UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES

EXCHANGE ACT OF 1934

 

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o  Preliminary Proxy Statement.

o  Confidential, for use of the Commission Only (as permitted by Rule 14a-6(e)(2)).

þ  Definitive Proxy Statement.

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o  Soliciting Material Pursuant to §240.14a-12.

 

SYMBION, INC.

(Name of Registrant as Specified in Its Charter)

 

N/A

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

 

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SYMBION, INC.
40 Burton Hills Boulevard, Suite 500
Nashville, Tennessee 37215

 

July 17, 2007

 

To Our Stockholders:

 

You are cordially invited to attend a special meeting of stockholders of Symbion, Inc., a Delaware corporation, to be held at 9:00 a.m., Central Time, on August 15, 2007, at the offices of Waller Lansden Dortch & Davis, LLP, 511 Union Street, Suite 2700, Nashville, Tennessee 37219. The attached notice of the special meeting and proxy statement provide information regarding the matters to be acted on at the special meeting, including at any adjournment or postponement thereof.

 

At the special meeting you will be asked to consider and vote upon a proposal to adopt the Agreement and Plan of Merger, dated as of April 24, 2007, referred to as the merger agreement, among Symbol Acquisition, L.L.C., a Delaware limited liability company, referred to as Parent, Symbol Merger Sub, Inc., a Delaware corporation, referred to as Merger Sub, and Symbion. A copy of the merger agreement is attached as Appendix A to the accompanying proxy statement. Under the merger agreement, Merger Sub, a wholly owned subsidiary of Parent, will be merged with and into Symbion, with Symbion being the surviving corporation. Parent and Merger Sub were formed in connection with the execution of the merger agreement. Parent is currently owned by Crestview Partners, L.P. (formerly known as Crestview Capital Partners, L.P.), referred to as Crestview, a private equity firm. If the merger is completed, a group of investors led by funds affiliated with Crestview and including certain members of Symbion’s management will own all of the outstanding capital stock of Parent, and Symbion will no longer be a publicly-traded company. In connection with the merger, we expect that Richard E. Francis, Jr. and Clifford G. Adlerz will exchange all or a portion of their equity interests in Symbion and/or pay cash for equity interests in Parent. Certain other Symbion executives and employees will likewise be offered the opportunity to make such exchanges and become rollover investors. Mr. Francis, Mr. Adlerz and any other Symbion executive or employee who exchanges their equity interests in Symbion or cash for equity interests in Parent are referred to as rollover investors.

 

If Symbion’s stockholders adopt the merger agreement and the merger is completed, each share of Symbion common stock (other than treasury shares, shares to be exchanged for equity interests in Parent by rollover investors, shares held by Parent, Merger Sub or their respective subsidiaries and affiliates and shares held by Symbion stockholders who choose to be dissenting stockholders by exercising and perfecting their appraisal rights under Delaware law with respect to the merger) will be converted into the right to receive $22.35 in cash, without interest and less any applicable withholding taxes. The receipt of cash in exchange for shares of Symbion common stock in the merger will constitute a taxable transaction for stockholders for U.S. federal income tax purposes.

 

On March 26, 2007, the board of directors of Symbion established a special committee comprised of three independent and disinterested directors and empowered it to, among other things, consider, evaluate, assess, negotiate and reject or recommend to Symbion’s full board of directors any potential transaction related to the merger proposal submitted by Crestview. The special committee unanimously determined that the merger agreement is advisable and fair to and in the best interests of Symbion and the holders of Symbion’s common stock (other than Parent, Merger Sub or their respective subsidiaries and affiliates and the rollover investors) and has recommended (1) that the board of directors declare the advisability of, and approve, the merger, the merger agreement, and the transactions contemplated thereby; (2) that the board of directors resolve to recommend that Symbion’s stockholders adopt the merger agreement; and (3) that the stockholders of Symbion vote to adopt the merger agreement.

 

The Symbion board of directors (1) determined that the merger agreement and the transactions contemplated thereby, including the merger, are fair to and in the best interests of Symbion and its stockholders (other than Parent, Merger Sub or their respective subsidiaries and affiliates and the rollover investors); (2) determined that the consideration to be paid for each share of common stock is fair to the stockholders (other than Parent, Merger Sub or their respective subsidiaries and affiliates); and (3) approved and declared advisable the merger agreement and the transactions contemplated thereby, including the merger. This determination is based in part upon the unanimous recommendation of the special committee.

 

The Symbion board of directors recommends that you vote FOR the adoption of the merger agreement and FOR any proposal to adjourn the special meeting to a later date to solicit additional proxies in favor of the adoption of the merger agreement in the event that there are not sufficient votes represented at the special meeting to adopt the merger agreement.

 

The accompanying proxy statement provides you with detailed information about the proposed merger and the special meeting. Please give this material your careful attention. You also may obtain more information about Symbion from documents we have filed with the Securities and Exchange Commission.

 

Regardless of the number of shares you own, your vote is very important. The merger cannot be completed unless the merger agreement is adopted by the affirmative vote of the holders of a majority of the outstanding shares of Symbion common stock entitled to vote thereon. If you fail to vote on the merger agreement, the effect will be the same as a vote against the adoption of the merger agreement. Whether or not you plan to attend the special meeting, please submit your proxy in one of the following ways:

 

 

Returning the proxy card or submitting your vote using the telephone or Internet will not deprive you of your right to attend the special meeting and vote your shares in person. If you receive more than one proxy card because you own shares that are registered differently, please vote all of your shares shown on all of your proxy cards. If you complete, sign and submit your proxy card without indicating how you wish to vote, your proxy will be counted as a vote in favor of adoption of the merger agreement and approval of any adjournment of the special meeting.

 

If you have any questions or need assistance voting your shares, please call D.F. King & Co., Inc., our proxy solicitation agent, toll-free at 1-800-758-5378 or collect at 1-212-269-5550.

 

Thank you for your cooperation and continued support.

 

Very truly yours,

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the merger, passed upon the merits or fairness of the merger or passed upon the adequacy or accuracy of the disclosure in the enclosed documents. Any representation to the contrary is a criminal offense.

 

The proxy statement is dated July 17, 2007, and is first being mailed to stockholders on or about July 17, 2007.

 

SYMBION, INC.
40 Burton Hills Boulevard, Suite 500
Nashville, Tennessee 37215

 

 

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON AUGUST 15, 2007

 

 

 

To Our Stockholders:

 

You are invited to attend a special meeting of the stockholders of Symbion, Inc., a Delaware corporation, to be held at 9:00 a.m., Central Time, on August 15, 2007, at the offices of Waller Lansden Dortch & Davis, LLP, 511 Union Street, Suite 2700, Nashville, Tennessee 37219, to consider and vote upon the following matters:

 

 

Only stockholders who owned Symbion common stock of record at the close of business on July 2, 2007 are entitled to notice of and to vote at the special meeting and at any adjournment or postponement of the special meeting. A list of Symbion stockholders will be available at our principal offices at 40 Burton Hills Boulevard, Suite 500, Nashville, Tennessee 37215, during ordinary business hours for the ten days immediately prior to the special meeting.

 

The Symbion board of directors, based in part on the unanimous recommendation of the special committee, (1) determined that the merger agreement and the transactions contemplated thereby are fair to and in the best interests of Symbion and its stockholders (other than Parent, Merger Sub or their respective subsidiaries and affiliates and the rollover investors); (2) determined that the consideration to be paid for each share of common stock is fair to the stockholders (other than Parent, Merger Sub or their respective subsidiaries and affiliates); and (3) approved and declared advisable the merger agreement and the transactions contemplated thereby, including the merger. Accordingly, the Symbion board of directors unanimously recommends that you vote FOR the adoption of the merger agreement and FOR any proposal to adjourn the special meeting to a later date to solicit additional proxies in favor of the adoption of the merger agreement in the event that there are not sufficient votes represented at the special meeting to adopt the merger agreement.

 

Regardless of the number of shares that you own, your vote is very important. The merger cannot be completed unless the merger agreement is adopted by the affirmative vote of the holders of a majority of the outstanding shares of Symbion common stock entitled to vote thereon. The adjournment proposal requires the affirmative vote of a majority of the shares of Symbion common stock present at the special meeting and entitled to vote thereon. Even if you plan to attend the special meeting, we request that you submit your proxy in one of the following ways:

 

 

If you fail to return your proxy card or fail to submit your proxy by phone or the Internet, your shares will not be counted for purposes of determining whether a quorum is present at the special meeting, which

will have the same effect as a vote against the adoption of the merger agreement but will not affect the outcome of the vote regarding the adjournment proposal.

 

Returning the proxy card or submitting your vote using the telephone or Internet will not deprive you of your right to attend the special meeting and vote your shares in person. Please note, however, that if your shares are held of record by a broker, bank or other nominee and you wish to vote at the meeting, you must obtain from the record holder a proxy issued in your name or present a copy of a brokerage statement reflecting stock ownership as of the record date.

 

If you receive more than one proxy card because you own shares that are registered differently, please vote all of your shares shown on all of your proxy cards through one of the methods described above. If you submit your proxy card without indicating how you wish to vote, your proxy will be counted as a vote in favor of adoption of the merger agreement and approval of any adjournment of the special meeting referred to above.

 

Symbion’s stockholders have the right to dissent from the merger and obtain payment in cash of the appraised fair value of their shares under applicable provisions of Delaware law. In order to perfect and exercise appraisal rights, stockholders must give written demand for appraisal of their shares before the vote on the merger at the special meeting and must not vote in favor of the merger. A copy of the applicable Delaware statutory provisions is included as Appendix C to the accompanying proxy statement, and a summary of these provisions can be found under “Dissenters’ Appraisal Rights” in the accompanying proxy statement.

 

PLEASE DO NOT SEND YOUR STOCK CERTIFICATES AT THIS TIME. IF THE MERGER IS COMPLETED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER OF YOUR STOCK CERTIFICATES.

 

If you have any questions or need assistance in voting your shares, please call D.F. King & Co., Inc., our proxy solicitation agent, toll-free at 1-800-758-5378 or collect at 1-212-269-5550.

 

The merger agreement and the merger are described in the accompanying proxy statement. A copy of the merger agreement is included as Appendix A to the accompanying proxy statement. We urge you to read the entire proxy statement carefully.

 

BY ORDER OF THE BOARD OF DIRECTORS,

 

R. Dale Kennedy

Secretary

 

July 17, 2007

 

TABLE OF CONTENTS

 

 

This Summary Term Sheet summarizes the material information in the proxy statement. However, it may not contain all of the information that may be important to your consideration of the proposed merger. You should carefully read this entire proxy statement and the other documents to which this proxy statement refers you for a more complete understanding of the matters being considered at the special meeting. In addition, this proxy statement incorporates by reference important business and financial information about Symbion. You may obtain the information incorporated by reference into this proxy statement without charge by following the instructions in “Where You Can Find Additional Information” beginning on page 83.

 

The Parties to the Merger

 

 

 

 

See “The Parties to the Merger” beginning on page 50.

 

The Merger

 

You are being asked to vote to adopt the Agreement and Plan of Merger, dated as of April 24, 2007, among Parent, Merger Sub and Symbion, referred to as the merger agreement, pursuant to which Merger Sub will merge with and into Symbion, with Symbion continuing as the surviving corporation in the merger, referred to as the surviving corporation. The surviving corporation will continue to do business under the name “Symbion, Inc.” following the merger and will be a wholly owned subsidiary of Parent. As a result of the merger, Symbion will cease to be an independent, publicly traded company. See “The Merger Agreement” beginning on page 54. A copy of the merger agreement is attached as Appendix A to this proxy statement. You should read the merger agreement in its entirety because it, and not this proxy statement, is the legal document that governs the merger.

 

Merger Consideration

 

If the merger is completed, you will be entitled to receive $22.35 in cash, without interest and less any applicable withholding taxes, for each share of Symbion common stock, par value $0.01 per share, that you own (unless you choose to be a dissenting stockholder by exercising and perfecting your appraisal rights under

Delaware law with respect to the merger). See “The Merger Agreement — Merger Consideration” and “Dissenters’ Appraisal Rights” beginning on pages 54 and 79, respectively.

 

Treatment of Outstanding Options and Restricted Stock

 

At the effective time of the merger, unless otherwise agreed between Parent and the holder thereof:

 

 

 

in each case without interest and less any applicable withholding taxes. See “The Merger Agreement — Treatment of Options and Restricted Stock” on page 55.

 

Record Date and Voting

 

You are entitled to vote at the special meeting if you owned shares of Symbion common stock at the close of business on July 2, 2007, the record date for the special meeting. Each outstanding share of our common stock on the record date entitles the holder to one vote on each matter submitted to stockholders for approval at the special meeting and any adjournment thereof. As of the record date, there were 21,836,390 shares of Symbion common stock entitled to be voted at the special meeting. See “The Special Meeting of Stockholders — Record Date” and “— Voting Rights; Quorum; Vote Required for Approval,” each beginning on page 51.

