<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 4, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
MEDPARTNERS, INC.
(Exact Name of Registrant as Specified in its Charter)
---------------------
<TABLE>
<S> <C> <C>
DELAWARE 8099 63-1151076
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
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3000 GALLERIA TOWER, SUITE 1000, BIRMINGHAM, ALABAMA 35244-2331
(205) 733-8996
(Address, including Zip Code, and Telephone Number, including Area Code, of
Registrant's Principal Executive Offices)
LARRY R. HOUSE
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
MEDPARTNERS, INC.
3000 GALLERIA TOWER, SUITE 1000
BIRMINGHAM, ALABAMA 35244-2331
(205) 733-8996
(Name, Address, including Zip Code, and Telephone Number, including Area Code,
of Agent for Service)
COPIES TO:
<TABLE>
<C> <C> <C>
WILLIAM N. DYE, ESQ. J. BROOKE JOHNSTON, JR., ESQ. ROBERT E. LEE GARNER, ESQ.
WILLKIE FARR & GALLAGHER SENIOR VICE PRESIDENT AND GENERAL COUNSEL F. HAMPTON MCFADDEN, JR., ESQ.
ONE CITICORP CENTER MEDPARTNERS, INC. HASKELL SLAUGHTER & YOUNG,
153 EAST 53RD STREET 3000 GALLERIA TOWER, SUITE 1000 L.L.C.
NEW YORK, NEW YORK 10022 BIRMINGHAM, ALABAMA 35244-2331 1200 AMSOUTH/HARBERT PLAZA
(212) 821-8000 (205) 733-8996 1901 SIXTH AVENUE NORTH
BIRMINGHAM, ALABAMA 35203
(205) 251-1000
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: At the
Effective Time of the Merger of a wholly-owned subsidiary of the Registrant,
Seabird Merger Corporation (the "Subsidiary"), with InPhyNet Medical Management
Inc. ("InPhyNet").
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
========================================================================================================================
TITLE OF EACH PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) PER UNIT(1) OFFERING PRICE FEES
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.001 per
share (including the Common Stock
Purchase Rights)................. 22,287,000 shares Inapplicable $476,000,000(2) $144,242.42(3)
========================================================================================================================
</TABLE>
(1) The number of shares of Common Stock, par value $.001 per share (the
"MedPartners Common Stock"), of MedPartners to be registered has been
determined based upon 17,000,000 shares of Common Stock, par value $0.01
per share (the "InPhyNet Common Stock"), of InPhyNet and an exchange ratio
of 1.311 shares of MedPartners Common Stock per share of InPhyNet Common
Stock as provided for in the Plan and Agreement of Merger, dated as of
January 20, 1997, by and among MedPartners, the Subsidiary and InPhyNet
(the "Plan of Merger").
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1) of the Securities Act of 1933, as amended (the
"Securities Act"). Pursuant to Rule 457(f)(1), the maximum aggregate
offering price is the product of (a) $28.00 representing the average of the
high and low sale prices of the InPhyNet Common Stock as reported on the
Nasdaq National Market on March 31, 1997, and (b) 17,000,000 , the number
of shares of InPhyNet Common Stock anticipated to be acquired by
MedPartners in connection with the acquisition of InPhyNet pursuant to the
Plan of Merger.
(3) The registration fee for the securities registered hereby is $144,242.42,
calculated pursuant to Section 6(b) of the Securities Act and Rule 457(f)
promulgated thereunder. Of such registration fee, $77,249.04 was paid in
connection with the filing of the preliminary proxy materials relating to
the transactions described herein.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INPHYNET MEDICAL MANAGEMENT INC.
1200 SOUTH PINE ISLAND ROAD, SUITE 600
FORT LAUDERDALE, FLORIDA 33324
APRIL , 1997
Dear Stockholder:
You are cordially invited to attend the special meeting of the stockholders
(the "Special Meeting") of InPhyNet Medical Management Inc., a Delaware
corporation ("InPhyNet"), to be held on May , 1997 at a.m., local time,
at .
The Special Meeting has been called for you to consider and vote on a
proposal to approve and adopt the Agreement and Plan of Merger, dated as of
January 20, 1997 (the "Plan of Merger"), among MedPartners, Inc., a Delaware
corporation ("MedPartners"), Seabird Merger Corporation, a Delaware corporation
and newly formed, wholly owned subsidiary of MedPartners (the "Subsidiary"), and
InPhyNet. The Plan of Merger provides for, among other things, (i) the merger of
InPhyNet with and into the Subsidiary (the "Merger") and (ii) the conversion of
each outstanding share of common stock, par value $.01 per share (the "InPhyNet
Common Stock"), of InPhyNet into the right to receive 1.311 (the "Exchange
Ratio") shares of MedPartners common stock, par value $.001 per share, as
described in the accompanying Prospectus-Proxy Statement. Approval of the Plan
of Merger and the Merger requires the affirmative vote of a majority of the
outstanding shares of InPhyNet Common Stock.
ADDITIONAL INFORMATION REGARDING THE MERGER AND THE PLAN OF MERGER IS SET
FORTH IN THE ACCOMPANYING PROSPECTUS-PROXY STATEMENT AND THE ANNEXES THERETO,
WHICH YOU ARE URGED TO READ CAREFULLY IN THEIR ENTIRETY.
The Board of Directors of InPhyNet has carefully considered the terms and
conditions of the proposed Merger and has received the written opinion of its
financial advisor, Morgan Stanley & Co. Incorporated ("Morgan Stanley"), to the
effect that the Exchange Ratio is fair, from a financial point of view, to the
stockholders of InPhyNet. A copy of Morgan Stanley's written opinion, which sets
forth a description of the assumptions made, matters considered and limits of
its review, is attached to the accompanying Prospectus-Proxy Statement as Annex
B. Stockholders of InPhyNet are urged to read carefully such opinion in its
entirety.
THE BOARD OF DIRECTORS HAS DETERMINED THAT THE TERMS OF THE PLAN OF MERGER
AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE FAIR TO, AND IN THE BEST INTERESTS
OF, INPHYNET AND THE STOCKHOLDERS OF INPHYNET. ACCORDINGLY, THE BOARD OF
DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS OF INPHYNET VOTE "FOR" THE APPROVAL
AND ADOPTION OF THE PLAN OF MERGER.
In view of the importance of the action to be taken at the Special Meeting,
we urge you to review carefully the accompanying Notice of Special Meeting of
Stockholders and the Prospectus-Proxy Statement, including the annexes thereto,
which include information with respect to MedPartners and InPhyNet. To assure
your representation at the Special Meeting, please complete, sign and date the
enclosed proxy in the enclosed postage-prepaid envelope and return it as
promptly as possible.
Sincerely,
Clifford Findeiss, M.D.
Chairman, President and
Chief Executive Officer
<PAGE> 3
INPHYNET MEDICAL MANAGEMENT INC.
1200 SOUTH PINE ISLAND ROAD, SUITE 600
FORT LAUDERDALE, FLORIDA 33324
---------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY , 1997
---------------------
To the Stockholders of InPhyNet Medical Management Inc.:
NOTICE IS HEREBY GIVEN that a special meeting of the stockholders (the
"Special Meeting") of InPhyNet Medical Management Inc., a Delaware corporation
("InPhyNet"), will be held on May , 1997 at a.m., local time, at
, for the following purposes:
(1) to consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of January 20, 1997 (the "Plan of
Merger"), among MedPartners, Inc., a Delaware corporation ("MedPartners"),
Seabird Merger Corporation, a Delaware corporation and newly formed, wholly
owned subsidiary of MedPartners (the "Subsidiary"), and InPhyNet. Pursuant
to the Plan of Merger, at the Effective Time (as defined herein): (i)
InPhyNet will merge with and into the Subsidiary and (ii) each outstanding
share of InPhyNet common stock, par value $.01 per share, will be converted
into the right to receive 1.311 shares of MedPartners common stock, par
value $.001 per share, as more fully set forth in the Plan of Merger and
described in the attached Prospectus-Proxy Statement;
(2) to authorize the Board of Directors of InPhyNet to adjourn or
postpone the Special Meeting to permit the further solicitation of proxies,
if necessary; and
(3) to transact any other business as may properly come before the
Special Meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on April 3, 1997
(the "Record Date") as the record date for the Special Meeting. Accordingly,
only those stockholders of record at the close of business on the Record Date
will be entitled to notice of, and to vote at, the Special Meeting or any
adjournment or postponement thereof.
THE BOARD OF DIRECTORS OF INPHYNET RECOMMENDS THAT ITS STOCKHOLDERS VOTE
"FOR" THE APPROVAL AND ADOPTION OF THE PLAN OF MERGER.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING.
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE AS SOON AS POSSIBLE, WHETHER OR NOT YOU PLAN TO BE
PRESENT AT THE SPECIAL MEETING. PLEASE DO NOT SEND ANY CERTIFICATES FOR YOUR
INPHYNET COMMON STOCK AT THIS TIME. FOLLOWING CONSUMMATION OF THE MERGER, YOU
WILL RECEIVE INSTRUCTIONS REGARDING THE SURRENDER OF YOUR STOCK CERTIFICATES AND
RECEIPT OF PAYMENT FOR YOUR SHARES.
By Order of the Board of Directors
George W. McCleary, Jr.
Secretary
Fort Lauderdale, Florida
April , 1997
<PAGE> 4
PROSPECTUS-PROXY STATEMENT
PROXY STATEMENT
OF
INPHYNET MEDICAL MANAGEMENT INC.
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY , 1997
PROSPECTUS
OF
MEDPARTNERS, INC.
THIS PROSPECTUS-PROXY STATEMENT RELATES TO UP TO 22,287,000 SHARES OF THE
COMMON STOCK, PAR VALUE $.001 PER SHARE (THE "MEDPARTNERS COMMON STOCK"),
TOGETHER WITH THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS, OF MEDPARTNERS,
INC., A DELAWARE CORPORATION (TOGETHER WITH ITS SUBSIDIARIES, "MEDPARTNERS"),
ISSUABLE TO THE STOCKHOLDERS OF INPHYNET MEDICAL MANAGEMENT INC., A DELAWARE
CORPORATION (TOGETHER WITH ITS SUBSIDIARIES, "INPHYNET"), UPON CONSUMMATION OF
THE MERGER (AS DEFINED BELOW) AS CONSIDERATION FOR THE MERGER (THE "MERGER
CONSIDERATION"). SUCH NUMBER OF SHARES REPRESENTS THE MAXIMUM ANTICIPATED NUMBER
OF SHARES THAT WILL BE ISSUED IN THE MERGER. THIS PROSPECTUS-PROXY STATEMENT
ALSO SERVES AS THE PROXY STATEMENT OF INPHYNET FOR ITS SPECIAL MEETING OF
STOCKHOLDERS TO BE HELD ON MAY , 1997, AND ANY ADJOURNMENTS AND POSTPONEMENTS
THEREOF (THE "SPECIAL MEETING"). SEE "THE SPECIAL MEETING".
This Prospectus-Proxy Statement describes the terms of the proposed
acquisition by MedPartners of InPhyNet by means of the merger (the "Merger") of
InPhyNet with and into Seabird Merger Corporation, a Delaware corporation and
newly formed, wholly owned subsidiary of MedPartners (the "Subsidiary"), with
the Subsidiary being the surviving corporation. At the Special Meeting, the
stockholders of InPhyNet will be asked to approve and adopt the Plan of Merger
(as defined below), which approval and adoption will also constitute approval of
the transactions contemplated thereby, including the Merger. The Merger will be
effected pursuant to the terms, and subject to the conditions, of the Agreement
and Plan of Merger, dated as of January 20, 1997 (the "Plan of Merger"), among
MedPartners, the Subsidiary and InPhyNet. The Plan of Merger is attached to this
Prospectus-Proxy Statement as Annex A and is incorporated herein by reference.
Upon consummation of the Merger, each issued and outstanding share of
common stock, par value $.01 per share, of InPhyNet (the "InPhyNet Common Stock"
and, together with the associated preferred stock purchase rights, sometimes,
collectively, referred to herein as the "InPhyNet Shares") will automatically be
converted into the right to receive 1.311 (the "Exchange Ratio") shares of
MedPartners Common Stock. Cash will be paid (without interest) in lieu of
fractional shares of MedPartners Common Stock. For a more complete description
of the terms of the Merger, see "The Merger".
On April , 1997, the closing price of MedPartners Common Stock on the New
York Stock Exchange was $ . At such price, the equivalent value of a
share of InPhyNet Common Stock would be $ , calculated on the basis of
the Exchange Ratio (the "Equivalent Value"), and the aggregate value of the
Merger Consideration would be approximately $ . The actual market price
of the MedPartners Common Stock is subject to fluctuation and could be more or
less than the market price of the MedPartners Common Stock on the date of this
Prospectus-Proxy Statement or the date of the Special Meeting. Any such change
will cause a corresponding change in the Equivalent Value and the aggregate
value of the Merger Consideration. Each InPhyNet stockholder is urged to obtain
updated market information.
All information contained or incorporated by reference herein with respect
to MedPartners and the Subsidiary has been furnished by MedPartners, and all
information contained or incorporated by reference herein with respect to
InPhyNet has been furnished by InPhyNet. See "Available Information".
This Prospectus-Proxy Statement and the form of Proxy are first being
mailed to stockholders of InPhyNet on or about April , 1997.
SEE "RISK FACTORS" AT PAGE 11 FOR A DISCUSSION OF CERTAIN RISK FACTORS
RELATED TO THE MERGER AND TO MEDPARTNERS.
THE SECURITIES TO BE ISSUED HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS-PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
The date of this Prospectus-Proxy Statement is April , 1997.
<PAGE> 5
AVAILABLE INFORMATION
MedPartners has filed a Registration Statement (the "Registration
Statement") on Form S-4 under the Securities Act of 1933, as amended (the
"Securities Act"), with the Securities and Exchange Commission (the "SEC")
covering the shares of MedPartners Common Stock to be issued in connection with
the Merger. This Prospectus-Proxy Statement does not contain all the information
set forth in the Registration Statement which MedPartners has filed with the
SEC. Certain portions have been omitted pursuant to the rules and regulations of
the SEC, and reference is hereby made to such portions for further information
with respect to MedPartners, InPhyNet and the MedPartners Common Stock to be
issued in the Merger. Statements contained herein concerning certain documents
are not necessarily complete, and in each instance, reference is made to the
copies of such documents filed as exhibits to the Registration Statement or
incorporated by reference. Each such statement is qualified in its entirety by
such reference.
MedPartners and InPhyNet are subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (SEC File Nos.
0-27276 and 0-24336, respectively), and in accordance therewith, file periodic
reports, proxy statements and other information with the SEC relating to their
respective businesses, financial statements and other matters. The Registration
Statement, as well as such reports, proxy statements and other information, may
be inspected and copied at prescribed rates at the public reference facilities
maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549 and the regional offices of the SEC located at 7 World
Trade Center, Suite 1300, New York, New York 10048 and at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained at prescribed rates by writing to the SEC, Public
Reference Section, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549. The SEC also maintains a Web site that contains reports, proxy statements
and other information regarding registrants that file electronically with the
SEC. The address of such site is http://www.sec.gov. The MedPartners Common
Stock is listed on The New York Stock Exchange (the "NYSE"). The Registration
Statement, reports, proxy statements and certain other information with respect
to MedPartners can be inspected at the office of the NYSE, 20 Broad Street, New
York, New York 10005. The InPhyNet Common Stock is listed on the Nasdaq National
Market, and the Registration Statement, reports, proxy statements and certain
other information with respect to InPhyNet may be inspected at the offices of
Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006 or obtained by
calling the Nasdaq Public Reference Room Disclosure Group at (800) 638-8241.
FORWARD-LOOKING STATEMENTS
This Prospectus-Proxy Statement, as well as certain information
incorporated herein by reference, contain and incorporate certain
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 with respect to the financial condition, results
of operations and business of MedPartners and InPhyNet. Statements in this
document and in documents incorporated herein by reference that are not
historical facts are hereby identified as "forward-looking statements" for the
purpose of the safe harbor provided by Section 21E of the Exchange Act and
Section 27A of the Securities Act. MedPartners cautions readers that such
"forward-looking statements", including without limitation, those relating to
MedPartners' and InPhyNet's future business prospects, revenues, working
capital, liquidity, capital needs, interest costs and income, wherever they
occur in this document or in other statements attributable to MedPartners and
InPhyNet, are necessarily estimates reflecting the best judgment of MedPartners'
and InPhyNet's senior management and involve a number of risks and uncertainties
that could cause actual results to differ materially from those suggested by the
"forward-looking statements". Such "forward-looking statements" should,
therefore, be considered in light of various important factors, including those
set forth in this Prospectus-Proxy Statement and in documents incorporated
herein by reference. Other factors set forth from time to time in MedPartners'
and InPhyNet's reports and registration statements filed with the SEC should
also be considered.
The words "estimate", "project", "intend", "expect" and similar expressions
are intended to identify forward-looking statements. These "forward-looking
statements" are found at various places throughout this document and any other
documents incorporated herein by reference including, but not limited to,
MedPartners' and InPhyNet's Annual Reports on Form 10-K (including any
amendments thereto).
i
<PAGE> 6
Additionally, the discussions therein under the captions
"Business -- Acquisition Program", "Business -- Industry",
"Business -- Strategy", "Business -- Operations", "Business -- Government
Regulation", "Corporate Liability and Insurance", "Legal Proceedings" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" are susceptible to the risks and uncertainties discussed herein that
could cause actual results to differ materially from those contemplated in such
forward looking statements. For a discussion of such risks, see "Risk Factors".
