tax-free nature of the proposed transaction. In addition, the Tax Opinions, if issued, would be based upon the representations of the management and stockholders of AHC and the management of AmSurg and would be qualified by reference to existing law and other matters. Approximately 1.5% of the shares of AmSurg Common Stock distributed in the Distribution will be subject to federal income taxation as a dividend taxable under Section 302 of the Code. In addition, cash received in lieu of fractional share interests in the AmSurg Common Stock will generally be taxable to recipients. The continuing validity of the IRS ruling will be subject to certain factual representations and assumptions. If such factual representations and assumptions were incorrect in a material respect, the ruling would be jeopardized. AHC is not aware of any facts or circumstances which should cause the representations and assumptions to be untrue. If the Distribution were taxable, then (i) corporate level income taxes would be payable by the consolidated group of which AHC is the common parent, based upon the amount by which the fair market value of the AmSurg Common Stock distributed in the Distribution exceeds AHC's basis therein and (ii) each holder of AHC Common Stock who received shares of AmSurg Common Stock in the Distribution would be treated as if the 17 25 stockholder received a taxable distribution, taxed as a dividend to the extent of such stockholder's pro rata share of AHC's current and accumulated earnings and profits. Each AHC stockholder should consult his or her own tax advisor with respect to the specific tax consequences of the Distribution to such stockholder, including the effect of state, local and foreign tax laws. See "THE DISTRIBUTION -- Certain Federal Income Tax Consequences." PROPOSED TREASURY REGULATION REGARDING TAX DEDUCTION FOR AMORTIZATION OF GOODWILL. Effective on August 10, 1993, Section 197 of the Code was enacted to allow goodwill and other intangible assets purchased after that date to be amortized as a tax deduction. Previously, no tax deduction was allowed for purchases of goodwill. On January 16, 1997, the IRS published proposed regulations implementing Section 197 amortization of intangible assets including goodwill. The proposed regulations contain certain "anti-churning" provisions which deny a deduction for goodwill amortization expense in several situations, including when the seller of the goodwill becomes a related party following the transaction. The intent of this particular portion of the proposed regulations is explained as preventing sellers from entering into transactions for the purpose of converting goodwill without tax deductibility (i.e. goodwill arising prior to the effective date of Section 197) into goodwill pursuant to Section 197 in which the sellers would then benefit from tax deductible amortization in future periods. These proposed regulations do not specifically contain an exception for the form of transaction that AmSurg has utilized in its acquisitions of interests in practice-based ambulatory surgery centers and interests in physician practices. However, because the goodwill for which AmSurg has been claiming amortization deductions was purchased by AmSurg from unrelated parties after the effective date of Section 197 and, as per agreement with the sellers, the tax deduction for goodwill amortization is specifically allocated exclusively to AmSurg, and therefore, the seller receives no tax benefit from the amortization of the goodwill, AmSurg believes that the proposed regulations should not be applied to deny a tax deduction to AmSurg. Together with other taxpayers similarly affected, AmSurg will vigorously attempt to have the proposed regulations revised in such a way as to recognize the acceptability of the methodology utilized by AmSurg in accomplishing the purpose as stated in the legislative record and retaining the tax deductibility of AmSurg's acquired goodwill. However, there can be no assurance that the proposed regulations will be amended or modified by the IRS. If the proposed regulations are adopted as currently written, it will not be clear in these regulations that AmSurg is entitled to the deduction for the amortization of goodwill associated with the purchase of interests in practice-based surgery centers and physician practices and these deductions could be subject to challenge by the IRS. Loss of these tax deductions would have a material adverse effect on the results of operations of AmSurg. Due to the lengthy public hearing and adoption process, AmSurg is not able to estimate a date by which the IRS will take action on the proposed regulations. NO PRIOR MARKET FOR AMSURG COMMON STOCK. There has been no prior trading market for AmSurg Common Stock and there can be no assurance as to the prices at which the Class A Common Stock and Class B Common Stock will trade after the Distribution. Although it is anticipated that the Class A Common Stock and Class B Common Stock will be traded on the Nasdaq National Market, the prices at which Class A Common Stock and Class B Common Stock trade may fluctuate significantly. Prices for the Class A Common Stock and Class B Common Stock may be influenced by many factors, including the depth and liquidity of the market for such Class A Common Stock and Class B Common Stock, investor perceptions of AmSurg and its businesses, and general economic and market conditions. SHARES ELIGIBLE FOR FUTURE SALE. AmSurg has a significant number of shares of AmSurg Common Stock outstanding that were sold in private transactions and not registered under the Securities Act of 1933, as amended (the "Securities Act") upon issuance. The unregistered shares ("restricted securities") are eligible for resale in the public market at prescribed times subject to compliance with an exemption from the registration requirements of the Securities Act, such as Rule 144. See "SHARES ELIGIBLE FOR FUTURE SALE." In addition, certain AmSurg stockholders have certain registration rights with respect to their shares of Class A Common Stock. See "DESCRIPTION OF CAPITAL STOCK -- Registration Agreement; and -- Stockholders' Agreement." As of September 30, 1997, AmSurg had issued options to purchase 1,109,050 shares of Class A Common Stock (of which 754,921 shares are vested) to employees and non-employee directors who, after the Distribution and following the filing of a registration statement on Form S-8 by AmSurg, will be able to exercise and immediately sell shares underlying vested options. Of these 18 26 options, 213,600 were granted pursuant to the AmSurg 1997 Stock Incentive Plan and are subject to AmSurg stockholder approval at the stockholders' meeting scheduled to be held on December 1, 1997. Of the 3,959,718 shares of Class A Common Stock that are anticipated to be "restricted securities" immediately following the Distribution, 3,602,809 will have satisfied a one-year holding period following the Distribution. All options outstanding after the Distribution will be to purchase shares of Class A Common Stock. Prior to the Distribution, there has been no market for the Class A Common Stock or Class B Common Stock and no prediction can be made as to the effect, if any, that the sale of shares or the availability of shares for sale will have on the market price prevailing from time to time. Nevertheless, sales of substantial amounts of Class A Common Stock in the public market could adversely affect prevailing market prices and the ability of AmSurg to raise equity capital in the future. DILUTION AND IMPACT OF AMSURG PREFERRED STOCK. Certain redemption and conversion features of the AmSurg Series A Preferred Stock and the Series B Preferred Stock, the award and exercise of stock options by the management of AmSurg and the issuance of Class A Common Stock in connection with the acquisitions of AmSurg surgery centers and equity financings may cause dilution of the per share value of the AmSurg Common Stock held by AmSurg stockholders. The conversion of the Series B Preferred Stock into Class A Common Stock will result in such investors holding between six and eight percent of the AmSurg Common Stock on a fully diluted basis as of November 20, 1996 depending on the timing of the conversion. If not redeemed by November 20, 1998, the Series A Preferred Stock will be entitled to an eight percent annual per share cash dividend from that date forward. The Series A Preferred Stock is also entitled to a 14% annual per share cash dividend upon certain events of default by AmSurg. If certain liquidity events have not occurred prior to November 20, 2002, AmSurg will be required to redeem the Series A Preferred Stock and Series B Preferred Stock. See "DESCRIPTION OF CAPITAL STOCK." CERTAIN ANTITAKEOVER EFFECTS. Certain provisions of AmSurg's Charter and Bylaws and Tennessee statutory law could have the effect of delaying, deferring or preventing a change in control of AmSurg in a transaction not approved by AmSurg's Board of Directors. See "DESCRIPTION OF CAPITAL STOCK -- Certain Provisions of the Charter, Bylaws and Tennessee Law." RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS. This Information Statement contains certain forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act , which are intended to be covered by the safe harbors created thereby. The Litigation Reform Act, which includes Section 27A of the Securities Act and Section 21E of the Exchange Act, does not apply to initial public offerings. When used in this Information Statement, the words "anticipate", "believe", "estimate", "expect" and similar expressions are intended to identify forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainty. Although AHC and AmSurg believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included in this Information Statement will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, including the risk factors described herein, the inclusion of such information should not be regarded as a representation by AHC, AmSurg or any other person that the objectives and plans of AHC or AmSurg will be achieved. Neither AHC nor AmSurg intends to update any of these forward-looking statements. 19 27 THE DISTRIBUTION This section of the Information Statement describes certain aspects of the Recapitalization, Exchange and Distribution. The following description does not purport to be complete and is qualified in its entirety by reference to the Distribution Agreement which is attached as Appendix A to this Information Statement. BACKGROUND AND REASONS FOR THE DISTRIBUTION AmSurg was formed in April 1992 with AHC owning an initial 25% equity interest. The business strategy of AmSurg was to develop, acquire and operate practice-based ambulatory surgery centers, in partnerships with physician practice groups, throughout the United States. The implementation of this strategy required significant capital resources beyond that which AmSurg could generate internally and, from 1992 through 1995, AHC provided substantially all of the needed capital through direct equity investment and guaranties of AmSurg bank debt. As a result of its investments in AmSurg, as of September 30, 1997, AHC owned 58% of the outstanding AmSurg common stock. The remaining AmSurg common stock is owned by physicians who are partners in AmSurg surgery centers (who collectively owned 32% of the AmSurg common stock) and management and certain other investors (who collectively owned 10% of the AmSurg common stock). During 1994, AHC through its wholly-owned subsidiary DTCA began to implement a business strategy to develop and market new comprehensive diabetes disease management products for the managed care industry. The development and marketing of these products have required significant capital and have reduced the capability of AHC to fund the capital needs of AmSurg. As a result of the diminished capability of AHC to fund the capital needs of AmSurg, in early 1996, management of AHC began to consider alternative ways to facilitate AmSurg's access to capital from sources other than AHC. As a first step, management of AHC recommended to the AmSurg management that it address its short-term capital needs by engaging an investment bank to seek additional capital through a private placement of equity or debt. AmSurg accepted this recommendation and engaged J.C. Bradford to raise the capital necessary to meet its short-term needs. As a result of this process, on November 20, 1996, AmSurg raised a net of approximately $5.0 million of additional capital by issuing to unaffiliated institutional investors a combination of AmSurg redeemable and convertible preferred stock. Following this transaction, AmSurg believes that it is adequately funded for its short-term needs but believes it will need additional debt or equity capital to fund its long-term growth. See "MANAGEMENT'S DISCUSSION AND ANALYSIS -- Liquidity and Capital Resources." Recognizing the need of AmSurg for additional capital, management of AHC determined that the long-term needs of AmSurg required that AmSurg have access to the public equity and debt markets and that a public trading market in AmSurg common stock could be created either through a public offering of a portion of the AmSurg common stock owned by AHC or through the distribution of the AmSurg common stock it owned to the stockholders of AHC. In September 1996, management of AHC determined that it was in the best interests of the stockholders of AHC to create the public market opportunity for AmSurg through a substantially tax free spin-off of the AmSurg common stock held by AHC. Management of AHC was advised that in order for such a spin-off transaction to be substantially tax free, a recapitalization of AmSurg was necessary to give AHC common stock with sufficient voting power to be able to distribute "control" of AmSurg in the Distribution as required for substantially tax free treatment under Section 355 of the Code. See "-- Certain Federal Income Tax Consequences." As a result of this determination, in September 1996, AHC presented to AmSurg a proposed Distribution and a related proposed Recapitalization and Exchange (the "Original Proposed Distribution") which was structured identically in all material respects to the Distribution and the related Recapitalization and Exchange except that in the Original Proposed Distribution only shares of Class B Common Stock were being distributed to AHC stockholders and a share of Class B Common Stock converted automatically into a share of Class A Common Stock upon any transfer. On October 3, 1996, the AmSurg Board of Directors created the Special Committee to consider whether the Original Proposed Distribution would be in the best interests of AmSurg and its stockholders, including the minority stockholders, and to negotiate the terms and conditions of any such transaction on behalf of AmSurg. Ken P. McDonald, the President of AmSurg, as well as a director, and William C. Weaver, III and 20 28 Bergein F. Overholt, M.D., both independent directors and AmSurg stockholders, were appointed to the Special Committee. On May 12, 1997, Mr. Weaver resigned from the AmSurg Board of Directors and the Special Committee and on September 23, 1997, Debora A. Guthrie was appointed by the AmSurg Board of Directors to fill the vacancy on the Special Committee. The Special Committee retained J.C. Bradford and independent counsel to assist it in its consideration of the proposed Distribution and the related Recapitalization and Exchange. The Special Committee held numerous meetings to consider the Original Proposed Distribution and whether it was in the best interests of AmSurg and its minority stockholders. On November 1, 1996, the Special Committee resolved to recommend to the AmSurg Board of Directors that AmSurg and AHC proceed with the necessary steps to effect the Original Proposed Distribution, including the filing with the IRS of a request for a ruling to the effect that the Original Proposed Distribution could be effected on a substantially tax free basis for federal income tax purposes. On November 8, 1996, the Board of Directors of AmSurg approved the recommendation of the Special Committee. On November 21, 1996, AHC and AmSurg submitted a ruling request to the IRS with regard to the federal income tax consequences of the Original Proposed Distribution (the "November 1996 Ruling Request"). Between November 1996 and March 7, 1997, when the Original Proposed Distribution was approved, AHC and AmSurg negotiated the terms of the Original Proposed Distribution. Concurrently, the Board of Directors of AHC and the Special Committee, together with their financial advisors, considered the fairness of the Original Proposed Distribution to the stockholders of AHC and AmSurg. To provide financial advice to the AHC Board of Directors, AHC retained Morgan Keegan to consider the fairness, from a financial point of view, of the Original Proposed Distribution to the stockholders of AHC. On March 7, 1997, the Special Committee and the AmSurg Board of Directors determined that the Original Proposed Distribution was fair to and in the best interests of AmSurg and its stockholders, including the minority stockholders and approved the Original Proposed Distribution. On March 7, 1997, the AHC Board of Directors determined that the Original Proposed Distribution was fair to and in the best interests of the AHC stockholders and approved the Original Proposed Distribution. Between March 1997 and May 1997, representatives of AHC and AmSurg had numerous discussions with representatives of the IRS with respect to the November 1996 Ruling Request. On June 27, 1997, representatives of the IRS indicated that the IRS planned to rule adversely on the November 1996 Ruling Request. In light of that oral advice, the November 1996 Ruling Request was withdrawn and on July 10, 1997 a new tax ruling request (the "July 1997 Ruling Request") was filed with a modified structure which contemplated the use of a convertible preferred security to provide AHC with sufficient voting power necessary for substantially tax free treatment under Section 355 of the Code. The IRS indicated on October 9, 1997 that it would rule neither favorably nor adversely on the July 1997 Ruling Request which was then withdrawn. Based upon further discussions with representatives of the IRS and its tax counsel, AHC proposed the Distribution which is identical in all material respects to the Original Proposed Distribution except that the Distribution contemplates the distribution of both Class A Common Stock and Class B Common Stock to the AHC stockholders and the Class B Common Stock does not automatically convert into Class A Common Stock upon transfer. After discussions with representatives of AHC and with the Special Committee's legal and financial advisers, on October 23, 1997, the Special Committee recommended to the AmSurg Board of Directors that AmSurg proceed with the necessary steps to effect the Distribution and the related Recapitalization and Exchange including the filing of a new tax ruling request with the IRS. On October 23, 1997, the AmSurg Board of Directors approved the recommendation of the Special Committee. On October 23, 1997, AHC and AmSurg submitted a ruling request to the IRS with respect to the Distribution. The Distribution is conditioned upon the receipt of a favorable tax ruling or favorable Tax Opinions. See "Risk Factors -- Certain Federal Income Tax Consequences." On November 3, 1997, the Special Committee determined that the Distribution and the related Recapitalization and Exchange are fair to and in the best interests of AmSurg and its stockholders, including the minority stockholders, and recommended that the AmSurg Board of Directors approve the Distribution and the related Recapitalization and Exchange, subject to the satisfaction of the conditions set forth in the Distribution Agreement. At the November 3, 1997 Special Committee meeting, J.C. Bradford delivered its 21 29 opinion, set forth as Appendix B hereto, that the Recapitalization, Exchange and Distribution are fair to the stockholders of AmSurg, other than AHC, from a financial point of view. A description of this opinion, the methodology employed, the analysis on which it was based and the nature of this engagement of J.C. Bradford is set forth below. Based on the recommendation of the Special Committee, the opinion of J.C. Bradford and other factors considered by the AmSurg Board of Directors, on November 3, 1997, the AmSurg Board determined that the Recapitalization, Exchange and Distribution are fair to and in the best interests of the stockholders of AmSurg, including the minority stockholders, and approved the Distribution and the related Recapitalization and Exchange, subject to the satisfaction or waiver of the conditions set forth in the Distribution Agreement. In addition to the financial advice and opinion of J.C. Bradford, in reaching their determination, the Special Committee and the Board of Directors of AmSurg considered a number of factors, including, without limitation, the following: (i) the long-term need for AmSurg to have access to the public equity and debt markets to fund its future growth and the belief that AmSurg would have superior access to capital markets as an independent, publicly-held company, (ii) the belief that the Distribution was the best alternative to create a public market, in part because the public market for AmSurg Common Stock would not be depressed by the "overhang" that might be caused by the continuing interest of AHC in AmSurg, which would be the case if AmSurg issued shares to the public in an initial public offering without AHC divesting its interest in AmSurg, (iii) the fact that existing AmSurg minority stockholders would have liquidity for their shares through the ability to sell under Rule 144 or in secondary public offerings following the Distribution, (iv) the belief that, because of its high growth rate and need for capital, AmSurg was not at the point in its development at which stockholder values might be maximized through the sale of the company, (v) the fact that AHC needed to focus its capital resources on the development of DTCA's diabetes disease management services business and would have limited available capital for investment in AmSurg, (vi) the fact that the Distribution would permit the development of employee benefit plans and policies and other corporate initiatives designed to better incentivize and attract employees, (vii) the fact that AHC would not sell any of its AmSurg common stock in a public offering due to the fact that AHC stockholders could not benefit from such a sale without adverse tax consequences, (viii) the belief that the proposed one for three reverse stock split that is part of the Recapitalization is necessary to increase the trading price of the AmSurg Common Stock to improve the level of trading interest, thereby providing greater opportunities to access public equity capital and for AmSurg stockholder liquidity, (ix) the belief that the two classes of AmSurg Common Stock differed materially only in voting rights for the election and removal of directors and that the two classes would not be valued materially differently in the trading marketplace, and (x) the belief that the Recapitalization and the Exchange necessary to obtain substantially tax-free treatment of the Distribution would not materially disadvantage either AmSurg or its minority stockholders. Opinion of J.C. Bradford. On November 3, 1997, the Special Committee received a written opinion from J.C. Bradford to the effect that, based upon the factors set forth in such opinion, the Recapitalization, Exchange and Distribution are fair to the stockholders of AmSurg, other than AHC, from a financial point of view. The full text of J.C. Bradford's opinion which sets forth certain assumptions made, matters considered and limitations on the review undertaken, is set forth in Appendix B and is incorporated herein by reference and should be read in its entirety in connection with this Information Statement. This summary is qualified in its entirety by reference to the full text of such opinion. In conducting its analyses and arriving at its opinion, J.C. Bradford considered such financial and other information as it deemed appropriate including, among other things, the following: (i) the proposed terms of the Recapitalization, Exchange and Distribution; (ii) the historical and current financial position and results of operations of AHC as set forth in its periodic reports and proxy materials filed with the SEC; (iii) the audited financial statements of AmSurg for the fiscal years ended December 31, 1992, 1993, 1994, 1995 and 1996; (iv) certain internal operating data and financial analyses, including forecasts of AmSurg for the years beginning January 1, 1997 and ending December 31, 2001 which assume no future changes in accounting principles which would have a material effect on AmSurg's financial statements; (v) the past and current business, financial condition and prospects of AmSurg and AHC as discussed with certain senior officers of AmSurg and AHC; (vi) certain financial, operating and securities trading data of certain other public companies that J.C. Bradford believed to be comparable to AmSurg or relevant to the transaction, with such information taken from individual companies' annual reports, SEC Forms 10-K and 10-Q; (vii) the financial 22 30 terms of certain other transactions that J.C. Bradford believed to be relevant; (viii) data relating to public companies with two classes of stock, including an analysis of float of the classes, historical price and volume data, data relating to voting rights of the stocks, and data relating to economic differences in the classes, such as different dividend rights; (ix) reported price and trading activity for the shares of AHC Common Stock; (x) a draft of the Information Statement included in the Registration Statement on Form 10 for the AmSurg Common Stock filed with the SEC; (xi) the tax ruling request, as supplemented, to the IRS from AHC and AmSurg; and (xii) such other financial studies, analyses, and investigations as J.C. Bradford deemed appropriate for purposes of its opinion. In making its analyses, J.C. Bradford considered the financial aspects of other alternatives available to AmSurg, including the sale of all or a portion of AmSurg to the public through an initial public offering and the continuance of AmSurg as an AHC subsidiary. In arriving at its opinion, J.C. Bradford has relied upon publicly available information and information provided by AHC and AmSurg (including information contained in this Information Statement), has not independently verified the information concerning AHC and AmSurg or other data considered in its review, and has relied upon the accuracy and the completeness of all such information. In connection with its opinion provided to the Special Committee, J.C. Bradford was not asked to, and did not, provide any opinion as to the valuation, future performance or long-term viability of AmSurg as an independent public company following the Recapitalization, Exchange and Distribution. J.C. Bradford's opinion does not opine as to or give any assurances of the price at which the shares of Class A Common Stock or Class B Common Stock will trade after the Distribution. The opinion of J.C. Bradford is addressed to the Special Committee in connection with its consideration of the Recapitalization, Exchange and Distribution and permits the AmSurg Board of Directors to rely upon it and addresses only the fairness, from a financial point of view, of the Recapitalization, Exchange and Distribution to the stockholders of AmSurg, other than AHC. J.C. Bradford's opinion is not a recommendation to any current or prospective stockholder of AHC or AmSurg as to any investment decisions such person may take. J.C. Bradford was engaged by the Special Committee on October 11, 1996 to provide financial advisory and investment banking services. In connection with the services performed and to be performed by J.C. Bradford, including the rendering of its written opinion and updates thereto, AmSurg has agreed to pay J.C. Bradford a fee of $125,000. AmSurg has also agreed to reimburse J.C. Bradford for its reasonable expenses, and to indemnify it against certain liabilities and expenses, including certain liabilities under the federal securities laws, in connection with its services as a financial advisor. J.C. Bradford, as part of its investment banking business, engages in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements, and valuations for estate, corporate, and other purposes. At the October 31, 1997 meeting of the AHC Board of Directors, the Board approved the Distribution and the related Recapitalization and Exchange, subject to the satisfaction or waiver of the conditions set forth in the Distribution Agreement. At this meeting, the Board determined that the transactions are fair to and in the best interests of the AHC stockholders and Morgan Keegan delivered its opinion, set forth as Appendix C hereto, that the Recapitalization, Exchange and Distribution are fair to the AHC stockholders from a financial point of view. A description of this opinion, the methodology employed, the analysis on which it was based and the nature of this engagement of Morgan Keegan is set forth below. In addition to the financial advice and opinion of Morgan Keegan, the determination by the AHC Board of Directors was based on a number of factors, including, without limitation, the following: (i) the fact that AHC could no longer fund the capital needs of AmSurg and that AmSurg needed access to the public equity and debt markets as an independent publicly-held company, (ii) the fact that the stockholders of AHC could not benefit from a public offering of a portion of the AmSurg common stock held by AHC without adverse tax consequences, (iii) the fact the Distribution would give the AHC stockholder the ability to share in the growth opportunities for AmSurg on a substantially tax-free basis, (iv) the fact that there is little synergy between the businesses of DTCA and AmSurg, (v) the need for AHC management to increase their focus on the business of DTCA, (vi) the desirability of permitting investors to choose between the two businesses in making investment decisions, and (vii) the belief that AmSurg was not at the point in its development at which AHC stockholder values could be maximized through the sale of AmSurg. 23 31 Opinion of Morgan Keegan. On October 31, 1997, the AHC Board of Directors received a written opinion from Morgan Keegan to the effect that, based upon the factors set forth in such opinion, the Recapitalization, the Exchange and the Distribution are fair to the stockholders of AHC from a financial point of view. The full text of Morgan Keegan's opinion which sets forth certain assumptions made, matters considered and limitations on the review undertaken, is set forth in Appendix C and is incorporated herein by reference and should be read in its entirety in connection with this Information Statement. This summary is qualified in its entirety by reference to the full text of such opinion. It is a condition to the consummation of the Distribution that Morgan Keegan deliver an updated opinion to the AHC Board, to be dated the Distribution Date, in substantially the same form as the opinion set forth in Appendix C. See " -- Conditions." The opinion of Morgan Keegan assumes that the Recapitalization, the Exchange and the Distribution are consummated as described in this Information Statement. In its opinion, Morgan Keegan stated that it has, among other things: (i) reviewed the publicly available consolidated financial statements of AHC and certain other relevant financial and operating data made available to it from published sources and by officers of AHC; (ii) reviewed the financial statements of AmSurg contained in this Information Statement; (iii) reviewed certain internal financial and operating information, including certain projections, relating to AHC and AmSurg prepared by the managements of AHC and AmSurg, respectively; (iv) discussed the business, financial condition and prospects of AHC with certain officers of AHC; (v) discussed the business, financial condition and prospects of AmSurg with certain officers of AHC and AmSurg; (vi) reviewed the financial terms of the Recapitalization, the Exchange and the Distribution; (vii) reviewed the financial terms, to the extent publicly available, of certain transactions it deemed relevant; (viii) reviewed certain publicly available information relating to certain companies it deemed appropriate in analyzing AHC and AmSurg; (ix) reviewed the trading history of AHC Common Stock; (x) reviewed a draft, dated October 20, 1997, of the Information Statement to be included in the Registration Statement on Form 10, as amended, for the AmSurg Common Stock to be filed with the SEC; and (xi) performed such other analysis and examinations and considered such other information, financial studies, analysis and investigations and financial, economic and market data as it deemed relevant.
In making its analyses, Morgan Keegan considered the financial aspects of other alternatives available to AHC, including the sale of certain of AHC's subsidiaries to an unaffiliated purchaser, the sale of all or a portion of AmSurg to the public through an initial public offering and the continuance of AmSurg as an AHC subsidiary. The opinion also states that Morgan Keegan has relied upon publicly available information and information provided by AHC and AmSurg (including the information contained in this Information Statement), has not independently verified the information concerning AHC and AmSurg or other data considered in its review, and has relied upon the accuracy and completeness of all such information. In connection with its opinion provided to the AHC Board of Directors, Morgan Keegan was not asked to, and did not, provide any opinion as to the valuation, future performance or long-term viability of AHC or AmSurg as independent public companies following the Recapitalization, Exchange and Distribution. Morgan Keegan's opinion does not opine as to or give any assurances of the price at which the shares of AHC Common Stock or AmSurg Common Stock will trade after the Distribution. In its opinion, Morgan Keegan states that it has assumed that the Distribution will be substantially tax-free to AHC and its stockholders, as described elsewhere in this Information Statement. The opinion of Morgan Keegan is addressed to the Board of Directors of AHC in connection with its consideration of the Recapitalization, Exchange and Distribution and addresses only the fairness, from a financial point of view, of the Recapitalization, Exchange and Distribution to the holders of AHC Common Stock. Morgan Keegan's opinion is not a recommendation to any current or prospective stockholder of AHC or AmSurg, as to any investment decisions such person may make. 24 32 Morgan Keegan was engaged by AHC on December 12, 1996 to provide general financial advisory and investment banking services. In connection with the services performed and to be performed by Morgan Keegan regarding the Distribution, including the rendering of its written opinion and updates thereto, AHC has agreed to pay Morgan Keegan a fee of $125,000. AHC also has agreed to reimburse Morgan Keegan for its reasonable expenses, and to indemnify it against certain liabilities and expenses, including certain liabilities under the federal securities laws, in connection with its services as financial advisor. Morgan Keegan, as part of its investment banking services, regularly provides financial advisory services in connection with mergers and acquisitions, corporate restructuring, strategic alliances, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. THE RECAPITALIZATION AND EXCHANGE The Distribution Agreement provides that, on the Distribution Date, AHC and AmSurg will effect the Recapitalization and Exchange immediately prior to effecting the Distribution. The sole purposes of these transactions are (i) to reduce the total number of outstanding shares of AmSurg Common Stock so as to permit the shares to trade at proportionately higher per share prices following the Distribution, (ii) to increase the voting power of the shares to be distributed by AHC as required in order to accomplish the Distribution on a substantially tax-free basis for federal income tax purposes and (iii) to have, to the extent possible, an equal number of shares of each class of AmSurg Common Stock available to be traded in the public markets. The number of votes per share of the Class B Common Stock, when combined with the Class A Common Stock held by AHC, is required to be sufficient to enable AHC to distribute, in the Distribution, after giving effect to all issuances of stock associated with the exercise of stock options, the conversion of the AmSurg Preferred Stock into Class A Common Stock and any issuances in anticipated equity financing and acquisition transactions, "control" of the AmSurg Board of Directors as defined in the Code and regulations thereto. In order to satisfy these requirements, the AmSurg Common Stock held by AHC will be required to have on the date of the Recapitalization and Exchange approximately 91% of the voting power of the capital stock of AmSurg in the election and removal of directors. In order to satisfy these requirements, it will also be necessary to amend the AmSurg Charter to modify the existing right of the Series A Preferred Stock and Series B Preferred Stock to elect one director to the Board of Directors of AmSurg so that this right would exist only if a public offering yielding at least $20,000,000 in net proceeds to AmSurg and/or its stockholders has not occurred by May 31, 2000. The Recapitalization is subject to the approval of the holders of a majority of the capital stock of AmSurg. A meeting of the stockholders of AmSurg to approve the Recapitalization and certain related matters has been scheduled for December 1, 1997. AHC, as the holder of a majority of the voting power of the AmSurg capital stock, has agreed to vote in favor of the Recapitalization and such other matters. A separate class vote of the holders of the Series A Preferred Stock and Series B Preferred Stock will be required for the Charter amendment being considered at such meeting. Pursuant to the Distribution Agreement, AHC and AmSurg have conditioned the Distribution (and thus the Recapitalization and Exchange) on holders of no more than five percent of the outstanding shares of AmSurg common stock exercising their rights to dissent from the proposed Recapitalization. AHC and AmSurg may waive such condition in their sole discretion. The Recapitalization and Exchange are integral parts of the transactions contemplated by the Distribution Agreement. The Recapitalization and Exchange will not be effected unless the Distribution will be effected immediately thereafter. The Recapitalization will be effected through an amendment to the Charter of AmSurg. The Recapitalization will: (i) reduce on a one for three basis the number of outstanding shares of AmSurg common stock through the Reverse Stock Split, with the intention of permitting the shares of Class A Common Stock distributed in the Distribution to trade at proportionately higher per share prices; and (ii) authorize the new Class B Common Stock having ten votes per share in the election and removal of AmSurg directors and one vote in all other matters, so that, when exchanged for 4,787,131 of the shares of Class A Common Stock then owned by AHC, AHC will own shares of AmSurg Common Stock having approximately 91% of the voting power of all outstanding shares of capital stock of AmSurg in the election and removal of directors on the date of the Distribution. 25 33 In the Recapitalization, the number of outstanding options to purchase AmSurg common stock will be adjusted on a one for three basis and such options will become options to purchase shares of Class A Common Stock. The exercise price per share will be correspondingly increased to preserve the relative value of the option. No fractional shares shall be delivered to the holders of AmSurg common stock in the Recapitalization. The shares that would otherwise be distributed as fractional shares to holders of AmSurg common stock will, as soon as practicable after the Recapitalization, be aggregated and sold by the Distribution Agent on behalf of the holders who would otherwise receive fractional shares and the proceeds of the sale will be paid to the holders of AmSurg common stock in lieu of such fractional shares. On the Distribution Date, immediately following the Recapitalization and immediately prior to the Distribution, AHC and AmSurg shall effect the Exchange in accordance with the terms of the Exchange Agreement. Pursuant to the Exchange Agreement, AHC will deliver 4,787,131 shares of Class A Common Stock in exchange for 4,787,131 shares of Class B Common Stock. The sole purposes of the Exchange are: (i) to increase the voting power of AHC immediately prior to the Distribution, to the extent required in order for the Distribution to qualify for substantially tax-free treatment, for federal income tax purposes, under Section 355 of the Code and (ii) to have, to the extent possible, an equal number of shares of each class of AmSurg Common Stock available to be traded in the public markets. See "THE DISTRIBUTION -- Certain Federal Income Tax Consequences." The Recapitalization and Exchange are intended to qualify for substantially tax-free treatment, for federal income tax purposes, under Section 368(a)(1)(E) of the Code. THE DISTRIBUTION AGREEMENT On November 3, 1997, AmSurg and AHC entered into the Distribution Agreement governing the terms and conditions of the Distribution and certain aspects of the relationship between AmSurg and AHC thereafter. The Distribution Agreement provides for, among other things, (i) the Recapitalization, Exchange and Distribution; (ii) cooperation prior to the Distribution between AmSurg and AHC in order to effectuate the Distribution; and (iii) certain conditions to be fulfilled or waived prior to the consummation of the Distribution. The Distribution Agreement also provides that, upon satisfaction or waiver of certain conditions set forth therein and the completion of the Recapitalization and Exchange, AHC will, on the Distribution Date, distribute to the holders of record of shares of AHC Common Stock on the Distribution Record Date all of the shares of AmSurg Common Stock owned by AHC by delivering certificates for such shares to the Distribution Agent for delivery to the holders of AHC Common Stock. According to the Distribution Agreement, the Distribution shall be deemed to be effective upon notification by AHC to the Distribution Agent that the Distribution has been declared and that the Distribution Agent is authorized to proceed with the Distribution. Pursuant to the Distribution Agreement, AHC and AmSurg have agreed on (i) a slate of directors to be elected as the members of the Board of Directors of AmSurg effective upon the Distribution and any terms and classes for such directors as may be agreed upon by AHC and AmSurg, (ii) the persons to be the executive officers of AmSurg effective upon the Distribution, (iii) the terms of certain amendments to the Bylaws of AmSurg to be effective upon the Distribution, (iv) the terms of the amendments to the Charter of AmSurg to be effective upon the Distribution, (v) the terms of a new stock incentive plan to be effective upon the Distribution, (vi) the terms of the advisory agreements between each of Henry D. Herr and Thomas G. Cigarran and AmSurg to be effective for a period of two years following the Distribution and (vii) the terms of certain arrangements between AmSurg and its directors and officers as described below under "MANAGEMENT OF AMSURG." In addition, AHC has agreed to vote, in its capacity as a stockholder of AmSurg, all of its shares of AmSurg common stock in favor of the Recapitalization, each of the matters referred to in the foregoing sentence and any other matters requiring the approval of the stockholders of AmSurg in connection with the transactions contemplated by the Distribution Agreement. 26 34 Pursuant to the Distribution Agreement, AmSurg and AHC have agreed to cooperate in order to effectuate the Distribution and certain transactions related thereto, including, among other things, the preparation and filing with the SEC of this Information Statement, the listing on the Nasdaq National Market or other national securities exchange of the Class A Common Stock and Class B Common Stock and the preparation and delivery to AmSurg's stockholders of a proxy statement with respect to a stockholders' meeting called to approve the terms of the Recapitalization, the election of the members of AmSurg's Board of Directors after the Distribution, the amendment and restatement of AmSurg's Charter and the adoption of the 1997 Stock Incentive Plan and other matters requiring approval in connection with the transactions contemplated by the Distribution. AmSurg and AHC also agreed in the Distribution Agreement that (i) none of the transactions contemplated by the Distribution, including the Recapitalization and Exchange, will constitute, individually or in the aggregate, a change in control under the terms of any stock incentive plan, stock incentive agreement or similar plan or agreement of AmSurg and (ii) in order to better prepare itself for becoming a publicly traded company, AmSurg may amend or establish new employee benefit plans and amend or adopt other corporate documents as the Board of Directors of AmSurg may deem reasonably necessary or appropriate, subject to stockholder approval if necessary, and that AHC, as a stockholder of AmSurg, will vote in favor of any such actions submitted to stockholders of AmSurg to the extent that AHC agrees that such actions are necessary or appropriate for AmSurg as an independent public company. In accordance with the Distribution Agreement, each of AmSurg and AHC will be granted access to certain records and information in the possession of the other. In addition, the Distribution Agreement requires the retention by each of AmSurg and AHC for a period of seven years following the Distribution of all such information in its possession, and thereafter requires that each party give the other prior notice of its intention to dispose of such information. The Distribution Agreement provides that each of AmSurg and AHC will bear its own expenses in connection with the transactions contemplated by the Distribution Agreement, provided however, that (a) AHC and AmSurg will share equally the costs of (i) preparing this Information Statement, (ii) preparing the Distribution Agreement, the Exchange Agreement and the Management Agreement and (iii) preparing the SEC no-action letter; (b) AmSurg will be responsible for the costs of (i) preparing and, as required, filing any Charter amendment required to effect the Recapitalization, (ii) preparing, printing (or reproducing) and mailing a proxy statement for the purpose of soliciting the votes of stockholders of AmSurg in order to effect the Recapitalization and to obtain any other required approvals of the stockholders of AmSurg, (iii) listing or other inclusion of the shares of Class A Common Stock and Class B Common Stock on the Nasdaq National Market or other national securities exchange, (iv) any required registration or qualification of any shares of AmSurg Common Stock under state blue sky and securities laws, (v) the preparation of stock certificates for the shares of AmSurg Common Stock to be distributed in connection with the Recapitalization, the Exchange and the Distribution, (vi) the fees and expenses of J.C. Bradford as financial advisor to AmSurg, (vii) the fees of counsel to AmSurg and to the Special Committee, (viii) preparing and auditing the separate financial statements of AmSurg and its consolidated subsidiaries and (ix) obtaining any governmental or third party consents or approvals required to be obtained on the part of AmSurg in connection with the transactions contemplated by this Agreement; and (c) AHC will be responsible for the costs of (i) preparing the IRS letter ruling requests, and, if applicable, the Tax Opinions, (ii) printing (or reproducing) and mailing this Information Statement, (iii) the fees and expenses of the Distribution Agent in connection with the Distribution, (iv) the fees and expenses of Morgan Keegan, as financial advisor to AHC, and the fees of other professional advisors deemed necessary by AHC, (v) the fees and expenses of counsel to AHC with respect to services performed on behalf of AHC, (vi) preparing and auditing the financial statements of AHC and its consolidated subsidiaries (except for the separate financial statements of AmSurg and its consolidated subsidiaries as provided in clause (b)(viii) above) and (vii) obtaining any governmental or third party consents or approvals required to be obtained on the part of AHC in connection with the transactions contemplated by the Distribution. The expenses of AHC and AmSurg in connection with the transactions contemplated by the Distribution Agreement are estimated to be $1,000,000 and $650,000, respectively. 27 35 CONDITIONS The obligations of AmSurg and AHC to consummate the Distribution (as well as the Recapitalization and the Exchange) are subject to the fulfillment or waiver of certain conditions, including the following: (i) the receipt by AHC of the IRS ruling or Tax Opinions in form and substance satisfactory to AHC, in its sole discretion, concerning the treatment of the Distribution under Section 355 of the Code and the absence of any proposed or pending legislation that would adversely affect such ruling or opinions; (ii) the listing on a national securities exchange or for inclusion on the Nasdaq National Market of the AmSurg Common Stock or such other trading market as the parties may agree; (iii) the approval by the stockholders of AmSurg of the members of AmSurg's Board of Directors who are to serve as directors after the Distribution, the amendment and restatement of AmSurg's Charter and Bylaws in the form to be effective after the Distribution, for which amendment the Series A Preferred Stock and the Series B Preferred Stock are entitled to vote as a separate class, and AmSurg's 1997 Stock Incentive Plan; (iv) the approval of the Recapitalization and Exchange by the holders of at least a majority of the voting power of the outstanding shares of capital stock of AmSurg at a meeting of the stockholders of AmSurg, with holders of no more than 5% of the outstanding shares of AmSurg common stock exercising their right to seek dissenters' rights of appraisal under Tennessee law; (v) the receipt by the Special Committee and the Board of Directors of AmSurg of an opinion of J.C. Bradford acceptable to the Board of Directors of AmSurg as to the fairness, from a financial point of view, of the Recapitalization, Exchange and Distribution to the stockholders of AmSurg, other than AHC; and (vi) the receipt by the Board of Directors of AHC of an opinion from Morgan Keegan as to the fairness, from a financial point of view, of the Recapitalization, Exchange and Distribution to the stockholders of AHC and such other opinions as AHC may deem necessary in its sole discretion. In addition, the obligations of AmSurg and AHC to effect the Exchange are subject to the completion of the Recapitalization, and, in turn, the obligations of AHC to effect the Distribution in accordance with the Distribution Agreement are conditioned upon the completion of the Exchange. AHC, as holder of a majority of the voting power of the capital stock of AmSurg on September 30, 1997, has agreed to vote in favor of such matters. MANNER OF EFFECTING THE DISTRIBUTION On the Distribution Date, immediately following consummation of the Exchange, AHC will deliver all of the shares of AmSurg Common Stock held by AHC to SunTrust Bank, the Distribution Agent for the AmSurg Common Stock, for distribution on a pro rata basis to the holders of AHC Common Stock at the close of business on the Distribution Record Date. It is expected that the Distribution Agent will begin mailing share certificates representing the AmSurg Common Stock as soon as practicable after the Distribution. The shares will be distributed to the holders of record of the AHC Common Stock on the basis of approximately 9.21 shares of Class A Common Stock and approximately 59.36 shares of Class B Common Stock for each 100 shares of AHC Common Stock outstanding on the Distribution Record Date, as such ratio may be adjusted for issuances of AHC Common Stock after September 30, 1997. All such shares of AmSurg Common Stock will be fully paid, nonassessable and free of preemptive rights. No fractional shares shall be delivered to the holders of AHC Common Stock in the Distribution. The shares that would otherwise be distributed as fractional shares to holders of the AHC Common Stock will, as soon as practicable after the Distribution, be aggregated and sold by the Distribution Agent on behalf of the holders who would otherwise receive fractional shares and the proceeds of the sale will be paid to the holders of AHC Common Stock in lieu of such fractional shares. See "-- Certain Federal Income Tax Consequences." NO HOLDER OF AHC COMMON STOCK WILL BE REQUIRED TO PAY ANY CASH OR OTHER CONSIDERATION FOR THE SHARES OF AMSURG COMMON STOCK RECEIVED IN THE DISTRIBUTION OR TO SURRENDER OR EXCHANGE SHARES OF AHC COMMON STOCK OR TO TAKE ANY OTHER ACTION IN ORDER TO RECEIVE SHARES OF AMSURG COMMON STOCK IN THE DISTRIBUTION. STOCKHOLDERS WILL BE SUBJECT TO FEDERAL INCOME TAXATION WITH RESPECT TO APPROXIMATELY 1.5% OF THE SHARES OF AMSURG COMMON STOCK RECEIVED BY THEM AND ANY CASH RECEIVED IN LIEU OF FRACTIONAL SHARES. 28 36 LISTING OF CLASS A COMMON STOCK AND CLASS B COMMON STOCK; RESTRICTIONS ON RESALE Application has been made for listing the Class A Common Stock and Class B Common Stock on the Nasdaq National Market. The AmSurg Common Stock received pursuant to the Distribution will be freely transferable under the Securities Act, except for shares of AmSurg Common Stock received by any person who may be deemed to be an "affiliate" of AmSurg within the meaning of Rule 144 under the Securities Act. Persons who may be deemed to be affiliates of AmSurg after the Distribution generally include individuals or entities that control, are controlled by, or are under common control with AmSurg, and may include the directors and executive officers of AmSurg as well as any principal stockholder of AmSurg. The shares of AmSurg Common Stock outstanding as of the Distribution held by stockholders other than AHC were issued in transactions unrelated to the Distribution. Under current law, the holders of such shares of Class A Common Stock and persons who are affiliates of AmSurg will be permitted to sell the Class A Common Stock received pursuant to the Distribution ("restricted securities") only pursuant to an effective registration statement under the Securities Act or pursuant to an exemption therefrom, such as the exemptions afforded by Section 4(1) of the Securities Act and Rule 144 thereunder. Of the 3,959,718 shares of Class A Common Stock that are anticipated to be "restricted securities" immediately following the Distribution, 3,602,809 will have satisfied a one-year holding period. This Information Statement does not cover resales of AmSurg Common Stock by existing stockholders of AmSurg. See "RISK FACTORS -- Shares Eligible for Future Sale," "DESCRIPTION OF CAPITAL STOCK" and "SHARES ELIGIBLE FOR FUTURE SALE." INTERESTS OF CERTAIN PERSONS IN THE DISTRIBUTION Certain directors and executive officers of AHC and AmSurg have interests in the Distribution that are in addition to their interests as AHC stockholders generally and may create potential conflicts of interest. Thomas G. Cigarran, the Chairman, President and Chief Executive Officer of AHC, is currently the Chairman and Chief Executive Officer of AmSurg and will retain his position as director and Chairman of the Board of AmSurg following the Distribution, and also will serve as an advisor to AmSurg although he will no longer serve as an executive officer of AmSurg. Henry D. Herr, the Executive Vice President and Chief Financial Officer, as well as a director, of AHC, is currently Vice President and Secretary, as well as a director, of AmSurg. Following the Distribution, Mr. Herr will serve as a director of, and as an advisor to AmSurg. Both Mr. Cigarran and Mr. Herr will enter into advisory agreements with AmSurg pursuant to which they will receive shares of restricted stock of AmSurg in compensation for their services. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -- Advisory Agreements." James A. Deal, a member of the AmSurg Board of Directors since 1992, is an Executive Vice President of AHC and serves as President of DTCA. As directors of AmSurg, Messrs. Cigarran, Herr and Deal will be entitled to receive director's compensation from AmSurg on the same terms as all other non-employee directors of AmSurg. See "MANAGEMENT OF AMSURG -- Compensation of Directors." Because these members of the Board of Directors of AmSurg are affiliated with AHC, the Board of Directors of AmSurg appointed the Special Committee to consider whether the Recapitalization, Exchange and Distribution, are fair and in the best interests of the stockholders of AmSurg, including the minority stockholders, and to negotiate the terms and conditions of these transactions on behalf of AmSurg. In approving the Recapitalization, Exchange and Distribution, the Boards of Directors of AHC and AmSurg were aware of the various interests of the members of each Board and gave consideration to the potential conflicts raised by such interests. THE MANAGEMENT AGREEMENT On the Distribution Date, AmSurg and AHC will enter into the Management Agreement pursuant to which AHC will provide certain financial and accounting services to AmSurg and its subsidiaries on a transitional basis, with the intent that AmSurg acquire the personnel, systems and expertise necessary to become self-sufficient in the provision of these services during the period beginning on the date of the Management Agreement and ending one year later (or earlier if so elected by AmSurg). Pursuant to the Management Agreement, AHC shall provide AmSurg with services, including processing payroll and associated payroll tax returns and accounts payable for the AmSurg corporate office, maintaining general accounting records for the AmSurg corporate operations and operations of AmSurg's subsidiaries (including 29 37 the partnerships and limited liability companies), preparing consolidated AmSurg financial statements, preparing AmSurg corporate tax returns and tax returns for AmSurg subsidiaries, preparing estimated tax reports, and preparing financial statements in connection with periodic reports required to be filed by AmSurg with the SEC. As compensation for such services, AmSurg shall pay AHC a fixed fee of $4,166.67 per month and a variable fee of $625 per month for each ambulatory surgery center in operation and certain multiples thereof for the corporate office and other operations, subject to increase if AmSurg requests certain additional services. Pursuant to the Management Agreement, AmSurg shall have sole responsibility for the accuracy and integrity of the financial statements and tax returns prepared by AHC, and AmSurg will provide oversight and review on a timely basis of the services provided by AHC. In addition, in the absence of gross negligence on the part of AHC, AmSurg will indemnify and hold AHC, its directors, officers, employees and agents and any person who controls AHC within the meaning of the Securities Act harmless from and against any and all liabilities, claims or damages (including the cost of investigating any claim and reasonable attorneys' fees and disbursements) in connection with any services performed by AHC or any transactions or conduct in connection therewith. Pursuant to the Management Agreement, AHC will be responsible for any claims incurred on or prior to the date of such agreement by AmSurg employees under any medical or dental plans offered by AHC to AmSurg employees on or prior to the date of such agreement in accordance with the terms of such plans. AHC will not be responsible for any claims incurred following the date of the Management Agreement by any AmSurg employees under any plan. ADJUSTMENT OF AHC STOCK OPTIONS As a result of the Distribution and pursuant to the terms of the AHC stock option plans, the vesting of the unvested portion of the outstanding AHC stock options will be accelerated and the exercise price per share of outstanding options to purchase shares of AHC Common Stock will be reduced, and the number of shares underlying such options will be in certain cases increased, to maintain the value of AHC stock options following the Distribution at pre-Distribution levels. Holders of AHC stock options on the Distribution Record Date will not be entitled to receive shares of AmSurg Common Stock in respect of such options. The amount by which the options will be adjusted will depend on a comparison of the market price per share of AHC before and after the Distribution. For a description of the accounting treatment of the option adjustment, see "-- Accounting Treatment." ACCOUNTING TREATMENT Following the approval of the Original Proposed Distribution by the AHC Board of Directors on March 7, 1997, AHC has presented the business of AmSurg as a discontinued operation to the extent financial information for periods prior to the Distribution was required to be included in AHC's historical financial statements. The Distribution will be treated as a dividend for accounting purposes and will consequently reduce stockholders' equity by the book value of AHC's investment in AmSurg. Expenses of the Distribution and related transactions are expected to be approximately $1,000,000 for AHC and $650,000 for AmSurg, and will be generally non-deductible for federal income tax purposes. Expenses incurred have been recorded as operating expenses by AmSurg and expenses associated with discontinued operations in the case of AHC. For a description of the allocation of certain expenses between AHC and AmSurg, see "-- The Distribution Agreement." As a result of the adjustment of AHC stock options, AHC will record non-cash compensation expense and an equal increase in stockholders' equity (additional paid-in capital) in an amount equal to the difference between the aggregate exercise price of outstanding options to purchase shares of AHC Common Stock having an exercise price below the market price of AHC Common Stock and the aggregate market price for such shares immediately prior to the Distribution. The compensation expense and associated increase in additional paid-in capital will be recognized because generally accepted accounting principles require such recognition when an adjustment results in a change in the ratio of the exercise price to the market price per 30 38 share even though no change in the aggregate value of the options will take place. Although it would be possible to adjust the options without changing this ratio, it could only be accomplished by issuing a large number of new options which would result in substantial dilution to AHC stockholders. While the adjustment management anticipates making will result in additional new option issuances, such new issuances will be significantly less than those which would be required to avoid recognition of compensation expense and associated increase to additional paid-in capital as of the Distribution Date. The option adjustments will reduce earnings as a result of the recognition of compensation expense less the income tax benefit associated with the compensation expense deduction and will increase additional paid-in capital by the amount of compensation expense. The adjustment will also have the effect of decreasing future earnings per share because of the impact of the additional options on the calculation of common stock equivalents used in the calculation of earnings per share. Because the amount of these adjustments will depend upon the market price of AHC Common Stock prior to and after the Distribution, it is not possible to predict the impact on weighted average common shares and equivalents. If the Distribution were to have occurred on August 31, 1997, on which date the closing price of AHC Common Stock was $11.13, the estimated impact on earnings and stockholders' equity would have been as follows:
NET INCOME INCREASE (DECREASE) ---------- Compensation expense........................................ $(3,750,000) Estimated income tax benefit................................ 1,450,000 ----------- Net decrease in net income........................ $(2,300,000) ===========
STOCKHOLDERS' EQUITY INCREASE (DECREASE) ------------- Increase in paid-in capital from stock options.............. $ 3,750,000 Net decrease in net income.................................. (2,300,000) ----------- Net increase in stockholders' equity.............. $ 1,450,000 ===========
CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following is a summary description of the material federal income tax consequences of the Distribution. This summary is not a complete description of all the consequences of the Distribution. Moreover, each AHC stockholder's individual circumstances may affect the tax consequences of the Distribution to such stockholder. THE DISCUSSION SET FORTH BELOW DOES NOT ADDRESS THE STATE, LOCAL OR FOREIGN TAX ASPECTS OF THE DISTRIBUTION. THE DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE CODE, EXISTING AND PROPOSED TREASURY REGULATIONS THEREUNDER AND CURRENT ADMINISTRATIVE RULINGS AND COURT DECISIONS. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE AND ANY SUCH CHANGES COULD AFFECT THE CONTINUING VALIDITY OF THIS DISCUSSION. EACH AHC STOCKHOLDER SHOULD CONSULT SUCH STOCKHOLDER'S OWN TAX ADVISOR WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE DISTRIBUTION TO SUCH STOCKHOLDER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL LAWS OR OTHER TAX LAWS. Consummation of the Distribution is conditioned upon either (i) the receipt of a ruling or rulings, in form and substance satisfactory to AHC, from the IRS, or (ii) the receipt of the Tax Opinions, in form and substance satisfactory to AHC, providing, in substance, that the Distribution will constitute a substantially tax-free distribution described in Section 355 of the Code, and AHC will not recognize any income or gain as 31 39 a result of the Distribution. Accordingly, AmSurg and AHC have requested the following rulings concerning the Distribution from the IRS: a. Assuming that the Recapitalization and the Exchange qualify as a "reorganization" within the meaning of Section 368(a)(1)(E) of the Code, such qualification will not be adversely affected by the Distribution; b. Assuming that the Recapitalization and the Exchange qualify as a "reorganization" within the meaning of Section 368(a)(1)(E), the Recapitalization and Exchange will not adversely affect the rulings requested below; c. No gain or loss will be recognized to AHC upon the distribution to the AHC stockholders of all of its AmSurg Common Stock; d. No gain or loss will be recognized to (and no amount will be included in the income of) the AHC stockholders upon receipt of AmSurg Common Stock in the Distribution, except with respect to cash received in lieu of fractional shares and the receipt of AmSurg Common Stock that was originally received in a transaction in which gain was recognized by AHC, as described below; e. The aggregate basis of the AmSurg Common Stock and AHC Common Stock in the hands of each AHC stockholder after the Distribution will be the same as the aggregate basis of the AHC Common Stock held by such stockholder immediately before the Distribution (plus any gain recognized with respect to the receipt of AmSurg Common Stock as described below), and such aggregate basis will be allocated between the AmSurg Common Stock and AHC Common Stock held by such stockholder in proportion to the fair market value of each (immediately after the Distribution); f. The holding period of the AmSurg Common Stock received without the recognition of any gain by each AHC stockholder pursuant to the Distribution will include the holding period of the AHC Common Stock with respect to which such AmSurg Common Stock was received, provided that such AHC Common Stock is held as a capital asset on the date of the Distribution; g. An AHC stockholder will recognize gain or loss equal to the difference between the cash received in lieu of a fractional share interest of AmSurg Common Stock and such stockholder's basis in the fractional share interest for which cash is received; and h. An AHC stockholder will recognize dividend income equal to the the fair market value of the AmSurg Common Stock that was originally received in a transaction in which gain was recognized by AHC. Approximately 1.5% of the outstanding shares of AmSurg Common Stock owned by AHC prior to the Distribution were acquired by AHC in taxable transactions. Accordingly, it is anticipated that each AHC stockholder will recognize dividend income taxable under Section 301 of the Code with respect to 1.5% of the shares of AmSurg Common Stock received by such stockholder in the Distribution. Any such income will be taxed as ordinary income to the extent of such stockholder's ratable share of AHC's accumulated earnings and profits (with the excess, if any, taxable as gain from the sale or exchange of a capital asset). AHC will notify its stockholders of its determination of their ratable share of the amount of its accumulated earnings and profits for this purpose. Corporate stockholders may be eligible for a dividends received deduction to the extent of the taxable portion of the Distribution. AHC will be deemed to have paid a dividend with respect to 1.5% of the shares of AmSurg Common Stock distributed to AHC stockholders and will be subject to federal income taxation on the excess of the fair market value of such shares over AHC's adjusted basis in such shares. A ruling request with respect to the Distribution was submitted to the IRS on October 23, 1997. A ruling from the IRS, while generally binding on the IRS, may under certain circumstances be retroactively revoked or modified by the IRS. Neither AmSurg nor AHC is currently aware of any such circumstances that would cause the IRS to revoke or modify a ruling received by the parties from the IRS as to the federal income tax consequences of the Distribution as described above. 32 40 The ruling is based on certain facts and representations, some of which will require confirmation prior to the time of the Distribution from each beneficial owner of 5% or more of the outstanding AHC Common Stock that, in effect, such beneficial owner has no present plan or intention to sell, exchange or otherwise dispose of any stock of AHC or AmSurg. In the event that AHC does not obtain a ruling from the IRS with respect to the substantially tax-free nature of the transactions contemplated hereby before the Distribution Date, AHC intends to make the Distribution in reliance on the Tax Opinions. It should be noted that if a ruling from the IRS is not obtained and instead the Distribution is made in reliance on the Tax Opinions, the Tax Opinions are not binding on the IRS, and no assurance can be given that the IRS will not challenge the substantially tax-free nature of the proposed transaction. In addition, the Tax Opinions, if issued, would be based upon the representations of the management and stockholders of AHC and the management of AmSurg and would be qualified by reference to existing law and other matters. See "RISK FACTORS -- Certain Federal Income Tax Consequences." Consummation of the Distribution is also conditioned upon the receipt of an opinion, in form and substance satisfactory to AHC, of Bass, Berry & Sims PLC, as counsel to AHC, providing, in substance, that the Recapitalization and Exchange will constitute a "reorganization" under Section 368(a)(1)(E) of the Code, that neither AmSurg nor AHC will recognize any income or gain as a result of the Recapitalization and Exchange and that no gain or loss will be recognized by the holders of AmSurg common stock upon the exchange of their shares solely for shares of Class A Common Stock and Class B Common Stock in the Recapitalization and Exchange. The IRS takes the position that the consequences of a transaction such as the Recapitalization and Exchange are adequately established in the tax law and, therefore, it will not issue a so-called "comfort ruling" as to these matters. Accordingly, AHC has not requested a ruling from the IRS as to those matters. Therefore, AHC has conditioned its obligation upon the receipt of an opinion from its counsel, Bass, Berry & Sims PLC, to the effect that: a. The Recapitalization and the Exchange constitute a tax-free "reorganization" under Section 368(a)(1)(E) of the Code; AmSurg and AHC will each be a "party to the reorganization" under Section 368(b) of the Code; b. No gain or loss will be recognized by AmSurg or AHC as a result of the Recapitalization and Exchange; c. An AmSurg stockholder will not recognize any income, gain or loss as the result of the receipt of AmSurg Common Stock in the Recapitalization or Exchange; d. The aggregate tax basis of the shares of AmSurg Common Stock received in the Recapitalization or the Exchange will equal the aggregate tax basis of such stockholder's shares of AmSurg common stock prior to the Recapitalization; and e. An AmSurg stockholder's holding period for the shares of AmSurg Common Stock received by such stockholder in the Recapitalization or Exchange will include the holding period of the AmSurg common stock held by such stockholder immediately prior to the Recapitalization and Exchange, provided such AmSurg common stock was held as a capital asset as of the time of the Recapitalization and Exchange. As stated above, an opinion of counsel is not binding on the IRS or the courts. Moreover, the opinion of counsel will be based upon, among other things, current law and certain representations to counsel for AHC as to factual matters made by, among others, AHC and AmSurg which, if incorrect in certain material respects, would jeopardize the conclusions reached by counsel. Current Treasury regulations require AHC stockholders who receive AmSurg Common Stock pursuant to the Distribution to attach to their federal income tax returns for the year in which the Distribution occurs a detailed statement setting forth such data as may be appropriate in order to show the applicability of Section 355 of the Code to the Distribution. AHC will provide an appropriate statement to each AHC stockholder of record as soon as practicable after the Distribution. 33 41 SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA OF AMSURG The following table sets forth selected consolidated financial data which have been derived from the consolidated financial statements of AmSurg. The financial statements as of and for the periods ended December 31, 1992 through 1996 have been audited. The operating data and balance sheet data as of and for the nine months ended September 30, 1996 and 1997, are derived from unaudited financial statements which, in the opinion of management, include all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of financial condition and results of operations. Operating results for the nine months ended September 30, 1997 are not necessarily indicative of the results that may be expected for the year ended December 31, 1997. The pro forma combined statement of operations data for the year ended December 31, 1996 and the nine months ended September 30, 1997 set forth below reflect the effects of all acquisitions (five surgery centers and one physician practice in 1996 and five surgery centers and one physician practice in 1997) completed after the beginning of the period as if such transactions were completed at January 1, 1996. Except for The Endoscopy Center of Ocala, Inc. and The Endoscopy Center, Inc. which were acquired in 1996 and 1997, respectively, none of the businesses acquired individually exceeded the significant subsidiary tests requiring separate financial reporting under applicable SEC regulations. Comparability of data on a year to year basis is affected by the number of centers acquired in each year. All the information set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations of AmSurg" and the Consolidated Financial Statements and related notes included elsewhere herein. See "Index to Financial Statements." The historical and pro forma financial information may not be indicative of AmSurg's future performance and does not necessarily reflect the financial position and results of operations of AmSurg had AmSurg operated as a separate, stand-alone entity during the periods covered.
HISTORICAL ------------------ PRO FORMA PRO FORMA NINE MONTHS ------------- ------------ NINE MONTHS HISTORICAL ---------------------------------------------- ENDED YEAR ENDED DECEMBER 31, YEAR ENDED SEPTEMBER 30, ENDED ---------------------------------------------- DECEMBER 31, ------------------ SEPTEMBER 30, 1992(1) 1993 1994 1995 1996 1996 1996 1997 1997 ------- ------ ------- ------- ------- ------------ ------- ------- ------------- (IN THOUSANDS EXCEPT PER SHARE AND CENTER DATA) OPERATING DATA: Revenues..................... $ 576 $6,586 $13,826 $22,489 $35,007 $51,082 $24,075 $41,163 $43,784 ------ ------ ------- ------- ------- ------- ------- ------- ------- Expenses: Salaries and benefits...... 456 2,307 4,092 6,243 11,613 15,195 7,976 12,552 13,107 Other operating expenses... 288 3,002 5,091 7,563 11,547 17,482 7,914 14,564 15,260 Depreciation and amortization............. 51 665 1,309 2,397 3,000 4,101 2,096 3,511 3,708 Interest................... 3 30 193 722 948 1,981 668 1,141 1,365 Net loss on sale of assets(2)................ -- -- -- -- -- -- -- 1,494 1,494 Distribution cost(3)....... -- -- -- -- -- -- -- 458 458 ------ ------ ------- ------- ------- ------- ------- ------- ------- Total expenses....... 798 6,004 10,685 16,925 27,108 38,759 18,654 33,720 35,392 ------ ------ ------- ------- ------- ------- ------- ------- ------- Income (loss) before minority interest and income taxes...................... (222) 582 3,141 5,564 7,899 12,323 5,421 7,443 8,392 Minority interest in earnings of consolidated partnerships............. 87 1,121 2,464 3,938 5,433 8,690 3,756 6,447 7,072 ------ ------ ------- ------- ------- ------- ------- ------- ------- Income (loss) before income taxes...................... (309) (539) 677 1,626 2,466 3,633 1,665 996 1,320 Income tax expense......... -- -- 26 578 985 1,452 665 1,279 1,409 ------ ------ ------- ------- ------- ------- ------- ------- ------- Net income (loss)............ (309) (539) 651 1,048 1,481 2,181 1,000 (283) (89) Accretion of preferred stock discount........... -- -- -- -- 22 22 -- 210 210 ------ ------ ------- ------- ------- ------- ------- ------- ------- Net income (loss) attributable to common stockholders............... $ (309) $ (539) $ 651 $ 1,048 $ 1,459 $ 2,159 $ 1,000 $ (493) $ (299) ====== ====== ======= ======= ======= ======= ======= ======= ======= Net income (loss) per share attributable to common stockholders(4)............ $(0.24) $(0.11) $ 0.09 $ 0.12 $ 0.16 $ 0.22 $ 0.11 $ (0.05) $ (0.03) ====== ====== ======= ======= ======= ======= ======= ======= ======= Weighted average common shares and equivalents -- pro forma(4)................... 1,302 4,734 7,313 8,581 9,102 9,602 8,970 9,437 9,571
- --------------- See footnotes on following page 34 42
HISTORICAL HISTORICAL ---------------------------------------------- ------------------ AT DECEMBER 31, AT SEPTEMBER 30, ---------------------------------------------- ------------------ 1992 1993 1994 1995 1996 1996 1997 ------- ------ ------- ------- ------- ------- ------- (IN THOUSANDS EXCEPT PER SHARE AND CENTER DATA) BALANCE SHEET DATA: Cash and cash equivalents............................. $ 583 $ 738 $ 1,750 $ 3,470 $ 3,192 2,321 3,626 Working capital....................................... 1,166 993 2,557 2,931 4,732 2,348 6,407 Total assets.......................................... 9,552 14,637 27,065 35,106 54,653 46,853 72,669 Long-term debt........................................ 214 640 3,520 4,786 9,218 10,409 21,730 Minority interest..................................... 647 601 2,019 3,010 5,674 4,113 8,482 Preferred stock....................................... -- -- -- -- 4,982 -- 5,192 Stockholders' equity.................................. 8,440 12,055 19,558 22,479 28,374 26,501 29,542 GENERAL CENTER DATA: Procedures............................................ 1,146 16,051 30,922 55,344 71,323 49,640 75,028 Centers at period end................................. 4 6 14 18 27 23 35
- --------------- (1) Period from April 2, 1992 (inception) through December 31, 1992. (2) Reflects a loss attributable to the sale of a partnership interest, net of a gain on the sale of a surgery center building and equipment, which had an impact of reducing net income per share by $0.16 on the historical and pro forma results of operations for the nine months ended September 30, 1997. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of AmSurg" and "Notes to the Consolidated Financial Statements of AmSurg -- Note 10." (3) Reflects costs incurred to date related to the Distribution, which had an impact of reducing net income per share by $0.05 on the historical and pro forma results of operations for the nine months ended September 30, 1997. See "Management's Discussion and Analysis of Financial Condition and Results of Operations of AmSurg" and "Notes to Consolidated Financial Statements of AmSurg -- Note 10." (4) Adjusted to give effect to the Recapitalization which includes a one for three reverse stock split. 35 43 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF AMSURG OVERVIEW AmSurg develops, acquires and operates practice-based ambulatory surgery centers in partnership with physician practice groups through partnerships and limited liability companies. As of September 30, 1997, AmSurg owned a majority interest (51% or greater) in 35 surgery centers, owned a majority interest (60% or greater) in two physician practices and had established and was the majority owner (51%) of three start-up specialty physician networks. As of September 30, 1997, AHC owned 58% of the common stock of AmSurg. Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements which are based upon current expectations and involve a number of risks and uncertainties. These statements which have been included in reliance on the "safe harbor" provisions of the Litigation Reform Act, may be affected by the risk factors set forth in this Information Statement and by the important factors, among others, set forth below, and consequently, actual operations and results may differ materially from those expressed in these forward-looking statements. The Litigation Reform Act does not apply to initial public offerings. The important factors include: AmSurg's ability to enter into partnership or operating agreements for new practice-based ambulatory surgery centers and new specialty physician networks; its ability to identify suitable acquisition candidates and negotiate and close acquisition transactions; its ability to contract with managed care payors for its existing centers and its centers that are currently under development; its ability to obtain and retain appropriate licensing approvals for its existing centers and centers currently under development; its ability to minimize start-up losses of its development centers; and its ability to maintain favorable relations with its physician partners. See "RISK FACTORS -- Risks Associated with Forward-Looking Statements." The following table presents the components of changes in the number of surgery centers in operation and centers under development at the end of fiscal 1994, 1995 and 1996 and at September 30, 1997. A center is deemed to be under development when a partnership or limited liability company has been formed with the physician group partner to develop the center.
YEAR ENDED NINE MONTHS DECEMBER 31, ENDED ------------------ SEPTEMBER 30, 1994 1995 1996 1997 ---- ---- ---- ------------- Centers in operation, beginning of period................... 6 14 18 27 New center acquisitions placed in operation................. 3 2 6 5 New development centers placed in operation................. 5 2 3 6 Centers sold................................................ -- -- -- (3) == == == == Centers in operation, end of period......................... 14 18 27 35 == == == == Centers under development, end of period.................... 4 13 20 14
Twenty-seven of the surgery centers in operation as of September 30, 1997 perform gastrointestinal endoscopy procedures; five centers perform ophthalmology procedures; one center performs otolaryngology procedures; one center performs orthopaedic procedures; and one center performs ophthalmology, urology, general surgery and otolaryngology procedures. The other partner or member in each partnership or limited liability company is in each case an entity owned by physicians who perform procedures at the center. In addition, on January 31, 1996, AmSurg acquired a 70% interest in the assets of a gastroenterology and primary care physician practice located in Miami, Florida and associated with a surgery center in which AmSurg already held an ownership interest. On January 1, 1997, AmSurg acquired a 60% interest in the assets of a urology practice and currently has a surgery center under development with this same practice. The other partner in each partnership is an entity owned by the principal physicians who provide professional medical services to patients of the practice. All third party payor contracts under which the two physician group practices provide professional services are entered into by the group practice entity in which AmSurg is the general partner and owns a majority interest. 36 44 The start-up specialty physician networks are owned through limited partnerships and limited liability companies. AmSurg owns a majority interest in these entities, and the other partners are individual physicians who will provide the medical services to the patient population covered by the contracts the network will seek to enter into with managed care payors. It is not expected that the specialty physician networks in themselves will be a significant source of income for AmSurg. These networks were and will be formed primarily as a contracting vehicle to generate revenues for AmSurg's practice-based surgery centers and physician practices. These networks have not yet generated any revenues. AmSurg intends to expand primarily through the development and acquisition of additional practice-based ambulatory surgery centers in targeted surgical specialties. In addition, AmSurg believes that its surgery centers, combined with AmSurg's relationships with specialty physician practices in the surgery centers' markets, will provide AmSurg with other opportunities for growth from specialty network development that, if appropriate, may include the acquisition of specialty physician practices. By using its surgery centers as a base to develop specialty physician networks that are designed to serve large numbers of covered lives, AmSurg believes that it will strengthen its market position in contracting with managed care organizations. While AmSurg generally owns 51% to 70% of the entities that own the surgery center or physician group practice, AmSurg's consolidated statements of operations include 100% of the results of operations of the entities, reduced by the minority partners' share of the net income or loss of the surgery center/practice entities. AmSurg's sources of revenues are set forth in the table below.