 

Stockholder Vote Required to Adopt the Merger Agreement

 

You are being asked to consider and vote upon a proposal to adopt the merger agreement. For us to complete the merger, stockholders holding a majority of the shares of our common stock outstanding at the close of business on the record date and entitled to vote thereon must vote FOR the adoption of the merger agreement. Abstentions and broker non-votes will have the effect of a vote against adoption of the merger agreement. See “The Special Meeting of Stockholders — Voting Rights; Quorum; Vote Required for Approval” beginning on page 51.

 

Voting Information

 

Before voting your shares of Symbion common stock, we encourage you to read this proxy statement in its entirety, including its appendices and materials incorporated by reference, and carefully consider how the merger will affect you. To ensure that your shares can be voted at the special meeting, please complete, sign, date and return the enclosed proxy card (which requires no postage if mailed in the United States), or submit your vote via the Internet or by telephone as soon as possible. If a broker holds your shares in “street name,” your broker should provide you with instructions on how to record your vote. See “The Special Meeting of Stockholders — Voting and Revocation of Proxies” beginning on page 52.

 

Recommendations of the Special Committee and the Board of Directors

 

See “Special Factors — Recommendations of the Special Committee and Board of Directors; Reasons for Approval of the Merger” beginning on page 18.

 

 

 

Share Ownership of Symbion Directors and Officers

 

As of July 2, 2007, the record date for the special meeting, the directors and executive officers of Symbion held and are entitled to vote, in the aggregate, shares of Symbion common stock representing less than 8.4% of the outstanding shares of Symbion common stock. The directors and executive officers have informed Symbion that they currently intend to vote all of their shares of Symbion common stock FOR the adoption of the merger agreement and FOR the adjournment proposal. See “The Special Meeting of Stockholders — Voting Rights; Quorum; Vote Required for Approval” beginning on page 51.

 

Opinion of the Special Committee’s Financial Advisor

 

The special committee engaged Bear, Stearns & Co. Inc., referred to as Bear Stearns, as its financial advisor in connection with its evaluation of the proposed merger and potential alternatives. On April 24, 2007, Bear Stearns delivered its oral opinion (subsequently confirmed in writing) to the special committee and the Symbion board of directors that, as of April 24, 2007 and based upon and subject to the factors and assumptions set forth in the written opinion, the consideration to be received by the holders of Symbion common stock (other than Parent, Merger Sub and their respective subsidiaries and affiliates and the rollover investors) in the proposed merger was fair, from a financial point of view, to such holders. The full text of Bear Stearns’ written opinion is attached to this proxy statement as Appendix B. We encourage you to read this opinion carefully in its entirety for a description of the procedures followed, assumptions made, matters considered and limitations on the review undertaken. Bear Stearns’ opinion was provided to the special committee and Symbion’s board of directors in connection with their respective evaluation of the merger and does not constitute a recommendation to any stockholder of Symbion as to how such stockholder

should vote with respect to the merger or any other matter. See “Special Factors — Opinion of Financial Advisor” beginning on page 23 and Appendix B.

 

Material United States Federal Income Tax Consequences

 

The merger will be a taxable transaction to you for United States federal income tax purposes. For United States federal income tax purposes, your receipt of cash (whether as merger consideration or pursuant to the proper exercise of appraisal rights) in exchange for your shares of Symbion common stock generally will cause you to recognize a gain or loss measured by the difference, if any, between the cash you receive in the merger and your adjusted tax basis in your shares of Symbion common stock. Under United States federal income tax law, you may be subject to information reporting on cash received in the merger unless an exemption applies. Backup withholding may also apply with respect to the amount of cash received in the merger, unless you provide proof of an applicable exemption or a correct taxpayer identification number, and otherwise comply with the applicable requirements of the backup withholding rules. Tax matters are very complicated. The tax consequences of the merger to you will depend upon your particular circumstances. You should consult your own tax advisor for a full understanding of how the merger will affect your federal, state, local, foreign and other taxes and, if applicable, the tax consequences of the receipt of cash in connection with the cancellation of your options to purchase Symbion common stock, your shares of restricted stock and/or your warrants. See “Special Factors — Material United States Federal Income Tax Consequences” beginning on page 44.

 

Accounting Treatment of the Merger

 

The merger is expected to be accounted for as a business combination using the purchase method of accounting for financial accounting purposes, whereby the estimated purchase price would be allocated to the assets and liabilities of Symbion based on their relative fair values in accordance with Financial Accounting Standards No. 141, Business Combinations.

 

Appraisal Rights

 

Under the General Corporation Law of the State of Delaware, holders of our common stock who do not vote in favor of adopting the merger agreement will have the right to seek appraisal of the fair value of their shares as determined by the Delaware Court of Chancery if the merger is completed, but only if they comply with all applicable requirements of Delaware law. A summary of the relevant provisions of Delaware law is included in this proxy statement. The appraisal amount could be more than, the same as or less than the amount a stockholder would be entitled to receive under the terms of the merger agreement. Holders of our common stock intending to exercise their appraisal rights must, among other things, submit a written demand for an appraisal to us prior to the vote on the adoption of the merger agreement and must not vote or otherwise submit a proxy in favor of adoption of the merger agreement. Your failure to follow exactly the procedures specified under Delaware law will result in the loss of your appraisal rights. See “Dissenters’ Appraisal Rights” beginning on page 79 and the text of the Delaware appraisal rights statute reproduced in its entirety as Appendix C.

 

Termination of the Merger Agreement

 

Under certain circumstances, Symbion, Parent and/or Merger Sub may terminate the merger agreement and abandon the merger prior to the effective time of the merger, whether before or after obtaining the required stockholder approval. See “The Merger Agreement — Termination” beginning on page 69. Circumstances under which the merger agreement can be terminated include the following:

 

 

 

 

Termination Fee

 

If the merger agreement is terminated under certain circumstances:

 

 

Crestview has agreed to guarantee the obligation of Parent to pay the termination fee. See “The Merger Agreement — Fees and Expenses” beginning on page 64.

 

Conditions to the Merger

 

The obligation of each party to consummate the merger is subject to the satisfaction or waiver of a number of conditions. See “The Merger Agreement — Conditions to Completing the Merger” beginning on page 68. Those conditions include the following:

 

 

 

 

Solicitations of Other Acquisition Offers

 

 

 

Financing of the Merger

 

The merger agreement does not contain any condition relating to the receipt of financing by Parent and Merger Sub. Parent estimates that the total amount of funds necessary to consummate the transaction, including debt to be refinanced in connection with the merger and anticipated fees and expenses, is approximately $665.4 million. The amount is expected to be provided through debt and equity financing. Funding of the debt and equity financing is subject to the satisfaction of conditions set forth in commitment letters pursuant to which the financing will be provided. See “Special Factors — Financing” beginning on page 36. Parent has entered into a debt financing commitment letter, referred to as the debt commitment letter, with Merrill Lynch Capital Corporation, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Banc of America Securities LLC, Banc of America Bridge, LLC and Bank of America, N.A. pursuant to which such lenders (and their assignees) have severally and not jointly committed, subject to the terms and conditions set forth therein, to provide (1) $275 million of senior secured debt financing and (2) $250 million of bridge financing in the form of senior subordinated increasing rate bridge loans (such financing described in the debt commitment letter, being referred to herein as the debt financing). In addition, Parent has entered into commitment letters (collectively referred to as the equity commitment letters and, together with the debt commitment letter, as the financing letters), with Crestview for $250 million, up to $75 million of which has been syndicated to The Northwestern Mutual Life Insurance Company. See “Special Factors — Financing” beginning on page 36.

 

Interests of Symbion’s Directors and Executive Officers

 

 

 

 

 

 

Regulatory Approvals

 

Under the HSR Act, the merger may not be completed until notification and report forms have been filed with the Federal Trade Commission, referred to as the FTC, and the Antitrust Division of the Department of Justice, referred to as the DOJ, and the applicable waiting period has expired or been terminated. Symbion and Parent filed notification and report forms under the HSR Act with the FTC and DOJ on May 8, 2007, and the FTC granted early termination of the applicable waiting period on May 18, 2007. Additionally, it is a condition to closing the merger that certain state notices, applications, approvals, consents or determination letters agreed to by the parties and contemplated in connection with the change in control of any of Symbion’s facilities shall have been made or obtained except to the extent such facilities for which state notice, application, approval, consent or determination letters have not been made or obtained represent less than 4.5% of the aggregate three-month EBITDA (less minority interest expense) for all such facilities. In addition, though not a condition to the consummation of the merger, federal and state laws and regulations may require that Symbion or Parent obtain other approvals or certificates of need from, file new license and/or permit applications with, and/or provide notice to, applicable governmental authorities in connection with the merger. See “Special Factors — Regulatory Approvals” beginning on page 45.

 

Applicability of Rules Related to “Going Private” Transactions; Positions as to the Fairness of and Reasons for the Merger

 

The requirements of Rule 13e-3 under the Securities Exchange Act of 1934, as amended (referred to as the Exchange Act), may apply to the merger because Parent, Merger Sub, Crestview, certain co-investors and Messrs. Francis and Adlerz, collectively referred to as the buying group, may be deemed to be engaged in a “going private” transaction under the applicable rules. To comply with the requirements of Rule 13e-3, our board of directors, the special committee and the buying group are required to make certain statements as to, among other matters, their purposes and reasons for the merger, and their belief as to the fairness of the merger to our unaffiliated stockholders. See “Special Factors — Recommendations of the Special Committee and Board of Directors; Reasons for Approval of the Merger” and “— Purpose and Reasons of the Buying Group for the Merger; Position as to Fairness” beginning on pages 18 and 28, respectively.

 

Market Price of Symbion Common Stock

 

The closing price of Symbion common stock on the NASDAQ Global Select Market on April 23, 2007, the last trading date prior to announcement of the proposed merger transaction, was $19.03 per share. The $22.35 per share to be paid for each share of Symbion common stock in the merger represents a premium of approximately 17.4% to the closing price of Symbion common stock on April 23, 2007 and a premium of approximately 26.9% to the closing price of $17.61 on January 5, 2007, the trading date immediately prior to the date that United Surgical Partners International, Inc. (“USPI”), a competitor of the Company, announced that it had signed an agreement to be acquired by Welsh, Carson, Anderson & Stowe (“Welsh Carson”).

 

The following questions and answers address briefly some questions you may have regarding the special meeting, the merger agreement and the proposed merger. These questions and answers may not address all questions that may be important to you as a stockholder of Symbion. Please refer to the more detailed information contained elsewhere in this proxy statement, the appendices to this proxy statement and the documents referred to or incorporated by reference in this proxy statement.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

This proxy statement, and the documents to which we refer you to in this proxy statement, contain forward-looking statements, including, among others, under the headings “Summary Term Sheet,” “Questions and Answers About the Special Meeting and the Merger,” “Special Factors” and “The Merger Agreement” and in statements containing the words “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates” or other similar expressions.

 

You should be aware that forward-looking statements involve known and unknown risks and uncertainties. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that the actual results or developments we anticipate will be realized, or even if realized, that they will have the expected effects on the business or operations of Symbion. These forward-looking statements speak only as of the date on which the statements were made and we undertake no obligation to publicly update or revise any forward-looking statements made in this proxy statement or elsewhere as a result of new information, future events or otherwise.

 

In addition to other factors and matters contained or incorporated in this document, we believe the following factors could cause actual results to differ materially from those discussed in the forward-looking statements:

 

 

The foregoing list and the risks reflected in our documents incorporated by reference in this proxy statement should not be construed to be exhaustive. Actual results or matters related to the merger could differ materially from the forward-looking statements contained in this proxy statement as a result of the timing of the completion of the merger or the impact of the merger on our operating results, capital resources, profitability, cash requirements, management resources and liquidity. In view of these uncertainties, you should not place undue reliance on any forward-looking statements, which are based on our current expectations as of the date of this proxy statement. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are qualified by the cautionary statements in this section.

 

Our board of directors periodically evaluates potential strategic alternatives that may be available to enhance stockholder value. During 2005 and 2006, the board evaluated various strategic alternatives, including potential acquisitions of, or combinations with, companies in the short-stay surgical facility business, and seeking ownership of facilities where more complex, higher revenue procedures are performed. In late February 2006 and prior to any determination to seek a sale of the Company, the Company was approached by a strategic investor which indicated an interest in exploring the acquisition of the Company at a premium to the then-current price of the Company’s common stock. On that basis, the Company permitted the strategic investor to perform limited due diligence. In March 2006, the strategic investor advised the Company that it would not make an offer and discussions between the parties were terminated. The strategic investor did not provide the Company with its reasons for terminating discussions.

 

In April 2006, the board of directors continued to discuss various strategic alternatives consisting of the topics discussed during 2005 and 2006 listed above as well as whether or not strategic or financial buyers might have an interest in acquiring the Company, and Mr. Richard E. Francis, Jr. discussed with the board senior management’s interest in exploring on an informal basis whether private equity firms would be interested in acquiring the Company. At that time, Mr. Francis did not indicate that he would participate in the purchase by a private equity firm.