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof or thereof. Neither
MedPartners nor InPhyNet undertakes any obligation to publicly release any
revisions to these forward-looking statements to reflect events or circumstances
after the date hereof or thereof or to reflect the occurrence of unanticipated
events. Moreover, MedPartners and InPhyNet, through senior management, may from
time to time make "forward-looking statements" about the matters described
herein or other matters concerning MedPartners and InPhyNet.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents are hereby incorporated by reference in this
Prospectus-Proxy Statement, all of which were previously filed by MedPartners
with the SEC:
1. MedPartners' Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.
2. MedPartners' Current Report on Form 8-K filed on January 27, 1997
(reporting the Plan of Merger with InPhyNet and setting forth certain pro forma
financial information for the combined companies).
3. The description of the MedPartners Common Stock contained in
MedPartners' Registration Statement filed with the SEC on Form 8-B under the
Exchange Act and declared effective on November 29, 1995, including any
amendment or reports filed for the purpose of updating such description.
The following documents are hereby incorporated by reference into this
Prospectus-Proxy Statement, all of which were previously filed by InPhyNet with
the SEC:
1. InPhyNet's Annual Report on Form 10-K for the fiscal year ended December
31, 1996.
2. InPhyNet's Current Report on Form 8-K filed on January 23, 1997
(reporting the Plan of Merger with MedPartners).
3. The description of the InPhyNet Common Stock contained in InPhyNet's
Registration Statement filed with the SEC on Form 8-A under the Exchange Act on
June 15, 1994 and March 6, 1996, including any amendment or reports filed for
the purpose of updating such description.
Additionally, all documents subsequently filed by MedPartners and InPhyNet,
respectively, pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
after the date of this Prospectus-Proxy Statement and prior to the Effective
Time of the Merger shall be deemed to be incorporated by reference into this
Prospectus-Proxy Statement. Any statement contained in a previously filed
document incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus-Proxy Statement to the extent that a
statement contained herein or in a subsequently filed document modifies or
replaces such statement. Any such statement so modified or superseded shall not
be deemed, except as so modified or replaced, to constitute a part of this
Prospectus-Proxy Statement.
MedPartners and InPhyNet undertake to provide to any person to whom a copy
of this Prospectus-Proxy Statement has been delivered, upon the written or oral
request of any such person, without charge, by first class mail or other equally
prompt means within one business day of receipt of such request, a copy of any
or all of the documents which have been or may be incorporated by reference into
this Prospectus-Proxy Statement, and which relate to such company, other than
exhibits to such documents. Written or oral requests for such copies that relate
to MedPartners should be directed to MedPartners at 3000 Galleria Tower, Suite
1000, Birmingham, Alabama 35244, Attention: Corporate Secretary (telephone (205)
733-8996), and written or oral requests for such copies that relate to InPhyNet
should be directed to InPhyNet at 1200 South Pine Island Road, Suite 600, Fort
Lauderdale, Florida 33324, Attention: Chief Financial Officer (telephone (954)
475-1300).
ii
<PAGE> 7
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS-PROXY STATEMENT, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. NEITHER THE DELIVERY OF THIS PROSPECTUS-PROXY STATEMENT NOR ANY
DISTRIBUTION OF THE SECURITIES TO WHICH THIS PROSPECTUS-PROXY STATEMENT RELATES
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION CONCERNING MEDPARTNERS OR INPHYNET CONTAINED IN THIS
PROSPECTUS-PROXY STATEMENT SINCE THE DATE OF SUCH INFORMATION. THE INFORMATION
CONTAINED HEREIN WITH RESPECT TO MEDPARTNERS AND ITS SUBSIDIARIES HAS BEEN
SUPPLIED BY MEDPARTNERS; THE INFORMATION CONTAINED HEREIN WITH RESPECT TO
INPHYNET AND ITS SUBSIDIARIES HAS BEEN SUPPLIED BY INPHYNET. THIS
PROSPECTUS-PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES OTHER THAN THE SECURITIES
TO WHICH IT RELATES, OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO
PURCHASE, THE SECURITIES OFFERED BY THIS PROSPECTUS-PROXY STATEMENT, OR THE
SOLICITATION OF A PROXY, IN ANY JURISDICTION, TO OR FROM ANY PERSON TO WHOM OR
FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OF AN OFFER OR PROXY
SOLICITATION IN SUCH JURISDICTION.
iii
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
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AVAILABLE INFORMATION....................................... i
FORWARD-LOOKING STATEMENTS.................................. i
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE........... ii
SUMMARY OF PROSPECTUS-PROXY STATEMENT....................... 1
The Companies............................................. 1
MedPartners' Acquisition Program.......................... 2
Recent Developments....................................... 3
Risk Factors.............................................. 3
The Special Meeting....................................... 3
Vote Required............................................. 3
The Merger................................................ 4
Market and Market Prices.................................. 8
Comparative Per Share Information......................... 9
RISK FACTORS................................................ 11
Risks Relating to Integration in connection with
Acquisitions and the Merger............................ 11
Risks Relating to MedPartners' Growth Strategy;
Identification and Integration of Growth
Opportunities.......................................... 11
Risks Relating to Capitated Nature of Revenues; Control of
Healthcare Costs....................................... 13
Risks Relating to Certain Caremark Legal Matters.......... 14
Risks Relating to Exposure to Professional Liability;
Liability Insurance.................................... 15
Government Regulation..................................... 16
Risks Relating to Pharmacy Licensing and Operation........ 18
Risks Relating to Healthcare Reform; Proposed
Legislation............................................ 18
Anti-Takeover Considerations.............................. 18
Possible Volatility of Stock Price; Risks Relating to
Fixed Exchange Ratio................................... 18
Risks Relating to Federal Income Taxes.................... 19
THE SPECIAL MEETING......................................... 20
General................................................... 20
Date, Place and Time...................................... 20
Record Date, Quorum and Voting............................ 20
Vote Required............................................. 20
Voting and Revocation of Proxies.......................... 20
Solicitation of Proxies................................... 21
THE MERGER.................................................. 21
Terms of the Merger....................................... 21
Background of the Merger.................................. 22
Recommendation of the InPhyNet Board of Directors......... 26
Opinion of InPhyNet's Financial Advisor................... 28
Interests of Certain Persons in the Merger................ 32
Effective Time of the Merger.............................. 33
Exchange of Certificates.................................. 33
Conditions to the Merger.................................. 34
Representations and Covenants............................. 35
Regulatory Approvals...................................... 35
Business Pending the Merger............................... 36
Waiver and Amendment...................................... 36
Termination............................................... 37
New York Stock Exchange Listing........................... 37
Resale of MedPartners Common Stock by Affiliates.......... 38
</TABLE>
iv
<PAGE> 9
<TABLE>
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Accounting Treatment...................................... 38
Federal Income Tax Consequences........................... 39
No Solicitation of Transactions........................... 40
Expenses; Breakup Fees.................................... 40
Indemnification........................................... 40
PRO FORMA CONDENSED FINANCIAL INFORMATION (UNAUDITED)....... 41
COMPARISON OF RIGHTS OF INPHYNET STOCKHOLDERS AND
MEDPARTNERS STOCKHOLDERS.................................. 47
Classes and Series of Capital Stock....................... 47
Size and Election of the Board of Directors............... 47
Removal of Directors...................................... 48
Conversion and Dissolution................................ 48
Amendment or Repeal of the Certificate of Incorporation
and By-laws............................................ 49
Special Meetings of Stockholders.......................... 49
Liability of Directors.................................... 50
Stockholder Rights Plan................................... 50
Advance Notice Provisions for Stockholder Proposals and
Stockholder Nominations of Directors................... 50
Action by Written Consent................................. 51
Indemnification of Directors and Officers................. 51
EXPERTS..................................................... 52
INPHYNET STOCKHOLDER PROPOSALS.............................. 53
LEGAL MATTERS............................................... 53
OTHER BUSINESS.............................................. 53
ANNEXES:
A. Agreement and Plan of Merger, dated as of January 20,
1997...................................................... A-1
B. Opinion of Morgan Stanley & Co. Incorporated............. B-1
C. Proxy for Special Meeting of Stockholders of InPhyNet.... C-1
</TABLE>
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SUMMARY OF PROSPECTUS-PROXY STATEMENT
The following is a summary of certain information contained elsewhere in
this Prospectus-Proxy Statement. Certain capitalized terms used in this Summary
are defined elsewhere in this Prospectus-Proxy Statement. Reference is made to,
and this Summary is qualified in its entirety by, the more detailed information
contained in this Prospectus-Proxy Statement and in the Annexes hereto.
THE COMPANIES
MedPartners. MedPartners is the largest physician practice management
("PPM") company in the United States based on annual revenues of approximately
$4.8 billion as of December 31, 1996. MedPartners develops, consolidates and
manages integrated healthcare delivery systems. Through its network of
affiliated group and independent practice association ("IPA") physicians,
MedPartners provides primary and specialty healthcare services to prepaid
managed care enrollees and fee-for-service patients. MedPartners also operates
one of the largest independent prescription benefit management ("PBM") programs
in the United States, with annual revenues of approximately $1.8 billion as of
December 31, 1996, and provides disease management services and therapies for
patients with certain chronic conditions. As of December 31, 1996, MedPartners
operated in 26 states through affiliations with approximately 8,850 physicians,
including approximately 2,600 in group practices, 5,300 through IPA
relationships and 950 who were hospital-based, providing healthcare to
approximately 1.6 million prepaid enrollees.
MedPartners affiliates with physicians who are seeking the resources
necessary to function effectively in healthcare markets that are evolving from
fee-for-service to managed care payor systems. MedPartners enhances clinic
operations by centralizing administrative functions and introducing management
tools, such as clinical guidelines, utilization review and outcomes measurement.
MedPartners provides affiliated physicians with access to capital and advanced
management information systems. In addition, MedPartners contracts with health
maintenance organizations and other third-party payors that compensate
MedPartners and its affiliated physicians on a prepaid basis (collectively,
"HMOs"), as well as hospitals and outside providers on behalf of its affiliated
physicians. These relationships provide physicians with the opportunity to
operate under a variety of payor arrangements and increase their patient flow.
MedPartners offers medical group practices and independent physicians a
range of affiliation models. These affiliations are carried out by the
acquisition of PPM entities or physician practices and related assets, either
for cash or through an equity exchange, or by affiliation on a contractual
basis. In all instances, MedPartners enters into long-term practice management
agreements with the affiliated physicians that provide for the management of
their practices by MedPartners while at the same time providing for the clinical
independence of the physicians.
MedPartners also manages outpatient prescription drug benefit programs for
clients throughout the United States, including corporations, insurance
companies, unions, government employee groups and managed care organizations.
MedPartners dispenses over 42,000 prescriptions daily through four mail service
pharmacies and manages patients' immediate prescription needs through a network
of retail pharmacies. MedPartners is in the process of integrating its PBM
program with the PPM business by providing pharmaceutical services to affiliated
physicians, clinics and HMOs. MedPartners' disease management services are
intended to meet the healthcare needs of individuals with chronic diseases or
conditions. These services include the design, development and management of
comprehensive programs that comprise drug therapies, physician support and
patient education. MedPartners currently provides therapies and services for
individuals with such conditions as hemophilia, growth disorders, immune
deficiencies, genetic emphysema, cystic fibrosis and multiple sclerosis.
The principal executive office of MedPartners is located at 3000 Galleria
Tower, Suite 1000, Birmingham, Alabama 35244, and its telephone number is (205)
733-8996.
InPhyNet. InPhyNet commenced operations in 1974 and is one of the largest
physician management organizations in the United States. InPhyNet has over 22
years of experience in managing physicians for a variety of clients, including
hospitals, HMOs and governmental entities. As of December 31, 1996, InPhyNet
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managed approximately 1,900 physicians and 3,300 other clinical and
administrative personnel, and had 188 contracts with hospitals and governmental
entities in 26 states pursuant to which InPhyNet was responsible for the
comprehensive health care needs of approximately 117,000 individuals. During
1996, InPhyNet delivered services for approximately 2.7 million patient visits.
InPhyNet's total revenues have grown from approximately $110 million in 1990 to
$408.5 million in 1996.
InPhyNet's business consists primarily of managing physicians and other
medical personnel for its two divisions: (i) Hospital Physician Services,
through which InPhyNet delivers emergency medicine, radiology, primary care and
other hospital-based physician services under contracts primarily with hospitals
and the U.S. Department of Defense and (ii) Capitated Medical Services, through
which InPhyNet manages the delivery of comprehensive medical services under
contracts primarily with HMOs and various state and local correctional
institutions and the delivery of fee-for-service medical services through
primary care practices and home health agencies. Hospital Physician Services and
Capitated Medical Services accounted for approximately 53% and 47%,
respectively, of InPhyNet's total revenues in 1996.
InPhyNet's principal executive office is located at 1200 South Pine Island
Road, Suite 600, Fort Lauderdale, Florida 33324, and its telephone is (954)
475-1300.
Seabird Merger Corporation. The Subsidiary is a newly formed, wholly owned
subsidiary of MedPartners and has not engaged in any business activity unrelated
to the Merger. The principal executive office of the Subsidiary is located at
3000 Galleria Tower, Suite 1000, Birmingham, Alabama 35244, and its telephone
number is (205) 733-8996.
MEDPARTNERS' ACQUISITION PROGRAM
MedPartners believes it is the leading consolidator in the PPM industry.
MedPartners' acquisition strategy is to develop locally prominent, integrated
healthcare delivery networks that provide high quality, cost-effective
healthcare in selected geographic markets. MedPartners implements this strategy
through growth in its existing markets, expansion into new markets through
acquisitions and affiliations and through the implementation of comprehensive
healthcare solutions for patients, physicians and payors. In pursuing its
acquisition strategy, MedPartners creates strategic alliances with hospital
partners and HMOs. As an integral element of these alliances, MedPartners
utilizes sophisticated information systems to improve the operational efficiency
of, and to reduce the operating costs associated with, MedPartners' networks and
the practices of affiliated physicians. MedPartners' principal methods of
expansion are the acquisition of PPM businesses and affiliations with physician
and medical groups.
In September 1996, MedPartners acquired Caremark International Inc.
("Caremark"), a publicly traded PPM and PBM company based in Northbrook,
Illinois, in exchange for approximately 90.6 million shares of MedPartners
Common Stock having a total value of approximately $1.8 billion (the "Caremark
Acquisition"), creating the largest PPM business in the United States. Caremark
provides PPM services to approximately 1,000 affiliated physicians.
In November 1995, MedPartners acquired Mullikin Medical Enterprises, L.P.
("MME"), a privately held PPM entity based in Long Beach, California, in
exchange for approximately 13.5 million shares of MedPartners Common Stock
having a total value of approximately $384.1 million. MME provided PPM services
to approximately 400 group and 2,600 IPA physicians. In February 1996,
MedPartners acquired Pacific Physician Services, Inc. ("PPSI"), a publicly
traded PPM company based in Redlands, California, in exchange for approximately
11.0 million shares of MedPartners Common Stock having a total value of
approximately $341.8 million. PPSI provided PPM services to approximately 710
group and 100 IPA physicians. PPSI had acquired Team Health, Inc. ("Team
Health"), based in Knoxville, Tennessee in June 1995. Team Health primarily
manages physicians and other healthcare professionals engaged in the delivery of
emergency medicine and hospital-based primary care.
MedPartners had affiliated with 190 physicians through December 31, 1994.
As of December 31, 1996, MedPartners had affiliated with approximately 8,850
physicians.
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RECENT DEVELOPMENTS
On March 4, 1997, MedPartners entered into an agreement with AHP Holdings,
Inc. to acquire the business assets and assume the liabilities of most of the
operations of Aetna Professional Management Corporation ("APMC"), a PPM company
and affiliate of Aetna Inc. (the "APMC Acquisition"). The APMC Acquisition will
be treated for accounting purposes as an asset purchase pursuant to Section
338(h)(10) of the Internal Revenue Code of 1986, as amended (the "Code"). In
connection with the APMC Acquisition, MedPartners will also enter into a ten
year Master Network Agreement with Aetna U.S. Healthcare, pursuant to which many
of MedPartners' affiliated physicians will be authorized providers for the
members of Aetna U.S. Healthcare's health plan. The effectiveness of the APMC
Acquisition, as well as the Master Network Agreement, is subject to certain
conditions typical for transactions of this kind.
RISK FACTORS
Certain factors to be considered in connection with an investment in
MedPartners Common Stock and approval of the Merger are set forth under "Risk
Factors". These risk factors include risks associated with the Merger and
MedPartners' growth strategy in general, and risks associated with the
businesses of MedPartners and InPhyNet, including: capital requirements; the
capitated nature of revenues; control of healthcare costs; reduction in third
party reimbursement; dependence on affiliated physicians; federal income taxes;
certain Caremark legal matters; professional liability concerns; competition;
government regulation; pharmacy licensing and operations; healthcare reform; the
risks associated with a fixed Exchange Ratio; and possible volatility of
MedPartners' stock price. For a complete discussion of the risk factors, see
"Risk Factors".
THE SPECIAL MEETING
At the Special Meeting and any adjournment or postponement thereof, the
stockholders of InPhyNet will be asked to consider and vote upon the proposal to
approve and adopt the Plan of Merger and the transactions contemplated thereby.
The Special Meeting is to be held on May , 1997, at a.m., local
time, at . Only stockholders
of record at the close of business on the Record Date will be entitled to notice
of, and to vote at, the Special Meeting. The enclosed proxy card, and the
accompanying Notice of Special Meeting of Stockholders and this Prospectus-Proxy
Statement are being first mailed to stockholders of InPhyNet on or about April
, 1997. For additional information relating to the Special Meeting, see "The
Special Meeting".