PERCENTAGE OF TOTAL REVENUES ----------------------------------------------- YEAR ENDED DECEMBER 31, ----------------------- NINE MONTHS ENDED SOURCE OF REVENUES 1994 1995 1996 SEPTEMBER 30, 1997 - ------------------ ----- ----- ----- -------------------- Surgery center.............................. 97% 96% 83% 82% Physician practice.......................... -- -- 15 16 Management fee.............................. 1 2 1 1 Interest and other.......................... 2 2 1 1 --- --- --- --- Total............................. 100% 100% 100% 100% === === === ===
The facilities fees and fees for physician services received by AmSurg surgery centers and physician practices are generally paid through third party reimbursement programs, including governmental and private insurance programs. AmSurg derived approximately 39%, 37% and 36% of its revenues in the years ended December 31, 1994, 1995 and 1996, respectively, and 36% and 34% in the nine month periods ended September 30, 1996 and 1997, respectively, from governmental healthcare programs including Medicare and Medicaid. RESULTS OF OPERATIONS Nine Month Period ended September 30, 1997 Compared to Nine Month Period ended September 30, 1996 Revenues were $41,163,000 for the nine months ended September 30, 1997, an increase of $17,088,000, or 71%, over revenues for the comparable period in 1996. The increase is primarily attributable to additional centers in operation since January 1, 1996 and the acquisition of a urology physician practice on January 1, 1997. Excluding the three centers which were disposed of as described below, same-center revenues for the nine month period ended September 30, 1997 increased by 6%. Same-center growth resulted from increased case volume and increases in fees. AmSurg anticipates further revenue growth during the remainder of 1997 as a result of additional start-up and acquisition centers placed in operation and from same-center revenue growth. Salaries and benefits expense was $12,552,000 for the nine months ended September 30, 1997, an increase of $4,576,000, or 57%, over salaries and benefits expense for the comparable period in 1996. Other operating expenses were $14,564,000 for the nine months ended September 30, 1997, an increase of $6,649,000, or 84%, over other operating expenses for the comparable period of 1996. This increase resulted 37 45 primarily from additional centers in operation, the acquisition of the interest in the urology physician practice and from an increase in corporate staff primarily to support growth in the number of centers in operation and anticipated future growth. Salaries and benefits expense and other operating expenses in the aggregate as a percentage of revenues remained comparable at approximately 66% for the nine month periods ended September 30, 1997 and 1996. However, salaries and benefits expense as a percentage of revenues decreased during the 1997 period while other operating expenses as a percentage of revenues increased proportionately during the 1997 period compared to the 1996 period due to the inclusion of contracted physician services within other operating expenses for the urology practice acquired in January 1997. Depreciation and amortization expense increased $1,415,000, or 68%, for the nine month period ended September 30, 1997, over the comparable period in 1996, primarily due to 12 additional surgery centers and one physician practice in operation in the 1997 period compared to the 1996 period. Interest expense increased $472,000, or 71%, in the nine month period ended September 30, 1997 over the comparable period in 1996 due to debt assumed or incurred in connection with additional acquisitions of interests in surgery centers and a physician practice plus the interest expense associated with newly opened start-up surgery centers financed partially with bank debt. AmSurg anticipates further increases in operating expenses during the remainder of 1997 primarily due to additional start-up centers placed in operation in excess of the number of development centers historically opened by AmSurg within a nine month period. Typically a start-up center will incur start-up losses during its initial one to three months of operations and experiences lower revenues and operating margins than an established center until its case load grows to a more optimal operating level, which generally is expected to occur within 12 months after a center opens. Included in net loss on sale of assets in the nine month period ended September 30, 1997 is a loss of approximately $1,954,000 from the disposition in September 1997 of AmSurg's investment in a partnership that owned two surgery centers acquired in 1994. Various disagreements with the sole physician partner over the operation of these centers have adversely impacted the operations of these centers. After a series of discussions and attempts to resolve these differences, AmSurg determined that the partners could not resolve their disagreements and that as a result the carrying value of the assets associated with this partnership would not likely be fully recovered. AmSurg projected the undiscounted cash flows from these centers and determined these cash flows to be less than the carrying value of the long-lived assets attributable to this partnership. Accordingly, an impairment loss equal to the excess of the carrying value of the long-lived assets over the present value of the estimated future cash flows was recorded in March 1997 in accordance with Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of." In September 1997, AmSurg sold its interest in the partnership assets to its physician partner and recognized a partial loss recovery. Management believes it has good relationships with its other physician partners and that the loss attributable to the partnership discussed above resulted from a unique set of circumstances. AmSurg does not believe that the absence of the operations of these two centers will have a significant impact on AmSurg's future ongoing results of operations. In addition, net loss on sale of assets includes a pretax gain of approximately $460,000 from the sale in July 1997 of the building and equipment comprising a surgery center which AmSurg leased to a gastrointestinal physician practice located in Tennessee. AmSurg concurrently terminated its management agreement for this surgery center in which AmSurg had no ownership interest but had managed since 1994. Distribution cost in the nine month period ended September 30, 1997 represents costs incurred by AmSurg to date related to effecting the Distribution. AmSurg's minority interest in earnings for the nine month period ended September 30, 1997 increased by $2,692,000 from the comparable 1996 period primarily as a result of minority partners' interest in earnings at surgery centers recently added to operations and from increased profitability at same-centers. AmSurg recognized income tax expense of $1,279,000 in the nine month period ended September 30, 1997, compared to $665,000 in the comparable period in 1996. Because the net loss on sale of assets may only be deducted for tax purposes against future capital gains for up to five years, AmSurg has recognized no tax 38 46 benefit associated with this loss in the current period. However, certain tax aspects of the gain transaction recorded during the nine month period ended September 30, 1997 resulted in income tax expense of approximately $100,000. In addition, the distribution cost recognized by AmSurg is not deductible for tax purposes. AmSurg's effective tax rate in both periods is 40% of earnings prior to the impact of the net loss on sale of assets and distribution cost, and differs from the federal statutory income tax rate of 34% due primarily to the impact of state income taxes. Accretion of preferred stock discount resulted from the issuance during November 1996 of redeemable preferred stock with a redemption amount of $3,000,000. The preferred stock was recorded at its fair market value, net of issuance costs. The redeemable preferred stock is being accreted to its redemption value including potential dividends which will begin in November 1998 unless redeemed by that date. Fiscal Year Ended December 31, 1996 Compared to Fiscal Year Ended December 31, 1995 Revenues were $35,007,000 for 1996, an increase of $12,518,000, or 56%, over revenues for 1995. The increase resulted primarily from the growth in the number of surgery centers in operation, the acquisition of a majority interest in the Florida physician practice as of January 31, 1996 and an increase of 14% in same-center revenues at the fifteen centers in operation since January 1, 1995. Salaries and benefits expense increased by $5,370,000, or 86%, while other operating expenses increased by $3,984,000, or 53%, for 1996 from 1995. These increases resulted primarily from the acquisition of the interest in the Florida physician practice, additional centers in operation and an increase in corporate staff primarily to support growth in the number of centers in operation and anticipated future growth. Salaries and benefits expense and other operating expenses represented in the aggregate approximately 66% of revenues for 1996 as compared to approximately 61% of revenues for 1995. Physician group practices generally have lower operating margins than ambulatory surgery centers. Because the Florida physician practice has both greater revenues and greater operating expenses as a percentage of revenues than any single center, its acquisition had a disproportionately large impact on operating margins. Depreciation and amortization expense increased $603,000, or 25%, in 1996 over 1995, primarily due to the acquisition of majority interests in additional surgery centers, the acquisition of the interest in the Florida physician practice and new start-up surgery centers placed in operation. The increase of $225,000, or 31%, in interest expense for 1996 over 1995 is primarily attributable to debt assumed or incurred in connection with additional acquisitions of interests in surgery centers and the Florida physician practice plus the interest expense associated with newly opened start-up surgery centers financed partially with bank debt. Minority partners' interest in center earnings for 1996 rose to $5,434,000 from $3,938,000 for 1995, an increase of 38%, primarily as a result of minority partners' interest in earnings at surgery centers added to operations and from increased same-center profitability. Income tax expense increased 70% in 1996 to $985,000 as a result of increased income before income taxes and an increase in AmSurg's effective income tax rate to 40% from 36%. The increase in the effective income tax rate resulted from the utilization of prior period net operating loss carryforwards during 1995. The difference between the federal statutory income tax rate of 34% and AmSurg's effective income tax rates was due primarily to the utilization of prior period net operating loss carryforwards in 1995 and the impact of state income taxes. Fiscal Year Ended December 31, 1995 Compared to Fiscal Year Ended December 31, 1994 Revenues for 1995 were $22,489,000, an increase of $8,663,000, or 63%, over 1994. The increase in revenues resulted primarily from the growth in the number of surgery centers in operation and from an increase of 9% in same-center revenues at six centers in operation since January 1, 1994. Salaries and benefits expense grew by $2,151,000, or 53%, while other operating expenses grew by $2,472,000, or 49%, from 1994 to 1995. The increases in salaries and benefits expense and in other operating expenses resulted primarily from an increased number of centers in operation and from an increase in corporate staff to support additional centers in operation and anticipated future growth. Salaries and benefits 39 47 expense and other operating expenses represented in the aggregate approximately 61% of revenues in 1995 as compared to approximately 66% of revenues in 1994 as a result of the margin contribution of additional centers in operation. Depreciation and amortization expense increased by $1,088,000, or 83%, for 1995 over 1994, due primarily to the acquisition of majority interests in additional practice-based ambulatory surgery centers and from new start-up centers placed in operation. The increase in interest expense from $193,000 in 1994 to $722,000 in 1995 was primarily attributable to debt assumed or incurred in connection with additional acquisitions of interests in centers plus the interest expense associated with newly opened start-up centers financed partially with bank debt. Minority partners' interest in center earnings for 1995 rose to $3,938,000 from $2,468,000 in 1994, an increase of 60%, primarily as a result of minority partners' interest in earnings at surgery centers added to operations and from increased same-center profitability. Income tax expense increased to $578,000 in 1995 from $26,000 in 1994 as a result of increased income before income taxes and an increase in AmSurg's effective income tax rate to 36% from 4%. The increase in the effective income tax rate resulted from the utilization of prior period net operating loss carryforwards to eliminate federal income taxes for 1994 and to reduce federal income taxes in 1995. The difference between the federal statutory income tax rate of 34% and AmSurg's effective income tax rates in 1995 and 1994 was due primarily to the utilization of prior period net operating loss carryforwards and the impact of state income taxes. LIQUIDITY AND CAPITAL RESOURCES Operating activities for 1996 and the nine month period ended September 30, 1997 generated $8,912,000 and $9,713,000, respectively, in cash flow. Investing activities during 1996 used $16,395,000, including $12,670,000 used to acquire interests in additional practice-based ambulatory surgery centers and the interest in the Florida physician practice, and $3,863,000 to acquire property and equipment for new start-up surgery centers and for new or replacement property at existing centers. Investing activities during the nine month period ended September 30, 1997 used $18,350,000, including $12,626,000 used to acquire interests in five additional surgery centers and an interest in the urology physician practice and $7,738,000 to acquire property and equipment for new start-up surgery centers and for new or replacement property at existing centers which were partially offset by $1,978,000 in proceeds from the sale of a surgery center building and equipment and the sale of a partnership interest in two surgery centers. Financing activities for 1996 provided $7,206,000 in cash flow, primarily as a result of (i) net additions to long-term debt of $3,283,000, (ii) minority partner capital contributions to AmSurg's partnerships and limited liability companies of $1,681,000, (iii) $2,366,000 in cash proceeds from the issuance of common stock, and (iv) net proceeds of $4,960,000 from the issuance of preferred stock; these financing proceeds were partially offset by $5,084,000 in distributions to surgery center minority partners. Financing activities for the nine month period September 30, 1997 provided $9,070,000 in cash flow, primarily as a result of (i) net additions to long-term debt of $15,533,000, (ii) minority partner capital contributions to AmSurg's partnerships and limited liability companies of $2,289,000 and (iii) $494,000 in cash proceeds from the issuance of common stock; these financing proceeds were partially offset by $6,342,000 in distributions to surgery center minority partners. At September 30, 1997, AmSurg had $3,343,000 in outstanding term loan borrowings under its amended and restated bank credit agreement which is repayable through June 2000. AmSurg also had outstanding borrowings of $16,988,000 under a related revolving credit facility which provides up to $25,000,000 in available credit through April 1999 for acquisition and development projects. Borrowings under the bank credit agreement and related credit facility bear interest at a rate equal to the prime rate or 1.75% above LIBOR or a combination thereof at AmSurg's option, plus a .35% fee for unused commitments. At September 30, 1997, AmSurg partnerships and limited liability companies had unfunded construction and equipment purchase commitments for centers under development of approximately $3,100,000. Of the $3,100,000, AmSurg expects that approximately $2,100,000 will be borrowed under AmSurg's credit facility (and guaranteed on a pro rata basis by the physicians), and that the remaining amount will be provided by AmSurg and the physician partners in proportion to their respective ownership interests. AmSurg intends to fund its portion out of cash flow from operations. 40 48 On November 20, 1996, AmSurg issued shares of its Series A Preferred Stock and Series B Preferred Stock to certain unaffiliated institutional investors for cash proceeds of approximately $4,960,000, after payment of offering expenses. The purpose of the offering was to fund the acquisition and development of surgery centers and to provide other working capital as needed prior to being in position to access capital markets as an independent public company following the Distribution. The Series A Preferred Stock, with a liquidation value of $3,000,000, will accrue dividends of 8% per annum on such liquidation value, commencing on November 21, 1998. The Series A Preferred Stock is subject to redemption at any time at the option of AmSurg and is subject to redemption at the option of the holders on November 20, 2002 and upon the occurrence of certain events, including a public offering yielding at least $20,000,000 in net proceeds to AmSurg, and/or its stockholders (or $25,000,000 in net proceeds if the Distribution does not occur) (a "Qualified IPO"). The Series A Preferred Stock may also be converted into shares of Class A Common Stock at the option of the holders for a limited period of time following the Distribution or upon a Qualified IPO at the then current market price of the Class A Common Stock. Upon a Qualified IPO or other triggering event, the Series B Preferred Stock will be automatically converted into a number of shares of Class A Common Stock that approximates 6% of the equity of AmSurg determined as of November 20, 1996, with that percentage being ratably increased to 8% of the equity of AmSurg if a triggering event has not occurred by November 20, 2000. If a Qualified IPO or other triggering event does not occur by November 20, 2002, the holders of the Series B Preferred Stock will have the right to sell such stock to AmSurg at a formula price. See "DESCRIPTION OF CAPITAL STOCK." Historically AmSurg has depended on AHC for the majority of its equity financing. A principal purpose of the Distribution is to permit AmSurg to have access to public debt and equity capital markets as an independent public company. Management believes that AmSurg will have access to such capital on more favorable terms as an independent public company than it could have as a majority-owned subsidiary of AHC, particularly in public equity markets. See "THE DISTRIBUTION -- Background and Reasons for the Distribution." While AmSurg anticipates that its operating activities will continue to provide cash flow and increased revenues, AmSurg will require additional financing in order to fund its development and acquisition plans and to achieve its long-term strategic growth plans. This additional financing could take the form of a private or public offering of debt or equity securities or additional bank financing. No assurances can be given that the necessary financing will be obtainable on terms satisfactory to AmSurg. The failure to raise the funds necessary to finance its future cash requirements could adversely affect AmSurg's ability to pursue its strategy and could adversely affect its results of operations for future periods. AmSurg is evaluating the Year 2000 issues and the impact upon information systems and computer technologies. While certain applications in system software critical to processing financial and operational information are Year 2000 compliant, AmSurg expects to incur some costs in testing and implementing updates to such software. AmSurg is also evaluating the impact of the Year 2000 on other computer technologies and software. All costs to evaluate and make modifications will be expensed as incurred and are not expected to have a significant impact on AmSurg's ongoing results of operations. RECENT ACCOUNTING PRONOUNCEMENTS AmSurg will adopt Statement of Financial Accounting Standards No. 128 "Earnings Per Share" for the year ended December 31, 1997. This accounting pronouncement requires the disclosure of basic and diluted earnings per share. AmSurg believes that, upon adoption, diluted earnings (loss) per share will approximate earnings (loss) per share as previously reported. Because the concept of basic earnings per share does not include the impact of common stock equivalents, such as preferred stock and stock options, basic earnings per share will be higher than diluted earnings per share. Statements of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" and No. 131 "Disclosures about Segments of an Enterprise and Related Information" become effective for AmSurg for the year ended December 31, 1998. AmSurg is still evaluating the effects of adopting these two statements, but does not expect the adoption of either pronouncement to have a material effect on AmSurg's consolidated financial statements. 41 49 CAPITALIZATION OF AMSURG The following table sets forth the capitalization of AmSurg as of September 30, 1997. This table should be read in conjunction with AmSurg's consolidated financial statements and notes thereto included elsewhere herein. Information with respect to AmSurg Preferred Stock and common stock has been adjusted to give effect to the Recapitalization, Exchange and Distribution.
AT SEPTEMBER 30, 1997 -------------------------- HISTORICAL PRO FORMA(1) ---------- ------------ (IN THOUSANDS) Long-term debt: $25,000,000 credit agreement.............................. $16,988 $16,988 Term note................................................. 3,343 3,343 Other long-term debt...................................... 4,161 4,161 ------- ------- Total debt........................................ 24,492 24,492 ------- ------- Minority interest........................................... 8,482 8,482 Preferred stock, no par value, 5,000,000 shares authorized, 916,666 issued Series A redeemable preferred stock, 500,000 shares outstanding............................................ 1,984 1,984 Series B convertible preferred stock, 416,666 shares outstanding............................................ 3,208 3,208 Stockholders' equity Common stock, no par value, 40,000,000 shares authorized, 9,489,849 shares outstanding........................... 27,725 -- Class A common stock, no par value, 20,000,000 shares authorized, 4,702,718 shares outstanding............... -- 14,196 Class B common stock, no par value, 4,800,000 shares authorized, 4,787,131 shares outstanding............... -- 13,529 Retained earnings......................................... 1,817 1,625 ------- ------- Total capitalization.............................. $67,708 $67,516 ======= =======
- --------------- (1) Pro forma to give effect to the Recapitalization and Distribution. 42 50 SELECTED FINANCIAL DATA OF AHC The selected unaudited financial data of AHC set forth below reflects certain adjustments to the previously reported historical consolidated financial statements of AHC for each of the fiscal years in the five year period ended August 31, 1997 to present AmSurg as a discontinued operation.
FOR THE YEAR ENDED AND AT AUGUST 31, ----------------------------------------------- 1993 1994 1995 1996 1997 ------- ------- ------- ------- ------- (IN THOUSANDS EXCEPT PER SHARE DATA) OPERATING DATA: Revenues............................... $39,682 $41,144 $36,583 $31,403 $30,537 ------- ------- ------- ------- ------- Expenses: Salaries and benefits................ 16,972 18,699 18,878 19,866 21,437 Other operating expenses............. 11,771 12,271 10,865 7,254 8,702 Depreciation and amortization........ 1,340 1,293 1,339 1,273 1,342 Interest............................. 8 6 7 5 6 ------- ------- ------- ------- ------- Total expenses............... 30,091 32,269 31,089 28,398 31,487 ------- ------- ------- ------- ------- Income (loss) before income taxes and discontinued operations.............. 9,591 8,875 5,494 3,005 (950) Income tax expense (benefit)(1)........ 3,884 3,586 2,252 544 (207) ------- ------- ------- ------- ------- Income (loss) from continuing operations........................... 5,707 5,289 3,242 2,461 (743) Discontinued operations(3)........... (170) 38 674 799 (940) ------- ------- ------- ------- ------- Net income (loss)...................... $ 5,537 $ 5,327 $ 3,916 $ 3,260 $(1,683) ======= ======= ======= ======= ======= Income (loss) per share from continuing operations(2)........................ $ 0.68 $ 0.63 $ 0.40 $ 0.30 $ (0.09) Income (loss) per share from discontinued operations(2)........... (0.02) 0.00 0.08 0.10 (0.12) ------- ------- ------- ------- ------- Net income (loss) per share(2)......... $ 0.66 $ 0.63 $ 0.48 $ 0.40 $ (0.21) ======= ======= ======= ======= ======= Weighted average common shares and equivalents.......................... 8,404 8,461 8,211 8,161 8,022
AS ADJUSTED(4) ----------- BALANCE SHEET DATA: Cash and cash equivalents.............. $ 9,016 $ 9,909 $11,076 $12,562 $12,227 $12,227 Working capital........................ 12,772 11,972 11,089 13,324 11,564 11,179 Net assets of discontinued operations........................... 5,354 11,475 14,695 16,361 16,407 -- Total assets........................... 36,848 43,354 45,873 48,943 49,373 34,416 Long-term liabilities.................. 1,892 2,138 2,156 2,657 2,186 2,186 Stockholders' equity................... 30,850 36,460 38,299 41,611 40,441 25,099
- --------------- (1) Includes nonrecurring income tax benefit in fourth quarter of fiscal 1996 of $760,000 or $.09 per share. (2) Per share information does not give effect to the increase in weighted average number of shares outstanding that is expected to occur as a result of the adjustment of AHC stock options in connection with the Distribution. See "THE DISTRIBUTION -- Adjustments of AHC Stock Options; and -- Accounting Treatment." (3) Includes an impairment loss of $1,364,000, or ($0.17) per share, the gain on a sale of AmSurg's interest in a surgery center building and equipment of $210,000, or $0.03 per share, and distribution cost of $882,000, or ($0.11) per share. (4) Adjusted to give effect to the Distribution, including estimated additional distribution cost of $385,000 and estimated non-cash compensation expense of $3,750,000 ($2,300,000 net of income taxes) that is expected to be recognized as a result of the adjustment of AHC stock options in connection with the Distribution. See "THE DISTRIBUTION -- Adjustments of AHC Stock Options; and -- Accounting Treatment." 43 51 BUSINESS OF AHC AFTER DISTRIBUTION After the Distribution, AHC will no longer own any AmSurg Common Stock and accordingly its principal business operations will be conducted through DTCA, which is the leading provider of diabetes management services. The principal source of revenues for DTCA historically have been its operating contracts for hospital-based diabetes treatment centers. While during the last several fiscal years, revenues from this business have been adversely affected by termination and renegotiation of certain hospital contracts, AHC believes this business is stabilizing and expects it to be a source of steady revenue for AHC. During 1994 AHC began to implement a business strategy in DTCA to develop comprehensive diabetes disease management products for a new customer group, the managed care industry, and AHC believes that the substantial portion of its future revenue growth will result from comprehensive healthcare management contracts with managed care payors for their enrollees with diabetes. In furtherance of this strategy, during the last two fiscal years, AHC has incurred substantial expenditures associated with these comprehensive diabetes disease management efforts. AHC's growth strategy is primarily to develop new relationships directly with payors and others who are ultimately responsible for the healthcare costs of individuals with diabetes and to further develop its hospital-based diabetes treatment center business. Pursuant to the strategy with payors, DTCA is expected to provide management services designed to improve the quality of care for individuals with diabetes while lowering the overall cost of care. DTCA fees under these agreements with payors may take the form of shared savings of overall diabetes enrolled healthcare costs, capitated payments to DTCA that cover DTCA's services to enrollees but do not include responsibility for enrolled healthcare claims or some combination of these arrangements. AHC believes that its current position as the leading provider of diabetes treatment services to hospitals and physicians will be an advantage in comparison with other potential competitors or with the payors considering initiating such services themselves, most of whom have no such actual diabetes treatment or comprehensive diabetes population management experience. Since January 1996, DTCA has provided its diabetes disease management services for individuals with diabetes pursuant to contracts with Bristol-Myers Squibb covering employees with diabetes located in central and western New Jersey and eastern Pennsylvania, with Principal Health Care, Inc. for enrollees at seven of its HMO locations and with Health Options, Inc., a subsidiary of Blue Cross and Blue Shield of Florida, for enrollees at two of its HMO locations. DTCA has also recently executed and is in the process of implementing a contract with CIGNA HealthCare to provide diabetes disease management services to enrollees at six of CIGNA HealthCare's HMO locations. These contracts provide for DTCA to deliver disease management services to approximately 32,000 individuals with diabetes. While DTCA believes that these agreements will provide revenue and profit opportunities for DTCA over the two to five year terms of these agreements, it cannot accurately predict the amount or timing of these revenues or profits or assure that any such revenue or profits will be obtained. See "RISK FACTORS -- Risk Factors Regarding AHC After Distribution." 44 52 BUSINESS OF AMSURG AmSurg was formed in April 1992 for the purpose of developing, acquiring and operating practice-based ambulatory surgery centers, in partnerships with physician practice groups, throughout the United States. An AmSurg surgery center is typically located adjacent to or in the immediate vicinity of the specialty medical practice of a physician group partner's office. Each of the surgery centers provides a narrow range of high volume, lower-risk surgical procedures, generally in a single specialty, and has been designed with a cost structure that enables AmSurg to charge fees which management believes are generally less than those charged by hospitals and freestanding outpatient surgery centers for similar services performed on an outpatient basis. As of September 30, 1997, AmSurg owned a majority interest in 35 surgery centers in 15 states and the District of Columbia and owned a majority interest in two physician practice groups. As of September 30, 1997, AmSurg also had 14 centers under development and had executed letters of intent to acquire or develop eight additional centers. AmSurg is utilizing selected surgery centers as a base to develop start-up specialty physician networks that are designed to serve large numbers of covered lives and thus strengthen AmSurg's position in dealing with managed care organizations. As of September 30, 1997, AmSurg had established three start-up specialty physician networks, located in the south Florida market and in Knoxville, Tennessee and Montgomery, Alabama. AmSurg was organized as a Tennessee corporation in 1992. AmSurg's principal executive offices are located at One Burton Hills Boulevard, Suite 350, Nashville, Tennessee 37215, and its telephone number is 615-665-1283. INDUSTRY OVERVIEW In recent years, government programs, private insurance companies, managed care organizations and self-insured employers have implemented various cost-containment measures to limit the growth of healthcare expenditures. These cost containment measures, together with technological advances, have resulted in a significant shift in the delivery of healthcare services away from traditional inpatient hospitals to more cost-effective alternate sites, including ambulatory surgery centers. According to estimates of SMG Marketing Group Inc. in its Freestanding Outpatient Surgery Center Directory (June 1997), an industry publication, outpatient surgical procedures represented approximately 68% of all surgical procedures performed in the United States in 1996. As of December 31, 1996, there were approximately 2,425 freestanding ambulatory surgery centers in the U.S., of which approximately 171 were owned by hospitals and approximately 607 were owned by corporate entities. The remaining approximately 1,647 centers were independently owned, primarily by physicians. Managed care organizations with significant numbers of covered lives are seeking to direct large numbers of patients to high-quality, low-cost providers and provider groups. In order to compete for the growing number of managed care patients, hospitals, physicians and other providers, including alternate site outpatient providers, are forming specialty physician networks and other provider joint ventures. AmSurg believes that the following factors have contributed to the growth of ambulatory surgery: Cost-Effective Alternative. Ambulatory surgery is generally less expensive than hospital inpatient surgery. In addition, AmSurg believes that surgery performed at a practice-based ambulatory surgery center is generally less expensive than hospital-based ambulatory surgery for a number of reasons, including lower facility development costs, more efficient staffing and space utilization and a specialized operating environment focused on cost containment. Interest in ambulatory surgery centers has grown as managed care organizations have sought a cost-effective alternative to inpatient services. Physician and Patient Preference. AmSurg believes that many physicians prefer practice-based ambulatory surgery centers. AmSurg believes that such centers enhance physicians' productivity by providing them with greater scheduling flexibility, more consistent nurse staffing and faster turnaround time between cases, allowing them to perform more surgeries in a defined period of time. In contrast, hospitals and freestanding ambulatory surgery centers generally serve a broader group of physicians, including those involved with emergency procedures, resulting in postponed or delayed surgeries. Additionally, many physicians choose to 45 53 perform surgery in a practice-based ambulatory surgery center because their patients prefer the simplified admissions and discharge procedures and the less institutional atmosphere. New Technology. New technology and advances in anesthesia, which have been increasingly accepted by physicians, have significantly expanded the types of surgical procedures that are being performed in ambulatory surgery centers. Lasers, enhanced endoscopic techniques and fiber optics have reduced the trauma and recovery time. Improved anesthesia has shortened recovery time by minimizing post-operative side effects such as nausea and drowsiness, thereby avoiding, in some cases, overnight hospitalization. STRATEGY AmSurg believes it is a leader in the development, acquisition and operation of practice-based ambulatory surgery centers. The key components of AmSurg's strategy are: Provide Lower-Risk, High Volume Ambulatory Surgery Services. AmSurg's surgery centers currently focus on providing lower-risk surgical procedures in five surgical subspecialties: gastroenterology, ophthalmology, orthopaedic surgery, urology and otolaryngology. The AmSurg single specialty practice-based surgery center is designed, built, equipped and staffed for the needs of a single specialty, which AmSurg believes creates efficiencies in operations. AmSurg believes that as a result, the single specialty surgery center is a lower cost unit to build, equip and operate, is more convenient for the physician and patient, and therefore is potentially more attractive to managed care payors than hospital-based or freestanding multi-specialty centers. AmSurg believes through the combination of a network of geographically dispersed physician groups and ambulatory surgery centers in a specific market, it can establish a high quality, cost efficient service delivery system for a specific individual specialty that is attractive to managed care payors. Develop and Acquire Practice-Based Ambulatory Surgery Centers. Although AmSurg has historically grown primarily by acquisition of existing centers, it anticipates that its future growth in the surgery center business will come increasingly from development of new practice-based ambulatory surgery centers. In order to continue the acquisition and development of ambulatory surgery centers, AmSurg will require additional capital resources in the form of debt or equity financing. See "MANAGEMENT'S DISCUSSION AND ANALYSIS -- Liquidity and Capital Resources." Develop Specialty Networks. Utilizing single specialty ambulatory surgery centers to provide a cost advantage, AmSurg's strategy has evolved to include the development and ownership of specialty physician networks which will offer specialty physician services, as well as outpatient surgery procedures with wide geographic coverage to managed care payors. The specialty networks will be developed to provide broad geographic patient access points in the market through the network participation of high quality and strategically located practices, some of which may be acquired or managed by AmSurg. AmSurg has acquired two physician practices, a urology specialty group and a gastrointestinal and primary care specialty group, in Miami, Florida, one of which is a partner with AmSurg in a practice-based ambulatory surgery center. The other physician practice is developing an ambulatory center with AmSurg. AmSurg has established and is the majority owner of three start-up specialty physician networks. By establishing these networks, AmSurg believes it will be able to obtain additional contracts with managed care payors and increase the profitability of its surgery centers and associated physician practices. ACQUISITION AND DEVELOPMENT OF SURGERY CENTERS Practice-based ambulatory surgery centers are licensed outpatient surgery centers generally equipped and staffed for a single medical specialty and are generally located in or adjacent to a physician group practice. AmSurg has targeted ownership in centers that perform gastrointestinal endoscopy, ophthalmology, urology, orthopaedics or otolaryngology procedures. These specialties perform many high volume, lower-risk procedures that are appropriate for the practice-based setting. The focus at each center on only the procedures in a single specialty results in these centers generally having significantly lower capital and operating costs than the costs of hospital and freestanding ambulatory surgery center alternatives that are designed to provide more intensive services in a broader array of surgical specialties. In addition, the practice-based surgery center, 46 54 which is located in or adjacent to the group practice, provides a more convenient setting for the patient and for the physician performing the procedure. Improvements in technology are also enabling additional types of procedures to be performed in the practice-based setting. The AmSurg development staff identifies existing centers that are potential acquisition candidates and identifies physician practices that are potential partners for new center development in the medical specialties which AmSurg has targeted for development. These candidates are then evaluated against AmSurg's project criteria which include several factors such as number of procedures currently being performed by the practice, competition from and the fees being charged by other surgical providers, relative competitive market position of the physician practice under consideration, and state certificate of need ("CON") requirements for development of a new center. In presenting the advantages to physicians of developing a new practice-based ambulatory surgery center in partnership with AmSurg, the AmSurg development staff emphasizes the proximity of a practice-based surgery center to a physician's office, the simplified administrative procedures, the ability to schedule consecutive cases without preemption by inpatient or emergency procedures, the rapid turnaround time between cases, the high technical competency of the center's clinical staff that performs only a limited number of specialized procedures, and state-of-the-art surgical equipment. AmSurg also focuses on its expertise in developing and operating centers. In addition, as part of AmSurg's role as the general partner or manager of the partnerships and limited liability companies, AmSurg markets the centers to third party payors. In a development project, AmSurg, among other things, provides the following services: - Financial feasibility pro forma analysis; - Assistance in state CON approval process; - Site selection; - Assistance in space analysis and schematic floor plan design; - Analysis of local, state, and federal building codes; - Negotiation of equipment financing with lenders; - Equipment budgeting, specification, bidding, and purchasing; - Construction financing; - Architectural oversight; - Contractor bidding; - Construction management; and - Assistance with licensing, Medicare certification and third party payor contracts. AmSurg's ownership interests in practice-based ambulatory surgery centers generally are structured through limited and general partnerships or limited liability companies. AmSurg generally owns 51% to 70% of the partnerships or limited liability companies and acts as the general partner in each limited partnership. In development transactions, capital contributed by the physicians and AmSurg plus bank financing provides the partnership or limited liability company with the funds necessary to construct and equip a new surgery center and to provide initial working capital. As part of each development and acquisition transaction, AmSurg enters into a partnership agreement or, in the case of a limited liability company, an operating agreement with its physician group partner. Under these agreements, AmSurg receives a percentage of the net income and cash distributions of the entity equal to its percentage interest in the entity and has the right to the same percentage of the proceeds of a sale or liquidation of the entity. As sole general partner, AmSurg is generally liable for the debts of the partnership. These agreements generally provide that AmSurg will oversee the business and administrative operations of the surgery center, and that the physician group partner will provide the center with a medical director, and with certain specified services such as billing and collections, transcription, and accounts payable processing. In connection with AmSurg's management of the business operations at each center, AmSurg historically received a management fee paid by the partnership or limited liability company. The partnership or limited liability company also paid a physician group partner a medical director fee and a fee for providing certain administrative services to the center. Because the management fee usually approximates the value of services 47 55 provided to the center by the physician practice, on an ongoing basis, AmSurg has structured its agreements so that AmSurg generally no longer provides for any of such fees in its partnerships or limited liability companies and instead the respective parties are required to provide the services pursuant to the terms of the partnership or operating agreement. For start-up centers that are being developed, a fee is generally paid by the partnership or limited liability company to AmSurg for management of the planning, construction and opening of the center. In addition, these agreements typically provide that the limited partnership or limited liability company will lease certain non-physician personnel from the physician practice, who will provide services at the center. The cost of the salary and benefits of these personnel are reimbursed to the practice by the limited partnership or limited liability company. Certain significant aspects of the limited partnership's or limited liability company's governance are overseen by an operating board, which is comprised of equal representation by AmSurg and the physician partners. See Note 8 of the Notes to the Consolidated Financial Statements of AmSurg for a discussion of AmSurg's funding obligations under the partnership and operating agreements. The partnership and operating agreements provide that under certain circumstances AmSurg will be obligated to purchase some or all of the minority interests of the physicians affiliated with AmSurg in the partnerships or limited liability companies which own and operate AmSurg's surgery centers. The regulatory changes that could trigger such an obligation include changes that: (i) make the referral of Medicare and other patients to AmSurg's surgery centers by physicians affiliated with AmSurg illegal; (ii) create the substantial likelihood that cash distributions from the partnership or limited liability company to the physicians associated therewith will be illegal; or (iii) cause the ownership by the physicians of interests in the partnerships or limited liability companies to be illegal. There can be no assurance that AmSurg's existing capital resources would be sufficient for it to meet the obligation, if it arises, to purchase minority interests held by physicians in the partnerships or limited liability companies which own and operate AmSurg's surgery centers. The determination of whether a triggering event has occurred is made by the concurrence of counsel for AmSurg and the physician partners or, in the absence of such concurrence, by independent counsel having an expertise in healthcare law and who is chosen by both parties. Determination is therefore not within the control of AmSurg. While AmSurg has structured the purchase obligations to be as favorable as possible to AmSurg, the triggering of these obligations could have a material adverse effect on the financial condition and results of operations of AmSurg. See "-- Government Regulation." 48 56 SURGERY CENTER LOCATIONS AmSurg partnerships and limited liability companies lease certain of the real property in which its centers operate and the equipment used in certain of its centers, either from the physician partners or from an unaffiliated party. The following table sets forth certain information relating to centers in operation as of September 30, 1997:
YEAR OR DATE OPERATING OR AMSURG ORIGINALLY ACQUISITION PROCEDURE OWNERSHIP LOCATION SPECIALTY PRACTICE OPENED DATE ROOMS PERCENTAGE -------- ------------------ ---------- ----------- --------------- ---------- ACQUIRED CENTERS Knoxville, Tennessee.......... Gastroenterology 1987 Nov. 1992 7 51% Topeka, Kansas................ Gastroenterology 1990 Nov. 1992 4 60 Nashville, Tennessee.......... Gastroenterology 1989 Nov. 1992 3 60 Nashville, Tennessee.......... Gastroenterology 1988 Dec. 1992 3 60 Washington, D.C............... Gastroenterology 1990 Nov. 1993 3 60 Melbourne, Florida............ Ophthalmology 1986 Nov. 1993 3 51 Torrance, California.......... Gastroenterology 1990 Feb. 1994 2 51 Sebastopol, California........ Ophthalmology 1988 Apr. 1994 2 60 Maryville, Tennessee.......... Gastroenterology 1992 Jan. 1995 3 51 Miami, Florida................ Gastroenterology 1995 April 1995 7 70 Panama City, Florida.......... Gastroenterology 1993 July 1996 3 51 Ocala, Florida................ Gastroenterology 1993 Aug. 1996 3 51 Columbia, South Carolina...... Gastroenterology 1988 Oct. 1996 3 51 Wichita, Kansas............... Orthopaedics 1991 Nov. 1996 3 51 Minneapolis, Minnesota........ Gastroenterology 1993 Nov. 1996 2 51 Crystal River, Florida........ Gastroenterology 1994 Jan. 1997 3 51 Abilene, Texas................ Ophthalmology 1987 Mar. 1997 2 51 Fayetteville, Arkansas........ Gastroenterology 1992 May 1997 2 51 Independence, Missouri........ Gastroenterology 1994 Sept. 1997 2 60 Kansas City, Missouri......... Gastroenterology 1995 Sept. 1997 2 60 DEVELOPED CENTERS Santa Fe, New Mexico.......... Gastroenterology May 1994 -- 3 60 Tarzana, California........... Gastroenterology July 1994 -- 3 51 Beaumont, Texas............... Gastroenterology Oct. 1994 -- 3 51 Abilene, Texas................ Gastroenterology Dec. 1994 -- 3 60 Melbourne, Florida............ Otolaryngology March 1995 -- 2 51 Knoxville, Tennessee.......... Ophthalmology June 1996 -- 2 60 West Monroe, Louisiana........ Gastroenterology June 1996 -- 2 51 Miami, Florida................ Gastroenterology Sept. 1996 -- 3 60 Sidney, Ohio.................. Ophthalmology Dec. 1996 -- 3 51 Urology General Surgery Otolaryngology Montgomery, Alabama........... Ophthalmology May 1997 -- 2 51 Willoughby, Ohio.............. Gastroenterology July 1997 -- 2 51 Milwaukee, Wisconsin.......... Gastroenterology July 1997 -- 2 51 Chevy Chase, Maryland......... Gastroenterology July 1997 -- 2 51 Melbourne, Florida............ Gastroenterology Aug. 1997 -- 2 51 Lorain, Ohio.................. Gastroenterology Aug. 1997 -- 2 51
49 57 SURGERY CENTER OPERATIONS Each AmSurg facility is generally designed, built, staffed and equipped to meet the specific needs of a single specialty physician practice group. AmSurg's typical ambulatory surgery center averages 3,000 square feet and is located adjacent to or in the immediate vicinity of the specialty physicians' offices. Each center developed by AmSurg typically has two to four operating or procedure rooms with areas for reception, preparation, recovery and administration. Each surgery center is developed to perform an average of 2,500 procedures per year. As of September 30, 1997, 27 of the AmSurg centers in operation performed gastrointestinal endoscopy procedures, five centers performed ophthalmology procedures, one center performed orthopaedic procedures, one center performed otolaryngology procedures, and one center performed ophthalmology, urology, general surgery and otolaryngology procedures. The procedures performed at the AmSurg centers generally do not require an extended recovery period following the procedures. AmSurg centers are typically staffed with three to five clinical professionals and administrative personnel who are shared with the physician practice group. The clinical staff includes nurses and surgical technicians. The types of procedures performed at each center depend on the specialty of the practicing physicians. The typical procedures performed or to be performed most commonly at AmSurg centers in operation or under development within each specialty are: - Gastroenterology -- colonoscopy and endoscopy procedures - Ophthalmology -- cataracts and retinal laser surgery - Orthopaedics -- knee arthroscopy and carpal tunnel repair - Urology -- cystoscopy and biopsy - Otolaryngology -- myringotomy and tonsillectomy AmSurg markets its surgery centers and networks directly to third-party payors, including HMOs, PPOs, other managed care organizations and employers. Payor-group marketing activities conducted by AmSurg's management and center administrators emphasize the high quality of care, cost advantages and convenience of AmSurg's surgery centers and are focused on making each center an approved provider under local managed care plans. In addition, AmSurg is pursuing relationships with selected physician groups in its markets in order to market a comprehensive specialty physician network that includes its surgery centers to managed care payors. SPECIALTY PHYSICIAN NETWORKS AND PRACTICES Provider networks are primarily oriented to local markets. Physician groups may be members of several networks in a locale. Most networks are either multi-specialty or primary care based. AmSurg believes that its single specialty networks, designed around the ambulatory surgery centers and designed to match the membership base geography of the managed care payors, will be a more competitive model than networks that do not have those advantages. AmSurg also has the advantage of being introduced to prospective network members by its existing practice partners who have already had a positive experience working with AmSurg in joint ownership of the surgery centers. Pursuant to agreements with the network, the physicians in these networks also will have the opportunity to perform their surgical procedures in AmSurg's surgery centers or develop additional centers with AmSurg as needed. Following the establishment of a network, AmSurg will provide management services and marketing services to the network to secure patient service contracts with managed care payors. Fees paid by these networks to AmSurg are nominal and generally are intended to cover AmSurg's cost in providing such services. AmSurg believes that the specialty physician networks with practice-based surgery centers are attractive to managed care organizations because of the geographic coverage of the network, the lower costs associated with treatment, the availability of the complete delivery system for a specific specialty and high levels of patient satisfaction. As a result, AmSurg believes the development of such networks will position AmSurg to capture an increased volume of managed care contracts, including capitated contracts, and will increase the market share and profitability of the AmSurg surgery centers and the practices. 50 58 It is not expected that the specialty physician networks in themselves will be a significant source of income for AmSurg. These networks were and will be formed primarily as a contracting vehicle to generate revenues for AmSurg's practice-based surgery centers and physician practices. As of September 30, 1997, AmSurg had established and was the majority owner and operator of three start-up specialty physician networks. These networks have not yet generated any revenues. Each specialty physician network is formed as either a limited partnership or limited liability company in which AmSurg owns a majority interest. Individual physicians who practice in the medical specialty on which the network is focused own the minority interests in the network. These minority physician owners, who may or may not be affiliated with an AmSurg surgery center or physician practice, will provide the medical services to the patient population covered by the contracts the network will enter into with managed care payors. As part of its network development strategy, in January 1996 AmSurg acquired a 70% ownership interest in the assets of Gastroenterology Group of South Florida ("GGSF") in Miami, Florida, a gastroenterology and primary care practice currently comprised of seven gastroenterologists and five primary care physicians that provides gastroenterology physician and outpatient endoscopy services under a contract with a large managed care payor which covers approximately 120,000 lives. AmSurg and certain GGSF physicians have been partners in a practice-based endoscopy center that provides outpatient endoscopy services to this base of covered lives and to other patients. Using GGSF as a base, AmSurg has developed a gastroenterology physician network in south Florida and expects to add additional surgery centers and covered lives as a result of this expansion. In addition, AmSurg has established two ophthalmology/eye care networks located in Knoxville, Tennessee and Montgomery, Alabama. Also as part of its network development strategy, in January 1997 AmSurg acquired a 60% ownership interest in the assets of Miami Urological Associates, a urology practice comprised of three urologists and seven additional contract physicians in Miami, Florida. The practice has contracts with two managed care payors to provide physician and certain outpatient procedures for approximately 170,000 covered lives. AmSurg and Miami Urological Associates have entered into a partnership to develop an ambulatory surgery center for the urology practice. REVENUES AmSurg's principal source of revenues is a facility fee charged for surgical procedures performed in its surgery centers. This fee varies depending on the procedure, but usually includes all charges for operating room usage, special equipment usage, supplies, recovery room usage, nursing staff and medications. Facility fees do not include the charges of the patient's surgeon, anesthesiologist or other attending physicians, which are billed directly to third-party payors by such physicians. AmSurg's other significant source of revenues is the fees for physician services performed by the two physician group practices in which AmSurg owns a majority interest. Practice-based ambulatory surgery centers and physician practices such as those in which AmSurg owns a majority interest depend upon third-party reimbursement programs, including governmental and private insurance programs, to pay for services rendered to patients. AmSurg derived approximately 36% of its net revenues from governmental healthcare programs including Medicare and Medicaid in 1996. The Medicare program presently pays ambulatory surgery centers and physicians in accordance with fee schedules which are prospectively determined. There may be continuing legislative and regulatory initiatives to limit the rate of increase in expenditures under the Medicare and Medicaid programs in an effort to curtail or reduce the federal budget deficit. These limitations, if enacted, may negatively impact AmSurg's revenues and operations. In addition to payment from governmental programs, ambulatory surgery centers derive a significant portion of their net revenues from private healthcare reimbursement plans. These plans include both standard indemnity insurance programs as well as managed care structures such as PPOs, HMOs and other similar structures. The strengthening of managed care systems nationally has resulted in substantial competition among providers of services, including providers of surgery center services with greater financial resources and market penetration than AmSurg, to contract with these systems. AmSurg believes that all payors, both governmental and private, will continue their efforts over the next several years to reduce healthcare costs and 51 59 that their efforts will generally result in a less stable market for healthcare services. While no assurances can be given concerning the ultimate success of AmSurg's efforts to contract with healthcare payors, AmSurg believes that AmSurg's position as a low-cost alternative for certain surgical procedures should enable AmSurg centers to compete effectively in the evolving healthcare marketplace. Approximately 10% of AmSurg's revenues for 1996 were generated by capitated payment contracts with HMOs. These revenues were attributable to contracts held by a physician practice in which AmSurg holds a majority interest. In addition, the physician practice in which AmSurg acquired a majority interest in January 1997, had capitated payment contracts which are expected to generate approximately $2.1 million in annual revenues during 1997. These contracts require the practices to provide specialty physician and certain outpatient surgery services for the HMO members on an exclusive basis. These contracts do not require the practices to provide or to be at risk for hospital or other ancillary services such as lab or imaging. The services required by these contracts are provided almost solely by surgery centers and the physician practices in which AmSurg owns a majority interest. Because AmSurg is only at risk for the cost of providing relatively limited healthcare services to these HMO members, AmSurg's risk of overutilization by HMO members is limited to the cost of the physician's time and the supply, drug and nursing staff expense required for outpatient surgery. COMPETITION AmSurg encounters competition in two separate areas: competition with other companies for its physician partnership relationships, and competition with other providers for patients and for contracting with managed care payors in each of its markets. Competition for Partnership Relationships. AmSurg believes that it does not have a direct competitor in the development of practice-based ambulatory surgery centers across the specialties of gastroenterology, ophthalmology, otolaryngology, urology, and orthopaedic surgery. There are, however, several large, publicly held companies, or divisions or subsidiaries of large publicly held companies, that develop freestanding multi-specialty surgery centers, and these companies may compete with AmSurg in the development of centers. Many physician groups develop surgery centers without a corporate partner. It is generally difficult, however, in the rapidly evolving healthcare industry, for a single practice to create effectively the efficient operations and marketing programs necessary to compete with other provider networks and companies. Because of this, as well as the financial investment necessary to develop surgery centers, physician groups are attracted to corporate partners, such as AmSurg. Other factors that may influence the physicians' decisions concerning the choice of a corporate partner are the potential corporate partner's experience, reputation and access to capital. There are several companies, many in niche markets, that acquire existing practice-based ambulatory surgery centers and specialty physician practices. Many of these competitors have greater resources than AmSurg. Most of AmSurg's competitors acquire centers through the acquisition of the related physician practice. The principal competitive factors that affect the ability of AmSurg and its competitors to acquire surgery centers are price, experience and reputation, access to capital and willingness to acquire a surgery center without acquiring the physician practice. Most networks are either multi-specialty or primary care based. There are a few national networking companies that specialize in the establishment and operation of networks. The primary competitive factors AmSurg experiences in the development of specialty networks include the attraction of physician practice groups to the network, market penetration and geographic coverage. Competition for Patients and Managed Care Contracts. AmSurg believes that its surgery centers can provide lower-cost, high quality surgery in a more comfortable environment for the patient in comparison to hospitals and to freestanding surgery centers with which AmSurg competes for managed care contracts. In addition, the existence of the AmSurg specialty physician networks provide the geographic access that managed care companies desire. Competition for managed care contracts with other providers is focused on pricing of services, quality of services, and affiliation with key physician groups in a particular market. 52 60 GOVERNMENT REGULATION The healthcare industry is subject to extensive regulation by a number of governmental entities at the federal, state and local level. Regulatory activities affect the business activities of AmSurg, by controlling AmSurg's growth, requiring licensure and certification for its facilities, regulating the use of AmSurg's properties, and controlling reimbursement to AmSurg for the services AmSurg provides. CONs and State Licensing. CON regulations control the development of ambulatory surgery centers in certain states. CONs generally provide that prior to the expansion of existing centers, the construction of new centers, the acquisition of major items of equipment or the introduction of certain new services, approval must be obtained from the designated state health planning agency. State CON statutes generally provide that, prior to the construction of new facilities or the introduction of new services, a designated state health planning agency must determine that a need exists for those facilities or services. AmSurg's development of ambulatory surgery centers generally focuses on states that do not require CONs. However, acquisitions of existing surgery centers, even in states that require CONs for new centers, generally do not require CON regulatory approval. State licensing of ambulatory surgery centers is generally a prerequisite to the operation of each center and to participation in federally funded programs, such as Medicare and Medicaid. Once a center becomes licensed and operational, it must continue to comply with federal, state and local licensing and certification requirements in addition to local building and life safety codes. In addition, every state imposes licensing requirements on individual physicians, and facilities and services operated and owned by physicians. Physician practices are also subject to federal, state and local laws dealing with issues such as occupational safety, employment, medical leave, insurance regulations, civil rights and discrimination, and medical waste and other environmental issues. Corporate Practice of Medicine. AmSurg is not required to obtain a license to practice medicine in any jurisdiction in which it owns and operates an ambulatory surgery center, because the surgery centers are not engaged in the practice of medicine. The physicians are licensed to practice medicine through their group practices, which with the exception of the two physician practices majority owned by AmSurg, are not affiliated with AmSurg other than through the physicians' ownership in the partnerships and limited liability companies that own the surgery centers. AmSurg owns a majority interest in two group practices in Florida, a state which permits physicians to practice medicine through an entity that is not wholly owned by physicians. All third party payor contracts are in the name of the group practice entities in which AmSurg owns a majority interest. The physicians associated with these group practices provide medical services to the patients of the practice entities and are compensated for these services pursuant to either an employment contract or an independent contractor arrangement with the practice entity. AmSurg's operations do not require AmSurg to otherwise obtain any license to practice medicine in any other jurisdiction. A recent ruling by the Florida Board of Medicine that an agreement between a physician practice and a practice management company constituted impermissible fee-splitting, if upheld on judicial appeal, would cause AmSurg to restructure its relationship with one of the two group practices. AmSurg does not believe that any such restructuring would have a material adverse effect on AmSurg. See "RISK FACTORS -- Risks Related to Laws Governing Corporate Practice of Medicine." Insurance Laws. Laws in all states regulate the business of insurance and the operation of HMOs. Many states also regulate the establishment and operation of networks of healthcare providers. AmSurg believes that its operations are in compliance with these laws in the states in which it currently does business. The NAIC recently endorsed a policy proposing the state regulation of risk assumption by healthcare providers. The policy proposes prohibiting providers from entering into capitated payment or other risk sharing contracts except through HMOs or insurance companies. Several states have adopted regulations implementing the NAIC policy in some form. In states where such regulations have been adopted practices affiliated with AmSurg will be precluded from entering into capitated contracts directly with employers, individuals and benefit plans unless they qualify to do business as HMOs or insurance companies. AmSurg and its affiliated groups may in the future enter into contracts with managed care organizations, such as HMOs, whereby AmSurg and its affiliated groups would assume risk in connection with providing healthcare services under capitation arrangements. If AmSurg or its affiliated groups are considered to be in 53 61 the business of insurance as a result of entering into such risk sharing arrangements, they could become subject to a variety of regulatory and licensing requirements applicable to insurance companies or HMOs, which could have a material adverse effect upon AmSurg's ability to enter into such contracts. See "RISK FACTORS -- Risk of Potential Applicability of Insurance Regulations." Reimbursement. AmSurg depends upon third-party programs, including governmental and private health insurance programs, to reimburse it for services rendered to patients in its ambulatory surgery centers. In order to receive Medicare reimbursement, each ambulatory surgery center must meet the applicable conditions of participation set forth by the Department of Health and Human Services ("DHHS") relating to the type of facility, its equipment, personnel and standard of medical care, as well as compliance with state and local laws and regulations, all of which are subject to change from time to time. Ambulatory surgery centers undergo periodic on-site Medicare certification surveys. Each of the existing AmSurg centers is certified as a Medicare provider. Although AmSurg intends for its centers to participate in Medicare and other government reimbursement programs, there can be no assurance that these centers will continue to qualify for participation. Medicare-Medicaid Illegal Remuneration Provisions. The anti-kickback statute makes unlawful knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe, or rebate) directly or indirectly to induce or in return for referring an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under Medicare or Medicaid. Violation is a felony punishable by a fine of up to $25,000 or imprisonment for up to five years, or both. The Medicare and Medicaid Patient Program Protection Act of 1987 (the "1987 Act") provides administrative penalties for healthcare practices which encourage overutilization or illegal remuneration when the costs of services are reimbursed under the Medicare program. Loss of Medicare certification and severe financial penalties are included among the 1987 Act's sanctions. The 1987 Act, which adds to the criminal penalties under preexisting law, also directs the Inspector General of the DHHS to investigate practices which may constitute overutilization, including investments by healthcare providers in medical diagnostic facilities, and to promulgate regulations establishing exemptions or "safe harbors" for investments by medical service providers in legitimate business ventures that will be deemed not to violate the law even though those providers may also refer patients to such a venture. Regulations identifying safe harbors were published in final form in July 1991 (the "Regulations"). The Regulations set forth two specific exemptions or "safe harbors" related to "investment interests": the first concerning investment interests in large publicly traded companies ($50,000,000 in net tangible assets) and the second for investments in smaller entities. The partnerships and limited liability companies that own the AmSurg centers do not meet all of the criteria of either existing "investment interests" safe harbor as announced in the Regulations. While several federal court decisions have aggressively applied the restrictions of the anti-kickback statute, they provide little guidance as to the application of the anti-kickback statute to AmSurg's partnerships and limited liability companies. AmSurg believes that it is in compliance with the current requirements of applicable federal and state law because among other factors: i. the partnerships and limited liability companies exist to effect legitimate business purposes, including the ownership, operation and continued improvement of quality, cost effective and efficient services to their patients; ii. the partnerships and limited liability companies function as an extension of the group practices of physicians who are affiliated with the surgery centers and the surgical procedures are performed personally by these physicians without referring the patients outside of their practice; iii. the physician partners have a substantial investment at risk in the partnership or limited liability company; iv. terms of the investment do not take into account volume of the physician partner's past or anticipated future services provided to patients of the centers; 54 62 v. the physician partners are not required or encouraged as a condition of the investment to treat Medicare or Medicaid patients at the centers or to influence others to refer such patients to the centers for treatment; vi. neither the partnership, limited liability company, the AmSurg subsidiary, nor any of their affiliates will loan any funds or guarantee any debt on behalf of the physician partners; and vii. distributions are allocated uniformly by and among all partners in proportion to their ownership interests. Notwithstanding AmSurg's belief that the relationship of physician partners to the AmSurg surgery centers should not constitute illegal remuneration under the anti-kickback statute, no assurances can be given that a federal or state agency charged with enforcement of the anti-kickback statute and similar laws might not assert a contrary position or that new federal or state laws might not be enacted that would cause the physician partners' ownership interest in the AmSurg centers to become illegal, or result in the imposition of penalties on AmSurg or certain of its facilities. Even the assertion of a violation could have a material adverse effect upon AmSurg. See "RISK FACTORS -- Risks Associated with Medicare-Medicaid Illegal Remuneration ("anti-kickback") Laws." Prohibition on Physician Ownership of Healthcare Facilities. The so-called "Stark II" provisions of the Omnibus Budget Reconciliation Act of 1993 ("OBRA 93") amend the federal Medicare statute to prohibit the making by a physician of referrals for "designated health services" to an entity in which the physician has an investment interest or other financial relationship, subject to certain exceptions. A referral under Stark II that does not fall within an exception is strictly prohibited. This prohibition took effect on January 1, 1995. Sanctions for violating Stark II can include civil monetary penalties and exclusion from Medicare and Medicaid. Ambulatory surgery is not identified as a "designated health service", and AmSurg, therefore, does not believe that ambulatory surgery is otherwise subject to the restrictions set forth in Stark II. However, unfavorable regulations yet to be promulgated pursuant to Stark II or subsequent adverse court interpretations concerning similar provisions found in recently enacted state statutes could prohibit reimbursement for treatment provided by the physicians affiliated with the AmSurg centers to their patients. AmSurg cannot predict whether other regulatory or statutory provisions will be enacted by federal or state authorities which would prohibit or otherwise regulate relationships which AmSurg has established or may establish with other healthcare providers or the possibility of material adverse effects on its business or revenues arising from such future actions. AmSurg management believes, however, that AmSurg will be able to adjust its operations so as to be in compliance with any regulatory or statutory provision, as may be applicable. AmSurg is subject to state and federal laws that govern the submission of claims for reimbursement. These laws generally prohibit an individual or entity from knowingly and willfully presenting a claim (or causing a claim to be presented) for payment from Medicare, Medicaid or other third party payors that is false or fraudulent. The standard for "knowing and willful" often includes conduct that amounts to a reckless disregard for whether accurate information is presented by claims processors. Penalties under these statutes include substantial civil and criminal fines, exclusion from the Medicare program, and imprisonment. One of the most prominent of these laws is the federal False Claims Act, which may be enforced by the federal government directly, or by a qui tam plaintiff on the government's behalf. Under the False Claims Act, both the government and the private plaintiff, if successful, are permitted to recover substantial monetary penalties, as well as an amount equal to three times actual damages. In recent cases, some qui tam plaintiffs have taken the position that violations of the anti-kickback statute and Stark II should also be prosecuted as violations of the federal False Claims Act. AmSurg believes that it has procedures in place to ensure the accurate completion of claims forms and requests for payment. Under its agreements with its physician partners, AmSurg is obligated to purchase the interests of the physicians in the event that their continued ownership of interests in the partnerships and limited liability companies becomes prohibited by the statutes or regulations described above. The determination of such a prohibition is required to be made by counsel of AmSurg in concurrence with counsel of the physician 55 63 partners, or if they cannot concur, by a nationally recognized law firm with an expertise in healthcare law jointly selected by AmSurg and the physician partners. The interest required to be purchased by AmSurg will not exceed the minimum interest required as a result of the change in the statute or regulation causing such prohibition. See "RISK FACTORS -- Dependence on Relationships with Physician Partners; Risks of Conflicts of Interest, Disputes and Contingent Obligations." PROPERTIES AmSurg's principal executive offices are located in Nashville, Tennessee and contain an aggregate of approximately 15,000 square feet of office space, which AmSurg subleases from AHC pursuant to an agreement that expires in December 1999. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -- Lease Arrangement." AmSurg partnerships and limited liability companies generally lease space for their surgery centers. Thirty-three of the centers and the physician practices in operation at September 30, 1997 lease space ranging from 1,200 to 7,800 square feet with remaining lease terms ranging from two to eighteen years. Two centers in operation at September 30, 1997 are located in buildings owned directly or indirectly by AmSurg. EMPLOYEES As of September 30, 1997, AmSurg and its affiliated entities employed 225 persons, 177 of whom were full-time employees and 48 of whom were part-time employees. Of the above, 54 were employed at AmSurg's headquarters in Nashville, Tennessee. In addition, approximately 105 employees are leased on a part-time basis and 157 are leased on a full-time basis from the associated physician practices. None of these employees is represented by a union. AmSurg believes its relationship with its employees to be excellent. LEGAL PROCEEDINGS AND INSURANCE From time to time, AmSurg may be named a party to legal claims and proceedings in the ordinary course of business. Management is not aware of any claims or proceedings against it or its partnerships that might have a material financial impact on AmSurg. Each of AmSurg's surgery centers and physician practices maintains separate medical malpractice insurance in amounts it deems adequate for its business. 56 64 MANAGEMENT OF AMSURG DIRECTORS AND EXECUTIVE OFFICERS Certain information with respect to the directors and executive officers of AmSurg following the Distribution is set forth below. Following the Distribution, the Board of Directors will be composed of seven persons who will be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as possible, of one-third of the total number of directors constituting the entire Board of Directors. Each class of directors shall be elected for a three-year term, except that the initial term will be for one year in the case of the Class I directors and two years in the case of the Class II directors. All executive officers are elected by the Board of Directors and serve until their successors are duly elected by the Board of Directors.
NAME AGE POSITION WITH AMSURG - ---- --- -------------------- Ken P. McDonald................................. 57 President, Chief Executive Officer and Director (Class II director with term expiring in 1999) Claire M. Gulmi................................. 44 Senior Vice President, Chief Financial Officer and Secretary Royce D. Harrell................................ 52 Senior Vice President, Operations, and Assistant Secretary Rodney H. Lunn.................................. 47 Senior Vice President, Center Development David L. Manning................................ 48 Senior Vice President, Development Thomas G. Cigarran.............................. 55 Chairman of the Board (Class III director with term expiring in 2000) James A. Deal................................... 47 Director (Class I director with term expiring in 1998) Steven I. Geringer.............................. 51 Director (Class I director with term expiring in 1998) Debora A. Guthrie............................... 42 Director (Class III director with term expiring in 2000) Henry D. Herr................................... 51 Director (Class II director with term expiring in 1999) Bergein F. Overholt, M.D........................ 60 Director (Class III director with term expiring in 2000)
KEN P. MCDONALD joined AmSurg in 1993 as a Vice President. Mr. McDonald became Executive Vice President and Chief Operating Officer in December 1994, President and a director in July 1996, and will become Chief Executive Officer effective upon the Distribution. Mr. McDonald was President of NASCO Data Systems, Inc., a distributor of IBM micro computer products to the value-added reseller community, from 1988 until he joined AmSurg in 1993. CLAIRE M. GULMI joined AmSurg in September 1994 as Vice President and Chief Financial Officer. Ms. Gulmi became Senior Vice President in March 1997. Following the Distribution, Ms. Gulmi will additionally become the Secretary of AmSurg. From 1991 to 1994, Ms. Gulmi served as Chief Financial Officer of Music Holdings, Inc., a music publishing and video distribution company. ROYCE D. HARRELL joined AmSurg in October 1992 as Senior Vice President, Operations. Mr. Harrell served, in successive order from 1982 to 1992, as a Vice President of Development, Senior Vice President of Development and Senior Vice President, Operations of Forum Group, Inc., an owner and operator of retirement and healthcare communities and primary care facilities. RODNEY H. LUNN has been Senior Vice President of Center Development since 1992 and was a director from 1992 until February 1997. Mr. Lunn is a founding stockholder of AmSurg and was a principal of Practice 57 65 Development Associates, Inc. ("PDA"), a company specializing in developing practice-based surgery centers, from March 1987 until it was acquired by AmSurg in 1992. DAVID L. MANNING has served as Senior Vice President of Development and Assistant Secretary of AmSurg since April 1992. Mr. Manning is a founding stockholder of AmSurg and co-founded and was a principal of PDA from March 1987 until its acquisition by AmSurg in 1992. THOMAS G. CIGARRAN has served as Chairman of the Board of AmSurg since 1992. Mr. Cigarran served as Chief Executive Officer of AmSurg from January 1993 until the Distribution, and President from January 1993 to July 1996. Following the Distribution, Mr. Cigarran will serve as an advisor to AmSurg. Mr. Cigarran is a co-founder of AHC and has served as Chairman of the Board, President and Chief Executive Officer thereof since 1988. Mr. Cigarran serves as a member of the Board of Directors of ClinTrials Research, Inc. JAMES A. DEAL, a director of AmSurg since 1992, has served as Executive Vice President of AHC since May 1991 and as President of DTCA since 1985. STEVEN I. GERINGER, a director of AmSurg since March 1997, was President and Chief Executive Officer of PCS Health Systems, Inc., a unit of Eli Lilly & Company ("PCS"), and one of the nation's largest providers of managed pharmaceutical services to managed care organizations and health insurers, from June 1995 until June 1996, and President and Chief Operating Officer of PCS from May 1993 through May 1995. Prior to joining PCS, Mr. Geringer was a founder, Chairman and Chief Executive Officer of Clinical Pharmaceuticals, Inc. of Nashville, Tennessee which was acquired by PCS. DEBORA A. GUTHRIE, a director of AmSurg since November 1996, has been President and Chief Executive Officer of the general partner of Capitol Health Partners, L.P., a Washington, D.C.-based venture fund specializing in healthcare industries since October 1995. Prior to forming Capitol Health Partners in 1995, Ms. Guthrie was President and Chief Executive Officer of Guthrie Capital Corporation, a venture management company providing financial advisory and investment banking services to healthcare companies in the Mid-Atlantic and Southeastern United States. HENRY D. HERR, a director of AmSurg since 1992, has served as Executive Vice President of Finance and Administration and Chief Financial Officer of AHC since 1986 and a director of AHC since 1988. Following the Distribution, Mr. Herr will serve as an advisor to AmSurg. Mr. Herr served as Chief Financial Officer of AmSurg from April 1992 until September 1994, and as Secretary from April 1992 until the effective date of the Distribution. BERGEIN F. OVERHOLT, M.D., a director of AmSurg since November 1992, is President of Gastrointestinal Associates, P.C. a gastrointestinal specialty group, and a partner in The Endoscopy Center, Knoxville, Tennessee, which owns a limited partnership interest in an ambulatory surgery center that is majority-owned and managed by AmSurg. Dr. Overholt also serves as Chairman, Laser/Hyperthermia Department, Thompson Cancer Survival Center in Knoxville, Tennessee and is an Associate Professor of Clinic Medicine, University of Tennessee in Knoxville, Tennessee. There are no family relationships, by blood, marriage or adoption, between or among any of the individuals listed above as directors or executive officers. Ms. Guthrie, an affiliate of Capitol Health Partners, L.P., was appointed to the AmSurg Board of Directors in connection with the preferred stock equity financing in November 1996, in which Capitol Health Partners, L.P. purchased 18.2% of the Series A Preferred Stock and Series B Preferred Stock. See "DESCRIPTION OF CAPITAL STOCK." Pursuant to the Distribution Agreement, AHC agreed to the nomination of each of the persons who will be members of the Board of Directors and agreed to vote for such persons at the next meeting of AmSurg stockholders occurring prior to the Distribution. COMMITTEES OF THE BOARD OF DIRECTORS In order to facilitate the various functions of the AmSurg Board of Directors following the Distribution, the Board intends to create several standing committees, including a Nominating Committee, a Compensation Committee, and an Audit Committee. 58 66 The members of the Nominating Committee will be Ken P. McDonald and Thomas G. Cigarran. The principal function of the Nominating Committee will be to recommend to the Board of Directors nominees for election to the Board. The members of the Compensation Committee will be Bergein F. Overholt, M.D., Debora A. Guthrie and Steven I. Geringer. No member of this committee will be a former or current officer or employee of AmSurg. The functions of the Compensation Committee include recommending to the full Board of Directors the compensation arrangements for senior management and directors and the adoption of compensation and benefit plans in which officers and directors are eligible to participate, and granting options or other benefits under (and otherwise administering) certain of such plans. The members of the Audit Committee will be Debora A. Guthrie, James A. Deal and Henry D. Herr. The principal functions of the Audit Committee will be to recommend to the full Board of Directors the engagement or discharge of AmSurg's independent auditors; to review the nature and scope of the audit, including but not limited to a determination of the effectiveness of the audit effort through meetings held at least annually with the independent and internal auditors of AmSurg (collectively, the "auditors") and a determination through discussion with the auditors that no unreasonable restrictions were placed on the scope or implementation of their examinations; to review the qualifications and performance of the auditors, including but not limited to review of the plans and results of the auditing engagement and each professional service provided by the independent auditors; to review the financial organization and accounting practices of AmSurg, including but not limited to review of AmSurg's financial statements with the auditors and inquiry into the effectiveness of AmSurg's financial and accounting functions and internal controls through discussions with the auditors and the officers of AmSurg; and to recommend to the full Board of Directors policies concerning avoidance of employee conflicts of interest and to review the administration of such policies. COMPENSATION OF DIRECTORS Members of the Board of Directors of AmSurg, other than those who are employees of AmSurg, receive an annual fee of $10,000, adjusted annually to reflect changes in the Consumer Price Index, U.S. All City Average Report, of the U.S. Bureau of Labor Statistics (the "CPI") for their services as directors and as members of any committees of the Board of Directors on which they serve. In addition, each non-employee director is reimbursed for out-of-pocket expenses incurred in attending Board of Directors and committee meetings. Non-employee directors also are eligible to receive restricted stock awards pursuant to the 1997 Stock Incentive Plan. Under this plan, each non-employee director will receive an award of restricted stock of a number of shares of Class A Common Stock equal in value to $10,000, effective upon the Distribution. Thereafter, each non-employee director who is elected or reelected to the Board of Directors or who otherwise continues as a director shall automatically, on the date of the annual meeting of stockholders of AmSurg, be granted and receive an award of restricted stock of a number of shares of AmSurg Class A Common Stock equal in value to $10,000, adjusted annually for changes in the CPI. Members of the Board of Directors of AmSurg who are employees of AmSurg will not receive any additional compensation for their services as directors or as members of committees. See "MANAGEMENT OF AMSURG -- Stock Incentive Plans -- 1997 Stock Incentive Plan." DIRECTOR AND OFFICER INDEMNIFICATION AND LIMITATION OF LIABILITY The Tennessee Business Corporation Act (the "TBCA") provides that a corporation may indemnify any of its directors and officers against liability incurred in connection with a proceeding if: (a) such person acted in good faith; (b) in the case of conduct in an official capacity with the corporation, he reasonably believed such conduct was in the corporation's best interests; (c) in all other cases, he reasonably believed that his conduct was at least not opposed to the best interests of the corporation; and (d) in connection with any criminal proceeding, such person had no reasonable cause to believe his conduct was unlawful. In actions brought by or in the right of the corporation, however, the TBCA provides that no indemnification may be made if the director or officer was adjudged to be liable to the corporation. The TBCA also provides that in connection with any proceeding charging improper personal benefit to an officer or director, no indemnification may be made if such officer or director is adjudged liable on the basis that such personal benefit was 59 67 improperly received. Notwithstanding the foregoing, the TBCA provides that a court of competent jurisdiction, unless the corporation's charter provides otherwise, upon application, may order that an officer or director be indemnified for reasonable expenses if, in consideration of all relevant circumstances, the court determines that such individual is fairly and reasonably entitled to indemnification, notwithstanding the fact that: (a) such officer or director was adjudged liable to the corporation in a proceeding by or in the right of the corporation; (b) such officer or director was adjudged liable on the basis that personal benefit was improperly received by him; or (c) such officer or director breached his duty of care to the corporation. AmSurg's Charter and Bylaws require AmSurg to indemnify its directors and officers to the fullest extent permitted by law with respect to all liability and loss suffered and expense reasonably incurred by such person in any action, suit or proceeding in which such person was or is made, or threatened to be made, a party, or is otherwise involved by reason of the fact that such person is or was a director or officer of AmSurg. In addition, AmSurg's Charter provides that AmSurg's directors shall not be personally liable to AmSurg or its stockholders for monetary damages for breach of any fiduciary duty as a director of AmSurg except to the extent such exemption from liability or limitation thereof is not permitted under the TBCA. Under the TBCA, this provision does not relieve AmSurg's directors from personal liability to AmSurg or its stockholders for monetary damages for breach of fiduciary duty as a director, to the extent such liability arises from a judgment or other final adjudication establishing: (a) any breach of the director's duty of loyalty; (b) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; or (c) any unlawful distributions. Nor does this provision eliminate the duty of care and, in appropriate circumstances, equitable remedies such as injunctive or other forms of non-monetary relief will remain available under Tennessee law. Finally, this provision does not affect a director's responsibilities under any other law, such as the federal securities laws or state or federal environmental laws. AmSurg has entered into indemnification agreements with all of its directors and executive officers providing that it will indemnify those persons to the fullest extent permitted by law against claims arising out of their actions as officers or directors of AmSurg and will advance expenses of defending claims against them. AmSurg believes that indemnification under these agreements covers at least negligence and gross negligence by the directors and officers, and requires AmSurg to advance litigation expenses in the case of actions, including stockholder derivative actions, against an undertaking by the officer or director to repay any advances if it is ultimately determined that the officer or director is not entitled to indemnification. AmSurg believes that its Charter and Bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers. At present, there is no litigation or proceeding involving a director or officer of AmSurg as to which indemnification is being sought, nor is AmSurg aware of any threatened litigation that may result in claims for indemnification by any officer or director. Pursuant to the Management Agreement, AmSurg will indemnify and hold AHC, its directors, officers, employees and agents and any person who controls AHC within the meaning of the Securities Act in the absence of gross negligence, harmless from and against any and all liabilities, claims or damages (including the cost of investigating any claim and reasonable attorneys' fees and disbursements) in connection with any services performed by AHC pursuant to the Management Agreement or any transactions or conduct in connection therewith. See "THE DISTRIBUTION -- The Management Agreement." Following the Distribution, AmSurg will have in effect an executive liability insurance policy which will provide coverage for its directors and officers. See "THE DISTRIBUTION -- Indemnification." Under this policy, the insurer will agree to pay, subject to certain exclusions (including violations of securities laws), for any claim made against a director or officer of AmSurg for a wrongful act by such director or officer, but only if and to the extent such director or officer becomes legally obligated to pay such claim or AmSurg is required to indemnify the director or officer for such claim. 60 68 EXECUTIVE COMPENSATION The following table provides information as to annual, long-term or other compensation during fiscal years 1996, 1995 and 1994 for the person who will be, effective as of the Distribution, the Chief Executive Officer and the persons who, at the end of fiscal 1996, were the other four most highly compensated executive officers of AmSurg (collectively, the "Named Executive Officers"). Prior to the Distribution, Thomas G. Cigarran served as Chief Executive Officer of AmSurg but received no compensation from or with respect to AmSurg. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ----------------- ANNUAL COMPENSATION AWARDS/SECURITIES ---------------------- UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION ($) --------------------------- ---- ---------- --------- ----------------- ---------------- Ken P. McDonald....................... 1996 $139,050 $ 41,905 68,333 $4,000(1) President and Chief Executive Officer 1995 $125,050 $ 25,386 -- $4,000 1994 $ 98,208 $ 9,000 23,333 $4,000 Claire M. Gulmi....................... 1996 $100,000 $ 28,292 6,667 -- Senior Vice President and Chief 1995 $ 86,292 $ 22,652 -- -- Financial Officer(2) 1994 $ 25,000 $ 4,833 16,667 -- Royce D. Harrell...................... 1996 $130,788 $ 38,471 8,333 -- Senior Vice President, 1995 $124,538 $ 36,708 -- -- Operations 1994 $118,500 $ 19,185 6,667 $6,352 Rodney H. Lunn........................ 1996 $132,108 $ 29,169 5,000 $4,320(3) Senior Vice President, Center 1995 $125,818 $ 18,205 -- $4,320 Development 1994 $119,831 $ 6,000 3,333 $4,320 David L. Manning...................... 1996 $132,108 $106,460 8,333 $4,320(3) Senior Vice President, 1995 $125,818 $ 26,384 -- $4,320 Development 1994 $119,831 $ 6,000 5,000 $4,320
- --------------- (1) Forgiveness of debt. (2) Ms. Gulmi became Senior Vice President in March 1997. (3) Automobile allowance. 61 69 OPTION/STOCK APPRECIATION RIGHTS GRANTS IN LAST FISCAL YEAR The following table provides information as to options granted to the Named Executive Officers during fiscal 1996. No Stock Appreciation Rights ("SARs") were awarded in fiscal 1996.