 

The board authorized Mr. Francis to make such inquiries and, in July 2006, a limited number of financial sponsors were contacted. By this time, Mr. Francis and Mr. Adlerz had advised the board that they might be prepared to explore participating in the purchase of the Company by a private equity firm. The board did not seek a strategic buyer because the board had not made a determination to seek a sale of the Company but was interested in learning whether or not there was interest by any financial buyer in acquiring the Company at a price that would be in the best interest of stockholders. The board deemed it advisable to discuss a potential transaction with financial buyers rather than strategic buyers because it would provide an indication of value for the Company without putting the Company at a potential competitive disadvantage if its competitors believed that the Company was exploring a potential sale. Ten financial sponsors executed confidentiality agreements and were provided certain financial information about the Company. On August 18, 2006, five such sponsors provided preliminary indications of interest ranging from $24.00 to $27.00 per share. Three financial sponsors were invited to continue in the process and were provided more detailed financial and operational information. One of the financial sponsors was not invited to continue in the process because its preliminary indication of interest was the lowest of the five sponsors. The other financial sponsor was not invited to continue in the process because of its perceived lack of knowledge of and experience in the Company’s industry and concerns about the sponsor’s ability to complete the transaction in a timely manner. In late September 2006, the three financial sponsors that were invited to continue met with representatives of the Company’s management to discuss the provided information in greater detail.

 

At a meeting held on October 11, 2006, the board created a committee of independent directors, consisting of Messrs. Wilds, Bryant and Tyrrell, to oversee the process of exploring the interest of such financial sponsors in a transaction with the Company. The special committee retained Akin Gump Strauss Hauer & Feld LLP (“Akin Gump”) as its legal advisor. Bear Stearns discussed certain financial matters with the special committee, but was not formally retained.

 

On October 25, 2006, the Company issued a press release revising downward its revenue and income per diluted share guidance for fiscal year 2006.

 

Prior to October 31, 2006, one financial sponsor withdrew from the process. The financial sponsor did not provide the Company with its reasons for terminating discussions. Another financial sponsor proposed acquiring a significant minority interest in the Company in connection with pursuing an acquisition of another business. The Company elected not to pursue this proposal because the proposed transaction structure was not consistent with the objective of the process authorized by the board. On October 31, 2006, the remaining financial sponsor (the “Remaining Sponsor”) provided a revised indication of interest which proposed to acquire the Company for a purchase price in the range of $21.00 to $22.00 per share, subject to additional due diligence.

 

In a meeting held November 2, 2006, the committee agreed to allow management to continue discussions with the Remaining Sponsor regarding a transaction relating to acquiring the Company.

 

The Remaining Sponsor did not submit a formal proposal to acquire the Company. In early December 2006, the Remaining Sponsor indicated that at that time it was not prepared to make a formal offer in the range of the revised indication of interest and the parties agreed to terminate discussions.

 

In December 2006, the committee was disbanded.

 

In addition to its discussions with the Remaining Sponsor, in November 2006, the Company provided an initial indication of interest and conducted management interviews and due diligence in connection with a possible significant strategic acquisition. In early December 2006, the Company submitted a revised indication of interest and was invited to negotiate an agreement to acquire the other company. Negotiations and due diligence continued until late February 2007 when discussions were terminated because the other company indicated that it did not want to be acquired by any company at that time. The Company continued to explore the acquisition and development of additional surgical facilities in the ordinary course of its business following termination of those discussions.

 

On February 28, 2007, Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill Lynch”) contacted Mr. Francis about Crestview and indicated that Crestview was interested in exploring a transaction to acquire the Company. Crestview was not one of the financial sponsors contacted in 2006 and this contact was not initiated by either the Company or its management.

 

On March 6, 2007, Merrill Lynch introduced representatives of Crestview to Mr. Francis. At such meeting, Crestview indicated an interest in exploring a transaction to acquire all of the Company’s common stock for a price per share in the $21.00 to $22.00 or $23.00 range.

 

On March 7, 2007, Mr. Francis advised Messrs. Wilds, Bryant and Tyrrell, who constituted the members of the committee formed in 2006, of the results of the March 6, 2007 meeting with Crestview. Such directors authorized Mr. Francis to negotiate and enter into a confidentiality agreement with Crestview, which was entered into on March 8, 2007, and to provide information about the Company to Crestview.

 

Commencing on March 9, 2007, Mr. Francis and other members of senior management met with representatives of Crestview and provided information to such representatives about the Company and its operations.

 

After conducting initial due diligence, on or about March 20, 2007, Crestview provided a preliminary indication of interest in acquiring all of the outstanding common stock of the Company for a price of $22.00 per share, with the potential to increase the price depending on the results of additional due diligence.

 

At a meeting of the board of directors held on March 26, 2007, the entire board reviewed the status of the discussions with Crestview, and a special committee consisting of Messrs. Wilds, Bryant and Tyrrell was established to, among other things, oversee any discussions or negotiations with Crestview and to consider alternative transactions.

 

Later that day, the special committee retained and met telephonically with Akin Gump, its legal advisor, and Bear Stearns, its financial advisor, to discuss the process for engaging in discussions and negotiations with Crestview.

 

Commencing March 26, 2007, Crestview and Merrill Lynch had numerous phone calls and meetings with the Company’s management and Bear Stearns.

 

On March 29, 2007, the special committee met with Akin Gump and Bear Stearns to discuss the diligence process, and the process and methodologies for seeking the best transaction in the event a decision to proceed with a sale of the Company was made.

 

From April 5 through April 16, 2007, Bear Stearns and Company representatives had numerous phone calls and meetings to discuss and review the Company’s 2007 budget, financial models, and related financial information.

 

On April 6, 2007, the special committee, Bear Stearns and Akin Gump met telephonically to discuss the draft merger agreement prepared by Akin Gump. Later that day, Akin Gump provided an initial draft of the merger agreement to Davis Polk & Wardwell (“Davis Polk”), legal advisor to Crestview.

 

On April 16, 2007, the special committee and Bear Stearns met in person and telephonically with members of the Company’s senior management to discuss business operations and financial results, as well as the Company’s financial models. On that same day, Bear Stearns received a non-binding proposal expressing Crestview’s interest in acquiring all of the outstanding common stock of the Company for a per share price of $21.50. Crestview also delivered its comments on the draft merger agreement.

 

Following receipt of the proposal, the special committee held a meeting with its advisors on April 16, 2007, at which the Crestview proposal and the comments to the merger agreement were discussed, including the go-shop provision, termination fee, conditions to closing and the guaranty by Crestview. The special committee determined that Crestview would need to increase the price to continue the negotiations. The following day, representatives of Bear Stearns relayed to representatives of Crestview the special committee’s position that it must increase its proposed price in order to continue negotiating the terms of a potential transaction and suggested a price in the $23.00 per share range.

 

On April 18, 2007, Akin Gump delivered a revised merger agreement to Davis Polk.

 

On April 19, 2007, Merrill Lynch communicated a revised offer price of $22.00 per share and indicated that Crestview would not be able to offer a price of $23.00 per share. The special committee, representatives of Bear Stearns and Akin Gump met telephonically to discuss the revised proposal.

 

Bear Stearns relayed to Crestview on April 20, 2007, a proposal to discuss a transaction at a price of $22.80 per share. Later that day, Merrill Lynch, on behalf of Crestview, contacted Bear Stearns to inform the special committee of Crestview’s revised proposal of $22.25, and indicated that Crestview had little or no flexibility to move beyond that price level. After discussions between Bear Stearns and Merrill Lynch, Bear Stearns, on behalf of the special committee, proposed a price of $22.35 per share. On April 21, 2007, Crestview indicated its willingness to consider a transaction at that price level. Representatives of Akin Gump and Davis Polk continued to negotiate the terms of the merger agreement and related documentation.

 

On April 22, 2007, the board of directors, along with representatives of Bear Stearns, Akin Gump and Waller Lansden Dortch & Davis, LLP (“Waller”), counsel to the Company, met in person and telephonically to discuss the revised Crestview proposal of $22.35. At the meeting, the board of directors was provided with an overview of the process that had taken place to date relating to the Crestview offer and the recent negotiations. Representatives of Waller reminded the directors of their fiduciary duties and reviewed their responsibilities. In addition, representatives of Akin Gump and Waller provided an overview of the material terms of the merger agreement and other related agreements. Also at this meeting, representatives of Bear Stearns reviewed with the board a preliminary summary of their financial analyses of the merger consideration assuming the proposed price of $22.35 per share.

 

Later that evening, the board of directors met telephonically and was updated on the status of negotiations with Crestview.

 

The parties and their respective advisors worked to finalize the merger agreement and related documentation. The special committee, along with representatives from Bear Stearns, Akin Gump and Waller, met telephonically on April 23, 2007, to discuss the negotiations of the merger agreement and related documentation. The board of directors, along with representatives from Bear Stearns, Akin Gump and Waller met telephonically later on April 23, 2007, to discuss the status of negotiations on the merger agreement and related documentation.

 

On the morning of April 24, 2007, the special committee, along with representatives from Bear Stearns, Akin Gump and Waller, as well as each of the other directors of the Company, met in person and telephonically. The directors were provided with an update of the recent negotiations. Representatives of Bear Stearns discussed with the special committee updates to its valuation analyses of the transaction and the price to be received by the Company’s stockholders in the transaction, following which Bear Stearns rendered to the

special committee its oral opinion, which was subsequently confirmed in writing, that, as of April 24, 2007, and based upon and subject to the assumptions, qualifications and limitations set forth in its written opinion, the consideration to be received was fair, from a financial point of view, to the holders of the Company’s common stock, excluding Parent, Merger Sub and their respective subsidiaries and affiliates and the rollover investors. The special committee unanimously determined that the merger agreement is advisable and fair to and in the best interests of the Company and the holders of the Company’s common stock (other than Parent, Merger Sub and their respective subsidiaries and affiliates and the rollover investors) and recommended (1) that the board of directors declare the advisability of, and approve, the merger, the merger agreement, and the transactions contemplated thereby, (2) that the board of directors resolve to recommend that the Company’s stockholders adopt the merger agreement and (3) that the stockholders of the Company vote to adopt the merger agreement.

 

Immediately following the meeting of the special committee, a meeting of the board of directors was convened in person and telephonically. Representatives of Waller summarized the board of directors’ fiduciary duties. Representatives of Bear Stearns then provided a review of its valuation analyses of the transaction and the price to be received by the Company’s stockholders in the transaction, following which Bear Stearns rendered to the board of directors its oral opinion, which opinion was subsequently confirmed in writing, to the effect that, as of April 24, 2007, based upon and subject to the assumptions, qualifications and limitations set forth in its written opinion, the consideration to be received was fair, from a financial point of view, to the holders of the Company’s common stock, other than common stock held by Parent, Merger Sub and their respective subsidiaries and affiliates and the rollover investors. Representatives of Bear Stearns also provided the board an overview of the go-shop process which would begin upon execution of the merger agreement and the potential parties that were anticipated to be contacted during such process. Representatives of Akin Gump then updated the board on the final provisions of the merger agreement and related documentation. Thereafter, the Company’s board of directors, (1) determined that the merger agreement and the transactions contemplated thereby, including the merger, are fair to and in the best interests of the Company and its stockholders (other than Parent, Merger Sub or their respective subsidiaries and affiliates and the rollover investors); (2) determined that the consideration to be paid for each share of common stock is fair to the stockholders (other than Parent, Merger Sub or their respective subsidiaries and affiliates); (3) approved and declared advisable the merger agreement and the transactions contemplated thereby, including the merger; and (4) resolved to recommend that the Company’s stockholders adopt the merger agreement.

 

Following the meeting of the board of directors, the Company executed an amendment to its rights agreement which provides that neither the execution of the merger agreement nor the consummation of the merger agreement or other transactions contemplated by the merger agreement will trigger the separation or exercise of the stockholder rights. Shortly thereafter, the merger agreement, dated as of April 24, 2007, was executed by the Company, Parent and Merger Sub, and related documentation was executed, including the limited guarantee by Crestview. Later that morning, the Company and Crestview issued a joint press release announcing the transaction.

 

Beginning April 24, 2007, at the direction and under the supervision of the special committee, representatives of Bear Stearns contacted 49 potential strategic and financial sponsor buyers that they believed would be capable of, and might be interested in, consummating an acquisition of the Company. Of the parties contacted by Bear Stearns, two parties entered into a confidentiality agreement and received preliminary confidential information regarding the Company. The Company did not receive any acquisition proposals as a result of this process. After reviewing due diligence information, both parties informed Bear Stearns that they were not prepared to offer a superior price for the Company.

 

Special Committee

 

The special committee, acting with the assistance of its financial and legal advisors, evaluated and negotiated the proposed merger with Merger Sub, including the terms and conditions of the merger agreement. In considering the decision to enter into the merger agreement, the special committee also considered the

alternative of remaining a stand-alone independent company, which would permit the stockholders to remain as equity holders in the Company, but would be subject to the risks and uncertainties summarized in the first bullet point below. On April 24, 2007, based upon such advice, the special committee unanimously determined that the merger agreement is advisable and fair to and in the best interests of the Company and the holders of the Company’s common stock (other than Parent, Merger Sub or their respective subsidiaries and affiliates and the rollover investors) and has recommended (1) that the board of directors declare the advisability of, and approve, the merger, the merger agreement, and the transactions contemplated thereby, (2) that the board of directors resolve to recommend that the Company’s stockholders adopt the merger agreement and (3) that the stockholders of the Company vote to adopt the merger agreement.