VOTE REQUIRED
Approval and adoption of the Plan of Merger by the stockholders of InPhyNet
require the affirmative vote of a majority of the issued and outstanding shares
of InPhyNet Common Stock as of the Record Date. The proposal to authorize the
Board of Directors to adjourn or postpone the Special Meeting, if necessary, to
permit the further solicitation of proxies must be approved by the affirmative
vote of a majority of the shares of InPhyNet Common Stock present or represented
by proxy and entitled to vote at the Special Meeting. Because the required vote
of InPhyNet stockholders to approve the Plan of Merger is based upon the total
number of outstanding shares, the failure to submit a proxy card (or to vote in
person at the Special Meeting) or the abstention from voting by an InPhyNet
stockholder (including broker non-votes) will have the same effect as a vote
"against" the approval and adoption of the Plan of Merger. As of the Record
Date, there were 16,370,128 shares of InPhyNet Common Stock issued and
outstanding. Accordingly, the affirmative vote of the holders of 8,185,065
shares of InPhyNet Common Stock is required to approve the Plan of Merger. As of
the Record Date, directors and executive officers of InPhyNet owned in the
aggregate 3,683,723 shares of InPhyNet Common Stock (or approximately 22.5% of
the outstanding shares of InPhyNet Common Stock). All the directors and
executive officers of InPhyNet have indicated their present intent to vote all
of the shares of InPhyNet Common Stock beneficially owned by them in favor of
the Plan of Merger and the proposal to authorize the Board of Directors to
adjourn or postpone, if necessary, the Special Meeting to permit the
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further solicitation of proxies. See "The Special Meeting -- Vote Required" and
"The Merger -- Conditions to the Merger".
THE MERGER
Terms of the Merger. Upon consummation of the Merger, each InPhyNet Share
will be converted into the right to receive 1.311 shares of MedPartners Common
Stock and cash paid in lieu of fractional shares. For example, if an InPhyNet
stockholder owned 100 shares of InPhyNet Common Stock at the time the Merger is
consummated (the "Effective Time"), that stockholder would receive (i) 131
shares of MedPartners Common Stock and (ii) cash for such stockholder's 0.1
fractional share of MedPartners Common Stock in an amount equal to the product
of 0.1 and the per share closing price of MedPartners Common Stock on the NYSE
Composite Tape on the date of the Effective Time. In addition, all outstanding
and unexercised options to acquire InPhyNet Common Stock will be adjusted at the
Effective Time to permit them to remain outstanding and become exercisable for
MedPartners Common Stock as more fully described in the Plan of Merger. Each
outstanding share of MedPartners Common Stock will remain outstanding and
unchanged following the Merger. See "The Merger -- Terms of the Merger".
On April , 1997, the closing price of MedPartners Common Stock on the
NYSE was $ . At such price, the Equivalent Value of a share of InPhyNet
Common Stock would be $ and the aggregate value of the Merger
Consideration would be approximately $ . The actual market price of the
MedPartners Common Stock is subject to fluctuations and could be more or less
than its market price on the date of this Prospectus-Proxy Statement or on the
date of the Special Meeting. Any such change will cause a corresponding change
in the Equivalent Value and the aggregate value of the Merger Consideration. See
"Risk Factors -- Possible Volatility of Stock Price; Risks Relating to Fixed
Exchange Ratio". InPhyNet stockholders are urged to obtain updated market
information concerning the shares of MedPartners Common Stock and to review the
historical trading prices of the MedPartners Common Stock. See "-- Market and
Market Prices". InPhyNet stockholders may obtain updated information regarding
the market prices for the MedPartners Common Stock by calling toll-free at
1-800-563-7126.
Recommendation of the InPhyNet Board of Directors. The Board of Directors
of InPhyNet has unanimously approved the terms and conditions of the Plan of
Merger, and recommends a vote FOR the Plan of Merger. InPhyNet's Board of
Directors believes the Plan of Merger is fair to and in the best interests of
InPhyNet and its stockholders. In reaching its conclusions, the InPhyNet Board
of Directors considered the following material factors: information concerning
InPhyNet's and MedPartners' respective businesses, prospects, historical and
projected financial performance, financial condition and operations; the Board's
review of the trading range of the InPhyNet Common Stock as compared to the
Merger Consideration implied by the Exchange Ratio; the fact that the Merger
Consideration represents a significant premium over the trading range of the
InPhyNet Common Stock during the preceding six months and represented a
valuation for InPhyNet that could not be achieved as quickly, if at all, if
InPhyNet were to remain an independent entity; the risks to InPhyNet's
stockholders in implementing, and failing to achieve on a consistently
successful basis, InPhyNet's acquisition strategy; the opportunity for InPhyNet
stockholders to continue as stockholders of a larger, more diversified combined
organization having greater market and financial strength, and a greater ability
to execute an acquisition strategy than InPhyNet on a stand-alone basis; the
opportunity for greater liquidity associated with MedPartners Common Stock; the
terms of the Plan of Merger, including the fixed Exchange Ratio and the right of
InPhyNet to terminate the Plan of Merger if the average last sale price per
share of MedPartners Common Stock for a specified period preceding the date for
the Special Meeting is equal to or less than $17.125 per share; the analyses and
opinion of Morgan Stanley & Co. Incorporated ("Morgan Stanley") as to the
fairness, from a financial point of view, of the Exchange Ratio; the Board of
Director's belief that the financial terms of the Merger were superior to the
terms of the other merger proposals that had been received by InPhyNet; and the
InPhyNet Board's review of the risks relating to MedPartners described under
"Risk Factors", including, particularly, the risks under "Risks Relating to
Integration in connection with Acquisitions and the Merger", "Risks Relating to
MedPartners' Growth Strategy; Identification and Integration of Growth
Opportunities", "Risks Relating to Certain Caremark Legal Matters" and "Risks
Relating to Exposure to Professional Liability; Liability Insurance", the
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fact that the MedPartners Common Stock has had a relatively short trading
history, the risk that InPhyNet clients may elect not to continue to contract
with MedPartners, the risk that the market price of the InPhyNet Common Stock
and the MedPartners Common Stock might be adversely affected by the announcement
of the Merger, the costs of integrating the two companies and the risk that
expected benefits from the Merger might not be obtained. The InPhyNet Board of
Directors also considered the expectation that the Merger will generally be a
tax-free transaction to InPhyNet and its stockholders and treated as a pooling
of interests for accounting purposes. The Board of Directors also considered the
size of the termination fee and the circumstances under which the termination
provisions and the termination fee would be payable, as well as restrictions on
InPhyNet's ability to solicit other potential acquirors, and the effect these
provisions might have in reducing the likelihood of engaging in a business
combination other than the Merger. See "The Merger -- Recommendation of the
InPhyNet Board of Directors" and "Risk Factors".
Opinion of InPhyNet's Financial Advisor. Morgan Stanley has delivered to
the Board of Directors of InPhyNet its written opinion, dated as of January 20,
1997, to the effect that, as of the date of such written opinion, the Exchange
Ratio provided in the Plan of Merger is fair, from a financial point of view, to
the holders of InPhyNet Common Stock. A copy of the full text of the written
opinion of Morgan Stanley, which sets forth among other things, the opinion
expressed, assumptions made, procedures followed, matters considered and
limitations of their review undertaken in connection with such opinion, is
attached hereto as Annex B and should be read in its entirety. See "The
Merger -- Opinion of InPhyNet's Financial Advisor".
InPhyNet has agreed to pay Morgan Stanley fees for its financial advisory
services in connection with the Merger consisting of (i) an opinion fee of
$250,000, which was paid at the time of the delivery of the Morgan Stanley
fairness opinion, and (ii) an additional transaction advisory fee (estimated to
be between $3.5 million and $4.0 million), payable only upon consummation of the
Merger based on the value of the transaction as determined at the time of the
Merger.
Interests of Certain Persons in the Merger. In considering the
recommendation of the Board of Directors of InPhyNet with respect to the Plan of
Merger, InPhyNet stockholders should be aware that certain members of the Board
of Directors of InPhyNet and its management may have certain interests in the
Merger that are in addition to, or different from, the interests of the
stockholders of InPhyNet generally (including the accelerated vesting of stock
options and the potential receipt of severance benefits). See "The
Merger -- Interests of Certain Persons in the Merger".
Effective Time of the Merger. The Merger will become effective upon the
filing of the Certificate of Merger by the Subsidiary and InPhyNet under the
General Corporation Law of the State of Delaware (the "DGCL"), or at such later
time as may be specified in such Certificate of Merger. The Plan of Merger
requires that this filing be made as soon as practicable after satisfaction of
the conditions of each party to consummate the Merger, or at such other time as
may be agreed by MedPartners and InPhyNet. If the Plan of Merger is approved by
the stockholders of InPhyNet, it is presently anticipated that such filing will
be made as soon as practicable after the Special Meeting on May , 1997, and
that the Effective Time will occur upon such filing, although there can be no
assurance as to whether or when the Merger will occur. See "The
Merger -- Effective Time of the Merger" and "Risk Factors -- Possible Volatility
of Stock Price; Risks Relating to Fixed Exchange Ratio".
Exchange of Certificates. As soon as reasonably practicable on or after
the Effective Time, transmittal materials will be provided to each holder of
record of InPhyNet Shares for use in exchanging such holder's stock certificates
for certificates evidencing shares of MedPartners Common Stock and for receiving
cash in lieu of fractional shares and any dividends or other distributions to
which such holder is entitled as a result of the Merger. CERTIFICATES OF
INPHYNET COMMON STOCK SHOULD NOT BE SURRENDERED UNTIL THE LETTER OF TRANSMITTAL
AND INSTRUCTIONS ARE OBTAINED AND THEN SHOULD BE SURRENDERED ONLY IN ACCORDANCE
WITH SUCH INSTRUCTIONS. See "The Merger -- Exchange of Certificates".
Conditions to the Merger. The obligation of each of MedPartners, the
Subsidiary and InPhyNet to consummate the Merger is subject to certain
conditions typical in transactions of this type. See "The Merger -- Conditions
to the Merger".
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Representations and Covenants. Under the Plan of Merger, MedPartners and
InPhyNet have each made a number of representations regarding the organization
and capital structures of the respective companies and their affiliates, their
operations, financial condition and other matters, including their authority to
enter into the Plan of Merger and to consummate the Merger. Under the Plan of
Merger, InPhyNet has agreed not to encourage, solicit, participate in or
initiate discussions or negotiations with or provide any information to any
third party concerning any merger, sale of assets, sale of or tender offer for
its shares or similar transactions involving all or any significant portion of
the equity securities of InPhyNet or the assets of InPhyNet and its
subsidiaries, except that InPhyNet may furnish information to, and negotiate
with, an unsolicited third party consistent with the good faith exercise by the
Board of Directors of InPhyNet of its fiduciary obligations. See "The
Merger -- Representations and Covenants" and "The Merger -- No Solicitation of
Transactions".
Regulatory Approvals. The Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act") provides that certain business mergers
(including the Merger) may not be consummated until certain information has been
furnished to the United States Department of Justice (the "DOJ") and the United
States Federal Trade Commission (the "FTC"), and certain waiting period
requirements (including any extensions thereof) have been satisfied. MedPartners
and InPhyNet each made their respective filings with the DOJ and the FTC on
February 11, 1997. Under the HSR Act, these filings commenced a 30-day waiting
period during which the Merger may not be consummated. Notwithstanding the
termination of the waiting period on March 13, 1997, the FTC, the DOJ or others
could take action under the antitrust laws, including seeking to enjoin the
consummation of the Merger or, after the Effective Time, seeking the divestiture
by MedPartners of all or any part of the assets of InPhyNet acquired in the
Merger. There can be no assurance that a challenge to the Merger on antitrust
grounds will not be made or, if such a challenge was made, that it would not be
successful. See "The Merger -- Regulatory Approvals".
Business Pending the Merger. The Plan of Merger provides that, until the
Effective Time, except as otherwise provided in the Plan of Merger, InPhyNet
will conduct its business in the ordinary course and will use all reasonable
best efforts to preserve intact its present business organization, maintain its
rights and franchises and preserve its relationships with customers, suppliers
and others having business dealings with InPhyNet. InPhyNet has also agreed to
abide by certain restrictions and limitations with respect to its business (as
set forth in the Plan of Merger) prior to the Effective Time and to cooperate on
certain matters relating to the Merger. See "The Merger -- Business Pending the
Merger".
Waiver and Amendment. The Plan of Merger provides that, at any time prior
to the Effective Time, MedPartners and the Subsidiary, on the one hand, and
InPhyNet, on the other hand, may, under certain circumstances, waive compliance
with covenants or conditions for the benefit of that company or amend or
otherwise change the Plan of Merger. Under the Plan of Merger and the DGCL, if
the Plan of Merger is approved at the Special Meeting, the Board of Directors of
InPhyNet may not amend or waive any covenant or condition in a manner that would
adversely affect the stockholders of InPhyNet without the requisite approval of
InPhyNet's stockholders. Any determination to amend the Plan of Merger or waive
a covenant or condition and to obtain stockholder approval, if required, would
depend on the facts and circumstances existing at the time of such amendment or
waiver and would be made by InPhyNet's Board of Directors, exercising its
fiduciary duties and in compliance with Delaware law. As of the date of this
Prospectus-Proxy Statement, the parties to the Plan of Merger have no reason to
believe that any of the material conditions to the Merger will not be satisfied.
See "The Merger -- Waiver and Amendment".
Termination. The Plan of Merger may be terminated prior to the Effective
Time, and whether or not the Plan of Merger has been approved by the
stockholders of InPhyNet, if, among other things, (i) a U.S. federal or state
court has issued an order permanently enjoining, restraining or otherwise
prohibiting the Merger, (ii) the Merger shall not have occurred on or before
July 31, 1997 other than due to the willful breach of the Plan of Merger by a
party thereto, (iii) at the option of InPhyNet if the average last sale price
per share of the MedPartners Common Stock for the ten consecutive trading days
ending on the fifth trading day immediately preceding the date of the Special
Meeting as reported on the NYSE Composite Tape is equal to or less than $17.125,
or (iv) InPhyNet's Board of Directors, in the exercise of its fiduciary
obligations, withdraws its recommendation of the Merger or recommends approval
of another Acquisition Transaction (as
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defined herein). See "The Merger -- Termination", and for a discussion of
breakup fees that may be payable under certain circumstances, see "The
Merger -- Expenses; Breakup Fees".
Accounting Treatment. It is expected that the Merger will be accounted for
as a pooling of interests under generally accepted accounting principles. The
consummation of the Merger is conditioned upon InPhyNet and MedPartners
receiving letters at the closing from Ernst & Young LLP, as independent auditors
of InPhyNet and MedPartners, regarding such firm's concurrence with the
conclusions of management of both InPhyNet and MedPartners as to the
appropriateness of pooling of interests accounting for the Merger under
Accounting Principles Board ("APB") Opinion No. 16 if the Merger is closed and
consummated in accordance with the Plan of Merger. See "The Merger -- Accounting
Treatment" and "Pro Forma Condensed Financial Information". If it is determined
that the Merger will not be accounted for as a pooling of interests and InPhyNet
and MedPartners decide to waive compliance with such condition, InPhyNet would
resolicit the consent of its stockholders to consummate the Merger in light of
such changed circumstances.
Federal Income Tax Consequences. The Merger is expected to qualify as a
tax-free reorganization under Section 368(a) of the Code; however, neither
MedPartners nor InPhyNet has requested or will receive an advance ruling from
the Internal Revenue Service. Instead, Haskell Slaughter & Young, L.L.C. and
Willkie Farr & Gallagher, counsel to MedPartners and InPhyNet, respectively,
have delivered opinions to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code. These opinions
are based on federal income tax laws in existence at the time such opinions were
delivered, facts and assumptions of fact described therein and upon certain
customary representations provided by MedPartners, InPhyNet and certain InPhyNet
stockholders. Collectively, the opinions of counsel state, among other matters,
that: (i) the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code, and MedPartners, the Subsidiary and InPhyNet will
each be a party to the reorganization within the meaning of Section 368(b) of
the Code; (ii) no gain or loss will be recognized by MedPartners, InPhyNet or
the Subsidiary as a result of the Merger; (iii) no gain or loss will be
recognized by an InPhyNet stockholder who receives solely shares of MedPartners
Common Stock in exchange for InPhyNet Shares; (iv) the receipt of cash in lieu
of fractional shares of MedPartners Common Stock will be treated as if the
fractional shares were distributed as part of the exchange and then were
redeemed by MedPartners; (v) the tax basis of the shares of MedPartners Common
Stock received by an InPhyNet stockholder will be equal to the tax basis of the
InPhyNet Shares exchanged therefor, excluding any basis allocable to a
fractional share of MedPartners Common Stock for which cash is received; and
(vi) the holding period of the shares of MedPartners Common Stock received by an
InPhyNet stockholder will include the holding period or periods of the InPhyNet
Shares exchanged therefor, provided that the InPhyNet Shares are held as a
capital asset within the meaning of Section 1221 of the Code at the Effective
Time. EACH HOLDER OF INPHYNET SHARES IS URGED TO CONSULT HIS OR HER OWN PERSONAL
TAX AND FINANCIAL ADVISORS CONCERNING THE FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGER, AS WELL AS ANY APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX
CONSEQUENCES, BASED UPON SUCH HOLDER'S OWN PARTICULAR FACTS AND
CIRCUMSTANCES. See "The Merger -- Federal Income Tax Consequences".
Resale Restrictions. All shares of MedPartners Common Stock received by
InPhyNet stockholders in the Merger will be freely transferable, except that
shares of MedPartners Common Stock received by persons who are deemed to be
"affiliates" (as such term is defined under the Securities Act) of InPhyNet at
the time of the Special Meeting may be resold by them only in certain permitted
circumstances under the Securities Act, other applicable securities laws and
rules related to pooling of interests accounting treatment. See "The
Merger -- Resale of MedPartners Common Stock by Affiliates".
NYSE Listing. A subsequent listing application will be filed with the NYSE
to list the shares of MedPartners Common Stock to be issued to the InPhyNet
stockholders upon consummation of the Merger. Although no assurance can be given
that the NYSE will accept such shares of MedPartners Common Stock for listing,
MedPartners anticipates that these shares will qualify for listing. See "The
Merger -- New York Stock Exchange Listing".