INDIVIDUAL GRANTS POTENTIAL REALIZABLE ------------------------------------------------------- VALUE AT ASSUMED PERCENT OF ANNUAL RATES OF NUMBERS OF TOTAL STOCK PRICE SECURITIES OPTIONS/SARS EXERCISE APPRECIATION FOR UNDERLYING GRANTED TO OR BASE OPTION TERM OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION --------------------- NAME GRANTED (#)(1) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($) - ---- -------------- -------------- -------- ---------- --------- --------- Ken P. McDonald.............. 11,667 5.08% $4.68 01/08/06 34,338 87,018 58,333 25.39 5.37 06/21/06 197,001 499,240 Claire M. Gulmi.............. 6,667 2.90 4.68 01/08/06 19,622 49,725 Royce D. Harrell............. 8,333 3.63 4.68 01/08/06 24,527 62,156 Rodney H. Lunn............... 5,000 2.18 4.68 01/08/06 14,716 37,294 David L. Manning............. 8,333 3.63 4.68 01/08/06 24,527 62,156
- --------------- (1) All options were granted on January 8, 1996 except for the grant of 58,333 options to Mr. McDonald on June 21, 1996. All options will vest over four years. The following table provides information as to options exercised by the Named Executive Officers during fiscal 1996. None of the Named Executive Officers has exercised separate SARs. In addition, this table includes the number of shares covered by both exercisable and unexercisable stock options as of the record date. Also reported are the values for "in-the-money" options, which represent the positive spread between the exercise price of any existing stock options and the year-end price. AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN- NUMBER OF UNDERLYING UNEXERCISED THE-MONEY OPTIONS AT SHARES OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END(1)($) ACQUIRED ON VALUE ---------------------------- --------------------------- NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---- ------------ ------------ ------------ ------------- ----------- ------------- Ken P. McDonald........... -- -- 25,417 86,250 66,750 62,500 Claire M. Gulmi........... -- -- 8,333 15,000 19,550 25,550 Royce D. Harrell.......... -- -- 79,625 14,875 244,910 23,470 Rodney H. Lunn............ -- -- 178,667 8,333 847,710 12,650 David L. Manning.......... -- -- 179,500 12,500 849,585 17,525
- --------------- (1) Based on an assumed value of $5.58 at year end, which represents the value determined by the AmSurg Board of Directors for purposes of acquisition transactions and option grants based on an independent valuation. EMPLOYMENT AGREEMENTS AmSurg has employment agreements with each of Mr. McDonald, Ms. Gulmi, Mr. Harrell, Mr. Lunn and Mr. Manning (the "Employment Agreements"). The Employment Agreements have an initial one-year term, but contain a provision that automatically extends the term for an additional one year on the first and each successive anniversary date of the Employment Agreements until Messrs. McDonald, Harrell, Lunn and Manning and Ms. Gulmi, respectively, reach age 65 after which term shall not be automatically extended. The automatic renewal provision can be canceled by AmSurg prior to each anniversary date of the Employment Agreements. The Employment Agreements provide that if AmSurg elects not to extend the executive's employment, the executive will be considered to have been terminated without cause and will receive his or her base salary, reduced by any salary earned by the executive from another employer, plus certain benefits for a period of one year. The executive will also receive the same compensation as provided above if the executive terminates his or her employment with AmSurg under certain circumstances at any time within twelve 62 70 months following a Change In Control (as defined in the Employment Agreements). The Employment Agreements also contain a restrictive covenant pursuant to which each executive has agreed not to compete with AmSurg during the time AmSurg is obligated to compensate him or her pursuant to the Employment Agreement. STOCK INCENTIVE PLANS 1992 Stock Option Plan AmSurg approved the 1992 Stock Option Plan (the "1992 Plan") in April 1992 to provide key employees with an additional incentive to contribute to the best interests of AmSurg. The 1992 Plan may be administered by the Board of Directors or a committee appointed by the Board. The Board or such designated committee has the power, among other things, (i) to determine which of the eligible persons shall be granted options to purchase shares of Class A Common Stock, (ii) to determine whether such options shall be incentive or non-statutory stock options, (iii) to determine the number of shares for which each option shall be granted, (iv) to construe, interpret and administer the 1992 Plan, (v) to prescribe the terms and provisions of each option granted, (vi) to amend the 1992 Plan, and (vii) generally, to exercise such powers and to perform such acts as are deemed necessary or expedient to promote the best interests of AmSurg. There are 927,333 shares of Class A Common Stock reserved for issuance upon exercise of options granted under the 1992 Plan. The price per share under each option granted shall be determined by the Board or the committee, but in the case of incentive stock options, shall be no less than 100% of the fair market value of the Class A Common Stock on the date of grant, and, in the case of non-statutory options, shall in no event be less than 85% of the fair market value of the Class A Common Stock on the date of grant. The option exercise period shall be determined by the Board or committee; however, incentive stock options shall not be exercisable more than 10 years from the date of grant (and five years for any individual who, at the time of grant, owns more than 10% of the total combined voting power of all classes of stock of AmSurg). No option shall be transferable otherwise than by will or the laws of descent and distribution and an option is exercisable during the lifetime of the optionee only by such optionee. As of the date hereof, non-qualified stock options for the purchase of 888,783 shares of Class A Common Stock have been granted to certain management employees. The options granted will generally vest in four equal annual installments. The options are subject to the terms of the 1992 Plan, will expire 10 years from the date of grant, and are exercisable at an average exercise price of approximately $2.55 per share. In the event of certain fundamental changes to AmSurg (including liquidation, dissolution, merger, reorganization or sale of all or substantially all of the assets of AmSurg), the stock options shall immediately vest and be fully exercisable by the optionees. If shares subject to an option or stock appreciation right under the 1992 Plan cease to be subject to such option or stock appreciation right without the exercise of such option or stock appreciation right, or if shares of restricted stock or shares underlying other stock-based awards under the 1992 Plan are forfeited or otherwise terminate without a payment being made in the form of Class A Common Stock and without the payment of any dividends thereon, such shares will again be available for future distribution under the 1992 Plan. 1997 Stock Incentive Plan The AmSurg Board of Directors has adopted a 1997 Stock Incentive Plan (the "1997 Incentive Plan") pursuant to which AmSurg may grant options and other rights with respect to the AmSurg Common Stock to officers, non-employee directors of AmSurg and key employees following the Distribution. On February 7, 1997, March 7, 1997, April 11, 1997 and June 27, 1997, the Board of Directors approved grants of options for the purchase of 213,600 shares of Class A Common Stock to various employees pursuant to the 1997 Incentive Plan for an average per share exercise price of $6.02. The 1997 Incentive Plan and any stock-based awards made by AmSurg pursuant to the 1997 Incentive Plan are subject to AmSurg stockholder approval at the special meeting of stockholders scheduled to be held on December 1, 1997. 63 71 A total of 650,000 shares of Class A Common Stock will be reserved and available under the 1997 Incentive Plan. An "Outside Director" is a member of the Board of Directors who is not an officer or employee of AmSurg, its subsidiaries or affiliates. A director serving as medical director of AmSurg but not as an employee of AmSurg will be treated as an Outside Director for purposes of the 1997 Incentive Plan. Following the Distribution, the number of Outside Directors will be six. The aggregate number of shares of Class A Common Stock that may be granted to any individual pursuant to any award under the 1997 Incentive Plan is up to 200,000 in any one year. Section 162(m) of the Code requires the 1997 Incentive Plan to provide a maximum number of shares that may be granted to any individual in any one year. The maximum amounts provided in the 1997 Incentive Plan do not reflect the size of awards expected to be made by AmSurg. If shares subject to an option or stock appreciation right under the 1997 Incentive Plan cease to be subject to such option or stock appreciation right without the exercise of such option or stock appreciation right, or if shares of restricted stock or shares underlying other stock-based awards under the 1997 Incentive Plan are forfeited or otherwise terminate without a payment being made in the form of Class A Common Stock and without the payment of any dividends thereon, such shares will again be available for future distribution under the 1997 Incentive Plan. In the case of a stock split, stock dividend, reclassification, recapitalization, merger, reorganization, extraordinary cash dividend, or other changes in AmSurg's capital structure affecting the Class A Common Stock, appropriate adjustments or other substitutions will be made in the number of shares reserved under the 1997 Incentive Plan, the number of shares that may be issued to any individual and the number of shares and the exercise price of options and other awards then outstanding under the 1997 Incentive Plan. The 1997 Incentive Plan will be administered by a committee (the "Plan Committee") of no less than two non-employee directors appointed to serve on such committee by the Board. It is expected that such Plan Committee will be the Compensation Committee. Awards under the 1997 Incentive Plan may be made to key employees, including officers, of AmSurg and any subsidiaries or affiliates of AmSurg, to advisors to AmSurg, its subsidiaries or affiliates and non-employee directors of AmSurg. The approximate number of employees who would potentially be eligible for awards under the 1997 Incentive Plan is 39, based on the number of employees of AmSurg at September 30, 1997, but actual awards will be made only at the discretion of the Plan Committee. The Plan Committee will have the authority to grant the following type of awards under the 1997 Incentive Plan: (1) stock options; (2) stock appreciation rights; (3) restricted stock and (4) other stock-based awards; provided, however, that the power to grant and establish the terms and conditions of awards to Outside Directors under the 1997 Incentive Plan other than pursuant to Section 9 of the 1997 Incentive Plan, as discussed below, shall be reserved to the Board of Directors. The decisions of the Plan Committee are subject to ratification by the full Board of Directors of AmSurg. 1. Stock Options. Incentive stock options ("ISOs") and non-qualified stock options may be granted for such number of shares as the Plan Committee will determine and may be granted alone, in conjunction with, or in tandem with, other awards under the 1997 Incentive Plan, but subject to the per person limitation on awards. A stock option will be exercisable at such times and subject to such terms and conditions as the Plan Committee may determine and over a term to be determined by the Plan Committee, which term will be no more than 10 years after the date of grant, or no more than five years in the case of an ISO awarded to certain 10% stockholders. The option price for any ISO will not be less than 100% (110% in the case of certain 10% stockholders) of the fair market value of the Class A Common Stock as of the date of grant and for any non-qualified stock option will be not less than 50% of the fair market value as of the date of grant. Payment of the option price may be in cash, or, in the case of a non-qualified stock option, as determined by the Plan Committee, in shares of Class A Common Stock having a fair market value equal to the option price. Upon termination of an optionholder's employment for cause, such employee's stock options will terminate. If an optionholder's employment is involuntarily terminated without cause, stock options will be exercisable for three months following termination or until the end of the option period, whichever is shorter. 64 72 On the disability of an employee, stock options will be exercisable within the lesser of the remainder of the option period or, in the case of a non-qualified stock option, three years and, in the case of an ISO, one year from the date of disability. Upon the retirement of an employee, stock options will be exercisable within the lesser of the remainder of the option period or, in the case of a non-qualified stock option, three years and, in the case of an ISO, three months from the date of retirement. Upon the death of an employee, stock options will be exercisable by the deceased employee's representative within the lesser of the remainder of the option period or one year from the date of the employee's death. Unless otherwise determined by the Plan Committee, only options which are exercisable on the date of termination, death, disability, or retirement may be subsequently exercised. 2. SARs. SARs may be granted alone or in conjunction with all or part of a stock option. Once an SAR has been exercised, the related portion of the stock option, if any, underlying the SAR will terminate. Upon the exercise of an SAR, the Plan Committee will pay to the employee in cash, Class A Common Stock or a combination thereof (the method of payment to be at the discretion of the Plan Committee), an amount of money equal to the excess between the fair market value of the stock on the exercise date and the SAR exercise price, multiplied by the number of SARs being exercised. An SAR granted in tandem with all or part of a stock option will be exercisable only when the underlying option is exercisable, subject to any conditions specified by the Plan Committee at the time of grant. 3. Restricted Stock. Restricted stock may be granted alone, in conjunction with, or in tandem with, other awards under the 1997 Incentive Plan and may be conditioned upon the attainment of specific performance goals or such other factors as the Plan Committee may determine. Upon the termination of the employee's employment for any reason during the restriction period, all restricted stock either will vest or be subject to forfeiture, in accordance with the terms and conditions of the initial award. During the restriction period, the employee will have the right to vote the restricted stock and to receive any cash dividends. At the time of award, the Plan Committee may require the deferral and reinvestment of any cash dividends in the form of additional shares of restricted stock. Stock dividends will be treated as additional shares of restricted stock and will be subject to the same terms and conditions as the initial grant. 4. Other Stock-Based Awards. The Plan Committee may also grant other types of awards that are valued, in whole or in part, by reference to or otherwise based on the Class A Common Stock. These awards may be granted alone, in addition to, or in tandem with, stock options, SARs and restricted stock. Such awards will be made upon terms and conditions as the Plan Committee may in its discretion provide. 5. Awards to Outside Directors. Pursuant to Section 9 of the 1997 Incentive Plan, effective as of the Distribution each Outside Director will receive a grant of a number of shares of Class A Common Stock having an aggregate fair market value on such date equal in value to $10,000, adjusted for changes in the CPI, which shares shall be restricted as provided in Section 9 of the 1997 Incentive Plan (the "Outside Director Restricted Stock"). On the date of each annual meeting of stockholders of AmSurg occurring after the Distribution, each Outside Director will receive an automatic grant of a number of shares of Outside Director Restricted Stock having an aggregate fair market value on such date equal to $10,000 adjusted annually for changes in the CPI. Each grant of Outside Director Restricted Stock shall vest in increments of one-third of the shares of Class A Common Stock subject to such grant with the first one-third increment vesting on the date of grant, the second one-third increment vesting on the first anniversary of the date of grant and the final one-third increment vesting on the second anniversary of the date of grant, if the grantee is still a member of the Board on each of such dates. Until the earlier of (i) five years from the date of grant and (ii) the date on which the Outside Director ceases to serve as a director of AmSurg, no Outside Director Restricted Stock may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, otherwise than by will or by the laws of descent and distribution. Upon termination of an Outside Director's service as a member of the Board for any reason other than death, disability or retirement, all shares of Outside Director Restricted Stock not theretofore vested will be forfeited. Upon termination of an Outside Director's service as a member of the Board due to death, disability or retirement, all shares of Outside Director Restricted Stock will immediately vest. 65 73 Federal Income Tax Aspects of the 1997 Incentive Plan. The following is a brief summary of the federal income tax aspects of awards made under the 1997 Incentive Plan based upon the federal income tax laws in effect on the date hereof. This summary is not intended to be exhaustive, and does not describe state or local tax consequences. 1. Incentive Stock Options. No taxable income is realized by the participant upon the grant or exercise of an ISO. If Class A Common Stock is issued to a participant pursuant to the exercise of an ISO, and if no disqualifying disposition of the shares is made by the participant within two years of the date of grant or within one year after the transfer of the shares to the participant, then: (a) upon the sale of the shares, any amount realized in excess of the option price will be taxed to the participant as a long-term capital gain, and any loss sustained will be a capital loss, and (b) no deduction will be allowed to AmSurg for federal income tax purposes. The exercise of an ISO will give rise to an item of tax preference that may result in an alternative minimum tax liability for the participant unless the participant makes a disqualifying disposition of the shares received upon exercise. If Class A Common Stock acquired upon the exercise of an ISO is disposed of prior to the expiration of the holding periods described above, then generally: (a) the participant will realize ordinary income in the year of disposition in an amount equal to the excess, if any, of the fair market value of the shares at exercise (or, if less, the amount realized on the disposition of the shares) over the option price paid for such shares, and (b) AmSurg will be entitled to deduct any such recognized amount. Any further gain or loss realized by the participant will be taxed as short-term or long-term capital gain or loss, as the case may be, and will not result in any deduction by AmSurg. Subject to certain exceptions for disability or death, if an ISO is exercised more than three months following the termination of the participant's employment, the option will generally be taxed as a non-qualified stock option. 2. Non-Qualified Stock Options. Except as noted below, with respect to non-qualified stock options: (a) no income is realized by the participant at the time the option is granted; (b) generally upon exercise of the option, the participant realizes ordinary income in an amount equal to the difference between the option price paid for the shares and the fair market value of the shares on the date of exercise and AmSurg will be entitled to a tax deduction in the same amount; and (c) at disposition, any appreciation (or depreciation) after date of exercise is treated either as short-term or long-term capital gain or loss, depending upon the length of time that the participant has held the shares. See "Restricted Stock" for tax rules applicable where the spread value of an option is settled in an award of restricted stock. 3. SARs. No income will be realized by a participant in connection with the grant of an SAR. When the SAR is exercised, the participant will generally be required to include as taxable ordinary income in the year of exercise an amount equal to the amount of cash and the fair market value of any shares received. AmSurg will be entitled to a deduction at the time and in the amount included in the participant's income by reason of the exercise. If the participant receives Class A Common Stock upon exercise of an SAR, the post- exercise appreciation or depreciation will be treated in the same manner discussed above under "Non-Qualified Stock Options." 4. Restricted Stock. A participant receiving restricted stock generally will recognize ordinary income in the amount of the fair market value of the restricted stock at the time the stock is no longer subject to forfeiture, less the consideration paid for the stock. However, a participant may elect, under Section 83(b) of the Code within 30 days of the grant of the stock, to recognize taxable ordinary income on the date of grant equal to the excess of the fair market value of the shares of restricted stock (determined without regard to the restrictions) over the purchase price of the restricted stock. Thereafter, if the shares are forfeited, the participant will be entitled to a deduction, refund, or loss, for tax purposes only, in an amount equal to the purchase price of the forfeited shares regardless of whether he made a Section 83(b) election. With respect to the sale of shares after the forfeiture period has expired, the holding period to determine whether the participant has long-term or short-term capital gain or loss generally begins when the restriction period expires and the tax basis for such shares will generally be based on the fair market value of such shares on such date. However, if the participant makes an election under Section 83(b), the holding period will commence on the 66 74 date of grant, the tax basis will be equal to the fair market value of shares on such date (determined without regard to restrictions), and AmSurg generally will be entitled to a deduction equal to the amount that is taxable as ordinary income to the participant in the year that such income is taxable. 5. Dividends and Dividend Equivalents. Dividends paid on restricted stock generally will be treated as compensation that is taxable as ordinary income to the participant, and will be deductible by AmSurg. If, however, the participant makes a Section 83(b) election, the dividends will be taxable as ordinary income to the participant but will not be deductible by AmSurg. 6. Other Stock-Based Awards. The federal income tax treatment of other stock-based awards will depend on the nature of any such award and the restrictions applicable to such award. Such an award may, depending on the conditions applicable to the award, be taxable as an option, an award of restricted stock, or in a manner not described herein. Section 162(m) Provisions. Section 162(m) of the Code imposes a limitation on the deductibility of certain compensation paid to the chief executive officer and certain other executive officers of publicly traded companies. Compensation paid to these officers in excess of $1,000,000 cannot be claimed as a tax deduction by such companies unless such compensation qualifies for an exemption as performance-based compensation under Section 162(m) of the Code. It is anticipated that compensation in respect of stock options and SARs granted under the 1997 Incentive Plan will qualify for an exemption as performance-based compensation under Section 162(m) of the Code, if the exercise price per share for such options and SARs is at least equal to the fair market value per share of Class A Common Stock on the date of grant. Other awards (if any) granted under the 1997 Incentive Plan are not expected to qualify for an exemption as performance-based compensation. Other Provisions of the 1997 Incentive Plan. Options and other rights that may be granted under the 1997 Incentive Plan following the Distribution will vest and become immediately exercisable (to the extent not theretofore vested and exercisable and the restrictions and forfeiture provisions applicable to restricted stock and other stock-based awards will lapse) if: a. any person or entity (including a "group" as defined in Section 13(d) (3) of the Exchange Act), other than AmSurg or a wholly owned subsidiary of AmSurg or an employee benefit plan of AmSurg or any of its subsidiaries, becomes the beneficial owner of AmSurg securities having 35% or more of the combined voting power of all AmSurg securities that may be cast in the election of directors of AmSurg; b. as a result of or in connection with a cash tender or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions, less than a majority of the combined voting power of the then outstanding securities of AmSurg or any successor entity entitled to vote generally in the election of directors of AmSurg or any such successor are held in the aggregate by holders of AmSurg securities entitled to vote generally in the election of directors of AmSurg immediately prior to such transaction; c. during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors cease for any reason to constitute the majority thereof, unless the election or nomination for election of such individuals was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period; d. the Plan Committee determines that a potential change in control has occurred as a result of either (i) shareholder approval of an agreement that would result in one of the events described above or (ii) the acquisition of beneficial ownership by any person, entity or group (other than AmSurg, any of its subsidiaries or any AmSurg employee benefit plan) of AmSurg securities representing 5% or more of the combined voting power of the outstanding AmSurg securities; e. in addition to any other restrictions on transfer that may be applicable under the terms of the 1997 Incentive Plan or the applicable award agreement, no stock option, SAR, restricted stock award, other stock-based award or Outside Director Restricted Stock award or other right issued under the 1997 Incentive Plan is transferable by the participant without the prior written consent of the Plan Committee, 67 75 or, in the case of an Outside Director, the Board, other than (i) transfers by a participant to a member of his or her Immediate Family (as that term is defined in the 1997 Incentive Plan) or a trust for the benefit of the participant or a member of his or her Immediate Family or (ii) transfers by will or by the laws of descent and distribution (the designation of a beneficiary will not constitute a transfer); or f. the Plan Committee may, at or after grant, condition the receipt of any payment in respect of any award or the transfer of any shares subject to an award on the satisfaction of a six-month holding period, if such holding period is required for compliance with Section 16 under the Exchange Act. Following the occurrence of any event that would result in the acceleration of vesting and exercisability as described above, the holders of stock options and other rights (to the extent that they have been held for any required holding period pursuant to Section 16 of the Exchange Act in the case of options and other rights held by executive officers and directors or other persons subject to such Section) will, unless otherwise determined by the Plan Committee, receive cash equal to the difference between the highest price paid per share of Class A Common Stock in any transaction during the 60 days prior to the change in control or potential change in control event and the exercise price of the option or other right. The 1997 Incentive Plan may be amended, altered or discontinued by the Board of Directors of AmSurg to the fullest extent permitted by the Exchange Act and the rules and regulations promulgated thereunder; provided, however, that no amendment, alteration or discontinuation may be made which would (a) impair the rights of an optionee or participant without the optionee's or participant's consent or (b) require shareholder approval pursuant to any other applicable law or regulation. The Board of Directors may not, without the approval of the stockholders of AmSurg, make any amendment to or alteration of the 1997 Incentive Plan which would (a) except as a result of the provisions of Section 3(c) of the 1997 Incentive Plan, increase the maximum number of shares that may be issued under the 1997 Incentive Plan or increase the Section 162(m) Maximum (as defined in the 1997 Incentive Plan), (b) change the provisions governing incentive stock options except as required or permitted under the provisions governing incentive stock options under the Code, or (c) make any change for which applicable law or regulatory authority would require stockholder approval or for which stockholder approval would be required to secure full deductibility of compensation received under the 1997 Incentive Plan under Section 162(m) of the Code. The 1997 Incentive Plan will expire on the tenth anniversary of its effective date. Other Stock Options AmSurg also has granted non-qualified stock options for the purchase of 20,667 shares of Class A Common Stock to certain non-employee directors of AmSurg and to AmSurg's Medical Director and Associate Medical Director, of which options for 4,000 shares have been exercised and/or terminated. The outstanding options granted will vest in four equal annual installments, will expire 10 years from the date of grant, and are exercisable at an average exercise price of approximately $4.92 per share. In the event of certain fundamental changes to AmSurg (including liquidation, dissolution, merger, reorganization or sale of all or substantially all of the assets of AmSurg), the stock options shall immediately vest and be fully exercisable by the optionees. 68 76 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS MANAGEMENT AGREEMENT On the Distribution Date, AmSurg and AHC will enter into the Management Agreement pursuant to which AHC will provide certain financial and accounting services to AmSurg and its subsidiaries on a transitional basis, with the intent that AmSurg is to acquire the personnel, systems and expertise necessary to become self-sufficient in the provision of these services during the period beginning on the date of the Management Agreement and ending one year later (or earlier if so elected by AmSurg). For a detailed summary of the Management Agreement see "THE DISTRIBUTION -- The Management Agreement." The terms of the Management Agreement were reviewed and approved by the Special Committee. ADMINISTRATIVE SERVICES AGREEMENT Until December 31, 1996, AmSurg and AHC were parties to a letter agreement dated November 30, 1992 (the "1992 Letter Agreement"), pursuant to which Henry D. Herr and Thomas G. Cigarran provided general supervision and business management services to AmSurg, and AHC provided accounting, financial and administrative services for the operations of AmSurg and each of the ambulatory surgery centers managed by AmSurg. For these services, AmSurg paid AHC an annual fee of approximately $100,000, plus $8,000 per year for administrative, accounting and financial services relating to the AmSurg corporate operations and $4,000 per year for services related to each ambulatory surgery center in operation. Such fees were subject to adjustment as mutually agreed by the parties, but such adjustment would not be less than a minimum increase equal to the annual change in the CPI. The actual amounts paid by AmSurg to AHC under the 1992 Letter Agreement for the years ended December 31, 1994, 1995 and 1996 were $151,846, $186,215 and $213,820, respectively. The annual fees paid to AHC were not inclusive of costs associated with outside professional tax advisors or independent accountants. By letter agreement dated January 1, 1997 (the "1997 Letter Agreement"), AHC and AmSurg agreed to continue, on a modified basis, the administrative services arrangements provided under the 1992 Letter Agreement. Under the 1997 Letter Agreement, AmSurg has agreed to pay AHC an annual fee of $85,000 plus out of pocket expenses for services provided by Messrs. Cigarran and Herr. The services provided by Messrs. Cigarran and Herr are the general supervision of the business of AmSurg and the provision of advice and consultation regarding the financial, accounting and administration aspects of AmSurg's business. The new arrangement also provides that AHC will provide the services it provided under the 1992 Letter Agreement to each AmSurg ambulatory surgery center, physician practice and specialty physician network. The fixed fee for such services is $4,166.67 per month plus $625 per month for each ambulatory surgery center in operation and $1,250 per month for the corporate office and each physician practice. The amount paid per month for the specialty physician networks will be mutually agreed upon by AHC and AmSurg. The 1997 Letter Agreement shall terminate upon the earliest to occur of (i) the mutual agreement of the parties; (ii) the date on which Class A Common Stock begins to trade publicly; or (iii) December 31, 1997. ADVISORY AGREEMENTS On the Distribution Date, AmSurg and each of Thomas G. Cigarran and Henry D. Herr will be subject to an Advisory Agreement (the "Advisory Agreements"), pursuant to which Messrs. Cigarran and Herr will provide certain continuing services to AmSurg for two years following the Distribution Date. Immediately prior to the Distribution Date, Mr. Cigarran served as Chairman of the Board of AmSurg, and Mr. Herr served as Vice President and Secretary of AmSurg. Pursuant to the Advisory Agreements, Messrs. Cigarran and Herr will provide advisory services to the senior management of AmSurg in the areas of strategy, operations, management and organizational development. As compensation for these services, AmSurg will pay compensation of $200,000 to Mr. Cigarran and $150,000 to Mr. Herr during the two-year term of the Advisory Agreements. The compensation will be payable in shares of Class A Common Stock, which shares will be issued as restricted stock pursuant to the terms of the 1997 Incentive Plan. One-third of the shares to be paid as compensation will vest immediately, one-third will vest upon the first anniversary of the Distribution and the remaining one-third of the shares will vest on the second anniversary of the Distribution. 69 77 The Advisory Agreements provide that Messrs. Cigarran and Herr will not sell the shares of AmSurg Common Stock received pursuant to the agreement until the second anniversary of the Distribution, subject to certain limited exceptions. The Advisory Agreements also contain certain non-compete and confidentiality provisions. In addition, Messrs. Cigarran and Herr will be eligible to receive compensation as Outside Directors. Messrs. Cigarran and Herr will also be entitled to indemnification as provided in the Indemnification Agreement that each will enter into with AmSurg on the Distribution Date. The terms of the Advisory Agreements were reviewed and approved by the Special Committee. LEASE ARRANGEMENT Pursuant to a sublease dated June 9, 1996 between AHC and AmSurg (the "Sublease"), AmSurg leases approximately 15,417 square feet of space from AHC in Nashville, Tennessee where AmSurg's corporate headquarters are located. AHC passes through the cost of such leased space to AmSurg, and AmSurg is required to make an aggregate of $960,820 in rental payments to AHC over the term of the Sublease which expires December 31, 1999. OTHER ARRANGEMENTS Bergein F. Overholt, M.D. is a director of AmSurg, and President and a 14% owner of The Endoscopy Center. The Endoscopy Center is a limited partner and AmSurg is the general partner and majority owner of The Endoscopy Center of Knoxville, L.P., which owns and operates an ambulatory surgery center. The aggregate amount of distributions made by The Endoscopy Center of Knoxville, L.P. to The Endoscopy Center in 1996 was $1,028,000, of which Dr. Overholt received his pro rata ownership percentage. On March 7, 1997, the AmSurg Board of Directors approved the sale to Steven Geringer of 8,460 shares of AmSurg common stock for an aggregate purchase price of $50,000 in connection with his joining the AmSurg Board of Directors. 70 78 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following tables set forth the "beneficial ownership" (as that term is defined in the rules of the SEC) of the capital stock of AmSurg immediately after the Distribution of (a) each director and Named Executive Officer of AmSurg, both individually and as a group, and (b) each other person expected to be a "beneficial owner" of more than five percent (5%) of any class of capital stock of AmSurg immediately after the Distribution, based in each case on information available to AmSurg and AHC as to ownership of capital stock of AmSurg and AHC on September 30, 1997. Except as otherwise indicated, AmSurg stockholders after the Distribution listed in the table have (or will have) sole voting and investment power with respect to the stock owned (or to be owned) by them. Pursuant to the SEC's beneficial ownership rules, a person is treated as the beneficial owner of shares that may be acquired under options that are exercisable within 60 days as of September 30, 1997. COMMON STOCK
CLASS A PERCENT CLASS B PERCENT NAME COMMON STOCK(1)(2) OF CLASS COMMON STOCK(2) OF CLASS ---- ------------------ -------- --------------- -------- Waddell & Reed, Inc.(3)............... 75,316 1.6% 485,276 10.1% Equitable Asset Management(4)......... 40,717 * 262,341 5.5 William C. Weaver, III(5)............. 492,968(6) 10.5 15,781 * Ken P. McDonald....................... 47,500(7) 1.0 0 -- Claire M. Gulmi....................... 13,333(8) * 0 -- Royce D. Harrell...................... 84,916(9) 1.8 0 -- Rodney H. Lunn........................ 280,148(10) 5.7 59 * David L. Manning...................... 287,333(11) 5.8 0 -- Thomas G. Cigarran(12)................ 56,702 1.2 365,339 7.6 James A. Deal......................... 27,906 * 179,801 3.8 Steven I. Geringer.................... 8,460(13) * 0 -- Debora A. Guthrie..................... 138 * 890 * Henry D. Herr......................... 35,060 * 225,901 4.7 Bergein F. Overholt, M.D.............. 134,813(14) 2.9 340 * All directors and executive officers as a group (11 persons)............. 976,309 18.4% 772,330 16.1%
- --------------- * Less than 1%. (1) Includes shares issuable within 60 days of September 30, 1997 upon the exercise of presently outstanding options. (2) Does not include shares of AmSurg Common Stock which would be received in the Distribution in respect of additional shares of AHC Common Stock that would be issued if AHC options exercisable within 60 days of September 30, 1997 are exercised prior to the Distribution. (3) The address of Waddell & Reed, Inc. is 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission, KS 66201-9217. Information with respect to stock ownership of Waddell & Reed, Inc. is based upon the Form 13F dated June 30, 1997 filed with the SEC with respect to ownership of AHC Common Stock. (4) The address of Equitable Asset Management is 3495 Piedmont Rd., Suite 810, Atlanta, GA 30305. Information with respect to stock ownership of Equitable Asset Management is based upon the Form 13F dated June 30, 1997 filed with the SEC with respect to ownership of AHC Common Stock. (5) The address of Mr. Weaver is 4406 Chickering Lane, Nashville, TN 37215. (6) Includes 200,000 shares held in trust for the benefit of Mr. Weaver's three children. (7) Represents currently exercisable options for the purchase of 47,500 shares of Class A Common Stock. (8) Represents currently exercisable options for the purchase of 13,333 shares of Class A Common Stock. (9) Represents currently exercisable options for the purchase of 84,916 shares of Class A Common Stock. (10) Includes 1,000 shares held in trust for the benefit of Mr. Lunn's children and currently exercisable options for the purchase of 225,333 shares of Class A Common Stock. 71 79 (11) Includes currently exercisable options for the purchase of 235,333 shares of Class A Common Stock. (12) The address of Mr. Cigarran is One Burton Hills Blvd., Nashville, TN 37215. (13) Represents 8,460 shares held in trust for the benefit of Mr. Geringer's son. (14) Includes 21,000 shares owned by The Endoscopy Center, Knoxville, Tennessee, and 10,000 shares owned by Gastrointestinal Associates, P.C. Dr. Overholt is a partner of the Endoscopy Center and President of Gastrointestinal Associates, P.C. Also, includes currently exercisable options for the purchase of 2,500 shares of Class A Common Stock, 23,583 shares held in trust for Dr. Overholt's grandchildren, and 2,924 shares for which Dr. Overholt is custodian on behalf of a minor. PREFERRED STOCK
SERIES A SERIES B REDEEMABLE PERCENT CONVERTIBLE PERCENT NAME AND ADDRESS PREFERRED STOCK OF CLASS PREFERRED STOCK OF CLASS - ---------------- --------------- -------- --------------- -------- Electra Investment Trust P.L.C.(1)........... 363,637 72.7% 303,030 72.7% Capitol Health Partners, L.P.(2)(3).......... 90,909 18.2 75,757 18.2 Michael E. Stephens(4)....................... 45,454 9.1 37,879 9.1 Ken P. McDonald.............................. 0 -- 0 -- Claire M. Gulmi.............................. 0 -- 0 -- Royce D. Harrell............................. 0 -- 0 -- Rodney H. Lunn............................... 0 -- 0 -- David L. Manning............................. 0 -- 0 -- Thomas G. Cigarran........................... 0 -- 0 -- James A. Deal................................ 0 -- 0 -- Steven I. Geringer........................... 0 -- 0 -- Debora A. Guthrie(5)......................... 0 -- 0 -- Henry D. Herr................................ 0 -- 0 -- Bergein F. Overholt, M.D..................... 0 -- 0 -- All directors and executive officers as a group (11 persons)(5)...................... 90,909 18.2% 75,757 18.2%
- --------------- (1) The address for Electra Investment Trust P.L.C. is 65 Kingsway, London, England WC 2B6QT. (2) The address for Capitol Health Partners, L.P. is 3000 P Street, N.W., Washington, D.C. 20005. (3) Shares beneficially owned by Capitol Health Partners, L.P. are attributable to Ms. Guthrie, who is President and Chief Executive Officer of the general partner of Capitol Health Partners, L.P., and are included in the shares beneficially held by directors and executive officers as a group. (4) The address for Michael E. Stephens is One Perimeter Park South, Suite 100N, Birmingham, AL 35243. (5) Ms. Guthrie disclaims beneficial ownership of the shares held by Capitol Health Partners, L.P. 72 80 DESCRIPTION OF CAPITAL STOCK AUTHORIZED CAPITAL STOCK Upon the Distribution Date, AmSurg will be authorized to issue 20,000,000 shares of its Class A Common Stock, 4,800,000 shares of its Class B Common Stock and 5,000,000 shares of preferred stock, no par value. Based on ownership of AmSurg and AHC Common Stock as of September 30, 1997, 4,702,718 shares of AmSurg Class A Common Stock and 4,787,131 shares of AmSurg Class B Common Stock are expected to be outstanding immediately following the Distribution, all of which will be validly issued, fully paid and nonassessable. Based on ownership of AmSurg and AHC Common Stock as of September 30, 1997, there are expected to be approximately 336 holders of record and 2,750 beneficial owners of Class A Common Stock and approximately 135 holders of record and 2,550 beneficial owners of Class B Common Stock immediately following the Distribution. As of September 30, 1997, 500,000 shares of Series A Preferred Stock and 416,666 shares of Series B Preferred Stock were outstanding, all of which were validly issued, fully paid and non-assessable. There are three holders of the Series A Preferred Stock and three holders of the Series B Preferred Stock. AmSurg may issue preferred stock from time to time in one or more series, each such series to be so designated as to distinguish the shares thereof from the shares of all other series and classes. The Board of Directors is vested with the authority to divide any or all classes of authorized but unissued preferred stock into series and to fix and determine the relative rights and preferences of the shares of any series so established. Based on options to purchase AmSurg Common Stock as of September 30, 1997, stock options for the purchase of 1,109,050 shares of Class A Common Stock are expected to be outstanding immediately following the Distribution, of which options to purchase 754,921 shares of Class A Common Stock having an average exercise price of $2.37 per share are expected to be currently exercisable. The options granted generally will vest in four equal annual installments, and will expire 10 years from the date of grant. In the event of certain fundamental changes to AmSurg (including liquidation, dissolution, merger, reorganization or sale of all or substantially all of the assets of AmSurg), the stock options shall immediately vest and be fully exercisable by the optionees. Of these options, 213,600 were granted pursuant to the 1997 Stock Incentive Plan and are subject to stockholder approval at the stockholders meeting scheduled to be held on December 1, 1997. Based on ownership of AmSurg and AHC Common Stock as of September 30, 1997, the AmSurg executive officers and directors or their affiliates are expected to beneficially own approximately 18.4% of the outstanding Class A Common Stock and 16.1% of the Class B Common Stock immediately following the Distribution. The holders of Class A Common Stock and the Class B Common Stock are entitled to receive such dividends, if any, as may be declared from time to time by the Board of Directors in its discretion from funds legally available therefor. No dividends have been paid to date and the management of AmSurg does not anticipate dividends being paid in the foreseeable future. The following summary of certain terms of AmSurg's capital stock describes material provisions of, but does not purport to be complete and is subject to and qualified in its entirety by, the AmSurg Charter, the AmSurg Bylaws, and applicable provisions of Tennessee corporate law (including but not limited to the TBCA) and assumes the approval of the Amended and Restated Charter by the AmSurg stockholders. Class A Common Stock. The holders of Class A Common Stock are entitled to one vote per share on all matters to be submitted to a vote of the stockholders and are not entitled to cumulative voting in the election of directors. Subject to prior dividend rights and sinking fund or redemption or purchase rights which may be applicable to any outstanding preferred stock, the holders of Class A Common Stock are entitled to share ratably with the shares of Class B Common Stock in such dividends, if any, as may be declared from time to time by the Board of Directors in its discretion out of funds legally available therefor. The holders of Class A Common Stock are entitled to share ratably with the shares of Class B Common Stock in any assets remaining after satisfaction of all prior claims upon liquidation of AmSurg, including prior claims of any outstanding preferred stock. AmSurg's Charter does not give holders of Class A Common Stock any preemptive or other subscription rights, and Class A Common Stock is not redeemable at the option of the holders, does not have any conversion rights, and is not subject to call. The rights, preferences and privileges of holders of Class A Common Stock are subject to, and may be adversely affected by, the rights of holders of shares of the Series A 73 81 Preferred Stock and Series B Preferred Stock and any other series of preferred stock that AmSurg may designate and issue in the future. Class B Common Stock. The holders of Class B Common Stock are entitled to ten votes per share in the election and removal of the Board of Directors of AmSurg and are not entitled to cumulative voting in the election and removal of such directors. The holders of Class B Common Stock are entitled to one vote per share on all other matters to be submitted to a vote of the stockholders. The holders of Class B Common Stock are entitled to vote separately as a group with respect to (i) amendments to AmSurg's Charter that alter or change the powers, preferences or special rights of the holders of Class B Common Stock so as to affect them adversely and (ii) such other matters as may require separate group voting under the TBCA. Subject to prior dividend rights and sinking fund or redemption or purchase rights which may be applicable to any outstanding preferred stock, the holders of Class B Common Stock are entitled to share ratably with the shares of Class A Common Stock in such dividends, if any, as may be declared from time to time by the Board of Directors in its discretion out of funds legally available therefor. The holders of Class B Common Stock are entitled to share ratably with the shares of Class A Common Stock in any assets remaining after satisfaction of all prior claims upon liquidation of AmSurg, including prior claims of any outstanding preferred stock. AmSurg's Charter does not give holders of Class B Common Stock preemptive or other subscription rights, and Class B Common Stock is not redeemable at the option of the holders, and is not subject to call. The rights, preferences and privileges of holders of AmSurg Class B Common Stock are subject to, and may be adversely affected by, the rights of holders of shares of any series of preferred stock that AmSurg may designate and issue in the future. Dividend Policy. AmSurg has not declared a cash dividend on the shares of AmSurg common stock during its two most recent fiscal years. AmSurg does not currently intend to declare or pay a cash dividend on the shares of Class A Common Stock or the Class B Common Stock. In addition, the payment of cash dividends in the future will depend on AmSurg's earnings, financial condition, capital needs and other factors deemed relevant by the AmSurg Board of Directors, including corporate law restrictions on the availability of capital for the payment of dividends, the rights of holders of any series of preferred stock that may hereafter be issued and the limitations, if any, on the payment of dividends under any documents relating to equity investments, then-existing credit facilities or other indebtedness. Pursuant to the Second Amended and Restated Loan Agreement dated as of April 15, 1997 among AmSurg, SunTrust Bank and NationsBank of Tennessee, as amended (the "Loan Agreement"), AmSurg is prohibited from declaring or paying any dividend to any person other than itself or a subsidiary. It is the current intention of the Board of Directors to retain earnings, if any, in order to finance the operations and expansion of AmSurg's business. Preferred Stock. AmSurg is authorized to issue 5,000,000 shares of undesignated preferred stock, no par value. AmSurg has established and designated two series of shares out of the 5,000,000 authorized shares. On November 20, 1996, AmSurg issued 500,000 shares of Series A Preferred Stock for a purchase price of $6.00 per share and 416,666 shares of Series B Preferred Stock for a purchase price of $6.00 per share. Series A Redeemable Preferred Stock. The holders of Series A Preferred Stock are entitled to .25 votes per share on all matters to be voted on by stockholders. The holders of Series A Preferred Stock and Series B Preferred Stock vote as a separate class on certain matters, and together are entitled to elect and remove one member of the Board of Directors, in the event that there has not been a Qualified IPO (as defined in the AmSurg Charter) by May 31, 2000. The holders of Series A Preferred Stock and Series B Preferred Stock are each entitled to vote as a separate class, and the affirmative vote of two-thirds of the outstanding shares of each separate class is required, for any amendment, modification or waiver with respect to the designation of the Series A Preferred Stock and Series B Preferred Stock and with respect to any changes in the capitalization and number of shares of any class of capital stock. The holders of Series A Preferred Stock have the right to receive annually, beginning after November 20, 1998, cash dividends of $0.48 per share. In addition, upon certain events of default by AmSurg, the holders of the Series A Preferred Stock have the right to a cash dividend of $0.84 per share until such default has been cured. All dividends are cumulative. Upon any voluntary or involuntary liquidation, dissolution or winding up of AmSurg, the holders of the Series A Preferred Stock will be entitled to be paid in cash the purchase price of their shares plus any accrued and unpaid dividends (the "Liquidation Value"), before any distribution or payment is made upon any other 74 82 junior securities, including the Series B Preferred Stock. In the event AmSurg subdivides or combines the outstanding shares of any class of AmSurg common stock, the Series A Preferred Stock shall automatically be combined or subdivided so that following such an event, the conversion rate, ownership interests and voting interests of the Series A Preferred Stock are equitably preserved. The holders of the Series A Preferred Stock are entitled to convert, at the then current market price per share of the Class A Common Stock, into shares of Class A Common Stock for a period of 30 days, any or all of their shares of Series A Preferred Stock into Class A Common Stock upon the earlier to occur of (a) 60 days after a Spin-off and (b) a Qualified IPO, as those terms are defined in the AmSurg Charter. The Distribution will constitute a Spin-off. The outstanding shares of Series A Preferred Stock are mandatorily redeemable at a price equal to the Liquidation Value on the earliest to occur of (a) the sale, lease or disposition by AmSurg of all or substantially all of its assets (an "AmSurg Sale"); (b) a merger or consolidation of AmSurg with or into another entity; (c) the sale, transfer or other disposition of all or substantially all of the capital stock of AmSurg; (d) a Qualified IPO; or (e) November 20, 2002. In addition, AmSurg may redeem, at any time upon 45 days written notice, all or part of the outstanding shares of Series A Preferred Stock at a price equal to the Liquidation Value. Series B Convertible Preferred Stock. The holders of the Series B Preferred Stock initially are entitled to 1.05 votes per share on all matters to be voted on by stockholders. In the event the aggregate number of fully diluted shares of Class A Common Stock into which the Series B Preferred Stock is convertible increases above 599,215, the aggregate voting rights of the holders of the Series B Preferred Stock will be increased by one vote for each additional fully diluted share over 599,215. The holders of the Series B Preferred Stock have the right to receive such dividends as may be declared from time to time by the Board of Directors from funds legally available therefor. In the event AmSurg subdivides or combines the outstanding shares of any class of AmSurg common stock, the Series B Preferred Stock shall automatically be combined or subdivided so that following such an event, the conversion rate, ownership interests and voting interests of the Series B Preferred Stock are equitably preserved. The Series B Preferred Stock is junior to the Series A Preferred Stock and senior to the Class A Common Stock and Class B Common Stock with respect to the liquidation preference. In the event of an AmSurg Sale or a Qualified IPO, all of the issued and outstanding shares of Series B Preferred Stock shall automatically convert into Class A Common Stock at a rate that will result in the holders of the Series B Preferred Stock holding that number of shares of Class A Common Stock that approximates 6% of the equity of AmSurg determined as of November 20, 1996, with that percentage being ratably increased to 8% of the equity of AmSurg if a triggering event has not occurred by November 20, 2000. In the event that AmSurg reorganizes pursuant to a spin-off or otherwise, reclassifies its capital stock, consolidates or merges with or into another corporation, or sells, transfers or otherwise disposes of all of its property, assets or business to another corporation other than in an AmSurg Sale, all of the issued and outstanding shares of Series B Preferred Stock may be converted into shares of Class A Common Stock. If by November 20, 2002 there shall not have occurred an AmSurg Sale or a Qualified IPO, then the holders of Series B Preferred Stock shall have the right to require AmSurg to purchase all of the issued and outstanding shares of Series B Preferred Stock on an as if converted basis at the current market price of the underlying Class A Common Stock. Transfer Agent and Registrar. SunTrust Bank, Atlanta will be the transfer agent and registrar for the AmSurg Common Stock. 1992 STOCKHOLDERS' AGREEMENT AHC, as a founding stockholder of AmSurg, along with certain private investors, are parties to a stockholders' agreement dated as of April 2, 1992 (the "1992 Stockholders' Agreement"). In connection with an equity financing of AmSurg Preferred Stock in November 1996, the 1992 Stockholders' Agreement was amended to include the purchasers of AmSurg Preferred Stock. The 1992 Stockholders' Agreement provides for certain rights of first refusal with respect to any shares that AmSurg proposes to issue and co-sale rights among the stockholders subject thereto. These stockholders also have a right of first refusal, subject to certain exceptions, to acquire shares of another stockholder, on a pro rata basis, on the same terms and conditions as are set forth in a proposed sale transaction with a third party. If a Qualified IPO does not occur by May 31, 2000, the stockholders have also agreed to vote for a director selected by the holders of AmSurg Preferred 75 83 Stock. The 1992 Stockholders' Agreement, other than certain provisions with respect to the election of directors after May 31, 2000, will be terminated on the effective date of the Distribution. REGISTRATION AGREEMENT AHC and certain private investors entered into a Registration Agreement dated April 2, 1992, as amended (the "Registration Agreement"). Pursuant thereto, the holders of at least 66 2/3% of certain of the Registrable Shares after a Qualified Initial Public Offering (as those terms are defined in the Registration Agreement), may by written notice demand registration on Form S-1 or any similar long-form registration under the Securities Act of up to all of the Registrable Shares owned by such holders. These holders of Registrable Shares are entitled to only one such long-form demand registration. In connection with an equity financing of AmSurg Preferred Stock in November 1996, the purchasers of the AmSurg Preferred Stock became parties to the Registration Agreement. As a result, shares of Class A Common Stock issued upon conversion of the Series A Preferred Stock and the Series B Preferred Stock have been included in the definition of Registrable Shares, and as such, have certain registration rights. The holders of the Series A Preferred Stock and Series B Preferred Stock are entitled to two long-form demand registrations. In addition, any holder or holders of Registrable Shares may demand registration of any or all of their Registrable Shares on or after the date upon which AmSurg has become entitled as a registrant to use Form S-3 or any similar short-form registration. This short-form demand registration right may be invoked on unlimited occasions, provided the aggregate offering value of the Registrable Shares requested to be registered is at least $1,000,000. The stockholders are also entitled to unlimited "piggyback" registration rights whenever AmSurg proposes to register any of its securities under the Securities Act (other than on Forms S-4 or S-8 or any successor forms). These "piggyback" registration rights entitle these stockholders to include any of their Registrable Shares in any registration statement which AmSurg proposes to file, subject to certain limitations generally imposed by the managing underwriter regarding the number of shares to be included in the offering. STOCKHOLDERS' AGREEMENTS Substantially all stockholders who purchased common stock of AmSurg in connection with AmSurg's acquisitions of ambulatory surgery centers and other investments have entered into stockholders' agreements with AmSurg. These stockholders' agreements limit the ability of the stockholders to dispose of the AmSurg Common Stock that they own without obtaining the prior written consent of AmSurg. The stockholders' agreements also prohibit the stockholders from effecting any public sale or distribution of the AmSurg Common Stock for 180 days following the effective date of any underwritten sale registered under the Securities Act by AmSurg of its securities for its own account. The AmSurg Board of Directors waived the 180 day holdback provision at its March 7, 1997 meeting, subject to completion of the Distribution. In addition, the stockholders' agreements provide for "piggyback" registration rights. See "SHARES ELIGIBLE FOR FUTURE SALE." Except with respect to the registration rights of such stockholders, the stockholders' agreements terminate on the earlier of the closing of an Initial Public Offering or an Approved Sale of AmSurg (as those terms are defined in the stockholders' agreements) or 10 years from the date of such agreements. The registration rights granted pursuant to the stockholders' agreements terminate upon the later of three years after the date of the stockholders' agreement or six months following the closing of an Initial Public Offering. CERTAIN PROVISIONS OF THE CHARTER, BYLAWS, AND TENNESSEE LAW General. The provisions of the Charter, the Bylaws, and Tennessee statutory law described in this section may delay or make more difficult acquisitions or changes of control of AmSurg that are not approved by the Board of Directors. Such provisions have been implemented to enable AmSurg, particularly (but not exclusively) in the initial years of its existence as an independent, publicly-owned company, to develop its business in a manner that will foster its long-term growth without the disruption of the threat of a takeover not deemed by the Board of Directors to be in the best interests of AmSurg and its stockholders. Classified Board of Directors. The Bylaws provide that the number of directors shall be no fewer than three or more than twelve, with the exact number to be established by the Board of Directors and subject to 76 84 change from time to time as determined by the Board of Directors. The AmSurg Charter provides for the classification of the Board of Directors. Under the terms of the AmSurg Charter, the members of the Board of Directors are divided into three classes, serving staggered three-year terms. As a result, one-third of AmSurg's Board of Directors will be elected each year. See "MANAGEMENT OF AMSURG." This provision could prevent a party who acquires control of a majority of the outstanding voting stock from obtaining control of AmSurg's Board of Directors until the second annual shareholders' meeting following the date the acquiror obtains the controlling stock interest. This provision may have the effect of discouraging a potential acquiror from making a tender offer or otherwise attempting to obtain control of AmSurg, and could also increase the likelihood that incumbent directors will retain their positions. The Charter provides that directors may be removed only for "cause" and only by the affirmative vote of the holders of a majority of the voting power of all the shares of AmSurg's capital stock then entitled to vote in the election of directors, voting together as a single class, unless the vote of a special voting group is otherwise required by law. "Cause" is defined in the Charter as: (i) a felony conviction of a director or the failure of a director to contest prosecution for a felony; (ii) conviction of a crime involving moral turpitude; or (iii) willful and continued misconduct or gross negligence by a director in the performance of his or her duties as a director. The Charter also provides that in order to call a special meeting of shareholders, written demands of the holders of at least 15% of the voting power of each class of AmSurg Common Stock must be received. These provisions, in conjunction with the provision of the Bylaws authorizing the Board of Directors to fill vacant directorships, may prevent stockholders from removing incumbent directors without cause and filling the resulting vacancies with their own nominees. Advance Notice for Stockholder Proposals or Making Nominations at Meetings. The Bylaws establish an advance notice procedure for stockholder proposals to be brought before a meeting of stockholders of AmSurg and for nominations by stockholders of candidates for election as directors at an annual meeting or a special meeting at which directors are to be elected. Subject to any other applicable requirements, only such business may be conducted at a meeting of stockholders as has been brought before the meeting by, or at the direction of, the Board of Directors, or by a stockholder who has given to the Secretary of AmSurg timely written notice in proper form, of the stockholder's intention to bring that business before the meeting. The presiding officer at such meeting has the authority to make such determinations. Only persons who are selected and recommended by the Board of Directors, or the committee of the Board of Directors designated to make nominations, or who are nominated by a shareholder who has given timely written notice, in proper form, to the Secretary prior to a meeting at which directors are to be elected will be eligible for election as directors of AmSurg. To be timely, notice of nominations or other business to be brought before any meeting must be received by the Secretary of AmSurg not later than 120 days in advance of the anniversary date of AmSurg's proxy statement for the previous year's annual meeting or, in the case of special meetings, at the close of business on the tenth day following the date on which notice of such meeting is first given to shareholders. The notice of any shareholder proposal or nomination for election as director must set forth various information required under the Bylaws. The person submitting the notice of nomination and any person acting in concert with such person must provide, among other things, the name and address under which they appear on AmSurg's books (if they so appear) and the class and number of shares of AmSurg's capital stock that are beneficially owned by them. Amendment of the Bylaws and Charter. Except with respect to amendments to the Bylaws or Charter relating to the classified structure of the Board of Directors which are required to be approved by the affirmative vote of two-thirds of the voting power of the shares entitled to vote in the election of directors, the Bylaws provide that a majority of the members of the Board of Directors who are present at any regular or special meeting or the holders of a majority of the voting power of all shares of AmSurg's capital stock represented at a regular or special meeting have the power to amend, alter, change, repeal, or restate the Bylaws. Except as may be set forth in resolutions providing for any class or series of preferred stock, any proposal to amend, alter, change, or repeal any provision of the Charter requires approval by the affirmative vote of both 77 85 a majority of the members of the Board of Directors then in office and the holders of a majority of the voting power of all of the shares of AmSurg's capital stock entitled to vote on the amendments, with stockholders entitled to dissenters' rights as a result of the Charter amendment voting together as a single class. The Series A Preferred Stock and Series B Preferred Stock are each entitled to vote as a separate class in connection with the approval of any amendment to the Charter which would amend, modify or waive the rights of the holders of the Series A Preferred Stock or Series B Preferred Stock and any such amendment is required to be approved by the affirmative vote of at least two-thirds of the outstanding shares of each class of preferred stock. Stockholders entitled to dissenters' rights as a result of a Charter amendment are those whose rights would be materially and adversely affected because the amendment (i) alters or abolishes a preferential right of the shares; (ii) creates, alters, or abolishes a right in respect of redemption; (iii) alters or abolishes a preemptive right; (iv) excludes or limits the right of the shares to vote on any matter, or to cumulate votes other than a limitation by dilution through issuance of shares or other securities with similar voting rights; or (v) reduces the number of shares held by such holder to a fraction if the fractional share is to be acquired for cash. In general, however, no stockholder is entitled to dissenters' rights if the security he or she holds is listed on a national securities exchange or the Nasdaq National Market. Tennessee Law. The Tennessee Business Combination Act (the "Combination Act") provides, among other things, that any corporation to which the Combination Act applies, including AmSurg, shall not engage in any "business combination" with an "interested stockholder" for a period of five years following the date that such stockholder became an interested stockholder unless prior to such date the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder. The Combination Act defines "business combination," generally, to mean any: (i) merger or consolidation; (ii) share exchange; (iii) sale, lease, exchange, mortgage, pledge, or other transfer (in one transaction or a series of transactions) of assets representing 10% or more of (A) the market value of consolidated assets, (B) the market value of the corporation's outstanding shares or (C) the corporation's consolidated net income; (iv) issuance or transfer of shares from the corporation to the interested stockholder; (v) plan of liquidation; (vi) transaction in which the interested stockholder's proportionate share of the outstanding shares of any class of securities is increased; or (vii) financing arrangements pursuant to which the interested stockholder, directly or indirectly, receives a benefit except proportionately as a stockholder. The Combination Act defines "interested stockholder," generally, to mean any person who is the beneficial owner, either directly or indirectly, of 10% or more of any class or series of the outstanding voting stock, or any affiliate or associate of the corporation who has been the beneficial owner, either directly or indirectly, of 10% or more of the voting power of any class or series of the corporation's stock at any time within the five year period preceding the date in question. Consummation of a business combination that is subject to the five-year moratorium is permitted after such period if the transaction (i) complies with all applicable charter and bylaw requirements and applicable Tennessee law and (ii) is approved by at least two-thirds of the outstanding voting stock not beneficially owned by the interested stockholder, or when the transaction meets certain fair price criteria. The fair price criteria include, among others, the requirement that the per share consideration received in any such business combination by each of the stockholders is equal to the highest of (i) the highest per share price paid by the interested stockholder during the preceding five-year period for shares of the same class or series plus interest thereon from such date at a treasury bill rate less the aggregate amount of any cash dividends paid and the market value of any dividends paid other than in cash since such earliest date, up to the amount of such interest, (ii) the highest preferential amount, if any, such class or series is entitled to receive on liquidation, or (iii) the market value of the shares on either the date the business combination is announced or the date when the interested stockholder reaches the 10% threshold, whichever is higher, plus interest thereon less dividends as noted above. The Tennessee Control Share Acquisition Act (the "Acquisition Act") prohibits certain stockholders from exercising in excess of 20% of the voting power in a corporation acquired in a "control share acquisition," as defined in the Acquisition Act, unless such voting rights have been previously approved by the disinterested stockholders of the corporation. AmSurg has not elected to make the Acquisition Act applicable to AmSurg. 78 86 No assurance can be given that such election, which must be expressed in a charter or bylaw amendment, will or will not be made in the future. The Tennessee Greenmail Act (the "Greenmail Act") prohibits AmSurg from purchasing or agreeing to purchase any of its securities, at a price in excess of fair market value, from a holder of 3% or more of any class of such securities who has beneficially owned such securities for less than two years, unless such purchase has been approved by the affirmative vote of a majority of the outstanding shares of each class of voting stock issued by AmSurg or AmSurg makes an offer of at least equal value per share to all holders of shares of such class. The effect of the Greenmail Act may be to render more difficult a change of control of AmSurg. Other Change-of-Control Provisions. For a description of certain other change-of-control provisions, see "MANAGEMENT OF AMSURG -- Employment Agreements;" and" -- Stock Incentive Plans." SHARES ELIGIBLE FOR FUTURE SALE Following the Distribution, AmSurg will have outstanding an aggregate of 4,702,718 shares of Class A Common Stock and 4,787,131 shares of Class B Common Stock based on the number of outstanding shares of AmSurg common stock on September 30, 1997. Of the total outstanding shares of Common Stock, the shares of AmSurg Common Stock issued to holders of AHC Common Stock in the Distribution will be freely tradable without restriction or further registration under the Securities Act, unless held by "affiliates" of AmSurg, as that term is defined in Rule 144 under the Securities Act (which sales would be subject to certain volume limitations and other restrictions described below). The shares of Class A Common Stock issued and outstanding as of the Distribution held by stockholders other than AHC were issued in transactions unrelated to the Distribution. Under current law, absent registration or an exemption from registration other than Rule 144, such shares will be "restricted securities" as that term is defined in Rule 144 under the Securities Act and will be eligible for sale or transfer only in accordance with Rule 144. All of the shares of Class A Common Stock expected to be outstanding as of the Distribution will be "restricted securities." The Series A Preferred Stock is convertible into Class A Common Stock upon the earlier to occur of (a) 60 days following a Spin-off (the Distribution will constitute a Spin-off) or (b) a Qualified IPO. A Qualified IPO, prior to a Spin-off, means a public offering of Class A Common Stock yielding net cash proceeds of at least $25,000,000. The Series B Preferred Stock is automatically convertible in the event of an AmSurg Sale or Qualified IPO, as those terms are defined in the AmSurg Charter. In addition, the Series B Preferred Stock may be converted upon certain other events specified in the AmSurg Charter. The shares of Class A Common Stock issued upon conversion of the Series A Preferred Stock and Series B Preferred Stock will be "restricted securities" as that term is defined in Rule 144 under the Securities Act and will be eligible for sale or transfer only in accordance with Rule 144 absent registration or an exemption from registration. In general, under Rule 144 as currently in effect, a person (or persons whose share are aggregated), including an affiliate, who has beneficially owned shares for at least one year (including, if the shares are transferred, the holding period of any prior owner except an affiliate) is entitled to sell in "broker's transactions" or to market makers, within any three-month period commencing 90 days after the date of this Information Statement, a number of shares that does not exceed the greater of (i) 1% of the then outstanding shares of the Class A Common Stock (approximately 47,027 shares immediately after the Distribution) or (ii) generally, the average weekly trading volume in such class of the Class A Common Stock during the four calendar weeks preceding the filing of a Form 144 with respect to such sale, and subject to certain other limitations and restrictions. In addition, a person who is not deemed to have been an affiliate of AmSurg at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, would be entitled to sell such shares under Rule 144(k) without regard to the volume and other requirements described above. Shares of Class A Common Stock that would otherwise be deemed "restricted securities" could be sold at any time through an effective registration statement relating to such shares of Class A Common Stock. Of the 3,959,718 shares of Class A Common Stock that are anticipated to 79 87 be "restricted securities" immediately following the Distribution, 3,602,809 will have satisfied a one-year holding period. Pursuant to the Registration Agreement, certain stockholders of AmSurg and the holders of the Series A Preferred Stock and the Series B Preferred Stock have several demand and unlimited "piggyback" registration rights. In addition, the other AmSurg stockholders are entitled to unlimited "piggyback" registration rights in connection with any proposed registration of equity securities by AmSurg (with certain specified exceptions) pursuant to stockholders' agreements entered into between AmSurg and these stockholders. All of the outstanding shares of AmSurg Common Stock are subject to registration rights. For a more complete description of such registration rights see "DESCRIPTION OF CAPITAL STOCK." Immediately following the Distribution, there will be outstanding options for approximately 1,109,050 shares of AmSurg Class A Common Stock, including options granted to non-employee directors of AmSurg. Of such options, approximately 754,921 of these options will be exercisable for shares of Class A Common Stock and such shares will immediately be able to be sold by the holders following the Distribution and the filing of a registration statement on Form S-8 by AmSurg. See "MANAGEMENT OF AMSURG -- Stock Incentive Plans." Prior to the Distribution, there has not been any public market for either class of the AmSurg Common Stock. No prediction can be made as to the effect, if any, that market sales of shares or the availability of shares for sale will have on the market price prevailing from time to time. Sales of substantial amounts of AmSurg Common Stock in the public market, or the perception that such sales could occur, could adversely affect the prevailing market price of the AmSurg Common Stock. 80 88 INDEX TO FINANCIAL STATEMENTS
PAGE ---- AmSurg Corp. Independent Auditors' Report.............................. F-2 Consolidated Balance Sheets as of December 31, 1995 and 1996 and September 30, 1997............................ F-3 Consolidated Statements of Operations for each of the three years in the period ended December 31, 1996 and the nine months ended September 30, 1996 and 1997...... F-4 Consolidated Statements of Changes in Stockholders' Equity for each of the three years in the period ended December 31, 1996 and the nine months ended September 30, 1997............................................... F-5 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1996 and the nine months ended September 30, 1996 and 1997...... F-6 Notes to the Consolidated Financial Statements............ F-7 Unaudited Pro Forma Financial Information Introduction.............................................. F-17 Pro Forma Combined Statement of Operations for the year ended December 31, 1996................................ F-17 Pro Forma Combined Statement of Operations for the nine months ended September 30, 1997........................ F-18 Notes to the Pro Forma Combined Statements of Operations............................................. F-19 Endoscopy Center Operations of the Endoscopy Center of Ocala, Inc. Independent Auditors' Report.............................. F-20 Statement of Income for the period from January 1, 1996 through August 21, 1996................................ F-21 Statement of Cash Flows for the period from January 1, 1996 through August 21, 1996........................... F-22 Notes to the Financial Statements......................... F-23 The Endoscopy Center, Inc. Independent Auditors' Report.............................. F-25 Balance Sheets as of December 31, 1995 and 1996 and August 31, 1997............................................... F-26 Statements of Earnings and Retained Earnings for the years ended December 31, 1995 and 1996 and the eight months ended August 31, 1996 and 1997......................... F-27 Statements of Cash Flows for the years ended December 31, 1995 and 1996 and the eight months ended August 31, 1996 and 1997.......................................... F-28 Notes to Financial Statements............................. F-29 Financial Statement Schedule -- AmSurg Corp. Independent Auditors' Report.............................. S-1 Schedule II -- Valuation and Qualifying Accounts.......... S-2 Financial Statement Schedule -- Endoscopy Center Operations of the Endoscopy Center of Ocala, Inc. Independent Auditors' Report.............................. S-3 Schedule II -- Valuation and Qualifying Accounts.......... S-4 Financial Statement Schedule -- The Endoscopy Center, Inc. Independent Auditors' Report.............................. S-5 Schedule II -- Valuation and Qualifying Accounts.......... S-6
F-1 89 INDEPENDENT AUDITORS' REPORT Board of Directors and Shareholders AmSurg Corp. Nashville, Tennessee We have audited the accompanying consolidated balance sheets of AmSurg Corp. and subsidiaries as of December 31, 1995 and 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provides a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of AmSurg Corp. and subsidiaries as of December 31, 1995 and 1996 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Nashville, Tennessee February 21, 1997 F-2 90 AMSURG CORP. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------------------- SEPTEMBER 30, 1995 1996 1997 ----------- ----------- ------------- (UNAUDITED) ASSETS Current assets Cash and cash equivalents (Note 1).................... $ 3,469,661 $ 3,192,408 $ 3,625,801 Accounts receivable, net of allowance for uncollectible accounts of $455,628, $1,272,651 and $1,410,703......................................... 2,878,840 5,640,946 7,884,505 Supplies inventory.................................... 248,002 554,839 752,473 Other current assets (Note 1)......................... 466,922 680,761 798,856 Deferred tax asset (Notes 1 and 4).................... 243,000 303,000 303,000 ----------- ----------- ----------- Total current assets.......................... 7,306,425 10,371,954 13,364,635 ----------- ----------- ----------- Long-term receivables and deposits (Note 2)............. 133,930 643,516 493,898 ----------- ----------- ----------- Property and equipment (Note 1) Land and improvements................................. -- 98,540 98,540 Buildings and improvements............................ 4,578,990 7,017,163 8,500,045 Moveable equipment.................................... 5,848,399 8,725,140 12,052,717 Construction in progress.............................. 97,165 316,384 1,556,094 ----------- ----------- ----------- 10,524,554 16,157,227 22,207,396 Accumulated depreciation.............................. (2,366,560) (3,821,335) (5,305,569) ----------- ----------- ----------- Property and equipment, net........................... 8,157,994 12,335,892 16,901,827 ----------- ----------- ----------- Other assets, net (Note 1).............................. 391,179 530,312 867,977 ----------- ----------- ----------- Excess of cost over net assets of purchased operations, net (Notes 1, 2, 9 and 10)............................ 19,116,909 30,771,784 41,040,299 ----------- ----------- ----------- $35,106,437 $54,653,458 $72,668,636 =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable...................................... $ 562,961 $ 982,547 $ 750,118 Accrued salaries and benefits......................... 516,383 829,582 898,378 Accrued liabilities................................... 740,888 1,128,856 2,168,337 Current income taxes payable (Notes 1 and 4).......... 316,895 82,586 378,489 Current portion of long-term debt (Notes 5 and 10).... 2,238,496 2,616,714 2,762,777 ----------- ----------- ----------- Total current liabilities..................... 4,375,623 5,640,285 6,958,099 ----------- ----------- ----------- Deferred income taxes (Notes 1 and 4)................... 456,000 765,000 765,000 ----------- ----------- ----------- Long-term debt (Notes 5 and 10)......................... 4,785,552 9,218,281 21,729,560 ----------- ----------- ----------- Minority interest (Note 1).............................. 3,010,070 5,673,960 8,481,675 ----------- ----------- ----------- Commitments and contingencies (Note 8) Preferred stock (Note 6) No par value, 5,000,000 shares authorized, 2,750,000 shares outstanding................................. -- 4,982,057 5,192,261 ----------- ----------- ----------- Stockholders' equity (Note 7) Common stock No par value, 40,000,000 shares authorized, 24,907,430, 27,598,577 and 28,469,548 shares outstanding...................................... 21,627,861 26,064,085 27,725,045 Retained earnings..................................... 851,331 2,309,790 1,816,996 ----------- ----------- ----------- Total stockholders' equity.................... 22,479,192 28,373,875 29,542,041 ----------- ----------- ----------- $35,106,437 $54,653,458 $72,668,636 =========== =========== ===========
See accompanying notes to the consolidated financial statements. F-3 91 AMSURG CORP. CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, --------------------------------------- ------------------------- 1994 1995 1996 1996 1997 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) Revenues (Note 1)............... $13,826,566 $22,489,379 $35,007,216 $24,075,288 $41,162,839 ----------- ----------- ----------- ----------- ----------- Expenses: Salaries and benefits (Note 3)......................... 4,091,996 6,243,134 11,613,504 7,976,212 12,551,809 Other operating expenses (Note 3)......................... 5,091,110 7,562,655 11,546,562 7,914,391 14,563,740 Depreciation and amortization (Note 1)................... 1,309,054 2,396,796 3,000,183 2,095,566 3,510,515 Interest...................... 193,047 722,390 947,863 668,370 1,140,587 Net loss on sale of assets (Note 10).................. -- -- -- -- 1,494,333 Distribution cost (Note 10)... -- -- -- -- 458,000 ----------- ----------- ----------- ----------- ----------- Total expenses........ 10,685,207 16,924,975 27,108,112 18,654,539 33,718,984 ----------- ----------- ----------- ----------- ----------- Income before minority interest and income taxes.............. 3,141,359 5,564,404 7,899,104 5,420,749 7,443,855 Minority interest (Note 1).... 2,464,105 3,938,364 5,433,588 3,755,799 6,447,445 ----------- ----------- ----------- ----------- ----------- Income before income taxes...... 677,254 1,626,040 2,465,516 1,664,950 996,410 Income tax expense (Notes 1 and 4)..................... 26,000 578,000 985,000 665,000 1,279,000 ----------- ----------- ----------- ----------- ----------- Net income (loss)............... 651,254 1,048,040 1,480,516 999,950 (282,590) Accretion of preferred stock discount (Note 6).......... -- -- 22,057 -- 210,204 ----------- ----------- ----------- ----------- ----------- Net income (loss) attributable to common stockholders........ $ 651,254 $ 1,048,040 $ 1,458,459 $ 999,950 $ (492,794) =========== =========== =========== =========== =========== Net income (loss) per share attributable to common stockholders (Note 1)......... $ 0.03 $ 0.04 $ 0.05 $ 0.04 $ (0.02) =========== =========== =========== =========== =========== Weighted average common shares and equivalents (Note 1)...... 21,937,814 25,742,923 27,306,780 26,908,598 28,310,008
See accompanying notes to the consolidated financial statements. F-4 92 AMSURG CORP. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
RETAINED COMMON EARNINGS STOCK (DEFICIT) TOTAL ----------- ---------- ----------- Balance, December 31, 1993........................... $12,903,385 $ (847,963) $12,055,422 Issuance of stock.................................. 5,592,561 -- 5,592,561 Issuance of stock in conjunction with acquisitions (Note 2)........................................ 997,649 -- 997,649 Issuance of stock warrant (Note 7)................. 260,787 -- 260,787 Net income......................................... -- 651,254 651,254 ----------- ---------- ----------- Balance, December 31, 1994........................... 19,754,382 (196,709) 19,557,673 Issuance of stock.................................. 1,197,279 -- 1,197,279 Issuance of stock in conjunction with acquisitions (Note 2)........................................ 676,200 -- 676,200 Net income......................................... -- 1,048,040 1,048,040 ----------- ---------- ----------- Balance, December 31, 1995........................... 21,627,861 851,331 22,479,192 Issuance of stock.................................. 2,366,262 -- 2,366,262 Issuance of stock in conjunction with acquisitions (Note 2)........................................ 2,069,962 -- 2,069,962 Net income attributable to common stockholders..... -- 1,458,459 1,458,459 ----------- ---------- ----------- Balance, December 31, 1996........................... 26,064,085 2,309,790 28,373,875 Issuance of stock (unaudited)...................... 494,006 -- 494,006 Issuance of stock in conjunction with acquisitions (unaudited)..................................... 1,847,376 -- 1,847,376 Acquisition of stock (unaudited)................... (680,422) -- (680,422) Net loss attributable to common stockholders (unaudited)..................................... -- (492,794) (492,794) ----------- ---------- ----------- Balance, September 30, 1997 (unaudited).............. $27,725,045 $1,816,996 $29,542,041 =========== ========== ===========
See accompanying notes to the consolidated financial statements. F-5 93 AMSURG CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ---------------------------------------- -------------------------- 1994 1995 1996 1996 1997 ----------- ----------- ------------ ----------- ------------ (UNAUDITED) Cash flows from operating activities: Net income (loss)........................... $ 651,254 $ 1,048,040 $ 1,480,516 $ 999,950 $ (282,590) Income tax expense (Note 1 and 4)......... 26,000 578,000 985,000 665,000 1,279,000 Minority interest (Note 1)................ 2,464,105 3,938,364 5,433,588 3,755,799 6,447,445 ----------- ----------- ------------ ----------- ----------- Income before minority interest and income taxes..................................... 3,141,359 5,564,404 7,899,104 5,420,749 7,443,855 Noncash expenses, revenues, losses and gains included in income: Depreciation and amortization (Note 1).... 1,309,054 2,396,796 3,000,183 2,095,566 3,510,515 Net loss on sale of assets (Note 10)...... -- -- -- -- 1,494,333 Increase in working capital items......... (285,015) (132,418) (856,584) (269,050) (1,111,679) Other noncash transactions................ 59,926 106,220 125,190 71,222 45,840 ----------- ----------- ------------ ----------- ----------- 4,225,324 7,935,002 10,167,893 7,318,487 11,382,864 Increase in other assets.................... (373,201) (120,705) (286,031) (152,301) (686,388) Income taxes paid........................... -- (74,105) (970,309) (774,750) (983,097) ----------- ----------- ------------ ----------- ----------- Net cash flows provided by operating activities.......................... 3,852,123 7,740,192 8,911,553 6,391,436 9,713,379 ----------- ----------- ------------ ----------- ----------- Cash flows from investing activities: Acquisition of majority interest in surgery centers (Notes 2 and 10).................. (4,537,780) (3,186,512) (12,669,794) (8,535,956) (12,626,007) Acquisition of property and equipment....... (4,777,563) (2,138,075) (3,863,052) (2,438,419) (7,737,744) Proceeds from sale of assets................ -- -- -- -- 1,978,462 Decrease (increase) in long-term receivables............................... (116,683) (846) 137,582 102,939 35,118 ----------- ----------- ------------ ----------- ----------- Net cash flows used in investing activities.......................... (9,432,026) (5,325,433) (16,395,264) (10,871,436) (18,350,171) ----------- ----------- ------------ ----------- ----------- Cash flows from financing activities: Additions to long-term debt (Notes 5 and 10)....................................... 3,163,300 2,471,579 10,544,700 6,639,000 15,533,041 Payments on long-term debt (Notes 5 and 10)....................................... (516,007) (999,929) (7,261,534) (2,091,237) (2,903,616) Distributions to minority partners.......... (2,327,128) (3,840,787) (5,084,294) (3,666,597) (6,342,236) Issuance of preferred stock (net of issuance costs).................................... -- -- 4,960,000 -- -- Issuance of common stock (net of issuance costs).................................... 5,592,561 1,197,279 2,366,262 1,670,510 494,006 Capital contributions by minority partners.................................. 679,486 476,693 1,681,324 779,602 2,288,990 ----------- ----------- ------------ ----------- ----------- Net cash flows provided by (used in) financing activities................ 6,592,212 (695,165) 7,206,458 3,331,278 9,070,185 ----------- ----------- ------------ ----------- ----------- Net increase (decrease) in cash and cash equivalents................................. 1,012,309 1,719,594 (277,253) (1,148,722) 433,393 Cash and cash equivalents, beginning of period...................................... 737,758 1,750,067 3,469,661 3,469,661 3,192,408 ----------- ----------- ------------ ----------- ----------- Cash and cash equivalents, end of period...... $ 1,750,067 $ 3,469,661 $ 3,192,408 2,320,939 3,625,801 =========== =========== ============ =========== =========== (Increase) decrease in working capital items excluding income taxes: Accounts receivable, net.................... $ (605,969) $ (467,620) $ (1,353,365) (544,800) (1,255,421) Other current assets........................ (114,893) (183,856) (342,086) (133,283) (391,612) Accounts payable............................ 28,959 145,612 419,586 431,785 (232,429) Accrued expenses............................ 406,888 373,446 419,281 (22,752) 767,783 ----------- ----------- ------------ ----------- ----------- $ (285,015) $ (132,418) $ (856,584) (269,050) (1,111,679) =========== =========== ============ =========== ===========
SUPPLEMENTAL NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS 1. Interest payments of $159,534, $550,725 and $909,884 were made during the years ended December 31, 1994, 1995 and 1996, respectively and $637,012 and $1,083,626 during the nine months ended September 30, 1996 and 1997, respectively. 2. Shares of stock valued at $997,649, $676,200 and $2,069,962 were issued in conjunction with the acquisition of majority interests in various surgery centers during the years ended December 31, 1994, 1995 and 1996, respectively, and $1,351,174 and $1,847,376 during the nine months ended September 30, 1996 and 1997, respectively. (See Notes 2 and 10.) 3. Forgiveness of debt and shares of the Company's stock valued at $127,648 and $680,422, respectively, were received in connection with the sale of a partnership interest during the nine months ended September 30, 1997. See accompanying notes to the consolidated financial statements. F-6 94 AMSURG CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Principles of Consolidation AmSurg Corp. (the "Company"), through its wholly-owned subsidiaries, owns majority interests primarily between 51% and 70% in limited partnerships and limited liability companies ("LLCs") which own and operate practice-based ambulatory surgery centers and physician practices. The Company also has majority ownership interests in other partnerships and LLCs formed to develop additional centers. The consolidated financial statements include the accounts of the Company and its subsidiaries and the majority-owned limited partnerships and LLCs in which the Company is the general partner or member. Consolidation of such partnerships and LLCs is necessary as the Company has 51% or more of the financial interest, is the general partner or majority member with all the duties, rights and responsibilities thereof and is responsible for the day to day management of the partnership or LLC. The limited partner or minority member responsibilities are to provide the delivery of medical services with their rights being restricted to those which protect their financial interests, such as approval of the acquisition of significant assets or incurring debt which they, as physician limited partners or members, are required to guarantee on a pro rata basis based upon their respective ownership interests. All material intercompany profits, transactions and balances have been eliminated. All subsidiaries and minority owners are herein referred to as partnerships and partners, respectively. At December 31, 1996, approximately 60% of the outstanding common shares of the Company were owned by American Healthcorp, Inc. ("AHC"). b. Cash and Cash Equivalents Cash and cash equivalents are comprised principally of demand deposits at banks, and other highly liquid short-term investments with maturities less than three months when purchased. c. Other Current Assets Other current assets are comprised of prepaid expenses and other receivables. d. Property and Equipment Property and equipment costs include expenditures which increase value or extend useful lives. Depreciation for buildings and improvements is recognized under the straight line method over 20 years, or for leasehold improvements, over the remaining term of the lease plus renewal options. Depreciation for moveable equipment is recognized over useful lives of five to ten years. e. Other Assets Other assets consist of deferred pre-opening costs, deferred organization costs and deferred financing costs of the Company and the entities included in the Company's consolidated financial statements. Deferred pre-opening costs are being amortized over one year, deferred organization costs are being amortized over five years, and deferred financing costs are being amortized over the term of the related debt. Accumulated amortization of other assets at December 31, 1995 and 1996 was $325,528 and $402,402, respectively. f. Excess of Cost over Net Assets of Purchased Operations Excess of cost over net assets of purchased operations are being amortized over 25 years. Accumulated amortization at December 31, 1995 and 1996 was $1,705,157 and $2,757,394, respectively. The Company has consistently assessed impairment of the excess of cost over net assets of purchased operations and other long-lived assets in accordance with criteria consistent with the provisions of Financial Accounting Standard F-7 95 AMSURG CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." (See Notes 2, 9 and 10). Whenever events or changes in circumstances indicate that the carrying amount of long-term assets may not be recoverable, management assesses whether or not an impairment loss should be recorded by comparing estimated undiscounted future cash flows with the assets' carrying amount at the partnership level. If the assets' carrying amount is in excess of the estimated undiscounted future cash flows, an impairment loss is recognized as the excess of the carrying amount over estimated future cash flows discounted at an applicable rate. Intangibles and other long-lived assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell. g. Income Taxes The Company files a consolidated tax return which includes all of its subsidiary corporations and computes its tax provision under Financial Accounting Standard No. 109 "Accounting for Income Taxes." h. Revenue Recognition Revenues are comprised of the following:
1994 1995 1996 ----------- ----------- ----------- Surgery center revenues....................... $13,460,072 $21,641,743 $28,950,498 Physician practice revenues................... -- -- 5,155,148 Management fees............................... 168,089 424,202 456,574 Interest and other............................ 198,405 423,434 444,996 ----------- ----------- ----------- $13,826,566 $22,489,379 $35,007,216 =========== =========== ===========
Surgery center revenues consist of the billing for the use of the Centers' facilities (the "usage fee") directly to the patient or third party payor. The usage fee does not include any amounts billed for physicians' services which are billed separately by the physicians to the patient or third party payor. Physician practice revenues consist of the billing for physician services of the Company's one majority owned physician practice in 1996. The billings are made by the practice directly to the patient or third party payor. Revenues from surgery centers and physician practices are recognized on the date of service, net of estimated contractual allowances from third party medical service payors including Medicare and Medicaid. During the years ended December 31, 1994, 1995 and 1996 approximately 39%, 37%, and 36%, respectively, of the Company's revenues were derived from the provision of services to patients covered under Medicare and Medicaid. Concentration of credit risk with respect to other payors is limited due to the large number of such payors. Management fees revenue is derived from providing management services to one surgery center in which the Company has no ownership interest and is recognized as the services are provided. i. Net Income Per Share Net income per share is computed by dividing net income by the weighted average number of common shares and equivalents outstanding. j. Fair Value of Financial Instruments Financial Accounting Standard No. 107, "Disclosures About Fair Value of Financial Instruments," requires disclosure of the fair value of certain financial instruments. Cash and cash equivalents, receivables and payables are reflected in the financial statements at cost which approximates fair value. Management F-8 96 AMSURG CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) believes that the carrying amounts of long-term debt approximate market value, because it believes the terms of its borrowings approximate terms which it would incur currently. k. Management Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. ACQUISITIONS In three separate transactions during 1994, the Company acquired a majority interest in three physician practice-based surgery centers. The purchase price paid for the assets acquired was $5,966,759 which consisted of cash of $4,481,730, AmSurg common stock valued at $1,102,649 and a note payable of $382,380. In two separate transactions during 1995, the Company acquired a majority interest in two physician practice-based surgery centers. The purchase price paid for the interests acquired was $4,415,000 which consisted of cash of $3,108,800, AmSurg common stock valued at $676,200 and a note payable of $630,000. In five separate transactions during 1996, the Company acquired a majority interest in four physician practice-based surgery centers and a physician practice and related entities. The purchase price paid for the interests acquired was $10,214,040 which consisted of cash of $8,646,220 and AmSurg common stock valued at $1,567,820. On August 22, 1996, the Company acquired a majority interest in the Endoscopy Center of Ocala, Inc. which is a physician practice-based surgery center. The purchase price paid for the interest acquired was $3,347,621 which consisted of cash of $2,845,479 and AmSurg common stock valued at $502,142. With this transaction, the Company acquired current assets of $249,810, property and equipment of $85,333, excess of cost over net assets of purchased operations of $3,178,304 and assumed liabilities of $165,827. The approximate purchase price of the aforementioned acquisitions, including the Endoscopy Center of Ocala, Inc., was assigned as follows:
ACQUISITIONS IN --------------------------------------- 1994 1995 1996 ---------- ---------- ----------- Current assets................................ $ 361,153 $ 166,996 $ 1,206,033 Property and equipment........................ 664,881 1,459,196 2,508,191 Excess of cost over net assets of purchased operations.................................. 5,409,025 3,976,358 12,289,386 Liabilities assumed........................... (468,300) (1,187,550) (2,441,949) ---------- ---------- ----------- Net acquisition purchase price...... $5,966,759 $4,415,000 $13,561,661 ========== ========== ===========
Had these transactions occurred January 1, 1994, unaudited pro forma revenues for the years ended December 31, 1994, 1995 and 1996 would have been approximately $25,129,000, $33,692,000 and $40,620,000, respectively. Unaudited pro forma net income for the years ended December 31, 1994, 1995 and 1996 would have been approximately $538,000, $1,187,000 and $1,645,000, respectively, and pro forma earnings per share would be $.02, $.04 and $.06, respectively. An acquisition which occurred in 1995 was structured such that if certain operating results were not achieved, the then agreed upon purchase price would be adjusted. Subsequent operations of the center did not meet the predefined levels. The purchase price adjustment, which is reflected as a long-term receivable in the F-9 97 AMSURG CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) accompanying consolidated balance sheet at December 31, 1996, is being repaid to the Company over a thirty month period. 3. RELATED PARTY TRANSACTIONS Included in accounts payable at December 31, 1995 and 1996 is $16,066 and $20,493, respectively, and included in other operating expenses for the years ended December 31, 1994, 1995 and 1996 is $151,846, $186,215 and $213,820, respectively, due/paid to AHC for management and financial services provided by AHC to the Company. These payables/expenses were incurred pursuant to an agreement effective December 1, 1992, under which AHC was paid $100,000 a year for the services of AHC's chief executive officer and chief financial officer. Also under the agreement, AHC was paid approximately $4,000 per year for each ambulatory surgery center partnership and $8,000 per year for the Company's corporate operations to provide certain partnership and Company accounting and income tax services. The Company entered into a new agreement with AHC effective January 1, 1997 by which the Company will pay AHC an annual fee of $85,000 for the services of AHC's chief executive officer and chief financial officer. Also, AHC will be paid an annual fixed fee of $50,000 plus an annual fee of $7,500 for each ambulatory surgery center and an annual fee of $15,000 for each physician practice and the Company's corporate operations to provide certain administrative accounting and financial services. This agreement terminates upon the earlier of (i) the mutual agreement of the parties, (ii) the date which AmSurg begins to trade as a separate public company or (iii) December 31, 1997. The Company also rents approximately 15,000 square feet of office space from AHC pursuant to a sublease which expires December 1999. Included in other operating expenses for the year ended December 31, 1996 is $163,212 related to this sublease. The Company also reimburses certain of its limited partners for salaries and benefits related to time spent by employees of their practices on activities of the centers. Total reimbursement of such salary and benefit costs totaled $2,344,839, $3,538,925 and $4,616,745 for the years ended December 31, 1994, 1995 and 1996, respectively. The Company also leases space for certain surgery centers at rates the Company believes approximate fair market value from its physician partners affiliated with its centers. Payments on these leases were $519,768, $871,054 and $1,205,849 for the years ended December 31, 1994, 1995 and 1996, respectively. The Company believes that the foregoing transactions are in its best interests. It is the Company's current policy that all transactions by the Company with officers, directors, five percent stockholders and their affiliates will be entered into only if such transactions are on terms no less favorable to the Company than could be obtained from unaffiliated parties, are reasonably expected to benefit the Company and are approved by a majority of the disinterested independent members of the Company's Board of Directors. F-10 98 AMSURG CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. INCOME TAXES Income tax expense is comprised of the following:
YEAR ENDED DECEMBER 31, ------------------------------- 1994 1995 1996 ------- -------- -------- Current Federal........................................... $ -- $301,000 $593,000 State............................................. 26,000 64,000 143,000 Deferred............................................ -- 213,000 249,000 ------- -------- -------- $26,000 $578,000 $985,000 ======= ======== ========
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's net deferred liability are as follows:
DECEMBER 31, -------------------- 1995 1996 -------- -------- Deferred tax asset: Allowance for uncollectible accounts...................... $228,000 $297,000 State operating losses.................................... 26,000 60,000 Valuation allowance on state net operating losses......... (11,000) (60,000) Other..................................................... -- 6,000 -------- -------- 243,000 303,000 -------- -------- Deferred tax liability: Tax over book depreciation................................ 37,000 66,000 Tax over book amortization................................ 419,000 699,000 -------- -------- 456,000 765,000 -------- -------- Net deferred tax liability.................................. $213,000 $462,000 ======== ======== Net current deferred tax asset.............................. $243,000 $303,000 Net long-term deferred tax liability........................ 456,000 765,000 -------- -------- $213,000 $462,000 ======== ========
The Company has provided a valuation allowance on its deferred tax asset related to state net operating losses to the extent that management does not believe that it is more likely than not that such asset will be realized. The difference between income tax expense computed using the effective tax rate and the statutory Federal income tax rate follows:
YEAR ENDED DECEMBER 31, ---------------------------------- 1994 1995 1996 --------- --------- -------- Statutory Federal income tax..................... $ 230,000 $ 553,000 $838,000 State income taxes, less Federal income tax benefit........................................ 19,000 60,000 132,000 Increase (decrease) in valuation allowance....... (199,000) (124,000) 49,000 Other............................................ (24,000) 89,000 (34,000) --------- --------- -------- $ 26,000 $ 578,000 $985,000 ========= ========= ========
F-11 99 AMSURG CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. LONG-TERM DEBT Long-term debt is comprised of the following:
DECEMBER 31, ------------------------- 1995 1996 ---------- ----------- $12,000,000 credit agreement at prime or 1.75% above LIBOR (average rate of 7.3% at December 31, 1996) due through June 10, 2002............................................ $ -- $ 3,157,657 Term loan at prime or 1.75% above LIBOR (7.25% at December 31, 1996) due through June 10, 2000...................... 3,347,493 5,030,590 Other debt at an average rate of 8.5% due through September 23, 2003................................................. 2,986,281 2,508,828 Capitalized lease arrangements at an average rate of 10.0% due through December 1, 2000............................. 690,274 1,137,920 ---------- ----------- 7,024,048 11,834,995 Less current portion....................................... 2,238,496 2,616,714 ---------- ----------- $4,785,552 $ 9,218,281 ========== ===========
On September 29, 1993, AmSurg entered into a credit agreement with a lending institution. The credit agreement was amended and restated June 25, 1996. Under the terms of the new agreement, all borrowings outstanding under the previous credit agreement were converted to a term loan that bears interest at the prime rate or 1.75% above LIBOR or a combination thereof and is being repaid on an installment basis through June 10, 2000. The borrowings under the term loan are secured by $9,842,914 of assets financed by these borrowings. Borrowings under the term loan totaled $5,030,590 at December 31, 1996 of which payment of $497,449 was guaranteed by certain partners of AmSurg centers. In addition, the credit agreement permits AmSurg to borrow up to an additional $12,000,000 to finance AmSurg acquisition and development projects. New borrowings under this agreement bear interest at prime or 1.75% above LIBOR or a combination thereof. AmSurg may borrow under this credit agreement through June 10, 1998. The agreement provides for a fee of .35% on unused commitments and all additional borrowings are to be repaid on an installment basis through June 10, 2002. The agreement contains covenants relating to the ratio of debt to net worth, operating performance and minimum net worth and prohibits the payment of dividends. The Company is in compliance with all related covenants at December 31, 1996. Borrowings under the $12,000,000 credit agreement totaled $3,157,657 at December 31, 1996. Various of the AmSurg centers included in the Company's consolidated financial statements have loans with local lending institutions. All the loans are secured by assets of the centers totaling $3,874,816 and both AmSurg and the partners have guaranteed payment of the loans. In addition, AmSurg has unsecured notes payable of $389,222 issued in connection with the acquisition of two physician practice-based surgery centers during the years ended December 31, 1994 and 1995 (see Note 2). Four of the AmSurg centers have capitalized lease arrangements on equipment with a cost of $777,327 and $1,264,598 at December 31, 1995 and 1996, respectively. The equipment is being amortized over the terms of the related leases (generally four to five years). Accumulated amortization at December 31, 1995 and 1996 was $97,983 and $328,618, respectively. Both AmSurg and the partners have guaranteed payment of the leases. Total future minimum lease payments due in the five years subsequent to December 31, 1996 are $450,395, $418,416, $319,964, $138,071, and -0- including imputed interest of $96,069, $61,310, $27,056, $4,491 and -0-, respectively. Principal payments required on long-term debt in the five years subsequent to December 31, 1996 are $2,616,714, $2,824,276, $2,987,788, $1,855,064 and $995,777. F-12 100 AMSURG CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. PREFERRED STOCK Preferred stock, net of issuance costs, is comprised of the following:
DECEMBER 31, ------------------ 1995 1996 ---- ---------- Series A redeemable preferred stock, 1,500,000 shares outstanding............................................... $-- $1,774,290 Series B convertible preferred stock, 1,250,000 shares outstanding............................................... -- 3,207,767 --- ---------- $-- $4,982,057 === ==========
On November 20, 1996, the Company issued to unaffiliated institutional investors a combination of redeemable and convertible preferred stock for net proceeds totaling $4,960,000. The convertible preferred stock, with a stated amount of $2.5 million, is convertible into that number of shares of Class A Common Stock that approximates 6% of the equity of AmSurg determined as of November 20, 1996, with that percentage being ratably increased to 8% of the equity of AmSurg if an event of liquidity has not occurred by November 20, 2000. An event of liquidity is defined as an initial public offering of common stock or sale of the Company yielding net cash proceeds to the Company of at least $25,000,000, or in the event the Company has completed a spin-off, yielding net proceeds of $20,000,000 to the Company and/or its shareholders. If such events of liquidity do not occur by November 20, 2002, the holders of the convertible preferred stock have the right to require the Company to redeem the stock at current market price as defined. The redeemable preferred stock, with a stated amount of $3 million, pays a cumulative dividend of 8% commencing November 21, 1998 and requires the Company to redeem them at the stated amount plus accrued but unpaid dividends upon the earlier of an event of liquidity or November 20, 2002. The Company may redeem the redeemable preferred stock at any time. The redeemable holders can convert to common stock of the Company upon the occurrence of certain events, including the spin-off of the Company from AHC, at the then current market price of the common stock. The preferred stock was recorded at its fair market value, net of issuance costs. The Series A Preferred Stock is being accreted to its redemption value including potential dividends. The Series B Preferred Stock is not being accreted because management expects a conversion upon an event of liquidity. 7. STOCK OPTIONS The Company has a stock option plan under which it has granted incentive and non-qualified options to purchase its common stock to employees and outside directors. Options are granted at market value on the date of the grant and vest over 4 years at the rate of 25% per year. Options have a term of 10 years from the date of grant. As of December 31, 1996, 106,900 shares were reserved for future options. Stock option activity for the three years ended December 31, 1996 is summarized below:
AVERAGE NUMBER OF PRICE PER SHARES SHARE --------- --------- Outstanding at December 31, 1993............................ 1,666,600 $0.48 Options granted........................................... 286,000 1.09 --------- Outstanding at December 31, 1994............................ 1,952,600 0.57 Options granted........................................... 105,000 1.12 --------- Outstanding at December 31, 1995............................ 2,057,600 0.60 Options granted........................................... 689,250 1.67 Options exercised......................................... (8,750) 0.90 Options terminated........................................ (17,750) 1.07 --------- Outstanding at December 31, 1996............................ 2,720,350 $0.87 =========
F-13 101 AMSURG CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table summarizes information concerning outstanding and exercisable options at December 31, 1996:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------ ---------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE RANGE OF NUMBER REMAINING EXERCISE NUMBER EXERCISE EXERCISE PRICES OUTSTANDING LIFE (YRS.) PRICE EXERCISABLE PRICE --------------- ----------- ----------- -------- ----------- -------- $ .25 -- $ .50 1,032,000 5.3 $ .25 1,032,000 $ .25 .50 -- 1.00 652,600 6.3 .86 553,200 .85 1.00 -- 1.50 346,500 8.1 1.11 147,000 1.11 1.50 -- 1.79 689,250 9.3 1.67 -- N/A --------- --------- .25 -- 1.79 2,720,350 6.9 .87 1,732,200 .52 ========= =========
The Company accounts for its stock options issued to employees and outside directors pursuant to Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly, no compensation expense has been recognized in connection with the issuance of stock options. The estimated weighted average fair values of the options at the date of grant using the Black-Scholes option pricing model as promulgated by Financial Accounting Standard No. 123, "Accounting for Stock Based Compensation" in 1995 and 1996 were $.60 and $.91 per share, respectively. In applying the Black-Scholes model, the Company assumed no dividends, an expected life for the options of seven years and a forfeiture rate of 3% in both 1995 and 1996 and an average risk free interest rate of 6.6% in 1995 and 6.2% in 1996. The Company also assumed a volatility rate based upon an average of comparable companies of 46% and 49% in 1995 and 1996, respectively. Had the Company used the Black-Scholes estimates to determine compensation expense for the options granted in 1995 and 1996, net income and net income per share attributable to common shareholders would have been reduced to the following pro forma amounts.