 

In the course of reaching the determinations and decisions, and making the recommendations described above, the special committee considered a variety of substantive positive factors and potential benefits of the merger agreement, the merger and the other transactions contemplated by the merger agreement, each of which the special committee believed supported its decision, including the following:

 

 

 

In addition, the special committee believes that sufficient procedural safeguards were and are present to ensure the fairness of the merger and to permit the special committee to represent effectively the interests of the Company’s stockholders other than Parent, Merger Sub and their respective subsidiaries and affiliates without retaining an unaffiliated representative to act solely on behalf of such stockholders. The special committee considered a number of factors relating to these procedural safeguards, including those discussed below, each of which it believed supported its decision and provided assurance of the fairness of the merger to the stockholders of the Company other than Parent, Merger Sub and their respective subsidiaries and affiliates and the rollover investors:

 

 

 

 

 

In light of the procedural safeguards discussed above and the level of current beneficial ownership of the Company’s common stock by Messrs. Francis and Adlerz, which as of July 2, 2007, represented approximately 3.6% of the Company’s outstanding common stock (or approximately 5.9% giving effect to the exercisable options held by Messrs. Francis and Adlerz), the special committee did not consider it necessary to explicitly require adoption of the merger agreement by at least a majority of the Company’s unaffiliated stockholders.

 

In the course of reaching the determinations and decisions, and making the recommendations described above, the special committee considered a variety of risks and potentially negative factors relating to the merger agreement, the merger and the other transactions contemplated by the merger agreement, including the following:

 

 

 

In the course of reaching its decision to approve the merger agreement and the merger, the special committee did not consider liquidation value because it considers the Company to be a viable going concern business. Further, the special committee did not consider net book value, which is an accounting concept, as a factor because it believed that net book value is not a material indicator of the value of the Company as a going concern but rather is indicative of historical costs. The Company’s net diluted book value per share (which gives effect to the exercise of all options and warrants) as of December 31, 2006 was approximately $13.58 per share, which is below the $22.35 per share cash merger consideration.

 

The special committee considered the going concern value of the Company in making its fairness determination. To measure the Company’s going concern value, the special committee considered, among other things, the discounted cash flow analyses with respect to the Company prepared by Bear Stearns. The opinion of Bear Stearns’ addressed the fairness, from a financial point of view, as of April 24, 2007, of the consideration to be received by the holders of the Company’s common stock (other than Parent, Merger Sub and their respective subsidiaries and affiliates and the rollover investors) in the merger and was based upon and subject to the factors and assumptions set forth therein and other matters as Bear Stearns’ considered relevant. See “Special Factors — Opinion of Financial Advisor” on page 23 for a summary of the Bear Stearns’ presentation provided to the special committee.

 

The foregoing discussion of the information and factors considered by the special committee includes the material factors considered by the special committee. Due to the variety of factors considered in connection with its evaluation, the special committee did not find it practicable to quantify or otherwise assign relative weights to the specific factors considered in reaching its determination and recommendation. In addition, individual members of the special committee may have assigned different weights to various factors. The special committee approved and recommended the merger agreement and the merger based upon the totality of the information presented to and considered by it.

 

The special committee recommends that you vote FOR the proposal to adopt the merger agreement and FOR the adjournment proposal.

 

Board of Directors

 

On April 24, 2007, the Company’s board of directors (1) determined that the merger agreement and the transactions contemplated thereby, including the merger, are fair to and in the best interests of the Company and its stockholders (other than Parent, Merger Sub or their respective subsidiaries and affiliates and the rollover investors); (2) determined that the consideration to be paid for each share of common stock is fair to the stockholders (other than Parent, Merger Sub or their respective subsidiaries and affiliates); (3) approved and declared advisable the merger agreement and the transactions contemplated thereby, including the merger and (4) resolved to recommend that the Company’s stockholders adopt the merger agreement.

 

In reaching these determinations, the board of directors considered (1) the financial presentation of Bear Stearns that was prepared for the special committee and the board of directors, as well as the fact that the special committee and, at the request of the special committee, the board of directors received an opinion delivered by Bear Stearns as to the fairness, as of April 24, 2007, from a financial point of view, to the holders

of the Company’s common stock (other than Parent, Merger Sub and their respective subsidiaries and affiliates and the rollover investors) of the consideration to be received by such holders in the merger and (2) the analysis of the proposed transaction performed by the special committee and its unanimous recommendation, as described above, and adopted such recommendation and analysis in reaching its determinations.

 

In the course of reaching its decision to approve the merger agreement, our board of directors did not consider the liquidation value of the Company’s assets because it considers the Company to be a viable going concern business. Further, the board of directors did not consider net book value, which is an accounting concept, as a factor because it believed that net book value is not a material indicator of the value of the Company as a going concern but rather is indicative of historical costs.

 

The foregoing discussion summarizes the material factors considered by our board of directors in its consideration of the merger. After considering these factors, the board of directors concluded that the positive factors relating to the merger agreement and the merger outweighed the negative factors. Due to the wide variety of factors considered by our board of directors, and the complexity of these matters, our board of directors did not find it practicable to quantify or otherwise assign relative weights to the foregoing factors. In addition, individual members of our board of directors may have assigned different weights to various factors. The board of directors approved and recommends the merger agreement and the merger based upon the totality of the information presented to and considered by it.

 

The Company’s board of directors recommends that you vote FOR the proposal to adopt the merger agreement and FOR any proposal to adjourn the special meeting to a later date to solicit additional proxies in favor of the adoption of the merger agreement in the event that there are not sufficient votes represented at the special meeting to adopt the merger agreement.

 

Pursuant to an engagement letter dated April 18, 2007, the Company’s special committee of the board of directors retained Bear Stearns to act as its financial advisor with respect to a possible transaction with Crestview or its affiliates. In selecting Bear Stearns, the Company’s special committee considered, among other things, the fact that Bear Stearns is an internationally recognized investment banking firm with substantial experience advising companies in the healthcare industry as well as substantial experience providing strategic advisory services. Bear Stearns, as part of its investment banking business, is continuously engaged in the evaluation of businesses and their debt and equity securities in connection with mergers and acquisitions; underwritings, private placements and other securities offerings; senior credit financings; valuations; and general corporate advisory services.

 

At the April 24, 2007 meeting of the Company’s special committee and board of directors, Bear Stearns delivered its oral opinion, which was subsequently confirmed in writing, that, as of April 24, 2007, and based upon and subject to the assumptions, qualifications and limitations set forth in the written opinion, the consideration to be received was fair, from a financial point of view, to the holders of the Company’s common stock, other than Parent, Merger Sub and their respective subsidiaries and affiliates and the rollover investors.

 

The full text of Bear Stearns’ written opinion is attached as Appendix B to this proxy statement and you should read the opinion carefully and in its entirety. The opinion sets forth the assumptions made, some of the matters considered and qualifications to and limitations of the review undertaken by Bear Stearns. The Bear Stearns opinion is subject to the assumptions and conditions contained therein and is necessarily based on economic, market and other conditions and the information made available to Bear Stearns as of the date of the Bear Stearns opinion.

 

In reading the discussion of the fairness opinion set forth below, you should be aware that Bear Stearns’ opinion:

 

 

 

The Company did not provide specific instructions to, or place any limitations on, Bear Stearns with respect to the procedures to be followed or factors to be considered by it in performing its analyses or providing its opinion.

 

In connection with rendering its opinion, Bear Stearns:

 

 

Bear Stearns relied upon and assumed, without independent verification, the accuracy and completeness of the financial and other information provided to it by the Company or obtained by Bear Stearns from public sources, including, without limitation, the Company projections. With respect to the Company projections, Bear Stearns relied on representations that they were reasonably prepared on bases reflecting the best currently available estimates and judgments of the senior management of the Company as to the expected future performance of the Company. Bear Stearns did not assume any responsibility for the independent verification of any such information, including, without limitation, the Company projections, and Bear Stearns further relied upon the assurances of the senior management of the Company that they are unaware of any facts that would make the information and the Company projections incomplete or misleading.

 

In arriving at its opinion, Bear Stearns did not perform or obtain any independent appraisal of the assets or liabilities (contingent or otherwise) of the Company, nor was Bear Stearns furnished with any such appraisals. Bear Stearns was not authorized to and did not solicit any expressions of interest from any other parties with respect to the sale of all or any part of the Company or any other alternative transaction involving the Company, but did note that the Company and its advisors have the right in accordance with the merger agreement to do so for a prescribed period of time following the execution of the merger agreement, subject to the terms set forth therein. Bear Stearns assumed that the merger will be consummated in a timely manner and in accordance with the terms of the agreement without any limitations, restrictions, conditions, amendments or modifications, regulatory or otherwise, that collectively would have a material effect on the Company.

 

Bear Stearns did not express any opinion as to the price or range of prices at which the shares of common stock of the Company may trade subsequent to the announcement of the merger.

 

The following is a brief summary of the material financial analyses performed by Bear Stearns and presented to the Company’s special committee and board of directors in connection with rendering its fairness opinion.

 

Summary of Financial Analyses

 

Some of the financial analyses summarized below include summary data and information presented in tabular format. In order to understand fully the financial analyses, the summary data and tables must be read together with the full text of the analyses. Considering the summary data and tables alone could create a misleading or incomplete view of Bear Stearns’ financial analyses.

 

Discounted Cash Flow Analysis.  Based on cash flow projections for the Company as prepared by the Company, Bear Stearns performed a discounted cash flow analysis to assist the Company’s special committee and board of directors in determining the fairness of the transaction. In conducting its analysis, at the direction of management, Bear Stearns considered two projected financial cases: base case projections (excluding acquisition and de novo activity) and growth case projections (including acquisition and de novo activity).

 

Bear Stearns performed a discounted cash flow analysis assuming:

 

 

Discounted cash flow valuations were calculated for the Company using the base case and growth case projections. Bear Stearns derived a range of implied equity values per share for the Company as follows:

 

 

Comparable Public Companies Analysis.  Bear Stearns performed an analysis to assist the Company’s special committee in determining the fairness of the transaction based on various financial multiples of selected comparable public companies that own and/or operate short-stay surgical facilities. In performing this analysis, Bear Stearns reviewed certain financial information relating to the Company and compared this information to the corresponding financial information of publicly-traded companies that own and/or operate short-stay surgical facilities, which Bear Stearns deemed to be generally comparable to the Company.

 

Bear Stearns compared the projected financial performance and the resulting multiples of the Company at the $22.35 per share merger consideration to four publicly-traded companies that own and/or operate short-stay surgical facilities, which it deemed generally comparable to the Company. Bear Stearns then separated the four publicly-traded companies into two categories: primary comparable companies and secondary comparable companies. The primary comparable companies consist of companies that are most comparable to the Company based on each company’s current stage in its life cycle, primary business focus and facility mix (i.e., ambulatory surgery centers vs. surgical hospitals), case mix diversification (i.e., multi vs. single-specialty facilities), reliance on government payors and geographic dispersion of facilities. The secondary comparable companies, while still comparable to the Company based on the factors set forth above, were deemed to be less similar to the Company than those categorized as primary comparable companies. The two categories are comprised of the following companies:

 

Using publicly available information and market data as of April 21, 2007 (except for USPI, for which Bear Stearns used the market data as of January 5, 2007, which represents the unaffected market data prior to USPI’s announcement on January 8, 2007 that it had signed an agreement to be acquired by Welsh Carson), and using Wall Street research projections for EBITDA and consensus estimates for EPS and EPS growth for the above comparable companies, and in the case of the Company, the Company projections, Bear Stearns calculated the following harmonic mean multiples for the above public comparable companies and compared the results to the Company’s multiples at market and at deal price:

 

 

“Harmonic mean” is calculated by taking the inverse of the average reciprocals of the multiples and gives equal weight to equal dollar investments in the securities whose ratios are being averaged. Bear Stearns utilizes the harmonic mean in averaging ratios in which price is the numerator. “Enterprise Value” is calculated as the sum of the value of the common equity on a fully diluted basis and the value of net debt and preferred stock. “EBITDA” is a company’s earnings before interest, taxes, depreciation and amortization plus equity income/(loss) in affiliates less minority interest expense. “Pro Forma EBITDA” is defined as the Company’s EBITDA as defined above, pro forma for full year impact of acquisitions, de novo and divestiture activity. “EPS” is a company’s earnings per share. “Growth Rate” is defined as the consensus long-term consensus growth rate as provided by First Call for comparable companies, and for the Company, the compounded annual growth rate from 2006 to 2012 in the Company projections. “Symbion at Market” is defined as the Company’s enterprise value and share price based on the closing share price of the Company’s common stock as of April 20, 2007. “Symbion at Deal” is defined as the Company’s enterprise value and equity value based on the $22.35 per share purchase price and the value of net debt outstanding.

 

Precedent M&A Transaction Analysis.  Bear Stearns performed a precedent transactions analysis to assist the Company’s special committee and board of directors in determining the fairness of the transaction. This analysis was based on various financial multiples of selected comparable precedent transactions in which the target was a company that owns and/or operates short-stay surgical facilities, which Bear Stearns deemed generally comparable to the Company. In performing this analysis, Bear Stearns reviewed certain financial information relating to the Company and the merger and compared this information to the corresponding financial information of precedent transactions.