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MARKET AND MARKET PRICES
Prior to February 21, 1995, the effective date of the initial public
offering of MedPartners, there was no public market for the MedPartners Common
Stock. The MedPartners Common Stock traded on the Nasdaq National Market under
the symbol "MPTR" from February 21, 1995 until February 21, 1996. On February
22, 1996, the MedPartners Common Stock was listed on the NYSE under the symbol
"MDM".
The following table sets forth for the quarterly periods indicated the high
and low reported bid prices for the MedPartners Common Stock through February
21, 1996, as reported on the Nasdaq National Market. After February 21, 1996,
the table sets forth the high and low last sale price as reported on the NYSE
Composite Tape.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1995
First Quarter (from February 21)............................ $24.00 $14.75
Second Quarter.............................................. 24.50 17.75
Third Quarter............................................... 30.00 18.00
Fourth Quarter.............................................. 33.00 26.00
1996
First Quarter............................................... $34.75 $28.50
Second Quarter.............................................. 30.25 20.13
Third Quarter............................................... 23.13 16.63
Fourth Quarter.............................................. 24.50 19.88
1997
First Quarter............................................... $24.63 $18.63
Second Quarter (through April , 1997).....................
</TABLE>
There were approximately 43,644 holders of record of the MedPartners Common
Stock as of March 20, 1997.
The InPhyNet Common Stock is listed on the Nasdaq National Market under the
symbol "IMMI". The following table sets forth for the quarterly periods
indicated the high and low bid prices for the InPhyNet Common Stock as reported
on the Nasdaq National Market:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1995
First Quarter............................................... $18.00 $11.50
Second Quarter.............................................. 19.25 14.75
Third Quarter............................................... 22.25 18.50
Fourth Quarter.............................................. 23.75 17.38
1996
First Quarter............................................... $27.00 $16.38
Second Quarter.............................................. 24.00 16.50
Third Quarter............................................... 19.25 11.00
Fourth Quarter.............................................. 19.00 15.00
1997
First Quarter............................................... $31.38 $17.25
Second Quarter (through April , 1997).....................
</TABLE>
There were approximately holders of record of the InPhyNet Common
Stock as of the Record Date.
On January 20, 1997, the trading day immediately preceding the public
announcement of the proposed Merger, the high and low sale prices of the
MedPartners Common Stock as reported on the NYSE Composite
8
<PAGE> 18
Tape were $22.00 and $21.63, respectively, and the high and low sales prices for
the InPhyNet Common Stock as reported on the Nasdaq National Market were $23.25
and $22.00, respectively.
STOCKHOLDERS OF INPHYNET ARE ADVISED TO OBTAIN CURRENT MARKET QUOTATIONS
FOR THE MEDPARTNERS COMMON STOCK. No assurance can be given as to the market
price of MedPartners Common Stock at the Effective Time or at any other time.
COMPARATIVE PER SHARE INFORMATION
The following summary presents selected comparative per share information
for (i) MedPartners on a historical basis in comparison with pro forma
information giving effect to the Merger on a pooling of interests basis, and
(ii) InPhyNet on a historical basis in comparison with pro forma equivalent
information after giving effect to the Merger, assuming that 1.311 shares of
MedPartners Common Stock are issued in exchange for each InPhyNet Share in the
Merger. The historical and pro forma financial information should be read in
conjunction with the historical consolidated financial statements of
MedPartners, the historical consolidated financial statements of InPhyNet and
the related notes thereto and with the unaudited pro forma financial information
and the related notes thereto, appearing elsewhere in this Prospectus-Proxy
Statement. See "Pro Forma Condensed Financial Information", and "Incorporation
of Certain Information by Reference".
MedPartners has not paid cash dividends since inception. It is anticipated
that MedPartners will retain all earnings for use in the expansion of its
business and therefore does not anticipate paying any cash dividends in the
foreseeable future. The payment of future dividends will be at the discretion of
the Board of Directors of MedPartners and will depend, among other things, upon
MedPartners' earnings, capital requirements, financial condition and debt
covenants.
The following information is not necessarily indicative of the combined
results of operations or combined financial position that would have resulted
had the Merger been consummated at the beginning of the periods indicated, nor
is it necessarily indicative of the future combined results of operations or
financial position.
<TABLE>
<CAPTION>
PER COMMON AND COMMON EQUIVALENT SHARES
------------------------------------------------
STOCKHOLDERS'
INCOME (LOSS) EQUITY
----------------------------- (BOOK VALUE)
YEAR ENDED DECEMBER 31, -------------
----------------------------- DECEMBER 31,
1994 1995 1996 1996
----- ------ ------ -------------
<S> <C> <C> <C> <C>
Net income (loss):
MedPartners
Historical(1)................................ $0.61 $(0.82) $(1.02) $4.76
Pro forma combined........................... 0.60 (0.65) (0.76) 4.49
InPhyNet
Historical................................... 0.74(4) 0.75 1.04 6.34
Pro forma equivalent(2)...................... 0.79 (0.85) (1.00) 5.89
Income (loss) from continuing operations(3):
MedPartners
Historical(3)................................ 0.41 0.15 (0.58)
Pro forma combined........................... 0.43 0.20 (0.37)
InPhyNet
Historical................................... 0.74(4) 0.75 1.04
Pro forma equivalent(2)...................... 0.56 0.26 (0.49)
</TABLE>
- ---------------
(1) MedPartners' historical pro forma net income (loss) per common share is
computed, after adjusting historical net income for the estimated tax
provision applicable to the pooled companies, by dividing net income (loss)
by the number of common equivalent shares outstanding during the period in
accordance with the applicable rules of the SEC. All stock options and
warrants issued have been considered as outstanding common share
equivalents, even if anti-dilutive, under the treasury stock method. Shares
of MedPartners Common Stock issued in February 1995 upon conversion of the
then outstanding convertible preferred stock are assumed to be common share
equivalents.
9
<PAGE> 19
(2) InPhyNet pro forma equivalent per common share data is calculated by
multiplying the pro forma MedPartners amounts by the Exchange Ratio of
1.311.
(3) Income (loss) from continuing operations per share data is computed, after
adjusting historical net income (loss) to eliminate the effects of
discontinued operations, by dividing adjusted net income (loss) by the
number of common equivalent shares outstanding during the period in
accordance with applicable rules of the SEC. All stock options issued have
been considered as outstanding common share equivalents, even if
anti-dilutive, under the treasury stock method. Shares of MedPartners Common
Stock issued in February 1995, upon conversion of the then outstanding
Convertible Preferred Stock, are assumed to be common share equivalents. The
pro forma combined per share data for income (loss) from continuing
operations relates to Caremark excluding results from its Clozaril(R)
Patient Management System, Home Infusion business, Oncology Management
Service business, Caremark Orthopedic Services Inc. subsidiary and
Nephrology Services division, all of which have been reflected as
discontinued operations in accordance with APB Opinion No. 30 Reporting the
Results of Operations -- Effects of Disposal of a Segment of a Business and
Extraordinary, Unusual and Infrequently Occurring Events & Transactions.
(4) Amounts presented were calculated from pro forma net income and pro forma
weighted average number of shares outstanding which were derived by giving
effect to the 1994 purchases of minority interests' share of net income of
InPhyNet with InPhyNet Common Stock as if such purchases had occurred on
January 1, 1993. Prior to August 19, 1994, InPhyNet elected to be taxed as a
Subchapter S corporation with respect to federal income taxes, and for those
states that recognize such tax election, state income taxes. Under this
election, in lieu of corporate income taxes, the stockholders were taxed
(rather than the corporation), on InPhyNet's income in accordance with their
respective ownership interests. The pro forma net income and net income per
share have been computed as if InPhyNet was subject to federal and state
income taxes (in those states recognizing such election) based on the
corporate income tax rates in effect during the respective periods.
10
<PAGE> 20
RISK FACTORS
In addition to the other information contained in this Prospectus-Proxy
Statement, InPhyNet stockholders should consider carefully the factors listed
below in evaluating the Merger.
RISKS RELATING TO INTEGRATION IN CONNECTION WITH ACQUISITIONS AND THE MERGER
MedPartners believes that the Merger represents another step in
MedPartners' consolidation initiative in the PPM business to develop integrated
healthcare delivery systems through affiliation with individual physicians,
physician practices, hospitals and third-party payors. In addition, MedPartners
has recently completed major acquisitions and is still in the process of
integrating those acquired businesses. While the business plans of these
acquired companies are similar, their histories, geographical location, business
models and cultures are different in many respects. The MedPartners Board of
Directors and senior management of MedPartners face a significant challenge in
their efforts to integrate the businesses of MedPartners and the acquired
companies so that the different cultures and the varying emphases on managed
care and fee-for-service can be effectively managed to continue to grow these
businesses. The dedication of management resources to such integration may
detract attention from the day-to-day business of MedPartners. There can be no
assurance that there will not be substantial costs associated with such
activities or that there will not be other material adverse effects of these
integration efforts. Such effects could have a material adverse effect on the
financial results of MedPartners. While management of MedPartners and InPhyNet
believe that the diverse experience of each of the combined companies will serve
to strengthen MedPartners, there can be no assurance that management's efforts
to integrate the operations of MedPartners will be successful or that the
anticipated benefits of the Merger will be fully realized.
The profitability of MedPartners is largely dependent on its ability to
develop and integrate networks of physicians from the affiliated practices, to
manage and control costs and to realize economies of scale. MedPartners'
operating results could be adversely affected in the event it incurs costs
associated with developing networks without generating sufficient revenues from
such networks.
RISKS RELATING TO MEDPARTNERS' GROWTH STRATEGY; INTEGRATION AND IDENTIFICATION
OF GROWTH OPPORTUNITIES
MedPartners intends to continue to pursue an aggressive growth strategy
through acquisitions and internal development for the foreseeable future.
MedPartners' ability to pursue new growth opportunities successfully will depend
on many factors, including, among others, MedPartners' ability to identify
suitable growth opportunities and successfully integrate acquired businesses and
practices. There can be no assurance that MedPartners will anticipate all of the
changing demands that expanding operations will impose on its management,
management information systems and physician network. Any failure by MedPartners
to adapt its systems and procedures to those changing demands could have a
material adverse effect on the operating results and financial condition of
MedPartners.
Competition for Expansion Opportunities. MedPartners is subject to the
risk that it will be unable to identify and recruit suitable acquisition
candidates in the future. MedPartners competes for acquisition, affiliation and
other expansion opportunities with national, regional and local PPM companies
and other physician management entities. In addition, certain companies,
including hospital management companies, hospitals and insurers, are expanding
their presence in the PPM market. MedPartners' failure to compete successfully
for expansion opportunities or to attract and recruit suitable acquisition
candidates could have a material adverse effect on the operating results and
financial condition of MedPartners. MedPartners is also subject to the risk that
it will be unable to recruit and retain qualified physicians and other
healthcare professionals to serve as employees or independent contractors of
MedPartners and its affiliates. See "Business of MedPartners -- Competition" set
forth in MedPartners' Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 and incorporated herein by reference.
Integration Risks. Acquisitions of PPM companies and physician practices
entail the risk that such acquisitions will fail to perform in accordance with
expectations and that MedPartners will be unable to successfully integrate such
acquired businesses and physician practices into its operations. The
profitability of MedPartners is largely dependent on its ability to develop and
integrate networks of physicians, to manage and
11
<PAGE> 21
control costs and to realize economies of scale from acquisitions of PPM
companies and physician practices. The histories, geographic location, business
models, including emphasis on managed care and fee-for-service, and cultures of
acquired PPM businesses and physician practices may differ from MedPartners'
past experiences. Dedicating management resources to the integration process may
detract attention from the day-to-day business of MedPartners. Moreover, the
integration of the acquired businesses and physician practices may require
substantial capital and financial investments. These, together with other risks
described herein, could result in the incurrence of substantial costs in
connection with acquisitions that may never achieve revenue and profitability
levels comparable to MedPartners' existing physician networks, which could have
a material adverse effect on the operating results and financial condition of
MedPartners.
The major acquisitions carried out by MedPartners since January 1995 have
been structured as poolings of interests. As a result, the operating income of
MedPartners has been reduced by the merger expenses incurred in connection with
those acquisitions, resulting in a net loss for the year ended December 31,
1996. There can be no assurance that future merger expenses will not result in
further net losses. Nor can there be any assurance that there will not be
substantial future costs associated with integrating acquired companies; that
MedPartners will be successful in integrating such companies; or that the
anticipated benefits of such acquisitions will be realized fully. The
unsuccessful integration of such companies or the failure of MedPartners to
realize such anticipated benefits fully could have a material adverse effect on
the operating results and financial condition of MedPartners. See "-- Risks
Relating to Capital Requirements".
Dependence on HMO Enrollee Growth. MedPartners is also largely dependent
on the continued increase in the number of HMO enrollees who use its physician
networks. This growth may come from development or acquisition of other PPM
entities, affiliation with additional physicians, increased enrollment in HMOs
currently contracting with MedPartners through its affiliated physicians and
additional agreements with HMOs. There can be no assurance that MedPartners will
be successful in identifying, acquiring and integrating additional medical
groups or other PPM companies or in increasing the number of enrollees. A
decline in enrollees in HMOs could have a material adverse effect on the
operating results and financial condition of MedPartners. MedPartners is
statutorily and contractually prohibited from controlling any medical decisions
made by a healthcare provider. Accordingly, affiliated physicians may decline to
enter into HMO agreements that are negotiated for them by MedPartners or may
enter into contracts for the provision of medical services or make other
financial commitments that are not intended to benefit MedPartners and which,
accordingly, could have a material adverse effect on the operating results and
financial condition of MedPartners. See "Business of MedPartners -- Operations"
set forth in MedPartners' Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 and incorporated herein by reference.
Risks Relating to Capital Requirements. MedPartners' growth strategy
requires substantial capital for the acquisition of PPM businesses and assets of
physician practices, and for their effective integration, operation and
expansion. Affiliated physician practices may also require capital for
renovation, expansion and additional medical equipment and technology.
MedPartners believes that its existing cash resources, the use of MedPartners
Common Stock for selected practice and other acquisitions, and available
borrowings under the $1.0 billion credit facility (the "Credit Facility") with
NationsBank, National Association (South), as administrative bank to a group of
lenders, or any successor credit facility, will be sufficient to meet
MedPartners' anticipated acquisition, expansion and working capital needs for
the next twelve months. MedPartners expects from time to time to raise
additional capital through the issuance of long-term or short-term indebtedness
or the issuance of additional equity securities in private or public
transactions, at such times as management deems appropriate and the market
allows in order to meet the capital needs of MedPartners. There can be no
assurance that acceptable financing for future acquisitions or for the
integration and expansion of existing networks can be obtained. Any of such
financings could result in increased interest and amortization expense,
decreased income to fund future expansion and dilution of existing equity
positions.
Dependence on Affiliated Physicians. MedPartners' revenue depends on
revenues generated by the physicians with whom MedPartners has practice
management agreements. These agreements define the responsibilities of the
physicians and MedPartners and govern all terms and conditions of their
relationship. The practice management agreements have terms generally of 20 to
44 years, subject to termination for cause, which includes bankruptcy or a
material breach. Practice management agreements with certain of the
12
<PAGE> 22
affiliated practices contain provisions giving the physician practice the option
to terminate the agreement without cause, subject to significant limitations.
Because MedPartners cannot control the provision of medical services by its
affiliated physicians contractually or otherwise under the laws of California
and most other states in which MedPartners operates, affiliated physicians may
decline to enter into HMO agreements that are negotiated for them by MedPartners
or may enter into contracts for the provision of medical services or make other
financial commitments which are not intended to benefit MedPartners and which
could have a material adverse effect on the operating results and financial
condition of MedPartners. See "Business of
MedPartners -- Operations -- Affiliated Physicians" set forth in MedPartners'
Annual Report on Form 10-K for the fiscal year ended December 31, 1996 and
incorporated herein by reference.
RISKS RELATING TO CAPITATED NATURE OF REVENUES; CONTROL OF HEALTHCARE COSTS
A substantial portion of MedPartners' revenue is derived from agreements
with HMOs that provide for the receipt of capitated fees. Under these
agreements, MedPartners, through its affiliated physicians, is generally
responsible for the provision of all covered outpatient benefits, regardless of
whether the affiliated physicians directly provide the medical services
associated with the covered benefits. MedPartners is statutorily and
contractually prohibited from controlling any medical decisions made by any
healthcare provider. To the extent that enrollees require more care than is
anticipated or require supplemental medical care that is not otherwise
reimbursed by the HMO, aggregate capitation rates may be insufficient to cover
the costs associated with the treatment of enrollees. If revenue is insufficient
to cover costs, the operating results and financial condition of MedPartners
could be materially adversely affected. As a result, MedPartners' success will
depend in large part on the effective management of healthcare costs through
various methods, including utilization management, competitive pricing for
purchased services and favorable agreements with payors. Recently, many
providers, including MedPartners, have experienced pricing pressures with
respect to negotiations with HMOs. In addition, employer groups are becoming
increasingly successful in negotiating reductions in the growth of premiums paid
for their employees' health insurance, which tends to depress the reimbursement
for healthcare services. At the same time, employer groups are demanding higher
accountability from payors and providers of healthcare services with respect to
measurable accessibility, quality and service. If these trends continue, the
cost of providing physician services could increase while the level of
reimbursement could grow at a lower rate or could decrease. There can be no
assurance that these pricing pressures will not have a material adverse effect
on the operating results and financial condition of MedPartners. In addition,
changes in healthcare practices, inflation, new technologies, major epidemics,
natural disasters and numerous other factors affecting the delivery and cost of
healthcare could have a material adverse effect on the operating results and
financial condition of MedPartners.
MedPartners' financial statements include estimates of costs for covered
medical benefits incurred by HMO enrollees, but not yet reported. While these
estimates are based on information available at the time of calculation, there
can be no assurance that actual costs will approximate the estimates of such
amounts. If the actual costs significantly exceed the amounts estimated and
accrued, such additional costs could have a material adverse effect on the
operating results and financial condition of MedPartners.