YEAR ENDED DECEMBER 31, ------------------------ 1995 1996 ---------- ---------- Net income attributable to common shareholders As reported............................................... $1,048,040 $1,453,874 Pro forma................................................. 1,028,040 1,241,874 Net income per share attributable to common shareholders As reported............................................... .04 .05 Pro forma................................................. .04 .05
In 1994, the Company issued warrants to purchase its common stock to AHC. These warrants were exercised February 26, 1996 for 257,720 shares at $.90 per share. The warrants were issued in return for AHC's prior guaranty of Company debt. 8. COMMITMENTS AND CONTINGENCIES The Company has various lease agreements for its surgery centers in operation and under development and for office space including a sublease with AHC (see Note 3). Rent expense under such lease agreements for the years ended December 31, 1994, 1995 and 1996 was approximately $772,000, $1,201,000 and $1,775,000, respectively. F-14 102 AMSURG CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The future minimum lease commitments at December 31, 1996 for all noncancelable operating leases are as follows: Year ended December 31: 1997.............................................. $ 2,390,577 1998.............................................. 2,330,537 1999.............................................. 2,086,174 2000.............................................. 1,700,772 2001.............................................. 1,310,453 Thereafter........................................ 3,522,570 ----------- $13,341,083 ===========
At December 31, 1996, AmSurg partnerships had unfunded construction and equipment purchase commitments for centers under development of approximately $2,000,000. The Company and its partnerships are insured with respect to medical malpractice risk on a claims made basis. Management is not aware of any claims against it or its partnerships which would have a material financial impact. The Company or its wholly-owned subsidiaries, as general partners in the limited partnerships, are responsible for all debts incurred but unpaid by the partnership. As manager of the operations of the partnership, the Company has the ability to limit its potential liabilities by curtailing operations or taking other operating actions. In the event of a change in current law which would prohibit the physicians' current form of ownership in the partnerships or LLCs, the Company is obligated to purchase the physicians' interests in the partnerships or LLCs. The purchase price to be paid in such event is generally the greater of the physicians' capital account or a multiple of earnings. 9. SUBSEQUENT EVENTS In two separate transactions in January 1997, the Company acquired a majority interest in a physician practice-based surgery center and a physician practice and related entities. The purchase price paid for the interests acquired was $4,928,110 which consisted of cash of $4,227,747 and AmSurg common stock valued at $700,363. With these transactions, the Company acquired assets of $561,517, liabilities assumed of $346,033 and excess cost over net assets of purchased operations of $4,712,626. 10. OTHER EVENTS SUBSEQUENT TO DECEMBER 31, 1996 (UNAUDITED) a. Acquisitions and Dispositions In three separate transactions in March 1997, May 1997 and September 1997, the Company acquired a majority interest in four physician practice-based surgery centers. The purchase price paid for the interests acquired was $9,119,730 which consisted of cash of $8,002,717 and AmSurg common stock valued at $1,117,013. With these transactions, the Company acquired assets of $994,422, excess cost over net assets of purchased operations of $8,573,033 and assumed liabilities of $447,725. In September 1997, the Company sold its investment in a partnership that owned two surgery centers acquired in 1994. Various disagreements with the sole physician partner over the operation of these centers have adversely impacted the operations of these centers. After a series of discussions and attempts to resolve these differences, the Company determined that the partners could not resolve their disagreements and that as a result the carrying value of the assets associated with this partnership would not likely be fully recovered. The Company projected the undiscounted cash flows from these centers and determined these cash flows to be F-15 103 AMSURG CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) less than the carrying value of the long-lived assets attributable to this partnership. Accordingly, an impairment loss equal to the excess of the carrying value of the long-lived assets over the present value of the estimated future cash flows was recorded in March 1997 in accordance with Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of." In September 1997, when the Company sold its interest in the partnership assets to its physician partner it recognized a partial loss recovery. The net loss associated with these transactions is $1,954,000. In July 1997, the Company sold a surgery center building and equipment which the Company leased to a physician practice located in Tennessee and recognized a pretax gain of approximately $460,000. In July 1997, the Company also terminated its management agreement with the physician practice for the surgery center in which it had no ownership interest but had managed since 1994. b. Long-Term Debt In September 1997, the Company executed an amended and restated credit agreement with two lending institutions. Under the new agreement, the terms and conditions of the term loan (approximately $3.3 million at September 30, 1997) remain unchanged. In addition, the credit agreement permits the Company to borrow up to $25,000,000 to finance AmSurg acquisitions and development projects. All borrowings under this agreement bear interest at prime or 1.75% above LIBOR or a combination thereof. The agreement provides for a fee of .35% on unused commitments and all outstanding borrowings are to be repaid April 15, 1999. The agreement contains covenants relating to the ratio of debt to net worth, operating performance and minimum net worth and prohibits the payment of dividends to common stockholders. Borrowings under the $25,000,000 credit agreement totaled $16,987,657 at September 30, 1997. c. Public Distribution of Common Stock In 1997, the Board of Directors of AmSurg approved an agreement pursuant to which AHC will distribute on a substantially tax-free basis all of the shares of the Company's common stock owned by AHC to the holders of AHC common stock ("the Distribution"). In the third quarter of 1997, the Company expensed $458,000 for its proportionate share of costs incurred to date associated with the Distribution. F-16 104 AMSURG CORP. UNAUDITED PRO FORMA FINANCIAL INFORMATION The following unaudited pro forma statement of operations of AmSurg Corp. for the year ended December 31, 1996 and the nine months ended September 30, 1997 is presented to show the effects of the acquisition of The Endoscopy Center operations of The Endoscopy Center of Ocala, Inc., acquired on August 21, 1996, The Endoscopy Center, Inc., acquired on September 2, 1997 and other individually insignificant businesses acquired during the year ended December 31, 1996 and the nine months ended September 30, 1997 (which are accounted for as purchases) assuming the acquisitions had occurred on January 1, 1996. The unaudited pro forma financial information does not purport to represent what AmSurg Corp.'s financial position or results of operations would actually have been had the transactions in fact occurred on the dates indicated above, nor to project AmSurg Corp.'s financial position or results of operations for any future date or period. In the opinion of AmSurg's management, all adjustments necessary for a fair presentation have been made. This unaudited pro forma financial information should be read in conjunction with the accompanying notes and the financial statements of AmSurg Corp. and the related notes included elsewhere herein. YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS EXCEPT PER SHARE DATA)
1996 1997 THE ENDOSCOPY INDIVIDUALLY INDIVIDUALLY AMSURG CENTER OF THE ENDOSCOPY INSIGNIFICANT INSIGNIFICANT PRO FORMA HISTORICAL OCALA(A) CENTER, INC(B) ACQUISITIONS(A) ACQUISITIONS(B) ADJUSTMENTS ---------- ------------- -------------- ---------------- --------------- ----------- Revenues........................ $35,007 $1,373 $3,122 $4,302 $7,483 $ (205)(2) ------- ------ ------ ------ ------ ------- Expenses: Salaries and benefits......... 11,613 304 507 1,331 2,001 (561)(3) Other operating expenses...... 11,547 322 808 1,616 2,987 202(4) Depreciation and amortization................ 3,000 36 -- 170 150 745(5) Interest...................... 948 -- -- 75 31 927(6) ------- ------ ------ ------ ------ ------- Total expenses.......... 27,108 662 1,315 3,192 5,169 1,313 Income before minority interest and income taxes.............. 7,899 711 1,807 1,110 2,314 (1,518) Minority interest............. 5,433 -- -- -- -- 3,257(7) ------- ------ ------ ------ ------ ------- Income before income taxes...... 2,466 711 1,807 1,110 2,314 (4,775) Income tax expense............ 985 -- -- -- -- 467(8) ------- ------ ------ ------ ------ ------- Net income...................... 1,481 711 1,807 1,110 2,314 (5,242) Accretion of preferred stock discount.................... 22 -- -- -- -- -- ------- ------ ------ ------ ------ ------- Net income attributable to common stockholders........... $ 1,459 $ 711 $1,807 $1,110 $2,314 $(5,242) ======= ====== ====== ====== ====== ======= Net income per share attributable to common stockholders(1)............... $ 0.16 ======= Weighted average common shares and equivalents(1)............ 9,102 500(9) PRO FORMA COMBINED --------- Revenues........................ $51,082 ------- Expenses: Salaries and benefits......... 15,195 Other operating expenses...... 17,482 Depreciation and amortization................ 4,101 Interest...................... 1,981 ------- Total expenses.......... 38,759 Income before minority interest and income taxes.............. 12,323 Minority interest............. 8,690 ------- Income before income taxes...... 3,633 Income tax expense............ 1,452 ------- Net income...................... 2,181 Accretion of preferred stock discount.................... 22 ------- Net income attributable to common stockholders........... $ 2,159 ======= Net income per share attributable to common stockholders(1)............... $ 0.22 ======= Weighted average common shares and equivalents(1)............ 9,602
- --------------- (a) From January 1, 1996 to date of acquisition. (b) From January 1, 1996 through December 31, 1996. F-17 105 AMSURG CORP. UNAUDITED PRO FORMA FINANCIAL INFORMATION NINE MONTHS ENDED SEPTEMBER 30, 1997 (IN THOUSANDS EXCEPT PER SHARE DATA)
1997 INDIVIDUALLY PRO AMSURG THE ENDOSCOPY INSIGNIFICANT PRO FORMA FORMA HISTORICAL CENTER, INC.(A) ACQUISITIONS(A)(B) ADJUSTMENTS COMBINED ---------- --------------- ------------------ ----------- -------- Revenues......................... $41,163 $2,090 $586 $ (55)(2) $43,784 ------- ------ ------ ------- ------- Expenses: Salaries and benefits.......... 12,552 470 128 (43)(3) 13,107 Other operating expenses....... 14,564 501 215 (20)(4) 15,260 Depreciation and amortization................ 3,511 -- 17 180(5) 3,708 Interest....................... 1,141 -- 1 223(6) 1,365 Net loss on sale of assets(c)................... 1,494 -- -- -- 1,494 Distribution cost(d)........... 458 -- -- -- 458 ------- ------ ------ ------- ------- Total expenses......... 33,720 971 361 340 35,392 Income before minority interest and income taxes............... 7,443 1,119 225 (395) 8,392 Minority interest.............. 6,447 -- -- 625(7) 7,072 ------- ------ ------ ------- ------- Income before income taxes....... 996 1,119 225 (1,020) 1,320 Income tax expense............. 1,279 -- -- 130(8) 1,409 ------- ------ ------ ------- ------- Net income (loss)................ (283) 1,119 225 (1,150) (89) Accretion of preferred stock discount.................... 210 -- -- -- 210 ------- ------ ------ ------- ------- Net income (loss) attributable to common stockholders............ $ (493) $1,119 $225 $(1,150) $ (299) ======= ====== ====== ======= ======= Net income per share attributable to common stockholders(1)...... $ (0.05) $ (0.03) ======= ======= Weighted average common shares and equivalents(1)............. 9,437 134(9) 9,571
- --------------- (a) From January 1, 1997 to date of acquisition. (b) Two acquisitions were completed in early 1997 and therefore the results of their operations for the nine months ended September 30, 1997 are included in the AmSurg historical amounts. (c) Reflects a loss attributable to the sale of a partnership interest, net of a gain on the sale of a surgery center building and equipment, which had an impact of $0.16 per share on the historical and pro forma results of operations for the nine months ended September 30, 1997. (d) Reflects costs incurred to date related to the distribution of the Company's common stock, which had an impact of $0.05 per share on the historical and pro forma results of operations for the nine months ended September 30, 1997. F-18 106 AMSURG CORP. NOTES TO THE PRO FORMA COMBINED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS) 1. Net income per share is adjusted to reflect the anticipated recapitalization to be effected prior to the distribution. 2. Decrease in interest income on the funds used to complete the acquisitions. 3. The pro forma adjustments to salaries and benefits reflect the following:
TWELVE MONTHS NINE MONTHS ENDED ENDED DECEMBER 31, 1996 SEPTEMBER 30, 1997 ----------------- ------------------ Estimated additional general and administrative costs as a result of increase in number of centers managed............................................ $ 780 $ 77 Salaries paid to previous employees which are discontinued upon acquisition...................... (224) (120) Physician salaries and benefits replaced with independent contractor arrangements................ (1,117) -- ------- ------- $(561) $ (43) ======= =======
4. Increase in other operating expenses are as follows:
NINE MONTHS TWELVE MONTHS ENDED ENDED SEPTEMBER 30, DECEMBER 31, 1996 1997 ----------------- -------------- Payments to physicians for provision of medical services pursuant to the new contract between these physicians and the practice...................................... $ 510 $ -- Reduced rent expense pursuant to new lease agreements... (332) (33) Other miscellaneous fees................................ 24 13 -------- ---- $ 202 $(20) ======== ====
5. Increase in amortization due principally to the increase in excess of cost over net assets of purchased operations. 6. Increase in interest expense for debt incurred to complete the acquisitions. 7. Minority owners interest in earnings of acquired operations. 8. Change to the income tax provision due to combination of operations. 9. Average weighted shares for stock issued in acquisitions, as adjusted to reflect the proposed recapitalization. F-19 107 INDEPENDENT AUDITORS' REPORT Board of Directors and Shareholders Endoscopy Center of Ocala, Inc. Ocala, Florida We have audited the accompanying statements of income and cash flows of the Endoscopy Center Operations of the Endoscopy Center of Ocala, Inc. for the period from January 1, 1996 to August 21, 1996. These financial statements are the responsibility of the Center's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the results of operations and cash flows of the Endoscopy Center Operations of the Endoscopy Center of Ocala, Inc. for the period from January 1, 1996 through August 21, 1996 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Nashville, Tennessee January 8, 1997 F-20 108 ENDOSCOPY CENTER OPERATIONS OF THE ENDOSCOPY CENTER OF OCALA, INC. STATEMENT OF INCOME PERIOD FROM JANUARY 1, 1996 THROUGH AUGUST 21, 1996 Revenues (Note 1)........................................... $1,372,553 Expenses: Salaries and benefits..................................... 304,129 Supplies and other operating costs........................ 104,253 General and administrative................................ 120,735 Rent charge from affiliate (Note 2)....................... 76,000 Bad debt expense.......................................... 21,032 Depreciation (Note 1)..................................... 35,598 ---------- 661,747 ---------- Net income........................................ $ 710,806 ==========
See accompanying notes to the financial statements. F-21 109 ENDOSCOPY CENTER OPERATIONS OF THE ENDOSCOPY CENTER OF OCALA, INC. STATEMENT OF CASH FLOWS PERIOD FROM JANUARY 1, 1996 THROUGH AUGUST 21, 1996 Cash flows from operating activities: Net income................................................ $ 710,806 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation........................................... 35,598 Decrease in accounts receivable........................ 20,874 Increase in accounts payable and accrued expenses...... 5,307 --------- Net cash provided by operating activities......... 772,585 Cash flows from investing activities -- Purchase of furniture and equipment....................... (1,857) Cash flows from financing activities -- Net cash paid to physician practice....................... (770,728) --------- Net increase (decrease) in cash and cash equivalents........ -- Cash and cash equivalents, beginning of period.............. -- --------- Cash and cash equivalents, end of period.................... $ -- =========
See accompanying notes to the financial statements. F-22 110 ENDOSCOPY OPERATIONS OF THE ENDOSCOPY CENTER OF OCALA, INC. NOTES TO THE FINANCIAL STATEMENTS PERIOD FROM JANUARY 1, 1996 THROUGH AUGUST 21, 1996 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Endoscopy Center operations of the Endoscopy Center of Ocala, Inc. (the "Center") provides outpatient endoscopy procedures at its center in Ocala, Florida. It is organized as part of an associated physician practice. These financial statements reflect the operations of the Center only, and do not include activities of the physician practice. a. Revenue Recognition Revenues consist of the billing for the use of the Center's facilities (the "usage fee") directly to the patient or third party payor. The usage fee does not include any amounts billed for physicians' services which are billed separately by the physicians to the patient or third party payor. Revenues are reported at the estimated net realizable amounts from patients, third-party payors and others, including Medicare and Medicaid. Such revenues are recognized as the related services are performed. Contractual adjustments resulting from agreements with various organizations to provide services for amounts which differ from billed charges, are recorded as deductions from patient service revenues. During the period from January 1, 1996 through August 21, 1996, approximately 62% of the Center's revenues were provided to patients covered under Medicare and Medicaid. Amounts which are determined to be uncollectible are charged against the allowance for uncollectible accounts. b. Depreciation Depreciation on furniture and equipment is provided on the declining balance method over the estimated useful life of the respective assets. c. Income Taxes No provision for income taxes has been reflected as the Center's operations are included with the physician practice and all such federal taxes are paid by the physicians through an election to be taxed pursuant to Subchapter S of the Internal Revenue Code. d. Management Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates. 2. RELATED PARTY TRANSACTIONS The Center occupies space provided by the physician practice. Included in the statement of income is a charge of $76,000 for such costs which management believes reflects the fair value of the space provided. All cash receipts and disbursements related to the Center are made through bank accounts maintained by the physician practice. Revenues and expenses related to the Center's operations are separately identified and recorded in the records of the Center. The net cash transactions of the Center are reflected as net cash paid to physician practice in the accompanying statement of cash flows. F-23 111 ENDOSCOPY OPERATIONS OF THE ENDOSCOPY CENTER OF OCALA, INC. NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED) 3. CONTINGENCIES The Center is insured with respect to medical malpractice risk on a claims made basis. The Center is not aware of any claims against it which would have a material financial impact. 4. SUBSEQUENT EVENT Effective August 22, 1996, the Center sold 51% of its assets to AmSurg Corp. This 51% interest owned by AmSurg plus the 49% interest retained by the practice were then contributed to a new partnership in return for a 51% and 49% interest, respectively, in the new partnership entity. F-24 112 INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders The Endoscopy Center, Inc. Independence, Missouri We have audited the accompanying balance sheets of The Endoscopy Center, Inc. as of December 31, 1996 and 1995, and the related statements of earnings and retained earnings and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of The Endoscopy Center, Inc. as of December 31, 1996 and 1995 and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Nashville, Tennessee October 7, 1997 F-25 113 THE ENDOSCOPY CENTER, INC. BALANCE SHEETS
DECEMBER 31, DECEMBER 31, AUGUST 31, 1995 1996 1997 ------------ ------------ ----------- (UNAUDITED) ASSETS Current assets: Cash..................................................... $179,363 $193,156 $191,848 Accounts receivable, net of allowance for uncollectible accounts of $196,808, $160,148 and $150,000, respectively.......................................... 429,651 467,787 500,000 Supplies inventory....................................... 10,374 12,507 13,240 -------- -------- -------- Total current assets............................. 619,388 673,450 705,088 Organization cost, net of accumulated amortization of $71, $142 and $189, respectively.............................. 219 148 101 -------- -------- -------- $619,607 $673,598 $705,189 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable......................................... $ 19,744 $ 41,711 $ 20,756 Distribution withholdings................................ 78,525 108,355 -- Amount due to related party (note 2)..................... 69,779 73,580 65,050 -------- -------- -------- Total current liabilities........................ 168,048 223,646 85,806 Stockholders' equity: Common stock, $1 par value, 30,000 shares authorized, 90 shares outstanding.................................... 90 90 90 Retained earnings........................................ 451,469 449,862 619,293 -------- -------- -------- Total stockholders' equity....................... 451,559 449,952 619,383 -------- -------- -------- $619,607 $673,598 $705,189 ======== ======== ========
See accompanying notes to financial statements. F-26 114 THE ENDOSCOPY CENTER, INC. STATEMENTS OF EARNINGS AND RETAINED EARNINGS
EIGHT MONTHS YEAR ENDED DECEMBER 31, ENDED AUGUST 31, ------------------------- ----------------------- 1995 1996 1996 1997 ----------- ----------- ---------- ---------- (UNAUDITED) Revenues...................................... $ 2,836,600 $ 3,122,033 $1,953,144 $2,090,308 Expenses: Salaries and benefits (note 2).............. 491,112 507,417 317,440 470,278 Supplies and other operating expenses....... 338,397 452,182 282,885 255,584 Rent expense (note 2)....................... 230,825 299,583 199,722 200,656 Bad debt expense............................ 168,029 56,335 35,243 44,503 ----------- ----------- ---------- ---------- Total expenses...................... 1,228,363 1,315,517 835,290 971,021 ----------- ----------- ---------- ---------- Net earnings........................ 1,608,237 1,806,516 1,117,854 1,119,287 Retained earnings, beginning of period........ 153,760 451,469 451,469 449,862 Distributions to stockholders................. (1,310,528) (1,808,123) (1,128,268) (949,855) ----------- ----------- ---------- ---------- Retained earnings, end of period.... $ 451,469 $ 449,862 $ 441,055 $ 619,294 =========== =========== ========== ==========
See accompanying notes to the financial statements. F-27 115 THE ENDOSCOPY CENTER, INC. STATEMENTS OF CASH FLOWS
EIGHT MONTHS YEAR ENDED DECEMBER 31, ENDED AUGUST 31, ------------------------- ------------------------- 1995 1996 1996 1997 ----------- ----------- ----------- ----------- (UNAUDITED) Cash flow from operations: Net earning............................... $ 1,608,237 $ 1,806,516 $ 1,117,854 $ 1,119,287 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of organization cost...... 71 71 47 47 Decrease (increase) in accounts receivable........................... (220,594) (38,136) 84,016 (32,213) Increase in supplies inventory......... (5,174) (2,133) (1,290) (733) Increase (decrease) in accounts payable.............................. (2) 21,967 42,685 (20,956) Increase (decrease) in amount due to related party........................ 33,559 3,801 193 (8,530) ----------- ----------- ----------- ----------- Net cash provided by operating activities...................... 1,416,097 1,792,086 1,243,505 1,056,902 ----------- ----------- ----------- ----------- Cash flows from investing activities: Stockholders' distribution................ (1,310,528) (1,808,123) (1,128,268) (949,855) Increase (decrease) in distribution withholdings........................... 78,525 29,830 (78,525) (108,355) Decrease in outstanding checks in excess of deposits............................ (4,731) -- -- -- ----------- ----------- ----------- ----------- Net cash used by financing activities...................... (1,236,734) (1,778,293) (1,206,793) (1,058,210) ----------- ----------- ----------- ----------- Net increase (decrease) in cash............. 179,363 13,793 36,712 (1,308) Cash, beginning of period................... -- 179,363 179,363 193,156 ----------- ----------- ----------- ----------- Cash, end of period......................... $ 179,363 $ 193,156 $ 216,075 $ 191,848 =========== =========== =========== ===========
See accompanying notes to the financial statements. F-28 116 THE ENDOSCOPY CENTER, INC. NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995 AND 1996 AND EIGHT MONTHS ENDED AUGUST 31, 1997 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Endoscopy Center Inc. ("TEC") began operations in 1994 and operates two gastrointestinal surgery centers in Independence and Kansas City, Missouri. TEC is owned by a group of stockholders which perform gastroenterology procedures at the centers through their related physician practice. a. Revenue Recognition Revenue consists of the billing for the use of TEC's facilities (the "usage fee") directly to the patient or third-party payor. The usage fee excludes amounts billed for physicians' services, which are billed separately by the physicians to the patient or third-party payor. Revenues are reported at the estimated net realizable amounts from patients, third-party payors and others, including Medicare and Medicaid. Such revenues are recognized as the related services are performed. Contractual adjustments resulting from agreements with various organizations to provide services for amounts which differ from billed charges, are recorded as deductions from patient service revenues. During the 1995, 1996 and 1997 periods, approximately 29%, 39% and 28%, respectively, of the Centers' revenues were provided to patients covered under Medicare and Medicaid. Amounts, which are determined to be uncollectible, are charged against the allowance for uncollectible accounts. b. Amortization Amortization of organization cost is provided on a straight-line basis over four years. c. Income Taxes TEC has elected Subchapter S status of the Internal Revenue Code, and accordingly, income taxes are the responsibility of the individual stockholders of TEC. Therefore, no provision for income taxes has been reflected by TEC. d. Management Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates. 2. RELATED PARTY TRANSACTIONS Both centers rent equipment and furniture and one center occupies space provided by an entity which is owned by the same group of stockholders which own TEC. Included in the statement of earnings and retained earnings is a charge of $156,571, $200,993, $133,995 and $133,587 for the years ended December 31, 1995 and 1996 and the eight months ended August 31, 1996 and 1997, respectively, related to these lease arrangements, which management believes reflects the fair value of space and rental items provided. In addition, the employees of TEC are leased from the related physician practice. Charges associated with this arrangement are reflected as salaries and benefits in the statements of earnings and retained earnings. 3. SUBSEQUENT EVENT Effective September 1, 1997, AmSurg Holdings, Inc. ("Holdings"), a subsidiary of AmSurg Corp. ("AmSurg") acquired from TEC a sixty percent ownership interest in the assets comprising the business operations of two gastrointestinal surgery centers. F-29 117 THE ENDOSCOPY CENTER, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Pursuant to the terms of the Asset Purchase Agreement, dated as of September 2, 1997, by and among Holdings, AmSurg and TEC, Holdings paid $5,652,205 in cash and AmSurg issued 280,367 shares of its common stock to TEC. Following the asset purchase, Holdings and TEC contributed their respective ownership in the assets of the centers into a newly formed limited liability company, The Independence ASC, LLC, and received proportionate membership therein. F-30 118 INDEPENDENT AUDITORS' REPORT Board of Directors and Shareholders AmSurg Corp. Nashville, Tennessee We have audited the consolidated financial statements of AmSurg Corp. (the "Company") as of December 31, 1995 and 1996 and for each of the three years in the period ended December 31, 1996, and have issued our report thereon dated February 21, 1997; such report is included elsewhere in this Form 10. Our audits also included the consolidated financial statement schedule of the Company, listed in Item 15. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Nashville, Tennessee February 21, 1997 S-1 119 SCHEDULE II AMSURG CORP. VALUATION AND QUALIFYING ACCOUNTS THREE YEARS ENDED DECEMBER 31, 1996
BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COSTS AND OTHER END OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD ---------- ---------- ---------- ---------- ---------- Year ended December 31, 1994: Allowance for Uncollectible Accounts included under balance sheet caption "Accounts receivable"......... $223,398 $ 525,025 $ 81,715(2) $529,735(1) $ 300,403 Year ended December 31, 1995: Allowance for Uncollectible Accounts included under balance sheet caption "Accounts receivable"......... $300,403 $ 694,078 $ 58,974(2) $597,827(1) $ 455,628 Year ended December 31, 1996: Allowance for Uncollectible Accounts included under balance sheet caption "Accounts receivable"......... $455,628 $1,227,315 $366,636(2) $776,928(1) $1,272,651
- --------------- (1) Charge-off against reserve. (2) Valuation of allowance for uncollectible accounts at the acquisition of AmSurg physician practice-based ambulatory surgery centers and physician practice. Between 51% and 70% was charged to excess of cost over net assets of purchased companies. See Note 2 of Notes to the Consolidated Financial Statements. S-2 120 INDEPENDENT AUDITORS' REPORT Board of Directors and Shareholders The Endoscopy Center of Ocala, Inc. Ocala, Florida We have audited the financial statements of The Endoscopy Center operations of The Endoscopy Center of Ocala, Inc. (the "Center") for the period from January 1, 1996 to August 21, 1996, and have issued our report thereon dated January 8, 1997; such report is included elsewhere in this Form 10. Our audit also included the financial statement schedule of the Center, listed in Item 15. This financial statement schedule is the responsibility of the Center's management. Our responsibility is to express an opinion based on our audit. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Nashville, Tennessee January 8, 1997 S-3 121 THE ENDOSCOPY CENTER OPERATIONS OF THE ENDOSCOPY CENTER OF OCALA, INC. SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS PERIOD FROM JANUARY 1, 1996 TO AUGUST 21, 1996
BALANCE AT CHARGED TO CHARGED BALANCE AT BEGINNING COSTS AND TO OTHER END OF OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD ---------- ---------- -------- ---------- ---------- Allowance for Uncollectible Accounts included under balance sheet caption "Accounts receivable"..................... $54,000 $21,032 $ -- $24,032(1) $51,000
- --------------- (1) Charge-off against reserve. S-4 122 INDEPENDENT AUDITORS' REPORT Board of Directors and Shareholders The Endoscopy Center, Inc. Independence, Missouri We have audited the financial statements of The Endoscopy Center, Inc. (the "Center") as of and for the years ended December 31, 1995 and 1996, and have issued our report thereon dated October 7, 1997; such report is included elsewhere in this Form 10. Our audit also included the financial statement schedule of the Center, listed in Item 15. This financial statement schedule is the responsibility of the Center's management. Our responsibility is to express an opinion based on our audit. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Nashville, Tennessee October 7, 1997 S-5 123 SCHEDULE II THE ENDOSCOPY CENTER -- INDEPENDENCE, MISSOURI VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1996 AND 1995
BALANCE AT CHARGED TO BALANCE AT BEGINNING COSTS AND END OF PERIOD EXPENSES DEDUCTIONS(1) OF PERIOD ---------- ---------- ------------- ---------- Year ended December 31, 1995: Allowance for Uncollectible Accounts included under balance sheet caption "Accounts receivable"................................... $ 59,811 $168,029 $ 31,032 $196,808 Year ended December 31, 1996: Allowance for Uncollectible Accounts included under balance sheet caption "Accounts receivable"................................... $196,808 $ 56,335 $ 92,995 $160,148
- --------------- (1) Charge-off against reserve. S-6 124 APPENDIX A AMENDED AND RESTATED DISTRIBUTION AGREEMENT This AMENDED AND RESTATED DISTRIBUTION AGREEMENT, dated as of November 3, 1997 (this "Amended and Restated Agreement"), by and between American Healthcorp, Inc., a Delaware corporation ("AHC"), and AmSurg Corp., a Tennessee corporation ("AmSurg"). W I T N E S S E T H WHEREAS, AHC currently owns approximately fifty-eight percent (58%) of the outstanding shares of common stock of AmSurg; WHEREAS, AmSurg has, since its inception, depended principally on AHC for its equity financing and has historically depended on AHC for debt financing; WHEREAS, the Board of Directors of AHC and the Board of Directors of AmSurg have determined that it is desirable for business reasons and in the best interests of AHC's and AmSurg's shareholders for AmSurg to have access to capital markets as an independent publicly traded company without the majority ownership of AHC; WHEREAS, subject to the terms and conditions hereof, AHC has agreed to distribute (the "Distribution") to the holders of AHC's common stock, par value $.001 per share (the "AHC Common Stock"), on a pro rata basis, all of the shares of common stock of AmSurg owned by AHC; WHEREAS, in order to facilitate the trading of the common stock of AmSurg following the Distribution, AmSurg intends to effect a reverse stock split (or a transaction having the effect of a reverse stock split) with respect to such shares of common stock; WHEREAS, in order to effect the Distribution as a substantially tax-free transaction under Section 355 of the Internal Revenue Code of 1986, as amended (the "Code"), AmSurg and AHC have agreed to exchange a portion of the shares of common stock of AmSurg currently owned by AHC for shares of a new class of common stock of AmSurg having a sufficient number of votes per share to give AHC the ability to distribute "control" within the meaning of Section 368(c) of the Code; WHEREAS, AHC and AmSurg have determined that it is necessary and desirable to set forth the principal corporate transactions required to effect the Distribution, and to set forth the agreements that will govern certain matters following the Distribution; WHEREAS, on March 7, 1997, AHC and AmSurg executed a Distribution Agreement and; WHEREAS, certain circumstances have made it necessary to amend certain provisions of the Agreement; NOW, THEREFORE, in consideration of the premises, and of the respective representations, warranties, covenants and agreements set forth herein, the parties hereto hereby amend and restate the Distribution Agreement and agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions. As used in this Agreement, the following terms shall have the following respective meanings: "common stock" with respect to AmSurg means any class of common stock of AmSurg now or hereafter authorized. "Exchange Act" means the Securities Exchange Act of 1934, as amended. A-1 125 "IRS" means the Internal Revenue Service. "IRS Ruling" means the letter ruling issued by the IRS in response to the Ruling Request. "Related Agreements" means the Exchange Agreement and the Management and Human Resources Agreement, attached hereto as Exhibits to this Agreement. "Ruling Request" means the private letter ruling request filed by AHC with the IRS on October 23, 1997, as supplemented and amended from time to time, with respect to certain tax matters relating to the Distribution. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Tax Opinions" means the legal opinions of Bass, Berry & Sims PLC and Sutherland, Asbill & Brennan with respect to certain tax matters relating to the Distribution. ARTICLE II RECAPITALIZATION, EXCHANGE AND DISTRIBUTION 2.1 Recapitalization, Exchange and Distribution. Subject to the satisfaction of the conditions set forth in Section 2.2 hereof, on the date established in accordance with Section 2.5 as the date on which the Distribution shall be effected (the "Distribution Date"): (a) AmSurg will undertake a recapitalization in accordance with Section 2.3 hereof (the "Recapitalization"); (b) Upon completion of the Recapitalization, AmSurg and AHC will effect an exchange of a portion of the shares of AmSurg common stock owned by AHC for shares of Class B Common Stock of AmSurg in accordance with Section 2.4 hereof (the "Exchange"); and (c) Upon completion of the Exchange, AHC will effect the Distribution in accordance with Section 2.5 hereof. 2.2 Conditions. The obligations of each of AHC and AmSurg to consummate the Recapitalization, the Exchange and the Distribution are subject to the fulfillment of each of the following conditions, unless otherwise waived in writing: (a) The IRS Ruling shall have been granted, or Tax Opinions rendered, in form and substance satisfactory to AHC, in its sole discretion; (b) A Registration Statement on Form 10 under the Exchange Act with respect to each class of common stock of AmSurg to be distributed in the Distribution shall have been declared effective by the SEC or shall otherwise have become effective under the Exchange Act; (c) The shares of each tradable class of common stock of AmSurg to be distributed in the Distribution shall have been approved for listing on a national securities exchange or for inclusion on the Nasdaq National Market or such other trading market as the parties may agree; (d) The Recapitalization and the Exchange shall have been approved by the holders of at least a majority of the voting power of the outstanding shares of capital stock of AmSurg at a meeting of the shareholders of AmSurg and, if dissenters' rights apply, holders of no more than 5% of the outstanding shares of common stock of AmSurg shall have indicated their intent to seek appraisal for their shares under the Tennessee Business Corporation Act; (e) The holders of the Series A Redeemable Preferred Stock and Series B Convertible Preferred Stock, without par value, of AmSurg shall have approved the modification and waiver of their rights to elect one director of AmSurg effected through the AmSurg Charter and the Shareholders' Agreement, dated as of April 2, 1992, as amended by Amendment No. 1 dated September 27, 1993 and Amendment A-2 126 No. 2, dated as of November 20, 1996, by and among AmSurg and the persons identified on the signature pages thereto as the Founding Investors, the Founding Management and the Preferred Stock Purchasers, in each case so as to permit AHC to distribute "control" within the meaning of Section 368(c) of the Code; (f) The Special Committee of the Board of Directors of AmSurg shall have received an opinion, acceptable to it, of J.C. Bradford & Co. as to the fairness, from a financial point of view, of the Recapitalization, Exchange and Distribution to shareholders of AmSurg other than AHC and such other opinions as may be deemed appropriate by such committee and such opinion or opinions shall not have been withdrawn; (g) The Board of Directors of AHC shall have received an opinion, acceptable to it, of Morgan Keegan & Co., Inc. as to the fairness, from a financial point of view, of the Recapitalization, the Exchange and the Distribution to the stockholders of AHC, a favorable opinion of Houlihan, Lokey, Howard & Zukin as to certain solvency issues and such other opinions as may be deemed appropriate by the Board of Directors of AHC and such opinions shall not have been withdrawn; (h) There shall be no proposed legislation or regulation introduced which, if adopted, would have the effect of amending the Code so as to alter in any materially adverse respect the substantially tax-free treatment of the Distribution under Section 355 of the Code or the classification of the Recapitalization and Exchange as a tax-free organization under Section 368(a)(1)(E) of the Code; (i) The matters set forth in Section 2.7(a), (c), (d), (e) and (f) shall have been approved by the shareholders of AmSurg; and (j) Any required waiting period applicable to the Exchange or the Distribution under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, shall have expired or otherwise terminated and AHC and AmSurg shall each have obtained such other consents and approvals of federal, state and local governmental authorities and other third parties as shall be deemed necessary or appropriate by the Boards of Directors of AHC and AmSurg in connection with the transactions contemplated hereby, and there shall be no suit or governmental proceeding pending or overtly threatened that would challenge the validity of or seek to enjoin the Recapitalization, the Exchange or the Distribution. 2.3 Recapitalization. The Recapitalization will be effected, subject to the satisfaction or waiver of the conditions set forth in Section 2.2 above, through an amendment to the Charter of AmSurg. The Recapitalization will: (a) reduce on a one for three basis the number of outstanding shares of common stock of AmSurg through a reverse stock split (or transaction having the effect of a reverse stock split), with the intention of permitting the shares of common stock of AmSurg distributed in the Distribution to trade at proportionately higher per share prices and thereby improving the trading markets for these shares in order to facilitate subsequent equity financings and acquisition transactions (the "Reverse Stock Split") and (b) authorize a new class of common stock (the "Class B Common Stock") having ten votes per share in the election and removal of directors so that, when exchanged for 4,787,131 of the shares of common stock of AmSurg then owned by AHC, AHC will own shares of common stock of AmSurg sufficient to constitute "control" within the meaning of Section 368(c) of the Code. The Reverse Stock Split will be accomplished by converting each three shares of common stock of AmSurg outstanding immediately prior to the Reverse Stock Split into a single share of a newly authorized class of common stock of AmSurg, denominated Class A Common Stock (the "Class A Common Stock"). Following the Recapitalization the only authorized classes of common stock will be Class A Common Stock and Class B Common Stock. Unless otherwise required by the IRS Ruling or the Tax Opinions, the Class A Common Stock and Class B Common Stock will have the terms substantially as set forth in the Amended and Restated Charter approved by the AmSurg Board of Directors on the date hereof. It is understood and agreed that the number of votes per share of Class B Common Stock is required to be sufficient to enable AHC to distribute, in the Distribution, "control" of AmSurg within the meaning of Section 368(c) of the Code, after giving effect to any anticipated issuances of capital stock of AmSurg on the exercise of stock options and any issuances in possible equity financing transactions and acquisitions, but that AmSurg shall not issue more shares of Class B Common Stock than are A-3 127 to be issued in the Exchange. The Recapitalization is intended to qualify for tax free treatment, for federal income tax purposes, under Section 368(a)(1)(E) of the Code. In connection with the Recapitalization, no changes will be made in any options to purchase shares of AmSurg common stock, except that the shares of common stock authorized or subject to outstanding options will become shares of Class A Common Stock, the number of shares authorized or subject to outstanding options will be reduced on a one for three basis, and the exercise price per share will be proportionately increased in the Reverse Stock Split in accordance with the provisions of the plans under which such options were granted. 2.4 Exchange. On or prior to the Distribution Date, AHC and AmSurg will enter into an Exchange Agreement in substantially the form approved by the AmSurg Board of Directors on the date hereof (the "Exchange Agreement"). Pursuant to the Exchange Agreement, on the Distribution Date, subject to the satisfaction or waiver of the conditions set forth in Section 2.2 above and the completion of the Recapitalization, (a) AHC will deliver to AmSurg 4,787,131 shares of Class A Common Stock of AmSurg held by AHC as provided in the Exchange Agreement and (b) AmSurg will deliver to AHC the same number of shares of Class B Common Stock. 2.5 Distribution. Subject to the satisfaction or waiver of the conditions set forth in Section 2.2 above and the completion of the Recapitalization and the Exchange, AHC will on the Distribution Date distribute to the AHC Holders (as hereinafter defined) all of the shares of Class A Common Stock and Class B Common Stock of AmSurg owned by AHC by delivering certificates for such shares to the transfer agent for the AHC Common Stock (the "Transfer Agent") for delivery to the AHC Holders. The Distribution shall be deemed to be effective upon notification by AHC to the Transfer Agent that the Distribution has been declared and is effective and that the Transfer Agent is authorized to proceed with the Distribution. No fractional shares shall be delivered to the AHC Holders in the Distribution. The shares that would otherwise be distributed as fractional shares to AHC Holders will be sold by the Transfer Agent on behalf of AHC Holders who would otherwise receive fractional shares and the proceeds of such sale will be paid to such AHC Holders in lieu of such fractional shares. The term "AHC Holders" means the holders of record of shares of AHC Common Stock on the date established by the Board of Directors of AHC as the record date for the Distribution (the "Distribution Record Date"). In connection with the Distribution, the exercise price of all outstanding options to purchase shares of AHC Common Stock and (if deemed appropriate by the Board of Directors of AHC or the committee of the Board of Directors of AHC administering such plans) the number of shares of AHC Common Stock underlying such options shall be adjusted to reflect the effect of the Distribution in accordance with the provisions of the plans under which such options were granted. 2.6 Certain Related Agreements. Effective upon the Distribution, AHC will enter into a Management and Human Services Agreement in substantially the form approved by the AmSurg Board of Directors on the date hereof, and AmSurg will assume all liabilities with respect to then current or former employees of AmSurg under employee benefit plans maintained by AHC as provided in such Management and Human Services Agreement. Following the Distribution, the Sublease Agreement between AHC and AmSurg will be continued in accordance with its terms. 2.7 Governance of AmSurg Following the Distribution. Prior to the Distribution, AHC and AmSurg will agree on (a) a slate of directors to be elected as the members of the Board of Directors of AmSurg effective upon the Distribution and any terms and classes for such directors as may be agreed upon by AHC and AmSurg, (b) the persons to be the executive officers of AmSurg effective upon the Distribution, (c) the terms of any amendments to the Charter of AmSurg (other than any amendments to the Charter necessary to implement the Recapitalization in accordance with Section 2.3 hereof and the amendments referred to in Section 2.2(e) hereof) to be effective upon the Distribution, (d) the terms of any amendments to the Bylaws of AmSurg to be effective upon the Distribution, (e) the terms of a new Employee Stock Incentive Plan to be effective upon the Distribution and (f) the terms of advisory services to be provided by each of Thomas G. Cigarran and Henry D. Herr for AmSurg to be effective following the Distribution. 2.8 Stock Incentive Plans and Agreements of AmSurg. AHC and AmSurg hereby agree that none of the transactions contemplated by this Distribution Agreement, including the Recapitalization, the Exchange and the Distribution, will constitute, individually or in the aggregate, a "change in control" under the terms of A-4 128 any stock incentive plan, stock incentive agreement, employment or severance agreement, or similar plan or agreement of AmSurg. ARTICLE III COVENANTS PRIOR TO THE DISTRIBUTION 3.1 Actions Prior to the Distribution. As promptly as practicable after the date hereof and prior to the Distribution Date: (a) AHC and AmSurg shall prepare, and shall file with the SEC, an amendment to the AmSurg Registration Statement on Form 10 under the Exchange Act, which shall set forth appropriate disclosure concerning AmSurg, the Distribution and certain other matters. The Registration Statement on Form 10, as amended, shall also serve as an Information Statement with respect to the Distribution to be delivered to the AHC Holders. (b) AHC and AmSurg shall cooperate in preparing, filing with the SEC and causing to become effective any registration statements or amendments thereto which are appropriate to reflect the establishment of, or amendments to, any employee benefit and other plans contemplated by this Agreement. (c) AHC and AmSurg shall take all such action as may be necessary or appropriate under state securities or "Blue Sky" laws in connection with the transactions contemplated by this Agreement. (d) AmSurg shall prepare and file and seek to make effective, an application to permit the inclusion on The Nasdaq Stock Market's National Market or the listing on a national securities exchange of each class of common stock of AmSurg to be distributed in the Distribution; provided, however, that no class that cannot by its terms be traded shall be required to be so included or listed. (e) AmSurg shall duly call and hold a meeting of its shareholders, and shall prepare and deliver to its shareholders a proxy statement with respect to such meeting, to approve the terms of the Recapitalization, the matters referred to in Section 2.7(a), (c), (d), (e) and (f) hereof and any other matters requiring approval in connection with the transactions contemplated by this Agreement. (f) In addition to the actions specifically provided for elsewhere in this Agreement, each of the parties hereto shall use its reasonable best efforts to take or cause to be taken, all actions, and to do, or cause to be done, all things reasonably necessary, proper or advisable under applicable laws, regulations and agreements to consummate and make effective the transactions contemplated by this Agreement, including, without limitation, using its best efforts to obtain the consents and approvals to enter into any amendatory agreements and to make the filings and applications necessary or desirable to have been obtained, entered into or made in order to consummate the transactions contemplated by this Agreement. 3.2 Amendment to AmSurg Documents. In order to better prepare itself for becoming a publicly traded company, AmSurg may amend or establish new employee benefit plans and amend or adopt other corporate documents as the Board of Directors of AmSurg may deem reasonably necessary or appropriate, subject to shareholder approval if necessary. AHC, as a shareholder of AmSurg, shall vote in favor of any such actions submitted to shareholders of AmSurg to the extent that AHC agrees that such actions are necessary or appropriate for AmSurg as an independent public company. 3.3 Agreement to Vote. AHC, in its capacity as a shareholder of AmSurg, hereby agrees to vote all shares of capital stock of AmSurg owned by AHC in favor of the Recapitalization, the matters referred to in Section 2.7(a), (c), (d), (e) and (f) and, subject to Section 3.2 above, any other matters requiring the approval of the shareholders of AmSurg in connection with the transactions contemplated by this Agreement. A-5 129 ARTICLE IV COVENANTS FOLLOWING THE DISTRIBUTION 4.1 Compliance with IRS Ruling or Tax Opinions. Following the Distribution, each of AHC and AmSurg shall, and shall use its best efforts to cause each of its respective affiliates and subsidiaries to, comply with each representation and statement made, or to be made, to any taxing authority in connection with the IRS Ruling or Tax Opinions or any other ruling or tax opinion obtained, or to be obtained, by AmSurg and AHC acting together, from the IRS or any other taxing authority or law firm with respect to any transaction contemplated by this Agreement. 4.2 Provision of Corporate Records. Except as may otherwise be provided in a Related Agreement, AHC shall arrange as soon as practicable following the Distribution Date, to the extent not previously delivered in connection with the transactions contemplated herein, for the transportation to AmSurg of the AmSurg Books and Records (as hereinafter defined) in its possession except to the extent such items are already in the possession of AmSurg or any of its subsidiaries. The AmSurg Books and Records shall be the property of AmSurg, but shall be available to AHC for review and duplication as is reasonably necessary until AHC shall notify AmSurg in writing that such records are no longer of use to AHC. "AmSurg Books and Records" means the books and records (including computerized records) of AmSurg and its subsidiaries and any other books and records of AHC or its subsidiaries which relate principally to the business of AmSurg and its subsidiaries, are necessary to conduct the business of AmSurg and its subsidiaries, or are required by law to be retained by AmSurg or its subsidiaries, including, without limitation, all such books and records relating to AmSurg employees, original corporate minute books, stock ledgers and certificates and corporate seals, and all licenses, leases, agreements and filings, relating to AmSurg or its subsidiaries or their businesses. 4.3 Access to Information. Except as otherwise provided in a Related Agreement, from and after the Distribution Date, AHC shall afford to AmSurg and its authorized accountants, counsel and other designated representatives reasonable access (including using reasonable efforts to give access to persons or firms possessing information) and duplicating rights during normal business hours to all records, books, contracts, instruments, computer data and other data and information relating to pre-Distribution operations (collectively, "Information") within AHC's possession insofar as such access is reasonably required by AmSurg for the conduct of its business, subject to appropriate restrictions for classified or privileged information. Similarly, except as otherwise provided in a Related Agreement, AmSurg shall afford to AHC and its authorized accountants, counsel and other designated representatives reasonable access (including using reasonable efforts to give access to persons or firms possessing information) and duplicating rights during normal business hours to Information within AmSurg's possession, insofar as such access is reasonably required by AHC for the conduct of its business, subject to appropriate restrictions for classified or privileged information. Information may be requested under this Article IV for the legitimate business purposes of either party, including without limitations, audit, accounting, claims, litigation and tax purposes, as well as for purposes of fulfilling disclosure and reporting obligations and for performing this Agreement and transactions contemplated hereby. 4.4 Production of Witnesses. At all times from and after the Distribution Date, each of AmSurg and AHC shall use reasonable efforts to make available to the other, upon written request, its and its subsidiaries' officers, directors, employees and agents as witnesses to the extent that such persons may reasonably be required in connection with any legal, administrative or other proceedings in which the requesting party may be involved. 4.5 Retention of Records. Except as otherwise required by law or agreed to in a Related Agreement or otherwise in writing, each of AmSurg and AHC may destroy or otherwise dispose of any of the Information at any time after the seventh anniversary of this Agreement. Notwithstanding the foregoing, either party may destroy or dispose of such Information at any time if prior to such destruction or disposal, (a) it shall provide no less than 90 or more than 120 days prior written notice to the other, specifying in reasonable detail the Information proposed to be destroyed or disposed of and (b) if a recipient of such notice shall request in writing prior to the scheduled date for such destruction or disposal that any of the Information proposed to be destroyed or disposed of be delivered to such requesting party, the party proposing the destruction or disposal A-6 130 shall promptly arrange for the delivery of such of the Information as was requested at the expense of the party requesting such Information. 4.6 Confidentiality. Each party shall hold, and shall cause its officers, employees, agents, consultants and advisors to hold, in strict confidence, unless compelled to disclose by judicial or administrative process or, in the opinion of its counsel, by other requirements of law, all non-public Information concerning the other party furnished it by such other party or its representatives pursuant to this Agreement (except to the extent that such Information can be shown to have been (a) available to such party on a non-confidential basis prior to its disclosure by the other party, (b) in the public domain through no fault of such party or (c) later lawfully acquired from other sources by the party to which it was furnished), and each party shall not release or disclose such Information to any other person, except its auditors, attorneys, financial advisors, bankers and other consultants and advisors who agree to be bound by the provisions of this Section 4.6. Each party shall be deemed to have satisfied its obligation to hold confidential Information concerning or supplied by the other party if it exercises the same care as it takes to preserve confidentiality for its own similar confidential Information. 4.7 Indemnification. From and after the Distribution Date, except as otherwise provided in any Related Agreement, (a) AHC will indemnify and hold AmSurg harmless from and against all liabilities with respect to the business and assets of AHC and its subsidiaries (other than AmSurg and its subsidiaries) whether arising before or after the Distribution Date, other than liabilities arising out of the gross negligence or fraud of AmSurg and (b) AmSurg will indemnify and hold AHC harmless from and against all liabilities with respect to the business and assets of AmSurg and its subsidiaries, whether arising before or after the Distribution Date, other than liabilities arising out of the gross negligence or fraud of AHC. ARTICLE V MISCELLANEOUS AND GENERAL 5.1 Termination; Modification or Amendment. This Agreement may be terminated and the transactions contemplated hereby abandoned at any time prior to the Recapitalization by mutual agreement of AmSurg and AHC. In the event of such termination, no party shall have any liability of any kind to any other party. The parties hereto may modify or amend this Distribution Agreement by written agreement executed and delivered by authorized officers of the respective parties. 5.2 Counterparts. For the convenience of the parties hereto, this Agreement may be executed in any number of separate counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement. 5.3 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to transactions occurring solely within the State of Delaware. 5.4 Notices. Any notice, request, instruction or other document to be given hereunder by any party to the other shall be in writing and shall be deemed to have been duly given (i) on the date of delivery if delivered by facsimile (upon confirmation of receipt) or personally, (ii) on the first business day following the date of dispatch if delivered by Federal Express or other next-day courier service, or (iii) on the third business day following the date of mailing if delivered by registered or certified mail; return receipt requested, postage prepaid. All notices hereunder shall be delivered as set forth below, or pursuant to such other instructions as may be designated in writing by the party to receive such notice: (a) If to AHC: American Healthcorp, Inc. One Burton Hills Boulevard Nashville, Tennessee 37215 Attention: Thomas G. Cigarran A-7 131 with a copy to: James H. Cheek, III Bass, Berry & Sims PLC 2700 First American Center Nashville, TN 37238 (b) If to AmSurg: AmSurg Corp. One Burton Hills Boulevard Nashville, Tennessee 37215 Attention: Ken P. McDonald with a copy to: Byron R. Trauger Doramus, Trauger & Ney 222 Fourth Avenue North Nashville, Tennessee 37219 5.5 Captions. All section captions herein are for convenience of reference only, do not constitute part of this Agreement and shall not be deemed to limit or otherwise affect any of the provisions hereof. 5.6 Assignment. This Agreement and all the provisions hereof shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by either party without the prior written consent of the other party and any such assignment of obligation shall relieve the assigning party from its responsibility hereunder. Except as expressly otherwise provided herein, nothing contained in this Agreement or the agreements referred to herein is intended to confer on any person or entity other than the parties hereto and their respective successors and permitted assigns any benefit, rights or remedies under or by reason of this Agreement and such other agreements. 5.7 Further Assurances. AHC and AmSurg will do such additional things as are necessary or proper to carry out and effectuate the intent of this Agreement or any part hereof or the transactions contemplated hereby. 5.8 Expenses. Each party will bear its own expenses in connection with the transactions contemplated by this Agreement; provided, however, that (a) AHC and AmSurg will share equally the costs of (i) preparing and amending the Registration Statement on Form 10, (ii) preparing the Distribution Agreement and Related Agreements and (iii) preparing the SEC no-action letter; (b) AmSurg will be responsible for the costs of (i) preparing and, as required, filing any charter amendment or merger required to effect the Recapitalization, (ii) preparing, printing (or reproducing) and mailing a proxy statement for purposes of soliciting the votes of shareholders of AmSurg in order to effect the Recapitalization and to obtain any other required approvals of the shareholders of AmSurg, (iii) listing or other inclusion of the shares of AmSurg common stock on the Nasdaq National Market or on a national securities exchange, (iv) the SEC's registration fees, (v) any required registration or qualification of any shares of AmSurg common stock under state Blue Sky and securities laws, (vi) the preparation of stock certificates for the shares of AmSurg common stock to be distributed in connection with the Recapitalization, the Exchange and the Distribution, (vii) the fees and expenses of J.C. Bradford & Co., (viii) the fees of Doramus, Trauger & Ney and, with respect to services performed on behalf of AmSurg, Bass, Berry & Sims PLC, (ix) preparing and auditing the separate financial statements of AmSurg and its consolidated subsidiaries and (x) obtaining any governmental or third party consents or approvals required to be obtained on the part of AmSurg in connection with the transactions contemplated by this Agreement; and (c) AHC will be responsible for the costs of (i) preparing the Ruling Request and, if applicable, the Tax Opinions, (ii) printing (or reproducing) and mailing the Information Statement included in the Registration Statement on Form 10 to AHC Holders, (iii) the fees and expenses of the Transfer Agent in connection with the Distribution, (iv) the fees and expenses of Morgan Keegan & Co., A-8 132 Inc. and Houlihan, Lokey, Howard & Zukin, (v) the fees and expenses of Bass, Berry & Sims PLC with respect to services performed on behalf of AHC, (vi) preparing and auditing the financial statements of AHC and its consolidated subsidiaries (except for the separate financial statements of AmSurg and its consolidated subsidiaries as provided in clause (b)(ix) above) and (vii) obtaining any governmental or third party consents or approvals required to be obtained on the part of AHC in connection with the transactions contemplated by this Agreement. 5.9 Dispute Resolution. (a) Submission of Disputes to Arbitration. Any claims, demands, disputes, differences, controversies, and/or misunderstandings arising under, out of, or in connection with, or in relation to this Agreement (collectively, a "Dispute"), shall be settled by submission of such Dispute (if not theretofore resolved by the parties hereto) within 45 days of assertion to arbitration in accordance with the provisions of this Section 5.9 and the Commercial Arbitration Rules of the American Arbitration Association. (b) Selection of Arbitrators. (i) The parties may agree upon one arbitrator whose decision will be final and binding on them; otherwise there shall be three arbitrators, with one named in writing by each party and the third chosen by these two arbitrators (without necessary delay), and the decision in writing signed by those assenting thereto of any two of the arbitrators shall be final and binding on the parties. (ii) No one shall be nominated or act as an arbitrator who is in any way financially interested in this Agreement or in the business of either party hereto. (c) Consent to Jurisdiction. Any and all arbitrations shall take place pursuant to the laws of the State of Delaware, and consent is hereby given to jurisdiction of courts of the State of Delaware over the parties to this Agreement in reference to any matter arising out of arbitration or this Agreement, including but not limited to confirmation of any award and enforcement thereof by entry of judgment thereon or by any other legal remedy. (d) Costs of Arbitration. The cost of any arbitration (including the fees of the arbitrator or arbitrators) pursuant to this Agreement shall be borne equally by each party to the Dispute, unless otherwise determined by the arbitrator or arbitrators. IN WITNESS WHEREOF, this Amended and Restated Agreement has been duly executed and delivered by the duly authorized officers of the parties hereto as of the date first hereinabove written. AMERICAN HEALTHCORP, INC. By: ------------------------------------ Name: Henry D. Herr Title: Executive Vice President AMSURG CORP. By: ------------------------------------ Name: Claire M. Gulmi Title: Senior Vice President A-9 133 APPENDIX B [J.C. Bradford Letterhead] November 3, 1997 Special Committee of the Board of Directors AmSurg Corp. One Burton Hills Boulevard Suite 350 Nashville, TN 37215 Gentlemen: You have requested our opinion as to the fairness, from a financial point of view, to the holders of the outstanding common stock, par value $0.01 per share of AmSurg Corp. (the "Company" or "AmSurg"), other than American Healthcorp, Inc. ("AHC") (such shareholders being collectively referred to herein as the "Unaffiliated Shareholders"), of the proposed recapitalization (the "Recapitalization") and proposed exchange (the "Exchange") of the AmSurg common stock, and the proposed distribution (the "Distribution") to the holders of AHC common stock, par value $0.001 per share (the "AHC Common Stock") of all the outstanding AmSurg common stock owned by AHC. For purposes of this opinion, we have assumed that the draft Distribution Agreement in the form previously provided to us will not vary in any material respect from the Distribution Agreement to be signed by the parties thereto. The Recapitalization provides for, among other things, the conversion of all shares of AmSurg common stock into shares of newly-issued AmSurg Class A common stock, no par value (the "Class A Common Stock"), which will reduce on a 1 for 3 basis the number of outstanding shares of common stock of AmSurg through a reverse stock split (the "Reverse Stock Split"). Immediately following the Reverse Stock Split, AHC will exchange 4,787,131 shares of Class A Common Stock for 4,787,131 shares of Class B common stock, no par value (the "Class B Common Stock" and, together with the Class A Common Stock, the "AmSurg Common Stock"). The purposes for the Exchange are to increase the voting power of AHC in AmSurg prior to the Distribution to the extent required in order for the Distribution to qualify for substantially tax-free treatment for federal income tax purposes and to have, to the extent possible, an equal number of shares of each class of AmSurg Common Stock available to trade in the public markets. The shares of Class A Common Stock will have one vote per share on all matters, while the shares of Class B Common Stock will have 10 votes per share on the election or removal of directors of AmSurg and one vote per share on all other matters. The shares of Class A Common Stock and Class B Common Stock will be entitled to share ratably in any dividends other than dividends payable solely with respect to AmSurg preferred stock. In all other respects, the Class A Common Stock and Class B Common Stock will be identical. No further shares of Class B Common Stock will be issued following the Distribution. In the Distribution, each holder of AHC Common Stock on the Distribution Record Date will receive a dividend of approximately 9.21 shares of AmSurg Class A Common Stock and approximately 59.36 shares of AmSurg Class B Common Stock for every 100 shares of AHC Common Stock owned by such holder on the Distribution Record Date, with cash being paid in lieu of fractional interests in a share of AmSurg Common Stock. [J.C. Bradford Address] B-1 134 J.C. Bradford & Co., as part of its investment banking business, engages in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements, and valuations for estate, corporate, and other purposes. We have acted as financial advisor to the Special Committee of the Board of Directors of AmSurg in connection with the proposed Recapitalization, Exchange and Distribution and will receive a fee from the Company for our services. In addition, the Company has agreed to indemnify us for certain liabilities arising out of the rendering of this opinion. In conducting our analyses and arriving at our opinion, we have considered such financial and other information as we deemed appropriate including, among other things, the following: (i) the proposed terms of the Recapitalization, Exchange and Distribution; (ii) the historical and current financial position and results of operations of AHC as set forth in its periodic reports and proxy materials filed with the Securities and Exchange Commission; (iii) the audited financial statements of AmSurg for the fiscal years ended December 31, 1992, 1993, 1994, 1995 and 1996, as contained in the Information Statement; (iv) certain internal operating data and financial analyses, including forecasts of AmSurg for the years beginning January 1, 1997 and ending December 31, 2001, which assume no future changes in accounting principles which would have a material effect on AmSurg's financial statements; (v) the past and current business, financial condition and prospects of AmSurg and AHC as discussed with certain senior officers of AmSurg and AHC; (vi) certain financial, operating and securities trading data of certain other public companies that we believed to be comparable to AmSurg or relevant to the transaction, with such information taken from individual companies' annual reports, SEC Forms 10-K and 10-Q; (vii) the financial terms of certain other transactions that we believed to be relevant; (viii) data relating to public companies with two classes of stock, including an analysis of float of the classes, historical price and volume data, data relating to voting rights of the stocks, and data relating to economic differences in the classes, such as different dividend rights; (ix) reported price and trading activity for the shares of AHC Common Stock; (x) a draft of the Information Statement included in the Registration Statement on Form 10, as amended, for the AmSurg Common Stock filed with the Securities and Exchange Commission; (xi) the tax ruling request, as supplemented, to the Internal Revenue Service from AHC and AmSurg; and (xii) such other financial studies, analyses, and investigations as we deemed appropriate for purposes of our opinion. We have taken into account our assessment of general economic, market, and financial and other conditions and our experience in other transactions, as well as our experience in securities valuation and our knowledge of the industries in which AmSurg and AHC operate generally. Our opinion is necessarily based upon the information made available to us and conditions as they exist and can be evaluated as of the date hereof. We have relied upon the accuracy and completeness of all of the financial and other information reviewed by us for purposes of our opinion and have not assumed any responsibility for, nor undertaken an independent verification of, such information. With respect to the internal operating data and financial analyses and forecasts supplied to us, we have assumed that such data, analyses, and forecasts were reasonably prepared on bases reflecting the best currently available estimates and judgments of AmSurg's and AHC's respective senior management as to the recent and likely future performance of their respective companies. Accordingly, we express no opinion with respect to such analyses or forecasts or the assumptions on which they are based. Also, we have not conducted a physical inspection of all of the properties and facilities of AmSurg and AHC, and we have not made an independent evaluation or appraisal of the assets and liabilities of AmSurg and AHC or any of their respective subsidiaries or affiliates and have not been furnished with any such evaluation or appraisal. AmSurg is entitled to reproduce this opinion, in whole or in part, in its Form 10 filed with the Securities and Exchange Commission and in any proxy statement circulated in connection with the Recapitalization, Exchange and Distribution as required by applicable law or as may be appropriate; provided, that any excerpt from or reference to this opinion (including any summary thereof) in such document must be approved by us in advance in writing. Notwithstanding the foregoing, this opinion does not constitute a recommendation to any holder of shares of AmSurg common stock to vote in favor of the Recapitalization, Exchange and Distribution. We were engaged by the Special Committee of the Board of Directors of AmSurg to render this B-2 135 opinion, upon the Special Committee's request, in connection with the discharge of its fiduciary obligations and understand and consent to the fact that the AmSurg Board of Directors has received copies of this Opinion and is entitled to rely upon it in connection with the discharge of its fiduciary duties. We have advised the Special Committee of the Board of Directors that we do not believe that any person (including a shareholder of the Company) other than the Special Committee of the Board of Directors and the Board of Directors has the legal right to rely upon this opinion for any claim arising under state law and that, should any such claim be brought against us, this assertion will be raised as a defense. In the absence of governing authority, this assertion will be resolved by the final adjudication of such issue by a court of competent jurisdiction. Resolution of this matter under state law, however, will have no effect on the rights and responsibilities of any person under the federal securities laws or on the rights and responsibilities of AmSurg's Board of Directors under applicable state law. Based upon and subject to the foregoing, and based upon such other matters as we consider relevant, it is our opinion that, as of the date hereof, the Recapitalization, Exchange and Distribution are fair to the Unaffiliated Shareholders from a financial point of view. Sincerely, /s/ J.C. BRADFORD & CO. -------------------------------------- J.C. BRADFORD & CO. B-3 136 MORGAN KEEGAN - -------------------------------------------------------------------------------- MORGAN KEEGAN & COMPANY, INC. MORGAN KEEGAN TOWER FIFTY FRONT STREET MEMPHIS, TENNESSEE 38103 901/524-4100 TELEX 69-74324 WATS 800/368-7426 MEMBERS NEW YORK STOCK EXCHANGE, INC. APPENDIX C October 31, 1997 The Board of Directors American Healthcorp, Inc. One Burton Hills Boulevard Nashville, TN 37215 Gentlemen: We have acted as financial advisor to American Healthcorp, Inc., a Delaware corporation ("AHC"), in connection with the proposed recapitalization (the "Recapitalization") of the common stock of AmSurg Corp., a Tennessee Corporation ("AmSurg"), the proposed exchange of a portion of the shares of AmSurg Class A common stock, no par value (the "Class A Common Stock"), currently owned by AHC for shares of AmSurg Class B common stock, no par value (the "Class B Common Stock") and the proposed distribution (the "Distribution") to the holders of AHC common stock, par value $0.001 per share (the "AHC Common Stock"), of an aggregate of 743,000 shares of AmSurg Class A Common Stock and all the outstanding shares of AmSurg Class B Common Stock, estimated to be 4,787,131 shares of such stock. We have been advised that the purposes of the Recapitalization, the Exchange and the Distribution are as set forth in the Information Statement proposed to be sent to the stockholders of AHC, a draft of which has been furnished to us. The Recapitalization, the Exchange and the Distribution are described more fully in such Information Statement. You have requested our opinion as to whether the Recapitalization, the Exchange and the Distribution are fair to the holders of AHC Common Stock from a financial point of view. We have assumed that the Distribution will be substantially tax-free to AHC and its stockholders as set forth in the Information Statement. We have not been asked to, and do not, express any opinion as to the valuation, future performance or long-term viability of either of AmSurg or AHC as an independent public company following any of the Recapitalization, the Exchange or the Distribution. This opinion does not opine on or give any assurance of the prices at which the shares of AHC Common Stock, AmSurg Class A Common Stock, or AmSurg Class B Common Stock will actually trade after the Distribution. In connection with our review of the Recapitalization, the Exchange and the Distribution, and in arriving at our opinion, we have, among other things: (i) reviewed the publicly available consolidated financial statements of AHC and certain other relevant financial and operating data of AHC made available to us from published sources and by officers of AHC; (ii) reviewed the financial statements of AmSurg contained in the Information Statement; (iii) reviewed certain internal financial and operating information, including certain projections, relating to AHC and AmSurg prepared by the managements of AHC and AmSurg, respectively; (iv) discussed the business, financial condition and prospects of AHC with certain officers of AHC; (v) discussed the business, financial condition and prospects of AmSurg with certain officers of AHC and AmSurg; (vi) reviewed the financial terms of the Recapitalization, the Exchange and the Distribution; C-1 137 (vii) reviewed the financial terms, to the extent publicly available, of certain transactions we deemed relevant; (viii) reviewed certain publicly available information relating to certain companies we deemed appropriate in analyzing AHC and AmSurg; (ix) reviewed the trading history of AHC Common Stock; (x) reviewed a draft, dated October 20, 1997, of the Information Statement to be included in the Registration Statement on Form 10, as amended, for the AmSurg Common Stock to be filed with the Securities and Exchange Commission (the "Information Statement") ; (xi) performed such other analyses and examinations and considered such other information, financial studies, analysis and investigations and financial, economic and market data as we deemed relevant. We have not independently verified any of the information concerning AHC or AmSurg considered in connection with our review of the Recapitalization, the Exchange and the Distribution and, for purposes of the opinion set forth herein, we have assumed and relied upon the accuracy and completeness of all such information. With respect to the financial forecasts and projections made available to us and used in our analysis, we have assumed that they have been reasonably prepared on bases reflecting the best currently available estimates and judgments of the managements of AHC and AmSurg as to the expected future financial performance of their respective companies. In our analysis, we considered the financial aspects of certain alternatives available to AHC, including the sale of certain of AHC's subsidiaries to an unaffiliated purchaser, the sale of all or a portion of AmSurg to the public through an initial public offering, and the continuance of AmSurg as an AHC subsidiary. Our opinion is necessarily based upon market, economic, financial and other conditions as they exist on, and can be evaluated as of, the date of this letter. Any change in such conditions would require a reevaluation of this opinion. In connection with our opinion, we have assumed that the Recapitalization, the Exchange and the Distribution will be consummated on the terms and subject to the conditions described in the Information Statement. We have also assumed that all necessary governmental and regulatory approvals and third-party consents will be obtained on terms and conditions that will not have a material adverse effect on AHC or AmSurg. Morgan Keegan & Company, Inc., as part of its investment banking services, is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, corporate restructurings, strategic alliances, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. We have acted as financial advisor to the Board of Directors of AHC in connection with the Recapitalization, the Exchange and the Distribution and will receive a fee for our services. Morgan Keegan & Company, Inc. may act as a market maker and broker in AHC and AmSurg Common Stock following the Distribution. This letter and the opinion stated herein are solely for the use of AHC's Board of Directors and may not be reproduced, summarized, excerpted from or otherwise publicly referred to in any manner without our prior written consent. Based upon and subject to the foregoing and such other matters as we deem relevant, we are of the opinion that as of the date hereof, the Recapitalization, the Exchange and the Distribution are fair to the holders of AHC Common Stock from a financial point of view. We hereby consent to the inclusion of the full extent of our opinion and a summary thereof in the Registration Statement on Form 10 for AmSurg and the Information Statement and to references to our name therein. Sincerely, /s/ MORGAN KEEGAN & COMPANY, INC. -------------------------------------- Morgan Keegan & Company, Inc. C-2 138 PART II. RECENT SALES OF UNREGISTERED SECURITIES During the period beginning February 1, 1994 and ending September 30, 1997, AmSurg has issued the following securities: (A) At various times since February 1, 1994, AmSurg has sold an aggregate of 2,415,388 shares of common stock to certain founding stockholders and AHC for per share stock prices ranging from $2.94 to $5.37. These purchases were primarily used to fund the continued operations of AmSurg, including acquisitions and development of surgery centers during that period. On February 26, 1996, AHC exercised warrants issued to it by AmSurg for the purchase of 85,906 shares of AmSurg common stock at a per share exercise price of $2.70. The warrants were issued in consideration for AHC's guaranty of AmSurg debt. (B) At various times since February 1, 1994, AmSurg has granted options to purchase shares of AmSurg common stock to various employees and directors. Options to purchase 4,417 shares of AmSurg common stock were exercised in 1996 and 1997 at per share prices ranging from $2.52 to $4.68. (C) At various times since February 1, 1994, AmSurg has sold an aggregate of 1,531,608 shares of common stock to physician practices and individual physicians as partial consideration in connection with the acquisitions of surgery centers and in private placements to physician partners in connection with the development of surgery centers. The per share prices of these sales ranged from $2.94 to $6.72. (D) On November 20, 1996, AmSurg sold an aggregate of 500,000 shares of Series A Preferred Stock and 416,666 shares of Series B Preferred Stock to three investors in a private placement. The per share price for the Series A Preferred Stock and Series B Preferred Stock was $6.00 for an aggregate sale price of $5,500,000. (E) On March 14, 1997, AmSurg sold an aggregate of 8,460 shares of common stock to Steven I. Geringer, a newly elected director, at a per share price of $6.15. The shares described above were issued without registration under the Securities Act in reliance upon the exemptions from registration afforded by Section 4(2) of the Securities Act and Regulation D of the Securities Act. Reference is made to "THE DISTRIBUTION -- The Exchange" regarding shares of AmSurg Common Stock to be issued in connection with the Reverse Stock Split and the Exchange. The issuance of shares of Class A Common Stock in the Reverse Stock Split and the Exchange will occur without registration under the Securities Act in reliance upon the exemption from registration afforded by Section 3(a)(9) of the Securities Act. II-1 139 SIGNATURE Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to registration statement to be signed on its behalf by the undersigned, thereunto duly authorized. AMSURG CORP. By: /s/ KEN P. MCDONALD ------------------------------------ Name: Ken P. McDonald Title: President Date: November 3, 1997 II-2 140 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - -------- ----------- (2.1) -- Amended and Restated Distribution Agreement (2.2) -- Exchange Agreement (3.1) -- Amended and Restated Charter of AmSurg (3.2) -- Amended and Restated Bylaws of AmSurg *(4.1) -- Specimen certificate representing the Class A Common Stock (4.2) -- Specimen certificate representing the Class B Common Stock *(4.3) -- Form of Stockholders' Agreement between AmSurg and certain investors *(4.4) -- Preferred Stock Purchase Agreement dated as of November 20, 1996 by and among AmSurg, Electra Investment Trust P.L.C., Capitol Health Partners, L.P. and Michael E. Stephens. (10.1) -- Form of Management and Human Resources Agreement between AmSurg and AHC *(10.2) -- Registration Agreement, dated April 2, 1992, as amended November 30, 1992, and November 20, 1996 among AmSurg and certain named investors therein *(10.3) -- Form of Indemnification Agreement with directors, executive officers and advisors (10.4) -- Second Amended and Restated Loan Agreement dated as of April 15, 1997 among AmSurg, SunTrust Bank, Nashville, N.A., and NationsBank of Tennessee, N.A., as amended on May 6, 1997 and on September 2, 1997 *(10.5) -- Sublease dated as of June 9, 1996 between AHC and AmSurg *(10.6) -- Letter Agreement dated as of December 31, 1996 between AmSurg and AHC *(10.7) -- 1992 Stock Option Plan *(10.8) -- 1997 Stock Incentive Plan *(10.9) -- Form of Employment Agreement with executive officers *(10.10) -- Form of Advisory Agreement with Thomas G. Cigarran and Henry D. Herr (10.11) -- Agreement dated as of April 11, 1997 between AmSurg and Rodney H. Lunn (10.12) -- Agreement dated as of April 11, 1997 between AmSurg and David L. Manning (21.1) -- Subsidiaries of AmSurg *(27.1) -- Financial Data Schedule *(27.2) -- Financial Data Schedule (27.3) -- Financial Data Schedule