 

Bear Stearns compared the financial performance and the resulting multiples of the Company at the $22.35 per share purchase price in the transaction to the following four primary precedent transactions:

 

 

For each selected transaction, Bear Stearns reviewed the multiple of enterprise value of the target company to its latest twelve months EBITDA and next twelve months EBITDA. Bear Stearns reviewed USPI’s acquisition of Surgis, Inc. on both a pre-synergy and post-synergy basis. The following table presents the harmonic mean of the multiples calculated with respect to the transactions analyzed:

 

 

Bear Stearns performed a more detailed review of the two most recent acquisitions in the short-stay surgical facility industry which Bear Stearns viewed as the most relevant precedents: HealthSouth’s Surgery Division sale to Texas Pacific Group and USPI’s sale to Welsh Carson. For each of these transactions, Bear Stearns reviewed the multiple of enterprise value of the target company to its latest twelve months EBITDA, next twelve months EBITDA, and growth adjusted EBITDA multiples. The following table presents the multiples calculated with respect to each transaction:

 

 

Miscellaneous

 

The preparation of a fairness opinion is a complex process and involves various judgments and determinations as to the most appropriate and relevant assumptions and financial analyses and the application of those methods to the particular circumstances involved. Such an opinion is therefore not readily susceptible to partial analysis or summary description, and taking portions of the analyses set out above, without considering the analysis as a whole, would in the view of Bear Stearns, create an incomplete and misleading picture of the processes underlying the analyses considered in rendering the Bear Stearns’ fairness opinion. Bear Stearns based its analysis on assumptions that it deemed reasonable, including assumptions concerning general business and economic conditions and industry-specific factors. Bear Stearns did not form an opinion as to whether any individual analysis or factor, whether positive or negative, considered in isolation, supported or failed to support the Bear Stearns opinion. In arriving at its opinion, Bear Stearns considered the results of all its analyses and did not attribute any particular weight to any one analysis or factor. Bear Stearns arrived at its ultimate opinion based on the results of all analyses undertaken by it and assessed as a whole and believes that the totality of the factors considered and analyses performed by Bear Stearns in connection with its opinion operated collectively to support its determination as to the fairness of the consideration to be received

by the Company’s stockholders, other than Parent, Merger Sub and their respective subsidiaries and affiliates and the rollover investors. The analyses performed by Bear Stearns, particularly those based on estimates and projections, are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than suggested by such analyses.

 

None of the public companies used in the comparable company analysis described above are identical to the Company, and none of the precedent transactions used in the precedent transactions analysis described above are identical to the merger. Accordingly, an analysis of publicly traded comparable companies and comparable precedent transactions is not mathematical; rather it involves complex considerations and judgments concerning the differences in financial and operating characteristics of the companies and precedent transactions and other factors that could affect the value of the Company and the public trading values of the comparable companies and precedent transactions to which they were compared. The analyses do not purport to be appraisals or to reflect the prices at which any securities may trade at the present time or at any time in the future.

 

Bear Stearns’ fairness opinion was just one of the many factors taken into consideration by the Company’s special committee and the Company’s board of directors in evaluating the proposed transaction. Consequently, Bear Stearns’ analysis should not be viewed as determinative of the decision of the Company’s special committee or with respect to the fairness of the merger agreement and the transactions contemplated by it, from a financial point of view, to the Company and the stockholders of the Company, other than Parent, Merger Sub and their respective subsidiaries and affiliates and the rollover investors.

 

Pursuant to the terms of Bear Stearns’ engagement letter, the Company has agreed to pay Bear Stearns a customary transaction fee of 0.75% of the Aggregate Consideration (as defined in the engagement letter), of which $1.5 million was payable at the rendering of Bear Stearns’ opinion and the remainder of which is payable and contingent upon consummation of the transactions contemplated by the merger agreement. Based upon the $22.35 per share merger consideration, it is anticipated that $3.2 million will be payable to Bear Stearns contingent upon consummation of the transactions contemplated by the merger agreement. In addition, the Company has agreed to reimburse Bear Stearns for reasonable out-of-pocket expenses and to indemnify Bear Stearns against certain liabilities arising out of Bear Stearns’ engagement.

 

Bear Stearns (1) has not previously been retained by the Company to provide investment banking and other services on matters unrelated to the activities of the special committee and the merger, and (2) has previously been retained by Crestview or its affiliates to provide investment banking and other services on matters unrelated to the merger, on which Bear Stearns received (or expects to receive) customary fees. Bear Stearns may seek to provide the Company and Crestview or their respective affiliates with investment banking and other services unrelated to the merger in the future.

 

In the ordinary course of business, Bear Stearns and its affiliates may actively trade the equity and debt securities and/or bank debt of the Company and its respective affiliates for its own account and for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities or bank debt.

 

Bear Stearns and/or certain of its personnel and affiliates may have passive minority investments in certain investment funds managed directly or indirectly by Crestview and/or its affiliates, and in portfolio companies of such funds. Additionally, a Senior Managing Director of Bear Stearns who is involved in advising the Company’s special committee is the owner of less than 0.1% of the Company’s outstanding shares.

 

Under an interpretation of the rules governing “going private” transactions, Parent, Merger Sub, the Crestview funds, Crestview Partners GP, L.P. and Richard E. Francis, Jr. and Clifford G. Adlerz, collectively referred to as the buying group, may be required to express their beliefs as to the fairness of the merger to our unaffiliated stockholders. The members of the buying group (other than Messrs. Francis and Adlerz) are making the statements included in this section solely for the purposes of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. No member of the buying group (other than

Messrs. Francis and Adlerz) believes that it has or had any fiduciary duty to Symbion or its stockholders, including with respect to the merger and its terms. The views of the members of the buying group should not be construed as a recommendation to any stockholder as to how that stockholder should vote on the proposal to adopt the merger agreement or the adjournment proposal. The members of the buying group note that Messrs. Francis and Adlerz have interests in the merger different from, and in addition to, the other stockholders of Symbion. These interests are described under “Special Factors — Interests of Symbion’s Directors and Executive Officers in the Merger” beginning on page 39.

 

None of the members of the buying group participated in the deliberation process of the special committee or the board of directors of Symbion relating to the merger. However, the members of the buying group found persuasive the conclusions of the special committee and the board of directors of Symbion as to the substantive and procedural fairness of the merger to the unaffiliated Symbion stockholders. See “Special Factors — Recommendations of the Special Committee and Board of Directors; Reasons for Approval of the Merger” beginning on page 18.

 

Accordingly, each of the members of the buying group believes that the merger is substantively and procedurally fair to Symbion’s unaffiliated stockholders because, among other things:

 

 

 

Each member of the buying group believes that the merger is procedurally fair for all the reasons listed above, notwithstanding the fact that Symbion did not retain an unaffiliated representative to act on behalf of Symbion’s unaffiliated stockholders. In this regard, each member of the buying group notes that Symbion’s board of directors believed it was not necessary to appoint an additional representative unaffiliated with Symbion to act solely on behalf of the unaffiliated stockholders for purposes of negotiating the terms of the merger agreement or preparing a report concerning the fairness of the merger in light of the fact that the use of a special committee of this type is a well-recognized mechanism to achieve fairness in transactions such as the merger. The members of the buying group (including Crestview affiliates) together with Messrs. Francis and Adlerz currently own less than 3.6% (or approximately 5.9% giving effect to the exercisable options held by Messrs. Francis and Adlerz) of the Company’s common stock. Other members of Symbion’s management (none of whom have a material equity interest in the Company) will be given the opportunity to participate as rollover investors, none of whom will have a material interest in Parent upon the closing of the merger. See “— Recommendations of the Special Committee and the Board of Directors; Reasons for Approval of the Merger” beginning on page 18 and “— Interests of Symbion’s Directors and Executive Officers in the Merger” beginning on page 39.

 

In evaluating the fairness of the merger to Symbion’s unaffiliated stockholders, the buying group did not consider net book value because they believe that net book value, which is an accounting concept, does not reflect, or have any meaningful impact on, the market trading prices for Symbion common stock. The buying group noted, however, that the merger consideration of $22.35 per share is higher than the last reported share price of Symbion common stock. The buying group did not consider liquidation value in determining the fairness of the merger to Symbion’s unaffiliated stockholders because Symbion will continue to operate its businesses following completion of the merger and because of the buying group’s belief that liquidation sales generally result in proceeds substantially less than sales of a going concern. The buying group did not establish going concern value for the Symbion common stock as a public company to determine the fairness

of the merger consideration to the unaffiliated stockholders. None of the members of the buying group believe that there is a single method for determining going concern value and, therefore, did not base their valuation of Symbion on a concept that is subject to various interpretations. Further, the members of the buying group believed that, to the extent that Symbion’s pre-merger going concern value was already reflected in the pre-announcement per share stock price of Symbion’s common stock, such pre-merger going concern value undervalued Symbion in comparison to the offer prices being discussed in the merger negotiations, which from the outset reflected a premium to such pre-announcement stock price.

 

Since the members of the buying group relied on their own analysis and conclusions in forming their belief as to the fairness of the proposed merger to Symbion’s unaffiliated stockholders, they did not adopt the conclusions of the special committee or the board of directors of Symbion with respect to such fairness and accordingly, did not adopt the analysis or opinion of the special committee’s financial advisor.

 

The foregoing discussion of the information and factors considered and given weight by the buying group in connection with the fairness of the merger agreement and the merger is not intended to be exhaustive but is believed to include all material factors considered by the members of the buying group. The buying group did not find it practicable to, and did not, quantify or otherwise attach relative weights to the foregoing factors in reaching their position as to the fairness of the merger agreement and the merger. The members of the buying group believe that these factors provide a reasonable basis for their position that they believe that the merger is fair to the unaffiliated stockholders.

 

On a conference call on or about April 12, 2007, Merrill Lynch, financial advisor to Crestview, provided to Crestview a written overview of a hypothetical potential bidding strategy for Crestview’s possible acquisition of the Company. In its presentation, Merrill Lynch discussed possible initial bid pricing and other terms of a potential transaction. Merrill Lynch discussed a potential initial bid price of $22.00 per share and noted that this price would represent an approximately 18% premium to the six-month average closing price of the Company common stock, an approximately 14% premium to the closing price of the Company common stock on April 11, 2007, and an approximately 25% premium to the closing price of the Company common stock on January 5, 2007.

 

Merrill Lynch noted that this hypothetical purchase price was in line with two other transactions which Merrill Lynch deemed comparable: the sale by HealthSouth of its Surgery Division to Texas Pacific Group and the sale of USPI to Welsh Carson. Merrill Lynch estimated that, for the sale of USPI to Welsh Carson, the offer price represented a 13.4% premium to USPI’s closing price one day before announcement of the transaction and a 6.7% increase from the initial offer price, and that the enterprise value of the transaction represented a multiple of last 12 months’ adjusted EBITDA of 11.5x. Merrill Lynch estimated that, for the sale by HealthSouth of its Surgery Division to Texas Pacific Group, the enterprise value of the transaction represented a multiple of last 12 months’ estimated EBITDA of 9.9x.

 

Merrill Lynch provided to Crestview a premiums analysis using a range of potential offer prices for the common stock of the Company ranging from $19.26 per share to $23.00 per share. Merrill Lynch noted that a proposed initial bid price of $22.00 per share would represent a transaction value of $626 million (equivalent to a multiple of adjusted 2006 EBITDA of 10.7x). An initial bid price of $22.00 per share would represent a 14.2% premium to the Company’s per share price on April 11, 2007 and a 24.9% premium to the closing price of the Company’s common stock on January 5, 2007 (the date preceding the announcement of the USPI acquisition). Merrill Lynch further noted that an initial bid price of $22.00 per share would represent a 13.8% premium to the average closing price of the Company’s common stock for the prior month, an 11.9% premium to the average closing price of the Company’s common stock for the prior three months, an 18.2% premium to the average closing price of the Company’s common stock for the prior six months and a 10.9% premium to the average closing price of the Company’s common stock for the past year.

 

Merrill Lynch also performed an analysis of premiums paid and certain other terms in 29 precedent leveraged buyout transactions. For each of the transactions, Merrill Lynch reviewed the equity value, whether the transaction provided for a “go shop” period, the number of days from the first approach to the target

regarding an acquisition until the signing of the acquisition agreement, the premiums paid relative to the target’s historic share prices and the amount of termination and reverse termination fees. The following table presents a list of the precedent transactions summarized:

 

 

In reviewing these transactions, Merrill Lynch noted that 60.7% of the precedent transactions contained a “go shop” provision, and that the “go-shop” period lasted 34 days on average. Merrill Lynch also noted that the target company initiated the transaction in 28.6% of the precedent transactions and in approximately 57.1% of the precedent transactions conducted an auction or market test. Merrill Lynch also noted the premiums paid in each of these transactions based on both the initial and final bids to both the closing price for the preceding trading day and for the preceding 30 day period. The average premium was 13.3% (for the one day period) and 15.0% (for the 30 day period) in the case of the initial bid and 23.7% (for the one day period) and 25.0% (for the 30 day period) in the case of the final bid.