The HMO agreements often contain shared-risk provisions under which
additional revenue can be earned or economic penalties can be incurred based
upon the utilization of hospital and non-professional services by HMO enrollees.
MedPartners' financial statements contain accruals for estimates of shared-risk
amounts receivable from or payable to the HMOs that contract with their
affiliated physicians. These estimates are based upon inpatient utilization and
associated costs incurred by HMO enrollees compared to budgeted costs.
Differences between actual contract settlements and amounts estimated as
receivable or payable relating to HMO risk-sharing arrangements are generally
reconciled annually. This may cause fluctuations from amounts previously
accrued. To the extent that HMO enrollees require more care than is anticipated
or require supplemental care that is not otherwise reimbursed by the HMOs,
aggregate capitation rates may be insufficient to cover the costs associated
with the treatment of enrollees. Any such insufficiency could have a material
adverse effect on the operating results and financial condition of MedPartners.
Physician groups that render services on a fee-for-service basis (as
opposed to a capitated plan) typically bill various third-party payors, such as
governmental programs (e.g., Medicare and Medicaid), private
13
<PAGE> 23
insurance plans and managed care plans, for the healthcare services provided to
their patients. A significant portion of the revenue of MedPartners is derived
from payments made by these third-party payors. There can be no assurance that
payments under governmental programs or from other third-party payors will
remain at present levels. In addition, third-party payors can deny reimbursement
if they determine that treatment was not performed in accordance with the
cost-effective treatment methods established by such payors or was experimental
or for other reasons. Any material decrease in payments received from such
third-party payors could have a material adverse effect on the operating results
and financial condition of MedPartners.
RISKS RELATING TO CERTAIN CAREMARK LEGAL MATTERS
OIG Settlement and Related Claims. Caremark agreed in June 1995 to settle
with the Office of the Inspector General (the "OIG") of the United States
Department of Health and Human Services (the "DHHS"), the DOJ, the Veteran's
Administration, the Federal Employee Health Benefits Program ("FEHBP"), the
Civilian Health and Medical Program of the Uniformed Services ("CHAMPUS") and
related state investigative agencies in all 50 states and the District of
Columbia a four-year-long investigation of Caremark (the "OIG Settlement").
Under the terms of the OIG Settlement, which covered allegations dating back to
1986, a subsidiary of Caremark pled guilty to two counts of mail fraud -- one
each Minnesota and Ohio -- resulting in the payment of civil penalties and
criminal fines. The basis of these guilty pleas was Caremark's failure to
provide certain information to CHAMPUS, FEHBP and federally funded healthcare
benefit programs concerning financial relationships between Caremark and a
physician in each of Minnesota and Ohio. See "Business of MedPartners -- Legal
Proceedings" set forth in MedPartners' Annual Report on Form 10-K for the fiscal
year ended December 31, 1996 and incorporated herein by reference.
In its agreement with the OIG and DOJ, Caremark agreed to continue to
maintain certain compliance-related oversight procedures. Should these oversight
procedures reveal credible evidence of legal or regulatory violations, Caremark
is required to report such violations to the OIG and DOJ. Caremark is,
therefore, subject to increased regulatory scrutiny and, in the event it commits
legal or regulatory violations, Caremark may be subject to an increased risk of
sanctions or penalties, including disqualification as a provider of Medicare or
Medicaid services, which would have a material adverse effect on the operating
results and financial condition of MedPartners.
In connection with the matters described above relating to the OIG
Settlement, Caremark is a party to various non-governmental claims and may in
the future become subject to additional OIG-related claims. Caremark is a party
to, or the subject of, and may be subjected to in the future, various private
suits and claims (including stockholder derivative actions and an alleged class
action suit) being asserted in connection with matters relating to the OIG
Settlement by Caremark's stockholders, patients who received healthcare services
from Caremark and such patients' insurers. MedPartners cannot determine at this
time what costs may be incurred in connection with future disposition of
non-governmental claims or litigation. Such additional costs, if incurred, could
have a material adverse effect on the operating results and financial condition
of MedPartners. See "Business of MedPartners -- Legal Proceedings" and Note 13
to the consolidated financial statements of MedPartners set forth in
MedPartners' Annual Report on Form 10-K for the fiscal year ended December 31,
1996 and incorporated herein by reference.
In May 1996, three home infusion companies, purporting to represent a class
consisting of all of Caremark's competitors in the alternate site infusion
therapy industry, filed a complaint against Caremark, a subsidiary of Caremark,
and two other corporations in the United States District Court for the District
of Hawaii alleging violations of the federal conspiracy laws, the antitrust laws
and of California's unfair business practices statute. The complaint seeks
unspecified treble damages, and attorneys' fees and expenses. MedPartners
intends to defend this case vigorously. Although management believes, based on
information currently available, that the ultimate resolution of this matter is
not likely to have a material adverse effect on the operating results and
financial condition of MedPartners, there can be no assurance that the ultimate
resolution of this matter, if adversely determined, would not have a material
adverse effect on the operating results and financial condition of MedPartners.
14
<PAGE> 24
Private Payor Settlements. In March 1996, Caremark agreed to settle all
disputes with a number of private payors. These disputes relate to businesses
that were covered by the OIG Settlement. The settlements resulted in an
after-tax charge of approximately $42.3 million. In addition, MedPartners paid
$23.3 million after tax to cover the private payors' pre-settlement and
settlement-related expenses. An after-tax charge for the above amounts was
recorded in first quarter 1996 discontinued operations.
Coram Litigation. On September 11, 1995, Coram Healthcare Corporation
("Coram") filed a complaint in the San Francisco Superior Court against Caremark
and its subsidiary, Caremark Inc., and 50 unnamed individual defendants. The
complaint, which arises from Caremark's sale to Coram of Caremark's home
infusion therapy business in April 1995, for approximately $209.0 million in
cash and $100.0 million in securities, alleges breach of the Asset Sale and Note
Purchase Agreement, dated January 29, 1995, as amended April 1, 1995, between
Coram and Caremark, breach of related contracts, fraud, negligent
misrepresentation and a right to contractual indemnity. Requested relief in
Coram's amended complaint includes specific performance, declaratory relief,
injunctive relief and damages of $5.2 billion. Caremark filed counterclaims
against Coram in this lawsuit and also filed a lawsuit in the United States
District Court in Chicago claiming that Coram committed securities fraud in its
sale to Caremark of its securities in connection with the sale of Caremark's
home infusion business to Coram. The lawsuit filed in federal court in Chicago
has been dismissed, and Caremark's appeal of the dismissal was argued on May 10,
1996 and is now under submission. Coram's lawsuit is currently in the discovery
phase. In October 1996, Coram agreed to merge with Integrated Health Services,
Inc. ("IHS"). In connection with the merger agreement, IHS and MedPartners have
agreed to a settlement of the Coram litigation, contingent upon consummation of
the proposed merger, expected to be completed in the first quarter of 1997.
Under the settlement proposal, the notes that are now payable by Coram to
Caremark will be cancelled and replaced with a new two-year note in the
principal amount of $57.5 million. Caremark had previously established a reserve
for a portion of the $100 million in securities, and therefore, the terms of the
new note and commitments related to the transition of this business will not
result in any additional charge against earnings by MedPartners.
MedPartners and IHS/Coram will enter into long-term preferred provider
agreements pursuant to which IHS/Coram will provide services to the patients
served by MedPartners' integrated delivery systems on a national basis.
MedPartners understands that the acquisition of Coram by IHS is subject to the
usual conditions found in transactions of this type, including approval of the
stockholders of both companies, and is expected to be consummated late in the
first quarter of 1997. MedPartners has no control over the conduct of the
IHS/Coram transaction, and there can be no assurance that it will be
consummated.
Caremark Acquisition Litigation. In May 1996, two stockholders, each
purporting to represent a class, filed complaints against Caremark and each of
its directors in the Court of Chancery of the State of Delaware alleging
breaches of the directors' fiduciary duty in connection with Caremark's then
proposed merger with MedPartners. The complaints seek unspecified damages,
injunctive relief, and attorneys' fees and expenses. MedPartners believes these
complaints will not have a material adverse effect on the operating results and
financial condition of MedPartners. See "Business of MedPartners -- Legal
Proceedings" and Note 13 to the consolidated financial statements of MedPartners
set forth in MedPartners' Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 and incorporated herein by reference.
RISKS RELATING TO EXPOSURE TO PROFESSIONAL LIABILITY; LIABILITY INSURANCE
In recent years, physicians, hospitals and other participants in the
healthcare industry have become subject to an increasing number of lawsuits
alleging medical malpractice and related legal theories. Many of these lawsuits
involve large claims and substantial defense costs. Although MedPartners does
not engage in the practice of medicine or provide medical services, and does not
control the practice of medicine by its affiliated physicians or the compliance
with regulatory requirements directly applicable to the affiliated physicians
and physician groups, there can be no assurance that MedPartners will not become
involved in such litigation in the future. Through the ownership and operation
of Pioneer Hospital ("Pioneer Hospital"), U.S. Family Care Medical Center
("USFMC") and Friendly Hills Hospital ("Friendly Hills"), acute care hospitals
located in Artesia, Montclair and La Habra, California, respectively,
MedPartners could be subject to allegations of negligence and wrongful acts by
its hospital-based physicians or arising out of providing
15
<PAGE> 25
nursing care, emergency room services, credentialing of medical staff members
and other activities incident to the operation of an acute care hospital. In
addition, through its management of clinic locations and provision of
non-physician health care personnel, MedPartners could be named in actions
involving care rendered to patients by physicians employed by or contracting
with affiliated medical organizations and physician groups.
MedPartners maintains professional and general liability insurance.
Nevertheless, certain types of risks and liabilities are not covered by
insurance and there can be no assurance that the limits of coverage will be
adequate to cover losses in all instances. In addition, MedPartners' practice
management agreements require the affiliated physicians to maintain professional
liability insurance coverage on the practice and on each employee and agent of
the practice, and MedPartners generally is indemnified under each of the
practice management agreements by the affiliated physicians for liabilities
resulting from the performance of medical services. However, there can be no
assurance that a future claim or claims will not exceed the limits of these
available insurance coverages or that indemnification will be available for all
such claims. See "Business of MedPartners -- Corporate Liability and Insurance"
set forth in MedPartners' Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 and incorporated herein by reference.
GOVERNMENT REGULATION
Federal and state laws regulate the relationships among providers of
healthcare services, physicians and other clinicians. These laws include the
fraud and abuse provisions of the Medicare and Medicaid statutes, which prohibit
the solicitation, payment, receipt or offering of any direct or indirect
remuneration for the referral of Medicare or Medicaid patients or for
recommendation, leasing, arranging, ordering or purchasing of Medicare or
Medicaid covered services, as well as laws that impose significant penalties for
false or improper billings for physician services. These laws also impose
restrictions on physicians' referrals for designated health services to entities
with which they have financial relationships. Violations of these laws may
result in substantial civil or criminal penalties for individuals or entities,
including large civil monetary penalties and exclusion from participation in the
Medicare and Medicaid programs. Such exclusion and penalties, if applied to
MedPartners' affiliated physicians, could result in significant loss of
reimbursement.
Moreover, the laws of many states, including California (from which a
significant portion of MedPartners' revenues are derived), prohibit physicians
from splitting fees with non-physicians and prohibit non-physician entities from
practicing medicine. These laws and their interpretations vary from state to
state and are enforced by the courts and by regulatory authorities with broad
discretion. As stated in Note 1 to the consolidated financial statements of
MedPartners set forth in MedPartners' Annual Report on Form 10-K for the fiscal
year ended December 31, 1996 and incorporated herein by reference, MedPartners
believes that it has perpetual and unilateral control over the assets and
operations of the various affiliated professional corporations. There can be no
assurance that regulatory authorities will not take the position that such
control conflicts with state laws regarding the practice of medicine or other
federal restrictions. Although MedPartners believes its operations as currently
conducted are in material compliance with existing applicable laws, there can be
no assurance that the existing organization of MedPartners and its contractual
arrangements with affiliated physicians will not be successfully challenged as
constituting the unlicensed practice of medicine or that the enforceability of
the provisions of such arrangements, including non-competition agreements, will
not be limited. There can be no assurance that review of the business of
MedPartners and its affiliates by courts or regulatory authorities will not
result in a determination that could adversely affect their operations or that
the healthcare regulatory environment will not change so as to restrict existing
operations or expansion thereof. In the event of action by any regulatory
authority limiting or prohibiting MedPartners or any affiliate from carrying on
its business or from expanding the operations of MedPartners and its affiliates
to certain jurisdictions, structural and organizational modifications of
MedPartners may be required, which could have a material adverse effect on the
operating results and financial condition of MedPartners.
In addition to the regulations referred to above, significant aspects of
MedPartners' operations are subject to state and federal statutes and
regulations governing workplace health and safety, the operation of pharmacies,
repackaging of drug products, dispensing of controlled substances and the
disposal of medical waste. MedPartners' operations may also be affected by
changes in ethical guidelines and operating standards
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of professional and trade associations and private accreditation commissions
such as the American Medical Association and the Joint Commission on
Accreditation of Healthcare Organizations. Accordingly, changes in existing laws
and regulations, adverse judicial or administrative interpretations of such laws
and regulations or enactment of new legislation could have a material adverse
effect on the operating results and financial condition of MedPartners. See
"-- Risks Relating to Pharmacy Licensing and Operation".
As of December 31, 1996, approximately 6% of the revenues of MedPartners'
affiliated physician groups is derived from payments made by
government-sponsored healthcare programs (principally, Medicare and state
reimbursed programs). As a result, any change in reimbursement regulations,
policies, practices, interpretations or statutes could adversely affect the
operations of MedPartners. There are also state and federal civil and criminal
statutes imposing substantial penalties (including civil penalties and criminal
fines and imprisonment) on healthcare providers that fraudulently or wrongfully
bill governmental or other third-party payors for healthcare services.
MedPartners believes it is in material compliance with such laws, but there can
be no assurance that MedPartners' activities will not be challenged or
scrutinized by governmental authorities or that any such challenge or scrutiny
would not have a material adverse effect on the operating results and financial
condition of MedPartners.
Certain provisions of the Social Security Act, commonly referred to as the
"Anti-Kickback Statute", prohibit the offer, payment, solicitation, or receipt
of any form of remuneration in return for the referral of Medicare or state
health program patients or patient care opportunities, or in return for the
recommendation, arrangement, purchase, lease or order of items or services that
are covered by Medicare or state health programs. Many states have adopted
similar prohibitions against payments intended to induce referrals of Medicaid
and other third-party payor patients. The Anti-Kickback Statute contains
provisions prescribing civil and criminal penalties to which individuals or
providers who violate such statute may be subjected. The criminal penalties
include fines up to $25,000 per violation and imprisonment for five years or
more. Additionally, the DHHS has the authority to exclude anyone, including
individuals or entities, who has committed any of the prohibited acts from
participation in the Medicare and Medicaid programs. If applied to MedPartners
or any of its subsidiaries or affiliated physicians, such exclusion could result
in a significant loss of reimbursement for MedPartners, up to a maximum of the
approximately 6% of revenues derived from such programs, which could have a
material adverse effect on the operating results and financial condition of
MedPartners. Although MedPartners believes that it is not in violation of the
Anti-Kickback Statute or similar state statutes, its operations do not fit
within any of the existing or proposed federal safe harbors.
Significant prohibitions against physician referrals were enacted by the
federal Omnibus Budget Reconciliation Act of 1993. Subject to certain
exemptions, a physician or a member of his immediate family is prohibited from
referring Medicare or Medicaid patients to an entity providing "designated
health services" in which the physician has an ownership or investment interest
or with which the physician has entered into a compensation arrangement. While
MedPartners believes it is in compliance with such legislation, future
regulations could require MedPartners to modify the form of its relationships
with physician groups. Some states have also enacted similar self-referral laws,
and MedPartners believes it is likely that more states will follow. MedPartners
believes that its practices fit within exemptions contained in such statutes.
Nevertheless, expansion of the operations of MedPartners into certain
jurisdictions may require structural and organizational modifications of
MedPartners' relationships with physician groups to comply with new or revised
state statutes. Such structural and organizational modifications could have a
material adverse effect on the operating results and financial condition of
MedPartners.
The Knox-Keene Health Care Service Plan Act of 1975 (the "Knox-Keene Act")
and the regulations promulgated thereunder subject entities which are licensed
as healthcare service plans in California to substantial regulation by the
California Department of Corporations (the "DOC"). In addition, licensees under
the Knox-Keene Act are required to file periodic financial data and other
information (which generally become available to the public), maintain
substantial tangible net equity on their balance sheets and maintain adequate
levels of medical, financial and operational personnel dedicated to fulfilling
the licensee's statutory and regulatory requirements. The DOC is empowered by
law to take enforcement actions against licensees that fail to comply with such
requirements. On March 5, 1996, the DOC issued to Pioneer Provider Network, Inc.
("PPN"), a wholly-owned subsidiary of MedPartners, a healthcare service plan
license (the "Restricted
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License"). PPN is a recently created organization without an operating history,
and there is no assurance that the DOC will view PPN's operations to be fully in
compliance with applicable laws, including the Knox-Keene Act, and regulations.
Any material non-compliance could have a material adverse effect on the
operating results and financial condition of MedPartners.
RISKS RELATING TO PHARMACY LICENSING AND OPERATION
MedPartners is subject to federal and state laws and regulations governing
pharmacies. Federal controlled substance laws require MedPartners to register
its pharmacies with the United States Drug Enforcement Administration and comply
with security, record-keeping, inventory control and labeling standards in order
to dispense controlled substances. State controlled substance laws require
registration and compliance with the licensing, registration or permit standards
of the state pharmacy licensing authority. State pharmacy licensing,
registration and permit laws impose standards on the qualifications of the
applicant's personnel, the adequacy of its prescription fulfillment and
inventory control practices and the adequacy of its facilities. In general,
pharmacy licenses are renewed annually. Pharmacists must also satisfy state
licensing requirements. Any failure to satisfy such pharmacy licensing statutes
and regulations could have a material adverse effect on the operating results
and financial condition of MedPartners.