- --------------- * Previously filed. EX-2.1 2 AMENDED AND RESTATED DISTRIBUTION AGREEMENT 1 Exhibit 2.1 AMENDED AND RESTATED DISTRIBUTION AGREEMENT This AMENDED AND RESTATED DISTRIBUTION AGREEMENT, dated as of November 3, 1997 (this "Amended and Restated Agreement"), by and between American Healthcorp, Inc., a Delaware corporation ("AHC"), and AmSurg Corp., a Tennessee corporation ("AmSurg"). W I T N E S S E T H WHEREAS, AHC currently owns approximately fifty-eight percent (58%) of the outstanding shares of common stock of AmSurg; WHEREAS, AmSurg has, since its inception, depended principally on AHC for its equity financing and has historically depended on AHC for debt financing; WHEREAS, the Board of Directors of AHC and the Board of Directors of AmSurg have determined that it is desirable for business reasons and in the best interests of AHC's and AmSurg's shareholders for AmSurg to have access to capital markets as an independent publicly traded company without the majority ownership of AHC; WHEREAS, subject to the terms and conditions hereof, AHC has agreed to distribute (the "Distribution") to the holders of AHC's common stock, par value $.001 per share (the "AHC Common Stock"), on a pro rata basis, all of the shares of common stock of AmSurg owned by AHC; WHEREAS, in order to facilitate the trading of the common stock of AmSurg following the Distribution, AmSurg intends to effect a reverse stock split (or a transaction having the effect of a reverse stock split) with respect to such shares of common stock; WHEREAS, in order to effect the Distribution as a substantially tax-free transaction under Section 355 of the Internal Revenue Code of 1986, as amended (the "Code"), AmSurg and AHC have agreed to exchange a portion of the shares of common stock of AmSurg currently owned by AHC for shares of a new class of common stock of AmSurg having a sufficient number of votes per share to give AHC the ability to distribute "control" within the meaning of Section 368(c) of the Code; WHEREAS, AHC and AmSurg have determined that it is necessary and desirable to set forth the principal corporate transactions required to effect the Distribution, and to set forth the agreements that will govern certain matters following the Distribution; WHEREAS, on March 7, 1997, AHC and AmSurg executed a Distribution Agreement and; WHEREAS, certain circumstances have made it necessary to amend certain provisions of the Agreement; NOW, THEREFORE, in consideration of the premises, and of the respective representations, warranties, covenants and agreements set forth herein, the parties hereto hereby amend and restate the Distribution Agreement and agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions. As used in this Agreement, the following terms shall have the following respective meanings: "common stock" with respect to AmSurg means any class of common stock of AmSurg now or hereafter authorized. "Exchange Act" means the Securities Exchange Act of 1934, as amended. A-1 2 "IRS" means the Internal Revenue Service. "IRS Ruling" means the letter ruling issued by the IRS in response to the Ruling Request. "Related Agreements" means the Exchange Agreement and the Management and Human Resources Agreement, attached hereto as Exhibits to this Agreement. "Ruling Request" means the private letter ruling request filed by AHC with the IRS on October 23, 1997, as supplemented and amended from time to time, with respect to certain tax matters relating to the Distribution. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Tax Opinions" means the legal opinions of Bass, Berry & Sims PLC and Sutherland, Asbill & Brennan with respect to certain tax matters relating to the Distribution. ARTICLE II RECAPITALIZATION, EXCHANGE AND DISTRIBUTION 2.1 Recapitalization, Exchange and Distribution. Subject to the satisfaction of the conditions set forth in Section 2.2 hereof, on the date established in accordance with Section 2.5 as the date on which the Distribution shall be effected (the "Distribution Date"): (a) AmSurg will undertake a recapitalization in accordance with Section 2.3 hereof (the "Recapitalization"); (b) Upon completion of the Recapitalization, AmSurg and AHC will effect an exchange of a portion of the shares of AmSurg common stock owned by AHC for shares of Class B Common Stock of AmSurg in accordance with Section 2.4 hereof (the "Exchange"); and (c) Upon completion of the Exchange, AHC will effect the Distribution in accordance with Section 2.5 hereof. 2.2 Conditions. The obligations of each of AHC and AmSurg to consummate the Recapitalization, the Exchange and the Distribution are subject to the fulfillment of each of the following conditions, unless otherwise waived in writing: (a) The IRS Ruling shall have been granted, or Tax Opinions rendered, in form and substance satisfactory to AHC, in its sole discretion; (b) A Registration Statement on Form 10 under the Exchange Act with respect to each class of common stock of AmSurg to be distributed in the Distribution shall have been declared effective by the SEC or shall otherwise have become effective under the Exchange Act; (c) The shares of each tradable class of common stock of AmSurg to be distributed in the Distribution shall have been approved for listing on a national securities exchange or for inclusion on the Nasdaq National Market or such other trading market as the parties may agree; (d) The Recapitalization and the Exchange shall have been approved by the holders of at least a majority of the voting power of the outstanding shares of capital stock of AmSurg at a meeting of the shareholders of AmSurg and, if dissenters' rights apply, holders of no more than 5% of the outstanding shares of common stock of AmSurg shall have indicated their intent to seek appraisal for their shares under the Tennessee Business Corporation Act; (e) The holders of the Series A Redeemable Preferred Stock and Series B Convertible Preferred Stock, without par value, of AmSurg shall have approved the modification and waiver of their rights to elect one director of AmSurg effected through the AmSurg Charter and the Shareholders' Agreement, dated as of April 2, 1992, as amended by Amendment No. 1 dated September 27, 1993 and Amendment A-2 3 No. 2, dated as of November 20, 1996, by and among AmSurg and the persons identified on the signature pages thereto as the Founding Investors, the Founding Management and the Preferred Stock Purchasers, in each case so as to permit AHC to distribute "control" within the meaning of Section 368(c) of the Code; (f) The Special Committee of the Board of Directors of AmSurg shall have received an opinion, acceptable to it, of J.C. Bradford & Co. as to the fairness, from a financial point of view, of the Recapitalization, Exchange and Distribution to shareholders of AmSurg other than AHC and such other opinions as may be deemed appropriate by such committee and such opinion or opinions shall not have been withdrawn; (g) The Board of Directors of AHC shall have received an opinion, acceptable to it, of Morgan Keegan & Co., Inc. as to the fairness, from a financial point of view, of the Recapitalization, the Exchange and the Distribution to the stockholders of AHC, a favorable opinion of Houlihan, Lokey, Howard & Zukin as to certain solvency issues and such other opinions as may be deemed appropriate by the Board of Directors of AHC and such opinions shall not have been withdrawn; (h) There shall be no proposed legislation or regulation introduced which, if adopted, would have the effect of amending the Code so as to alter in any materially adverse respect the substantially tax-free treatment of the Distribution under Section 355 of the Code or the classification of the Recapitalization and Exchange as a tax-free organization under Section 368(a)(1)(E) of the Code; (i) The matters set forth in Section 2.7(a), (c), (d), (e) and (f) shall have been approved by the shareholders of AmSurg; and (j) Any required waiting period applicable to the Exchange or the Distribution under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, shall have expired or otherwise terminated and AHC and AmSurg shall each have obtained such other consents and approvals of federal, state and local governmental authorities and other third parties as shall be deemed necessary or appropriate by the Boards of Directors of AHC and AmSurg in connection with the transactions contemplated hereby, and there shall be no suit or governmental proceeding pending or overtly threatened that would challenge the validity of or seek to enjoin the Recapitalization, the Exchange or the Distribution. 2.3 Recapitalization. The Recapitalization will be effected, subject to the satisfaction or waiver of the conditions set forth in Section 2.2 above, through an amendment to the Charter of AmSurg. The Recapitalization will: (a) reduce on a one for three basis the number of outstanding shares of common stock of AmSurg through a reverse stock split (or transaction having the effect of a reverse stock split), with the intention of permitting the shares of common stock of AmSurg distributed in the Distribution to trade at proportionately higher per share prices and thereby improving the trading markets for these shares in order to facilitate subsequent equity financings and acquisition transactions (the "Reverse Stock Split") and (b) authorize a new class of common stock (the "Class B Common Stock") having ten votes per share in the election and removal of directors so that, when exchanged for 4,787,131 of the shares of common stock of AmSurg then owned by AHC, AHC will own shares of common stock of AmSurg sufficient to constitute "control" within the meaning of Section 368(c) of the Code. The Reverse Stock Split will be accomplished by converting each three shares of common stock of AmSurg outstanding immediately prior to the Reverse Stock Split into a single share of a newly authorized class of common stock of AmSurg, denominated Class A Common Stock (the "Class A Common Stock"). Following the Recapitalization the only authorized classes of common stock will be Class A Common Stock and Class B Common Stock. Unless otherwise required by the IRS Ruling or the Tax Opinions, the Class A Common Stock and Class B Common Stock will have the terms substantially as set forth in the Amended and Restated Charter approved by the AmSurg Board of Directors on the date hereof. It is understood and agreed that the number of votes per share of Class B Common Stock is required to be sufficient to enable AHC to distribute, in the Distribution, "control" of AmSurg within the meaning of Section 368(c) of the Code, after giving effect to any anticipated issuances of capital stock of AmSurg on the exercise of stock options and any issuances in possible equity financing transactions and acquisitions, but that AmSurg shall not issue more shares of Class B Common Stock than are A-3 4 to be issued in the Exchange. The Recapitalization is intended to qualify for tax free treatment, for federal income tax purposes, under Section 368(a)(1)(E) of the Code. In connection with the Recapitalization, no changes will be made in any options to purchase shares of AmSurg common stock, except that the shares of common stock authorized or subject to outstanding options will become shares of Class A Common Stock, the number of shares authorized or subject to outstanding options will be reduced on a one for three basis, and the exercise price per share will be proportionately increased in the Reverse Stock Split in accordance with the provisions of the plans under which such options were granted. 2.4 Exchange. On or prior to the Distribution Date, AHC and AmSurg will enter into an Exchange Agreement in substantially the form approved by the AmSurg Board of Directors on the date hereof (the "Exchange Agreement"). Pursuant to the Exchange Agreement, on the Distribution Date, subject to the satisfaction or waiver of the conditions set forth in Section 2.2 above and the completion of the Recapitalization, (a) AHC will deliver to AmSurg 4,787,131 shares of Class A Common Stock of AmSurg held by AHC as provided in the Exchange Agreement and (b) AmSurg will deliver to AHC the same number of shares of Class B Common Stock. 2.5 Distribution. Subject to the satisfaction or waiver of the conditions set forth in Section 2.2 above and the completion of the Recapitalization and the Exchange, AHC will on the Distribution Date distribute to the AHC Holders (as hereinafter defined) all of the shares of Class A Common Stock and Class B Common Stock of AmSurg owned by AHC by delivering certificates for such shares to the transfer agent for the AHC Common Stock (the "Transfer Agent") for delivery to the AHC Holders. The Distribution shall be deemed to be effective upon notification by AHC to the Transfer Agent that the Distribution has been declared and is effective and that the Transfer Agent is authorized to proceed with the Distribution. No fractional shares shall be delivered to the AHC Holders in the Distribution. The shares that would otherwise be distributed as fractional shares to AHC Holders will be sold by the Transfer Agent on behalf of AHC Holders who would otherwise receive fractional shares and the proceeds of such sale will be paid to such AHC Holders in lieu of such fractional shares. The term "AHC Holders" means the holders of record of shares of AHC Common Stock on the date established by the Board of Directors of AHC as the record date for the Distribution (the "Distribution Record Date"). In connection with the Distribution, the exercise price of all outstanding options to purchase shares of AHC Common Stock and (if deemed appropriate by the Board of Directors of AHC or the committee of the Board of Directors of AHC administering such plans) the number of shares of AHC Common Stock underlying such options shall be adjusted to reflect the effect of the Distribution in accordance with the provisions of the plans under which such options were granted. 2.6 Certain Related Agreements. Effective upon the Distribution, AHC will enter into a Management and Human Services Agreement in substantially the form approved by the AmSurg Board of Directors on the date hereof, and AmSurg will assume all liabilities with respect to then current or former employees of AmSurg under employee benefit plans maintained by AHC as provided in such Management and Human Services Agreement. Following the Distribution, the Sublease Agreement between AHC and AmSurg will be continued in accordance with its terms. 2.7 Governance of AmSurg Following the Distribution. Prior to the Distribution, AHC and AmSurg will agree on (a) a slate of directors to be elected as the members of the Board of Directors of AmSurg effective upon the Distribution and any terms and classes for such directors as may be agreed upon by AHC and AmSurg, (b) the persons to be the executive officers of AmSurg effective upon the Distribution, (c) the terms of any amendments to the Charter of AmSurg (other than any amendments to the Charter necessary to implement the Recapitalization in accordance with Section 2.3 hereof and the amendments referred to in Section 2.2(e) hereof) to be effective upon the Distribution, (d) the terms of any amendments to the Bylaws of AmSurg to be effective upon the Distribution, (e) the terms of a new Employee Stock Incentive Plan to be effective upon the Distribution and (f) the terms of advisory services to be provided by each of Thomas G. Cigarran and Henry D. Herr for AmSurg to be effective following the Distribution. 2.8 Stock Incentive Plans and Agreements of AmSurg. AHC and AmSurg hereby agree that none of the transactions contemplated by this Distribution Agreement, including the Recapitalization, the Exchange and the Distribution, will constitute, individually or in the aggregate, a "change in control" under the terms of A-4 5 any stock incentive plan, stock incentive agreement, employment or severance agreement, or similar plan or agreement of AmSurg. ARTICLE III COVENANTS PRIOR TO THE DISTRIBUTION 3.1 Actions Prior to the Distribution. As promptly as practicable after the date hereof and prior to the Distribution Date: (a) AHC and AmSurg shall prepare, and shall file with the SEC, an amendment to the AmSurg Registration Statement on Form 10 under the Exchange Act, which shall set forth appropriate disclosure concerning AmSurg, the Distribution and certain other matters. The Registration Statement on Form 10, as amended, shall also serve as an Information Statement with respect to the Distribution to be delivered to the AHC Holders. (b) AHC and AmSurg shall cooperate in preparing, filing with the SEC and causing to become effective any registration statements or amendments thereto which are appropriate to reflect the establishment of, or amendments to, any employee benefit and other plans contemplated by this Agreement. (c) AHC and AmSurg shall take all such action as may be necessary or appropriate under state securities or "Blue Sky" laws in connection with the transactions contemplated by this Agreement. (d) AmSurg shall prepare and file and seek to make effective, an application to permit the inclusion on The Nasdaq Stock Market's National Market or the listing on a national securities exchange of each class of common stock of AmSurg to be distributed in the Distribution; provided, however, that no class that cannot by its terms be traded shall be required to be so included or listed. (e) AmSurg shall duly call and hold a meeting of its shareholders, and shall prepare and deliver to its shareholders a proxy statement with respect to such meeting, to approve the terms of the Recapitalization, the matters referred to in Section 2.7(a), (c), (d), (e) and (f) hereof and any other matters requiring approval in connection with the transactions contemplated by this Agreement. (f) In addition to the actions specifically provided for elsewhere in this Agreement, each of the parties hereto shall use its reasonable best efforts to take or cause to be taken, all actions, and to do, or cause to be done, all things reasonably necessary, proper or advisable under applicable laws, regulations and agreements to consummate and make effective the transactions contemplated by this Agreement, including, without limitation, using its best efforts to obtain the consents and approvals to enter into any amendatory agreements and to make the filings and applications necessary or desirable to have been obtained, entered into or made in order to consummate the transactions contemplated by this Agreement. 3.2 Amendment to AmSurg Documents. In order to better prepare itself for becoming a publicly traded company, AmSurg may amend or establish new employee benefit plans and amend or adopt other corporate documents as the Board of Directors of AmSurg may deem reasonably necessary or appropriate, subject to shareholder approval if necessary. AHC, as a shareholder of AmSurg, shall vote in favor of any such actions submitted to shareholders of AmSurg to the extent that AHC agrees that such actions are necessary or appropriate for AmSurg as an independent public company. 3.3 Agreement to Vote. AHC, in its capacity as a shareholder of AmSurg, hereby agrees to vote all shares of capital stock of AmSurg owned by AHC in favor of the Recapitalization, the matters referred to in Section 2.7(a), (c), (d), (e) and (f) and, subject to Section 3.2 above, any other matters requiring the approval of the shareholders of AmSurg in connection with the transactions contemplated by this Agreement. A-5 6 ARTICLE IV COVENANTS FOLLOWING THE DISTRIBUTION 4.1 Compliance with IRS Ruling or Tax Opinions. Following the Distribution, each of AHC and AmSurg shall, and shall use its best efforts to cause each of its respective affiliates and subsidiaries to, comply with each representation and statement made, or to be made, to any taxing authority in connection with the IRS Ruling or Tax Opinions or any other ruling or tax opinion obtained, or to be obtained, by AmSurg and AHC acting together, from the IRS or any other taxing authority or law firm with respect to any transaction contemplated by this Agreement. 4.2 Provision of Corporate Records. Except as may otherwise be provided in a Related Agreement, AHC shall arrange as soon as practicable following the Distribution Date, to the extent not previously delivered in connection with the transactions contemplated herein, for the transportation to AmSurg of the AmSurg Books and Records (as hereinafter defined) in its possession except to the extent such items are already in the possession of AmSurg or any of its subsidiaries. The AmSurg Books and Records shall be the property of AmSurg, but shall be available to AHC for review and duplication as is reasonably necessary until AHC shall notify AmSurg in writing that such records are no longer of use to AHC. "AmSurg Books and Records" means the books and records (including computerized records) of AmSurg and its subsidiaries and any other books and records of AHC or its subsidiaries which relate principally to the business of AmSurg and its subsidiaries, are necessary to conduct the business of AmSurg and its subsidiaries, or are required by law to be retained by AmSurg or its subsidiaries, including, without limitation, all such books and records relating to AmSurg employees, original corporate minute books, stock ledgers and certificates and corporate seals, and all licenses, leases, agreements and filings, relating to AmSurg or its subsidiaries or their businesses. 4.3 Access to Information. Except as otherwise provided in a Related Agreement, from and after the Distribution Date, AHC shall afford to AmSurg and its authorized accountants, counsel and other designated representatives reasonable access (including using reasonable efforts to give access to persons or firms possessing information) and duplicating rights during normal business hours to all records, books, contracts, instruments, computer data and other data and information relating to pre-Distribution operations (collectively, "Information") within AHC's possession insofar as such access is reasonably required by AmSurg for the conduct of its business, subject to appropriate restrictions for classified or privileged information. Similarly, except as otherwise provided in a Related Agreement, AmSurg shall afford to AHC and its authorized accountants, counsel and other designated representatives reasonable access (including using reasonable efforts to give access to persons or firms possessing information) and duplicating rights during normal business hours to Information within AmSurg's possession, insofar as such access is reasonably required by AHC for the conduct of its business, subject to appropriate restrictions for classified or privileged information. Information may be requested under this Article IV for the legitimate business purposes of either party, including without limitations, audit, accounting, claims, litigation and tax purposes, as well as for purposes of fulfilling disclosure and reporting obligations and for performing this Agreement and transactions contemplated hereby. 4.4 Production of Witnesses. At all times from and after the Distribution Date, each of AmSurg and AHC shall use reasonable efforts to make available to the other, upon written request, its and its subsidiaries' officers, directors, employees and agents as witnesses to the extent that such persons may reasonably be required in connection with any legal, administrative or other proceedings in which the requesting party may be involved. 4.5 Retention of Records. Except as otherwise required by law or agreed to in a Related Agreement or otherwise in writing, each of AmSurg and AHC may destroy or otherwise dispose of any of the Information at any time after the seventh anniversary of this Agreement. Notwithstanding the foregoing, either party may destroy or dispose of such Information at any time if prior to such destruction or disposal, (a) it shall provide no less than 90 or more than 120 days prior written notice to the other, specifying in reasonable detail the Information proposed to be destroyed or disposed of and (b) if a recipient of such notice shall request in writing prior to the scheduled date for such destruction or disposal that any of the Information proposed to be destroyed or disposed of be delivered to such requesting party, the party proposing the destruction or disposal A-6 7 shall promptly arrange for the delivery of such of the Information as was requested at the expense of the party requesting such Information. 4.6 Confidentiality. Each party shall hold, and shall cause its officers, employees, agents, consultants and advisors to hold, in strict confidence, unless compelled to disclose by judicial or administrative process or, in the opinion of its counsel, by other requirements of law, all non-public Information concerning the other party furnished it by such other party or its representatives pursuant to this Agreement (except to the extent that such Information can be shown to have been (a) available to such party on a non-confidential basis prior to its disclosure by the other party, (b) in the public domain through no fault of such party or (c) later lawfully acquired from other sources by the party to which it was furnished), and each party shall not release or disclose such Information to any other person, except its auditors, attorneys, financial advisors, bankers and other consultants and advisors who agree to be bound by the provisions of this Section 4.6. Each party shall be deemed to have satisfied its obligation to hold confidential Information concerning or supplied by the other party if it exercises the same care as it takes to preserve confidentiality for its own similar confidential Information. 4.7 Indemnification. From and after the Distribution Date, except as otherwise provided in any Related Agreement, (a) AHC will indemnify and hold AmSurg harmless from and against all liabilities with respect to the business and assets of AHC and its subsidiaries (other than AmSurg and its subsidiaries) whether arising before or after the Distribution Date, other than liabilities arising out of the gross negligence or fraud of AmSurg and (b) AmSurg will indemnify and hold AHC harmless from and against all liabilities with respect to the business and assets of AmSurg and its subsidiaries, whether arising before or after the Distribution Date, other than liabilities arising out of the gross negligence or fraud of AHC. ARTICLE V MISCELLANEOUS AND GENERAL 5.1 Termination; Modification or Amendment. This Agreement may be terminated and the transactions contemplated hereby abandoned at any time prior to the Recapitalization by mutual agreement of AmSurg and AHC. In the event of such termination, no party shall have any liability of any kind to any other party. The parties hereto may modify or amend this Distribution Agreement by written agreement executed and delivered by authorized officers of the respective parties. 5.2 Counterparts. For the convenience of the parties hereto, this Agreement may be executed in any number of separate counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement. 5.3 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to transactions occurring solely within the State of Delaware. 5.4 Notices. Any notice, request, instruction or other document to be given hereunder by any party to the other shall be in writing and shall be deemed to have been duly given (i) on the date of delivery if delivered by facsimile (upon confirmation of receipt) or personally, (ii) on the first business day following the date of dispatch if delivered by Federal Express or other next-day courier service, or (iii) on the third business day following the date of mailing if delivered by registered or certified mail; return receipt requested, postage prepaid. All notices hereunder shall be delivered as set forth below, or pursuant to such other instructions as may be designated in writing by the party to receive such notice: (a) If to AHC: American Healthcorp, Inc. One Burton Hills Boulevard Nashville, Tennessee 37215 Attention: Thomas G. Cigarran A-7 8 with a copy to: James H. Cheek, III Bass, Berry & Sims PLC 2700 First American Center Nashville, TN 37238 (b) If to AmSurg: AmSurg Corp. One Burton Hills Boulevard Nashville, Tennessee 37215 Attention: Ken P. McDonald with a copy to: Byron R. Trauger Doramus, Trauger & Ney 222 Fourth Avenue North Nashville, Tennessee 37219 5.5 Captions. All section captions herein are for convenience of reference only, do not constitute part of this Agreement and shall not be deemed to limit or otherwise affect any of the provisions hereof. 5.6 Assignment. This Agreement and all the provisions hereof shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by either party without the prior written consent of the other party and any such assignment of obligation shall relieve the assigning party from its responsibility hereunder. Except as expressly otherwise provided herein, nothing contained in this Agreement or the agreements referred to herein is intended to confer on any person or entity other than the parties hereto and their respective successors and permitted assigns any benefit, rights or remedies under or by reason of this Agreement and such other agreements. 5.7 Further Assurances. AHC and AmSurg will do such additional things as are necessary or proper to carry out and effectuate the intent of this Agreement or any part hereof or the transactions contemplated hereby. 5.8 Expenses. Each party will bear its own expenses in connection with the transactions contemplated by this Agreement; provided, however, that (a) AHC and AmSurg will share equally the costs of (i) preparing and amending the Registration Statement on Form 10, (ii) preparing the Distribution Agreement and Related Agreements and (iii) preparing the SEC no-action letter; (b) AmSurg will be responsible for the costs of (i) preparing and, as required, filing any charter amendment or merger required to effect the Recapitalization, (ii) preparing, printing (or reproducing) and mailing a proxy statement for purposes of soliciting the votes of shareholders of AmSurg in order to effect the Recapitalization and to obtain any other required approvals of the shareholders of AmSurg, (iii) listing or other inclusion of the shares of AmSurg common stock on the Nasdaq National Market or on a national securities exchange, (iv) the SEC's registration fees, (v) any required registration or qualification of any shares of AmSurg common stock under state Blue Sky and securities laws, (vi) the preparation of stock certificates for the shares of AmSurg common stock to be distributed in connection with the Recapitalization, the Exchange and the Distribution, (vii) the fees and expenses of J.C. Bradford & Co., (viii) the fees of Doramus, Trauger & Ney and, with respect to services performed on behalf of AmSurg, Bass, Berry & Sims PLC, (ix) preparing and auditing the separate financial statements of AmSurg and its consolidated subsidiaries and (x) obtaining any governmental or third party consents or approvals required to be obtained on the part of AmSurg in connection with the transactions contemplated by this Agreement; and (c) AHC will be responsible for the costs of (i) preparing the Ruling Request and, if applicable, the Tax Opinions, (ii) printing (or reproducing) and mailing the Information Statement included in the Registration Statement on Form 10 to AHC Holders, (iii) the fees and expenses of the Transfer Agent in connection with the Distribution, (iv) the fees and expenses of Morgan Keegan & Co., A-8 9 Inc. and Houlihan, Lokey, Howard & Zukin, (v) the fees and expenses of Bass, Berry & Sims PLC with respect to services performed on behalf of AHC, (vi) preparing and auditing the financial statements of AHC and its consolidated subsidiaries (except for the separate financial statements of AmSurg and its consolidated subsidiaries as provided in clause (b)(ix) above) and (vii) obtaining any governmental or third party consents or approvals required to be obtained on the part of AHC in connection with the transactions contemplated by this Agreement. 5.9 Dispute Resolution. (a) Submission of Disputes to Arbitration. Any claims, demands, disputes, differences, controversies, and/or misunderstandings arising under, out of, or in connection with, or in relation to this Agreement (collectively, a "Dispute"), shall be settled by submission of such Dispute (if not theretofore resolved by the parties hereto) within 45 days of assertion to arbitration in accordance with the provisions of this Section 5.9 and the Commercial Arbitration Rules of the American Arbitration Association. (b) Selection of Arbitrators. (i) The parties may agree upon one arbitrator whose decision will be final and binding on them; otherwise there shall be three arbitrators, with one named in writing by each party and the third chosen by these two arbitrators (without necessary delay), and the decision in writing signed by those assenting thereto of any two of the arbitrators shall be final and binding on the parties. (ii) No one shall be nominated or act as an arbitrator who is in any way financially interested in this Agreement or in the business of either party hereto. (c) Consent to Jurisdiction. Any and all arbitrations shall take place pursuant to the laws of the State of Delaware, and consent is hereby given to jurisdiction of courts of the State of Delaware over the parties to this Agreement in reference to any matter arising out of arbitration or this Agreement, including but not limited to confirmation of any award and enforcement thereof by entry of judgment thereon or by any other legal remedy. (d) Costs of Arbitration. The cost of any arbitration (including the fees of the arbitrator or arbitrators) pursuant to this Agreement shall be borne equally by each party to the Dispute, unless otherwise determined by the arbitrator or arbitrators. IN WITNESS WHEREOF, this Amended and Restated Agreement has been duly executed and delivered by the duly authorized officers of the parties hereto as of the date first hereinabove written. AMERICAN HEALTHCORP, INC. By: ------------------------------------ Name: Henry D. Herr Title: Executive Vice President AMSURG CORP. By: ------------------------------------ Name: Claire M. Gulmi Title: Senior Vice President A-9 EX-2.2 3 EXCHANGE AGREEMENT 1 EXHIBIT 2.2 EXCHANGE AGREEMENT This EXCHANGE AGREEMENT, dated as of November ___, 1997 (the "Agreement"), by and between American Healthcorp, Inc., a Delaware corporation ("AHC"), and AmSurg Corp., a Tennessee corporation ("AmSurg"). WITNESSETH: WHEREAS, AHC and AmSurg are parties to an Amended and Restated Distribution Agreement, dated as of November ___, 1997 (the "Distribution Agreement"), pursuant to which AmSurg has agreed to undertake a recapitalization converting each three outstanding shares of common stock, without par value, of AmSurg into one share of Class A Common Stock, without par value (the "Class A Common Stock") as provided in the Distribution Agreement and authorizing a new class of common stock having certain voting and other rights as described in the Distribution Agreement (the "Class B Common Stock"); and WHEREAS, pursuant to the Distribution Agreement, AmSurg has agreed, subject to the satisfaction of certain terms and conditions, to issue shares of Class B Common Stock to AHC on the Distribution Date (as defined in the Distribution Agreement) in exchange for a portion of the shares of Class A Common Stock then owned by AHC. NOW, THEREFORE, in consideration of the premises and the respective agreements set forth herein and in the Distribution Agreement, the parties hereto hereby agree as follows: 1. The Exchange. On the Distribution Date, subject to the satisfaction or waiver of the conditions set forth in Section 2.2 of the Distribution Agreement and the completion of the Recapitalization: a. AHC will deliver to AmSurg [4,787,131] shares of Class A Common Stock of AmSurg, free and clear of any security interest, lien, mortgage, encumbrance or other interest of third parties of any kind; and b. in exchange for the shares delivered pursuant to Section 1(a) above, AmSurg will issue to AHC [4,787,131] shares of Class B Common Stock. All of the shares of Class B Common Stock issued to AHC will, when issued to AHC as provided herein, be duly authorized, validly issued, fully paid and nonassessable. 2. Defined Terms. Terms defined in the Distribution Agreement and used herein will have the meanings provided in the Distribution Agreement. The term "AmSurg" will include the surviving corporation in any merger entered into to effect the Recapitalization. 2 IN WITNESS WHEREOF, the parties hereto have caused this Exchange Agreement to be duly executed and delivered as of the date first above written. AMERICAN HEALTHCORP, INC. By: ----------------------------------- AMSURG CORP. By: ----------------------------------- EX-3.1 4 AMENDED AND RESTATED CHARTER OF AMSURG 1 Exhibit 3.1 AMENDED AND RESTATED CHARTER OF AMSURG CORP. Pursuant to the provisions of Section 48-20-107 of the Tennessee Business Corporation Act, the undersigned corporation hereby amends and restates its Charter to supersede the original Charter and any and all prior amendments thereto as follows: The name of the corporation is: AmSurg Corp. I. The text of the Amended and Restated Charter is as follows: 1. The name of the corporation (hereinafter called the "Corporation") is AmSurg Corp. 2. The Corporation is for profit. 3. The duration of the Corporation is perpetual. 4. The street address and zip code of the Corporation's principal office in Tennessee shall be: One Burton Hills Boulevard Suite 350 Nashville, TN 37215 County of Davidson 5. (a) The name of the Corporation's registered agent is Claire M. Gulmi. (b) The street address, zip code, and county of the Corporation's registered office and registered agent in Tennessee shall be: One Burton Hills Boulevard Suite 350 Nashville, TN 37215 County of Davidson 6. The Corporation is organized to do any and all things and to exercise any and all powers, rights, and privileges that a corporation may now or hereafter be organized to do, or to exercise, under the Tennessee Business Corporation Act, as amended. 7. The aggregate number of shares of capital stock the Corporation is authorized to issue is 29,800,000 shares, of which 4,800,000 shares shall be Class B Common Stock, 1 2 no par value, 20,000,000 shares shall be Class A Common Stock, no par value (collectively the "Common Stock"), and 5,000,000 shares shall be preferred stock, no par value (the "Preferred Stock") of which 500,000 shares are designated as Series A Redeemable Preferred Stock and 416,666 shares are designated as Series B Convertible Preferred Stock. The Board of Directors may determine, in whole or in part, the preferences, limitations, and relative rights of any class of shares before the issuance of any shares of that class or one or more series within a class before the issuance of any shares within that series. The preferences, limitations, and relative rights of the above designated classes of stock shall be as follows: (1) Series A Redeemable Preferred Stock. There shall be a series of Preferred Stock to be known and designated as Series A Redeemable Preferred Stock. The number of shares constituting such series shall be 500,000. Set forth below in this Section (1) of Article 7 is a statement of the designations and the powers, preferences and rights, and the qualifications, limitations or restrictions thereof. All subsection references contained herein shall be to this Section (1) of Article 7. (a) Dividends. (i) During the period prior to and including November 20, 1998, holders of Series A Redeemable Preferred Stock shall be entitled to no dividends. Thereafter, holders of Series A Redeemable Preferred Stock shall be entitled to a cash dividend per share in an amount, per annum, equal to eight percent (8%) of the purchase price per share, payable in arrears in installments on the first day of each calendar quarter and from funds legally available therefor. The dividends provided for hereunder shall be cumulative and to the extent they are not paid as provided for herein because funds are not legally available therefor or otherwise, they shall be paid as soon as funds are legally available therefor and before any dividends or other distribution (including distributions made as a result of any reorganization, reclassification, merger, consolidation or disposition of assets) are made to holders of the Corporation's Common Stock but subject to the rights, preferences and privileges of any other series of Preferred Stock then issued and outstanding. The dividends hereunder shall be entitled to a liquidation preference pursuant to Subsection (b). (ii) In the event that the enforcement of any right or remedy accorded to the holders of the Series A Redeemable Preferred Stock upon an Event of Default as set forth in the Purchase Agreement would violate or be restricted by any covenant contained in any instrument relating to any Debt of the Corporation to Suntrust Bank, Nashville, N.A. ("Suntrust"), or any amendment, extension, refunding or refinancing thereof, and upon written request by the Corporation to each holder, the holders shall refrain from asserting any such right or remedy. For 2 3 so long as the Event of Default remains uncured, or in the event that Suntrust or any other lender to the Corporation refuses to consent to the payment of the dividend set forth in Subsection (a)(i), the holders shall be entitled to a cash dividend per share in an amount, per annum, equal to fourteen percent (14%) of the purchase price per share, payable in arrears and installments on the first day of each calendar quarter and from funds legally available therefor. The dividends provided for hereunder shall be cumulative and, to the extent they are not paid as provided for herein because funds are not legally available therefor or otherwise, they shall be paid as soon as funds are legally available therefor and before any dividends or other distributions (including distributions made as a result of any reorganization, reclassification, merger, consolidation or disposition of assets) are made to holders of the Corporation's Common Stock, but subject to the rights, preferences and privileges of any other series of Preferred Stock then issued and outstanding. Upon cure by the Corporation of such Event of Default, or upon consent by each lender whose consent is necessary for the payment of a dividend, and upon payment of all due or accrued dividends, the cumulative dividend per share under this Subsection (a)(ii) shall thereupon be reduced to the dividend, if any, to which the holder would be entitled absent an Event of Default, or upon consent by all such lenders. The dividends hereunder shall be entitled to a liquidation preference pursuant to Subsection (b). (b) Liquidation. Upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of the Series A Redeemable Preferred Stock will be entitled to be paid out of the assets of the Corporation available for distribution to shareholders (whether from capital, surplus or earnings), before any distribution or payment is made upon any other Junior Securities, an amount in cash equal to the aggregate Liquidation Value of all Series A Redeemable Preferred Stock outstanding, and the holders of the Series A Redeemable Preferred Stock will not be entitled to any further payment. If, upon any such liquidation, dissolution or winding up of the Corporation, the assets of the Corporation to be distributed among the holders of the Series A Redeemable Preferred Stock are insufficient to permit payment to such holders of the aggregate amount to which they are entitled, then the entire assets of the Corporation to be distributed to such holders will be distributed ratably among such holders based upon the aggregate Liquidation Value of the Series A Redeemable Preferred Stock held by each such holder. The Corporation will mail written notice of such liquidation, dissolution or winding up, not less than thirty (30) days prior to the payment date stated therein, to each record holder of Series A Redeemable Preferred Stock. Neither the consolidation or merger of the Corporation into or with any other corporation or corporations, nor the sale or transfer by the Corporation of all or any part of its assets, nor the reduction of the capital stock of the Corporation, will be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this Subsection (b). (c) Stock Combinations and Subdivisions. Subject to the rights, preferences and privileges of any Common Stock and other series of Preferred Stock outstanding from time to time 3 4 and to the immediately following sentence, in the event the Corporation in any manner subdivides or combines the outstanding shares of any class of common stock, the Series A Redeemable Preferred Stock shall automatically be combined or subdivided in such manner as may be permitted by applicable law so that following such an event, the conversion rate, ownership interests and voting interests of the Series A Redeemable Preferred Stock shall be equitably preserved. Series A Redeemable Preferred Stock shall not be combined or subdivided unless at the same time there is a proportionate combination or subdivision of all other classes and series of capital stock of the Corporation. (d) Voting. The holders of Series A Redeemable Preferred Stock shall be entitled to vote as a separate class on all such matters as may be required by law to be submitted to such holders as a separate class and shall have the following additional rights: (i) no amendment, modification or waiver will be binding or effective with respect to any provision of this Section 1 unless approved by the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A Redeemable Preferred Stock voting together as a separate class; and (ii) the affirmative vote of the holders of two-thirds of the outstanding shares of Series A Redeemable Preferred Stock voting together as a separate class shall be necessary to increase the number of authorized shares of Preferred Stock or authorize or issue any additional shares of any series of Preferred Stock or any shares of capital stock of the Corporation of any class, or any security or obligations convertible into any capital stock of the Corporation of any class, other than the Corporation's Series B Convertible Preferred Stock, in each case ranking on a parity with or senior to the Series A Redeemable Preferred Stock as to distribution of assets in liquidation or in the right of payment of dividends. In all other matters, subject to voting rights that may be granted to holders of other classes or series of Preferred Stock and Common Stock outstanding from time to time, the holders of Series A Redeemable Preferred Stock shall vote together with the holders of Common Stock and the holders of all other series of Preferred Stock as a single class. In all matters that the holders of Series A Redeemable Preferred Stock are entitled to so vote, such holders shall be entitled to .25 votes per share of Series A Redeemable Preferred Stock. (iii) With respect to the election of members to the Board of Directors (each, a "Director"), the Purchasers of Series A Redeemable Preferred Stock and the Purchasers of Series B Convertible Preferred Stock pursuant to the Purchase Agreement, voting together as a separate class, shall be entitled to elect one (1) Director under the circumstances described below in this Subsection (d)(iii). In addition, the Purchasers of Series A Redeemable Preferred Stock and the Purchasers of Series B Convertible Preferred Stock, voting together as a separate 4 5 class, shall be entitled to vote on the removal, with or without cause, of any Director elected by them pursuant to this Subsection (d)(iii). Any vacancy in the office of a Director elected by the Purchasers of Series A Redeemable Preferred Stock and Purchasers of Series B Convertible Preferred Stock may be filled by a vote of such Purchasers voting together as a separate class. In the absence of a vote within 30 days, any such vacancy may be filled by the remaining Directors. Any Directors elected by the Board of Directors to fill a vacancy shall serve until the next annual meeting of shareholders and until his successor has been duly elected and qualified. The rights of the Purchasers hereunder shall commence on May 31, 2000 if a Qualified IPO has not occurred before that date and shall terminate thereafter upon the occurrence of a Qualified IPO. (e) Optional Conversion. (i) Notwithstanding anything in Subsection (f) to the contrary, at the option of the holders of the Series A Redeemable Preferred Stock and upon the occurrence of a Conversion Event, and for a period of thirty (30) days thereafter, each holder of record of Series A Redeemable Preferred Stock may, in such holder's sole discretion and at such holder's option, convert any whole number or all of such holder's shares of Series A Redeemable Preferred Stock into fully paid and non-assessable shares of Class A Common Stock at a rate equal to the Conversion Rate. Any such conversion may be effected by a holder of Series A Redeemable Preferred Stock surrendering, on a date no later than thirty (30) days after the occurrence of a Conversion Event, such holder's certificate or certificates for the shares of Series A Redeemable Preferred Stock to be converted, duly endorsed, at the office of the Corporation or any transfer agent for the Series A Redeemable Preferred Stock together with a written notice to the Corporation at such office that such holder elects to convert all or a specified number of shares of Series A Redeemable Preferred Stock and stating the name or names in which such holder desires the certificate or certificates for such shares of Class A Common Stock to be issued. Promptly thereafter, the Corporation shall issue and deliver to such holder or such holder's nominee or nominees, a certificate or certificates for the number of shares of Class A Common Stock to which such holder shall be entitled as provided for herein. Such conversion shall be deemed to have been made at 12:01 a.m., local time on the day of such surrender and the person or persons entitled to receive the shares of Class A Common Stock issuable on such conversion shall be treated for all purposes as the record holder or holders of such shares of Class A Common Stock on that date. The Corporation shall pay all taxes and other charges in respect of the issuance of shares of Class A Common Stock upon any such conversion; provided, however, that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of the shares of the Class A Common Stock in a name 5 6 other than that in which the shares of Series A Redeemable Preferred Stock so converted were registered. (ii) The Corporation shall at all times reserve and keep available out of the authorized and unissued shares of Class A Common Stock, solely for the purpose of effecting the conversion of issued and outstanding shares of Series A Redeemable Preferred Stock such number of shares of Class A Common Stock as shall from time to time be sufficient to effect the conversion of all issued and outstanding shares of Series A Redeemable Preferred Stock and if, at any time, the number of authorized and unissued shares of Class A Common Stock shall not be sufficient to effect conversion of the then issued and outstanding shares of Series A Redeemable Preferred Stock, the Corporation shall take such corporate action as may be necessary to increase the number of authorized and unissued shares of Class A Common Stock to such number as shall be sufficient for such purposes. (f) Optional Redemption (i) The Corporation may, at the option of the Board of Directors at any time and from time to time, pursuant to notice to each holder thereof, redeem from funds of the Corporation legally available therefor, all or part of the outstanding Series A Redeemable Preferred Stock at a price equal to the Redemption Price. (ii) The Corporation shall give written notice (the "Redemption Notice") by mail, postage prepaid, to all holders of Series A Redeemable Preferred Stock no later than forty-five (45) days prior to the date specified for redemption therein (the "Redemption Date"). The Redemption Notice shall specify the Redemption Date, the Redemption Price and the aggregate number of shares offered to be redeemed by the Corporation (the "Redemption Shares"). If the Redemption Notice specifies less than all of the issued and outstanding shares of Series A Redeemable Preferred Stock as Redemption Shares, the shares of each holder which will be redeemed will equal the product of (x) the number of Redemption Shares and (y) the number of shares owned by each holder divided by the number of all issued and outstanding shares of Series A Redeemable Preferred Stock. No later than ten (10) days prior to the Redemption Date, the Corporation shall give written notice by mail, postage prepaid, to each holder of the Series A Redeemable Preferred Stock calling upon each such shareholder to surrender to the Corporation on the Redemption Date at the location designated in the notice such holder's certificate or certificates representing the shares of Series A Redeemable Preferred Stock to be redeemed by the Corporation. Each holder shall surrender to the Corporation the certificate or certificates evidencing such shares on the Redemption Date at the location designated in such notice. Upon tendering such certificate or certificates, each such holder shall be entitled to receive full payment of the Redemption Price. From and after the Redemption Date (unless default shall be 6 7 made by the Corporation in duly paying the Redemption Price, in which event all of the rights of the holders of such shares shall continue), the holders of the shares of Series A Redeemable Preferred Stock so redeemed shall cease to have any rights as shareholders of the Corporation with respect to those shares except the right to receive the Redemption Price upon surrender of the applicable certificate or certificates. Such shares shall thereafter be transferred to the Corporation to be held as treasury stock on the books of the Corporation and shall not be deemed outstanding for any purpose whatsoever until such time, if at all, that the Corporation reissues any such shares. (g) Mandatory Redemption. (i) The Corporation shall redeem, from funds of the Corporation legally available therefor, all of the outstanding Series A Redeemable Preferred Stock at a price equal to the Redemption Price on the earlier to occur of (a) a Mandatory Redemption Event or (b) the Sixth Anniversary (each, a "Mandatory Redemption Event"). (ii) The Corporation shall give written notice (the ("Redemption Notice") by mail, postage prepaid, to all holders of Series A Redeemable Preferred Stock no later than thirty-five (35) days prior to the anticipated date of a Mandatory Redemption Event. The Redemption Notice shall specify the date of redemption, which date shall be on or no more than five (5) days prior to the anticipated date of the Mandatory Redemption Event (the "Redemption Date"), the Redemption Price and the aggregate number of shares being redeemed by the Corporation (which, subject to legally available funds therefor, shall be all of the issued and outstanding shares of Series A Redeemable Preferred Stock), and shall call upon each holder of Series A Redeemable Preferred Stock to surrender to the Corporation on the Redemption Date at the location specified in the notice, such holders' certificate or certificates evidencing such shares. Upon tendering such certificate or certificates, each shareholder shall be entitled to receive full payment of the Redemption Price. From and after the Redemption Date (unless default shall be made by the Corporation in duly paying the Redemption Price, in which event all of the rights of the holders of such shares shall continue), the holders of the shares of Series A Redeemable Preferred Stock so redeemed shall cease to have any rights as shareholders of the Corporation with respect to those shares except the right to receive the Redemption Price upon surrender of the applicable certificate or certificates. Such shares shall thereafter be transferred to the Corporation to be held as treasury stock on the books of the Corporation and shall not be deemed outstanding for any purpose whatsoever until such time, if at all, that the Corporation reissues any such shares. 7 8 (h) Definitions. For the purposes of this Section (1) of Article 7 the following terms shall have the following meanings: "Business Day" shall mean any day other than a Saturday, Sunday or a day on which commercial banks in Nashville, Tennessee are required or authorized by law to be closed. "Common Stock" shall mean collectively the Corporation's authorized shares of Class A Common Stock, no par value and Class B Common Stock, no par value. "Conversion Event" shall mean the earlier to occur of (i) that date which is sixty (60) days after a Spin Off or (ii) upon a Qualified IPO. "Conversion Rate" shall mean: (i) if the optional conversion is triggered by a Spin Off, then the Conversion Rate shall equal (x) the Liquidation Value per share of the Series A Redeemable Preferred Stock, divided by (y) the average closing price per share of Class A Common Stock on the Nasdaq National Market System for the period commencing on the forty-sixth (46th) day following the consummation of the Spin Off and ending on the fifteenth (15th) day thereafter; and (ii) if the optional conversion is triggered by the occurrence of a Qualified IPO, then the Conversion Rate shall equal (x) the Liquidation Value per share of the Series A Redeemable Preferred Stock, divided by (y) the price per share of Class A Common Stock in the Qualified IPO. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. "Independent Auditors" shall mean Deloitte & Touche, LLP or another "big six" accounting firm. "Junior Security" means Common Stock and any other equity security (other than the Series A Redeemable Preferred Stock), including the Series B Convertible Preferred Stock, of any kind which the Corporation at any time issues or is authorized to issue. "Liquidation Value" of any share of Series A Redeemable Preferred Stock as of any particular date will be the purchase price amount of such Stock plus accrued and unpaid dividends, if any. 8 9 "Mandatory Redemption Event" shall mean the earliest to occur of: (a) the sale, lease or other disposition by the Corporation of all or substantially all of the assets of the Corporation; (b) a merger or consolidation of the Corporation with or into another entity in a transaction in which the shareholders of the Corporation own less than fifty percent (50%) of the voting securities of the surviving or resulting corporation immediately after such merger or consolidation; (c) the sale, transfer or other disposition by the Corporation of all or substantially all of the capital stock of the Corporation (including, without limitation, any and all shares, interests, rights to purchase, warrants, options, participation or other equivalents of or in (however designated) capital stock of the Corporation; or (d) a Qualified IPO. "Preferred Stock" shall mean the Corporation's authorized shares of preferred stock, no par value. "Purchase Agreement" shall mean the Preferred Stock Purchase Agreement, dated as of November 20, 1996, by and among the Corporation, Electra Investment Trust PLC, Capitol Health Partners, L.P. and Michael E. Stephens. "Purchasers" shall mean Electra Investment Trust PLC, Capitol Health Partners, L.P. and Michael E. Stephens. "Qualified IPO" means (i) an initial public offering of Class A Common Stock of the Corporation yielding net cash proceeds to the Corporation of at least $25,000,000 or (ii) in the event the Corporation has completed a Spin Off, a public offering of Class A Common Stock of the Corporation yielding net cash proceeds to the Corporation and/or its shareholders of at least $20,000,000. "Redemption Price" for any shares of Series A Redeemable Preferred Stock as of any particular date shall mean an amount equal to the Liquidation Value. "Secondary Registration" means the offer and sale of securities to the public by or on behalf of one or more of the holders of the Corporation's securities pursuant to a registration statement filed by the Corporation with, and declared effective by, the Commission. "Sixth Anniversary" shall mean November 20, 2002. "Spin Off" means the recapitalization of all of the issued and outstanding Common Stock in a "reorganization" with the meaning of Section 368(a)(i)(E) of the Internal Revenue Code of 1986, as amended (the "Code"), and the distribution of all shares of Common Stock held by American Healthcorp, Inc. ("AHC") pro rata among the shareholders of AHC in a tax-free distribution under Section 355 of the Code. 9 10 (i) Notices. All written communications provided for hereunder shall be sent by first-class mail or nationwide overnight delivery service (with charges prepaid) or via receipted facsimile transmission and shall be directed to the relevant party at its address stated below: If to Electra: Electra Investment Trust PLC 65 Kingsway London, England WC2B 6QT Attention: Philip J. Dyke, Company Secretary Telecopy No.: 011-44-71-404-5388 with copies to: Electra, Inc. 70 East 55th Street New York, New York 10022 Attention: Scott D. Steele Telecopy No.: (212) 319-3069 and Willkie Farr & Gallagher One Citicorp Center 153 East 53rd Street New York, New York 10022 Attention: Peter J. Hanlon, Esq. Telecopy No.: (212) 821-8111 If to CHP: Capitol Health Partners, L.P. 3000 P Street, N.W. Washington, D.C. 20005 Attention: Debora A. Guthrie Telecopy No.: (202) 965-2344 with copies to: Manatt, Phelps & Phillips, LLP 1501 M Street N.W. Washington, D.C. 20009 Attention: Joseph F. Kelly, Jr. Telecopy No.: (202) 463-4394 10 11 If to Michael E. Stephens: One Perimeter Park South Suite 100N Birmingham, AL 35243 Telecopy No.: (205) 970-6524 with copies to: Bradley, Arant Rose & White 2001 Park Place Suite 1400 Birmingham, AL 35203 Attention: Thomas Carruthers Telecopy No.: (205)252-0264 If to any other holder of any shares of Preferred Stock addressed to such holder at such address as such other holder shall have specified to the Corporation in writing or, if any such other holder shall not have so specified an address to the Corporation, then addressed to such other holder in care of the last holder of such shares of Preferred Stock which shall have so specified an address. Each party may, by notice given hereunder, designate any further or different addresses to which subsequent notices, certificates or other communications shall be sent. If to the Corporation: AmSurg Corp. One Burton Hills Boulevard Suite 350 Nashville, TN 37215 Attention: Claire M. Gulmi Telecopy No. (615) 665-0755 with copies to: Bass, Berry & Sims PLC 2700 First American Center Nashville, TN 37238 Attention: Cynthia Y. Reisz Telecopy No. (615) 742-6293 (j) Registration of Transfer. The Corporation shall keep at its principal office (or such other place as the Corporation designates) a register for the registration of shares of Series A Redeemable Preferred Stock of the Corporation. Upon the surrender of any certificate representing shares of Series A Redeemable Preferred Stock at such place, the Corporation shall, at the request of the registered holder of such certificate, execute and deliver a new certificate or certificates in exchange therefor representing in the aggregate the number of shares of Series A Redeemable 11 12 Preferred Stock represented by the surrendered certificate (and the Corporation forthwith shall cancel such surrendered certificate), subject to the requirements of applicable securities laws and to any restrictions on transfer (including without limitation, those referred to in any legend on the certificate so surrendered). Each such new certificate shall be registered in such name and shall represent such number of shares of Series A Redeemable Preferred Stock as is requested by the holder of the surrendered certificate and shall be substantially identical in form to the surrendered certificate. The issuance of new certificates shall be made without charge to the holders of the surrendered certificates for any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such issuance; provided, however, that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the holder of the surrendered certificate. (k) Replacement. Upon receipt of evidence reasonably satisfactory to the Corporation (an affidavit of the registered holder shall be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing one or more shares of Series A Redeemable Preferred Stock and, in the case of any such loss, theft or destruction, upon receipt of an unsecured indemnity agreement satisfactory to the Corporation or, in the case of any such mutilation, upon surrender of such certificate, the Corporation shall execute and deliver in lieu of such certificate a new certificate of like kind representing the number of shares of Series A Redeemable Preferred Stock represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate. (l) Restrictive Legend. The Series A Redeemable Preferred Stock, and all shares of Class A Common Stock issued upon conversion hereof, shall be stamped or otherwise imprinted with a legend in substantially the following form: "THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES AND ANY SECURITIES OR SHARES ISSUED HEREUNDER MAY NOT BE SOLD, OFFERED FOR SALE OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED." (2) Series B Convertible Preferred Stock. There shall be a series of Preferred Stock to be known and designated as Series B Convertible Preferred Stock. The number of shares constituting such series shall be 416,666. Set forth below in this Section (2) of Article 7 is a statement of the designations and the powers, preferences and rights, and the qualifications, limitations or restrictions thereof. All subsection references contained herein shall be to this Section (2) of Article 7. 12 13 (a) Dividends. The holders of the Series B Convertible Preferred Stock shall be entitled to receive, from funds legally available therefor, such dividends as may be declared by the Board of Directors from time to time. (b) Liquidation. Upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of the Series B Convertible Preferred Stock will be entitled to be paid out of the assets of the Corporation available for distribution to shareholders (whether from capital, surplus or earnings), before any distribution or payment is made upon any other Junior Securities, an amount in cash equal to the aggregate Liquidation Value of all Series B Convertible Preferred Stock outstanding, and the holders of the Series B Convertible Preferred Stock will not be entitled to any further payment. If, upon any such liquidation, dissolution or winding up of the Corporation, the assets of the Corporation to be distributed among the holders of the Series B Convertible Preferred Stock are insufficient to permit payment to such holders of the aggregate amount to which they are entitled, then the entire assets of the Corporation to be distributed to such holders will be distributed ratably among such holders based upon the aggregate Liquidation Value of the Series B Convertible Preferred Stock held by each such holder. The Corporation will mail written notice of such liquidation, dissolution or winding up, not less than thirty (30) days prior to the payment date stated therein, to each record holder of Series B Convertible Preferred Stock. Neither the consolidation or merger of the Corporation into or with any other corporation or corporations, nor the sale or transfer by the Corporation of all or any part of its assets, nor the reduction of the capital stock of the Corporation, will be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this Subsection (b). (c) Stock Combinations and Subdivisions. Subject to the rights, preferences and privileges of any Common Stock and other series of Preferred Stock outstanding from time to time and to the immediately following sentence, in the event the Corporation in any manner subdivides or combines the outstanding shares of any class of common stock, the Series B Convertible Preferred Stock shall automatically be combined or subdivided in such manner as may be permitted by applicable law so that following such an event, the conversion rate, ownership interest and voting interests of the Series B Convertible Preferred Stock shall be equitably preserved. Series B Convertible Preferred Stock shall not be combined or subdivided unless at the same time there is a proportionate combination or subdivision of all other classes and series of capital stock of the Corporation. (d) Voting. The holders of Series B Convertible Preferred Stock shall be entitled to vote as a separate class on all such matters as may be required by law to be submitted to such holders as a separate class and shall have the following additional rights: (i) no amendment, modification or waiver will be binding or effective with respect to any provision of this Section 2 unless approved by the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series B Convertible Preferred Stock voting together as a separate class; and 13 14 (ii) the affirmative vote of the holders of two-thirds of the outstanding shares of Series B Convertible Preferred Stock voting together as a separate class shall be necessary to increase the number of authorized shares of Preferred Stock or authorize or issue any additional shares of any series of Preferred Stock or any shares of capital stock of the Corporation of any class, or any security or obligations convertible into any capital stock of the Corporation of any class, in each case ranking on a parity with or senior to the Series B Convertible Preferred Stock as to distribution of assets in liquidation or in right of payment of dividends. In all other matters, subject to voting rights that may be granted to holders of other classes or series of Preferred Stock and Common Stock outstanding from time to time, the holders of Series B Convertible Preferred Stock shall vote together with the holders of Common Stock and the holders of all other series of Preferred Stock as a single class. In all matters that the holders of Series B Convertible Preferred Stock are entitled to so vote, such holders initially shall be entitled to 1.05 votes per share of Series B Convertible Preferred Stock. In the event that the number of Fully-Diluted shares of Class A Common Stock into which the Series B Convertible Preferred Stock is convertible increases above 599,216, then for each such additional Fully-Diluted share, the aggregate voting rights of the holders of Series B Convertible Preferred Stock shall increase by one vote. (iii) The Purchasers of Series A Redeemable Preferred Stock and the Purchasers of Series B Convertible Preferred Stock pursuant to the Purchase Agreement, voting together as a separate class, shall be entitled to elect one (1) Director under the circumstances described in this Subsection (d)(iii). In addition, the Purchasers of Series A Redeemable Preferred Stock and the Purchasers of Series B Convertible Preferred Stock, voting together as a separate class, shall be entitled to vote on the removal, with or without cause, of any Director elected by them pursuant to this Subsection (d)(iii). Any vacancy in the office of a Director elected by the Purchasers of Series A Redeemable Preferred Stock and Purchasers of Series B Convertible Preferred Stock may be filled by a vote of such Purchasers voting together as a separate class. In the absence of such a vote within 30 days, any such vacancy may be filled by the remaining Directors. Any Directors elected by the Board of Directors to fill a vacancy shall serve until the next annual meeting of shareholder and until his successor has been duly elected and qualified. The rights of the Purchasers hereunder shall commence on May 31, 2000, if a Qualified IPO has not occurred before that date and shall terminate thereafter upon the occurrence of a Qualified IPO. 14 15 (e) Conversion. (i) Upon the occurrence of a Triggering Event, all of the issued and outstanding shares of Series B Convertible Preferred Stock shall be automatically converted into that number of fully paid and nonassessable shares of Class A Common Stock at the Conversion Rate. The Class A Common Stock shall be allocated among the holders of Series B Convertible Preferred Stock on a pro-rata basis in accordance with their respective percentage ownership of Series B Convertible Preferred Stock. Notwithstanding Subsection (e)(ii) below, such conversion shall be deemed to have been made at 12:01 a.m. on the day of the date on which the Triggering Event occurs, and the holders of shares of Series B Convertible Preferred Stock shall be treated for all purposes as the record holders of such shares of Class A Common Stock on that date. (ii) Any conversion provided for in this Subsection (e) shall be effected by the holders of Series B Convertible Preferred Stock surrendering their certificates for such shares, duly endorsed, at the office of the Corporation or any transfer agent for the Series B Convertible Preferred Stock, together with written notices stating the name or names in which each such holder desires the certificate or certificates for such shares of Class A Common Stock to be issued. Promptly thereafter, the Corporation shall issue and deliver to such holders or such holders' nominees, a certificate or certificates for the number of shares of Class A Common Stock to which such holder shall be entitled in accordance with the foregoing provisions. The Corporation shall pay all taxes and other charges in respect of the issuance of shares of Class A Common Stock upon any such conversion; provided, however, that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of the shares of the Class A Common Stock in a name other than that in which the shares of Series B Convertible Preferred Stock so converted were registered. (iii) The Corporation shall at all times reserve and keep available out of the authorized and unissued shares of Class A Common Stock, solely for the purpose of effecting the conversion of issued and outstanding shares of Series B Convertible Preferred Stock, such number of shares of Class A Common Stock as shall from time to time be sufficient to effect the conversion of all issued and outstanding shares of Series B Convertible Preferred Stock and if, at any time, the number of authorized and unissued shares of Class A Common Stock shall not be sufficient to effect conversion of the then issued and outstanding shares of Series B Convertible Preferred Stock, the Corporation shall take such corporate action as may be necessary to increase the number of authorized and unissued shares of Class A Common Stock to such number as shall be sufficient for such purposes. 15 16 (f) Reorganization, Reclassification, Merger, Consolidation or Disposition of Assets. (i) All of the issued and outstanding shares of Class B Convertible Preferred Stock may be converted at the Current Market Price per share into shares of Class A Common Stock in accordance with the applicable provisions of Subsection (e) in the event the Corporation shall reorganize its capital pursuant to a spin off or otherwise, reclassify its capital stock, consolidate or merge with or into another corporation (where there is a change in or distribution with respect to the Class A Common Stock of the Corporation), or sell, transfer or otherwise dispose of all of its property, assets or business to another corporation other than in a Company Sale (a "Reorganization Event"). If pursuant to the terms of such Reorganization Event, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation (herein referred to as "Other Property"), are to be received by or distributed to the holders of Class A Common Stock of the Corporation, each holder of Series B Convertible Preferred Stock shall have the right thereafter to receive, after giving effect to such conversion, the number of shares of common stock of the successor or acquiring corporation or of the Corporation, if it is the surviving corporation, and Other Property receivable upon or as a result of such Reorganization Event by a holder of the number of shares of Class A Common Stock for which such Series B Convertible Preferred Stock is convertible immediately prior to such event. For purposes of this Subsection (f), "common stock of the successor or acquiring corporation" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event, and any warrants, options or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Subsection (f) shall similarly apply to successive Reorganization Events. (ii) Upon the occurrence of any Reorganization Event, the Corporation shall forthwith prepare a certificate to be executed by the chief financial officer of the Corporation setting forth, in reasonable detail, the events described therein and the number of shares or Other Property receivable by the holders of the Series B Convertible Preferred Stock. The Corporation shall promptly cause a signed copy of such certificate to be delivered to each holder of Series B Convertible Preferred Stock no later than 5 days prior to the anticipated occurrence of such event. In addition, holders of Series B Convertible Preferred Stock shall be entitled to the 16 17 same rights to receive notice of corporate action as any holder of Class A Common Stock. (g) Put to the Corporation. (i) If, by November 20, 2002 (the "Put Date"), there shall not have occurred a Triggering Event, then the holders of Series B Convertible Preferred Stock shall have the right to sell to the Corporation all of the issued and outstanding shares of Series B Convertible Preferred Stock, and the Corporation shall have the obligation to purchase from such holders any of such shares so put to the Corporation, at the price (the "Put Price") equal to the Current Market Price of the Class A Common Stock that would otherwise then be issuable upon conversion of the Series B Convertible Preferred Stock. (ii) Holders of Series B Convertible Preferred Stock shall exercise their right to require the Corporation to purchase their shares as provided for in Subsection (g)(i) by delivering a written notice to the Corporation (the "Notice") no later than thirty (30) days after the Put Date. Within thirty (30) days after receipt by the Corporation of any such Notice, the Corporation shall deliver to each holder of Series B Convertible Preferred Stock so exercising its rights under this Subsection (g) the Put Price to which said holder is entitled, as determined hereunder, in exchange for the stock certificate(s) evidencing all of the shares of Series B Convertible Preferred Stock, duly endorsed for transfer to the Corporation. In the event that the Corporation is unable to purchase all of the shares of Series B Convertible Stock put to it hereunder due to lack of funds legally available therefor or otherwise, the Corporation shall purchase from the holders thereof, on a pro-rata basis, that number of shares which it is able to purchase using funds legally available therefor, and shall purchase any remaining shares at such time as funds are legally available therefor. (h) Definitions. For purposes of this Section (2) of Article 7 the following terms shall have the following meanings: "Appraised Value" shall mean, in respect of any share of Class A Common Stock as of any date herein specified, the fair saleable value of such share of Class A Common Stock determined without giving effect to a discount for (i) a minority interest or (ii) any lack of liquidity of the Class A Common Stock or to the fact that the Corporation may have no class of equity registered under the Exchange Act as of the last day of the most recent fiscal quarter end (within 60 days prior to such date specified) based upon the value of the Corporation as determined upon negotiation in good faith between the holders of a majority of the Series B Convertible Preferred Stock and the Corporation or, in the absence of an agreement between such persons within five business days (or such longer period as agreed to by such persons), by an investment banking firm satisfactory to both the Corporation 17 18 and the holders of a majority of the Series B Convertible Preferred Stock. The Corporation shall retain, at its sole cost, such investment banking firm as may be necessary for the determination of Appraised Value. "Business Day" shall mean any day other than a Saturday, Sunday or a day on which commercial banks in Nashville, Tennessee are required or authorized by law to be closed. "Commission" means the Securities and Exchange Commission. "Common Equivalent Shares" shall have the meaning set forth in the Shareholders' Agreement, dated April 2, 1992, as amended between the Corporation, its Founding Investors, its Founding Management and the Preferred Stock Purchasers. "Common Stock" shall mean collectively the Corporation's authorized shares of Class A Common Stock, no par value, and Class B Common Stock, no par value. "Company Sale" shall mean the sale or other disposition of all or substantially all of the stock or assets of the Corporation to an independent third party in an arms-length transaction, including disposition by merger, share exchange or lease yielding net cash proceeds to the Corporation of at least $25,000,000 or, in the event that the Corporation has completed a Spin Off, such disposition yielding net cash proceeds or freely marketable securities to the Corporation and/or its shareholders of at least $20,000,000. "Convertible Securities" shall mean evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable, with or without payment of additional consideration in cash or property, for Class A Common Stock, either immediately or upon the occurrence of a specified date or a specified event. "Conversion Rate" shall mean that rate which results in the holders of Series B Convertible Preferred Stock thereafter holding, in the aggregate, the following percentage of the total issued and outstanding Fully Diluted Common Stock, after giving effect to the conversion contemplated herein: If the Triggering Event occurs on or before November 20, 1998 - 6% of Fully Diluted Shares If the Triggering Event occurs on or before November 20, 1999 - 6.5% of Fully Diluted Shares If the Triggering Event occurs on or before November 20, 2000 - 7% of Fully Diluted Shares 18 19 If the Triggering Event occurs after November 20, 2000 - 8% of Fully Diluted Shares "Current Market Price" shall mean, in respect of any share of Common Stock on any date herein specified, the greater of (i) book value per share of Common Stock as determined by the Corporation's financial statements for the most recently ended fiscal quarter, (ii) the Liquidation Value per share of the Series B Convertible Preferred Stock, (iii) a valuation per share of Common Stock of eight (8) times Net EBITDA for the most recently ended four quarters, and (iv) the Appraised Value per share of Common Stock. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. "Fully-Diluted" shall mean, when used with reference to Common Stock, at any date as of which the number of shares thereof is to be determined, all shares of Common Stock outstanding as of November 20, 1996, increased by all shares of Class A Common Stock issuable in respect of Series B Convertible Preferred Stock and increased by all Common Equivalent Shares (using the treasury stock method) issuable upon exercise of stock options, warrants or convertible securities (other than the shares issuable upon conversion of the Series A Redeemable Preferred Stock) and increased by shares issued to the Founding Investors and Founding Management pursuant to the Corporation's Shareholders' Agreement dated as of April 2, 1992, as amended, for consideration of up to $1,300,000. In the event that the Corporation creates an additional class or series of common stock, Fully Diluted shall take into account all such outstanding shares of any other class or series. "Independent Auditors" means Deloitte & Touche, LLP or another "big six" accounting firm. "Junior Security" means Common Stock and any other equity security, other than the Series A Redeemable Preferred Stock, of any kind which the Corporation at any time issues or is authorized to issue. "Liquidation Value" of any share of Series B Convertible Preferred Stock as of any particular date will be the purchase price of such Stock. "Net EBITDA" shall mean the Corporation's earnings before interest, taxes, depreciation, amortization and extraordinary items less minority interest expense, all as determined based on the audited financial statements for such period prepared by the Corporation's independent auditors in accordance with GAAP. "Preferred Stock" shall mean the Corporation's authorized shares of preferred stock, no par value. 19 20 "Purchase Agreement" shall mean the Preferred Stock Purchase Agreement, dated as of November 20, 1996, by and among the Corporation, Electra Investment Trust PLC, Capitol Health Partners, L.P. and Michael E. Stephens. "Purchasers" shall mean Electra Investment Trust PLC, Capitol Health Partners, L.P. and Michael E. Stephens. "Qualified IPO" means an initial public offering of Common Stock of the Corporation yielding net cash proceeds to the Corporation of at least $25,000,000, or in the event that the Corporation has completed a Spin Off, a public offering of Common Stock yielding net cash proceeds to the Corporation and/or its shareholders of at least $20,000,000. "Reorganization Event" shall have the meaning set forth in Subsection (f). "Spin Off" means the recapitalization of all of the issued and outstanding Common Stock in a reorganization within the meaning of Section 368(a)(i)(E) of the Internal Revenue Code of 1986, as amended (the "Code"), and the distribution of all shares of Common Stock held by American Healthcorp, Inc. ("AHC") pro rata among the shareholders of AHC in a tax-free distribution under Section 355 of the Code. "Stock Option Plan" means shares issued pursuant to the Corporation's 1992 Stock Option Plan, as it may be amended from time to time, and any other similar share incentive plans which the Corporation may adopt and any options granted to members of the Board of Directors and Medical Directors of the Corporation. "Triggering Event" shall mean the occurrence the earlier of (i) a Company Sale or (ii) a Qualified IPO. (i) Notices. All written communications provided for hereunder shall be sent by first-class mail or nationwide overnight delivery service (with charges prepaid) or via facsimile transmission and shall be directed to the relevant party at its address stated below: If to Electra: Electra Investment Trust PLC 65 Kingsway London, England WC2B 6QT Attention: Philip J. Dyke, Company Secretary Telecopy No.: 011-44-71-404-5388 20 21 with copies to: Electra, Inc. 70 East 55th Street New York, New York 10022 Attention: Scott D. Steele Telecopy No.: (212) 319-3069 and Willkie Farr & Gallagher One Citicorp Center 153 East 53rd Street New York, New York 10022 Attention: Peter J.Hanlon, Esq. Telecopy No.: (212) 821-8111 If to CHP: Capitol Health Partners, L.P. 3000 P Street, N.W. Washington, D.C. 20005 Attention: Debora A. Guthrie Telecopy No.: (202) 965-2344 with copies to: Manatt, Phelps & Phillips, LLP 1501 M Street N.W. Washington, D.C. 20009 Attention: Joseph F. Kelly, Jr. Telecopy No.: (202) 463-4394 If to Michael E. Stephens: One Perimeter Park South Suite 100N Birmingham, AL 35243 Telecopy No.: (205) 970-6524 with copies to: Bradley, Arant Rose & White 2001 Park Place Suite 1400 Birmingham, AL 35203 Attention: Thomas Carruthers Telecopy No.: (205) 252-0264 21 22 If to any other holder of any shares of Preferred Stock addressed to such holder at such address as such other holder shall have specified to the Corporation in writing or, if any such other holder shall not have so specified an address to the Corporation, then addressed to such other holder in care of the last holder of such shares of Series B Convertible Preferred Stock which shall have so specified an address. Each party may, by notice given hereunder, designate any further or different addresses to which subsequent notices, certificates or other communications shall be sent. If to the Corporation: AmSurg Corp. One Burton Hills Boulevard Suite 350 Nashville, TN 37215 Attention: Claire M. Gulmi Telecopy No.: (615) 665-0755 with copies to: Bass, Berry & Sims PLC 2700 First American Center Nashville, TN 37238 Attention: Cynthia Y. Reisz Telecopy No.: (615) 742-6293 (j) Registration of Transfer. The Corporation shall keep at its principal office (or such other place as the Corporation designates) a register for the registration of shares of Series B Convertible Preferred Stock of the Corporation. Upon the surrender of any certificate representing shares of Series B Convertible Preferred Stock at such place, the Corporation shall, at the request of the registered holder of such certificate, execute and deliver a new certificate or certificates in exchange therefor representing in the aggregate the number of shares of Series B Convertible Preferred Stock represented by the surrendered certificate (and the Corporation forthwith shall cancel such surrendered certificate), subject to the requirements of applicable securities laws and to any restrictions on transfer (including without limitation, those referred to in any legend on the certificate so surrendered). Each such new certificate shall be registered in such name and shall represent such number of shares of Series B Convertible Preferred Stock as is requested by the holder of the surrendered certificate and shall be substantially identical in form to the surrendered certificate. The issuance of new certificates shall be made without charge to the holders of the surrendered certificates for any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such issuance; provided, however, that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the holder of the surrendered certificate. 22 23 (k) Replacement. Upon receipt of evidence reasonably satisfactory to the Corporation (an affidavit of the registered holder shall be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing one or more shares of Series B Convertible Preferred Stock and, in the case of any such loss, theft or destruction, upon receipt of an unsecured indemnity agreement satisfactory to the Corporation or, in the case of any such mutilation, upon surrender of such certificate, the Corporation shall execute and deliver in lieu of such certificate a new certificate of like kind representing the number of shares of Series B Convertible Preferred Stock represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate. (l) Restrictive Legend. The Series B Convertible Preferred Stock, and all shares of Common Stock issued upon conversion hereof, shall be stamped or otherwise imprinted with a legend in substantially the following form: "THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES AND ANY SECURITIES OR SHARES ISSUED HEREUNDER MAY NOT BE SOLD, OFFERED FOR SALE OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED." (3) Common Stock. Except as otherwise provided in this Section (3) of Article 7, the Class A Common Stock and the Class B Common Stock shall have the same rights and privileges and shall rank equally, share ratably and be identical in all respects and as to all matters. All subsection references contained herein shall be to this Section (3) of Article 7. (a) Voting. (i) Except as required by law and subject to any voting rights provided to holders of Preferred Stock or any other class of Common Stock by this Charter, at every meeting of shareholders of the Corporation, every holder of Class A Common Stock shall be entitled to one vote and every holder of Class B Common Stock shall be entitled to ten votes, in person or by proxy, for each share of Class A Common Stock and Class B Common Stock, respectively, standing in such holder's name on the stock transfer records of the Corporation in the election of the Corporation's Board of Directors or the removal, but only for cause (as defined in Section 9 hereof), of any Director. On all other matters, the holders of 23 24 the Class A Common Stock and the Class B Common Stock shall be entitled to one vote in person or by proxy for each share of Class A Common Stock or Class B Common Stock standing in such holder's name on the stock transfer records of the Corporation. (ii) The holders of Class A Common Stock shall be entitled to vote separately as a group only with respect to (1) amendments to the Corporation's Charter that alter or change the powers, preferences or special rights of the holders of Class A Common Stock so as to affect them adversely, and (2) such other matters as may require separate group voting under the Tennessee Business Corporation Act. The holders of Class B Common Stock shall be entitled to vote separately as a group only with respect to (1) amendments to the Corporation's Charter that alter or change the powers, preferences or special rights of the holders of Class B Common Stock so as to affect them adversely, and (2) such other matters as may require separate group voting under the Tennessee Business Corporation Act. On each other matter, the holders of Class A Common Stock and Class B Common Stock shall vote together as a single group, together with the holders of any series of Preferred Stock entitled to vote on such matter, subject to any rights of such series of Preferred Stock to vote as a separate class on such matter. (b) Distribution of Assets. If the Corporation shall be liquidated, dissolved or wound up, whether voluntarily or involuntarily, the holders of the Class B Common Stock shall be entitled to share ratably with the holders of the Class A Common Stock of the Corporation as a single class in the net assets of the Corporation; that is, an equal amount of net assets for each share of Class A Common Stock and Class B Common Stock. A merger or consolidation of the Corporation with or into any other corporation or sale or conveyance of all or any part of the assets of the Corporation (which shall not in fact result in the liquidation of the Corporation and the distribution of assets to shareholders) shall not be deemed to be a voluntary or involuntary liquidation or dissolution or winding up of the Corporation within the meaning of this Subsection (b). (c) Merger or Consolidation. In the event of a merger, consolidation, share exchange or other business combination of the Corporation with or into another entity (whether or not the Corporation is the surviving entity), the holders of Class A Common Stock shall be entitled to receive the same per share consideration as the per share consideration, if any, received by any holder of the Class B Common Stock in such merger or consolidation, share exchange or other business combination. (d) Subdivisions and Combinations of Shares. If the Corporation in any manner subdivides or combines the outstanding shares of one class of Common Stock, the outstanding shares of the other class of Common Stock will be likewise subdivided or combined. 