 

Merrill Lynch noted that the average number of days from the first approach regarding an acquisition transaction to the date of signing was 148 days (with a median of 108 days) and the average number of days from submission of the initial bid until signing was 76 days (with a median of 77 days). Of those precedent transactions that contained a “go-shop” provision, the termination fee payable in the case of a termination arising from a proposal received during the “go-shop” period averaged 1.6% of equity value (and a median of 1.4% of equity value). The termination fee in the case of a termination arising from a proposal other than a

proposal received during the “go-shop” period averaged 2.6% of equity value (with a median of 2.9% of equity value). The “reverse” termination fees payable by the acquirer in the event of failure to consummate the transaction under specified circumstances averaged 2.9% of equity value.

 

The materials summarized above were provided to Crestview for the purposes of formulating its strategy with respect to the proposed transaction and were not prepared for valuation purposes or with a view to public disclosure. None of the materials contained in the presentation summarized above constitute an opinion of Merrill Lynch with respect to the fairness of the consideration to be paid in the merger. Some of the financial analyses summarized above include summary data and information presented in tabular format. In order to understand fully the financial analyses, the summary data and tables must be read together. The full text of the presentation is attached as Exhibit (c)(5) to the Schedule 13E-3 filed by the Company and the buying group.

 

It is expected that, upon consummation of the merger (and excluding the transactions contemplated in connection with the merger as described in this proxy statement), the operations of Symbion will be conducted substantially as they currently are being conducted. The buying group has advised Symbion that it does not have any current intentions, plans or proposals to cause the surviving corporation to engage in any of the following:

 

 

Nevertheless, following consummation of the merger, the management and/or board of directors of the surviving corporation may initiate a review of the surviving corporation and its assets, corporate and capital structure, capitalization, operations, business, properties and personnel to determine what changes, if any, would be desirable following the merger to enhance the business and operations of the surviving corporation and may cause the surviving corporation to engage in the types of transactions set forth above if the management and/or board of directors of the surviving corporation decides that such transactions are in the best interests of the surviving corporation upon review. The surviving corporation expressly reserves the right to make any changes it deems appropriate in light of such evaluation and review or in light of future developments.

 

If the merger is approved by Symbion’s stockholders and the other conditions to the closing of the merger are either satisfied or waived, Merger Sub will be merged with and into Symbion, with Symbion being the surviving corporation. After the merger, Parent will own all of the capital stock of Symbion, Parent will be owned by a group of investors led by Crestview, certain members of Symbion senior management, and possibly other Symbion employees, and Symbion will no longer be a publicly-traded company. Crestview currently expects to invest $150 to $170 million of the $255 million of Parent capital stock with the remainder of the Parent equity to be held by the rollover investors and other co-investors to whom Crestview expects to syndicate a portion of its equity commitment. The expected percentage of the ultimate amount of the equity to be invested by Crestview in Parent by each of the five Crestview funds is as follows: Crestview Partners, L.P., 64.0%; Crestview Offshore Holdings (Cayman), L.P., 15.4%; Crestview Holdings (TE), L.P., 4.4%; Crestview Partners (ERISA), L.P., 5.2%; and Crestview Partners (PF), L.P., 11.1%. The remainder of the outstanding equity of Parent at closing will be held by the rollover investors and certain co-investors with Crestview. In connection with the merger, we expect that Richard E. Francis, Jr. and Clifford G. Adlerz will exchange all or a portion of their equity interests in Symbion and/or pay cash for equity interests in Parent. Certain other Symbion executives and employees will likewise be offered the opportunity to make such exchanges and become rollover investors. See “— Interests of Symbion’s Directors and Executive Officers in the Merger” beginning on page 39.

 

When the merger is completed, each share of Symbion common stock issued and outstanding immediately prior to the effective time of the merger (other than treasury shares, shares to be exchanged for equity interests in Parent by rollover investors, shares held by Parent or Merger Sub and shares held by Symbion stockholders who choose to be dissenting stockholders by exercising and perfecting their appraisal rights under Delaware law with respect to the merger) will be converted into the right to receive $22.35 in cash without interest and less any applicable withholding taxes. At the effective time of the merger, unless otherwise agreed between Parent and the holder thereof:

 

 

 

in each case without interest and less any applicable withholding taxes. Certain options, warrants and shares of restricted stock held by the rollover investors may be exchanged for equity interests in Parent at the time of the merger. See “The Merger Agreement — Treatment of Options and Restricted Stock” on page 55 and “Special Factors — Interests of Symbion’s Directors and Executive Officers in the Merger” beginning on page 39.

 

At the effective time of the merger, current Symbion stockholders (other than the rollover investors) will cease to have ownership interests in Symbion or rights as Symbion stockholders. Therefore, current stockholders of Symbion (other than the rollover investors) will not participate in any future earnings or growth of Symbion and will not benefit from any appreciation in the value of Symbion.

 

Symbion’s common stock is currently registered under the Exchange Act and is quoted on the NASDAQ Global Select Market under the symbol “SMBI.” As a result of the merger, Symbion will be a privately held corporation, and there will be no public market for its common stock. After the merger, the common stock will cease to be quoted on the NASDAQ Global Select Market, and price quotations with respect to shares of Symbion common stock in the public market will no longer be available. In addition, registration of the common stock under the Exchange Act will be terminated. This termination will make certain provisions of the Exchange Act, such as the requirement of furnishing a proxy or information statement in connection with stockholders’ meetings, no longer applicable to Symbion. After the effective time of the merger, Symbion will also no longer be required to file periodic reports with the SEC unless required by the indenture to be executed in connection with the debt financing entered into in connection with the merger.

 

At the effective time of the merger, the directors of Merger Sub immediately prior to the effective time of the merger are expected to become the directors of the surviving corporation and the officers of Symbion immediately prior to the effective time of the merger are expected to remain the officers of the surviving corporation. The certificate of incorporation of Symbion will be amended to be the same as the certificate of incorporation of Merger Sub as in effect immediately prior to the effective time of the merger, except that the name, incorporator, registered agent, liability exculpating provisions applicable to directors of Symbion and indemnification rights of the officers and directors of Symbion shall not be amended and the name of Merger Sub’s incorporator shall be omitted. The bylaws of Merger Sub in effect immediately prior to the effective time of the merger will become the bylaws of the surviving corporation.

 

A benefit of the merger to the buying group is that our future earnings and growth will be solely for their benefit (and that of the rollover investors) and not for the benefit of our current stockholders (other than the rollover investors). The detriments to the members of the buying group are the lack of liquidity for Parent’s capital stock following the merger, the risk that Symbion will decrease in value following the merger, the incurrence by Parent and the surviving corporation of approximately $400.0 million of long-term debt and the payment by us of approximately $33.0 million in estimated fees and expenses related to the merger. See “Special Factors — Financing” and “— Fees and Expenses of the Merger” beginning on pages 36 and 46 respectively.

 

The following table sets forth for each member of the buying group (1) such person’s interest in the stockholders’ equity (net book value) of Symbion at March 31, 2007, (2) such person’s interest in the net income of Symbion for the quarter ended March 31, 2007 (in the case of (1) and (2), such person’s interest has been calculated to give pro forma effect to the exercise of all stock options (vested or unvested) and unvested restricted stock that were outstanding on July 2, 2007) and (3) the approximate percentage interest expected to be held by each such person in the equity (and accordingly the net book value and net income) of the surviving corporation, without giving effect to option or restricted stock ownership, immediately following the merger.

 

Pro Forma Changes in Investors’ Interests As a Result of the Merger

 

 

 

 

In the event that the proposal to adopt the merger agreement is not approved by Symbion’s stockholders or if the merger is not completed for any other reason, our stockholders will not receive any payment for their shares in connection with the merger. Instead, Symbion will remain an independent public company and its common stock will continue to be listed and traded on the NASDAQ Global Select Market. In addition, if the

merger is not completed, we expect that management will operate the business in a manner similar to that in which it is being operated today and that Symbion stockholders will continue to be subject to the same risks and opportunities as they currently are, including, among other things, the nature of the healthcare industry on which Symbion’s business largely depends, and general industry, economic and market conditions. Accordingly, if the merger is not consummated, there can be no assurance as to the effect of these risks and opportunities on the future value of Symbion common stock. From time to time, Symbion’s board will evaluate and review the business operations, properties, dividend policy and capitalization of Symbion, among other things, make such changes as are deemed appropriate and continue to seek to identify strategic alternatives to maximize stockholder value. If the proposal to adopt the merger agreement is not approved by Symbion’s stockholders or if the merger is not consummated for any other reason, there can be no assurance that any other transaction acceptable to Symbion will be offered, or that the business, prospects or results of operations of Symbion will not be adversely impacted.

 

In addition, if the merger agreement is terminated under certain circumstances, Symbion will be obligated to pay a termination fee of $12.5 million to Crestview (if Symbion had accepted an acquisition proposal made prior to the termination of the go-shop period, the termination fee could have been $5 million rather than $12.5 million, depending on the circumstances and timing of the termination). Under certain circumstances, Symbion may be required to pay up to $3 million of Parent’s expenses in the event that the merger agreement is terminated. See “The Merger Agreement — Fees and Expenses” beginning on page 64.

 

The merger is expected to be accounted for as a business combination using the purchase method of accounting for financial accounting purposes, whereby the estimated purchase price would be allocated to the assets and liabilities of Symbion based on their relative fair values in accordance with Financial Accounting Standards No. 141, Business Combinations.

 

Parent estimates that the total amount of funds necessary to consummate the merger and related transactions is approximately $665.4 million, consisting of (1) approximately $498.4 million to pay holders of Symbion securities the amounts due to them under the merger agreement, assuming that no stockholder validly exercises and perfects its appraisal rights, (2) approximately $123.2 million to refinance or repay existing indebtedness and (3) approximately $33.0 million to pay fees and expenses in connection with the merger and related transactions.

 

These funds are anticipated to come from the following sources:

 

 

The following arrangements are intended to provide the necessary financing for the merger:

 

Equity Financing

 

Parent has received fully executed commitment letters, dated April 23 and 24, 2007 (which are each referred to as an equity commitment letter and collectively referred to as the equity commitment letters), from Crestview and The Northwestern Mutual Life Insurance Company, referred to as Northwestern, pursuant to which Crestview and Northwestern have committed, subject to the terms and conditions set forth in the

respective equity commitment letters, to provide to Parent $250 million and $75 million, respectively, in cash in exchange for shares of capital stock of Parent (such amounts provided in exchange for shares of capital stock of Parent referred to as the equity financing). Each of Crestview and Northwestern reserve the right to syndicate a portion of their respective equity commitment to Parent. In fact, the $75 million commitment from Northwestern reflects a syndication of part of Crestview’s own $250 million commitment. The terms of the equity commitment letter with Northwestern also provides that Parent must pay to Northwestern a commitment fee equal to approximately $0.35 million at the closing of the merger. The documentation governing the equity financing has not been finalized and, accordingly, the actual terms of such equity financing may differ from those described in this proxy statement.

 

Debt Financing

 

Parent has entered into a debt financing commitment letter, referred to as the debt commitment letter, with Merrill Lynch Capital Corporation (“MLC”), Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill Lynch”), Banc of America Securities LLC (“BAS”), Banc of America Bridge, LLC (“Banc of America Bridge”) and Bank of America, N.A. (“Bank of America”) providing Merger Sub with committed financing for $275 million in senior secured credit facilities, including the $150 million term loans referred to above, and a $250 million senior subordinated bridge facility.

 

The documentation governing the senior secured credit facilities and the bridge facility has not been finalized and, accordingly, the actual terms of the debt facilities may differ from those described in this proxy statement. Except as described herein, there is no current plan or arrangement to finance or repay the debt financing arrangements.

 

Senior Secured Credit Facilities

 

The senior secured credit facilities are expected to be comprised of a $50 million senior secured delayed draw term loan facility, a $150 million term loan facility and a $75 million revolving credit facility. As a result of the merger, Merger Sub will be merged with and into Symbion, and Symbion, as the surviving corporation, will be the borrower under the senior secured credit facilities. All obligations of Symbion under the senior secured credit facilities will be guaranteed by Parent and each existing and future direct and indirect wholly owned domestic subsidiary, subject to certain exceptions. The obligations of Symbion and the guarantors under the senior secured credit facilities will be secured by substantially all the assets of Symbion and the guarantors, including their equity interests in certain subsidiaries.

 

Loans under the senior secured credit facilities are expected to bear interest, at the borrower’s option, at (1) adjusted LIBOR (London Interbank Offered Rate) plus 2.00% or (2) the alternate base rate plus 1.00%. The term loans, including any delayed draw term loans, will mature seven years after the effective date of the merger and the revolving credit facilities will mature six years after the effective date of the merger. The term loan facilities will also require quarterly interim amortization payments of 0.25% of their principal amount, with the balance payable at the final maturity date of the term loans. The borrower may make voluntary prepayments of the term loans at any time. In addition, the term loans are required to be prepaid in certain circumstances, including with the net cash proceeds of debt issuances (other than permitted debt), the net cash proceeds of certain asset sales (subject to reinvestment rights and other exceptions) and specified percentages of excess cash flow.

 

The senior secured credit facilities will contain customary representations and warranties and customary affirmative and negative covenants, including, among other things, restrictions on indebtedness, liens, investments, sales of assets, mergers and consolidations, dividends and other distributions, redemptions, prepayments of subordinated indebtedness, transactions with affiliates, sale-leaseback transactions, and a maximum senior secured leverage ratio that will apply only when revolver borrowings are outstanding. The senior secured facilities will also include customary events of default, including upon a change of control.