RISKS RELATING TO HEALTHCARE REFORM; PROPOSED LEGISLATION
As a result of the continued escalation of healthcare costs and the
inability of many individuals to obtain health insurance, numerous proposals
have been, and other proposals may be, introduced in the United States Congress
and state legislatures relating to healthcare reform. There can be no assurance
as to the ultimate content, timing or effect of any healthcare reform
legislation, nor is it possible at this time to estimate the impact of potential
legislation, which may be material, on MedPartners.
ANTI-TAKEOVER CONSIDERATIONS
Certain provisions of MedPartners' Second Amended and Restated Certificate
of Incorporation, as amended (the "MedPartners Certificate of Incorporation"),
MedPartners' Second Amended and Restated By-laws (the "MedPartners By-laws") and
the DGCL could, together or separately, discourage potential acquisition
proposals, delay or prevent a change in control of MedPartners. These provisions
include a classified Board of Directors and the issuance, without further
stockholder approval, of preferred stock with rights and privileges which could
be senior to MedPartners' Common Stock. MedPartners also is subject to Section
203 of the DGCL, which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any of a broad range of business combinations with
any "interested stockholder" for a period of three years following the date that
such stockholder became an interested stockholder. In addition, MedPartners
rights plan, which provides for discount purchase rights to certain stockholders
of MedPartners upon certain acquisitions of 10% or more of the outstanding
shares of MedPartners Common Stock, may also inhibit a change in control of
MedPartners.
POSSIBLE VOLATILITY OF STOCK PRICE; RISKS RELATING TO FIXED EXCHANGE RATIO
There may be significant volatility in the market price for the MedPartners
Common Stock. Quarterly operating results of MedPartners, changes in general
conditions in the economy, the financial markets or the healthcare industry, or
other developments affecting MedPartners or its competitors, could cause the
market price of the MedPartners Common Stock to fluctuate substantially. In
addition, in recent years, the stock market and, in particular, the healthcare
industry segment, has experienced significant price and volume fluctuations.
This volatility has affected the market prices of securities issued by many
companies for reasons unrelated to their operating performance.
The Plan of Merger provides for a fixed Exchange Ratio, with each InPhyNet
Share being converted into the right to receive 1.311 shares of MedPartners
Common Stock. The Plan of Merger does not contain any provisions for adjustment
of the Exchange Ratio based on fluctuations in the price of MedPartners Common
Stock. As a result of the fixed Exchange Ratio, the aggregate value of the
Merger Consideration to be received by stockholders of InPhyNet upon the Merger
will depend on the market price of the MedPartners Common
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Stock at the Effective Time. Because of the fixed Exchange Ratio, InPhyNet
stockholders share in the risks and rewards of ownership of MedPartners Common
Stock pending the closing of the Merger.
On January 20, 1997, the date of the Merger Agreement was signed, the
closing price of the MedPartners Common Stock on the NYSE was $21.875, and on
April , 1997, the closing price of the MedPartners Common Stock on the NYSE
was $ . There can be no assurance that the market price of the
MedPartners Common Stock on and after the Effective Time will not be lower than
either of such prices or the market price of the MedPartners Common Stock on the
date of the Special Meeting. Pursuant to the Plan of Merger, the Plan of Merger
may be terminated by InPhyNet if the average last sale price per share of the
MedPartners Common Stock, as reported on the NYSE Composite Tape for the ten
consecutive trading days ending on the fifth trading day immediately preceding
the date of the Special Meeting, is equal to or less than $17.125.
Consummation of the Merger could be delayed following approval of the
Merger at the Special Meeting as a result of, among other things, the failure to
obtain certain regulatory approvals or to satisfy other conditions to the
consummation of the Merger. See "The Merger -- Regulatory Approvals" and
"-- Conditions to the Merger". It is presently anticipated, however, that the
Merger will be consummated as soon as practicable after the Special Meeting. If,
however, the consummation of the Merger is delayed beyond the date of the
Special Meeting, holders of InPhyNet Common Stock have the risk that the market
price of the MedPartners Common Stock at the consummation of the Merger may be
less than the market price of the MedPartners Common Stock on the date of the
Special Meeting.
RISKS RELATING TO FEDERAL INCOME TAXES
If the Merger were not to constitute a tax-free reorganization under
Section 368(a) of the Code, each holder of InPhyNet Shares would recognize gain
or loss equal to the difference between the fair market value of the MedPartners
Common Stock received and cash received in lieu of fractional shares and such
holder's basis in the InPhyNet Shares exchanged therefor. See "The
Merger -- Federal Income Tax Consequences".
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THE SPECIAL MEETING
GENERAL
This Prospectus-Proxy Statement is being furnished to holders of InPhyNet
Shares in connection with the solicitation of proxies by the Board of Directors
of InPhyNet for use at the Special Meeting to consider and vote upon the
approval of the Plan of Merger at the Special Meeting or any adjournments or
postponements thereof. Each copy of this Prospectus-Proxy Statement mailed or
delivered to holders of InPhyNet Shares is accompanied by a form of Proxy for
use at the Special Meeting.
This Prospectus-Proxy Statement is also furnished to InPhyNet stockholders
as a Prospectus in connection with the issuance to them of the shares of
MedPartners Common Stock upon consummation of the Merger.
DATE, PLACE AND TIME
The Special Meeting is to be held at , on May , 1997
at a.m., local time.
RECORD DATE, QUORUM AND VOTING
The Board of Directors of InPhyNet has fixed the close of business on April
3, 1997 as the Record Date for the determination of the holders of InPhyNet
Shares entitled to receive notice of, and to vote at, the Special Meeting. The
presence, in person or by Proxy, of the holders of InPhyNet Shares entitled to
cast a majority of the votes entitled to be cast at the Special Meeting will
constitute a quorum at the Special Meeting. As of the Record Date, there were
16,370,128 shares of InPhyNet Common Stock issued and outstanding, which were
held by approximately stockholders of record. Each stockholder of
record as of that date is entitled to one vote for each share then held.
The Board of Directors of InPhyNet has unanimously approved the Plan of
Merger and recommends a vote in favor of the Plan of Merger at the Special
Meeting.
VOTE REQUIRED
Approval and adoption of the Plan of Merger by the stockholders of InPhyNet
require the affirmative vote of a majority of the issued and outstanding shares
of InPhyNet Common Stock as of the Record Date. The proposal to authorize the
Board of Directors to adjourn or postpone the Special Meeting, if necessary, to
permit the further solicitation of proxies must be approved by the affirmative
vote of a majority of the shares of InPhyNet Common Stock present or represented
by proxy and entitled to vote at the Special Meeting. Because the required vote
of InPhyNet stockholders to approve the Plan of Merger is based upon the total
number of outstanding shares, the failure to submit a proxy card (or to vote in
person at the Special Meeting) or the abstention from voting by an InPhyNet
stockholder (including broker non-votes) will have the same effect as a vote
"against" the approval and adoption of the Plan of Merger. As of the Record
Date, there were 16,370,128 shares of InPhyNet Common Stock issued and
outstanding. Accordingly, the affirmative vote of the holders of 8,185,065
shares of InPhyNet Common Stock is required to approve the Plan of Merger. As of
the Record Date, directors and executive officers of InPhyNet owned in the
aggregate 3,683,723 shares of InPhyNet Common Stock (or approximately 22.5% of
the outstanding shares of InPhyNet Common Stock). All the directors and
executive officers of InPhyNet have indicated their present intent to vote all
of the shares of InPhyNet Common Stock beneficially owned by them in favor of
the Plan of Merger and the proposal to authorize the Board of Directors to
adjourn or postpone, if necessary, the Special Meeting to permit the further
solicitation of proxies.
VOTING AND REVOCATION OF PROXIES
InPhyNet Shares represented by a Proxy properly signed and received at or
prior to the Special Meeting, unless subsequently revoked, will be voted in
accordance with the instructions thereon. IF A PROXY IS
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PROPERLY EXECUTED AND RETURNED WITHOUT INDICATING ANY VOTING INSTRUCTIONS,
INPHYNET SHARES REPRESENTED BY THE PROXY WILL BE VOTED FOR APPROVAL AND ADOPTION
OF THE PLAN OF MERGER and the proposal to permit the adjournment or postponement
of the Special Meeting. Any Proxy given pursuant to this solicitation may be
revoked by the person giving it at any time before the Proxy is voted by the
filing with the Secretary of InPhyNet of an instrument revoking it or of a duly
executed Proxy bearing a later date prior to or at the Special Meeting, or by
voting in person at the Special Meeting. Attendance at the Special Meeting will
not in and of itself constitute a revocation of a Proxy. The persons named as
proxies with respect to the Special Meeting may, if authorized, propose and vote
for one or more adjournments or postponements of the Special Meeting to permit
further solicitation of proxies in favor of the proposals to be considered at
the Special Meeting; provided, however, that no Proxy which is voted against the
Merger will be voted in favor of such proposal at any such adjournment or
postponement. Only votes cast FOR approval of the Plan of Merger or other
matters constitute affirmative votes. Abstentions and votes that are withheld
will, therefore, have the same effect as votes AGAINST approval of the Plan of
Merger.
The Board of Directors of InPhyNet is not aware of any business to be acted
upon at the Special Meeting other than as described in the Notice of the Special
Meeting or in this Prospectus-Proxy Statement. If, however, other matters are
properly brought before the Special Meeting, or any adjournments or
postponements thereof, the persons appointed as proxies will have discretion to
vote or act thereon according to their best judgment and subject to applicable
rules of the SEC.
Representatives of InPhyNet's independent public accountants, Ernst & Young
LLP, will be present at the Special Meeting to respond to appropriate questions
and will have the opportunity to make a statement if they desire to do so.
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers and employees of
InPhyNet, who will not be specifically compensated for such services, may
solicit proxies from the stockholders of InPhyNet personally or by telephone or
telegram or other form of communication. InPhyNet has retained ChaseMellon
Shareholder Services L.L.C. ("ChaseMellon") to solicit proxies on its behalf and
will pay ChaseMellon a fee of approximately $5,000 for these services. InPhyNet
will also reimburse ChaseMellon for its out-of-pocket expenses incurred in
connection with such solicitation. Copies of solicitation materials will be
furnished to banks, brokerage houses, fiduciaries and custodians holding in
their names shares of InPhyNet Common Stock beneficially owned by others to
forward to such beneficial owners. InPhyNet may reimburse persons representing
such beneficial owners for the costs of forwarding solicitation materials to
such beneficial owners. Except as otherwise provided in the Plan of Merger,
InPhyNet will bear its own expenses in connection with the solicitation of
proxies for the Special Meeting. See "The Merger -- Expenses; Breakup Fees".
INPHYNET STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY
CARDS. THE PROCEDURE FOR THE EXCHANGE OF INPHYNET SHARES AFTER THE MERGER IS
CONSUMMATED IS SET FORTH IN THIS PROSPECTUS-PROXY STATEMENT. SEE "THE
MERGER -- EXCHANGE OF CERTIFICATES".
THE MERGER
The description of the Merger contained in this Prospectus-Proxy Statement
summarizes the principal provisions of the Plan of Merger; it is not complete
and is qualified in its entirety by reference to the Plan of Merger, the full
text of which is attached hereto as Annex A. All InPhyNet stockholders are urged
to read Annex A carefully in its entirety.
TERMS OF THE MERGER
The acquisition of InPhyNet by MedPartners will be effected by means of the
merger of InPhyNet with and into the Subsidiary, with the Subsidiary being the
surviving corporation (the "Surviving Corporation").
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The Certificate of Incorporation and the By-laws of the Subsidiary in effect at
the Effective Time will become the Certificate of Incorporation and By-Laws of
the Surviving Corporation at the Effective Time until amended or repealed in
accordance with applicable law. After the Effective Time, the Subsidiary shall
continue as the surviving corporation of the Merger under the name "InPhyNet
Medical Management Inc.".
The Merger will become effective upon the filing of the Certificate of
Merger with the Secretary of the State of the State of Delaware, or such other
time as MedPartners, the Subsidiary and InPhyNet specify in the Certificate of
Merger. It is expected that the Merger will be consummated as soon as
practicable after the Special Meeting. See "Risk Factors -- Possible Volatility
of Stock Price; Risks Relating to Fixed Exchange Ratio".
Upon consummation of the Merger, each share of InPhyNet Common Stock, other
than shares held by InPhyNet or MedPartners, if any (which will be canceled),
will be converted into the right to receive 1.311 shares of MedPartners Common
Stock. For example, if an InPhyNet stockholder owned 100 shares of InPhyNet
Common Stock as of the Effective Time, that stockholder would receive 131 shares
of MedPartners Common Stock in the Merger. Each holder of InPhyNet Shares
exchanged pursuant to the Merger who would otherwise have been entitled to
receive a fraction of a share of MedPartners Common Stock will receive, in lieu
thereof, cash (without interest) in an amount equal to such fractional part of a
share of MedPartners Common Stock multiplied by the per share closing price on
the NYSE Composite Tape of MedPartners Common Stock on the date of the Effective
Time.
Because the Exchange Ratio of MedPartners Common Stock for the InPhyNet
Common Stock is fixed at 1.311 and will not increase or decrease due to
fluctuations in the market price of either stock, the aggregate value of the
Merger Consideration will change in the event the market price of MedPartners
Common Stock increases or decreases before the Effective Time. As a result, in
the event the market price of MedPartners Common Stock decreases as of the
Effective Time, the value of the MedPartners Common Stock to be received in the
Merger in exchange for the InPhyNet Common Stock would decrease. In the event
the market price of MedPartners Common Stock instead increases as of the
Effective Time, the value of the MedPartners Common Stock to be received in the
Merger in exchange for the InPhyNet Common Stock would increase. See "Risk
Factors -- Possible Volatility of Stock Price; Risks Relating to Fixed Exchange
Ratio".
On April , 1997, the closing price of MedPartners Common Stock was
$ . At such price, the Equivalent Value of a share of InPhyNet Common
Stock would be $ and the aggregate value of the Merger Consideration
would be approximately $ . The actual market price of the MedPartners
Common Stock may vary, which will cause a corresponding change in the Equivalent
Value and the aggregate value of the Merger Consideration. Each InPhyNet
stockholder is urged to obtain updated market information as to the MedPartners
Common Stock.
All options to acquire InPhyNet Common Stock which are outstanding at the
Effective Time will vest at such time and will be converted into and become
rights to purchase that number of shares of MedPartners Common Stock equal to
the number of InPhyNet Shares subject thereto multiplied by the Exchange Ratio
and will be exercisable at an exercise price per share equal to the InPhyNet
exercise price divided by the Exchange Ratio.
INPHYNET STOCKHOLDERS WILL NOT RECEIVE THEIR SHARES OF MEDPARTNERS COMMON
STOCK UNTIL FOLLOWING CONSUMMATION OF THE MERGER. SEE "-- EXCHANGE OF
CERTIFICATES".
BACKGROUND OF THE MERGER
Management of InPhyNet has recognized that the physician practice
management sector of the healthcare industry has become increasingly competitive
as a result of rapid consolidation, the entrance of new market participants and
continued pricing pressure. In order to address these competitive pressures and
achieve the benefits of economies of scale, diversification and greater market
presence, InPhyNet has pursued a business strategy of growth through
acquisitions. Since becoming a public company, InPhyNet has regularly considered
a variety of possible acquisitions and strategic alliances, including
acquisitions of smaller companies and mergers with comparably-sized or larger
companies.
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During the third quarter of 1996, the price of InPhyNet Common Stock
continued to trade at a price/ earnings multiple which was relatively lower than
other comparable physician practice management companies. InPhyNet management
believed that InPhyNet's low stock price adversely affected its ability to
implement its growth strategy. This strategy required InPhyNet to complete
accretive acquisitions. InPhyNet's low relative price/earnings multiple made it
difficult for the company to be competitive in significant stock-for-stock
transactions and to consummate accretive acquisitions. In addition, a
significant amount of restricted InPhyNet Common Stock became available for
resale in August 1996 under Rule 144 under the Securities Act, creating a market
perception of an overhang risk that could depress the market price of the
InPhyNet Common Stock. In light of the increasing competitive pressures faced by
InPhyNet and the risks these pressures placed on the company and its
stockholders, as well as the possibility that the stockholders of InPhyNet could
receive a significant premium in a business combination, Clifford Findeiss,
M.D., Chairman of the Board, President and Chief Executive Officer of InPhyNet,
began to explore the possibility of merging with another company, as a possible
alternative to remaining independent.
In early September 1996, Dr. Findeiss telephoned Larry R. House, President
and Chief Executive Officer of MedPartners, to discuss matters relating to
InPhyNet's ownership structure and the two companies' plans for the future.
Following this telephone call, representatives of InPhyNet and MedPartners met
in Birmingham, Alabama on September 18, 1996. Participants at the meeting were
Dr. Findeiss and George W. McCleary, Jr., Executive Vice President, Chief
Financial Officer and a Director of InPhyNet, and, on behalf of MedPartners, Mr.
House, Harold O. Knight, Jr., Executive Vice President and Chief Financial
Officer, and H. Lynn Massingale, M.D., President of MedPartners' hospital
physician services subsidiary, TeamHealth, Inc. The participants engaged in a
discussion of the broad outlines of a possible business combination between the
two companies. No specific transaction terms were discussed. At that meeting,
InPhyNet and MedPartners signed confidentiality agreements.