24 25 (e) Dividends; Distributions. Holders of Class A Common Stock and Class B Common Stock shall be entitled to receive, on an equal basis, such dividends, payable in cash or otherwise, as may be declared thereon by the Board of Directors from time to time out of the assets or funds of the Corporation legally available therefor. In the case of dividends and other distributions in cash, each share of Class A Common Stock shall have rights equal to the rights of Class B Common Stock, and in the case of dividends and other distributions of stock or property of the Corporation, each share of Class A Common Stock shall have rights equal to the rights of Class B Common Stock; provided that, in the case of dividends or distributions payable in stock of the Corporation, including distributions pursuant to stock splits or divisions which occur after the date shares of Class B Common Stock are issued, only shares of Class A Common Stock shall be distributed with respect to Class A Common Stock and Class B Common Stock; and provided, further that, if a dividend or distribution is declared with respect to Class A Common Stock payable in Class A Common Stock, the Board of Directors shall also declare a pro rata and simultaneous dividend or distribution on the Class B Common Stock and that if a dividend or distribution is declared with respect to Class B Common Stock payable in Class A Common Stock, the Board of Directors shall also declare a pro rata and simultaneous dividend or distribution on the Class A Common Stock. (f) Issuance of the Class B Common Stock. The Corporation shall not issue additional shares of Class B Common Stock after the date shares of Class B Common Stock are first issued by the Corporation. (g) Open Market Purchases and Issuer Tender Offers. If the Corporation publicly offers to purchase any shares of Class B Common Stock in the open market or in private transactions or pursuant to an issuer tender offer, the Corporation shall simultaneously offer to purchase at least the same number of shares of Class A Common Stock on the same terms and conditions. (h) Authorized Shares. The number of authorized shares of Class B Common Stock may not be increased unless approved by the holders of a majority of the then outstanding shares of Class A Common Stock voting separately as a class. (i) Amendment or Modification. None of the powers, preferences and relative rights of the Class A Common Stock or the Class B Common Stock as provided herein shall be amended in any manner which would alter or change the powers, preferences and relative rights of the holders of Class A Common Stock or Class B Common Stock, as the case may be, so as to adversely affect them without being approved by the holders of Class A Common Stock or Class B Common Stock, as the case may be, voting as a separate class. 8. The shareholders of the Corporation shall not have preemptive rights. 25 26 9. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be managed under the direction of, a Board of Directors consisting of not less than three nor more than twelve directors, the exact number of Directors to be determined in the manner provided in the Bylaws of the Corporation. The Board of Directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as possible, of one-third of the total number of Directors constituting the entire Board of Directors. Each class of Directors shall be elected for a three-year term, except at the 1997 annual meeting of shareholders, Class I Directors shall be elected for a one-year term; Class II Directors shall be elected for a two-year term; and Class III Directors shall be elected for a three-year term. If the number of Directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of Directors in each class as nearly equal as possible, and any additional Director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of Directors shorten the term of any incumbent Director. A Director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. A Director may be removed from office but only for "cause" by the affirmative vote of the holders of a majority of the voting power of the shares entitled to vote for the election of Directors, considered for this purpose as one class. "Cause" shall be defined for purposes of this Section 9 as (i) a felony conviction of a Director or the failure of a Director to contest prosecution for a felony; (ii) conviction of a crime involving moral turpitude; or (iii) willful and continued misconduct or gross negligence by a Director in the performance of his duties as a director. Notwithstanding any other provisions of this Charter, the affirmative vote of holders of two-thirds of the voting power of the shares entitled to vote at an election of Directors shall be required to amend, alter, change or repeal, or to adopt any provisions as part of this Charter or as part of the Corporation's Bylaws inconsistent with the purpose and intent of, this Article 9. 10. To the fullest extent permitted by the Tennessee Business Corporation Act as in effect on the date hereof and as hereafter amended from time to time, a Director of the Corporation shall not be liable to the Corporation or its shareholders for monetary damages for breach of fiduciary duty as a director. If the Tennessee Business Corporation Act or any successor statute is amended after adoption of this provision to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a Director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Tennessee Business Corporation Act, as so amended from time to time, or such successor statute. Any repeal or modification of this Article 10 by the shareholders of the Corporation shall not affect adversely any right or protection of a Director of the Corporation existing at the time of such repeal or modification or with respect to events occurring prior to such time. 26 27 11. The Corporation shall indemnify every person who is or was a party or is or was threatened to be made a party to any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, by reason of the fact that he or she is or was a director, medical director or officer or is or was serving at the request of the Corporation as a director, medical director, officer, employee, agent, or trustee of another corporation or of a partnership, joint venture, trust, employee benefit plan, or other enterprise, including service on a committee formed for any purpose (and, in each case, his or her heirs, executors, and administrators), against all expense, liability, and loss (including counsel fees, judgments, fines, ERISA excise taxes, penalties, and amounts paid in settlement) actually and reasonably incurred or suffered in connection with such action, suit, or proceeding, to the fullest extent permitted by applicable law, as in effect on the date hereof and as hereafter amended. Such indemnification shall include advancement of expenses in advance of final disposition of such action, suit, or proceeding, subject to the provision of any applicable statute. The indemnification and advancement of expenses provisions of this Article 11 shall not be exclusive of any other right that any person (and his or her heirs, executors, and administrators) may have or hereafter acquire under any statute, this Charter, the Corporation's Bylaws, resolution adopted by the shareholders, resolution adopted by the Board of Directors, agreement, or insurance, purchased by the Corporation or otherwise, both as to action in his or her official capacity and as to action in another capacity. The Corporation is hereby authorized to provide for indemnification and advancement of expenses through its Bylaws, resolution of shareholders, resolution of the Board of Directors, or agreement, in addition to that provided by this Charter. 12. The Bylaws of this Corporation may be amended, altered, modified, or repealed by resolution adopted by the Board of Directors, subject to any provisions of law then applicable. 13. The Corporation shall hold a special meeting of shareholders only in the event (a) of a call of the Board of Directors of the Corporation or the officers authorized to do so by the Bylaws of the Corporation, or (b) the holders of at least fifteen (15%) percent of the voting power of each of the Class A Common Stock and the Class B Common Stock, sign, date, and deliver to the Corporation's secretary one or more written demands for the meeting describing the purpose or purposes for which it is to be held. 14. As a result of the recapitalization of the Corporation effected by this Amended and Restated Charter, each holder of three shares of common stock of the Corporation registered on the stock transfer records of the Corporation immediately prior to the filing of this Amended and Restated Charter will automatically be deemed to hold, in respect of such shares, one share of Class A Common Stock registered on the stock transfer records of the Corporation immediately after the filing of this Amended and Restated Charter. In the event that the recapitalization effected by this Amended and Restated Charter would result in any holder holding fractional shares of Class A Common Stock, the total number of fractional shares held by all such holders will be aggregated and sold on behalf of the holders who would otherwise receive fractional shares and the proceeds of the sale will be paid to the holders in lieu of such fractional shares. Each certificate representing shares of common stock of the Corporation issued prior to the filing of this Amended and Restated 27 28 Charter will be deemed to represent the number of shares of Class A Common Stock that the holder of such shares registered on the stock transfer records of the Corporation immediately prior to the filing of this Amended and Restated Charter would be deemed to hold immediately following the filing of this Amended and Restated Charter. III. The Amended and Restated Charter as set forth above was duly adopted effective December 1, 1997, by the Board of Directors and shareholders of the Corporation. AmSurg Corp. By: Title: _____________________________ 28 EX-3.2 5 AMENDED AND RESTATED BYLAWS 1 EXHIBIT 3.2 AMENDED AND RESTATED BYLAWS OF AMSURG CORP. (THE "CORPORATION") ARTICLE I. OFFICES The Corporation may have such offices, either within or without the State of Tennessee, as the Board of Directors may designate or as the business of the Corporation may require from time to time. ARTICLE II. SHAREHOLDERS 2.1 ANNUAL MEETING. An annual meeting of the shareholders of the Corporation shall be held on such date as may be determined by the Board of Directors. The business to be transacted at such meeting shall be the election of directors and such other business as shall be properly brought before the meeting. 2.2 SPECIAL MEETINGS. A special meeting of shareholders shall be held on call of the Board of Directors or if the holders of at least fifteen percent (15%) of the voting power of each of the Class A Common Stock and the Class B Common Stock sign, date, and deliver to the Corporation's Secretary one (1) or more written demands for the meeting describing the purpose or purposes for which such special meeting is to be held, including all statements necessary to make any statement of such purpose not incomplete, false or misleading, and include any other information specified in Schedule 14A, Rule 14a-3, Rule 14a-8, or Rule 14a-11 of the Rules and Regulations of the Securities and Exchange Commission. Only business within the purpose or purposes described in the meeting notice may be conducted at a special shareholders' meeting. 2 2.3 PLACE OF MEETINGS. The Board of Directors may designate any place, either within or without the State of Tennessee, as the place of meeting for any annual meeting or for any special meeting. If no place is fixed by the Board of Directors, the meeting shall be held at the principal office of the Corporation. 2.4 NOTICE OF MEETINGS; WAIVER. (A) NOTICE. Notice of the date, time and place of each annual and special shareholders' meeting and, in the case of a special meeting, a description of the purpose or purposes for which the meeting is called, shall be given no fewer than ten (10) days nor more than two (2) months before the date of the meeting. Such notice shall comply with the requirements of Article XI of these Bylaws. (B) WAIVER. A shareholder may waive any notice required by law, the Corporation's Amended and Restated Charter (the "Charter") or these Bylaws before or after the date and time stated in such notice. Except as provided in the next sentence, the waiver must be in writing, be signed by the shareholder entitled to the notice and be delivered to the Corporation for inclusion in the minutes or filing with the corporate records. A shareholder's attendance at a meeting: (1) waives objection to lack of notice or defective notice of the meeting, unless the shareholder at the beginning of the meeting (or promptly upon his arrival) objects to holding the meeting or transacting business at the meeting; and (2) waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the shareholder objects to considering the matter when it is presented. 2.5 RECORD DATE. The Board of Directors shall fix as the record date for the determination of shareholders entitled to notice of a shareholders' meeting, to demand a special meeting, to vote, or to take any other action, a date not more than seventy (70) days before the meeting or action requiring a determination of shareholders. 2 3 A record date fixed for a shareholders' meeting is effective for any adjournment of such meeting unless the Board of Directors fixes a new record date, which it must do if the meeting is adjourned to a date more than four (4) months after the date fixed for the original meeting. 2.6 SHAREHOLDERS' LIST. After the record date for a meeting has been fixed, the Corporation shall prepare an alphabetical list of the names of all shareholders who are entitled to notice of a shareholders' meeting. Such list will show the address of and number of shares held by each shareholder. The shareholders' list will be available for inspection by any shareholder, beginning two (2) business days after notice of the meeting is given for which the list was prepared and continuing through the meeting, at the Corporation's principal office or at a place identified in the meeting notice in the city where the meeting will be held. A shareholder or his agent or attorney is entitled on written demand to inspect and, subject to the requirements of the Tennessee Business Corporation Act (the "Act"), to copy the list, during regular business hours and at his expense, during the period it is available for inspection. 2.7 VOTING GROUPS; QUORUM; ADJOURNMENT. All shares entitled to vote and be counted together collectively on a matter at a meeting of shareholders shall be a "voting group". Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. Except as otherwise required by the Act or provided in the Charter, a majority of the votes entitled to be cast on a matter by a voting group constitutes a quorum of that voting group for action on that matter. Once a share is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for that adjourned meeting. 3 4 If a quorum of a voting group shall not be present or represented at any meeting, the shares entitled to vote thereat shall have power to adjourn the meeting to a different date, time or place without notice other than announcement at the meeting of the new time, date or place to which the meeting is adjourned. At any adjourned meeting at which a quorum of any voting group shall be present or represented, any business may be transacted by such voting group which might have been transacted at the meeting as originally called. 2.8 VOTING OF SHARES. Unless otherwise provided by the Act or the Charter, each outstanding share is entitled to one (1) vote on each matter voted on at a shareholders' meeting. Only shares are entitled to vote. If a quorum exists, approval of action on a matter (other than the election of directors) by a voting group entitled to vote thereon is received if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless the Charter or the Act requires a greater number of affirmative votes. Unless otherwise provided in the Charter, directors are elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present. 2.9 PROXIES. A shareholder may vote his or her shares in person or by proxy. A shareholder may appoint a proxy to vote or otherwise act for him or her by signing an appointment either personally or through an attorney-in-fact. An appointment of a proxy is effective when received by the Secretary or other officer or agent authorized to tabulate votes. An appointment is valid for eleven (11) months unless another period is expressly provided in the appointment form. An appointment of a proxy is revocable by the shareholder unless the appointment form conspicuously states that it is irrevocable and the appointment is coupled with an interest. 4 5 2.10 ACCEPTANCE OF SHAREHOLDER DOCUMENTS. If the name signed on a shareholder document (a vote, consent, waiver, or proxy appointment) corresponds to the name of a shareholder, the Corporation, if acting in good faith, is entitled to accept such shareholder document and give it effect as the act of the shareholder. If the name signed on such shareholder document does not correspond to the name of a shareholder, the Corporation, if acting in good faith, is nevertheless entitled to accept such shareholder document and to give it effect as the act of the shareholder if: (I) the shareholder is an entity and the name signed purports to be that of an officer or agent of the entity; (II) the name signed purports to be that of a fiduciary representing the shareholder and, if the Corporation requests, evidence of fiduciary status acceptable to the Corporation has been presented with respect to such shareholder document; (III) the name signed purports to be that of a receiver or trustee in bankruptcy of the shareholder and, if the Corporation requests, evidence of this status acceptable to the Corporation has been presented with respect to the shareholder document; (IV) the name signed purports to be that of a pledgee, beneficial owner, or attorney-in-fact of the shareholder and, if the Corporation requests, evidence acceptable to the Corporation of the signatory's authority to sign for the shareholder has been presented with respect to such shareholder document; or (V) two or more persons are the shareholder as co-tenants or fiduciaries and the name signed purports to be the name of at least one (1) of the co-owners and the person signing appears to be acting on behalf of all the co-owners. 5 6 The Corporation is entitled to reject a shareholder document if the Secretary or other officer or agent authorized to tabulate votes, acting in good faith, has a reasonable basis for doubt about the validity of the signature on such shareholder document or about the signatory's authority to sign for the shareholder. 2.11 ACTION WITHOUT MEETING. Action required or permitted by the Act to be taken at a shareholders' meeting may be taken without a meeting. If all shareholders entitled to vote on the action consent to taking such action without a meeting, the affirmative vote of the number of shares that would be necessary to authorize or take such action at a meeting is the act of the shareholders. The action must be evidenced by one (1) or more written consents describing the action taken, at least one of which is signed by each shareholder entitled to vote on the action in one (1) or more counterparts, indicating such signing shareholder's vote or abstention on the action and delivered to the Corporation for inclusion in the minutes or for filing with the corporate records. If the Act or the Charter requires that notice of a proposed action be given to nonvoting shareholders and the action is to be taken by consent of the voting shareholders, then the Corporation shall give its nonvoting shareholders written notice of the proposed action at least ten (10) days before such action is taken. Such notice shall contain or be accompanied by the same material that would have been required to be sent to nonvoting shareholders in a notice of a meeting at which the proposed action would have been submitted to the shareholders for action. 2.12 PRESIDING OFFICER AND SECRETARY. Meetings of the shareholders shall be presided over by the Chairman of the Board (the "Chairman"), or if the Chairman is not present or if the Corporation shall not have a Chairman, by the President or Chief Executive Officer, or if neither the Chairman nor the President or Chief Executive Officer is present, by a chairman chosen by a majority of the shareholders entitled to vote at such meeting. 6 7 The Secretary or, in the Secretary's absence, an Assistant Secretary shall act as secretary of every meeting, but if neither the Secretary nor an Assistant Secretary is present, a majority of the shareholders entitled to vote at such meeting shall choose any person present to act as secretary of the meeting. 2.13 NOTICE OF NOMINATIONS. Nominations for the election of directors may be made by the Board of Directors or a committee appointed by the Board of Directors authorized to make such nominations or by any shareholder entitled to vote in the election of directors generally. However, any such shareholder nomination may be made only if written notice of such nomination has been given, either by personal delivery or the United States mail, postage prepaid, to the Secretary of the Corporation not later than (a) with respect to an election to be held at an annual meeting of shareholders, one hundred twenty (120) days in advance of the anniversary date of the proxy statement for the previous year's annual meeting, and (b) with respect to an election to be held at a special meeting of shareholders for the election of directors called other than by written request of a shareholder, the close of business on the tenth day following the date on which notice of such meeting is first given to shareholders, and (c) in the case of a special meeting of shareholders duly called upon the written request of a shareholder to fill a vacancy or vacancies (then existing or proposed to be created by removal at such meeting), within ten (10) business days of such written request. In the case of any nomination by the Board of Directors or a committee appointed by the Board of Directors authorized to make such nominations, compliance with the proxy rules of the Securities and Exchange Commission shall constitute compliance with the notice provisions of the preceding sentence. In the case of any nomination by a shareholder, each such notice shall set forth: (a) as to each person whom the shareholder proposes to nominate for election or re-election as a director, (i) the name, age, business address, and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of the Corporation which are beneficially owned by 7 8 such person, and (iv) any other information relating to such person that is required to be disclosed in solicitations of proxies with respect to nominees for election as directors, pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including without limitation such person's written consent to being named in the proxy statement as a nominee and to serving as a director, if elected); and (b) as to the shareholder giving the notice (i) the name and address, as they appear on the Corporation's books, of such shareholder, and (ii) the class and number of shares of the Corporation which are beneficially owned by such shareholder; and (c) a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder. The President, Chief Executive Officer, or chairman of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. 2.14 NOTICE OF NEW BUSINESS. At an annual meeting of the shareholders only such new business shall be conducted, and only such proposals shall be acted upon, as have been properly brought before the meeting. To be properly brought before the annual meeting such new business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a shareholder. For a proposal to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the Secretary of the Corporation and the proposal and the shareholder must comply with Rule 14a-8 under the Securities Exchange Act of 1934. To be timely, a shareholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation within the time limits specified by Rule 14a-8. 8 9 A shareholder's notice to the Secretary shall set forth as to each matter the shareholder proposes to bring before the annual meeting (a) a brief description of the proposal desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the Corporation's books, of the shareholder proposing such business, (c) the class and number of shares of the Corporation which are beneficially owned by the shareholder, and (d) any financial interest of the shareholder in such proposal. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section 2.14. The President, Chief Executive Officer, or chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that new business or any shareholder proposal was not properly brought before the meeting in accordance with the provisions of this Section 2.14, and if he or she should so determine, he or she shall so declare to the meeting and any such business or proposal not properly brought before the meeting shall not be acted upon at the meeting. This provision shall not prevent the consideration and approval or disapproval at the annual meeting of reports of officers, directors and committees, but in connection with such reports no new business shall be acted upon at such annual meeting unless stated and filed as herein provided. 2.15 CONDUCT OF MEETINGS. Meetings of the shareholders generally shall follow accepted rules of parliamentary procedure subject to the following: (a) The President, Chief Executive Officer, or chairman of the meeting shall have absolute authority over the matters of procedure, and there shall be no appeal from the ruling of the President, Chief Executive Officer, or chairman. If, in his or her absolute discretion, the President, Chief Executive Officer, or chairman deems it advisable to dispense with the rules of parliamentary procedure as to any meeting 9 10 of shareholders or part thereof, he or she shall so state and shall state the rules under which the meeting or appropriate part thereof shall be conducted. (b) If disorder should arise which prevents the continuation of the legitimate business of the meeting, the President, Chief Executive Officer, or chairman may quit the chair and announce the adjournment of the meeting, and upon so doing, the meeting will immediately be adjourned. (c) The President, Chief Executive Officer, or chairman may ask or require that anyone not a bona fide shareholder or proxy leave the meeting. (d) The resolution or motion shall be considered for vote only if proposed by a shareholder or a duly authorized proxy and seconded by a shareholder or duly authorized proxy other than the individual who proposed the resolution or motion. (e) Except as the President, Chief Executive Officer, or chairman may permit, no matter shall be presented to the meeting which has not been submitted for inclusion in the agenda at least thirty (30) days prior to the meeting. ARTICLE III. DIRECTORS 3.1 POWERS AND DUTIES. All corporate powers shall be exercised by or under the authority of and the business and affairs of the Corporation managed under the direction of the Board of Directors. 3.2 NUMBER AND TERM. (A) NUMBER. The Board of Directors shall consist of no fewer than three (3) or more than twelve (12) members. The exact number of directors, within the minimum and maximum, or the range 10 11 for the size of the Board, or whether the size of the Board shall be fixed or variable-range may be fixed, changed or determined from time to time by the Board of Directors. (B) TERM. The Board of Directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as possible, of one-third of the total number of directors constituting the entire Board of Directors. Each class of directors shall be elected for a three-year term, except at the 1997 annual meeting of shareholders, Class I directors shall be elected for a one-year term; Class II directors shall be elected for a two-year term; and Class III directors shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his or her term expires and until his or her successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. 3.3 MEETINGS; NOTICE. The Board of Directors may hold regular and special meetings either within or without the State of Tennessee. The Board of Directors may permit any or all directors to participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication by which all directors participating may simultaneously hear each other during the meeting. A director participating in a meeting by this means is deemed to be present in person at the meeting. (A) REGULAR MEETINGS. Unless the Charter otherwise provides, regular meetings of the Board of Directors may be held without notice of the date, time, place, or purpose of the meeting. 11 12 (B) SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by the Chairman, the President, Chief Executive Officer, or one-third of the entire Board of Directors. Unless the Charter otherwise provides, special meetings must be preceded by at least twenty-four (24) hours' notice of the date, time, and place of the meeting but need not describe the purpose of such meeting. Such notice shall comply with the requirements of Article XI of these Bylaws. (C) ADJOURNED MEETINGS. Notice of an adjourned meeting need not be given if the time and place to which the meeting is adjourned are fixed at the meeting at which the adjournment is taken, and if the period of adjournment does not exceed one (1) month in any one (1) adjournment. (D) WAIVER OF NOTICE. A director may waive any required notice before or after the date and time stated in the notice. Except as provided in the next sentence, the waiver must be in writing, signed by the director, and filed with the minutes or corporate records. A director's attendance at or participation in a meeting waives any required notice to him or her of such meeting unless the director at the beginning of the meeting (or promptly upon his arrival) objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting. 3.4 QUORUM. Unless the Charter requires a greater number, a quorum of the Board of Directors consists of a majority of the fixed number of directors if the Corporation has a fixed board size or a majority of the number of directors prescribed, or if no number is prescribed, the number in office immediately before the meeting begins, if the Corporation has a variable range board. 12 13 3.5 VOTING. If a quorum is present when a vote is taken, the affirmative vote of a majority of directors present is the act of the Board of Directors, unless the Charter or these Bylaws require the vote of a greater number of directors. A director who is present at a meeting of the Board of Directors when corporate action is taken is deemed to have assented to such action unless: (I) he or she objects at the beginning of the meeting (or promptly upon his or her arrival) to holding the meeting or transacting business at the meeting; (II) his or her dissent or abstention from the action taken is entered in the minutes of the meeting; or (III) he or she delivers written notice of his or her dissent or abstention to the presiding officer of the meeting before its adjournment or to the Corporation immediately after adjournment of the meeting. The right of dissent or abstention is not available to a director who votes in favor of the action taken. 3.6 ACTION WITHOUT MEETING. Unless the Charter otherwise provides, any action required or permitted by the Act to be taken at a Board of Directors meeting may be taken without a meeting. If all directors consent to taking such action without a meeting, the affirmative vote of the number of directors that would be necessary to authorize or take such action at a meeting is the act of the Board of Directors. Such action must be evidenced by one or more written consents describing the action taken, at least one of which is signed by each director, indicating the director's vote or abstention on the action, which consents shall be included in the minutes or filed with the corporate records reflecting the action taken. Action taken by consent is effective when the last director signs the consent, unless the consent specifies a different effective date. 13 14 3.7 COMPENSATION. Directors and members of any committee created by the Board of Directors shall be entitled to such reasonable compensation for their services as directors and members of such committee as shall be fixed from time to time by the Board, and shall also be entitled to reimbursement for any reasonable expenses incurred in attending meetings of the Board or of any such committee meetings. Any director receiving such compensation shall not be barred from serving the Corporation in any other capacity and receiving reasonable compensation for such other services. 3.8 RESIGNATION. A director may resign at any time by delivering written notice to the Board of Directors, the Chairman, President, or Chief Executive Officer, or to the Corporation. A resignation is effective when the notice is delivered unless the notice specifies a later effective date. 3.9 VACANCIES. Unless the Charter otherwise provides, if a vacancy occurs on the Board of Directors, including a vacancy resulting from an increase in the number of directors or a vacancy resulting from the removal of a director with or without cause, either the shareholders or the Board of Directors may fill such vacancy. If the vacancy is filled by the shareholders, it shall be filled by a plurality of the votes cast at a meeting at which a quorum is present. If the directors remaining in office constitute fewer than a quorum of the Board of Directors, they may fill such vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the holders of shares of that voting group shall be entitled to vote to fill the vacancy if it is filled by the shareholders. 3.10 REMOVAL OF DIRECTORS. (A) BY SHAREHOLDERS. The shareholders may remove one (1) or more directors solely for cause as defined in the Charter. If cumulative voting is authorized, a director may not be removed for 14 15 cause if the number of votes sufficient to elect him or her under cumulative voting is voted against his or her removal. If cumulative voting is not authorized, a director may be removed for cause only if the number of votes cast to remove him or her exceeds the number of votes cast not to remove him or her. (B) GENERAL. A director may be removed for cause by the shareholders only at a meeting called for the purpose of removing him or her, and the meeting notice must state that the purpose, or one (1) of the purposes, of the meeting is removal of directors for cause. 3.11 ELECTRONIC COMMUNICATION. Any one or more members of the Board of Directors or any committee thereof may participate in a meeting of the Board of Directors or any such committee by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at a meeting. 3.12 CHAIRMAN OF THE BOARD. The Chairman of the Board shall be appointed from time to time by the Board of Directors and shall preside at all meetings of the Board of Directors and of the shareholders of the Corporation. ARTICLE IV. COMMITTEES Unless the Charter otherwise provides, the Board of Directors may create one (1) or more committees, each consisting of one (1) or more members. All members of committees of the Board of Directors which exercise powers of the Board of Directors must be members of the Board of Directors and serve at the pleasure of the Board of Directors. 15 16 The creation of a committee and appointment of a member or members to it must be approved by the greater of (i) a majority of all directors in office when the action is taken or (ii) the number of directors required by the Charter or these Bylaws to take action. Unless otherwise provided in the Act, to the extent specified by the Board of Directors or in the Charter, each committee may exercise the authority of the Board of Directors. All such committees and their members shall be governed by the same statutory requirements regarding meetings, action without meetings, notice and waiver of notice, quorum, and voting requirements as are applicable to the Board of Directors and its members. ARTICLE V. OFFICERS 5.1 NUMBER. The officers of the Corporation shall be a President, a Chief Executive Officer, a Chief Financial Officer, a Secretary and such other officers as may be from time to time appointed by the Board of Directors or by the Chairman or Chief Executive Officer with the Board of Directors' approval. The Chairman may, but need not be, an officer of the Corporation. One person may simultaneously hold more than one office, except the President may not simultaneously hold the office of Secretary. 5.2 APPOINTMENT. The principal officers shall be appointed annually by the Board of Directors at the first meeting of the Board following the annual meeting of the shareholders, or as soon thereafter as is conveniently possible. Each officer shall serve at the pleasure of the Board of Directors and until his or her successor shall have been appointed, or until his or her death, resignation, or removal. 16 17 5.3 RESIGNATION AND REMOVAL. An officer may resign at any time by delivering notice to the Corporation. Such resignation is effective when such notice is delivered unless such notice specifies a later effective date. An officer's resignation does not affect the Corporation's contract rights, if any, with the officer. The Board of Directors may remove any officer at any time with or without cause, but such removal shall not prejudice the contract rights, if any, of the person so removed. 5.4 VACANCIES. Any vacancy in an office for any reason may be filled for the unexpired portion of the term by the Board of Directors. 5.5 DUTIES. (A) CHAIRMAN. The Chairman shall preside at all meetings of the shareholders and the Board of Directors. (B) CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of the Corporation shall have general supervision over the active management of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. (C) PRESIDENT. The President shall have the general powers and duties of supervision and management usually vested in the office of the President of a corporation and shall perform such other duties as the Board of Directors may from time to time prescribe. (D) CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall, subject to the power of the President and the Chief Executive Officer, have general and active control of all of the financial matters of the Corporation and shall have all necessary powers to discharge such responsibility and shall perform such other duties as the Board of Directors, the President, the Chief Executive Officer or the Chairman may prescribe. 17 18 (E) VICE PRESIDENT. The Vice President or Vice Presidents (if any) shall be active executive officers of the Corporation, shall assist the Chairman, President, and Chief Executive Officer in the active management of the business, and shall perform such other duties as the Board of Directors may from time to time prescribe. (F) SECRETARY AND ASSISTANT SECRETARY . The Secretary or Assistant Secretary shall attend all meetings of the Board of Directors and all meetings of the shareholders and shall prepare and record all votes and all minutes of all such meetings in a book to be kept for that purpose. He or she shall also perform like duties for any committee when required. The Secretary or Assistant Secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the Board of Directors when required, and unless directed otherwise by the Board of Directors, shall keep a stock record containing the names of all persons who are shareholders of the Corporation, showing their place of residence and the number of shares held by each of them. The Secretary or Assistant Secretary shall have the responsibility of authenticating records of the Corporation. The Secretary or Assistant Secretary shall perform such other duties as may be prescribed from time to time by the Board of Directors. (G) OTHER OFFICERS. Other officers appointed by the Board of Directors shall exercise such powers and perform such duties as may be delegated to them. (H) DELEGATION OF DUTIES. In case of the absence or disability of any officer of the Corporation or of any person authorized to act in his or her place, the Board of Directors may from time to time delegate the powers and duties of such officer to any officer, or any director, or any other person whom it may select, during such period of absence or disability. 5.6 INDEMNIFICATION, ADVANCEMENT OF EXPENSES, AND INSURANCE. (A) INDEMNIFICATION AND ADVANCEMENT OF EXPENSES. The Corporation shall indemnify and advance expenses to each director, officer and medical director of the Corporation, or any 18 19 person who may have served at the request of the Corporation's Board of Directors or its President or Chief Executive Officer as a director or officer of another corporation (and, in either case, such person's heirs, executors, and administrators), to the full extent allowed by the laws of the State of Tennessee, both as now in effect and as hereafter adopted. The Corporation may indemnify and advance expenses to any employee or agent of the Corporation who is not a director or officer (and such person's heirs, executors, and administrators) to the same extent as to a director or officer, if the Board of Directors determines that doing so is in the best interests of the Corporation. (B) NON-EXCLUSIVITY OF RIGHTS. The indemnification and expense advancement provisions of subsection (a) of this Section 5.6 shall not be exclusive of any other right which any person (and such person's heirs, executors and administrators) may have or hereafter acquire under any statute, provision of the Charter, provision of these Bylaws, resolution adopted by the shareholders, resolution adopted by the Board of Directors, agreement, or insurance (purchased by the Corporation or otherwise), both as to action in such person's official capacity and as to action in another capacity. (C) INSURANCE. The Corporation may maintain insurance, at its expense, to protect itself and any individual who is or was a director, officer, employee, or agent of the Corporation, or who, while a director, officer, employee, or agent of the Corporation, is or was serving at the request of the Corporation's Board of Directors or its Chief Executive Officer as a director, officer, partner, trustee, employee, or agent of another corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise against any expense, liability, or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability, or loss under this Article or the Act. 19 20 ARTICLE VI. SHARES OF STOCK 6.1 SHARES WITH OR WITHOUT CERTIFICATES. The Board of Directors may authorize that some or all of the shares of any or all of the Corporation's classes or series of stock be evidenced by a certificate or certificates of stock. The Board of Directors may also authorize the issue of some or all of the shares of any or all of the Corporation's classes or series of stock without certificates. The rights and obligations of shareholders with the same class and/or series of stock shall be identical whether or not their shares are represented by certificates. (A) SHARES WITH CERTIFICATES. If the Board of Directors chooses to issue shares of stock evidenced by a certificate or certificates, each individual certificate shall include the following on its face: (i) the Corporation's name, (ii) the fact that the Corporation is organized under the laws of the State of Tennessee, (iii) the name of the person to whom the certificate is issued, (iv) the number of shares represented thereby, (v) the class of shares and the designation of the series, if any, which the certificate represents, and (vi) such other information as applicable law may require or as may be lawful. If the Corporation is authorized to issue different classes of shares or different series within a class, the designations, relative rights, preferences, and limitations determined for each series (and the authority of the Board of Directors to determine variations for future series) shall be summarized on the front or back of each certificate. Alternatively, each certificate shall state on its front or back that the Corporation will furnish the shareholder this information in writing, without charge, upon request. Each certificate of stock issued by the Corporation shall be signed (either manually or in facsimile) by any two officers of the Corporation. If the person who signed a certificate no longer holds office when the certificate is issued, the certificate is nonetheless valid. 20 21 (B) SHARES WITHOUT CERTIFICATES. If the Board of Directors chooses to issue shares of stock without certificates, the Corporation, if required by the Act, shall, within a reasonable time after the issue or transfer of shares without certificates, send the shareholder a written statement of the information required on certificates by Section 6.1(a) of these Bylaws and any other information required by the Act. 6.2 SUBSCRIPTIONS FOR SHARES. Subscriptions for shares of the Corporation shall be valid only if they are in writing. Unless the subscription agreement provides otherwise, subscriptions for shares, regardless of the time when they are made, shall be paid in full at such time, or in such installments and at such periods, as shall be determined by the Board of Directors. All calls for payment on subscriptions shall be uniform as to all shares of the same class or of the same series, unless the subscription agreement specifies otherwise. 6.3 TRANSFERS. Transfers of shares of the capital stock of the Corporation shall be made only on the books of the Corporation by (i) the holder of record thereof, (ii) his or her legal representative, who, upon request of the Corporation, shall furnish proper evidence of authority to transfer, or (iii) his or her attorney, authorized by a power of attorney duly executed and filed with the Secretary of the Corporation or a duly appointed transfer agent. Such transfers shall be made only upon surrender, if applicable, of the certificate or certificates for such shares properly endorsed and with all taxes thereon paid. 6.4 LOST, DESTROYED, OR STOLEN CERTIFICATES. No certificate for shares of stock of the Corporation shall be issued in place of any certificate alleged to have been lost, destroyed, or stolen except on production of evidence, satisfactory to the Board of Directors, of such loss, destruction, or theft, and, if the Board of Directors so requires, upon the 21 22 furnishing of an indemnity bond in such amount and with such terms and such surety as the Board of Directors may in its discretion require. ARTICLE VII. CORPORATE ACTIONS 7.1 CONTRACTS. Unless otherwise required by the Board of Directors, the Chairman, the President, the Chief Executive Officer, or any Vice President shall execute contracts or other instruments on behalf of and in the name of the Corporation. The Board of Directors may from time to time authorize any other officer, assistant officer, or agent to enter into any contract or execute any instrument in the name of and on behalf of the Corporation as it may deem appropriate, and such authority may be general or confined to specific instances. 7.2 LOANS. No loans shall be contracted on behalf of the Corporation and no evidence of indebtedness shall be issued in its name unless authorized by the Chairman, the President, the Chief Executive Officer, or the Board of Directors. Such authority may be general or confined to specific instances. 7.3 CHECKS, DRAFTS, ETC. Unless otherwise required by the Board of Directors, all checks, drafts, bills of exchange, and other negotiable instruments of the Corporation shall be signed by either the Chairman, the President, the Chief Executive Officer, a Vice President or such other officer, assistant officer, or agent of the Corporation as may be authorized so to do by the Board of Directors. Such authority may be general or confined to specific business, and, if so directed by the Board, the signatures of two or more such officers may be required. 22 23 7.4 DEPOSITS. All funds of the Company not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks or other depositories as the Board of Directors may authorize. 7.5 VOTING SECURITIES HELD BY THE CORPORATION. Unless otherwise required by the Board of Directors, the Chairman, President, or Chief Executive officer shall have full power and authority on behalf of the Corporation to attend any meeting of security holders, or to take action on written consent as a security holder, of other corporations in which the Corporation may hold securities. In connection therewith the Chairman, the President, or the Chief Executive Officer shall possess and may exercise any and all rights and powers incident to the ownership of such securities which the Corporation possesses. The Board of Directors may, from time to time, confer like powers upon any other person or persons. 7.6 DIVIDENDS. The Board of Directors may, from time to time, declare, and the Corporation may pay, dividends on its outstanding shares of capital stock in the manner and upon the terms and conditions provided by applicable law. The record date for the determination of shareholders entitled to receive the payment of any dividend shall be determined by the Board of Directors, but which in any event shall not be less than ten (10) days prior to the date of such payment. ARTICLE VIII. FISCAL YEAR The fiscal year of the Corporation shall be determined by the Board of Directors, and in the absence of such determination, shall be the calendar year. 23 24 ARTICLE IX. CORPORATE SEAL The Corporation shall not have a corporate seal. ARTICLE X. AMENDMENT OF BYLAWS These Bylaws may be altered, amended, repealed, or restated, and new Bylaws may be adopted, at any meeting of the shareholders by the affirmative vote of a majority of the stock represented at such meeting, or by the affirmative vote of a majority of the members of the Board of Directors who are present at any regular or special meeting. ARTICLE XI. NOTICE Unless otherwise provided for in these Bylaws, any notice required shall be in writing except that oral notice is effective if it is reasonable under the circumstances and not prohibited by the Charter or these Bylaws. Notice may be communicated in person, by telephone, telegraph, teletype or other form of wire or wireless communication, or by mail or private carrier. If these forms of personal notice are impracticable, notice may be communicated by a newspaper of general circulation in the area where published, or by radio, television, or other form of public broadcast communication. Written notice to a domestic or foreign corporation authorized to transact business in Tennessee may be addressed to its registered agent at its registered office or to the corporation or its secretary at its principal office as shown in its most recent annual report or, in the case of a foreign corporation that has not yet delivered an annual report, in its application for a certificate of authority. 24 25 Written notice to shareholders, if in a comprehensible form, is effective when mailed, if mailed postpaid and correctly addressed to the shareholder's address shown in the Corporation's current record of shareholders. Except as provided above, written notice, if in a comprehensible form, is effective at the earliest of the following: (a) when received; (b) five (5) days after its deposit in the United States mail, if mailed correctly addressed and with first class postage affixed thereon; (c) on the date shown on the return receipt, if sent by registered or certified mail, return receipt requested, and the receipt is signed by or on behalf of the addressee; or (d) twenty (20) days after its deposit in the United States mail, as evidenced by the postmark if mailed correctly addressed, and with other than first class, registered, or certified postage affixed. Oral notice is effective when communicated if communicated in a comprehensible manner. 25 EX-4.2 6 SPECIMEN CERTIFICATE 1 Exhibit 4.2 AMSURG CORP [CLASS B COMMON STOCK CERTIFICATE] CLASS B CLASS B COMMON STOCK COMMON STOCK INCORPORATED UNDER SEE REVERSE FOR THE LAWS OF THE CERTAIN DEFINITIONS STATE OF TENNESSEE CUSIP 03232P 20 7 THIS CERTIFIES THAT IS THE OWNER OF Fully paid and non-assessable shares of the Class B Common Stock, no par value, of AmSurg Corp transferable on the books of the Corporation by the holder hereof in person or by Attorney upon surrender of this certificate properly endorsed. This certificate is not valid unless countersigned by the Transfer Agent and registered by the Registrar. IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be signed by its duly authorized officers. Dated: /s/ Claire M. Gulmi /s/ Ken P. McDonald Secretary President and Chief Executive Officer 2 AMSURG CORP The Company will furnish the shareholder information regarding the designations, relative rights, preferences, and limitations applicable to each class and series and the variations in rights, preferences, and limitations for each class and series of stock issued by the Company (and the authority of the board of directors to determine variations for future classes or series) upon request in writing and without charge. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they are written out in full according to applicable laws or regulations: TEN COM -- as tenants in common TEN ENT -- as tenants by the entireties JT TEN -- as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT -- ____________________ Custodian _______________________ (Cust) (Minor) under Uniform Gifts to Minors Act ______________________________________________________ (State) Additional abbreviations may also be used though not in the above list. For value received, __________________________________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ___________________________________________ _________________________________________________________________________ PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE _________________________________________________________________________ _________________________________________________________________________ __________________________________________________________________ Shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint _____________________________________________________________ Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises. Dated ___________________________________ ____________________________________________ NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. SIGNATURE(S) GUARANTEED: _______________________________________________________ THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE FINANCIAL INSTITUTION (BANK, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS) WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM, PURSUANT TO SEC RULE 17Ad-15. EX-10.1 7 MANAGEMENT AND HUMAN RESOURCES AGREEMENT 1 EXHIBIT 10.1 MANAGEMENT AND HUMAN RESOURCES AGREEMENT This MANAGEMENT AND HUMAN RESOURCES AGREEMENT (as amended and supplemented from time to time, this "Agreement") is made as of November __, 1997, by and between AmSurg Corp., a Tennessee corporation ("AmSurg"), and American Healthcorp, Inc., a Delaware corporation ("AHC"). WITNESSETH: WHEREAS, AHC and AmSurg are parties to that certain Amended and Restated Distribution Agreement, dated as of November 3, 1997 (the "Distribution Agreement"), pursuant to which, as of the date hereof, AHC has distributed all of the shares of capital stock of AmSurg owned by AHC to the stockholders of AHC (the "Distribution"); WHEREAS, AHC is supplying to AmSurg and its Subsidiaries (as defined herein) certain accounting and financial services pursuant to that certain January 1, 1997 letter agreement between AHC and AmSurg, as amended (the "Letter Agreement"); and WHEREAS, AHC and AmSurg desire that AHC continue to provide the same types of accounting and financial services to AmSurg and its Subsidiaries on a transition basis following the Distribution with the intent that AmSurg is to acquire the personnel, systems and expertise necessary to become self-sufficient in the provision of these services during the Transition Period (as defined herein). NOW, THEREFORE, in consideration of the mutual promises contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound, the parties agree that AHC shall provide certain services to AmSurg and its Subsidiaries pursuant to the following terms and conditions: ARTICLE I TRANSITION SERVICES 1.1 Services During the Transition Period. During the Transition Period (as defined in Section 1.6), AHC shall provide the following accounting and financial services with respect to the corporate office operations of AmSurg (collectively, the "Services"): (a) processing payroll and associated payroll tax returns and accounts payable for the AmSurg corporate office, (b) maintaining general accounting records for the AmSurg corporate operations and the operations of its Subsidiaries, (c) preparing consolidated AmSurg financial statements, (d) preparing such AmSurg corporate tax returns and the tax returns of its Subsidiaries as may be required during the Transition Period, (e) preparing such estimated tax reports for AmSurg and its Subsidiaries as may be required during the Transition Period, and (f) preparing financial statements in connection with periodic 2 reports required to be filed by AmSurg with the Securities and Exchange Commission. Such Services will be provided in a manner and at a time consistent with services provided by AHC under the Letter Agreement. 1.2 Services Not Included. The Services described in Section 1.1 do not include (a) additional outside professional services or fees needed to review the referenced tax returns or consultations with outside accounting and tax advisors on specific issues and questions or the costs of AmSurg's annual independent audit, (b) accounting and financial services in connection with any offering of securities or acquisition on behalf of AmSurg or any of its Subsidiaries, as provided below, (c) services and costs as a result of changes and modifications requested by AmSurg, (d) services and costs in connection with the conversion to new systems implemented by AmSurg, and (e) services and costs in connection with any audit of AmSurg's tax returns. Any services and costs referred to in clauses (b), (c), (d) and (e) of this Section 1.2 may be provided if specifically agreed by AHC and AmSurg in a written agreement identifying such services and costs and the fees therefor. Any such services and costs so agreed to are referred to herein as "Additional Services." 1.3 Compensation for Services. (a) As compensation for the Services, AmSurg shall pay AHC: (i) A fixed fee of $4,166.67 per month during the Transition Period, and (ii) A variable fee of $625.00 per month for each accounting unit identified on Schedule A hereto during the Transition Period. (b) As compensation for any Additional Services, AmSurg will pay to AHC the fees agreed to by AHC and AmSurg in the written agreement referred to in Section 1.2 above relating to such Additional Services. 1.4 Payment. AmSurg shall pay all amounts payable pursuant to Section 1.3 hereof by check or by wire transfer of immediately available funds into an account designated by AHC. Each such payment shall be made in arrears on the fifth day of the calendar month following the provision of the Services or Additional Services. 1.5 Responsibility for Accuracy and Integrity. It is understood and agreed, and AmSurg hereby acknowledges, that AmSurg has sole responsibility for the accuracy and integrity of the financial statements and tax returns prepared by AHC. AmSurg will provide oversight and review on a timely basis of the Services and any Additional Services provided by AHC. 1.6 Transition Period. The Services and any Additional Services will be provided during the period (the "Transition Period") beginning on the date hereof and ending on the earlier of (a) the end of the twelfth consecutive month following the date hereof, or (b) the date as of which AmSurg 2 3 elects to terminate the Services and any Additional Services by giving notice to AHC as provided in Section 5.1 hereof. 1.7 Certain Definitions. For purposes of this Agreement, the following terms shall have the following respective meanings: (a) "Entity" means any partnership, limited liability company, corporation, association, business trust, joint venture, governmental entity, business entity or other entity of any kind or nature. (b) "Subsidiary" means, with respect to AmSurg, an Entity identified on Schedule A hereto which, directly or indirectly through one or more intermediaries is controlled by AmSurg, including but not limited to, any ambulatory surgery center, physician practice group or operational specialty network identified on Schedule A hereto managed by AmSurg. 1.8 Termination of Letter Agreement. The Letter Agreement is hereby terminated as of the date hereof. 1.9 Services to be Provided by AHC; Quality. All Services and any Additional Services will be performed by employees of AHC, unless otherwise reasonably agreed to by AHC and AmSurg. The Services and any Additional Services will be of a level of quality at least consistent with the services historically provided under the Letter Agreement. ARTICLE II HEALTH INSURANCE AHC will be responsible for claims incurred on or prior to the date hereof by AmSurg Employees (as hereinafter defined) under any medical or dental plans offered by AHC to AmSurg Employees on or prior to the date of this Agreement in accordance with the terms of such plans. AHC will not be responsible for any claims incurred following the date of this Agreement by any AmSurg Employees under any plan. For purposes of this Section 2.1, the term "AmSurg Employee" means any covered employee or covered former employee of AmSurg or any of its Subsidiaries and any covered dependent of any such employee or former employee. ARTICLE III REPRESENTATIONS, WARRANTIES AND COVENANTS 3.1 AHC hereby represents, warrants and covenants to AmSurg and its Subsidiaries: 3 4 (a) AHC shall use its reasonable efforts in performing its obligations under this Agreement. (b) AHC shall comply with all applicable material statutes, ordinances, rules, regulations, orders of public authorities or regulatory agencies and laws of the United States and/or any state thereof (collectively, "Laws") relating to this Agreement or to the provision of the Services and any Additional Services. 3.2 AmSurg hereby represents, warrants and covenants to AHC that AmSurg and its Subsidiaries shall comply with all applicable Laws relating to this Agreement or to the use of the Services and any Additional Services. ARTICLE IV ACCESS TO INFORMATION AND CONFIDENTIALITY; ACCURACY 4.1 Access to AmSurg Information During the Transition Period; Cooperation. AmSurg will provide AHC and its authorized accountants, counsel and other designated representatives access to all records, books, contracts, instruments, computer data and other data and information of AmSurg and its Subsidiaries required or requested by AHC in the performance of the Services and any Additional Services during the Transition Period. AmSurg shall, and shall cause each of its Subsidiaries, officers, employees, agents, consultants and advisors to cooperate with AHC in connection with the Services and any Additional Services. AHC shall deliver to AmSurg all records of AmSurg in AHC's possession as soon as practicable upon the termination of the Transition Period. 4.2 Confidentiality. Each party shall hold, and shall cause its subsidiaries, officers, employees, agents, consultants and advisors to hold, in strict confidence, unless compelled to disclose by judicial or administrative process or, in the opinion of its counsel, by other requirements of law, all non-public information concerning the other party obtained by such party in connection with the performances of the Services hereunder (except to the extent that such information can be shown to have been (a) available to such party on a non-confidential basis prior to its disclosure by the other party, (b) in the public domain through no fault of such party or (c) later lawfully acquired from other sources by the party to which it was furnished), and each party shall not release or disclose such information to any other person, except its auditors, attorneys, financial advisors, bankers and other consultants and advisors who agree to be bound by the provisions of this Section 4.2. Each party shall be deemed to have satisfied its obligation to hold confidential information concerning or supplied by the other party if it exercises the same care as it takes to preserve confidentiality for its own similar confidential information. 4.3 Accuracy of Information. AHC shall not be responsible for determining whether any information provided to AHC in connection with the Services or any Additional Services is accurate or complete or whether there is any additional information not furnished to AHC which is required for any financial statements, estimated tax report or tax return prepared by AHC on behalf of 4 5 AmSurg. In the absence of gross negligence on behalf of AHC, AHC shall not be responsible for the accuracy, completion or timely filing of any financial statements, estimated tax report or tax return prepared by AHC. AmSurg will indemnify and hold AHC, its directors, officers, employees and agents and any person who controls AHC within the meaning of the Securities Act of 1933, as amended, and their respective successors and assigns (each of AHC and such directors, officers, employees, agents and controlling persons, and their respective successors and assigns, being referred to herein as an "Indemnified Person") harmless from and against any and all liabilities, claims or damages incurred by them in connection with any actual or threatened action, claim or proceeding arising out of or relating to any Services or Additional Services performed by AHC or any transactions or conduct in connection therewith, in the absence of gross negligence on the part of AHC. After receipt by an Indemnified Person of notice of any complaint or the commencement of any action or proceeding with respect to which indemnification is being sought hereunder, such person will promptly notify AmSurg in writing of such complaint or of the commencement of such action or proceeding, but failure so to notify AmSurg will relieve AmSurg from any liability which AmSurg may have hereunder only if, and to the extent that, such failure results in the forfeiture by AmSurg of substantial rights and defenses, and will not in any event relieve AmSurg from any obligation or liability that AmSurg may have to any Indemnified Person otherwise than under this Section 4.3. If AmSurg so elects or is requested by an Indemnified Person, AmSurg will assume the defense of such action or proceeding, including the employment of counsel reasonably satisfactory to the Indemnified Person and the payment of the fees and disbursements of such counsel; provided, however, that without regard to whether AmSurg assumes such defense, AmSurg shall have the right to participate in any such action or proceeding. In the event, however, that an Indemnified Person reasonably determines in its judgment that having common counsel would present such counsel with a conflict of interest or if the defendants in, or targets of, any such action or proceeding include both an Indemnified Person and AmSurg, and such Indemnified Person concludes that there may be legal defenses available to it or other Indemnified Persons that are different from or in addition to those available to AmSurg, or if AmSurg fails to assume the defense of the action or proceeding or to employ counsel reasonably satisfactory to such Indemnified Person, in either case in a timely manner, then such Indemnified Party may employ separate counsel reasonably satisfactory to AmSurg to represent or defend it in any such action or proceeding and AmSurg will pay the reasonable fees and disbursements of such counsel. In any action or proceeding the defense of which is assumed by AmSurg, the Indemnified Person will have the right to participate in such litigation and retain its own separate counsel at its own expense. AmSurg will not be liable to any Indemnified Person under this Section 4.3 for the cost of any settlement, compromise or consent to the entry of any judgment in any action or proceeding unless AmSurg has consented in writing to such settlement, compromise or consent, which consent will not be unreasonably withheld or delayed. AmSurg agrees that it will not, without the prior written consent of AHC and any Indemnified Person (which consent shall not be unreasonably withheld or delayed), settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution under this Section 4.3 may be sought and to which AHC or any other Indemnified Person is an actual party to such claim, action, suit or proceeding or in connection with which any 5 6 publicly available statement is made which names or refers to AHC or any Indemnified Person, unless such settlement, compromise or consent includes an unconditional release of AHC and each other Indemnified Person hereunder from all liability arising out of such claim, action, suit or proceeding. AmSurg agrees that if any indemnification sought by an Indemnified Person pursuant to this Section 4.3 is held to be unavailable for any reason other than the gross negligence of AHC, then AmSurg and AHC will contribute to the liabilities, claims or damages for which such indemnification is held unavailable; provided, however, that no person guilty of fraudulent misrepresentation shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. In determining the amount of contribution to which the respective parties are entitled, there shall be taken into account the relative benefits of this Agreement to AHC as compared to the benefits to AmSurg of this Agreement and the transactions giving rise to such liabilities, claims or damages, the parties' relative knowledge and access to information concerning the matter with respect to which the claim was asserted, the opportunity to correct and prevent any statement or omission, and any other equitable considerations appropriate under the circumstances. AmSurg and AHC agree that it would not be just and equitable if the amount of such contribution were determined by pro rata or per capita allocation. Neither AHC nor any Indemnified Person shall be obligated to make contribution hereunder which in the aggregate exceeds the fees received by AHC under this Agreement, less the aggregate amount of any damages which AHC and the Indemnified Persons have otherwise been required to pay in respect of the same or any similar claim. AmSurg will promptly reimburse AHC and any other Indemnified Person for all expenses (including reasonable fees and disbursements of counsel) as they are incurred by AHC or such other Indemnified Person in connection with investigating, preparing for or defending, or providing evidence in, any pending or threatened action, claim, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not AHC or any other Indemnified Person is a party) and in enforcing this Agreement. ARTICLE V MISCELLANEOUS AND GENERAL 5.1 Termination; Modification or Amendment. The Transition Period may be terminated at any time by AmSurg by giving thirty days' prior written notice to AHC. It is contemplated that (a) as AmSurg becomes self-sufficient during the Transition Period certain of the Services may no longer be required and that appropriate adjustments in the list of Services and the fees therefor will be made by written agreement between AHC and AmSurg, and (b) Schedule A may be modified from time to time by written agreement between AHC and AmSurg. The obligations of the parties under Sections 4.2, 4.3 and 5.8 hereof shall survive the Transition Period or any termination of the Transition Period or this Agreement. The parties hereto may modify or amend this Agreement by written agreement executed and delivered by authorized officers of the respective parties. 6 7 5.2 Counterparts. For the convenience of the parties hereto, this Agreement may be executed in any number of separate counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement. 5.3 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to transactions occurring solely within the State of Delaware. 5.4 Notices. Any notice, request, instruction or other document to be given hereunder by any party to the other shall be in writing and shall be deemed to have been duly given (i) on the date of delivery if delivered by facsimile (upon confirmation of receipt) or personally, (ii) on the first business day following the date of dispatch if delivered by Federal Express or other next-day courier service, or (iii) on the third business day following the date of mailing if delivered by registered or certified mail, return receipt requested, postage prepaid. All notices hereunder shall be delivered as set forth below, or pursuant to such other instructions as may be designated in writing by the party to receive such notice: (a) If to AHC: American Healthcorp, Inc. One Burton Hills Boulevard Nashville, Tennessee 37215 Attention: Thomas G. Cigarran with a copy to: James H. Cheek III Bass, Berry & Sims PLC 2700 First American Center Nashville, TN 37238 7 8 (b) If to AmSurg: AmSurg Corp. One Burton Hills Boulevard Nashville, Tennessee 37215 Attention: Ken P. McDonald with a copy to: Byron R. Trauger Doramus, Trauger & Ney 222 Fourth Avenue North Nashville, Tennessee 37219 5.5 Captions. All section captions herein are for convenience of reference only, do not constitute part of this Agreement and shall not be deemed to limit or otherwise affect any of the provisions hereof. 5.6 Assignment. This Agreement and all the provisions hereof shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by either party without the prior written consent of the other party and any such assignment of obligation shall not relieve the assigning party from its responsibility hereunder. Except as provided in Section 4.3 or otherwise expressly provided herein, nothing contained in this Agreement or the agreements referred to herein is intended to confer on any person or entity other than the parties hereto and their respective successors and permitted assigns any benefit, rights or remedies under or by reason of this Agreement and such other agreements. 5.7 Further Assurances. AHC and AmSurg will do such additional things as are necessary or proper to carry out and effectuate the intent of this Agreement or any part hereof or the transactions contemplated hereby. 5.8 Dispute Resolution. (a) Submission of Disputes to Arbitration. Any claims, demands, disputes, differences, controversies, and/or misunderstandings arising under, out of, or in connection with, or in relation to this Agreement (collectively, a "Dispute"), shall be settled by submission of such Dispute (if not theretofore resolved by the parties hereto) within 45 days of assertion to arbitration in accordance with the provisions of this Section 5.8 and the Commercial Arbitration Rules of the American Arbitration Association. 8 9 (b) Selection of Arbitrators. (i) The parties may agree upon one arbitrator whose decision will be final and binding on them; otherwise there shall be three arbitrators, with one named in writing by each party and the third chosen by these two arbitrators (without necessary delay), and the decision in writing signed by those assenting thereto of any two of the arbitrators shall be final and binding on the parties. (ii) No one shall be nominated or act as an arbitrator who is in any way financially interested in this Agreement or in the business of either party hereto. (c) Consent to Jurisdiction. Any and all arbitrations shall take place pursuant to the laws of the State of Delaware, and consent is hereby given to jurisdiction of courts of the State of Delaware over the parties to this Agreement in reference to any matter arising out of arbitration or this Agreement, including but not limited to confirmation of any award and enforcement thereof by entry of judgment thereon or by any other legal remedy. (d) Costs of Arbitration. The cost of any arbitration (including the fees of the arbitrator or arbitrators) pursuant to this Agreement shall be borne equally by each party to the Dispute, unless otherwise determined by the arbitrator or arbitrators. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed and become effective as of the day and year first written above. AMERICAN HEALTHCORP, INC. By: ----------------------------------- Name: Title: AMSURG CORP. By: ----------------------------------- Name: Title: 9 10 SCHEDULE A Subsidiaries and Accounting Units Facility/Subsidiary Name: Number of Accounting Units*: *Each AmSurg corporate location will be assigned two accounting units. Each practice-based ambulatory surgery center will be assigned one accounting unit. Each managed physician practice group will be assigned two accounting units. The number of accounting units to be assigned to operational specialty networks is to be determined by good faith negotiation between AHC and AmSurg. 10 EX-10.4 8 SSECOND AMENDED AND RESTATED LOAN 1 EXHIBIT 10.4 SECOND AMENDED AND RESTATED LOAN AGREEMENT ENTERED INTO by and among AMSURG CORP. a Tennessee corporation (the "Borrower"), SUNTRUST BANK, NASHVILLE, N.A., AGENT for the Lenders defined herein ("Agent"), SUNTRUST BANK, NASHVILLE, N.A., a national bank ("STB"), and NATIONSBANK OF TENNESSEE, N.A., a national bank ("NBT") (herein STB and NBT shall be referred to as "Lenders"), as of this 15th day of April, 1997. RECITALS: 1. Borrower and STB entered into an Amended and Restated Loan Agreement dated as of June 25, 1996 (the "Loan Agreement"). 2. The Borrower has agreed that the indebtedness previously held by STB is to be held by the Lenders pursuant to the terms of this Second Amended and Restated Loan Agreement. 3. The Borrower further desires that the Lenders increase the credit available to Borrower. 4. The Borrower, the Agent, and the Lenders desire to amend and restate the terms of the Loan Agreement, as provided herein. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the parties hereto agree that the Loan Agreement is amended and restated as follows: Article I. Definitions. As used in this Agreement, the following terms shall have the following meanings, unless the context expressly otherwise requires: The terms defined in this article have the meanings attributed to them in this article. Singular terms shall include the plural as well as the singular, and vice versa. Words of masculine, feminine or neuter gender shall mean and include the correlative words of other genders. All references herein to a separate instrument are to such separate instrument as the same may be amended or supplemented from time to time pursuant to the applicable provisions thereof. All accounting terms not otherwise defined herein have the meanings assigned to them, and all computations herein provided for shall be made, in accordance with generally accepted accounting principles applied on a consistent basis. All references herein to "generally accepted accounting principles" refer to such principles as they exist at the date of application thereof. 2 All references herein to designated "Articles", "Sections" and other subdivisions or to lettered Exhibits are to the designated Articles, Sections and other subdivisions hereof and the Exhibits annexed hereto unless the context otherwise clearly indicates. All Article, Section, other subdivision and Exhibit captions herein are used for reference only and in no way limit or describe the scope or intent of, or in any way affect, this Agreement. "Acquisition" means the acquisition by Borrower of a majority ownership interest in any existing ambulatory surgery center(s) through the formation of a Partnership or LLC with a physician or group of physicians. "Agent" shall mean SunTrust Bank, Nashville, N.A., Agent or any successor appointed pursuant to Article XI herein. "Advance" or "Advances" means any and all extensions of credit made pursuant to this Agreement and shall include, without limitation, any and all advances under the Revolving Credit Notes and amounts evidenced by any Letter of Credit. "Agreement" means this Loan Agreement (including all exhibits hereto) as the same may be modified, amended, or supplemented from time to time. "Applicable Interest Rate" means either the Base Rate or the LIBOR-Based Rate as applicable. "Base Rate" means the rate of interest established from time to time and announced by STB as its "base rate," such rate being an interest rate used as an index for establishing interest rates on loans. "Borrower" means AmSurg Corp., a Tennessee corporation and any successors thereto, including without limitation, any trustee or receiver in bankruptcy, in reorganization, or in similar proceedings. "Borrowing Request" means that certain written request presented by Borrower to Agent in connection with a request for an Advance, which Borrowing Request shall be in the form of Exhibit B hereto. "Business Day" means any day other than a Saturday, Sunday or day on which commercial banks are authorized to close under the laws of the State of Tennessee. "Capitalization" means Borrower's total consolidated Debt plus an amount equal to Borrower's Consolidated Net Worth. "Change of Control" means the occurrence of (i) any Person or two or more Persons acting in concert acquiring beneficial -2- 3 ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended), directly or indirectly, of securities of Borrower (or other securities convertible into such securities) representing 40% or more of the combined voting power of all securities of Borrower entitled to vote in the election of directors; or (ii) individuals who at the beginning of this Agreement were directors of Borrower ceasing for any reason to constitute a majority of the Board of Directors of Borrower unless the Persons replacing such individuals were nominated by the Board of Directors of Borrower; or (iii) any Person or two or more Persons acting in concert acquiring by contract or otherwise, or entering into a contract or arrangement which upon consummation will result in its or their acquisition of, or control over, securities of Borrower (or other securities convertible into such securities) representing 40% or more of the combined voting power of all securities of Borrower entitled to vote in the election of directors. "Closing" means the time and place of the execution and/or delivery of the Loan Documents. "Closing Date" means the 15th day of April, 1997 or at such other date as the parties elect. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Collateral" means any and all collateral securing the Indebtedness, as described in Article III hereof. "Conditions Precedent" means those matters or events that must be completed or must occur or exist prior to Agent's and Lenders' being obligated to fund any Advance, including, but not limited to, those matters described in Article V hereof. "Consolidated Net Income" means, for any period, the net income on a consolidated basis of Borrower, its Subsidiaries, the Partnerships, the LLC's, and any other Persons that prepare financial statements on a consolidated basis under Borrower for such period, determined in accordance with GAAP. "Consolidated Statements" means Financial Statements of the Borrower on a consolidated basis. "Consolidated Net Worth" means (a) the aggregate amount of all assets of the Borrower (determined on a consolidated basis) as may properly be classified as such, less (b) the aggregate amount (as determined on a consolidated basis) of (i) all current liabilities of the Borrower, (ii) all deferred taxes of the Borrower, (iii) all long term debt of Borrower, and (iv) Minority Interest. -3- 4 "Contingent Liabilities" means all contingent liabilities required to be disclosed on the consolidated Financial Statements of the Borrower, its Subsidiaries, the Partnerships, the LLC's in accordance with GAAP as in effect from time to time, including statement #5 of the Financial Accounting Standards Board and any successor thereto. "Conversion Date" means the date that interest on the outstanding principal balance of any Advance is converted from the Base Rate to the LIBOR-Based Rate. "Debt" means, with respect to any Person, all obligations of such Person, contingent or otherwise, which in accordance with GAAP would be classified on a balance sheet of such Person as liabilities of such Person, but in any event including (a) liabilities secured by any mortgage, pledge or lien existing on Property owned by such Person and subject to such mortgage, pledge or lien, whether or not the liability secured thereby shall have been assumed by such Person, (b) all indebtedness and other similar monetary obligations of such Person, (c) all guaranties, obligations in respect of letters of credit, endorsements (other than endorsements of negotiable instruments for purposes of collection in the ordinary course of business), obligations to purchase goods or services for the purpose of supplying funds for the purchase or payment of Debt of others and other contingent obligations in respect of, or to purchase, or otherwise acquire, or advance funds for the purchase of, Debt of others, (d) all obligations of such Person to indemnify another Person to the extent of the amount of indemnity, if any, which would be payable by such Person at the time of determination of Debt and (e) all obligations of such Person under capital leases. "Default" or "Event of Default" means the occurrence of any of the events specified in Section 8.01 hereof. "Default Conditions" or "Default Condition" means the occurrence of any of the events specified in Section 8.04 hereof. "Development Costs" means the total amount of all costs and expenses (excluding soft costs and fees payable to Borrower) incurred by a Partnership or LLC in the development, construction, or renovation of Projects. "EBITDA" (Earnings Before Interest, Taxes, Depreciation, and Amortization) for any period means an amount equal to Consolidated Net Income (or the net deficit, if expenses and charges exceed revenues and proper income items) for such period, plus amounts that have been deducted for (i) depreciation, (ii) amortization, (iii) interest expense, (iv) income taxes, (v) extraordinary and non-recurring items, and (vi) the cumulative effects of changes in accounting principles, and minus (vii) amounts that have been added for (a) extraordinary and non-recurring items and (b) the -4- 5 cumulative effects of changes in accounting principles, in determining Consolidated Net Income for such period. "Environmental Law" means any federal, state or local law, statute, ordinance or regulation applicable or pertaining to health, industrial hygiene, waste materials, removal of waste materials, oil, gas, or underground storage tanks, Hazardous Substances, other environmental conditions on, under, or affecting Borrower's Property or any interest therein. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, including (unless the context otherwise requires) any rules or regulations promulgated thereunder. "Eurodollar Business Day" means a Business Day on which the relevant London international financial markets are open for transaction of business contemplated by this Agreement. "Financial Statements" means (i) the consolidated financial statement or statements of Borrower described or referenced in Section 4.06 hereof and delivered with this Agreement to Agent, and (ii) subsequent financial statements required to be provided pursuant to this Agreement. "Fiscal Quarter" means each of the quarters of the Fiscal Year ending on March 31st, June 30th, September 30th, and December 31st. "Fiscal Year" or "Annually" means any twelve-month accounting period ending December 31st. "Funded Debt" means all Debt resulting from loans made to Borrower by banks, savings and loan associations, and financial institutions, all purchase money mortgages, all conditional sales contracts, all title retention agreements, all Seller Financing, and all current maturities of Debt not otherwise specified herein. "GAAP" means generally accepted accounting principles. "Guarantors" means all Subsidiaries of Borrower, both presently existing and those hereafter formed. "Guarantees" means guaranty agreements executed by the Guarantors in favor of Agent on behalf of Lenders. "IPO Transaction" means (i) the recapitalization of all of the issued and outstanding shares of common stock of the Borrower in a transaction intended to qualify as a tax-free reorganization under Section 368(1)(i)(E) of the Code and the distribution of all shares of common stock of the Borrower held by American Healthcorp, Inc. pro rata among the shareholders of American Healthcorp, Inc. in a tax-free distribution under Section 355 of the Code, or (ii) a -5- 6 public offering of common stock of the Borrower yielding net cash proceeds to the Borrower and/or its shareholders of at least $20,000,000. "Indebtedness" means any and all amounts and liabilities owing or to be owing by Borrower to Agent pursuant hereto or to either of the Lenders from time to time whether now existing or hereafter incurred, and whether in connection with this Agreement or otherwise, including any amendments hereof, or in connection with loans, participation interests, drafts, notes, banker's acceptances, letters of credit, guarantees, or overdrafts of checking or savings accounts of Borrower maintained with either of Lenders. "Interest Expense" means any and all payments, cash or in-kind, made or accrued on account of interest obligations incurred, arising under or out of any Debt of the Borrower (on a consolidated basis), including but not limited to promissory notes issued to evidence such interest payments and including the component of amounts payable under capital leases attributable to interest, and excluding any non-cash items other than notes issued to evidence such interest payments and the component of amounts payable under capital leases attributable to interest. "LLC" means any limited liability company validly formed under the law of any State for the purpose of making an Acquisition or a Physician Practice Acquisition, or for the purpose of developing a Project and in which the Borrower retains a majority ownership interest. "LLC Note" means a promissory note issued by an LLC to the order of Borrower and evidencing a loan by Borrower to such LLC of monies initially advanced to Borrower under the Revolving Credit Notes, which loan is made for the purpose of developing a Project in which the Borrower retains a majority ownership interest. "LLC Note Collateral" means any property, collateral, or assets securing repayment of an LLC Note. "Lenders" means STB and the other banks and lending institutions listed on the signature pages set forth herein, and any permitted transferee thereof. "Letter of Credit" means any letter of credit issued by Agent on Borrower's account pursuant to and in compliance with Section 2.11 herein. "Letter of Credit Fee" shall mean an amount equal to 1% multiplied by the face amount of the Letter of Credit. -6- 7 "LIBOR-Based Rate" means for any Libor Based Rate Period, one hundred and seventy-five (175) basis points per annum above the LIBOR Rate for the applicable Libor-Based Rate Period. "LIBOR-Based Rate Period" means with respect to any Advance on which the Borrower has elected, pursuant to Section 2.06, that the LIBOR-Based Rate apply, the 30, 60, or 90 day period selected by Borrower commencing on the date the Advance is made or on any subsequent Conversion Date. "LIBOR Rate" means either the 30-day, 60-day, or 90-day LIBOR Rate, as applicable, as set forth in STB's Fund Management, Cost of Funds Report published for STB by Telerate, Inc. each Monday through Friday that STB is open for business. "Lien" means any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based on the common law, statute, or contract, and including, but not limited to, the lien or security interest arising from a mortgage, encumbrance, pledge, security agreement, conditional sale, or trust receipt or a lease, consignment, or bailment for security purposes. The term "Lien" shall include reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases, and other title exceptions and encumbrances affecting the Property. For the purposes of this Agreement, Borrower shall be deemed to be the owner of any Property that it has acquired or holds subject to a conditional sale agreement, financing lease, or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person for security purposes. "Loan" or "Loans" means any borrowing by Borrower under this Agreement, the Revolving Credit Notes, the Term Notes, and/or any extension of credit by Agent on behalf of Lenders or by any of the Lenders to or for Borrower pursuant to this Agreement or any other Loan Document, including any renewal, amendment, extension, or modification thereof. "Loan Documents" means, collectively, each document, paper or certificate executed, furnished or delivered in connection with this Agreement (whether before, at, or after the Closing Date), including, without limitation, this Agreement, the Revolving Credit Notes, the Term Notes, the Guarantees, and all other documents, certificates, reports, and instruments that this Agreement requires or that were executed or delivered (or both) at Agent's request. "Majority Lenders" means Lenders in the aggregate having a Pro Rata Share equal to 66 2/3% or greater, provided that in no event shall Majority Lenders be less than two (2) Lenders. "Minority Interest" means that amount depicted from time to time on Borrower's most current consolidated balance sheet as -7- 8 "Minority Interest" so long as such is calculated on a consistent basis and in accordance with GAAP. "NBT" means NationsBank of Tennessee, N.A., its successors and assigns. "Notice of Interest Rate Election" means the notice required by Section 2.06(c) and Section 2.06(d) herein and which notice shall be in either the form of Exhibit B hereto or in such other form as approved by Agent. "Obligations" means all of Borrower's undertakings in the Loan Documents including, but not limited to, all agreements, representations, warranties, and covenants. The term "Obligations" includes the Indebtedness. "Partnership" means any general or limited partnership validly formed under the law of any state for the purpose of making an Acquisition or a Physician Practice Acquisition, or for the purpose of developing a Project and in which the Borrower retains a majority ownership interest. "Partnership Agreement" means the general partnership agreement or the limited partnership agreement of any Partnership. "Partnership Note" means a promissory note issued by a Partnership to the order of Borrower and evidencing a loan by Borrower to such Partnership of monies initially advanced by the Lenders to Borrower under the Revolving Credit Notes, which loan is made in connection with the development of a Project in which the Borrower retains a majority ownership interest. "Partnership Note Collateral" means any property, collateral, or assets securing repayment of a Partnership Note. "Physician Practice Acquisition" means the acquisition of the assets of a physician's practice or the practice of more than one physician by a Partnership or LLC in circumstances where the physicians whose assets are acquired are partners or are members in an LLC or immediately thereafter will become partners in the Partnership or a member in the LLC. "PBGC" means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA. "Person" means any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization, government, or any agency or political subdivision thereof, or any other form of entity. "Plan" means any employee benefit or other plan established or maintained, or to which contributions have been made, by the -8- 9 Borrower or any Subsidiary and covered by Title IV of ERISA or to which Section 412 of the Code applies. "Principal Office" means the principal office of the Agent located at 201 Fourth Avenue North, Nashville, Tennessee. "Pro Rata Share" means the percentage of interest held by each of the Lenders as set forth opposite their respective signatures hereto, as such percentage may be adjusted from time to time as a result of assignments or amendments made pursuant to this Agreement. "Projects" mean construction, expansion and/or renovation of ambulatory surgery centers owned by a Partnership or LLC. "Property" or "Properties" means any interest in any kind of property or asset, whether real, personal, or mixed, or tangible or intangible. "Revolving Credit Note" and "Revolving Credit Notes" means those Revolving Credit Notes executed by the Borrower payable to the order of each of the Lenders, each Revolving Credit Note being substantially in the form of Exhibit C hereto and in the principal amount that each Lender's Pro Rata Share bears to $15,000,000, including all amendments, renewals, and extensions thereto. "STB" means SunTrust Bank, Nashville, N.A., its successors and assigns. "Seller Financing" means either: (i) the extension of credit to Borrower that enables the Borrower to acquire a majority interest in a Partnership or LLC, (ii) the extension of credit to Borrower by any seller of a majority interest in an existing ambulatory surgery center, which sale is made to Borrower, a Partnership, or an LLC, or (iii) the extension of credit to Borrower by the seller of the assets in a Physician Practice Acquisition. "Subsidiary" means any corporation of which more than fifty percent (50%) of the issued and outstanding voting stock is owned or controlled at the time as of which any determination is being made directly or indirectly, by Borrower and/or by one or more of Borrower's Subsidiaries. "Term Note" and "Term Notes" means Term Notes executed by the Borrower payable to the order of each of the Lenders, each Term Note being substantially in the form of Exhibit D hereto and in the original principal amount that each Lender's Pro Rata Share bears to $4,671,261.88, and including all amendments, renewals, and extensions thereto. -9- 10 "Voting Stock" means securities of any class of a corporation the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the corporate directors (or persons performing similar functions). Article II. The Loans. Section 2.01 The Revolving Credit Notes. Subject to the conditions and the terms of the Loan Documents and subject to the limitations of Section 2.11 set forth below, and in reliance upon the representations, warranties, and covenants set forth in the Loan Documents, the Lenders agree to extend the Borrower credit on a revolving credit basis, in the principal amount of up to $15,000,000 pursuant to the Revolving Credit Notes. Section 2.02 Advances Under the Revolving Credit Notes. Advances under the Revolving Credit Notes shall be made only after the Borrower has complied with the provisions of this Agreement. Subject to the terms and requirements of this Agreement, Borrower may repay and re-borrow amounts under the Revolving Credit Notes up to the maximum principal amount thereof, provided, however, the amount available to be advanced to Borrower under the Revolving Credit Notes shall be reduced by the face amount of any outstanding Letters of Credit issued by Agent on Borrower's behalf pursuant to Section 2.11 herein. Each Lender shall be responsible to fund its Pro Rata Share of any Advance. The failure of any Lender to fund its Pro Rata Share of any Advance shall not relieve any other Lender of its obligations to fund such other Lender's Pro Rata Share of an Advance, but no Lender shall be responsible for the failure of any other Lender to make an Advance. Section 2.03 Borrowing Procedure. The Borrower hereby authorizes the Lenders (acting through the Agent) to deposit all Advances under the Revolving Credit Notes into the operating account maintained by the Borrower with STB. Any authorized officer of Borrower shall have the authority to request Advances. All requests for Advances shall be evidenced by a Borrowing Request delivered to Agent (except that telephonic requests by any authorized officer confirmed immediately thereafter by delivery of a Borrowing Request shall be acceptable). In the event of a telephonic request, the Agent shall be entitled to rely, without further investigation, on the fact that the person making the telephone call has identified himself as one of the authorized officers. Neither the Agent nor any of the Lenders shall have any liability to Borrower arising out of compliance with this procedure. Subject to the remaining terms of this Loan Agreement and with regard to Advances that bear interest at the Base Rate, the Agent shall endeavor to cause all requests for Advances received prior to 11:00 A.M. Nashville Time to be funded on the same date received, and the Agent shall endeavor to cause all requests for Advances -10- 11 received subsequent to 11:00 A.M. Nashville Time to be funded on the next succeeding Business Day. Subject to the remaining terms of this Loan Agreement and with regard to Advances that bear interest at the LIBOR Based Rate, the Agent shall endeavor to cause all requests for Advances to be funded within two (2) Business Days from the date the Agent receives the Borrowing Request. The giving of notice by Borrower that it is requesting an Advance shall constitute a warranty that, as of the date the notice is given and as of the date of the Advance, the officers of the Borrower do not have knowledge of any Default Conditions or Event of Default as defined herein; and that as of such date, the representations and warranties contained in Article IV are and will be true and correct, except as to changes occurring after the date of this Agreement caused by transactions not prohibited under this Agreement. Section 2.04 Minimum Advance Amounts. Advances under the Revolving Credit Notes shall not be made in amounts less than $100,000 without Agent's prior written consent. Section 2.05 Required Payments. The Revolving Credit Notes and the Term Notes shall be payable as set forth therein. Each payment under the Revolving Credit Notes and the Term Notes shall be made without defense, setoff, or counterclaim to Agent at its Principal Office in U.S. Dollars for the account of each of the Lenders and in immediately available funds before 12:00 Noon Nashville Time on the date such payment is due. Section 2.06 Applicable Interest Rate. (a) With regard to the Revolving Credit Notes and at the time that the Borrower requests an Advance, the Borrower shall deliver to Agent a Borrowing Request which shall be irrevocable, and which shall set forth the following: (a) whether the selected interest rate is the Base Rate or the LIBOR-Based Rate, and (b) if the interest rate selected is the LIBOR-Based Rate, the maturity selected for the LIBOR-Based Rate Period. In the event that the Borrower shall fail to select an Applicable Interest Rate on the Borrowing Request, then it shall be conclusively presumed that the Borrower has elected the Base Rate. (b) With regard to the Term Notes and upon the Closing Date, the Borrower shall advise the Agent in writing: (a) whether the Applicable Interest Rate on the Term Notes is the Base Rate or the LIBOR-Based Rate, and (b) if the interest rate selected is the LIBOR-Based Rate, the maturity selected for the LIBOR-Based Rate Period. (c) At any time that the outstanding principal balance of the Term Notes or an Advance bears interest at the Base -11- 12 Rate, the Borrower may elect upon two (2) Business Days prior written notice and delivery to Agent of a Notice of Interest Rate Election to convert the Applicable Interest Rate to a LIBOR-Based Rate. (d) Once the Borrower has selected the LIBOR-Based Rate, such rate shall remain applicable until the expiration of the then applicable LIBOR-Based Rate Period. Two (2) Business Days prior to the expiration of any applicable LIBOR-Based Rate Period, the Borrower shall deliver to Agent a Notice of Interest Rate Election. Should the Borrower fail to deliver such Notice of Interest Rate Election in a timely manner, then it shall be conclusively presumed that the Borrower has selected the Base Rate as the Applicable Interest Rate. (e) At any time, no more than ten (10) different LIBOR-Based Rate Periods may be applicable to the Term Notes and all Advances. (f) The Applicable Interest Rate shall be computed on the basis of a year of 360 days for the actual number of days elapsed. (g) The following provisions shall apply at any time that the LIBOR-Based Rate is applicable: (i) Increased Cost. If, as a result of any change in applicable law, regulation, treaty or directive, in the interpretation or application thereof or compliance by Agent or any of the Lenders with any request or directive (whether or not having the force of law) from any court or governmental authority, agency or instrumentality: (A) the basis of taxation of payments to any of the Lenders of the principal of or interest on any loan on which a LIBOR-Based Rate is applicable (other than taxes imposed on the overall net income of either of the Lenders) is changed; (B) any reserve, special deposit or similar requirements against assets of, deposits with or for the account of, or credit extended by, Agent or any of the Lenders are imposed, modified or deemed applicable; or (C) any other condition affecting this Agreement or the LIBOR-Based Rate is imposed on Agent or any of the Lenders or the London eurodollar market; -12- 13 and Agent or any of the Lenders determines that, by reason thereof, the actual out-of-pocket cost to Agent or any of the Lenders of offering, making, or maintaining the LIBOR-Based Rate is increased, or the amount of any sum receivable by Agent or any of the Lenders hereunder in respect of any of the LIBOR-Based Rate is reduced; then, Borrower shall pay to Agent or such of the Lenders as designated by Agent upon demand (which demand shall be accompanied by a statement setting forth the basis for the calculation thereof but only to the extent not theretofore provided to Borrower) such additional amount or amounts as will compensate Agent or any of the Lenders for such additional cost or reduction. Determinations by the Agent for purpose of this section of the additional amounts required to compensate Agent or any of the Lenders in respect of the foregoing shall be conclusive, absent demonstrable error. (ii) Eurodollar Deposits Unavailable or Interest Rate Unascertainable. In the event that the Agent shall have reasonably determined (which determination shall be conclusive and binding on the parties hereto, absent demonstrable error) that deposits of the necessary amount for the relevant LIBOR-Based Rate Period are not available to Agent or any of the Lenders in the London Eurodollar market or that, by reason of circumstances affecting such market, adequate and reasonable means do not exist for ascertaining the LIBOR-Based Rate applicable to such period or term, as the case may be, or that the application or use of the LIBOR-Based Rate would be impracticable as a result of a contingency occurring after the Closing Date that materially and adversely affects the London interbank market, then Agent shall promptly give notice of such determination to Borrower and (i) any notice of new LIBOR- Based Rate selection previously given by Borrower and not yet converted shall be deemed a selection of the Base Rate and (ii) the existing LIBOR-Based Rate shall be converted to the Base Rate on the last day of the then current LIBOR-Based Rate Period with respect thereof. (iii) Changes in Law Rendering the LIBOR-Based Rate Unlawful. If at any time due to any new law, treaty or regulation, or any interpretation thereof by any governmental or other regulatory authority charged with the administration thereof, or for any other reason arising subsequent to the date hereof, it shall become unlawful for Agent or any of the Lenders to offer, charge or collect interest based on the LIBOR-Based Rate, the obligation of Agent or such of the Lenders to provide the LIBOR-Based Rate shall, upon the happening of such event, -13- 14 forthwith be suspended for the duration of such illegality. Upon the happening of such event, Agent or any of the Lenders shall notify Borrower thereof in writing, and Borrower, at its election, shall, on the earlier of (i) the last day of the then current LIBOR-Based Rate Period or (ii) if required by such law, regulation or interpretation, on such date as shall be specified in such notice, either convert the unlawful LIBOR-Based Rate to the Base Rate or repay such of the Revolving Credit Notes, without penalty, to Agent or any of the Lenders, as designated by Agent, in full, together with all interest accrued thereon. (iv) Other Changes Rendering Use of LIBOR-Based Rate a Severe Hardship. In the event that on any date after the Closing Date Agent or any of the Lenders shall reasonably determine (which determination shall be conclusive and binding on the parties hereto, absent demonstrable error) that the use and/or application of the LIBOR-Based Rate will cause the Agent or any of the Lenders severe hardship as a result of a contingency occurring after the date of this Agreement; then, and in any such event, the Agent and the affected Lenders shall give telephonic notice (immediately confirmed in writing) to the Borrower of such determination, and the obligation of the Agent and such of the affected Lenders to offer or permit the selection of the LIBOR-Based Rate shall be terminated at the earlier of the end of the then current LIBOR-Based Rate Period, and upon such date the Borrower, at its option shall either repay such Revolving Credit Note, without penalty, together with all interest accrued thereon, or convert such Revolving Credit Note to the Base Rate. (v) Adjustments to Rate to Cover Additional Cost. It is the intention of the parties that the LIBOR-Based Rate shall accurately reflect the cost to the Lenders of maintaining loans at the LIBOR-Based Rate during the applicable LIBOR-Based Rate Period. Accordingly: (i) if by reason of any change after the date hereof in any applicable law or governmental rule, regulation or order (or any interpretation thereof and including the introduction of any new law or governmental rule, regulation or order), including any change in the LIBOR reserve requirement, the cost to either of the Lenders of maintaining loans at the LIBOR-Based Rate or funding the same by means of a London interbank market time deposit, as the case may be, shall increase, the LIBOR-Based Rate then charged by any of the Lenders shall be adjusted as necessary to reflect such change in -14- 15 cost to any of the Lenders, effective as of the date on which such change in any applicable law, governmental rule, regulation or order becomes effective. (ii) if the Agent shall have determined that the adoption after the Closing Date of any law, rule, regulation or guideline regarding capital adequacy, or any change in any of the foregoing or in the interpretation or administration of any of the foregoing by any governmental authority or agency, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any of the Lenders (or any lending office of any of the Lenders) or any of the Lenders' holding company with any request or directive regarding capital adequacy (whether or not having the force of law) of any such governmental authority or agency, central bank or comparable agency, has or would have the effect of reducing the rate of return on any of the Lenders' capital or on the capital of any of the Lenders' holding company, as a consequence of the Lenders' obligations under this Agreement or the Advances made by any of the Lenders pursuant hereto to a level below that which any of the Lenders or either of the Lenders' holding company could have achieved but for such adoption, change or compliance (taking into consideration the Lenders' guidelines with respect to capital adequacy) by an amount deemed by any of the Lenders to be material, then from time to time the Borrower shall pay to the Agent for delivery to the Lenders such additional amount or amounts as will compensate such of the Lenders or such of the Lenders' holding company for any such reduction suffered. (h) Borrower may prepay the principal amount evidenced by the Term Notes or by any Advance at any time that the Applicable Interest Rate is the Base Rate. Except as provided specifically in Section 2.05(i), (iii) and (iv), Borrower may not prepay the Term Notes or any Advance so long as the Applicable Interest Rate is the LIBOR-Based Rate, except at the maturity of any applicable LIBOR-Based Rate Period. Section 2.07 The Term Notes. Subject to the conditions and terms of the Loan Documents and in reliance upon the representations, warranties, and covenants set forth in the Loan Documents, Lenders agree to extend the Borrower credit in the principal amount of $4,671,261.88 pursuant to the Term Notes. The terms of repayment of the Term Notes shall be as set forth therein. -15- 16 Section 2.08 Participation. The Lenders shall have the right to enter into one or more participation agreements with affiliates of Lenders, but not further or otherwise. Section 2.09 Use of Proceeds. Proceeds of the Revolving Credit Notes will be used to: (i) permit the issuance of Letters of Credit, (ii) enable the Borrower to make (x) loans to Partnerships or LLC's for the construction and renovation of Projects and/or (y) Acquisitions and Physician Practice Acquisitions, or (iii) for working capital. Proceeds of the Term Notes were used to refinance existing indebtedness. Section 2.10 Payments to Principal Office; Debit Authority. Each payment under the Revolving Credit Notes and Term Notes (including any permitted prepayment and payment of interest) shall be made to Agent at its Principal Office for the account of Lenders in U.S. dollars and in immediately available funds before 11:00 a.m. Nashville Time on the date such payment is due. Section 2.11 Letters of Credit. (a) Provided no Event of Default or Default Condition exists and subject to the terms and conditions of the Loan Documents, the Lenders have agreed that the Agent on behalf of the Lenders will issue to third party beneficiaries on the Borrower's account standby Letters of Credit. (b) In connection with the issuance of each Letter of Credit, the Borrower shall complete a Letter of Credit Application Agreement and such other documentation, in form and substance as required by the Agent. (c) In connection with each Letter of Credit, the Borrower shall pay to the Agent a Letter of Credit Fee to be apportioned and paid by Agent to each of the Lenders pursuant to the Pro Rata Share of each Lender. (d) In connection with each Letter of Credit, the Borrower shall pay to the Agent administrative and documentation fees in such amount as established by Agent from time to time, which administrative and documentation fees shall be retained by Agent and shall not be apportioned among the Lenders. (e) The issuance by the Agent of a Letter of Credit shall reduce the Borrower's ability to receive Advances under the Revolving Credit Notes by an amount equal to the face amount of the Letter of Credit for so long as the Letter of Credit remains outstanding. (f) In the event that the Agent is required to pay to any Person the proceeds (partially or in full) of a Letter of Credit, the Borrower agrees to pay to the Agent immediately on demand by the Agent, an amount equal to the proceeds paid by the -16- 17 Agent to such Person, plus interest from the date of such payment at an amount equal to the Base Rate. (g) Letters of Credit issued by the Agent shall not be issued for a time period in excess of twelve months. (h) The Agent shall have no obligation to issue Letters of Credit on or after April 7, 1998. (i) The Lenders shall participate in all Letters of Credit issued by the Agent. Each Lender, upon the issuance of a Letter of Credit by the Agent, shall be deemed to have purchased without recourse a risk participation from the Agent in such Letter of Credit and the obligations arising thereunder, in each case in an amount equal to its Pro Rata Share of all obligations under such Letter of Credit and shall absolutely, unconditionally, and irrevocably assume, as primary obligor and not as a surety, and be obligated to pay to the Agent therefor and discharge when due, its Pro Rata Share of all obligations arising under such Letter of Credit. Without limiting the scope and nature of each Lender's participation in any Letter of Credit, to the extent that the Agent has not been reimbursed as required hereunder or under any such Letter of Credit, each such Lender shall pay to the Agent its Pro Rata Share of such unreimbursed drawing in same day funds on the day of notification by the Agent of an unreimbursed drawing. The obligation of each Lender to so reimburse the Agent shall be absolute and unconditional and shall not be affected by the occurrence of a Default Condition or an Event of Default or any other occurrence or event. Section 2.12 Right of Offset, Etc. The Borrower hereby agrees that, in addition to (and without limitation of) any right of set-off, banker's lien or counterclaim the Agent or the Lenders may otherwise have, the Agent and the Lenders shall be entitled, at their option, to offset balances held by any of Agent or Lenders at any of their offices against any principal of or interest on the Obligations hereunder which is not paid within fifteen (15) days after such payment is due, and in the event Agent or any of the Lenders does offset against such balances, it shall promptly notify the Borrower, provided that its failure to give such notice shall not affect the validity thereof. Section 2.13 Usury. The parties to this Agreement intend to conform strictly to applicable usury laws as presently in effect. Accordingly, if the transactions contemplated hereby would be usurious under applicable law (including the laws of the United States of America and the State of Tennessee), then, in that event, notwithstanding anything to the contrary in any Loan Document or agreement executed in connection with or as security for the Obligations, Borrower, Agent, and the Lenders agree as follows: (i) the aggregate of all consideration that constitutes interest under applicable law which is contracted for, charged, or received under -17- 18 any of the Loan Documents or agreements, or otherwise in connection with the Obligations, shall under no circumstance exceed the maximum lawful rate of interest permitted by applicable law, and any excess shall be credited on the Obligations by the holder thereof (or, if the Obligations shall have been paid in full, refunded to Borrower); and (ii) in the event that the maturity of the Obligations is accelerated by reason of an election of the holder resulting from any Event of Default under this Agreement or otherwise, or in the event of any required or permitted prepayment, then such consideration that constitutes interest may never include more than the maximum amount of interest permitted by applicable law, and excess interest, if any, for which this Agreement provides, or otherwise, shall be cancelled automatically as of the date of such acceleration or prepayment and, if previously paid, shall be credited on the Obligations (or, if the Obligations shall have been paid in full, refunded to Borrower). Article III. Collateral and Guarantees. Section 3.01 Collateral. The Indebtedness and Obligations shall be secured by the following: (a) all Partnership Notes, Partnership Note Collateral, LLC Notes, and LLC Note Collateral; (b) all deposit accounts, monies, and items of value of Borrower now or hereafter placed in the possession of Agent or any of the Lenders; and (c) all other Property of Borrower presently and/or subsequently pledged or delivered to Agent to secure all or a portion of the Indebtedness. Section 3.02 Guarantees. The Indebtedness and Obligations shall be guaranteed by the Guarantors. Article IV. Representations and Warranties. To induce Agent and Lenders to enter this Agreement and extend credit under this Agreement, Borrower covenants, represents, and warrants to Agent and to Lenders that as of the date hereof and as of the Closing Date: Section 4.01 Corporate Existence. Borrower and each Subsidiary are corporations duly organized, and validly existing, and in good standing under the laws of the states of their respective incorporation, and the Borrower and each Subsidiary are duly qualified as a foreign corporation in all jurisdictions in which the Property owned or the business transacted by each of them makes such qualification necessary, except where failure to do so would not have a material, adverse effect on the Borrower or any -18- 19 Subsidiary which acts as a general partner in a Partnership or member in an LLC. Each Partnership and LLC that has executed LLC Notes or Partnership Notes, as applicable, as of the date hereof is duly formed and validly existing under the laws of the respective State under which it was formed. Section 4.02 Corporate Power and Authorization. The Borrower is duly authorized and empowered to execute, deliver, and perform under all Loan Documents; the Borrower's board of directors has authorized the Borrower to execute and perform under the Loan Documents; and all other corporate and/or shareholder action on Borrower's part required for the due execution, delivery, and performance of the Loan Documents has been duly and effectively taken. Section 4.03 Binding Obligations. This Agreement is, and the other Loan Documents when executed and delivered in accordance with this Agreement will be, legal, valid and binding upon and against the Borrower and its Properties enforceable in accordance with their respective terms, subject to no defense, counterclaim, set-off, or objection of any kind known to or suspected by Borrower. To the best of Borrower's knowledge and belief, neither the Agent nor any of the Lenders has taken any action or failed to take any action that subjects Agent or Lenders to any liability to Borrower. Section 4.04 No Legal Bar or Resultant Lien. The Borrower's execution, delivery and performance of the Loan Documents do not constitute a default under, and will not violate any provisions of the charter or bylaws of Borrower, or any contract or agreement entered into by Borrower and any Person. To Borrower's knowledge, the Borrower's execution, delivery and performance of the Loan Documents do not constitute a breach of any law, regulation, order, injunction, judgment, decree, or writ to which Borrower is subject, or result in the creation or imposition of any lien upon any Properties of Borrower, other than those contemplated by the Loan Documents. Section 4.05 No Consent. The execution, delivery, and performance of the Loan Documents do not require the consent or approval of any other Person, except for such consents which have been obtained by Borrower in writing. Section 4.06 Financial Condition. The Financial Statements for the period ended December 31, 1996 which have been delivered to Agent, have been prepared on a consolidated basis in accordance with GAAP, consistently applied, and the Financial Statements present fairly the consolidated financial condition of Borrower as of the date or dates and for the period or periods stated therein. No material adverse change in the consolidated financial condition -19- 20 of Borrower has occurred since the date of the most recent Financial Statements. The Financial Statements include all liabilities (direct and contingent) and all assets of each LLC and Partnership, and such Financial Statements accurately reflect Borrower's ownership interest therein. Section 4.07 Investments, Advances, and Guaranties. Except for the transactions described on Exhibit E, neither Borrower, nor any Subsidiary, nor any Partnership, nor any LLC has made investments in, advances to, or guaranties of the obligations of any Person (other than to Borrower or any Subsidiary, a Partnership, a LLC, or to a partnership or other entity that prepares financial statements under Borrower on a consolidated basis) in excess of $100,000 in the aggregate, or committed or agreed to undertake any of these actions or obligations, except as referred to or reflected in the Financial Statements or as permitted hereunder. Section 4.08 Liabilities and Litigation. Neither Borrower, nor any Subsidiary, nor any Partnership, nor any LLC has any material liabilities (individually or in the aggregate) direct or contingent, except as referred to or reflected in the Financial Statements. There is no litigation, legal or administrative proceeding, investigation, or other action of any nature pending or, to the knowledge of Borrower, threatened against or affecting Borrower, or any Subsidiary, or any Partnership, or any LLC that involves the possibility of any judgment or liability not fully covered by insurance or that if adversely decided could reasonably be expected to materially and adversely affect the business or the Properties of Borrower, or any Subsidiary, or any Partnership, or any LLC or the ability of Borrower, or any Subsidiary, or any Partnership, or any LLC to carry on its business as now conducted. Section 4.09 Taxes; Governmental Charges. Borrower, each Subsidiary, each Partnership, and each LLC have filed or caused to be filed all tax returns and reports required to be filed and have paid all taxes, assessments, fees, and other governmental charges levied upon each of them or upon any of their respective Properties or income, which are due and payable, including interest and penalties unless such are contested in good faith and adequate reserves have been retained therefor. Borrower, each Subsidiary, each Partnership, and each LLC have made all required withholding deposits. Section 4.10 Title, Etc. Borrower, each Subsidiary, each Partnership, and each LLC have good title to their respective Properties, free and clear of all liens except those referenced or reflected in the Financial Statements or those securing the Obligations. Borrower, each Subsidiary which acts as a general partner in a Partnership, each Partnership, and each LLC possess all trademarks, copyrights, trade names, patents, licenses, and -20- 21 rights therein, adequate in all material respects for the conduct of their respective business as now conducted and presently proposed to be conducted, without conflict with the rights or claimed rights of others. Section 4.11 No Default. Neither Borrower, nor any Subsidiary, nor any Partnership, nor any LLC is in default in any material respect that affects its respective business, Properties, operations, or condition, financial or otherwise, under any indenture, mortgage, deed of trust, credit agreement, note, agreement, or other instrument to which Borrower, or any Subsidiary, or any Partnership, or any LLC is a party or by which it or its respective Properties are bound. Neither the Borrower, nor any Subsidiary, nor any Partnership, nor any LLC is in violation in any material respect of its applicable articles of incorporation or charter or bylaws or Partnership Agreements or LLC operating agreements. Neither the Borrower, nor any Subsidiary, nor any Partnership, nor any LLC has received notice from any Person that it has violated or breached any applicable articles of incorporation, charter, bylaws, Partnership Agreements, articles of organization, or operating agreements. No Default Conditions hereunder have occurred or are continuing as of the date hereof or at the Closing Date. Section 4.12 Casualties; Taking of Properties, Etc. Neither the business nor the Properties of Borrower, nor of any Subsidiary which acts as a general partner in a Partnership, nor of any Partnership, nor of any LLC have been materially affected as a result of any fire, explosion, earthquake, flood, drought, windstorm, accident, strike or other labor disturbance, embargo, requisition or taking of property, cancellation of contracts, permits, concessions by any domestic or foreign government or any agency thereof, riot, activities of armed forces or acts of God or of any public enemy. Section 4.13 Regulation U. Neither Borrower, nor any Subsidiary which acts as a general partner in a Partnership, nor any Partnership, nor any LLC is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System. No part of the Indebtedness shall be used at any time to purchase or to carry margin stock within the meaning of Regulation U or to extend credit to others for the purpose of purchasing or carrying any margin stock if to do so would cause the Lender to violate the provisions of Regulation U. Section 4.14 Compliance with Laws, Etc. Neither Borrower, nor any Subsidiary which acts as a general partner in a Partnership, nor any Partnership, nor any LLC is in violation of any law, judgment, decree, order, ordinance, or governmental rule or regulation to which Borrower, or any such Subsidiary, or any -21- 22 Partnership, or any LLC or any of their respective Properties is subject which, if enforced, would have a material adverse effect on the Borrower, or such Subsidiaries, or any Partnership, or any LLC. Neither Borrower, nor any Subsidiary, which acts as a general partner in a Partnership, nor any Partnership, nor any LLC has failed to obtain any license, permit, franchise, or other governmental authorization necessary to the ownership of any of their Properties or to the conduct of their respective business. All improvements on the real estate owned by, leased to or used by Borrower, or any Subsidiary which acts as a general partner in any Partnership, or any Partnership, or any LLC conform in all material respects to all applicable state and local laws, zoning and building ordinances and health and safety ordinances, and such real estate is zoned for the various purposes for which such real estate and improvements thereon are presently being used. Section 4.15 ERISA. Borrower, each Subsidiary, each Partnership, and each LLC are in compliance in all material respects with the applicable provisions of ERISA. Neither Borrower, nor any Subsidiary, nor any Partnership, nor any LLC has incurred any "accumulated funding deficiency" within the meaning of ERISA which is material, and Borrower has not incurred any material liability to PBGC in connection with any Plan. Section 4.16 Subsidiaries, Etc. The names, addresses of registered offices, and states of incorporation of Borrower's Subsidiaries are attached hereto as Exhibit F. Borrower owns a majority interest of all of the Voting Stock of each Subsidiary and its ownership interest is noted on Exhibit F. The Borrower uses no trade names. The names, addresses of registered offices, and states of formation of the Partnerships and LLC's are attached hereto as Exhibit G. Section 4.17 No Material Misstatements. No information, exhibit, or report furnished or to be furnished by Borrower to Agent or to Lenders in connection with this Agreement, contain as of the date thereof, or will contain as of the Closing Date, any material misstatement of fact or failed or will fail to state any material fact, the omission of which would render the statements therein materially false or misleading. Section 4.18 Investment Company Act. Neither Borrower, nor any Subsidiary, nor any Partnership, nor any LLC is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. Section 4.19 Use of Proceeds; Purpose of the Credit. Borrower has used and will use proceeds from the Term Notes and the -22- 23 Revolving Credit Notes exclusively for the purposes stated in this Agreement. Section 4.20 Personal Holding Company; Subchapter S. Neither Borrower, nor any Subsidiary, nor any Partnership, nor any LLC is a "personal holding company" as defined in Section 542 of the Code, and neither Borrower, nor any Subsidiary, nor any Partnership, nor any LLC is a "Subchapter S" corporation within the meaning of the Code. Section 4.21 Solvency. Borrower, each Subsidiary that is a general partner in any Partnership, each Partnership, and each LLC are solvent as of the date hereof and shall remain solvent at all times hereafter. Borrower, and each Subsidiary that is a general partner in any Partnership, and each Partnership, and each LLC are generally paying their respective debts as they mature and the fair value of Borrower's, and such Subsidiary's, and such Partnership's, and such LLC's assets substantially exceeds the sum total of their respective liabilities. Section 4.22 Capital. Borrower now has capital sufficient to carry on its business and transactions and all businesses and transactions in which it is engaged. Article V. Conditions of Lending. Section 5.01 Initial Conditions. Lenders' obligation to extend credit hereunder is subject to the Conditions Precedent that Agent shall have received (or agreed in writing to waive or defer receipt of) all of the following, each duly executed, dated and delivered as of the Closing Date, in form and substance satisfactory to Agent and its counsel: (a) Revolving Credit Notes, the Term Notes, and Loan Documents. The Revolving Credit Notes, the Term Notes, and all other Loan Documents. (b) Collateral. Delivery of any collateral required by Article III herein. (c) Resolutions of Borrower. Certified copies of resolutions of the Board of Directors of Borrower authorizing or ratifying the execution, delivery, and performance, respectively, of this Agreement and all Loan Documents. (d) Borrower's Certificate of Existence. A certificate of existence of Borrower from the State of Tennessee, which certificate shall contain no facts objectionable to Agent. (e) Consents, Etc. Certified copies of all documents evidencing any necessary corporate action, consents, and -23- 24 governmental approvals (if any) with respect to this Agreement and the Loan Documents. (f) Officer's Certificate. A certificate of the secretary or any assistant secretary of Borrower certifying the names of the officer or officers of Borrower authorized to sign this Agreement and the Loan Documents, together with a sample of the true signature of such officer(s). (g) Borrower's Charter and By-Laws. A copy of Borrower's by-laws and charter (including all amendments thereto) certified, in the case of by-laws, by the secretary or any assistant secretary of Borrower, and in the case of the charter by the Secretary of State of Tennessee, as being true and complete copies of the current charter and by-laws of Borrower. (h) Guaranties. Delivery of all Guaranties required by Section 3.02 herein. (i) Guarantor's Certificate of Existence. A certificate of existence for each Guarantor from the State of its incorporation. (j) Resolutions of Guarantors. Certified copies of resolutions of the Board of Directors of each Guarantor authorizing or ratifying the execution, delivery, and performance of the Guaranties. (k) Guarantor's Charters and Bylaws. A copy of the Charter and Bylaws (including all amendments thereto) for each Guarantor, certified as complete and accurate by the secretary of such Guarantor. (l) Opinions of Counsel for Borrower. The opinions of counsel addressed to Agent, substantially in the form of Exhibit H. (m) Other. Such other documents as Agent may reasonably request. Section 5.02 Conditions Prior to Funding. Lenders' obligation to fund any Advance is subject to the additional Conditions Precedent that Agent shall have received (or agreed in writing to waive or defer receipt of) all of the following, each duly executed: Borrowing Request. A Borrowing Request in the form of Exhibit B hereto, along with borrowing base certificate signed by the chief financial officer of Borrower affirming that the total amount outstanding under all Advances, including the requested Advance, do not and will not exceed the sum of (i) -24- 25 85% of Development Costs, plus (ii) 65% of the total cost of Acquisitions and Physician Practice Acquisitions. Section 5.03 All Borrowings. The Lenders' obligations to extend credit under the Loan Documents are subject to the following additional Conditions Precedent which shall be met each time an Advance is requested and an Advance is made: (a) The representations of the Borrower contained in Article IV are true and correct in all material respects as of the date of the requested Advance, with the same effect as though made on the date additional funds are advanced, except as to changes occurring after the date of this Agreement caused by transactions not prohibited under this Agreement; (b) There has been no material adverse change in the Borrower's financial condition or other condition since the date of the last borrowing hereunder; (c) No Default Conditions and no Event of Default have occurred and continue to exist; (d) No material litigation (including, without limitation, derivative actions), arbitration proceedings or governmental proceedings not disclosed in writing by the Borrower to the Agent and the Lenders prior to the date of the execution and delivery of this Agreement is pending or known to be threatened against the Borrower, or any Subsidiary, or any Partnership, or any LLC, and (e) no material development not so disclosed has occurred in any litigation, arbitration proceedings or governmental proceedings so disclosed, which could reasonably be expected to adversely affect the financial position or business of the Borrower, or any Subsidiary, or any Partnership, or any LLC, or impair the ability of the Borrower, or any Subsidiary, or any Partnership, or any LLC, to perform their respective obligations under this Agreement or any other Loan Documents. Article VI. Affirmative Covenants. Borrower covenants that, during the term of this Agreement (including any extensions hereof) and until all Indebtedness shall have been finally paid in full and all Obligations shall have been fully discharged, unless Agent shall otherwise first consent in writing, Borrower shall: Section 6.01 Financial Statements and Reports. Promptly furnish to Agent (with sufficient copies for each of the Lenders): (a) Annual Reports. As soon as available, and in any event within ninety (90) days after the close of each Fiscal Year, the audited consolidated Financial Statements of the Borrower setting forth the audited consolidated balance sheets of Borrower as at the end of such year, and the audited consolidated statements of income, statements of cash flows, and consolidated statements of retained earnings of Borrower for such year, setting forth in each case in comparative form -25- 26 (beginning when comparative data are available) the corresponding figures for the preceding Fiscal Year accompanied by the report of Borrower's certified public accountants, and by an unaudited consolidating balance sheet and unaudited consolidating statements of income of Borrower, its Subsidiaries, LLC's, Partnerships, and partnerships and LLC's that are not borrowing funds from Borrower duly certified by Borrower's chief financial officer as being correct reflections of the information used for the audited consolidated Financial Statements. The audit opinion in respect of the Financial Statements of Borrower shall be the opinion of a firm of independent certified public accountants reasonably acceptable to Agent; (b) Quarterly and Year-to-Date Reports. As soon as available and in any event within forty-five (45) days after the end of each of the first three (3) Fiscal Quarters, the unaudited consolidated balance sheets of Borrower as of the end of such Fiscal Quarter, and the unaudited consolidated and consolidating statements of income of Borrower, its Subsidiaries, the LLC's, the Partnerships, and partnerships and LLC's that are not borrowing funds from Borrower for such Quarter and for a period from the beginning of the Fiscal Year to the close of such Fiscal Quarter, all certified by the chief financial officer or chief accounting officer of Borrower as being true and correct to the best of his or her knowledge; and (c) Other Information. Promptly upon its becoming available, such other material information about Borrower or the Indebtedness as Agent may reasonably request from time to time. All such balance sheets and other Financial Statements referred to in Sections 6.01(a) and (b) hereof shall conform to GAAP on a basis consistent with those of previous Financial Statements. Section 6.02 Taxes and Other Liens. Cause to be paid and discharged promptly all taxes, assessments, and governmental charges or levies imposed upon it, upon any Subsidiary, upon any LLC, or upon any Partnership or upon any of its or any Subsidiary's, any LLC's, or any Partnership's income or Property as well as all claims of any kind (including claims for labor, materials, supplies, and rent) which, if unpaid, might become a Lien upon any or all of its or any Subsidiary's, any LLC's, or any Partnership's Property; provided, however, that neither Borrower, nor any Subsidiary, nor any LLC, nor any Partnership shall be required to pay any such tax, assessment, charge, levy, or claim if the amount, applicability, or validity thereof shall currently be contested in good faith by appropriate proceedings diligently conducted and if Borrower shall establish reserves therefor adequate under GAAP. -26- 27 Section 6.03 Maintenance. (a) Maintain and cause to be maintained its corporate existence, name, rights, and franchises and the corporate existence, name, rights and franchises of each Subsidiary that acts as a general partner in a Partnership, and the existence, name, and rights of each Partnership and each LLC; (b) observe and comply (to the extent necessary so that any failure will not materially and adversely affect the business or Property of Borrower, or of any Subsidiary that is a general partner of any Partnership, or of any Partnership, or of any LLC) with all applicable laws, statutes, codes, acts, ordinances, orders, judgments, decrees, injunctions, rules, regulations, certificates, franchises, permits, licenses, authorizations, and requirements of all federal, state, county, municipal, and other governments; (c) cause its Property and the Property of any Subsidiary that acts as a general partner in any Partnership, any Partnership, and of any LLC (and any Property leased by or consigned to it, any Subsidiary that acts as a general partner in any Partnership, any Partnership, or any LLC or held under title retention or conditional sales contracts) to be maintained in good and workable condition at all times and make all repairs, replacements, additions, and improvements to the Property owned by Borrower, and any Subsidiary that acts as a general partner in any Partnership, and any Partnership, and any LLC reasonably necessary and proper to ensure that the business carried on in connection with such Property may be conducted properly and efficiently at all times; and (d) cause the Borrower, each LLC, and each Subsidiary that acts as a general partner in a Partnership, and each Partnership to refrain from doing business in any state in which such business would require qualifications to do business in such state unless and until it shall have qualified to do business in such state. Section 6.04 Further Assurances. Promptly cure any defects in the creation, issuance, and delivery of the Loan Documents. Borrower at its expense promptly will execute and deliver to Agent upon request all such other and further documents, agreements, and instruments in compliance with or accomplishment of the covenants and agreements of Borrower in the Loan Documents, or to correct any omissions in the Loan Documents, or to state more fully the Obligations and agreements set out in any of the Loan Documents, to file any notices, or to obtain any consents, all as may be reasonably necessary or appropriate in connection therewith. -27- 28 Section 6.05 Performance of Obligations. (a) Pay the Indebtedness according to the terms of the Loan Documents; and (b) do and perform, and cause to be done and to be performed, every act and discharge all of the Obligations provided to be performed and discharged by Borrower under the Loan Documents, at the time or times and in the manner specified. Section 6.06 Insurance. Maintain and continue to maintain, with financially sound and reputable insurors, insurance satisfactory in type, coverage and amount to Agent against such liabilities, casualties, risks, and contingencies and in such types and amounts as is customary in the case of Persons engaged in the same or similar businesses and similarly situated as that of Borrower, its Subsidiaries, LLC's, and the Partnerships. Upon request of Agent, Borrower will furnish or cause to be furnished to Agent from time to time a summary of the insurance coverage of Borrower in form and substance satisfactory to Agent and if requested will furnish Agent copies of the applicable policies. In the case of any fire, accident, or other casualty causing material loss or damage to any Property of Borrower, any Subsidiary, any LLC, or any Partnership, and the loss(es) materially impair(s) the operation of the business of Borrower, any Subsidiary, any LLC, or any Partnership the proceeds of such policies shall be used, at Borrower's discretion (a) to repair or replace the damaged Property, or (b) to prepay the Indebtedness. Section 6.07 Accounts and Records. At Borrower's expense, cause books of record and account for it and its Subsidiaries, the LLC's, and the Partnerships to be kept, in which full, true, and correct entries will be made of all dealings or transactions in accordance with GAAP as applicable, except only for changes in accounting principles or practices with which Borrower's certified public accountants concur and which changes have been reported to Agent in writing and with an explanation thereof. Section 6.08 Right of Inspection. At Borrower's expense, permit any officer, employee, or agent of Agent or either of the Lenders to visit and inspect any of the Property of Borrower or any Subsidiary, to examine Borrower's and any Subsidiary's books of record and accounts, to take copies and extracts from such books of record and accounts, and to discuss the affairs, finances, and accounts of Borrower and any Subsidiary with Borrower's respective officers, accountants, and auditors, all at such reasonable times and as often as Agent or either of the Lenders may reasonably desire. Cause at reasonable times any officer, employee, or agent of Agent or either of the Lenders to be permitted to visit and inspect at Borrower's cost any Properties owned by any Partnership or LLC and to inspect and copy any financial records and books of records and account of such Partnership or LLC. -28- 29 Section 6.09 Notice of Certain Events. Promptly notify Agent if Borrower learns of the occurrence of (i) any event that constitutes a Default Condition or Event of Default together with a detailed statement by a responsible officer of Borrower of the steps being taken as a result thereof; or (ii) the receipt of any notice from, or the taking of any other action by, the holder of any promissory note, debenture, or other evidence of Debt of Borrower or of any security (as defined under the Securities Act of 1933, as amended) of Borrower with respect to a claimed default, together with a detailed statement by a responsible officer of Borrower specifying the notice given or other action taken by such holder and the nature of the claimed default and what action Borrower is taking or proposes to take with respect thereto; or (iii) any legal, judicial, or regulatory proceedings affecting Borrower in which the amount involved is material and is not covered by insurance or which, if adversely determined, would have a material and adverse effect on the business or the financial condition of Borrower; or (iv) any dispute between Borrower and any governmental or regulatory authority or any other person, entity, or agency which, if adversely determined, could reasonably be expected to materially interfere with the normal business operations of Borrower; or (v) any material adverse changes, either individually or in the aggregate, in the assets, liabilities, financial condition, business, operations, affairs, or circumstances of Borrower from those reflected in the Financial Statements or from the facts warranted or represented in any Loan Document; or (vi) the occurrence of a default under a Partnership Note or an LLC Note. Section 6.10 ERISA Information and Compliance. Comply with ERISA and all other applicable laws governing any pension or profit sharing plan or arrangement to which Borrower is a party. Borrower shall provide Agent with notice of any "reportable event" or "prohibited transaction" or the imposition of a "withdrawal liability" within the meaning of ERISA. Section 6.11 Management. Give notice to Agent of any material change in the executive officers of Borrower within five (5) days after such change occurs. Section 6.12 Reports, Etc. If applicable, furnish to Agent copies of all filings and reports, of any nature or type, made with or to the Securities and Exchange Commission (or any successor thereto) within 5 days thereafter, and including all amendments, modifications, or supplements thereto, as the same are filed with the Securities and Exchange Commission. Section 6.13 Calculations. In all calculations made for purposes required by this Loan Agreement, the Borrower, each Subsidiary, each LLC, each Partnership, and each partnership and LLC not borrowing funds from the Borrower shall comply with GAAP, and the Borrower, each Subsidiary, each LLC, each Partnership, and each partnership and LLC not borrowing funds from the Borrower -29- 30 shall use the same procedures and methods employed by Borrower, each Subsidiary, each LLC, each Partnership, and each partnership and LLC not borrowing funds from the Borrower in preparing the Financial Statements delivered to STB prior to the date of this Agreement. All references contained herein to calculations of or determinations affecting Borrower (on a consolidated basis) shall refer to the Borrower, each Subsidiary, each LLC, each Partnership, and each Person that prepares financial statements under Borrower. Section 6.14 Partnership Notes and LLC Notes, Etc. The Borrower shall assign to Agent and grant Agent for the benefit of Lenders a first perfected security interest in all Partnership Notes, Partnership Note Collateral, LLC Notes, and LLC Note Collateral to secure repayment of the Indebtedness and the Obligations pursuant to such documentation as reasonably required by Agent. Section 6.15 Additional Guarantees. Within thirty (30) days after the Borrower acquires or forms a Subsidiary, the Borrower shall cause such new Subsidiary to execute a Guarantee in the form of the Guarantees executed by the Guarantors, and to deliver to Agent such Guarantees and other documents, instruments and items with respect thereto that are similar to those documents, instruments and items delivered by the Guarantors with regard to their Guarantees. Additionally, in such case Agent shall be entitled to receive, at Borrower's option, either: (a) copy of duly certified corporate resolutions of each guaranty authorizing the execution of the Guaranty, together with a certificate of good standing containing no matters objectionable to Lender, or (b) a counsel's opinion letter issued by counsel acceptable to Agent regarding such matters involving the new Guarantor as may be reasonably required by Agent. Immediately upon any Person becoming a Subsidiary, Borrower shall give notice thereof to Agent. Borrower shall pay the costs and expenses, including without limitation Agent's legal fees and expenses, in connection with the preparation, negotiation, execution and review of the Guaranty of such Subsidiary and the other items described in this Section. Article VII. Negative Covenants. Borrower covenants and agrees that, during the term of this Agreement and any extensions hereof and until the Indebtedness has been paid and satisfied in full, unless Agent shall otherwise first consent in writing, neither Borrower, nor any Subsidiary, nor any LLC, nor any Partnership, nor any other partnership or LLC in which Borrower or a Subsidiary owns an interest will, either directly or indirectly: Section 7.01 Debts, Guaranties, and Other Obligations. Incur, create, assume, or in any manner become or be liable with respect to any Debt; provided that subject to all other provisions of this Article VII, the foregoing prohibitions shall not apply to: -30- 31 (a) Any Indebtedness to the Lenders as described herein; (b) liabilities, direct or contingent, of Borrower or any Subsidiary, or any Partnership, or any LLC existing on the date of this Agreement that are referenced or reflected in the Financial Statements; and (c) Excluding the Indebtedness to the Lenders described herein, Funded Debt not to exceed $5,500,000 in the aggregate. Section 7.02 Liens. Create, incur, assume, or permit to exist any Lien on any of its Property (now owned or hereafter acquired) except, subject to all other provisions of this Article, the foregoing restrictions shall not apply to: (a) Liens securing the payment of any Indebtedness to Lenders; (b) Liens for taxes, assessments, or other governmental charges not yet due or which are being contested in good faith by appropriate action promptly initiated and diligently conducted, if Borrower or such Subsidiary shall have made any reserve therefor required by GAAP; (c) Liens referred to or reflected in the Financial Statements identified in Section 4.06 herein; and (d) Liens on any real or personal property that secures the Debt permitted by Section 7.01(c) above; and (e) Liens permitted by Section 7.01(e); and (f) Landlord liens in states where such liens arise by operation of law. Section 7.03 Investments, Loans, and Advances. Make or permit to remain outstanding any loans or advances to or investments in any Person, except that, subject to all other provisions of this Article, the foregoing restriction shall not apply to: (a) investments in direct obligations of the United States of America or any agency thereof; (b) investments in certificates of deposit having maturities of less than one year, or repurchase agreements issued by commercial banks in the United States of America having capital and surplus in excess of $50,000,000, or commercial paper of the highest quality; (c) investments in money market funds so long as the entire investment therein is fully insured or so long as the fund is a fund operated by a commercial bank of the type specified in (b) above; -31- 32 (d) those matters referenced on Exhibit F and loans to Partnerships or LLC's; and (e) other investments not to exceed $500,000. Section 7.04 Dividends, Distributions, and Redemptions; Issuance of Stock. (a) Excluding dividends paid to holders of Series A Redeemable Preferred Stock as described in a Conditional Consent Agreement between Borrower and STB, permit Borrower to declare or pay any dividend; nor permit any Subsidiary to declare or pay any dividend to any Person other than Borrower or another Subsidiary; or (b) permit Borrower or any Subsidiary to redeem any of its stock or return capital to shareholders except through existing shareholder agreements and future shareholder agreements with (i) Persons who are members in an LLC or who are partners in a Partnership formed subsequent to the Closing Date that acquire Voting Stock of Borrower, (ii) physicians or physician groups that are affiliated with the partners in a Partnership or are affiliated with the members in an LLC formed subsequent to the Closing Date; and (iii) physicians and physician groups that enter into a business relationship with the Borrower or a Subsidiary after the Closing Date regarding the development, operation, or investment in an ambulatory surgery center. Section 7.05 Nature of Business. (a) Suffer any material change to be made in the character of its business as carried on at the Closing Date; or (b) except as set forth on Exhibit F hereto, permit the Borrower to own less than 51% of the Voting Stock of any incorporated Subsidiary; or (c) except as set forth on Exhibit G hereto, permit the Borrower or a Subsidiary of Borrower to own less than 51% of the controlling ownership interest of any Partnership or LLC. Section 7.06 Further Acquisitions, Mergers, Etc. (a) Permit Borrower to merge or consolidate with any other Person, except under conditions in which the Borrower is the surviving entity and such merger or consolidation does not cause the Borrower to be in violation of this Agreement; or (b) permit any Subsidiary to merge or consolidate with any Person other than the Borrower or any other Subsidiary; or (c) permit the Borrower, any Subsidiary, LLC, or Partnership to dispose of substantially all of their respective Properties. Section 7.07 Proceeds of Loan. Permit the proceeds of the Advances to be used for any purpose other than those permitted under this Agreement. Section 7.08 Sale or Discount of Receivables. Except to minimize losses on bona fide debts previously contracted, discount or sell with recourse, or sell for less than the greater of the face or market value thereof, any of its notes receivable or Accounts. -32- 33 Section 7.09 Disposition of Assets. Dispose of any of its assets having a material value other than in the ordinary course of its present business upon terms standard in Borrower's industry; provided, however, that Borrower, AmSurg West Tennessee, Inc., and AmSurg Holdings, Inc. may sell, transfer, and convey their interests in the Digestive Clinic Ambulatory Surgery Center in Jackson, Tennessee without the consent of Agent or of Lenders. Section 7.10 Partnership Notes or LLC Notes. Forgive, cancel, amend, alter, or seek to transfer any Partnership Notes or LLC Notes. Section 7.11 Financial Covenants. (a) Net Worth. Permit its Consolidated Net Worth as of December 31, 1996 to be less than $31,396,401; nor permit its Consolidated Net Worth as measured at the end of each Fiscal Quarter thereafter to be less than the sum of: (i) $31,396,401, plus (ii) the amount by which Borrower's additional paid in capital exceeds $31,396,401, plus (iii) 75% of the net, after-tax earnings of the Borrower as determined on a consolidated basis from the immediately preceding Fiscal Year. (b) Funded Debt to EBITDA. As calculated on the last day of each Fiscal Quarter, permit the ratio of Funded Debt, plus amounts attributable to capital leases to EBITDA to be greater than 2.75 to 1.0. (c) Funded Debt to Capitalization. As calculated on the last day of each Fiscal Quarter, permit the ratio of Borrower's Funded Debt (as determined on a consolidated basis but excluding Minority Interest), to Capitalization to be greater than .5 to 1.0. (d) Debt Service Coverage Ratio. As calculated on the last day of each Fiscal Quarter, permit the ratio of EBITDA to an amount equal to: (i) Interest Expense, plus (ii) current payments of long term Debt to be less than 1.8 to 1.0. (e) For the purpose of calculating EBITDA in parts (b) and (d) above, EBITDA shall be calculated on an annualized, trailing six (6) month basis and it shall include the EBITDA of any Acquisition so long as the calculation thereof is done in a manner reasonably calculated to comply with GAAP. For the purpose of calculating Interest Expense in part (d) above, Interest Expense shall be calculated on a trailing twelve (12) month basis. For the purpose of calculating EBITDA in parts (a), (b) and (d) above, the amount attributable to EBITDA shall exclude a pre-tax amount up to $500,000 in spinoff costs. -33- 34 Section 7.12 Inconsistent Agreements. Enter into any agreement containing any provision which would be violated or breached by the performance by Borrower of its Obligations. Section 7.13 Restrictions on Physician Practice Acquisitions. (a) Enter into Physician Practice Acquisitions the aggregate cost of which exceeds $4,000,000 in any twelve (12) month period without the Agent's prior written consent; or (b) enter into any single Physician Practice Acquisition the cost of which exceeds $2,000,000 without the Agent's prior written approval. Article VIII. Events of Default. Section 8.01 Events of Default. Any of the following events shall be considered an Event of Default as those terms are used in this Agreement: (a) Principal and Interest Payments. Borrower fails to make payment when due of any installment of principal or interest on any of the Revolving Credit Notes or any of the Term Notes or the Indebtedness within fifteen (15) days of the date thereof, or Borrower fails to pay when due any payment due hereunder or under any of the Loan Documents within fifteen (15) days of the due date thereof; or (b) Representations and Warranties. Any representation or warranty made by Borrower in any Loan Document, proves to have been incorrect in any material respect as of the date thereof; or any representation, statement (including Financial Statements), certificate, or data furnished or made by Borrower in any Loan Document with respect to any Indebtedness, proves to have been untrue in any material respect, as of the date as of which the facts therein set forth were stated or certified, provided that with regard to Borrower's representation in Section 4.04 herein, the Agent shall not be entitled to declare a default hereunder unless the Borrower's representation in Section 4.04 proves to be untrue with regard to any contract requiring the payment of money or goods valued at $250,000 or more or the performance of services valued at $250,000 or more; or (c) Obligations. Borrower fails to perform its Obligations as required by and contained in any Loan Document or a breach occurs of any agreement, representation, or warranty contained herein or in any Loan Document and such continues for thirty (30) days after delivery by Agent of written notice to Borrower that it has failed to perform its Obligations or that a breach has occurred of any agreement, representation, or warranty contained herein or in any Loan Document, and following delivery of such written notice from Agent to Borrower the failure or breach has not been fully cured and/or corrected; provided and except that the 30 day notice and cure period shall not be applicable to Events of -34- 35 Default or breaches arising out of or under the following sections of this Loan Agreement (and in such cases no notice and cure period beyond any specifically stated therein shall be applicable): Section 8.01(a), 8.01(b), 8.01(d), 8.01(e), 8.01(f), 8.01(h), 8.01(i), 8.01(k), 8.01(l), 6.01, 6.08, 6.09, 6.11, 6.12, 7.01, 7.02, 7.03, 7.05, 7.06, 7.07, 7.08, 7.09, 7.10, 7.11, and 7.12. (d) Involuntary Bankruptcy or Receivership Proceedings. A receiver, custodian, liquidator, or trustee of Borrower, any Subsidiary, any Partnership, or of any LLC, or of any of their respective Property, is appointed by the order or decree of any court or agency or supervisory authority having jurisdiction; or Borrower, any Subsidiary, any Partnership, or any LLC is adjudicated bankrupt or insolvent; or any of the Property of Borrower, any Subsidiary, any Partnership, or LLC is sequestered by court order or a petition is filed against Borrower, any subsidiary, Partnership, and/or any LLC under any state or federal bankruptcy, reorganization, debt arrangement, insolvency, readjustment of debt, dissolution, liquidation, or receivership law of any jurisdiction, whether now or hereafter in effect, which proceeding is not dismissed within 60 days of filing; or (e) Voluntary Petitions. Borrower, any Subsidiary, any Partnership, or any LLC takes affirmative steps to prepare to file, or Borrower, any Subsidiary, any Partnership, or any LLC files a petition in voluntary bankruptcy or to seek relief under any provision of any bankruptcy, reorganization, debt arrangement, insolvency, readjustment of debt, dissolution, or liquidation law of any jurisdiction, whether now or hereafter in effect, or consents to the filing of any petition against it under any such law; or (f) Assignments for Benefit of Creditors, Etc. Borrower, any Subsidiary, any Partnership, or any LLC makes an assignment for the benefit of its creditors, or admits in writing its inability to pay its debts generally as they become due, or consents to the appointment of a receiver, trustee, or liquidator of Borrower, any Subsidiary, any Partnership, or any LLC, or of all or any part of its Properties; or (g) Discontinuance of Business, Etc. Borrower, any Subsidiary that acts as a general partner in any Partnership, any Partnership, or any LLC discontinues its usual business and such has a material adverse impact on Borrower's financial condition; or (h) Cross-Default on Other Debt or Security. Subject to any applicable grace period or waiver prior to any due date, -35- 36 Borrower, any Subsidiary, any Partnership, any partnerships consolidated with Borrower on its consolidated Financial Statements, and/or any LLC fails to make any payment due on any Debt or security (as "security" is defined for purposes of the federal securities laws) in excess of an aggregate amount equal to $500,000 or any event shall occur or any condition shall exist with respect to any Debt or security of Borrower, any Subsidiary, any Partnership, and/or any LLC or under any agreement securing or relating to such indebtedness or security the effect of which is to cause or to permit any holder or holders of Debt in excess of an aggregate amount equal to $500,000 to cause such Debt or security, or a portion thereof, to become due prior to its stated maturity or prior to its regularly scheduled dates of payment; or (i) Undischarged Judgments. If a judgment for the payment of money in excess of $500,000 in the aggregate is rendered by any court or other governmental authority against Borrower, any Subsidiary, any Partnership, and/or any LLC which is not fully covered by valid collectible insurance (subject, however to a reasonable deductible); or (j) Violation of Laws, Etc. Borrower, any Subsidiary, any Partnership, or any LLC violates or otherwise fails to comply with any law, rule, regulation, decree, order, or judgment under the laws of the United States of America, or of any state or jurisdiction thereof which violation or failure has a material, adverse effect on Borrower, any Subsidiary, any Partnership, or any LLC; or Borrower fails or refuses at any and all times to remain current in its or their financial reporting requirements pursuant to such laws, rules, and regulations or pursuant to the rules and regulations of any exchange upon which any shares of Borrower are traded. (k) Dissolution of Partnerships, Subsidiaries, or LLC's. Should any Partnership, Subsidiary, or LLC be dissolved prior to repayment of all amounts owed by such Partnership, Subsidiary, or LLC to Borrower. (l) Change of Ownership Prior to IPO Transaction. Should the majority of common stock of Borrower cease to be owned by American Healthcorp, Inc. unless otherwise approved in writing by Agent; provided that this provision shall not be violated in the event that the stock of the Borrower is sold pursuant to an IPO Transaction. (m) Change of Control Subsequent to an IPO Transaction. Subsequent to the completion of an IPO Transaction, should a Change of Control occur. Section 8.02 Remedies. Upon the happening of any Event of Default set forth above, with the exception of those events set forth in Section 8.01(d) and 8.01(e): (i) Agent may declare the -36- 37 entire principal amount of all Indebtedness then outstanding, including interest accrued thereon, to be immediately due and payable without presentment, demand, protest, notice of protest, or dishonor or other notice of default of any kind, all of which Borrower hereby expressly waives, (ii) at Agent's sole discretion and option, all obligations of Lenders under this Agreement shall immediately cease and terminate unless and until Agent shall reinstate such obligations in writing, (iii) Agent on behalf of Lenders may exercise all rights against the Guarantors under the Guaranties and against the Collateral set forth in the Security Documents or afforded a creditor under applicable law; or (iv) Agent on behalf of Lenders may bring an action to protect or enforce its rights under the Loan Documents or seek to collect the Indebtedness and/or enforce the Obligations by any lawful means. Upon the happening of any event specified in Section 8.01(d) and Section 8.01(e) above: (i) all Indebtedness, including all principal, accrued interest, and other charges or monies due in connection therewith shall be immediately and automatically due and payable in full, without presentment, demand, protest, or dishonor or other notice of any kind, all of which Borrower hereby expressly waives, (ii) all obligations of Lenders under this Agreement shall immediately cease and terminate unless and until Agent shall reinstate such obligations in writing, (iii) Agent on behalf of Lenders may exercise all rights against the Guarantors under the Guaranties and against the Collateral set forth in the Security Documents or afforded a creditor under applicable law; or (iv) Agent on behalf of Lenders may bring an action to protect or enforce its rights under the Loan Documents or seek to collect the Indebtedness and/or enforce the Obligations by any lawful means. Section 8.03 Right of Set-off. Upon the occurrence and during the continuance of any Event of Default, each of the Lenders and Agent are authorized, at any time and from time to time, without notice to Borrower (any such notice being expressly waived by Borrower), to set-off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held by the Agent or any of the Lenders to or for the credit or the account of Borrower against any and all of the Obligations, irrespective of whether or not Agent shall have accelerated the Indebtedness or made any demand under this Agreement and although such obligations may be unmatured. Section 8.04 Default Conditions. Any of the following events shall be considered a Default Condition: (a) Borrower suffers a material adverse change in its financial condition; and (b) Any event occurs which with the passage of time or giving of notice would become an Event of Default hereunder or an Event of Default under any Guaranty. -37- 38 Upon the occurrence of a Default Condition or at any time thereafter until such Default Condition no longer exists, the Borrower agrees that the Agent and the Lenders, in Agent's sole discretion, and without notice to Borrower, may immediately cease making any Advances under the Loan Documents, all without liability whatsoever to Borrower or any other Person whomsoever, all of which is expressly waived hereby. Borrower releases Agent and each of the Lenders from any and all liability whatsoever, whether direct, indirect, or consequential, and whether seen or unforeseen, resulting from or arising out of or in connection with Agent's and/or Lenders' determination to cease making Advances pursuant to this Section, unless Agent and/or Lenders act with gross negligence or willful misconduct. Article IX. General Provisions. Section 9.01 Notices. All communications under or in connection with this Agreement or any of the other Loan Documents shall be in writing and shall be mailed by first class certified mail, postage prepaid, or otherwise sent by telex, telegram, telecopy, or other similar form of rapid transmission confirmed by mailing (in the manner stated above) a written confirmation at substantially the same time as such rapid transmission, or personally delivered to an officer of the receiving party. All such communications shall be mailed, sent, or delivered as follows: (a) if to Borrower, to its address shown below, or to such other address as Borrower may have furnished to Agent in writing: One Burton Hills Boulevard Suite 350 Nashville, Tennessee 37215 Attention: Claire Gulmi (b) if to Agent, to its address shown below, or to such other address or to such individual's or department's attention as it may have furnished Borrower in writing: Karen Ahern SunTrust Bank, Nashville, N.A., Agent 201 Fourth Avenue North Nashville, Tennessee 37219 (C) if to STB, to its address shown below, or to such other addresses STB may have furnished to Borrower: Karen Ahern SunTrust Bank, Nashville, N.A. 201 Fourth Avenue North Nashville, Tennessee 37219 -38- 39 (d) if to NBT, to the address shown below, or to such other address as NBT may have furnished to Borrower: Dave Dupuy One NationsBank Plaza Fourth Floor Nashville, Tennessee 37239 Any communication so addressed and mailed by certified mail shall be deemed to be given when so mailed. Section 9.02 Deviation from Covenants. The procedure to be followed by Borrower to obtain the consent of Agent to any deviation from the covenants contained in this Agreement or any other Loan Document shall be as follows: (a) Borrower shall send a written notice to Agent setting forth (i) the covenant(s) relevant to the matter, (ii) the requested deviation from the covenant(s) involved, and (iii) the reason for the requested deviation from the covenant(s); and (b) Agent, within a reasonable time, will send a written notice to Borrower, signed by an authorized officer of Agent, permitting or refusing the request, but in no event will any deviation from the covenants of this Agreement or any other Loan Document be effective without the express prior written consent of Agent. Agent's failure to provide such written notice shall be deemed a refusal of such request. Section 9.03 Invalidity. In the event that any one or more of the provisions contained in any Loan Document for any reason shall be held invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision of any Loan Document. Section 9.04 Survival of Agreements. All representations and warranties of Borrower in this Agreement and all covenants and agreements in this Agreement not fully performed before the Closing Date of this Agreement shall survive the Closing. Section 9.05 Successors and Assigns. Borrower may not assign its rights or delegate its duties under this Agreement or any other Loan Document. All covenants and agreements contained by or on behalf of Borrower in any Loan Document shall bind the Borrower's successors and assigns and shall inure to the benefit of Agent and Lenders and their respective successors and assigns. In the event that any of the Lenders sells participations in Indebtedness to participating lenders, each of such participating lenders shall have the rights of set-off against such Indebtedness and similar rights or Liens to the same extent available to Lenders, except as otherwise provided in this Agreement. -39- 40 Section 9.06 Renewal, Extension, or Rearrangement. All provisions of this Agreement relating to Indebtedness shall apply with equal force and effect to each and all promissory notes executed hereafter which in whole or in part represent a renewal, extension for any period, increase, or rearrangement of any part of the Indebtedness originally represented by any part of such other Indebtedness. Section 9.07 Waivers. Pursuant to T.C.A. Section 47-50-112, no action or course of dealing on the part of Agent or Lenders or their officers, employees, consultants, or agents, nor any failure or delay by Agent or any of the Lenders with respect to exercising any right, power, or privilege Agent or any of the Lenders under the Note, this Agreement, or any other Loan Document shall operate as a waiver thereof, except as otherwise provided in this Agreement. Agent or Lenders may from time to time waive any requirement hereof, including any of the Conditions Precedent; however no waiver shall be effective unless in writing and signed by the Agent or the Lenders, as applicable. The execution by Agent or the Lenders of any waiver shall not obligate Lender to grant any further, similar, or other waivers. Section 9.08 Cumulative Rights. Rights and remedies of Agent and Lenders under each Loan Document shall be cumulative, and the exercise or partial exercise of any such right or remedy shall not preclude the exercise of any other right or remedy. Section 9.09 Construction. This Agreement and the other Loan Documents constitute a contract made under and shall be construed in accordance with and governed by the laws of the State of Tennessee. Section 9.10 Nature of Commitment. With respect to the Loan and the Advances, Lenders' obligation to make the Loan or any Advances shall be deemed to be pursuant to a contract to make a loan or to extend debt financing or financial accommodations to or for the benefit of Borrower within the meaning of Sections 365(c)(2) and 365(e)(2)(B) of the United States Bankruptcy Code, 11 U.S.C. Section 101 et seq. Section 9.11 Disclosures. Every reference in this Agreement to disclosures of Borrower to Agent and to Lenders (except the Financial Statements), to the extent that such references refer or are intended to refer to disclosures at or prior to the execution of this Agreement, shall be deemed strictly to refer only to written disclosures delivered to Agent and to Lenders concurrently with the execution of this Agreement and referred to specifically in the Loan Documents. The parties intend that such disclosures are to be limited to those presented in an orderly manner at the time of executing this Agreement and are not to be deemed to include expressly or impliedly any disclosures that previously may have been delivered from time to time to Agent and Lenders, except to the extent that such previous disclosures are again presented to -40- 41 Agent or Lenders in writing concurrently with the execution of this Agreement. Section 9.12 Governance; Exhibits. The terms of this Agreement shall govern if determined to be in conflict with the terms or provisions in any other Loan Document. The exhibits attached to this Agreement are incorporated in this Agreement and shall be considered a part of this Agreement except that in the event of any conflict between an exhibit and this Agreement or another Loan Document, the provisions of this Agreement or the Loan Document, as the case may be, shall prevail over the exhibit. Section 9.13 Titles of Articles, Sections, and Subsections. All titles or headings to articles, sections, subsections, or other divisions of this Agreement or the exhibits to this Agreement are only for the convenience of the parties and shall not be construed to have any effect or meaning with respect to the other content of such articles, sections, subsections, or other divisions, such other content being controlling with respect to the agreement between the parties. Section 9.14 Time of Essence. Time is of the essence with regard to each and every provision of this Agreement. Section 9.15 Remedies. All remedies for which this Agreement and all other Loan Documents provide for Agent shall be in addition to all other remedies available to Agent and Lenders under the principles of law and equity, and pursuant to any other body of law, statutory or otherwise. Section 9.16 Application of Prepayments. Prepayments shall be applied at Agent's sole discretion (i) first to accrued interest under any of the Obligations as determined by Agent and (ii) second to reduce principal of any of the Obligations, all in such manner as determined by Agent. Section 9.17 Computations; Accounting Principles. Where the character or amount of any asset or liability or item of income or expense is required to be determined, or any consolidation or other accounting computation is required to be made for the purposes of this Agreement, such determination or calculation, to the extent applicable and except as otherwise specified in this Agreement, shall be made in accordance with GAAP applied on a consolidated basis consistent with those in effect at the Closing Date. Section 9.18 Costs, Expenses, and Taxes. Borrower agrees to pay on demand all out-of-pocket costs and expenses of Agent (including the reasonable fees and out-of-pocket expenses of counsel for Agent) incurred by Agent in connection with the preparation, execution, delivery, administration, interpretation, enforcement, or protection of Agent or either of Lenders' rights under the Loan Documents (including any suit for declaratory judgment or interpretation of the provisions hereof). In addition, -41- 42 Borrower agrees to pay, and to hold Agent and both of the Lenders harmless from all liability for, any stamp or other taxes (including taxes under Tennessee Code Annotated Section 67-4-409 due upon the recordation of mortgages and financing statements) which may be payable in connection with the execution or delivery of this Agreement, the Advances, and the Collateral under this Agreement, or the issuance of the Loan Documents delivered or to be delivered under or in connection with this Agreement. Borrower, upon request, promptly will reimburse Agent and both of the Lenders for all amounts expended, advanced, or incurred by Agent and both of the Lenders to satisfy any obligation of Borrower under this Agreement or any other Loan Documents, or to perfect a Lien in favor of Agent and both of the Lenders, or to protect the Properties or business of Borrower or to collect the Obligations, or to enforce the rights of Agent and both of the Lenders under this Agreement or any other Loan Document, which amounts will include all court costs, attorney's fees, fees of auditors and accountants, and investigation expenses reasonably incurred by Agent and both of the Lenders in connection with any such matters, together with interest thereon at the rate applicable to past due principal and interest as set forth in the Loan Documents but in no event in excess of the maximum lawful rate of interest permitted by applicable law on each such amount. All obligations for which this Section provides shall survive any termination of this Agreement. Section 9.19 Distribution of Information. The Borrower hereby authorizes the Agent and the Lenders, as the Agent and the Lenders may elect in their sole discretion, to discuss with and furnish to any affiliate of the Agent and the Lenders, to any government or self-regulatory agency with jurisdiction over the Agent and the Lenders, or to any participant or prospective participant, all financial statements, audit reports and other information pertaining to the Borrower and/or its Subsidiaries whether such information was provided by Borrower or prepared or obtained by the Agent and the Lenders or third parties. Neither the Agent nor the Lenders nor any of their employees, officers, directors or agents make any representation or warranty regarding any audit reports or other analyses of Borrower which the Agent or the Lenders may elect to distribute, whether such information was provided by Borrower or prepared or obtained by the Agent, the Lenders, or third parties, nor shall the Agent, the Lenders, or any of their employees, officers, directors or agents be liable to any Person receiving a copy of such reports or analyses for any inaccuracy or omission contained in such reports or analyses or relating thereto. Section 9.20 Entire Agreement; No Oral Representations Limiting Enforcement. This Agreement represents the entire agreement between the parties hereto except for such other agreements set forth in the Loan Documents, and any and all oral statements heretofore made regarding the matters set forth herein are merged herein. -42- 43 Section 9.21 Amendments. Excluding Section 11.1 through 11.14, the Borrower's written agreement shall be necessary to amend this Agreement. Sections 11.1 through 11.14 of this Agreement may be amended by the Lenders without the necessity of Borrower's agreement thereto pursuant to the provisions contained therein. Section 9.22 Non-Use Fee. As additional consideration for the Lenders' committing and reserving monies to fund the Revolving Credit Note, the Borrower shall pay to Agent for the account of Lenders quarterly in arrears a fee at a rate equal to 35 basis points per annum of the average unused portion of the Revolving Credit Note during the prior Fiscal Quarter. The fee shall be calculated on a 360-day basis. Section 9.23 Commitment Fee. In consideration of Lenders' willingness to extend the Loans and to reserve the funds necessary to fund the Revolving Credit Note, the Borrower shall pay to Agent a one-time commitment fee equal to $37,500.00. Article X. Jury Waiver. Section 10.01 Jury Waiver. IF ANY ACTION OR PROCEEDING INVOLVING THIS LOAN AGREEMENT OR ANY LOAN DOCUMENT IS COMMENCED IN ANY COURT OF COMPETENT JURISDICTION, BORROWER, AGENT, AND LENDERS HEREBY WAIVE THEIR RIGHTS TO DEMAND A JURY TRIAL. Article XI. The Agent. Section 11.01 Appointment of Agent. Each of the Lenders hereby designates the Agent to administer all matters concerning the Indebtedness and the Obligations and to act as herein specified. Each of the Lenders hereby irrevocably authorizes the Agent to take such actions on its behalf under the provisions of this Agreement, the other Loan Documents and all other instruments and agreements referred to herein or therein, and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Agent may perform any of its duties hereunder by or through its agents or employees. The Lenders agree that neither the Agent nor any of its directors, officers, employees or agents shall be liable for any action taken or omitted to be taken by it or them hereunder or in connection herewith, except for its or their own gross negligence or willful misconduct. The Lenders agree that the Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any of the Lenders, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise be imposed upon or exist against the Agent. Section 11.02 Authorization of Agent with Respect to the Loan Documents. (a) Each