 

Senior Notes

 

Parent intends to issue and sell $250 million in aggregate principal amount of senior notes in a Rule 144A or other private placement. As a result of the merger, Merger Sub will be merged with and into Symbion, and Symbion, as the surviving corporation, will be the issuer of the senior notes. Although the interest rate, maturity and other material terms of the senior notes have not been finalized, we expect that the senior notes will have terms and conditions customary for senior note offerings of issuers that are affiliates of Parent.

 

The senior notes will not be registered under the Securities Act of 1933 or under securities laws of any state, and may not be offered or sold within the United States, absent registration or applicable exemption from such registration requirements. This proxy statement is neither an offer to sell nor a solicitation of any offer to buy any of the senior notes.

 

Senior Bridge Facility

 

If and to the extent the offering or placement of the senior notes is not completed on or prior to the closing of the merger, MLC and Banc of America Bridge have committed to provide $250 million of loans under a senior bridge facility. Merger Sub, and following the closing of the merger, Symbion as the surviving corporation, will be the borrower under the senior bridge facility. Symbion’s obligations under the senior bridge facility will be guaranteed on a senior unsecured basis by each of its subsidiaries that is a guarantor of the senior secured credit facilities.

 

The loans under the senior bridge facility will be increasing rate bridge loans. For the initial six month period under the senior bridge facility, interest on the bridge loans is expected to accrue at a rate per annum equal to the three month adjusted LIBOR plus an initial spread equal to 4.00% per annum. If the bridge loans are not fully repaid at the end of the initial six month period, the spread will increase by 50 basis points at the end of such period and at the end of each successive three month period thereafter, subject to a maximum overall interest cap. The bridge loans will have an initial maturity of one year after the effective date of the merger, but the maturity of any bridge loans outstanding at that time will automatically be extended to the eighth anniversary of the effective date of the merger. Holders of the extended term loans will have the right to exchange such loans for exchange notes maturing on the eighth anniversary of the effective date of the merger and to require the borrower to register the exchange notes for public resale under a registration statement in compliance with applicable securities laws.

 

The borrower will be required to prepay or offer to prepay the bridge loans, to prepay or offer to prepay the extended loans and to redeem or offer to purchase the exchange notes under certain circumstances, including upon certain non-ordinary course asset sales (subject to certain repayment rights) or certain issuances of debt or equity securities (in each case, with certain exceptions) and upon a change of control.

 

The senior bridge facility will contain customary representations and warranties and covenants for similar financings, including restrictions on incurring debt and liens and making restricted payments. The bridge loans will contain no financial maintenance covenants. The senior bridge facility will also include customary events of default for high yield debt securities.

 

Conditions to the Debt Financing

 

The debt financing commitments will expire if not drawn on or prior to October 31, 2007. The facilities contemplated by the debt financing commitments are subject to customary closing conditions, including:

 

 

 

Since the final terms of the debt financing facilities have not been agreed upon, such terms and amounts may differ from those set forth above and, in certain cases, such differences may be significant. In the event of any material change in the terms set forth above, Symbion will (1) update such information through a supplement to this proxy statement and (2) amend the Schedule 13E-3 filed in connection with the merger, in each case to the extent required by applicable law.

 

As of the date of this proxy statement, no alternative financing arrangements or alternative financing plans have been made in the event the debt financing described herein is not available as anticipated.

 

In connection with the merger agreement, Crestview has agreed to guarantee the due and punctual performance of all of the payment obligations of Parent and Merger Sub under the merger agreement, up to a maximum amount of $12.5 million. The guarantee will remain in full force and effect until the effective time of the merger or, if the merger agreement is terminated under circumstances in which Parent would be obligated to make any payments under the terms of the merger agreement, the first anniversary of such termination.

 

The merger agreement provides that, in addition to any other remedies, each party is entitled to enforce the terms of the merger agreement by a decree of specific performance without the necessity of proving the inadequacy of money damages or any other remedy.

 

In considering the recommendations of the board of directors, Symbion’s stockholders should be aware that certain of Symbion’s directors and executive officers have interests in the transaction that are different from, and/or in addition to, the interests of Symbion’s stockholders generally. The special committee and Symbion’s board of directors were aware of these potential conflicts of interest and considered them, among other matters, in reaching their decisions and recommendations with respect to the merger agreement and related matters.

 

Treatment of Stock, Options and Restricted Stock

 

At the effective time of the merger, each of Symbion’s equity-based compensation or stock plans will terminate and all of Symbion’s equity compensation awards (including awards held by Symbion’s executive officers and directors, unless otherwise agreed by such holder and Parent) will be subject to the following treatment:

 

 

 

Certain equity interests held by the rollover investors may be exchanged for equity interests in Parent at the time of the merger.

 

The table below sets forth, as of July 2, 2007, for each of our directors and executive officers (without taking into account any rollover):

 

 

 

 

 

 

 

Severance Arrangements

 

Each of Richard E. Francis, Jr. and Clifford G. Adlerz is a party to an employment agreement with Symbion. These employment agreements provide that Symbion must pay the employee a severance benefit if we terminate his employment without cause or if the employee terminates his employment upon the occurrence of certain events specified in the agreement, including a change in the control of the Company and our material breach of the agreement that is not cured within 90 days. The severance benefit is generally equal to three times the employee’s highest base salary and the incentive bonus amount that would be paid for the current year as if the performance goals were fully achieved. Severance benefits are payable to the executive in a lump sum within 15 days following the date of termination. The employee is also entitled to continuation of benefits under our benefit programs for the period of time that the employee is eligible under COBRA. If the employee receives severance payments following a change in control that are subject to tax under Section 4999 of the Internal Revenue Code, Symbion or the acquirer are to pay additional amounts to offset the effect of such taxes on the employee. However, Messrs. Francis and Adlerz have agreed to waive their severance rights in relation to this transaction under terms of the new employment agreements they entered into with Merger Sub that are described under the heading “Employment Agreements” below.

 

Symbion adopted an Executive Change in Control Severance Plan in December 1997, which currently provides for severance benefits for certain senior level employees. Eligible individuals are those identified in the severance plan and whose employment is terminated in connection with a change in the control of Symbion, as defined in the severance plan, and who are not offered employment by Symbion or a successor employer that is substantially equivalent to or better than the position held with us immediately prior to the change in control or the position is not maintained for at least 12 months thereafter. The benefits provided are cash compensation equal to the eligible employee’s annual pay or one-half of the eligible employee’s annual pay, as set forth in the severance plan, and participation in medical, life, disability and similar benefit plans that are offered to our active employees or those of its successor for a period of six or 12 months, as provided in the severance plan. The severance plan does not cover individuals who are subject to individual employment agreements that address severance on a change in control. Cash benefits are paid in a single lump sum within 30 days following termination.

 

Management Investment

 

During negotiations between Crestview and the special committee and board of directors, Crestview made it clear that it would not be prepared to pay the proposed merger price or proceed with any transaction unless it was able to negotiate satisfactory post-closing employment arrangements with Richard E. Francis, Jr. and Clifford G. Adlerz. Pursuant to their employment agreements with Merger Sub (described below), Mr. Francis and Mr. Adlerz agreed to invest in Parent.

 

Mr. Francis is expected to invest approximately $4.7 million (which, at the time the merger is completed, is expected to be approximately 1.8% of the outstanding capital stock of Parent, as compared to the approximately 3.7% ownership interest in Symbion currently held by Mr. Francis (giving effect in each case to exercisable options)).

 

Mr. Adlerz is expected to invest approximately $2.75 million (which, at the time the merger is completed, is expected to be approximately 1.1% of the outstanding capital stock of Parent, as compared to the approximately 2.2% ownership interest in Symbion currently held by Mr. Adlerz (giving effect in each case to exercisable options)).

 

In addition to the expected investments of Messrs. Francis and Adlerz, certain other Symbion executives and employees will be offered the opportunity to exchange their Symbion stock options and/or shares of Symbion common stock for Parent stock options and/or other Parent equity. Kenneth C. Mitchell, Symbion’s Chief Financial Officer and Senior Vice President of Finance, and R. Dale Kennedy, Symbion’s Senior Vice President of Management Services and Secretary, will be offered the opportunity to exchange Symbion equity for up to 0.7% and 0.6%, respectively, of the outstanding equity of Parent. Thirty-five non-executive officers and employees with the titles of Vice President, Assistant Vice President, Regional Vice President, Group President and Group Vice President will be offered the opportunity to exchange Symbion equity for an

aggregate of up to approximately 1.2% of the outstanding equity of Parent. The potential outstanding equity in Parent as of the closing of the merger described above includes exercisable options and is based upon an estimated total of $255.0 million of outstanding equity of Parent as of the closing of the merger. We do not yet know whether individuals other than Messrs. Francis and Adlerz will elect to exchange their equity interests or be cashed out (whether in full or in part).

 

New Equity Incentive Plan

 

In connection with the consummation of the merger, Parent will adopt a new equity incentive plan pursuant to which certain employees will receive non-qualified stock options. Each initial option grant will have an exercise price equal to the fair market value paid for the underlying share of common stock by Crestview in connection with the consummation of the merger. This new equity incentive plan will permit the grant of awards covering 11.25% of the fully diluted equity of Parent immediately after consummation of the merger. All of these awards will be subject to vesting, with a portion of the awards vesting solely based on continued employment over a specific period of time and other portions vesting based upon a combination of both continued employment over a specific period of time and upon the achievement of various pre-established rates of return. In addition, the plan provides for accelerated vesting in the event of a change in control. A change in control is deemed to have occurred in the event that any person, entity or group other than Crestview and its related funds holds (other than pursuant to a registered initial public offering) Company stock representing at least 50% of the combined voting power of all outstanding Company equity securities.

 

The size of the individual awards under the plan to executive officers and other plan participants has not been determined at this time. It is expected that the size of such awards will generally be customary and will vary depending on the participant’s responsibilities with and potential contributions to Parent.

 

Employment Agreements

 

Messrs. Francis and Adlerz have entered into new employment agreements with Merger Sub which will become effective upon the consummation of the merger and will supersede their existing employment agreements with Symbion. Under these new agreements, Mr. Francis will continue to serve as Symbion’s Chairman and Chief Executive Officer, and Mr. Adlerz will continue to serve as Symbion’s President and Chief Operating Officer. In addition, Merger Sub will seek the election of Messrs. Francis and Adlerz to Symbion’s board of directors. These employment agreements will provide for base salaries for Messrs. Francis and Adlerz to continue at the current rates for 2007 and, for 2008, to increase to $525,000 for Mr. Francis and $375,000 for Mr. Adlerz. The employment agreements will also provide for an incentive bonus payment upon achievement of goals set by Merger Sub’s Compensation Committee and entitle the executives to participate in certain employee benefit programs and equity incentive plans. In addition, the employment agreements will provide that Messrs. Francis and Adlerz will invest approximately $4.7 million and $2.75 million, respectively, in Parent through the purchase of Parent equity. For further information on management investment in Parent in connection with the merger, see “Management Investment” above.

 

The initial term of each of the employment agreements will be three years, which is automatically extended so that the term will be three years until terminated. Merger Sub will be able to terminate each employment agreement for cause, including (but not limited to) the executive’s conviction of a felony and gross negligence or internal misconduct in the performance of executive’s duties to the extent it causes demonstrable harm to Merger Sub. In addition, either party would be able to terminate the employment agreement at any time by giving prior written notice to the other party. However, Merger Sub would be obligated to pay the executive a severance benefit if it terminated the executive’s employment without cause or if the executive terminated his employment upon the occurrence of certain events specified in the agreement, including (but not limited to) a change in the control of Merger Sub or Merger Sub’s material breach of the agreement which is not cured promptly. The severance benefit will generally be equal to three times the executive’s highest base salary and the incentive bonus amount that would be paid for the current year as if the incentive bonus performance goals were fully achieved. Severance benefits will be payable to the executive in a lump sum within 15 days following the date of termination. Upon a termination of employment as a result of the executive’s disability, Merger Sub will pay the executive 75% of his base salary then in effect

until the earlier of 36 months or the executive’s death. The executive will also be entitled to continuation of benefits under Merger Sub’s benefit programs for the period of time that the executive is eligible under COBRA. If the executive receives severance payments following a change in control of Symbion (see “New Equity Incentive Plan” above) that are subject to tax under Section 4999 of the Internal Revenue Code, Merger Sub will pay additional amounts to offset the effect of such taxes on the executive. Each of the employment agreements will also include a covenant not to compete in which the executive agrees that, during the term of the employment agreement and for a period of one year thereafter, he will not own or work for any other company that is predominantly engaged in the ownership and management of surgery centers.

 

In the event that the merger agreement is terminated, these employment agreements with Merger Sub will terminate, and the existing employment agreements of Messrs. Francis and Adlerz with Symbion will continue to be in full force and effect.

 

Indemnification and Insurance

 

Pursuant to the terms of the merger agreement, Parent has agreed:

 

 

 

 

These obligations will be binding upon any successor to or assignee of substantially all of the properties and assets of the surviving corporation. See “The Merger Agreement — Directors’ and Officers’ Indemnification and Insurance” beginning on page 65.