Dr. Findeiss and Mr. McCleary were concerned that InPhyNet's ongoing
business and acquisition strategy might be adversely affected by general
knowledge that InPhyNet would consider entering into a business combination with
a larger company. As a result of this concern, Dr. Findeiss sought advice from
InPhyNet's financial advisors, Morgan Stanley and McFarland Dewey & Co.
("McFarland Dewey"), on the recommended approach to follow to determine if a
business combination could be arranged that would provide (i) for the continued
growth of InPhyNet's business and (ii) a value and liquidity that the company's
stockholders would find attractive. In October 1996, Dr. Findeiss and Mr.
McCleary met with representatives of Morgan Stanley and McFarland Dewey to
discuss the strategic and financial issues facing InPhyNet. The financial
advisors advised Dr. Findeiss and Mr. McCleary that InPhyNet should contact a
selected group of potential merger partners to determine if a transaction could
be structured which would be in the best interests of InPhyNet and its
stockholders. Dr. Findeiss, Mr. McCleary and the financial advisors discussed
and agreed upon the potential parties to approach. The companies that were
selected to be approached were, in the opinion of the financial advisors, Dr.
Findeiss and Mr. McCleary, those which (i) shared a common strategic vision with
InPhyNet, (ii) would provide the best combination of value and liquidity, and
(iii) had the ability to close a transaction on a timely basis while maintaining
the confidentiality of the process. The list included MedPartners, among others.
In October and November 1996, the financial advisors began contacting these
companies.
During November 1996, InPhyNet's financial advisors provided several
companies with financial information regarding InPhyNet, after the execution of
confidentiality agreements, and engaged in preliminary discussions with
representatives of several companies, including MedPartners. These companies
were encouraged to consider the possibility of a business combination with
InPhyNet and to consider ranges of valuations. Three companies, MedPartners and
two other strategic buyers -- a physician practice management company smaller
than MedPartners ("Company One") and a diversified company ("Company Two") --
elected to participate in the process. During this same period, InPhyNet
continued its strategy of continuing to try to acquire other companies of equal
or lesser size.
On November 19, 1996, Dr. Findeiss and Mr. McCleary and representatives of
their financial advisors met at the offices of Morgan Stanley in New York, New
York with representatives of Company Two. At this meeting, the chief executive
officers of InPhyNet and Company Two discussed the strategic visions for their
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respective companies, the principal issues facing their companies and why they
were interested in pursuing a possible transaction together. There were no
discussions regarding price, structure or any other terms of a possible
transaction at such meeting. The parties agreed to continue discussions. On
December 11, 1996, Dr. Findeiss and Mr. McCleary and representatives of Company
Two and their respective financial advisors met in Fort Lauderdale, Florida to
further discuss the operations and strategy of InPhyNet. At this meeting,
Company Two informed InPhyNet that it was interested in either making a minority
investment in InPhyNet or acquiring all of InPhyNet. Company Two did not present
a firm proposal at or following these meetings. In early January 1997, Company
Two announced a large acquisition and informed Morgan Stanley that, as a result,
it would not be able to consider pursuing the acquisition of InPhyNet until the
middle of February, at the earliest. Dr. Findeiss and Mr. McCleary, in
consultation with InPhyNet's financial advisors, determined that it would not be
in the best interests of InPhyNet and its stockholders to delay the process in
order to wait for Company Two to decide whether or not to submit a firm
proposal.
MedPartners, through its financial advisor, Smith Barney Inc. ("Smith
Barney"), requested another meeting of the chief executive officers of
MedPartners and InPhyNet. On December 1, 1996, Mr. House and Dr. Findeiss met in
Fort Lauderdale, Florida to discuss the direction of, and opportunities
available in, the healthcare industry and their strategic visions for their
respective companies. At this meeting, Mr. House advised Dr. Findeiss of his
interest in seriously exploring the possibility of combining the two companies
and how the combined entity would be organized and operated.
On December 13, 1996, Mr. Knight, the Executive Vice President and Chief
Financial Officer of MedPartners, sent a letter to Dr. Findeiss expressing
MedPartners' interest in merging with InPhyNet in a tax-free, stock-for-stock,
pooling of interests transaction. MedPartners proposed to value the InPhyNet
Common Stock, based on the information available to it, in a range of $23 to $24
per share. Dr. Findeiss, after consultation with Mr. McCleary, Morgan Stanley
and McFarland Dewey, determined not to recommend the transaction, at the
valuation proposed, to InPhyNet's Board of Directors. InPhyNet, through Morgan
Stanley, advised Mr. Knight of Dr. Findeiss's decision.
On December 17, 1996, Dr. Findeiss and representatives of InPhyNet's
financial advisors met with members of senior management and representatives of
the financial advisor of Company One to discuss the strategic vision of each
company and the possible benefits to both companies of a business combination.
At this meeting, the representatives of Company One and its financial advisor
provided the InPhyNet representatives a business, financial and stock market
overview of Company One, and their views on the benefits of a strategic merger
of the two companies. The Company One representatives confirmed that Company One
was contemplating a stock-for-stock, pooling of interests merger with InPhyNet.
The Company One representatives provided a preliminary valuation of InPhyNet
that was lower than what Dr. Findeiss was prepared to recommend to InPhyNet's
Board of Directors. InPhyNet's financial advisors told Company One that the
proposed value was too low. The parties agreed to continue discussions.
Smith Barney, MedPartners' financial advisor, advised Morgan Stanley that
MedPartners would consider increasing its valuation of InPhyNet if it could
review InPhyNet's financial information in depth with InPhyNet's Chief Financial
Officer. Subsequently, MedPartners contacted Morgan Stanley to schedule a
meeting in early January to review financial information. On January 3, 1997,
members of senior management of TeamHealth, consisting of Lynn Massingale, David
Jones, Chief Financial Officer, Mike Hatcher, Chief Operating Officer, Ed
Novinski, Executive Vice President for Managed Care of MedPartners (who
participated by conference call), and representatives of MedPartners' financial
advisors met with Mr. McCleary and representatives of InPhyNet's financial
advisors to review the requested financial information. During the following
week, InPhyNet provided MedPartners additional information for use in reviewing
a possible business combination with InPhyNet and the companies, through their
financial advisors, discussed issues relating to the possible combination and a
range of possible terms.
From late December to early January, Morgan Stanley continued telephonic
discussions with MedPartners and Company One regarding their interest in
pursuing a business combination with InPhyNet. Morgan Stanley used these
telephone conversations to encourage MedPartners and Company One to submit their
best proposals. Morgan Stanley sought to guide MedPartners and Company One to
propose a range of
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values that would meet or exceed InPhyNet's expectations. These expectations
were developed by Dr. Findeiss in consultation with Mr. McCleary, Morgan Stanley
and McFarland Dewey and reflected primarily their knowledge of InPhyNet's
business, the valuations of other comparable companies and the valuations
achieved in other transactions.
In late December, Company One's financial advisor informed Morgan Stanley
that Company One was prepared to increase its valuation of InPhyNet above the
level that it had proposed at its December 17, 1996 meeting with InPhyNet.
On January 11, 1997, Mr. House telephoned Dr. Findeiss to request that
InPhyNet deal exclusively with MedPartners for a two-week period. Mr. House
advised Dr. Findeiss that MedPartners would be prepared to commence intensive
due diligence and concurrently enter into merger negotiations including the
negotiation of a definitive agreement. Mr. House told Dr. Findeiss that
MedPartners was willing to proceed on the basis of a $28 per share valuation of
the InPhyNet Common Stock in exchange for such exclusivity.
Although InPhyNet did not bind itself to deal exclusively with MedPartners,
it determined to proceed with MedPartners on this basis absent receipt of a
superior proposal from another party. Subsequent to the January 11, 1997 offer
by MedPartners, Morgan Stanley contacted Company One's financial advisor and
gave Company One an opportunity to present a superior proposal, but it declined
to do so. The decision to proceed with MedPartners was made by Dr. Findeiss, in
consultation with Mr. McCleary, Morgan Stanley and McFarland Dewey, based upon
the determination, from the perspective of both InPhyNet and its stockholders,
that MedPartners' proposal best addressed the criteria referred to above and
represented the most attractive proposal that had been received.
On January 15, 1997, Dr. Findeiss began advising other members of senior
management and members of the InPhyNet Board of Directors about the proposed
transaction with MedPartners. From January 15 to January 17, 1997, officers and
employees of MedPartners and InPhyNet, together with their respective legal and
financial advisors, conducted due diligence reviews and exchanged confidential
information in a series of meetings in Fort Lauderdale, Florida and Chicago,
Illinois. On January 16 and 17, 1997, representatives of MedPartners, including
Mr. Knight and other officers of MedPartners, and InPhyNet, including Dr.
Findeiss and Mr. McCleary, together with their legal and financial advisors,
discussed the terms of the proposed combination, including the structure of the
transaction, the consideration payable to the holders of InPhyNet Common Stock,
the treatment of the InPhyNet stock options, the tax and accounting treatment of
the transaction, management of the resulting entity, the conditions to
consummation of the transaction, the operations of each of the companies,
including the impact upon InPhyNet's ongoing mergers and acquisition activities,
during the period between the signing of a definitive agreement and the
consummation of the transactions contemplated thereby, regulatory matters and
possible termination fees. From January 17 to January 20, 1997, senior
management of MedPartners and InPhyNet and their respective legal counsel and
financial advisors negotiated the Plan of Merger. The principal areas of
negotiation included the Exchange Ratio, including how and when it would be
fixed, and whether it would be subject to adjustment based on changes in market
prices of the two companies' stock; representations and warranties; the interim
operations covenants; and the conditions required for a termination of the Plan
of Merger, the triggering events for the payment of a termination fee and the
amount of the fee. Morgan Stanley and McFarland Dewey, as co-financial advisors,
jointly advised the senior management of InPhyNet and participated in
negotiations with MedPartners and Smith Barney regarding all of the financial
aspects of the Plan of Merger. InPhyNet's financial advisors advised InPhyNet as
to the greater valuation that could be achieved from an all stock transaction
accounted for as a pooling of interests and from the synergies that could be
obtained in a merger of the two companies, as well as the risks and liquidity
associated with the MedPartners' Common Stock. Based on the analyses performed
by Morgan Stanley described under "Opinion of InPhyNet's Financial Advisor"
below, Morgan Stanley confirmed to senior management of InPhyNet that it would
be able to render an opinion as to the fairness of the terms of the Merger.
On January 18, 1997, the Board of Directors of InPhyNet held a special
meeting at which representatives of InPhyNet's management and legal and
financial advisors were present. The Board of Directors reviewed and discussed
the form and terms of the proposed Plan of Merger and reviewed alternative
opportunities for
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strategic alliances that had been explored by InPhyNet's management and its
financial advisors. At this meeting, InPhyNet's legal counsel outlined the
Board's fiduciary responsibilities in connection with the proposed transaction.
Management reviewed the history of its discussions with potential merger
partners. Management also discussed the current market conditions in the
healthcare industry and InPhyNet's competitive situation. Counsel reviewed the
terms of the proposed transaction with the Board. Ernst & Young described the
requirements for pooling of interests accounting treatment for the proposed
transaction. Morgan Stanley made a financial presentation to the Board of
Directors and rendered an oral opinion to the effect that, as of such date and
based upon and subject to certain matters, the proposed Exchange Ratio was fair
from a financial point of view to the holders of InPhyNet Common Stock. See
"-- Opinion of InPhyNet's Financial Advisor". The Board of Directors elected to
rely on the advice of Morgan Stanley as to the fairness of the Exchange Ratio
and did not request a supplemental fairness opinion from McFarland Dewey.
Counsel reviewed the form and terms of the proposed Plan of Merger with the
Board. Counsel, management and the financial advisors of InPhyNet reviewed the
results of the due diligence review of MedPartners. Based on the foregoing
discussions, the Board of Directors of InPhyNet, acting unanimously, directed
management to continue discussions with MedPartners and to finalize the terms of
the Plan of Merger.
On January 20, 1997, at a special telephonic meeting of the InPhyNet Board
of Directors in which InPhyNet's legal and financial advisors were present,
counsel reviewed with the Board of Directors the changes that had been made to
the terms and conditions of the proposed Plan of Merger. Management informed the
Board of Directors of InPhyNet that the proposed transaction had been
unanimously approved earlier that day by the Board of Directors of MedPartners.
Morgan Stanley confirmed their earlier oral opinion by delivering a written
opinion dated January 20, 1997, to the effect that as of January 20, 1997, and
based upon and subject to certain matters stated in such opinion, the Exchange
Ratio was fair, from a financial point of view, to the holders of InPhyNet
Common Stock. Following these discussions and taking into account the
discussions held during the InPhyNet Board of Directors meeting on January 18,
1997, the InPhyNet Board of Directors, without assigning more weight to one
factor than any other, approved the form, terms and conditions of the proposed
Plan of Merger, in the form submitted to the InPhyNet Board of Directors,
together with such changes as the President or Chief Financial Officer of
InPhyNet might authorize in their sole discretion. All of the directors voted in
favor of the proposed Plan of Merger.
On January 20, 1997, InPhyNet and MedPartners executed the Plan of Merger,
and issued a joint press release regarding the Merger on January 21, 1997.
RECOMMENDATION OF THE INPHYNET BOARD OF DIRECTORS
By unanimous vote of the members of the Board of Directors of InPhyNet at a
special meeting held on January 20, 1997, the Board of Directors determined that
the proposed Merger, and the terms and conditions of the Plan of Merger, were
fair to and in the best interests of InPhyNet and its stockholders and resolved
to recommend that the stockholders of InPhyNet vote FOR approval and adoption of
the Plan of Merger. See "-- Background of the Merger". In reaching its
conclusion to enter into the Plan of Merger and to recommend that the
stockholders of InPhyNet vote FOR the approval and adoption of the Plan of
Merger, the Board of Directors of InPhyNet considered a number of factors. The
material factors considered by the InPhyNet Board of Directors in reaching its
conclusion to approve and recommend the Plan of Merger were as follows:
(i) the InPhyNet Board of Directors' review and analysis of InPhyNet's
and MedPartners' respective businesses, prospects, historical and projected
financial performance, financial condition and operations. Based on these
factors, as well as those discussed below, InPhyNet's Board of Directors
determined that the Exchange Ratio reflected an appropriate valuation of
the InPhyNet Common Stock;
(ii) the InPhyNet Board of Directors' review of the trading range for
the InPhyNet Common Stock as compared to the Merger Consideration implied
by the Exchange Ratio. The Board of Directors determined that the Merger
Consideration represented a significant premium over the trading range for
the InPhyNet Common Stock during the preceding six months and represented a
valuation for InPhyNet that could not be achieved as quickly, if at all, if
InPhyNet were to remain an independent entity;
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(iii) the InPhyNet Board of Directors' review of the risks faced by
InPhyNet in implementing its acquisition strategy and the attendant risks
to InPhyNet's stockholders of the failure to implement the strategy on a
consistently successful basis. The Board of Directors observed that as a
result of (a) the increased competition for acquisitions in the physician
practice management sector, (b) the requirement that acquisitions be
accretive to earnings to meet quarterly earnings growth expectations, (c)
the relatively lower price/earnings multiple of the InPhyNet Common Stock,
compared to other comparable physician practice management companies, which
made it more difficult for InPhyNet to be competitive in significant
stock-for-stock transactions and (d) the inability to control the timing of
the closing of acquisitions, InPhyNet faced significant risks in
successfully carrying out its growth strategy. The Board of Directors also
observed that the failure by InPhyNet to implement an acquisition strategy
on a consistently successful basis and to meet quarterly earnings
expectations would likely have an adverse impact on the price of the
InPhyNet Common Stock. The Board believed that the Merger would mitigate
this risk. The Board noted that as a result of the Merger, the InPhyNet
stockholders would continue as stockholders of a larger, more diversified
combined organization having greater market and financial strength, and a
greater ability to execute an acquisition strategy than InPhyNet on a
stand-alone basis;
(iv) the InPhyNet Board of Directors' view of the greater liquidity
associated with MedPartners Common Stock. The Board of Directors determined
that MedPartners Common Stock presented the opportunity for greater
liquidity than was currently available to InPhyNet stockholders, because of
MedPartners' greater market capitalization and the fact that MedPartners
Common Stock is more widely traded than InPhyNet Common Stock, though the
Board noted the limited trading history of MedPartners Common Stock;
(v) the InPhyNet Board of Directors' review of the terms of the Plan
of Merger, including without limitation, the fixed Exchange Ratio which
allows the value of the consideration to be received by InPhyNet
stockholders to vary with fluctuations in the value of MedPartners Common
Stock, certain covenants in the Plan of Merger which restrict the manner in
which InPhyNet may conduct its business pending the Merger, and the
provision which permits InPhyNet to terminate the Plan of Merger if the
average last sale price per share of MedPartners Common Stock for a
specified period preceding the date for the Special Meeting is equal to or
less than $17.125 per share. The InPhyNet Board of Directors considered the
potential detrimental effect on InPhyNet's business if the Merger failed to
be completed. The InPhyNet Board of Directors noted that the company's
representatives had negotiated a merger agreement with limited closing
conditions in order to increase the likelihood that the Merger would be
consummated;
(vi) the opinion and related analyses of Morgan Stanley that, as of
the date of the opinion, the Exchange Ratio was fair, from a financial
point of view, to the stockholders of InPhyNet. In concluding that the
Merger was fair to and in the best interests of InPhyNet's stockholders,
the InPhyNet Board of Directors relied, among other things, on Morgan
Stanley's fairness opinion;
(vii) the review by the InPhyNet Board of Directors of the process by
which InPhyNet's financial advisors solicited indications of interest in
acquiring InPhyNet and the results of that process. The Board of Directors
noted that the financial terms of the proposed Merger were superior to the
terms of the other merger proposals that had been received by InPhyNet;
(viii) the review by the InPhyNet Board of Directors of the risks
relating to MedPartners described under "Risk Factors", including,
particularly, the risks under "Risks Relating to Integration in connection
with Acquisitions and the Merger", "Risks Relating to MedPartners' Growth
Strategy; Identification and Integration of Growth Opportunities", "Risks
Relating to Certain Caremark Legal Matters" and "Risks Relating to Exposure
to Professional Liability; Liability Insurance". The Board also reviewed
other risks associated with MedPartners and the proposed Merger, including
the fact that the MedPartners Common Stock has had a relatively short
trading history, the risk that, despite the efforts of InPhyNet and
MedPartners, InPhyNet clients may elect not to continue to contract with
MedPartners, the risk that the market price of the InPhyNet Common Stock
and the MedPartners Common Stock might be adversely affected by the
announcement of the Merger, the cost of integrating the operations of
InPhyNet and MedPartners and its impact on MedPartners after the Merger and
the risk that expected benefits sought
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to be obtained by the Merger might not be obtained. The Board of Directors
determined that these risks, if realized, could have a materially adverse
impact on the market value of MedPartners Common Stock, but that the
benefits of the Merger to InPhyNet and its stockholders outweighed such
risks;
(ix) the expectation that the Merger will generally be a tax-free
transaction to InPhyNet and its stockholders. The InPhyNet Board of
Directors recognized that the consideration to be received by the InPhyNet
stockholders in the Merger would be more valuable if the receipt of such
consideration was not treated as a taxable event; the InPhyNet Board of
Directors received advice from counsel that, based upon available
information and certain assumptions, the Merger should qualify as a
tax-free reorganization under the Code. The Board of Directors did not
attempt to decide at the time upon a course of conduct or recommendation in
the event the Merger could not be treated as a tax-free transaction; and
(x) the expectation that the Merger will be treated as a pooling of
interests under generally accepted accounting principles. The InPhyNet
Board of Directors discussed with its firm of independent public
accountants, Ernst & Young L.L.P., the requirements for pooling of
interests accounting. The Board of Directors did not attempt to decide at
that time upon a course of conduct or recommendation in the event the
Merger could not be accounted for as a pooling of interests.