of the Lenders hereby authorizes the Agent to -43- 44 enter into each of the Loan Documents and to take all action contemplated thereby, all in its capacity as Agent for the ratable benefit of the Lenders. All rights and remedies under the Loan Documents may be exercised by the Agent for the benefit of the Agent and the Lenders upon the terms thereof. (b) The Agent shall administer the Loans described herein and the Loan Documents on behalf of and for the benefit of the Lenders in all respects as if the Agent were the sole Lender under the Loan Documents, except that: (i) The Agent shall administer the Loans and the Loan Documents with a degree of care at least equal to that customarily employed by the Agent in the administration of similar credit facilities for its own account. (ii) The Agent shall not, without the consent of the Majority Lenders, take any of the following actions: (A) agree to a waiver of any material requirements, covenants, or obligations of the Borrower or of any of the Guarantors contained herein; (B) agree to any amendment to or modification of any of the terms of any of the Loan Documents; (C) waive any Event of Default or Default Condition as set forth in the Loan Agreement; (D) accelerate the indebtedness described in the Loan Agreement following an Event of Default; or (E) initiate litigation or pursue other remedies to enforce the obligations contained in any Loan Document or to collect the indebtedness described herein. (iii) The Agent shall not, without the consent of all of the Lenders, take any of the following actions: (A) extend the maturity of any payment of principal of or interest on the indebtedness described herein; (B) reduce any fees paid to or for the benefit of Lenders under the Loan Agreement; (C) reduce the rate of interest charged on the indebtedness described herein; (D) release any Guaranty; -44- 45 (E) postpone any date fixed for the payment in respect of principal of, or interest on the indebtedness described herein, or any fees hereunder; (F) modify the definition of Majority Lenders; or (G) modify this Section 11.02(b)(iii). (c) The Agent, upon its receipt of actual notice thereof, shall notify the Lenders of: (i) each proposed action that would require the consent of the Lenders as set forth herein, or (ii) any action proposed to be taken by the Agent in the administration of the Loans and Loan Documents not in the ordinary course of business; provided that any failure of the Agent to give the Lenders any such notice shall not alone be the basis for any liability of the Agent to the Lenders except for the Agent's gross negligence or willful misconduct. (d) The Lenders agree that the Agent shall incur no liability under or in respect of this Agreement with respect to anything which it may do or refrain from doing in the reasonable exercise of its judgment or which may seem to it to be necessary or desirable in the circumstances, except for its gross negligence or willful misconduct. Agent shall incur no liability to any of the Lenders for giving consent on behalf of the Lenders when under the terms of this Agreement consent may not be unreasonably withheld. (e) The Agent shall not be liable to the Lenders or to any Lender in acting or refraining from acting under this Agreement or any other Loan Document in accordance with the instructions of the Majority Lenders or all of the Lenders, where expressly required by this Agreement, and any action taken or failure to act pursuant to such instructions shall be binding on all Lenders. In each circumstance where any consent of or direction from the Majority Lenders or all of the Lenders is required or requested by Agent, the Agent shall send to the Lenders a notice setting forth a description in reasonable detail of the matter as to which consent or direction is requested and the Agent's proposed course of action with respect thereto. In the event the Agent shall not have received a response from any Lender within five (5) Business Days after Agent sends such notice, such Lender shall be deemed to have agreed to the course of action proposed by the Agent. Section 11.03 Agent's Duties Limited; No Fiduciary Duty. The Lenders agree that the Agent shall have no duties or responsibilities except those expressly set forth in this Agreement and the other Loan Documents. The Lenders agree that none of the Agent nor any of its respective officers, directors, employees or agents shall be liable for any action taken or omitted by it as such hereunder or in connection herewith, unless caused by its or -45- 46 their gross negligence or willful misconduct. The Agent shall not have by reason of this Agreement a fiduciary relationship to or in respect of any of the Lenders, and nothing in this Agreement, express or implied, is intended to or shall be so construed as to impose upon the Agent any obligations in respect of this Agreement or the other Loan Documents except as expressly set forth herein. SECTION 11.04 NO RELIANCE ON THE AGENT. (A) EACH OF THE LENDERS REPRESENTS AND WARRANTS TO THE AGENT AND THE OTHER LENDERS THAT INDEPENDENTLY AND WITHOUT RELIANCE UPON THE AGENT, EACH OF THE LENDERS, TO THE EXTENT IT DEEMS APPROPRIATE, HAS MADE AND SHALL CONTINUE TO MAKE (I) ITS OWN INDEPENDENT INVESTIGATION OF THE FINANCIAL CONDITION AND AFFAIRS OF THE BORROWER AND THE GUARANTORS IN CONNECTION WITH THE TAKING OR NOT TAKING OF ANY ACTION IN CONNECTION HEREWITH, AND (II) ITS OWN APPRAISAL OF THE CREDIT WORTHINESS OF THE BORROWER AND THE GUARANTORS, AND EACH OF THE LENDERS FURTHER AGREES THAT, EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, THE AGENT SHALL HAVE NO DUTY OR RESPONSIBILITY, EITHER INITIALLY OR ON A CONTINUING BASIS, TO PROVIDE ANY OF THE LENDERS WITH ANY CREDIT OR OTHER INFORMATION WITH RESPECT THERETO, WHETHER COMING INTO ITS POSSESSION BEFORE THE MAKING OF THE LOANS OR AT ANY TIME OR TIMES THEREAFTER. AS LONG AS ANY OF THE LOANS ARE OUTSTANDING AND/OR ANY AMOUNT IS AVAILABLE TO BE REQUESTED OR BORROWED HEREUNDER, OR THIS AGREEMENT AND THE LOAN DOCUMENTS HAVE NOT BEEN CANCELLED AND TERMINATED, EACH OF THE LENDERS SHALL CONTINUE TO MAKE ITS OWN INDEPENDENT EVALUATION OF THE FINANCIAL CONDITION AND AFFAIRS OF THE BORROWERS AND THE GUARANTORS. (b) The Agent shall not be responsible to any of the Lenders for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith or for the execution, effectiveness, genuineness, validity, enforceability, collectability, priority or sufficiency of this Agreement, the Revolving Credit Notes, the Term Notes, the Guarantees, the other Loan Documents, or any other documents contemplated hereby or thereby, or the financial condition of the Borrower or the Guarantors, or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement, the Revolving Credit Notes, the Term Notes, the Guarantees, the other Loan Documents or the other documents contemplated hereby or thereby, or the financial condition of the Borrower or the Guarantors, or the existence or possible existence of any Default Condition or Event of Default. Section 11.05 Certain Rights of Agent. The Lenders agree that if the Agent shall request instructions from the Majority Lenders (or all of the Lenders where unanimity is expressly required under the terms of this Agreement) with respect to any action or actions (including the failure to act) in connection with this Agreement, the Agent shall be entitled to refrain from such act or taking such act, unless and until the Agent shall have received instructions from the Majority Lenders (or all of the Lenders where unanimity is -46- 47 expressly required under the terms of this Agreement); and the Agent shall not incur liability to any Person by reason of so refraining. Without limiting the foregoing, none of the Lenders shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting hereunder in accordance with the instructions of the Majority Lenders (or, with regard to acts for which the consent of all of the Lenders is expressly required under the terms of this Agreement, in accordance with the instructions of all of the Lenders). Section 11.06 Reliance by Agent. The Lenders agree that the Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cablegram, radiogram, order or other documentary, teletransmission or telephone message reasonably believed by it to be genuine and correct and to have been signed, sent or made by the proper Person. The Lenders agree that the Agent may consult with legal counsel (including counsel for any of the Lenders), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. Section 11.07 Indemnification of Agent. To the extent the Agent is not reimbursed and indemnified by the Borrower, each of the Lenders will reimburse and indemnify the Agent, ratably according to their respective Pro Rata Share, for, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including fees of experts, consultants and counsel and disbursements) or disbursements of any kind or nature whatsoever that may be imposed on, incurred by or asserted against the Agent in performing its duties hereunder, in any way relating to or arising out of this Agreement or the other Loan Documents; provided that none of the Lenders shall be liable to the Agent for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or willful misconduct. The obligations and indemnifications arising under this Section 11.07 shall survive termination of this Agreement, repayment of the Loans and indebtedness arising in connection with the Letters of Credit and expiration of the Letters of Credit. Section 11.08 The Agent in its Individual Capacity. With respect to its obligation to lend under this Agreement and the Loans made by it, the Agent shall have the same rights and powers hereunder as any other of the Lenders, and may exercise the same as though it were not performing the duties of Agent specified herein; and the terms "Lenders" and "Majority Lenders" or any similar terms shall, unless the context clearly otherwise indicates, include the Agent in its individual capacity. The Agent and its affiliates may accept deposits from, lend money to, and generally engage in any -47- 48 kind of banking, trust, financial advisory or other business with the Borrower and the Guarantors, and any affiliate of the Borrower as if it were not performing the duties specified herein as Agent, and may accept fees and other consideration from the Borrower for services in connection with this Agreement and otherwise without having to account for the same to the Lenders. Section 11.09 Successor Agent. (a) The Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower and may be removed at any time with cause by the Majority Lenders; provided, however, the Agent may not resign or be removed until (i) a successor Agent has been appointed and shall have accepted such appointment and (ii) the successor Agent has assumed all responsibility for issuance of the Letters of Credit and the successor Agent has assumed in the place and stead of the Agent all existing liability under outstanding Letters of Credit. The transactions described in the immediately preceding sentence shall be accomplished pursuant to written agreements reasonably satisfactory to the Agent and the successor Agent. Upon any such resignation or removal, the Majority Lenders shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Majority Lenders, and shall have accepted such appointment, within thirty (30) days after the retiring Agent's giving of notice of resignation or the Majority Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be a bank that maintains an office in the United States, or a commercial bank organized under the laws of the United States of America or any State thereof, or any Affiliate of such bank, having a combined capital and surplus of at least $100,000,000. (b) Upon the acceptance of any appointment as the Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Article XI shall inure to its benefit as to any actions taken or omitted to be taken by it while it was an Agent under this Agreement. Section 11.10 Notice of Default or Event of Default. In the event that the Agent or any of the Lenders shall acquire actual knowledge, or shall have been notified, of any Default Condition or Event of Default (other than through a notice by one party hereto to all other parties), the Agent or such Lender shall promptly notify the Agent, and the Agent shall take such action and assert such rights under this Agreement as the Majority Lenders shall request in writing, and the Agent shall not be subject to any liability by reason of its acting pursuant to any such request. If, following notification by Agent to Lenders, the Majority Lenders (or all of the Lenders if required hereunder) shall fail to request the Agent to take action or to assert rights under this Agreement -48- 49 in respect of any Default Condition or Event of Default within five (5) Business Days after their receipt of the notice of any Default Condition or Event of Default from the Agent or any Lender, or shall request inconsistent action with respect to such Default Condition or Event of Default, the Agent may, but shall not be required to, take such action and assert such rights as it deems in its discretion to be advisable for the protection of the Lenders. Section 11.11 Sharing of Payments, etc. Each of the Lenders agrees that if it shall, through the exercise of a right of banker's lien, set-off, counterclaim or otherwise, obtain payment with respect to the Indebtedness which results in its receiving more than its Pro Rata Share of the aggregate payments with respect to all of the Indebtedness, then (a) such Lender shall be deemed to have simultaneously purchased from the other Lender a share in the Indebtedness so that the amount of the Indebtedness held by each of the Lenders shall continue to equal their respective Pro Rata Shares, and (b) such other adjustments shall be made from time to time as shall be equitable to insure that the Lenders share such payments ratably. Section 11.12 Separate Liens on Collateral. Each Lender agrees with the other Lenders that it will not take or permit to exist any Lien in its favor on any of the Collateral or other property of any of the Borrowers other than Liens securing the Indebtedness. Section 11.13 Payments Between Agent and Lenders. All payments by the Agent to any Lender, and all payments by any Lender to the Agent, under the terms of this Agreement shall be made by wire transfer in immediately available funds to the receiving party's address specified in or pursuant to Section 9.01 hereof. If the Agent or any of the Lenders shall fail to pay when due any sum payable to the Agent or any other Lender, such sum shall bear interest until paid at the interest rate per annum for overnight borrowing by the payee from the Federal Reserve Bank for the period commencing on the date such payment was due and ending on, but excluding, the date such payment is made. Section 11.14 Independent Agreements. The provisions contained in Sections 11.01 through 11.10 and Sections 11.12, 11.13, 11.14, and 11.15 constitute independent obligations and agreements of the Agent and the Lenders, and the Borrower shall not be deemed a party thereto or bound thereby or entitled to any benefit thereunder. The Borrower acknowledges the rights of the Lenders and the Agent under Section 11.11. Section 11.15 Limitation on Lenders. The Borrower agrees and acknowledges that neither the Agent nor STB shall have liability to the Borrower for any damages or claim of any kind whatsoever, whether seen or unforeseen, arising out of or in connection with the failure of NBT to fund through the Agent its Pro Rata Share of any Advance, and that Borrower's sole recourse for such conduct by NBT shall be to NBT. -49- 50 The Borrower agrees and acknowledges that NBT shall not have liability to the Borrower for any damages or claims of any kind whatsoever, whether seen or unforeseen, arising out of or in connection with the failure of STB to fund through the Agent its Pro Rata Share of any Advance, and that Borrower's sole recourse for such conduct by STB shall be to STB. ENTERED INTO this date first set forth above. BORROWER: AMSURG CORP., a Tennessee corporation By: /s/ ------------------------------------ Title: Senior Vice President --------------------------------- AGENT: SUNTRUST BANK, NASHVILLE, N.A., AGENT By: /s/ ------------------------------------ Title: GVP --------------------------------- PRO RATA SHARE LENDERS: 71% SUNTRUST BANK, NASHVILLE, N.A.. By: /s/ ------------------------------------ Title: GVP --------------------------------- 29% NATIONSBANK OF TENNESSEE, N.A. By: /s/ ------------------------------------ Title: VP --------------------------------- -50- 51 INDEX OF EXHIBITS Exhibit A: Notice of Interest Rate Election (Section 2.06(c) and Section 2.06(d)) (form) Exhibit B: Borrowing Request Exhibit C: Revolving Credit Notes Exhibit D: Term Notes Exhibit E: Exemptions from Section 4.07 (Largo, FL and Jackson, TN) Exhibit F: List of Subsidiaries Exhibit G: List of Partnerships and LLC's Exhibit H: Opinion Letter of Borrower's Counsel Due at Closing
-51- 52 EXHIBIT A TO LOAN AGREEMENT BORROWING REQUEST VIA FAX (615) 748-4611 ATTN: LEIGH ANN GREGORY SunTrust Bank, Nashville, N.A., Agent Date:_____________________________, _______ Re: Second Amended and Restated Loan Agreement dated April 15, 1997 by and among AmSurg Corp., the lenders listed therein and SunTrust Bank, Nashville, N.A., as Agent (as may be amended from time to time, the "Loan Agreement") Capitalized terms not otherwise defined in this request have the same meaning as in the Loan Agreement. The individual signing this request certifies that (i) he or she is an individual authorized by the Borrower to submit Borrowing Requests to the Agent pursuant to the Loan Agreement, (ii) the undersigned hereby irrevocably gives notice of and requests, pursuant to Section 2.03 of the Loan Agreement, an Advance under the Loan Agreement (the "Proposed Advance"), and (iii) the amount of the Proposed Advance is available to the Borrower pursuant to the Loan Agreement. The information below relates to the Proposed Advance: 1. AMOUNT OF PROPOSED ADVANCE: --------------------------------------------------------------- 2. DATE OF PROPOSED ADVANCE: --------------------------------------------------------------- 3. DESIGNATION OF ADVANCES: -------------------------------------------------------------- Base Rate Advance $ (Multiples of $100,000 and minimums of $100,000) ------------------------ LIBOR Based Rate Advance $ (Multiples of $100,000 and minimums of $100,000) -------------------------
Borrowing Requests must be given prior to 11:00 a.m. (local time for Agent) two (2) Business Days prior to the Proposed Advance for Libor Based Rate Advances and on the same day of the Proposed Advances for Base Rate Advances. All Borrowing Requests received after 11:00 a.m. shall be deemed received on the next Business Day. 4. For LIBOR Based Rate Advances, the LIBOR Based Rate Period (indicate one): (a) 30 DAYS 60 DAYS 90 DAYS ------------- ----------------- ----------------- 53 (b) CALCULATION OF RATE: LIBOR --------- Plus spread 1.75% TOTAL = -------- (c) EXPIRATION DATE: -------------- 5. DEPOSIT PROCEEDS OF BORROWING INTO AMSURG CORP. ACCOUNT NO. 6784100 ------- AND WIRE TRANSFER $___________________ FROM OUR ACCOUNT NO. 6784100 ACCORDING TO THE FOLLOWING INSTRUCTIONS: Name of Bank: ------------------------------------------------ ABA No. ------------------------------------------------------ Credit account No. ------------------------------------------- Beneficiary Name --------------------------------------------- Special Instructions ----------------------------------------- - ------------------------------------------------------------- Remitter ----------------------------------------------------- 6. The Borrower represents to Agent as follows: (a) the amount of the Proposed Advance, when combined with the outstanding principal amount of the Revolving Credit Notes plus the face amount of all outstanding Letters of Credit does not exceed $15,000,000; (b) the total amount of all Advances, including the Proposed Advance, together with the face amount of all outstanding Letters of Credit, do not and will not exceed the sum of (i) 85% of Development Costs, plus (ii) 65% of the total cost of Acquisitions and Physician Practice Acquisitions as depicted on Schedule I attached hereto. 7. The conditions as set forth in Section 5.03 of the Loan Agreement have been met and the representations contained therein are true and correct. BORROWER: AMSURG CORP. By: ------------------------ Title: --------------------- 54 SCHEDULE I
Purchase % Original Current Price or LTV Borrowing Amount New Amount Project Hard $ Cost Allowed Allowed Borrowed Repayment Borrowings Borrowed ------- ----------- ------- ------- -------- --------- ---------- -------- Beginning Debt 4,671,262 100% 4,671,262 4,671,262 - - 4,671,262 Panama City GI 1,760,162 65% 1,144,000 (1,450,000) 1,036,000 730,000 Hallendale GI 500,000 85% 425,000 425,000 (425,000) - - Ocala GI 3,347,662 65% 2,175,954 (2,175,000) (2,175,000) - - Columbia 1,897,397 65% 1,233,308 1,233,000 - - 1,233,000 Minneapolis 1,143,377 65% 743,195 743,000 (442,043) - 300,957 Sidney 531,930 85% 452,141 450,000 - - 450,000 Miami Urology Practice 2,852,590 65% 1,854,184 1,854,000 - - 1,854,000 Crystal River GI 2,075,520 65% 1,349,088 1,349,000 - - 1,349,000 Hialeah 494,000 65% 419,900 150,000 - - 150,000 Abilene Eye 1,804,927 65% 1,173,203 1,173,000 1,173,000 Wichita Ortho 1,374,950 65% 893,718 893,700 - - 893,700 ---------- ---------- ----------- ----------- --------- --------- Totals 22,453,737 16,535,057 16,260,962 (4,492,043) 1,036,000 12,804,919 ========== ========== =========== =========== ========= ==========
55 EXHIBIT B TO LOAN AGREEMENT NOTICE OF INTEREST RATE ELECTION VIA FAX (615) 748-4611 ATTN: LEIGH ANN GREGORY SunTrust Bank, Nashville, N.A., Agent Date:_____________________________, _______ Re: Second Amended and Restated Loan Agreement dated April 15, 1997 by and among AmSurg Corp., the lenders listed therein, and SunTrust Bank, Nashville, N.A., as Agent (as may be amended from time to time, the "Loan Agreement") Capitalized terms not otherwise defined in this request have the same meaning as in the Loan Agreement. The individual signing this request certifies that (i) he or she is an individual authorized by the Borrower to submit this Notice of Interest Rate Election to the Agent pursuant to the Loan Agreement, (ii) the undersigned hereby irrevocably gives notice of and requests, pursuant to Section 2.06(c) and/or 2.06(d) of the Loan Agreement, the continuation or conversion of an Advance made under the Loan Agreement (the "Continued/Converted Advance"), and (iii) the amount of the Continued/Converted Advance is available to the Borrower pursuant to the Loan Agreement. The information below relates to the Continued/Converted Advance: 1. IDENTIFICATION THE CONTINUED/CONVERTED ADVANCE:
Amount Base Rate Advance $ ------------------------ LIBOR Based Rate Advance expiring $ -------- ------------------------
2. DATE OF CONTINUED/CONVERTED ADVANCE: -------------------------------------------------------------------- 3. DESIGNATION OF INTEREST OPTION FOR CONTINUED/CONVERTED ADVANCE: Base Rate Advance $ (Multiples of $100,000 and minimum of $100,000) ----------------------- LIBOR Based Rate Advance $ (Multiples of $100,000 and minimum of $100,000) -------------------------
56 Notices of Interest Rate Election must be given prior to 11:00 a.m. (local time for Agent) two (2) Business Days prior to the Proposed Continuation/Conversion for Libor Based Rate Advances and on the same day of the Proposed Continuation/Conversion for Base Rate Advances. All Notices of Interest Rate Election received after 11:00 a.m. shall be deemed received on the next Business Day. 4. LIBOR BASED RATE PERIOD FOR CONTINUED/CONVERTED ADVANCES CALCULATED AT THE LIBOR BASED RATE (indicate one): (a) 30 DAYS 60 DAYS 90 DAYS ------------- ----------------- ----------------- (b) CALCULATION OF RATE: LIBOR --------- Plus spread TOTAL = 1.75% --------- (c) EXPIRATION DATE: --------------- In connection with the Continued/Converted Advance the undersigned represents on the date hereof and on the date of the Continued/Converted Advance (a) there exists no Default or Event of Default and (b) the conditions as set forth in Section 5.03 of the Loan Agreement have been met and the representations contained therein are true and correct. BORROWER: AMSURG CORP. By: -------------------------------------------- Title: ----------------------------------------- 57 EXHIBIT C SUNTRUST REVOLVING CREDIT NOTE FOR VALUE RECEIVED, AMSURG CORP., a Tennessee corporation (hereinafter referred to as "Borrower"), promises and agrees to pay to the order of SUNTRUST BANK, NASHVILLE, N.A., a national bank (the "Lender") at the Nashville, Tennessee offices of SunTrust Bank, Nashville, N.A., Agent (the "Agent"), in lawful money of the United States of America, the principal sum of Ten Million Six Hundred Fifty Thousand and no/100 Dollars ($10,650,000), or so much thereof as may be advanced from time to time by the Lender, together with interest on the unpaid principal balance outstanding from time to time hereon computed from the date of each advance until maturity at the rate of interest set forth in that certain Second Amended and Restated Loan Agreement executed among Borrower, Lender, NationsBank of Tennessee, N.A., and Agent dated April 15, 1997, as such may be amended from time to time (herein referred to as the "Loan Agreement"). Interest for each year shall be computed on the basis of a year of 360 days for the actual number of days elapsed. So long as no default has occurred and is continuing hereunder and so long as no Event of Default or Default Condition has occurred and is continuing under the Loan Agreement, and subject to the terms of the Loan Agreement, the Borrower may borrow hereunder, repay such borrowings, and reborrow hereunder as provided in the Loan Agreement. Lender shall keep records of all borrowings and repayments. Draws under this Note shall be evidenced by such documentation as required by Article II of the Loan Agreement. Advances under this Note shall be made pursuant to the procedure specified in the Loan Agreement. This Note shall be repaid as follows: (a) Commencing on the tenth (10th) day of May, 1997, and on the tenth day of each consecutive month through and including March 10, 1999, the Borrower shall pay to Lender an amount equal to all then accrued interest; and (b) On April 15, 1999, this Note shall mature at which time the Borrower shall pay to Lender an amount equal to all outstanding principal, plus all then accrued interest. This Note is subject to the terms of the Loan Agreement. Notwithstanding any provision to the contrary, it is the intent of the Lender, the Borrower, and all parties liable on this Note, that neither the Lender nor any subsequent holder shall be entitled to receive, collect, reserve or apply, as interest, any amount in excess of the maximum lawful rate of interest permitted 58 to be charged by applicable law or regulations, as amended or enacted from time to time. In the event the Note calls for an interest payment that exceeds the maximum lawful rate of interest then applicable, such interest shall not be received, collected, charged, or reserved until such time as that interest, together with all other interest then payable, falls within the then applicable maximum lawful rate of interest. In the event the Lender, or any subsequent holder, receives any such interest in excess of the then maximum lawful rate of interest, such amount which would be excessive interest shall be deemed a partial prepayment of principal and treated hereunder as such, or, if the principal indebtedness evidenced hereby is paid in full, any remaining excess funds shall immediately be paid to the Borrower. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the maximum lawful rate of interest, the Borrower and the Lender shall, to the maximum extent permitted under applicable law, (a) exclude voluntary prepayments and the effects thereof, and (b) amortize, prorate, allocate, and spread, in equal parts, the total amount of interest throughout the entire term of the indebtedness; provided that if the indebtedness is paid in full prior to the end of the full contemplated term hereof, and if the interest received for the actual period of existence hereof exceeds the maximum lawful rate of interest, the holder of the Note shall refund to the Borrower the amount of such excess or credit the amount of such excess against the principal portion of the indebtedness as of the date it was received, and, in such event, the Lender shall not be subject to any penalties provided by any laws for contracting for, charging, reserving, collecting or receiving interest in excess of the maximum lawful rate of interest. Principal and unpaid interest bear interest during the continuance of any default in payment of principal and interest as herein provided at the lesser of (i) the Base Rate (as defined in the Loan Agreement) plus 4% per annum, or the maximum lawful rate of interest permitted by law. In case of suit, or if this obligation is placed in an attorney's hands for collection, or to protect the security for its payment, the undersigned will pay all costs of collection and litigation, including a reasonable attorney's fee. In the event that there occurs any breach of any promise made in this Note and such breach continues for longer than fifteen (15) days, or upon the occurrence of an Event of Default as defined in the Loan Agreement, then, during the continuance of any of such events, at the option of the holder, the entire indebtedness hereby evidenced shall become due, payable and collectible then or thereafter, without notice, as the holder may elect regardless of the date of maturity. The holder may waive any default before or after the same has been declared and restore this Note to full force and effect without impairing any rights hereunder, such right of waiver being a continuing one. -2- 59 The makers, endorsers, guarantors and all parties to this Note and all who may become liable for same, jointly and severally waive presentment for payment, protest, notice of protest, notice of nonpayment of this Note, demand and all legal diligence in enforcing collection, and hereby expressly agree that the lawful owner or holder of this Note may defer or postpone collection of the whole or any part thereof, either principal and/or interest, or may extend or renew the whole or any part thereof, either principal and/or interest, or may accept additional collateral or security for the payment of this Note, or may release the whole or any part of any collateral security and/or liens given to secure the payment of this Note, or may release from liability on account of this Note any one or more of the makers, endorsers, guarantors and/or other parties thereto, all without notice to them or any of them; and such deferment, postponement, renewal, extension, acceptance of additional collateral or security and/or release shall not in any way affect or change the obligation of any such maker, endorser, guarantor or other party to this Note, or of any who may become liable for the payment thereof. The Borrower shall pay a "late charge" of five percent (5%) of any payments of principal and/or interest due when paid more than five days after the due date thereof (provided that in no event shall said "late charge" result in the payment of interest in excess of the maximum lawful rate of interest permitted by applicable law), to cover the extra expenses involved in handling delinquent payments; and provided that the late charge shall not be applicable to the payment due on the Maturity Date. The term "maximum lawful rate of interest" as used herein shall mean a rate of interest equal to the higher or greater of the following: (a) the "applicable formula rate" defined in Tennessee Code Annotated Section 47-14-102(2), or (b) such other rate of interest as may be charged under other applicable laws or regulations. This Note is a secured Note. This Note has been executed and delivered in, and shall be governed by and construed according to the laws of the State of Tennessee except to the extent pre-empted by applicable laws of the United States of America. This Note may not be changed or terminated without the prior written approval of the Lender and the Borrower. No waiver of any term or provision hereof shall be valid unless in writing signed by the holder. This Note is one of the Revolving Credit Notes issued by Borrower pursuant to the Loan Agreement. This Note reflects in part an amendment, restatement, and increase to the revolving credit indebtedness previously evidenced by that certain Amended -3- 60 and Restated Revolving Credit Note payable to the order of SunTrust Bank, Nashville, N.A. in the principal amount of $12,000,000 dated as of June 25, 1996, which Amended and Restated Revolving Credit Note was assigned by SunTrust Bank, Nashville, N.A. to Agent. Subsequent to the assignment to Agent, the revolving credit indebtedness was increased to $15,000,000 and separate notes were issued to the Lenders (as defined in the Loan Agreement) to evidence the amended, restated, and increased revolving credit indebtedness. This Note is not (and is not intended to be) a novation of the revolving credit indebtedness evidenced by the Amended and Restated Revolving Credit Note. Executed this 15th day of April, 1997. BORROWER: AMSURG CORP., a Tennessee corporation By: ------------------------------------- Title: ---------------------------------- -4- 61 EXHIBIT C NATIONSBANK REVOLVING CREDIT NOTE FOR VALUE RECEIVED, AMSURG CORP., a Tennessee corporation (hereinafter referred to as "Borrower"), promises and agrees to pay to the order of NATIONSBANK OF TENNESSEE, N.A., a national bank (the "Lender") at the Nashville, Tennessee offices of SunTrust Bank, Nashville, N.A., Agent (the "Agent"), in lawful money of the United States of America, the principal sum of Four Million Three Hundred Fifty Thousand and no/100 Dollars ($4,350,000), or so much thereof as may be advanced from time to time by the Lender, together with interest on the unpaid principal balance outstanding from time to time hereon computed from the date of each advance until maturity at the rate of interest set forth in that certain Second Amended and Restated Loan Agreement executed among Borrower, Lender, SunTrust Bank, Nashville, N.A., and Agent dated April 15, 1997, as such may be amended from time to time (herein referred to as the "Loan Agreement"). Interest for each year shall be computed on the basis of a year of 360 days for the actual number of days elapsed. So long as no default has occurred and is continuing hereunder and so long as no Event of Default or Default Condition has occurred and is continuing under the Loan Agreement, and subject to the terms of the Loan Agreement, the Borrower may borrow hereunder, repay such borrowings, and reborrow hereunder as provided in the Loan Agreement. Lender shall keep records of all borrowings and repayments. Draws under this Note shall be evidenced by such documentation as required by Article II of the Loan Agreement. Advances under this Note shall be made pursuant to the procedure specified in the Loan Agreement. This Note shall be repaid as follows: (a) Commencing on the tenth (10th) day of May, 1997, and on the tenth day of each consecutive month through and including March 10, 1999, the Borrower shall pay to Lender an amount equal to all then accrued interest; and (b) On April 15, 1999, this Note shall mature at which time the Borrower shall pay to Lender an amount equal to all outstanding principal, plus all then accrued interest. This Note is subject to the terms of the Loan Agreement. Notwithstanding any provision to the contrary, it is the intent of the Lender, the Borrower, and all parties liable on this Note, that neither the Lender nor any subsequent holder shall be entitled to receive, collect, reserve or apply, as interest, any amount in excess of the maximum lawful rate of interest permitted 62 to be charged by applicable law or regulations, as amended or enacted from time to time. In the event the Note calls for an interest payment that exceeds the maximum lawful rate of interest then applicable, such interest shall not be received, collected, charged, or reserved until such time as that interest, together with all other interest then payable, falls within the then applicable maximum lawful rate of interest. In the event the Lender, or any subsequent holder, receives any such interest in excess of the then maximum lawful rate of interest, such amount which would be excessive interest shall be deemed a partial prepayment of principal and treated hereunder as such, or, if the principal indebtedness evidenced hereby is paid in full, any remaining excess funds shall immediately be paid to the Borrower. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the maximum lawful rate of interest, the Borrower and the Lender shall, to the maximum extent permitted under applicable law, (a) exclude voluntary prepayments and the effects thereof, and (b) amortize, prorate, allocate, and spread, in equal parts, the total amount of interest throughout the entire term of the indebtedness; provided that if the indebtedness is paid in full prior to the end of the full contemplated term hereof, and if the interest received for the actual period of existence hereof exceeds the maximum lawful rate of interest, the holder of the Note shall refund to the Borrower the amount of such excess or credit the amount of such excess against the principal portion of the indebtedness as of the date it was received, and, in such event, the Lender shall not be subject to any penalties provided by any laws for contracting for, charging, reserving, collecting or receiving interest in excess of the maximum lawful rate of interest. Principal and unpaid interest bear interest during the continuance of any default in payment of principal and interest as herein provided at the lesser of (i) the Base Rate (as defined in the Loan Agreement) plus 4% per annum, or (ii) the maximum lawful rate of interest permitted by law. In case of suit, or if this obligation is placed in an attorney's hands for collection, or to protect the security for its payment, the undersigned will pay all costs of collection and litigation, including a reasonable attorney's fee. In the event that there occurs any breach of any promise made in this Note and such breach continues for longer than fifteen (15) days, or upon the occurrence of an Event of Default as defined in the Loan Agreement, then, during the continuance of any of such events, at the option of the holder, the entire indebtedness hereby evidenced shall become due, payable and collectible then or thereafter, without notice, as the holder may elect regardless of the date of maturity. The holder may waive any default before or after the same has been declared and restore this Note to full force and effect without impairing any rights hereunder, such right of waiver being a continuing one. -2- 63 The makers, endorsers, guarantors and all parties to this Note and all who may become liable for same, jointly and severally waive presentment for payment, protest, notice of protest, notice of nonpayment of this Note, demand and all legal diligence in enforcing collection, and hereby expressly agree that the lawful owner or holder of this Note may defer or postpone collection of the whole or any part thereof, either principal and/or interest, or may extend or renew the whole or any part thereof, either principal and/or interest, or may accept additional collateral or security for the payment of this Note, or may release the whole or any part of any collateral security and/or liens given to secure the payment of this Note, or may release from liability on account of this Note any one or more of the makers, endorsers, guarantors and/or other parties thereto, all without notice to them or any of them; and such deferment, postponement, renewal, extension, acceptance of additional collateral or security and/or release shall not in any way affect or change the obligation of any such maker, endorser, guarantor or other party to this Note, or of any who may become liable for the payment thereof. The Borrower shall pay a "late charge" of five percent (5%) of any payments of principal and/or interest due when paid more than five days after the due date thereof (provided that in no event shall said "late charge" result in the payment of interest in excess of the maximum lawful rate of interest permitted by applicable law), to cover the extra expenses involved in handling delinquent payments; and provided that the late charge shall not be applicable to the payment due on the Maturity Date. The term "maximum lawful rate of interest" as used herein shall mean a rate of interest equal to the higher or greater of the following: (a) the "applicable formula rate" defined in Tennessee Code Annotated Section 47-14-102(2), or (b) such other rate of interest as may be charged under other applicable laws or regulations. This Note is a secured Note. This Note has been executed and delivered in, and shall be governed by and construed according to the laws of the State of Tennessee except to the extent pre-empted by applicable laws of the United States of America. This Note may not be changed or terminated without the prior written approval of the Lender and the Borrower. No waiver of any term or provision hereof shall be valid unless in writing signed by the holder. This Note is one of the Revolving Credit Notes issued by Borrower pursuant to the Loan Agreement. This Note reflects in part an amendment, restatement, and increase to the revolving credit indebtedness previously evidenced by that certain Amended -3- 64 and Restated Revolving Credit Note payable to the order of SunTrust Bank, Nashville, N.A. in the principal amount of $12,000,000 dated as of June 25, 1996, which Amended and Restated Revolving Credit Note was assigned by SunTrust Bank, Nashville, N.A. to Agent. Subsequent to the assignment to Agent, the revolving credit indebtedness was increased to $15,000,000 and separate notes were issued to the Lenders (as defined in the Loan Agreement) to evidence the amended, restated, and increased revolving credit indebtedness. This Note is not (and is not intended to be) a novation of the revolving credit indebtedness evidenced by the Amended and Restated Revolving Credit Note. Executed this 15th day of April, 1997. BORROWER: AMSURG CORP., a Tennessee corporation By: ------------------------------------- Title: ---------------------------------- -4- 65 EXHIBIT D SUNTRUST TERM NOTE FOR VALUE RECEIVED, AMSURG CORP., a Tennessee corporation (hereinafter referred to as "Borrower"), promises and agrees to pay to the order of SUNTRUST BANK, NASHVILLE, N.A. (the "Lender") at the Nashville, Tennessee offices of SunTrust Bank, Nashville, N.A, Agent (the "Agent"), in lawful money of the United States of America, the principal sum of Three Million Three Hundred Sixteen Thousand Five Hundred Ninety-Five and 93/100 Dollars ($3,316,595.93), together with interest on the unpaid principal balance outstanding from time to time hereon computed from the date hereof until maturity at the rate of interest set forth in that certain Second Amended and Restated Loan Agreement executed among Borrower, Lender, NationsBank of Tennessee, N.A., and Agent dated April 15, 1997, as such may be amended from time to time (herein referred to as the "Loan Agreement"). Interest for each year shall be computed based on the basis of a year of 360 days for the actual number of days elapsed. This Note shall be repaid as follows: (a) commencing on the tenth (10th) day of April, 1997 and on the tenth (10th) day of each consecutive month thereafter through and including May 10, 2000, the Borrower shall pay to Lender an amount equal to $85,040.96, plus all then accrued interest; and (b) on June 10, 2000, this Note shall mature, and the Borrower shall pay to Lender an amount equal to all outstanding principal, plus all then accrued interest. This Note is subject to the terms of the Loan Agreement. Notwithstanding any provision to the contrary, it is the intent of the Lender, the Borrower, and all parties liable on this Note, that neither the Lender nor any subsequent holder shall be entitled to receive, collect, reserve or apply, as interest, any amount in excess of the maximum lawful rate of interest permitted to be charged by applicable law or regulations, as amended or enacted from time to time. In the event the Note calls for an interest payment that exceeds the maximum lawful rate of interest then applicable, such interest shall not be received, collected, charged, or reserved until such time as that interest, together with all other interest then payable, falls within the then applicable maximum lawful rate of interest. In the event the Lender, or any subsequent holder, receives any such interest in excess of the then maximum lawful rate of interest, such amount which would be excessive interest shall be deemed a partial prepayment of principal and treated hereunder as such, or, if the principal indebtedness evidenced hereby is paid in full, any remaining excess funds shall immediately be paid to the Borrower. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the maximum lawful rate of 66 interest, the Borrower and the Lender shall, to the maximum extent permitted under applicable law, (a) exclude voluntary prepayments and the effects thereof, and (b) amortize, prorate, allocate, and spread, in equal parts, the total amount of interest throughout the entire term of the indebtedness; provided that if the indebtedness is paid in full prior to the end of the full contemplated term hereof, and if the interest received for the actual period of existence hereof exceeds the maximum lawful rate of interest, the holder of the Note shall refund to the Borrower the amount of such excess or credit the amount of such excess against the principal portion of the indebtedness as of the date it was received, and, in such event, the Lender shall not be subject to any penalties provided by any laws for contracting for, charging, reserving, collecting or receiving interest in excess of the maximum lawful rate of interest. Principal and unpaid interest bear interest during the continuance of any default in payment of principal and interest as herein provided at the lesser of(i) the Base Rate (as defined in the Loan Agreement), plus 4% per annum, or the maximum lawful rate of interest permitted by law. In case of suit, or if this obligation is placed in an attorney's hands for collection, or to protect the security for its payment, the undersigned will pay all costs of collection and litigation, including a reasonable attorney's fee. In the event that there occurs any breach of any promise made in this Note and such breach continues for longer than fifteen (15) days, or upon the occurrence of an Event of Default as defined in the Loan Agreement, then, during the continuance of any of such events, at the option of the holder, the entire indebtedness hereby evidenced shall become due, payable and collectible then or thereafter, without notice, as the holder may elect regardless of the date of maturity. The holder may waive any default before or after the same has been declared and restore this Note to full force and effect without impairing any rights hereunder, such right of waiver being a continuing one. The makers, endorsers, guarantors and all parties to this Note and all who may become liable for same, jointly and severally waive presentment for payment, protest, notice of protest, notice of nonpayment of this Note, demand and all legal diligence in enforcing collection, and hereby expressly agree that the lawful owner or holder of this Note may defer or postpone collection of the whole or any part thereof, either principal and/or interest, or may extend or renew the whole or any part thereof, either principal and/or interest, or may accept additional collateral or security for the payment of this Note, or may release the whole or any part of any collateral security and/or liens given to secure the payment of this Note, or may release from liability on account of this Note any one or more of the makers, endorsers, guarantors and/or other parties thereto, all without notice to them or any of them; and -2- 67 such deferment, postponement, renewal, extension, acceptance of additional collateral or security and/or release shall not in any way affect or change the obligation of any such maker, endorser, guarantor or other party to this Note, or of any who may become liable for the payment thereof. The Borrower shall pay a "late charge" of five percent (5%) of any payments of principal and/or interest due when paid more than five days after the due date thereof (provided that in no event shall said "late charge" result in the payment of interest in excess of the maximum lawful rate of interest permitted by applicable law), to cover the extra expenses involved in handling delinquent payments; and provided that the late charge shall not be applicable to the payment due on the Maturity Date. The term "maximum lawful rate of interest" as used herein shall mean a rate of interest equal to the higher or greater of the following: (a) the "applicable formula rate" defined in Tennessee Code Annotated Section 47-14-102(2), or (b) such other rate of interest as may be charged under other applicable laws or regulations. This Note is a secured Note. This Note has been executed and delivered in, and shall be governed by and construed according to the laws of the State of Tennessee except to the extent pre-empted by applicable laws of the United States of America. This Note may not be changed or terminated without the prior written approval of the Lender and the Borrower. No waiver of any term or provision hereof shall be valid unless in writing signed by the holder. This Note is one of the Term Notes issued by Borrower pursuant to the Loan Agreement. This Note reflects in part an amendment and restatement of the indebtedness evidenced by that certain Consolidated, Amended, and Restated Term Note payable to the order of SunTrust Bank, Nashville, N.A. in the principal amount of $5,749,245.88 dated as of June 25, 1996, which Consolidated, Amended, and Restated Term Note was assigned without recourse by SunTrust Bank, Nashville, N.A. to Agent. Subsequent to the assignment to Agent, separate notes were issued to the Lenders (as such term is defined in the Loan Agreement) to evidence the indebtedness. This Note is not (and is not intended to be) a novation of the indebtedness evidenced previously by the Consolidated, Amended, and Restated Term Note. -3- 68 Executed this 15th day of April, 1997. BORROWER: AMSURG CORP., a Tennessee corporation By: ------------------------------------- Title: ---------------------------------- -4- 69 EXHIBIT D NATIONSBANK TERM NOTE FOR VALUE RECEIVED, AMSURG CORP., a Tennessee corporation (hereinafter referred to as "Borrower"), promises and agrees to pay to the order of NATIONSBANK OF TENNESSEE, N.A. (the "Lender") at the Nashville, Tennessee offices of SunTrust Bank, Nashville, N.A, Agent (the "Agent"), in lawful money of the United States of America, the principal sum of One Million Three Hundred Fifty Four Thousand Six Hundred Sixty-Five and 95/100 Dollars ($1,354,665.95), together with interest on the unpaid principal balance outstanding from time to time hereon computed from the date hereof until maturity at the rate of interest set forth in that certain Second Amended and Restated Loan Agreement executed among Borrower, Lender, SunTrust Bank, Nashville, N.A., and Agent dated April 15, 1997, as such may be amended from time to time (herein referred to as the "Loan Agreement"). Interest for each year shall be computed based on the basis of a year of 360 days for the actual number of days elapsed. This Note shall be repaid as follows: (a) commencing on the tenth (10th) day of April, 1997 and on the tenth (10th) day of each consecutive month thereafter through and including May 10, 2000, the Borrower shall pay to Lender an amount equal to $34,735.04, plus all then accrued interest; and (b) on June 10, 2000, this Note shall mature, and the Borrower shall pay to Lender an amount equal to all outstanding principal, plus all then accrued interest. This Note is subject to the terms of the Loan Agreement. Notwithstanding any provision to the contrary, it is the intent of the Lender, the Borrower, and all parties liable on this Note, that neither the Lender nor any subsequent holder shall be entitled to receive, collect, reserve or apply, as interest, any amount in excess of the maximum lawful rate of interest permitted to be charged by applicable law or regulations, as amended or enacted from time to time. In the event the Note calls for an interest payment that exceeds the maximum lawful rate of interest then applicable, such interest shall not be received, collected, charged, or reserved until such time as that interest, together with all other interest then payable, falls within the then applicable maximum lawful rate of interest. In the event the Lender, or any subsequent holder, receives any such interest in excess of the then maximum lawful rate of interest, such amount which would be excessive interest shall be deemed a partial prepayment of principal and treated hereunder as such, or, if the principal indebtedness evidenced hereby is paid in full, any remaining excess funds shall immediately be paid to the Borrower. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the maximum lawful rate of 70 interest, the Borrower and the Lender shall, to the maximum extent permitted under applicable law, (a) exclude voluntary prepayments and the effects thereof, and (b) amortize, prorate, allocate, and spread, in equal parts, the total amount of interest throughout the entire term of the indebtedness; provided that if the indebtedness is paid in full prior to the end of the full contemplated term hereof, and if the interest received for the actual period of existence hereof exceeds the maximum lawful rate of interest, the holder of the Note shall refund to the Borrower the amount of such excess or credit the amount of such excess against the principal portion of the indebtedness as of the date it was received, and, in such event, the Lender shall not be subject to any penalties provided by any laws for contracting for, charging, reserving, collecting or receiving interest in excess of the maximum lawful rate of interest. Principal and unpaid interest bear interest during the continuance of any default in payment of principal and interest as herein provided at the lesser of (i) the Base Rate (as defined in the Loan Agreement), plus 4% per annum, or the maximum lawful rate of interest permitted by law. In case of suit, or if this obligation is placed in an attorney's hands for collection, or to protect the security for its payment, the undersigned will pay all costs of collection and litigation, including a reasonable attorney's fee. In the event that there occurs any breach of any promise made in this Note and such breach continues for longer than fifteen (15) days, or upon the occurrence of an Event of Default as defined in the Loan Agreement, then, during the continuance of any of such events, at the option of the holder, the entire indebtedness hereby evidenced shall become due, payable and collectible then or thereafter, without notice, as the holder may elect regardless of the date of maturity. The holder may waive any default before or after the same has been declared and restore this Note to full force and effect without impairing any rights hereunder, such right of waiver being a continuing one. The makers, endorsers, guarantors and all parties to this Note and all who may become liable for same, jointly and severally waive presentment for payment, protest, notice of protest, notice of nonpayment of this Note, demand and all legal diligence in enforcing collection, and hereby expressly agree that the lawful owner or holder of this Note may defer or postpone collection of the whole or any part thereof, either principal and/or interest, or may extend or renew the whole or any part thereof, either principal and/or interest, or may accept additional collateral or security for the payment of this Note, or may release the whole or any part of any collateral security and/or liens given to secure the payment of this Note, or may release from liability on account of this Note any one or more of the makers, endorsers, guarantors and/or other parties thereto, all without notice to them or any of them; and -2 - 71 such deferment, postponement, renewal, extension, acceptance of additional collateral or security and/or release shall not in any way affect or change the obligation of any such maker, endorser, guarantor or other party to this Note, or of any who may become liable for the payment thereof. The Borrower shall pay a "late charge" of five percent (5%) of any payments of principal and/or interest due when paid more than five days after the due date thereof (provided that in no event shall said "late charge" result in the payment of interest in excess of the maximum lawful rate of interest permitted by applicable law), to cover the extra expenses involved in handling delinquent payments; and provided that the late charge shall not be applicable to the payment due on the Maturity Date. The term "maximum lawful rate of interest" as used herein shall mean a rate of interest equal to the higher or greater of the following: (a) the "applicable formula rate" defined in Tennessee Code Annotated Section 47-14-102(2), or (b) such other rate of interest as may be charged under other applicable laws or regulations. This Note is a secured Note. This Note has been executed and delivered in, and shall be governed by and construed according to the laws of the State of Tennessee except to the extent pre-empted by applicable laws of the United States of America. This Note may not be changed or terminated without the prior written approval of the Lender and the Borrower. No waiver of any term or provision hereof shall be valid unless in writing signed by the holder. This Note is one of the Term Notes issued by Borrower pursuant to the Loan Agreement. This Note reflects in part an amendment and restatement of the indebtedness evidenced by that certain Consolidated, Amended, and Restated Term Note payable to the order of SunTrust Bank, Nashville, N.A. in the principal amount of $5,749,245.88 dated as of June 25, 1996, which Consolidated, Amended, and Restated Term Note was assigned without recourse by SunTrust Bank, Nashville, N.A. to Agent. Subsequent to the assignment to Agent, separate notes were issued to the Lenders (as such term is defined in the Loan Agreement) to evidence the indebtedness. This Note is not (and is not intended to be) a novation of the indebtedness evidenced previously by the Consolidated, Amended, and Restated Term Note. -3 - 72 Executed this 15th day of April, 1997. BORROWER: AMSURG CORP., a Tennessee corporation By: ------------------------------------- Title: ---------------------------------- -4- 73 Exhibit E 1. Loans to Digestive Disease Clinic, Inc., Jackson, Tennessee. AmSurg has a management agreement but no current ownership in this ASC but does have an option to acquire a 51% ownership interest in July, 1997. 2. Loan to The Largo Urology ASC, Inc., Largo, Florida. AmSurg will own 40% of this ASC with a right to buy up to 51% after 3 years of operation. 3. Loan to Evansville ASC, LLC, Evansville, Indiana. AmSurg current ownership is 40%. On the date of opening, AmSurg will purchase an additional 15% bringing ownership to 55%. 74 Exhibits F and G AmSurg Corp. Subsidiaries As of March 31, 1997 (Note: All subsidiaries are Tennessee entities) Registered office for all entities is: One Burton Hills Blvd., Suite 350 Nashville, TN 37215
SUBSIDIARY CORPORATION AND AFFILIATED FACILITY OWNERSHIP LIMITED PARTNERSHIP/LLC LOCATION INTEREST *AmSurg EC Centennial, Inc. Nashville, Tennessee 100% EIN: 62-1511980 The Endoscopy Center of Centennial, L.P. Nashville, Tennessee 60 *AmSurg EC Topeka, Inc. Topeka, Kansas 100 EIN: 62-1512093 The Endoscopy Center of Topeka, L.P. Topeka, Kansas 60 *AmSurg EC St. Thomas, Inc. Nashville, Tennessee 100 EIN: 62-1511996 The Endoscopy Center of St. Thomas, L.P. Nashville, Tennessee 60 *AmSurg EC Beaumont, Inc. Beaumont, Texas 100 EIN: 62-1524208 The Endoscopy Center of Southeast Texas, L.P. Beaumont, Texas 51
75
SUBSIDIARY CORPORATION AND AFFILIATED FACILITY OWNERSHIP LIMITED PARTNERSHIP/LLC LOCATION INTEREST *AmSurg KEC, Inc. Knoxville, Tennessee 100 EIN: 62-1510489 The Endoscopy Center of Knoxville, L.P. Knoxville, Tennessee 51 *AmSurg EC Santa Fe, Inc. Santa Fe, New Mexico 100 EIN: 62-1523398 The Endoscopy Center of Santa Fe, L.P. Santa Fe, New Mexico 60 *AmSurg EC Washington, Inc. Washington, District of 100 Columbia EIN: 62-1506354 The Endoscopy Center of Washington, D.C., L.P. Washington, District of 60 Columbia *AmSurg Torrance, Inc. Torrance, California 100 EIN: 62-1545685 The Endoscopy Center of the South Bay, L.P. Torrance, California 51 *AmSurg Brevard, Inc. Melbourne, Florida 100 EIN: 62-1545684 The Ophthalmology Center of Brevard, L.P. Melbourne, Florida 51 *AmSurg Encino, Inc. Encino, California 100 EIN: 62-1545683 The Valley Endoscopy Center, L.P. Encino, California 51
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SUBSIDIARY CORPORATION AND AFFILIATED FACILITY OWNERSHIP LIMITED PARTNERSHIP/LLC LOCATION INTEREST *AmSurg Sebastopol, Inc. Sebastopol, California 100 EIN: 62-1545686 The Sebastopol ASC, L.P. Sebastopol, California 60 *AmSurg ENT Brevard, Inc. Melbourne, Florida 100 EIN: 62-1555412 The ENT Center of Brevard, L.P. Melbourne, Florida 51 *AmSurg Abilene, Inc. Abilene, Texas 100 EIN: 62-1555413 The Abilene ASC, L.P. Abilene, Texas 60 *AmSurg West Tennessee, Inc. Jackson, Tennessee 100 EIN: 62-1555415 The West Tennessee Center, L.P. Jackson, Tennessee 40 *AmSurg Dallas, Inc. Dallas, Texas 100 EIN: 62-1555677 *AmSurg Lakeland, Inc. Lakeland, Florida 100 EIN: 62-1558353 *AmSurg SWFLA, Inc. Fort Myers/Cape Coral, 100 Florida EIN: 62-1567628
77
SUBSIDIARY CORPORATION AND AFFILIATED FACILITY OWNERSHIP LIMITED PARTNERSHIP/LLC LOCATION INTEREST AmSurg Southwest Florida, L.P. Fort Myers/Cape Coral, 60 Florida *AmSurg Lorain, Inc. Lorain, Ohio 100 EIN: 62-1595307 The Lorain ASC, L.P. Lorain, Ohio 60 *AmSurg Maryville, Inc. Maryville, Tennessee 100 EIN: 62-1586143 The Maryville ASC Maryville, Tennessee 51 *AmSurg Holdings, Inc. All LLCs 100 EIN: 62-1595888 The Knoxville Ophthalmology ASC, LLC Knoxville, Tennessee 60 The West Monroe Endoscopy ASC, LLC West Monroe, Louisiana 55 Montgomery Eye Surgery Center, LLC Montgomery, Alabama 51 The Evansville ASC, LLC Evansville, Indiana 40 The Sidney ASC, LLC Sidney, Ohio 51 The Bloomington ASC, LLC Bloomington, Minnesota 51 The Union City ASC, LLC Union City, Tennessee 51 The Cleveland ASC, LLC Cleveland, Ohio 51 The Milwaukee ASC, LLC Milwaukee, Wisconsin 51 The Eye Care Network, LLC Knoxville, Tennessee 51 The Alabama Eye Care Network, LLC Montgomery, Alabama 51
78
SUBSIDIARY CORPORATION AND AFFILIATED FACILITY OWNERSHIP LIMITED PARTNERSHIP/LLC LOCATION INTEREST The Columbia ASC, LLC Columbia, South Carolina 51 The Wichita Orthopaedic ASC, LLC Wichita, Kansas 51 The Minneapolis Endoscopy ASC, LLC Minneapolis, Minnesota 51 The Chevy Chase ASC, LLC Chevy Chase, Maryland 51 The Willoughby ASC, LLC Willoughby, Ohio 51 The Oklahoma City ASC, LLC Oklahoma City, Oklahoma 51 The Cincinnati ASC, LLC Cincinnati, Ohio 51 The Mountain West Gastroenterology ASC, LLC Salt Lake City, Utah 51 *AmSurg Miami, Inc. Miami, Florida 100 EIN: 62-1598504 The Miami ASC, L.P. Miami, Florida 51 *AmSurg North Platte, Inc. North Platte, Nebraska 100 EIN: 62-1619547 *AmSurg Fort Collins, Inc. Fort Collins, Colorado 100 EIN: 62-1612176 *AmSurg Hanford, Inc. Hanford, California 100 EIN: 62-1619548 The Hanford ASC, L.P. Hanford, California 63
79
SUBSIDIARY CORPORATION AND AFFILIATED FACILITY OWNERSHIP LIMITED PARTNERSHIP/LLC LOCATION INTEREST *AmSurg Melbourne Inc. Melbourne, Florida 100 EIN: 62-1625312 The Melbourne ASC, L.P. Melbourne, Florida 51 *AmSurg Largo, Inc. Largo, Florida 100 EIN: 62-1625310 The Largo Urology ASC, L.P. Largo, Florida 40 *AmSurg Port Arthur, Inc.. Port Arthur, Texas 100 EIN: 62-1625307 The Port Arthur ASC, L.P. Port Arthur, Texas 51 *Amsurg Chicago, Inc. Chicago, Illinois 100 EIN: 62-1625304 The Chicago Endoscopy ASC, L.P. Chicago, Illinois 51 *AmSurg Dade County, Inc. Miami, Florida 100 EIN: 62-1626021 Gastroenterology Group of South Florida Miami, Florida 70 *AmSurg Hillmont, Inc. Philadelphia, PA 100 EIN: 62-1632685 The Hillmont, ASC, L.P. Philadelphia, PA 51
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SUBSIDIARY CORPORATION AND AFFILIATED FACILITY OWNERSHIP LIMITED PARTNERSHIP/LLC LOCATION INTEREST *AmSurg Northwest Florida, Inc. Panama City, Florida 100 EIN: 62-1519549 The Northwest Florida ASC, L.P. Panama City, Florida 51 *Amsurg Palmetto, Inc. Hialeah, Florida 100 EIN: 62-1647404 The Palmetto ASC, L.P. Hialeah, Florida 51 *AmSurg Hallandale, Inc. Hallandale, Florida 100 EIN: 62-1648269 The Hallandale Surgery ASC, L.P. Hallandale, Florida 51 *AmSurg South Florida Network, Inc. Miami, Florida 100 EIN: 62-1647400 The GI Network of South Florida, L.P. Miami, Florida 51 *AmSurg Panama City, Inc. Panama City, Florida 100 EIN: 62-1659906 The Panama City Eye ASC, L.P. Panama City, Florida 51 *AmSurg Ocala, Inc. Ocala, Florida 100 EIN: 62-1650493 The Ocala Endoscopy ASC, L.P. Ocala, Florida 51 *AmSurg MEA, Inc. Nashville, Tennessee 100 EIN: applied for
81
SUBSIDIARY CORPORATION AND AFFILIATED FACILITY OWNERSHIP LIMITED PARTNERSHIP/LLC LOCATION INTEREST *AmSurg Miami Urology, Inc. Miami, Florida 100 EIN: 62-1666190 The Miami Urology Group, L.P. Miami, Florida 60 The Miami Urology ASC, L.P. Miami, Florida 60 *AmSurg Crystal River, Inc. Crystal River, Florida 100 EIN: 62-1666189 The Crystal River Endoscopy ASC, L.P. Crystal River, Florida 51 *AmSurg Abilene Eye, Inc. Abilene, Texas 100 EIN: applied for The Abilene Eye ASC, L.P. Abilene, Texas 51
- ------------------------------------------- * Signifies Guarantor 82 EXHIBIT H [BASS, BERRY & SIMS LETTERHEAD] April __, 1997 SunTrust Bank, Nashville, N.A., Agent 201 Fourth Avenue North Nashville, TN 37219 Attention: Karen Ahern Dear Ms. Ahern: We have acted as counsel to AmSurg Corp., a Tennessee corporation (the "Borrower"), in connection with the execution by the Borrower of that certain Second Amended and Restated Loan Agreement dated as of April __, 1997 among Borrower, SunTrust Bank, Nashville, N.A., Agent (the "Agent"), and the Lenders, described therein (the "Loan Agreement"), the Revolving Credit Notes, the Term Notes and certain other loan documents executed in connection with the Loan Agreement (the Loan Agreement, the Revolving Credit Notes, the Term Notes, and such other loan documents executed by the Borrower are collectively referred to herein as the "Transaction Documents"). This Opinion Letter is delivered to, and for the benefit of, the Agent and the Lenders, pursuant to the requirements of the Loan Agreement. All terms used, but not defined, herein shall have the meanings ascribed to them in the Loan Agreement or the Accord (see below). This Opinion Letter is governed by, and shall be interpreted in accordance with, the Legal Opinion Accord (the "Accord") of the ABA Section of Business Law (1991). As a consequence, it is subject to a number of qualifications, exceptions, definitions, limitations on coverage and other limitations, all as more particularly described in the Accord, and this Opinion Letter should be read in conjunction therewith. Solely as to matters of fact, but not as to the legal conclusions that are the subject of this opinion, we have relied upon representations made by Borrower in the Transaction Documents. The Law covered by the opinions expressed herein is limited to the federal Law of the United States and the Law of the State of Tennessee. 83 April __, 1997 Page 2 Based on the foregoing, and subject to the assumptions, limitations and qualifications set forth herein, we are of the opinion that: 1. Borrower is a corporation, duly organized, validly existing, and in good standing under the laws of the State of Tennessee. Borrower has the corporate power and corporate authority under such laws to enter into and perform its obligations under the Transaction Documents. 2. The Transaction Documents have been duly authorized by all necessary corporate action on the part of Borrower and have been duly executed and delivered by the Borrower. 3. The Transaction Documents are enforceable against the Borrower. Our opinion in paragraph 3 is further subject to the qualification that certain waivers, procedures, remedies and other provisions of the Transaction Documents may be unenforceable under or limited by applicable law; provided, however, that the inclusion of such waivers, procedures, remedies and other provisions does not render the Transaction Documents invalid as a whole, and subject to the other qualifications and limitations set forth herein, there exist in the Transaction Documents or pursuant to applicable law, legally adequate remedies for the practical realization of the principal benefits reasonably intended to be provided by the Transaction Documents, subject to the consequences of any delay that may result from limitations imposed by applicable law. In making our examinations and in expressing our opinions, we have assumed that the Transaction Documents have been executed and delivered for adequate consideration. The General Qualifications apply to all of the opinions set forth above. We hereby confirm to you that there are no actions or proceedings against the Borrower, pending or threatened in writing, before any court, governmental agency or arbitrator that affect the enforceability of the Transaction Documents. This Opinion Letter may be relied upon by Agent and the Lenders only in connection with the Transaction Documents and may not be used or relied upon by any other person for any purpose whatsoever, except to the extent authorized in the Accord, without in each instance our prior written consent. Very truly yours, 2 84 FIRST AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AGREEMENT ENTERED INTO by and among AMSURG CORP., a Tennessee corporation (the "Borrower"), SUNTRUST BANK, NASHVILLE, N.A., AGENT for the Lenders defined herein ("Agent"), SUNTRUST BANK, NASHVILLE, N.A., a national bank ("STB"), and NATIONSBANK OF TENNESSEE, N.A., a national bank ("NBT") (herein STB and NBT shall be referred to as "Lenders"), as of this 6th day of May, 1997. RECITALS 1. The Borrower, the Agent, and the Lenders entered into a Second Amended and Restated Loan Agreement dated as of April 15, 1997 (herein the "Loan Agreement"). 2. The Borrower, the Agent, and the Lenders desire to amend the Loan Agreement as set forth herein. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration the parties hereto agree as follows: 1. Section 7.11(a) of the Loan Agreement shall be amended and restated as follows: (a) Net Worth. Permit its Consolidated Net Worth as of March 31, 1997 to be less than $32,726,225; nor permit its Consolidated Net Worth as measured at the end of each Fiscal Quarter thereafter to be less than the sum of: (i) $32,726,225, plus (ii) the amount by which Borrower's additional paid-in capital exceeds $32,726,225, plus (iii) 75% of the net, after-tax earnings of the Borrower as determined on a consolidated basis. 2. The Loan Agreement is not amended in any other respect. 3. The Borrower reaffirms its obligations under the Loan Agreement and agrees that such obligations are valid and binding, enforceable in accordance with their respective terms, subject to no defense, counterclaim or objection. ENTERED INTO as of the date first set forth above. BORROWER: AMSURG CORP., a Tennessee corporation By: Claire M. Gulmi --------------------------- Title: CFO ------------------------- AGENT: SUNTRUST BANK, NASHVILLE, N.A., AGENT By: Karen Cole Ahern ---------------------------- Title: GVP ------------------------- LENDERS: SUNTRUST BANK, NASHVILLE, N.A By: Karen Cole Ahern ---------------------------- Title: GVP ------------------------- NATIONSBANK OF TENNESSEE, N.A. By: David H. Dupuy ---------------------------- Title: VP ------------------------- 85 SECOND AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AGREEMENT ENTERED INTO by and among AMSURG CORP., a Tennessee corporation (the "Borrower"), SUNTRUST BANK, NASHVILLE, N.A., AGENT for the Lenders defined herein ("Agent"), SUNTRUST BANK, NASHVILLE, N.A., a national bank ("STB"), and NATIONSBANK OF TENNESSEE, N.A., a national bank ("NBT") (herein STB and NBT shall be referred to as "Lenders"), as of September 2, 1997. RECITALS: 1. The Borrower, the Agent, and the Lenders entered into a Second Amended and Restated Loan Agreement dated as of April 15, 1997, as amended by a First Amendment to Second Amended and Restated Loan Agreement dated as of May 5, 1997 (herein the Second Amended and Restated Loan Agreement, as amended, shall be referred to as the "Loan Agreement"). 2. The Borrower desires that the Lenders increase the amount of the indebtedness available under the Loan Agreement and related Revolving Credit Notes. 3. The Borrower, the Agent, and the Lenders desire to amend the Loan Agreement as provided herein. NOW, THEREFORE, in consideration of the recitals and the mutual agreements contained herein, the Borrower, the Agent, and the Lenders agree as follows: 1. The definition of "Revolving Credit Note" and "Revolving Credit Notes" as set forth in Article I of the Loan Agreement shall be amended and restated as follows: "Revolving Credit Note" and "Revolving Credit Notes" means those Revolving Credit Notes executed by the Borrower payable to the order of each of the Lenders, each Revolving Credit Note being substantially in the form of Collective Exhibit C hereto and in the principal amount that each Lender's Pro Rata Share bears to $25,000,000, including all amendments, renewals, and extensions thereto. 2. Section 2.01 of the Loan Agreement shall be amended and restated as follows: Section 2.01 The Revolving Credit Notes. Subject to the conditions and the terms of the Loan Documents and subject to the limitations of Section 2.11 set forth below, and in reliance upon the representations, warranties, and covenants set forth in the Loan Documents, the Lenders agree to extend the 86 Borrower credit on a revolving credit basis, in the principal amount of up to $25,000,000 pursuant to the Revolving Credit Notes. 3. Section 9.23 of the Loan Agreement shall be amended to include the following additional sentence: In addition to the commitment fee referenced in the immediately preceding sentence, and in consideration of Lenders' willingness to increase the principal amount of the Loans and to reserve the funds necessary to fund the Revolving Credit Notes, the Borrower shall pay to the Agent a one-time commitment fee of $50,000.00. 4. Exhibit A to the Loan Agreement shall be amended and restated pursuant to the Exhibit A attached hereto. 5. Exhibit C to the Loan Agreement shall be amended and restated pursuant to the Collective Exhibit C attached hereto. 6. The Loan Agreement is not amended in any other respect. 7. The Borrower reaffirms its obligations under the Loan Agreement and agrees that such obligations are valid and binding, enforceable in accordance with their respective terms, subject to no defense, counterclaim or objection. ENTERED INTO as of the date first set forth above. BORROWER: AMSURG CORP., a Tennessee corporation By: /s/ Claire M. Gulmi ---------------------------- Title: CFO ------------------------- AGENT: SUNTRUST BANK, NASHVILLE, N.A., AGENT - 2 - 87 By: /s/ Karen Ahern ----------------------------- Title: Group Vice President ------------------------- LENDERS: SUNTRUST BANK, NASHVILLE, N.A By: /s/ Karen Ahern ----------------------------- Title: Group Vice President -------------------------- NATIONSBANK OF TENNESSEE, N.A. By: /s/ Walker Choppin ---------------------------- Title: Senior Vice President ------------------------- - 3 - EX-10.11 9 AGREEMENT DATED 4-11-97 AMSURG AND LUNN 1 Exhibit 10.11 AGREEMENT THIS AGREEMENT ("Agreement") is made and entered into effective as of April 11, 1997, between AMSURG CORP., a Tennessee corporation (hereinafter the "Company"), and RODNEY H. LUNN (hereinafter "Colleague"). In consideration of Colleague's continued employment by the Company, eligibility for stock incentive plans and other benefit programs of the Company, and other good and valuable consideration, receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: 1. STATUS OF COLLEAGUE. Colleague acknowledges that he has specialized knowledge and experience in the Company's business which are considered to be of great value to the Company, and that it is critical to the Company that it have sufficient time to recruit, hire and train a successor should Colleague decide to terminate his employment with the Company. 2. NOTICE OF TERMINATION. Colleague agrees that in the event Colleague desires to terminate his employment with the Company prior to April 11, 2001, Colleague shall give the Company at least nine (9) months prior written notice of such decision (the "Notice Period"). During the Notice Period, Colleague shall continue to perform the services and discharge the duties normally associated with Colleague's position with the Company on a full-time basis and shall assist the Company in the recruitment, hiring and training of Colleague's successor. 3. LIQUIDATED DAMAGES. If Colleague breaches any of the provisions of Section 2 of this Agreement, then in such event Colleague shall be required to pay $200,000 to the Company as liquidated damages, and not as a penalty for his breach of this Agreement. Any such payment shall be due within 10 days after receipt of written notice from the Company that the payment is due. Notwithstanding the foregoing, in the event of (a) the termination of Colleague's employment by the Company for any reason, including but not limited to death or total disability (as defined in the Colleague's employment agreement with the Company), or (b) a sale of all of the outstanding capital stock of the Company, a merger of the Company with or into another entity, or the sale of all or substantially all of the assets of the Company, and the subsequent termination of Colleague's employment by the Company, the parties acknowledge and agree that no such liquidated damages payment will be due or payable by Colleague. 4. NOTICE. Any notice or other communication required under this Agreement shall be in writing and shall be sent by certified or registered mail or by facsimile transmission or overnight courier service addressed as follows: If to the Company: AmSurg Corp. One Burton Hills Boulevard Suite 350 Nashville, Tennessee 37215 Attention: President 2 If to Colleague: 6229 Millbrook Road Brentwood, Tennessee 37027 5. REMEDIES. Each party to this Agreement will be entitled to enforce its rights under this Agreement specifically, to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights existing in its favor. The parties hereto agree and acknowledge that, with respect to Colleague, money damages may not be an adequate remedy for any breach of the provisions of this Agreement by the Company and that Colleague may in its sole discretion apply to any court of law or equity of competent jurisdiction for specific performance or injunctive relief in order to enforce or prevent any violations of the provisions of this Agreement. The parties further agree and acknowledge that the Company's sole and exclusive remedy for any breach of Section 2 of this Agreement by Colleague shall be the liquidated damages as set forth in Section 3 hereof. 6. AMENDMENTS. This Agreement may be amended only upon the written agreement of both parties hereto. 7. SEVERABILITY. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of this Agreement. 8. GOVERNING LAW. This Agreement shall be governed by the laws of the State of Tennessee applicable to contracts made and to be performed in that state. 9. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the parties hereto concerning the matters referred to herein and supersedes all prior agreements and understandings. The parties acknowledge that they have independently negotiated the provisions of this Agreement, that they have relied upon their own counsel as to matters of law and application and that neither party has relied on the other party with regard to such matters. The parties expressly agree that there shall be no presumption created as a result of either party having prepared in whole or in part any provision of this Agreement. IN WITNESS WHEREOF, the Company and Colleague have executed this Agreement effective as of the date first above written and upon approval of the 1997 Stock Incentive Plan by the shareholders of the Company. AMSURG CORP. By: /s/ Claire M. Gulmi ------------------------------------ Title: CFO ---------------------------------- /s/ Rodney H. Lunn ---------------------------------------- RODNEY H. LUNN 2 EX-10.12 10 AGREEMENT DATED 4-11-97 AMSURG AND MANNING 1 Exhibit 10.12 AGREEMENT THIS AGREEMENT ("Agreement") is made and entered into effective as of April 11, 1997, between AMSURG CORP., a Tennessee corporation (hereinafter the "Company"), and DAVID L. MANNING (hereinafter "Colleague"). In consideration of Colleague's continued employment by the Company, eligibility for stock incentive plans and other benefit programs of the Company, and other good and valuable consideration, receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: 1. STATUS OF COLLEAGUE. Colleague acknowledges that he has specialized knowledge and experience in the Company's business which are considered to be of great value to the Company, and that it is critical to the Company that it have sufficient time to recruit, hire and train a successor should Colleague decide to terminate his employment with the Company. 2. NOTICE OF TERMINATION. Colleague agrees that in the event Colleague desires to terminate his employment with the Company prior to April 11, 2001, Colleague shall give the Company at least nine (9) months prior written notice of such decision (the "Notice Period"). During the Notice Period, Colleague shall continue to perform the services and discharge the duties normally associated with Colleague's position with the Company on a full-time basis and shall assist the Company in the recruitment, hiring and training of Colleague's successor. 3. LIQUIDATED DAMAGES. If Colleague breaches any of the provisions of Section 2 of this Agreement, then in such event Colleague shall be required to pay $200,000 to the Company as liquidated damages, and not as a penalty for his breach of this Agreement. Any such payment shall be due within 10 days after receipt of written notice from the Company that the payment is due. Notwithstanding the foregoing, in the event of (a) the termination of Colleague's employment by the Company for any reason, including but not limited to death or total disability (as defined in the Colleague's employment agreement with the Company), or (b) a sale of all of the outstanding capital stock of the Company, a merger of the Company with or into another entity, or the sale of all or substantially all of the assets of the Company, and the subsequent termination of Colleague's employment by the Company, the parties acknowledge and agree that no such liquidated damages payment will be due or payable by Colleague. 4. NOTICE. Any notice or other communication required under this Agreement shall be in writing and shall be sent by certified or registered mail or by facsimile transmission or overnight courier service addressed as follows: If to the Company: AmSurg Corp. One Burton Hills Boulevard Suite 350 Nashville, Tennessee 37215 Attention: President 2 If to Colleague: 6520 Edinburgh Drive Nashville, Tennessee 37221 5. REMEDIES. Each party to this Agreement will be entitled to enforce its rights under this Agreement specifically, to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights existing in its favor. The parties hereto agree and acknowledge that, with respect to Colleague, money damages may not be an adequate remedy for any breach of the provisions of this Agreement by the Company and that Colleague may in its sole discretion apply to any court of law or equity of competent jurisdiction for specific performance or injunctive relief in order to enforce or prevent any violations of the provisions of this Agreement. The parties further agree and acknowledge that the Company's sole and exclusive remedy for any breach of Section 2 of this Agreement by Colleague shall be the liquidated damages as set forth in Section 3 hereof. 6. AMENDMENTS. This Agreement may be amended only upon the written agreement of both parties hereto. 7. SEVERABILITY. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of this Agreement. 8. GOVERNING LAW. This Agreement shall be governed by the laws of the State of Tennessee applicable to contracts made and to be performed in that state. 9. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the parties hereto concerning the matters referred to herein and supersedes all prior agreements and understandings. The parties acknowledge that they have independently negotiated the provisions of this Agreement, that they have relied upon their own counsel as to matters of law and application and that neither party has relied on the other party with regard to such matters. The parties expressly agree that there shall be no presumption created as a result of either party having prepared in whole or in part any provision of this Agreement. IN WITNESS WHEREOF, the Company and Colleague have executed this Agreement effective as of the date first above written and upon approval of the 1997 Stock Incentive Plan by the shareholders of the Company. AMSURG CORP. By: /s/ Claire M. Gulmi ----------------------------------- Title: CFO -------------------------------- /s/ David L. Manning --------------------------------------- DAVID L. MANNING 2 EX-21.1 11 SUBSIDIARIES OF AMSURG 1 EXHIBIT 21.1 SUBSIDIARY LIST AS OF OCTOBER 23, 1997 (PAGE 1 OF 4)
STATE OF OWNERSHIP NAME OF SUBSIDIARY ORGANIZATION OWNED BY PERCENTAGE - --------------------------------------------- ------------ --------------------------- ------------ AmSurg KEC, Inc. TN AmSurg Corp. 100% The Endoscopy Center of Knoxville, L.P. TN AmSurg KEC, Inc. 51% AmSurg EC Topeka, Inc. TN AmSurg Corp. 100% The Endoscopy Center of Topeka, L.P. TN AmSurg EC Topeka, Inc. 60% AmSurg EC St. Thomas, Inc. TN AmSurg Corp. 100% The Endoscopy Center of St. Thomas, L.P. TN AmSurg EC St. Thomas, Inc. 60% AmSurg EC Centennial, Inc. TN AmSurg Corp. 100% The Endoscopy Center of Centennial, L.P. TN AmSurg EC Centennial, Inc. 60% AmSurg EC Beaumont, Inc. TN AmSurg Corp. 100% The Endoscopy Center of Southeast Texas, L.P. TN AmSurg EC Beaumont, Inc. 60% AmSurg EC Santa Fe, Inc. TN AmSurg Corp. 100% The Endoscopy Center of Santa Fe, L.P. TN AmSurg EC Santa Fe, Inc. 60% AmSurg EC Washington, Inc. TN AmSurg Corp. 100% The Endoscopy Center of Washington D.C., L.P. TN AmSurg EC Washington, Inc. 60% AmSurg Torrance, Inc. TN AmSurg Corp. 100% The Endoscopy Center of the South Bay, L.P. TN AmSurg Torrance, Inc. 51% AmSurg Encino, Inc. TN AmSurg Corp. 100% The Valley Endoscopy Center, L.P. TN AmSurg Encino, Inc. 51% AmSurg Brevard, Inc. TN AmSurg Corp. 100% The Ophthalmology Center of Brevard, L.P. TN AmSurg Brevard, Inc. 51% AmSurg Sebastopol, Inc. TN AmSurg Corp. 100% The Sebastopol ASC, L.P. TN AmSurg Sebastopol, Inc. 60% AmSurg ENT Brevard, Inc. TN AmSurg Corp. 100% The ENT Center of Brevard, L.P. TN AmSurg ENT Brevard, Inc. 51%
2 SUBSIDIARY LIST AS OF MAY 19, 1997 (PAGE 2 OF 4)
STATE OF OWNERSHIP NAME OF SUBSIDIARY ORGANIZATION OWNED BY PERCENTAGE - --------------------------------------------- ------------ --------------------------- ------------ AmSurg Abilene, Inc. TN AmSurg Corp. 100% The Abilene ASC, L.P. TN AmSurg Abilene, Inc. 60% AmSurg West Tennessee, Inc. TN AmSurg Corp. 100% AmSurg Lakeland, Inc. TN AmSurg Corp. 100% AmSurg SWFLA, Inc. TN AmSurg Corp. 100% AmSurg Lorain, Inc. TN AmSurg Corp. 100% The Lorain ASC, L.P. TN AmSurg Lorain, Inc. 51% AmSurg Maryville, Inc. TN AmSurg Corp. 100% The Maryville ASC TN AmSurg Maryville, Inc. 51% AmSurg Holdings, Inc. TN AmSurg Corp. 100% The Knoxville Ophthalmology ASC, LLC TN AmSurg Holdings, Inc. 60% The West Monroe Endoscopy ASC, LLC TN AmSurg Holdings, Inc. 55% Montgomery Eye Surgery Center, LLC TN AmSurg Holdings, Inc. 51% The Evansville ASC, LLC TN AmSurg Holdings, Inc. 40% The Sidney ASC, LLC TN AmSurg Holdings, Inc. 51% The Union City ASC, LLC TN AmSurg Holdings, Inc. 51% The Cleveland ASC, LLC TN AmSurg Holdings, Inc. 51% The Milwaukee ASC, LLC TN AmSurg Holdings, Inc. 51% The Eye Care Network, LLC TN AmSurg Holdings, Inc. 51% The Alabama Eye Care Network, LLC TN AmSurg Holdings, Inc. 51% The Columbia ASC, LLC TN AmSurg Holdings, Inc. 51% The Wichita Orthopaedic ASC, LLC TN AmSurg Holdings, Inc. 51% The Minneapolis Endoscopy ASC, LLC TN AmSurg Holdings, Inc. 51% The Chevy Chase ASC, LLC TN AmSurg Holdings, Inc. 51% The Willoughby ASC, LLC TN AmSurg Holdings, Inc. 51% The Oklahoma City ASC, LLC TN AmSurg Holdings, Inc. 51% The Cincinnati ASC, LLC TN AmSurg Holdings, Inc. 51% The Mountain West Gastroenterlogy ASC, LLC TN AmSurg Holdings, Inc. 51% The Fayetteville ASC, LLC TN AmSurg Holdings, Inc. 51% The Westglenn Endoscopy Center, LLC TN AmSurg Holdings, Inc. 51% The Independence ASC, LLC TN AmSurg Holdings, Inc. 60% The West Texas EyeCare Network, LLC TN AmSurg Holdings, Inc. 51% The Cleveland EyeCare Network, LLC TN AmSurg Holdings, Inc. 51% AmSurg Miami, Inc. TN AmSurg Corp. 100% The Miami ASC, L.P. TN AmSurg Miami, Inc. 70%
3 SUBSIDIARY LIST AS OF MAY 19, 1997 (PAGE 3 OF 4)
STATE OF OWNERSHIP NAME OF SUBSIDIARY ORGANIZATION OWNED BY PERCENTAGE - --------------------------------------------- ------------ ------------------------------ ------------ AmSurg North Platte, Inc. TN AmSurg Corp. 100% AmSurg Fort Collins, Inc. TN AmSurg Corp. 100% AmSurg Hanford, Inc. TN AmSurg Corp. 100% The Hanford ASC, L.P. TN AmSurg Hanford, Inc. 63% AmSurg Dallas, Inc. TN AmSurg Corp. 100% AmSurg Port Arthur, Inc. TN AmSurg Corp. 100% The Port Arthur ASC, L.P. TN AmSurg Port Arthur, Inc. 51% AmSurg Melbourne, Inc. TN AmSurg Corp. 100% The Melbourne ASC, L.P. TN AmSurg Melbourne, Inc. 51% AmSurg Chicago, Inc. TN AmSurg Corp. 100% The Chicago Endoscopy ASC, L.P. TN AmSurg Chicago, Inc. 51% AmSurg Hillmont, Inc. TN AmSurg Corp. 100% The Hillmont ASC, L.P. TN AmSurg Hillmont, Inc. 51% AmSurg Northwest Florida, Inc. TN AmSurg Corp. 100% The Northwest Florida ASC, L.P. TN AmSurg Northwest Florida, Inc. 51% AmSurg Palmetto, Inc. TN AmSurg Corp. 100% The Palmetto ASC, L.P. TN AmSurg Palmetto, Inc. 51% AmSurg Hallandale, Inc. TN AmSurg Corp. 100% The Hallandale Surgery ASC, L.P. TN AmSurg Hallandale, Inc. 51% AmSurg Ocala, Inc. TN AmSurg Corp. 100% The Ocala Endoscopy ASC, L.P. TN AmSurg Ocala, Inc. 51% AmSurg South Florida Network, Inc. TN AmSurg Corp. 100% The GI Network of South Florida, L.P. TN AmSurg South Florida Network, Inc. 51% AmSurg Largo, Inc. TN AmSurg Corp. 100% The Largo Urology ASC, L.P. TN AmSurg Largo, Inc. 40% AmSurg Dade County, Inc. TN AmSurg Corp. 100% Gastroenterology Group of South Florida TN AmSurg Dade County, Inc. 70%
4 SUBSIDIARY LIST AS OF MAY 19, 1997 (PAGE 4 OF 4)
STATE OF OWNERSHIP NAME OF SUBSIDIARY ORGANIZATION OWNED BY PERCENTAGE - ------------------------------------- -------------------- --------------------------- ------------ AmSurg Panama City, Inc. TN AmSurg Corp. 100% AmSurg Santa Monica, Inc. TN AmSurg Corp. 100% AmSurg Miami Urology, Inc. TN AmSurg Corp. 100% The Miami Urology Group, L.P. TN AmSurg Miami Urology, Inc. 60% The Miami Urology ASC, L.P. TN AmSurg Miami Urology, Inc. 60% AmSurg Crystal River, Inc. TN AmSurg Corp. 100% The Crystal River Endosocopy ASC, L.P. TN AmSurg Crystal River, Inc. 51% AmSurg Abilene Eye, Inc. TN AmSurg Corp. 100% The Abilene Eye ASC, L.P. TN AmSurg Abilene Eye, Inc. 51%
EX-27.3 12 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 3,625,801 0 7,884,505 0 752,473 13,364,635 22,207,396 5,305,569 72,668,636 6,958,099 21,729,560 5,192,261 0 27,725,045 1,816,996 72,668,636 0 41,162,839 0 0 32,578,397 0 1,140,587 996,410 1,279,000 (282,590) 0 0 0 (282,590) (.02) (.02)
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