 

Special Committee

 

If the merger is completed, members of the special committee will, along with other stock, restricted stock and option holders, receive cash payments for shares of Symbion common stock, shares of restricted stock and vested in-the-money options as described on page 55 below under the heading “The Merger Agreement — Treatment of Options and Restricted Stock.” As members of the Symbion board of directors, members of the special committee will also benefit from the indemnification and insurance provisions contained in the merger agreement with respect to their acts or omissions as directors as described above under the heading “— Indemnification and Insurance.” Each member of the special committee is entitled to receive a fee equal to $10,000 per month until the transaction closes plus $1,000 for each meeting of the special committee for such member’s service on the special committee and will be reimbursed for any out-of-pocket expenses incurred in connection with such service. Each member of the special committee has received, or will be entitled to receive, approximately $39,936 in fees for services through June 30, 2007. David M. Wilds will receive an additional $25,000 for his service as chairman of the special committee.

 

Symbion entered into a rights agreement, dated as of February 6, 2004, with Computershare Trust Company, N.A., as successor to SunTrust Bank, as rights agent, which contains certain restrictions on Symbion’s ability to merge or consolidate with any other entity. On April 24, 2007, immediately prior to the execution of the merger agreement, Symbion and the rights agent entered into an amendment to the rights agreement which provides that neither the execution of the merger agreement nor the consummation of the merger will trigger the provisions of the rights agreement. In particular, the amendment to the rights agreement provides that neither Parent, Merger Sub nor any of their affiliates or associates will be deemed to be an acquiring person (as defined in the rights agreement) solely by virtue of the approval, execution, delivery and adoption or performance of the merger agreement or the consummation of the merger or any other transactions contemplated by the merger agreement.

 

The following is a discussion of the material United States federal income tax consequences of the merger to U.S. holders (as defined below). This discussion is based on the Internal Revenue Code of 1986, as amended (the “Code”), applicable Treasury regulations, administrative interpretations and court decisions as in effect as of the date of this proxy statement/prospectus, all of which may change, possibly with retroactive effect. This discussion assumes that the merger will be completed in accordance with the terms of the merger agreement. No ruling has been or will be sought from the Internal Revenue Service (“IRS”) as to the United States federal income tax consequences of the merger, and the following summary is not binding on the IRS or the courts. As a result, the IRS could adopt a contrary position, and such a contrary position could be sustained by a court.

 

For purposes of this discussion, a “U.S. holder” is a beneficial owner of a share of Symbion common stock that is for United States Federal income tax purposes:

 

 

This discussion only addresses U.S. holders who hold shares of Symbion common stock as capital assets within the meaning of Section 1221 of the Code.

 

This discussion does not purport to be a complete analysis of all potential tax effects of the merger, and, in particular, does not address United States federal income tax considerations applicable to shareholders subject to special treatment under United States federal income tax law (including, for example, non-U.S. holders, brokers or dealers in securities, financial institutions, mutual funds, insurance companies, tax-exempt entities, holders who hold Symbion common stock as part of a hedge, appreciated financial position, straddle, conversion transaction or other risk reduction strategy, holders who acquired Symbion common stock pursuant to the exercise of an employee stock option or right or otherwise as compensation, holders exercising appraisal rights, holders that are partnerships or other pass-through entities or investors in partnerships or other pass-through entities and U.S. holders liable for the alternative minimum tax). In addition, this discussion does not address the tax consequences of transactions effectuated prior to or after the merger (whether or not such transactions occur in connection with the merger), including, without limitation, any exercise of an option or the acquisition or disposition of shares of Symbion common stock other than pursuant to the merger. Also, this discussion does not address United States federal income tax considerations applicable to holders of options or warrants to purchase Symbion common stock, or holders of debt instruments convertible into Symbion common stock. No information is provided herein with respect to the tax consequences of the merger under

applicable state, local or foreign laws, or under any proposed Treasury regulations that have not taken effect as of the date of this proxy statement/prospectus.

 

The receipt of cash for Symbion common stock pursuant to the merger will be a taxable transaction for United States federal income tax purposes. In general, a U.S. holder who receives cash in exchange for shares pursuant to the merger will recognize gain or loss for United States federal income tax purposes equal to the difference, if any, between the amount of cash received and the U.S. holder’s adjusted tax basis in the shares surrendered for cash pursuant to the merger. Gain or loss will be determined separately for each block of shares (i.e., shares acquired at the same price per share in a single transaction) surrendered for cash pursuant to the merger. Such gain or loss will be capital gain or loss, and will be long-term capital gain or loss if the U.S. holder’s holding period for such shares is more than one year at the time of consummation of the merger. The maximum federal income tax rate on net long-term capital gain recognized by individuals is 15% under current law. The maximum federal income tax rate on net long-term capital gain realized by a corporation is 35% under current law. Capital losses are subject to limitations on deductibility for both corporations and individuals.

 

In general, holders who exercise appraisal rights will also recognize gain or loss. Any holder considering exercising appraisal rights should consult its own tax advisor.

 

Information returns will be filed with the IRS in connection with cash payments made pursuant to the merger. Backup withholding at a 28% rate may apply to cash payments a U.S. holder receives pursuant to the merger. Backup withholding generally will apply only if the U.S. holder fails to furnish a correct taxpayer identification number or otherwise fails to comply with applicable backup withholding rules and certification requirements. Each U.S. holder should complete and sign the substitute Form W-9 that will be part of the letter of transmittal to be returned to the paying agent in order to provide the information and certification necessary to avoid backup withholding, unless an applicable exemption exists and is otherwise proved in a manner acceptable to the paying agent. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be allowable as a refund or credit against a U.S. holder’s United States federal income tax liability provided the required information is furnished to the IRS in a timely manner. The IRS may impose a penalty upon any taxpayer that fails to provide the correct taxpayer identification number.

 

The United States federal income tax consequences set forth above are not intended to constitute a complete description of all tax consequences relating to the merger. Because individual circumstances may differ, each U.S. holder of shares is urged to consult its tax advisor as to the particular tax consequences to such beneficial holder of the merger, including the application and effect of state, local, foreign and other tax laws.

 

The HSR Act provides that transactions such as the merger may not be completed until certain information has been submitted to the FTC and DOJ and specified waiting period requirements have been satisfied. On May 8, 2007, Symbion, Parent and Merger Sub made the required filings, and the FTC granted early termination of the applicable waiting period on May 18, 2007.

 

At any time before or after consummation of the merger, the FTC and DOJ may, however, challenge the merger on antitrust grounds. Private parties could take antitrust action under the antitrust laws, including seeking an injunction prohibiting or delaying the merger, divestiture or damages under certain circumstances. Additionally, at any time before or after consummation of the merger, notwithstanding the termination of the applicable waiting period, any state could take action under its antitrust laws as it deems necessary or desirable in the public interest. There can be no assurance that a challenge to the merger will not be made or that, if a challenge is made, Symbion and Merger Sub will prevail.

 

Under the merger agreement, Symbion, Parent and Merger Sub have agreed to use their reasonable best efforts to obtain all required governmental approvals in connection with the completion of the merger. In addition, Symbion, Parent and Merger Sub have agreed to use their reasonable best efforts to resolve any objections or suits asserted by the FTC or DOJ or any other applicable governmental agency.

 

Except as noted above, and the filing of a certificate of merger in Delaware at or before the effective date of the merger, we are unaware of any material federal, state or foreign regulatory requirements or approvals required for the execution of the merger agreement or completion of the merger.

 

Under the merger agreement, it is a condition to closing the merger that certain state notices, applications, approvals, consents or determination letters agreed to by the parties and contemplated in connection with the change in control of any of Symbion’s facilities shall have been made or obtained except to the extent such facilities for which state notice, application, approval, consent or determination letters have not been made or obtained represent less than 4.5% of the aggregate three-month EBITDA (less minority interest expense) for all such facilities. In addition, though not a condition to the consummation of the merger, federal and state laws and regulations may require that Symbion or Parent obtain other approvals or certificates of need from, file new license and/or permit applications with, and/or provide notice to, applicable governmental authorities in connection with the merger.

 

Symbion is aware of two lawsuits filed in connection with the proposed merger. On May 17, 2007, C. Steadman Morris, III filed a class action petition in the Circuit Court for Davidson County, Tennessee against Symbion and all of the directors of Symbion. On May 29, 2007, the plaintiff filed to have the lawsuit voluntarily dismissed without prejudice, and an order of dismissal was granted on June 5, 2007.

 

On May 30, 2007, Tracy Swiderski filed a class action petition, referred to as the Swiderski petition, in the Chancery Court for Davidson County, Tennessee against Symbion and all of the directors of Symbion. The Swiderski petition alleges, among other things, that the Symbion directors breached their fiduciary duties to Symbion’s stockholders in approving the merger agreement and that the Symbion directors engaged in self-dealing. The Swiderski petition seeks, among other things, class certification and an injunction preventing the proposed merger, and a declaration that the directors breached their fiduciary duties. On July 5, 2007, Symbion and the directors of Symbion filed a motion to dismiss the Swiderski petition.

 

Symbion believes that the active lawsuit is without merit and plans to defend it vigorously. Additional lawsuits pertaining to the proposed merger could be filed in the future.

 

The merger agreement provides that Symbion and Parent shall share equally all printing and mailing costs and SEC filing fees in connection with the preparation of this proxy statement and the Schedule 13E-3 related to the transactions contemplated by the merger agreement. Symbion estimates that it will incur, and will be responsible for paying, transaction-related fees and expenses, consisting primarily of financial advisory fees, SEC filing fees, HSR Act filing fees, fees and expenses of attorneys and accountants and other related charges, totaling approximately $33.0 million. This amount consists of the following estimated fees and expenses (in millions):

 

 

In addition, if the merger agreement is terminated under certain circumstances, Symbion will be obligated to pay a termination fee of $12.5 million to Crestview (if Symbion had accepted an acquisition proposal made prior to the termination of the go-shop period, the termination fee could have been $5 million rather than

$12.5 million, depending on the circumstances and timing of the termination). Under certain circumstances, Symbion may, in each case, be required to pay up to $3 million of Parent’s expenses in the event that the merger agreement is terminated. See “The Merger Agreement — Fees and Expenses” beginning on page 64.

 

Symbion does not, as a matter of course, publicly disclose projections of future revenues or earnings other than periodic earnings guidance. However, senior management of Symbion did provide its 2007 budget, which was approved by the board of directors on December 12, 2006 in accordance with past practice, to Crestview and its financial advisor, Merrill Lynch, and responded to questions regarding the budget, development plans and other matters. Senior management also provided its 2007 budget to Bear Stearns, financial advisor to the special committee. Senior management discussed with Bear Stearns financial projections as well as the operating assumptions and methodologies used to create the projections. These projections were provided to the special committee and the board of directors in connection with their assessment of the Crestview offer. We have included the principal line items of the projected financial information used by our special committee and board of directors for purposes of considering and evaluating the merger. The Symbion projections were not prepared with a view toward public disclosure or to compliance with published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. The inclusion of this information should not be regarded as an indication that Crestview, the special committee or board of directors, Bear Stearns or any other recipient of this information considered, or now considers, it to be a reliable prediction of future results.

 

The Symbion projections included in this proxy statement have been prepared by, and are the responsibility of, Symbion’s management. Symbion’s independent public registered accounting firm has not examined or compiled any of the Symbion projections, expressed any conclusion or provided any form of assurance with respect to the Symbion projections and, accordingly, assumes no responsibility for them. In compiling the Symbion projections, Symbion’s management took into account historical performance, combined with estimates regarding revenues, EBITDA and capital spending. The Symbion projections were developed in a manner consistent with management’s historical development of budgets and were not developed for public disclosure. Although the Symbion projections are presented with numerical specificity, these projections reflect numerous assumptions and estimates as to future events that Symbion’s management believed were reasonable at the time the projections were prepared. In addition, factors such as industry performance and general business, economic, regulatory, market and financial conditions, all of which are difficult to predict and beyond the control of Symbion’s management, may cause the projections or the underlying assumptions to be inaccurate. Accordingly, there can be no assurance that the Symbion projections will be realized, and actual results may be materially greater or less than those contained in the projections.

Symbion does not intend to update or otherwise revise the Symbion projections to reflect circumstances existing after the date when made or to reflect the occurrence of future events even in the event that any or all of the assumptions underlying the projections are shown to be in error. A summary of the Symbion projections is set forth below (dollars in millions):

 

 

 

 

 

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The base case also assumes that the Company exits its remaining physician practice management contracts at the end of 2008 and exercises buy-up options for majority ownership stakes in two facilities in 2010 and one facility in 2011 at contractual multiples ranging from 6.75 to 7.50x EBITDA.

 

 

 

 

Senior management of Symbion did not provide Crestview with any projections of future revenues or earnings. However, the 2007 budget was provided to Crestview and its financial advisor, Merrill Lynch, by senior management. With Merrill Lynch’s assistance, Crestview created its own financial projections for the Company reflecting Crestview’s own views of the Company’s prospects. As Crestview developed its model, it reviewed the assumptions underlying these projections with senior management which we have summarized below.

 

 

 

 

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