The InPhyNet Board of Directors also reviewed the size of the $12 million
termination fee payable in certain circumstances if the Plan of Merger is
terminated, in relation to the size of InPhyNet and the potential benefits of
the Merger. The Board of Directors reviewed the circumstances under which such
fee would be payable by InPhyNet and the restrictions on InPhyNet's ability to
solicit potential acquirors other than MedPartners prior to the Closing. The
Board of Directors recognized that the termination fee and the restrictions on
solicitation of other acquirors may have the effect of decreasing the chances of
InPhyNet engaging in a business combination other than the Merger.
The foregoing discussion of the information and factors considered, while
not exhaustive, includes all material factors considered by the InPhyNet Board
of Directors. In view of the wide variety of factors considered, the Board of
Directors did not find it practical to, and did not, quantify or otherwise
assign relative weights to the specific factors considered, and individual
directors may have given differing weights to different factors. After taking
into consideration all the factors set forth above, the Board of Directors of
InPhyNet determined that the Merger was in the best interests of InPhyNet and
its stockholders and that InPhyNet should proceed with the Merger at that time.
OPINION OF INPHYNET'S FINANCIAL ADVISOR
InPhyNet retained Morgan Stanley to act as a financial advisor in
connection with the Merger. At the January 18, 1997 meeting of the InPhyNet
Board of Directors, Morgan Stanley rendered its oral opinion that, as of such
date and based upon and subject to the various considerations set forth in its
opinion, the Exchange Ratio pursuant to the Merger Agreement is fair, from a
financial point of view, to the holders of InPhyNet Common Stock. Morgan Stanley
subsequently delivered to the InPhyNet Board of Directors a written opinion
dated January 20, 1997 which was substantively identical to its January 18, 1997
oral opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF MORGAN STANLEY WHICH SETS FORTH,
AMONG OTHER THINGS, THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON
AND THE REVIEW UNDERTAKEN IS ATTACHED AS ANNEX B TO THIS PROSPECTUS-PROXY
STATEMENT. HOLDERS OF INPHYNET COMMON STOCK ARE URGED TO READ MORGAN STANLEY'S
OPINION CAREFULLY AND IN ITS ENTIRETY. MORGAN STANLEY'S OPINION IS DIRECTED TO
INPHYNET'S BOARD OF DIRECTORS AND TO THE FAIRNESS, FROM A FINANCIAL POINT OF
VIEW, OF THE EXCHANGE RATIO TO THE HOLDERS OF INPHYNET COMMON STOCK. SUCH
OPINION DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER NOR DOES IT CONSTITUTE A
RECOMMENDATION TO ANY HOLDER OF INPHYNET COMMON STOCK AS TO HOW TO VOTE AT THE
SPECIAL MEETING. THE SUMMARY OF THE OPINION OF MORGAN STANLEY SET FORTH IN THIS
PROSPECTUS-PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINION.
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In rendering its opinion, Morgan Stanley, among other things: (i) reviewed
certain publicly available financial statements and other information of
InPhyNet and MedPartners, respectively; (ii) reviewed certain internal financial
statements and other financial and operating data concerning InPhyNet and
MedPartners prepared by the managements of InPhyNet and MedPartners,
respectively; (iii) analyzed certain financial projections prepared by the
managements of InPhyNet and MedPartners, respectively; (iv) discussed the past
and current operations and financial condition and the prospects of InPhyNet and
MedPartners with senior executives of InPhyNet and MedPartners, respectively;
(v) reviewed the reported prices and trading activity for the InPhyNet Common
Stock and the MedPartners Common Stock; (vi) compared the financial performance
of InPhyNet and MedPartners and the prices and trading activity of the InPhyNet
Common Stock and the MedPartners Common Stock with that of certain other
comparable companies and their securities; (vii) reviewed and discussed with the
senior managements of InPhyNet and MedPartners the strategic objectives of the
Merger and certain other benefits of the Merger; (viii) analyzed certain pro
forma financial projections for the combined company prepared by InPhyNet and
MedPartners; (ix) reviewed and discussed with the senior managements of InPhyNet
and MedPartners their estimates of the synergies and cost savings expected to
result from the Merger; (x) reviewed the financial terms, to the extent publicly
available, of certain comparable merger transactions; (xi) participated in
discussions and negotiations among representatives of InPhyNet and MedPartners
and their financial and legal advisors; (xii) reviewed the Plan of Merger and
certain related documents; and (xiii) performed such other analyses and
considered such other factors as Morgan Stanley deemed appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by Morgan Stanley for purposes of its opinion. With respect to the
financial projections, including the estimates of synergies and other benefits
expected from the Merger, Morgan Stanley assumed that they were reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the future financial performance of InPhyNet and MedPartners,
respectively. Morgan Stanley did not make any independent appraisal or valuation
of the assets or liabilities of InPhyNet and MedPartners, respectively, nor was
Morgan Stanley furnished with any such appraisals. Morgan Stanley also assumed
that the Merger will be accounted for as a pooling of interests business
combination in accordance with GAAP, will qualify as a reorganization under the
provisions of Section 368(a) of the Code and will be consummated in accordance
with the terms set forth in the Plan of Merger. The Morgan Stanley opinion is
necessarily based on economic, market and other conditions as in effect on, and
the information made available to Morgan Stanley as of, the date of the opinion.
The following is a brief summary of the material analyses performed by
Morgan Stanley and reviewed with InPhyNet's Board in connection with the
preparation of Morgan Stanley's opinion and with its oral presentation to
InPhyNet's Board of Directors on January 18, 1997:
InPhyNet Common Stock Performance. Morgan Stanley's analysis of the
InPhyNet Common Stock performance consisted of an historical analysis of
closing prices and trading volumes from August 18, 1994 to January 16, 1997
and compared such performance to that of the S&P 400 Index and a group
consisting of the following physician practice management companies from
August 18, 1994 to January 16, 1997; AHI Healthcare Inc., Phycor Inc.,
MedCath Inc., Physicians Reliance Network Inc., EmCare Inc., Coastal
Physician Group, Inc., MedPartners, FPA Medical Management, Inc. and
Sheridan Healthcare Inc. (the "PPM Comparables Index"). During this period,
based on closing prices on the NASDAQ, the InPhyNet Common Stock achieved a
high of $28.00 and a low of $9.75 per share. InPhyNet Common Stock closed
at a price of $21.875 on January 16, 1997. Morgan Stanley noted that the
InPhyNet Common Stock outperformed the PPM Comparables Index.
Public Market Trading Analysis. Morgan Stanley reviewed and analyzed
certain available financial and market information for a group of six
publicly traded companies (MedPartners, Phycor Inc., Phymatrix, FPA Medical
Management, Inc., EmCare Inc. and Sheridan Healthcare Inc. (the "Comparable
Companies")) that, in Morgan Stanley's judgment, were in a comparable
business to InPhyNet for the purposes of this analysis. Such financial and
market information included, among other things, earnings per share, market
price as a multiple of earnings per share and aggregate value as a multiple
of revenue and of earnings before interest and taxes ("EBIT"). Morgan
Stanley noted that as of
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January 10, 1997, based on a compilation of earnings projections by
securities research analysts, InPhyNet traded at 17.4x forecasted earnings
for the calendar year 1996 and 14.0x forecasted earnings for the calendar
year 1997, compared to a range of multiples of 12.4x to 36.1x forecasted
earnings for the calendar year 1997 for the Comparable Companies. Morgan
Stanley noted that only one company used in the Comparable Companies
analysis traded at a multiple of 1997 forecasted earnings that was below
InPhyNet, and the majority of the companies considered traded at a multiple
of forecasted 1997 earnings 30% greater than InPhyNet. Morgan Stanley noted
that EmCare Inc. and Sheridan Healthcare Inc., which are hospital-based
physician practice management companies comparable to InPhyNet, traded at
12.4x and 16.6x 1997 forecasted earnings, respectively, implying a value
range of $16.12 to $21.58 per share of InPhyNet Common Stock.
No company utilized in the Comparable Companies analysis is identical
to InPhyNet. Accordingly, an analysis of the results of the foregoing
necessarily involves complex considerations and judgments concerning
differences in financial and operating characteristics of the companies and
other factors that could affect the public trading value of the companies
to which they are being compared. In evaluating the Comparable Companies,
Morgan Stanley made judgments and assumptions with regard to industry
performance, general business, economic, market and financial conditions
and other matters, many of which are beyond the control of InPhyNet, such
as the impact of competition on InPhyNet and the industry generally,
industry growth and the absence of any adverse material change in the
financial conditions and prospects of InPhyNet or the industry or in the
financial markets in general. Mathematical analysis (such as determining
the mean or median) is not, in itself, a meaningful method of using
comparable company data.
Analysis of Selected Precedent Transactions. Morgan Stanley reviewed
the financial terms, to the extent publicly available, of various completed
merger and acquisition transactions in the physician practice management
industry announced since the beginning of 1995. Morgan Stanley considered
the acquisitions made by MedPartners and FPA Medical Management, Inc. as
the most relevant given their size and date. These transactions
(acquiree/acquiror) were: Cardinal Healthcare P.A./MedPartners; Summit
Medical Group/MedPartners; Caremark International/MedPartners; Atlanta
Allergy & Asthma/MedPartners; Pacific Physician Services/MedPartners;
Mullikin Medical Enterprises/ MedPartners; AHI Healthcare Systems/FPA
Medical Management; Foundation Health Medical Services/FPA Medical
Management; Sterling Healthcare Group/FPA Medical Management; Physicians
First, Inc./FPA Medical Management; three independent California IPAs/FPA
Medical Management; Gonzabo MSO/FPA Medical Management (collectively, the
"Precedent Transactions"). For those Precedent Transactions in which such
information was available, Morgan Stanley reviewed the prices paid in such
transactions in terms of the equity value as a multiple of estimated net
income for the next twelve months following the announcement, and in terms
of the aggregate value (defined as equity value plus long-term debt and
short-term debt plus deferred tax liability and credits plus minority
interest less cash and cash equivalents (the "Aggregate Value")) as a
multiple of revenue and EBIT for the last twelve months prior to the
announcement, and the premium to the market trading price one month prior
to the announcement paid. Morgan Stanley noted MedPartners' acquisition of
Pacific Physician Services Inc. as the most comparable to the proposed
Merger. The equity value of this transaction was 21.0x next twelve months'
earnings, indicating a value of $27.30 per share of InPhyNet Common Stock.
Morgan Stanley advised the Board of Directors of InPhyNet that, in
analyzing the results of the Precedent Transaction analysis, the Board of
Directors of InPhyNet should consider the size and demographic and economic
characteristics of each physician practice management company acquired and
the market environment in which the transaction occurred.
No transaction utilized as a comparison in the comparable transaction
analysis is identical to the Merger in both timing and size, and that,
accordingly, an analysis of the results of the foregoing necessarily
involves complex considerations and judgments concerning differences in
financial and operating characteristics of InPhyNet and other factors that
would affect the acquisition value of the companies to which it is being
compared. In evaluating the Precedent Transactions, Morgan Stanley made
judgments and assumptions with regard to industry performance, general
business, economic,
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market and financial conditions and other matters, many of which are beyond
the control of InPhyNet, such as the impact of competition on InPhyNet and
the industry generally, industry growth and the absence of any adverse
material change in the financial conditions and prospects of InPhyNet or
the industry or in the financial markets in general.
Discounted Cash Flow Analysis. Morgan Stanley conducted a discounted
cash flow analysis to estimate the range of present values per share of
InPhyNet Common Stock. To arrive at a valuation of InPhyNet, Morgan Stanley
discounted the unleveraged (before interest expense) after-tax cash flows
that resulted from the aforementioned assumptions using a range of discount
rates of 13% to 15%, which Morgan Stanley viewed as the appropriate
discount rate range for a company with InPhyNet's risk characteristics.
This range was based on the weighted average cost of capital for InPhyNet.
Unleveraged after-tax cash flows were calculated as the after-tax operating
earnings of InPhyNet plus projected depreciation and amortization, plus (or
minus) net changes in non-cash working capital, minus projected capital
expenditures. Morgan Stanley added to the present value of the cash flows
the terminal value of InPhyNet in the year 2001, discounted back at the
same discount rates. The terminal value was computed by multiplying
InPhyNet net income in the calendar year 2001 by a range of terminal
multiples of 15x to 17x. The discounted cash flow valuation indicated a
reference range of InPhyNet of between $18.53 and $23.01 per fully diluted
share.
Pro Forma Analysis. Morgan Stanley analyzed the pro forma impact of
the Merger on MedPartners' earnings per share for the fiscal years ended
1997 and 1998. Such analysis was based on earnings estimates provided by
First Call for InPhyNet and MedPartners for the fiscal year 1997 which were
assumed to grow at the expected five-year EPS growth rate provided by
I/B/E/S for the year 1998. Morgan Stanley observed that, if the Merger was
treated as a pooling of interests for accounting purposes, and if no
synergies were assumed, the issuance of MedPartners Common Stock in the
Merger would have a dilutive effect on pro forma earnings per share of
MedPartners of approximately 1.8% in fiscal year 1997 and 3.2% in fiscal
year 1998 assuming each share of InPhyNet were exchanged for a
consideration of $28.00 in MedPartners Common Stock.
In connection with the review of the Merger by the InPhyNet Board of
Directors, Morgan Stanley performed a variety of financial and comparative
analyses for purposes of its opinion given in connection therewith. The
preparation of a fairness opinion is a complex process and is not necessarily
susceptible to a partial analysis or summary description. In arriving at its
opinion, Morgan Stanley considered the results of its analyses as a whole and
did not attribute any particular weight to any analysis or factor considered by
it. Morgan Stanley believes that its analyses must be considered as a whole and
that selecting portions of its analyses, without considering all analyses and
factors, would create an incomplete view of the process underlying its opinion.
In addition, Morgan Stanley may have deemed various assumptions more or less
probable than other assumptions, so that the range of valuations resulting for
any particular analysis described above should not be taken to be Morgan
Stanley's view of the actual value of InPhyNet.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of InPhyNet or MedPartners.
The analyses performed by Morgan Stanley are not necessarily indicative of
actual values, which may be significantly more or less favorable than suggested
by such analyses. Such analyses were prepared solely as a part of Morgan
Stanley's analysis of the fairness of the consideration from a financial point
of view to holders of InPhyNet Common Stock and were provided to InPhyNet's
Board in connection with the delivery of Morgan Stanley's written opinion on
January 20, 1997. In addition, as described above, Morgan Stanley's opinion and
presentation to InPhyNet's Board was one of the many factors taken into
consideration by InPhyNet's Board in making its determination to approve the
Merger. Consequently, the Morgan Stanley analyses described above should not be
viewed as determinative of the opinion of the Board of Directors of InPhyNet
with respect to the value of InPhyNet or of whether the Board of InPhyNet would
have been willing to agree to a different consideration.
The Board of Directors of InPhyNet retained Morgan Stanley based upon its
experience and expertise. Morgan Stanley is an internationally recognized
investment banking and advisory firm. Morgan Stanley, as
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part of its investment banking business, is continuously engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. Morgan Stanley is a full service
securities firm, engaged in securities trading and brokerage activities, as well
as providing investment banking and financial advisory services. In the ordinary
course of Morgan Stanley's trading and brokerage activities, Morgan Stanley or
its affiliates may at any time hold long or short positions, may trade or
otherwise effect transactions, for its own account or for the account of
customers, in debt or equity securities of InPhyNet or MedPartners. Over the
past two years Morgan Stanley has not provided any material financial advisory
or financing services to InPhyNet, except that in 1996, InPhyNet retained Morgan
Stanley to provide financial advisory services with respect to a possible
acquisition. The acquisition was not completed and no fees were paid to Morgan
Stanley.
Pursuant to a letter agreement dated as of January 15, 1997, between
InPhyNet and Morgan Stanley, InPhyNet retained Morgan Stanley to render advisory
services in connection with the Merger. InPhyNet has agreed to pay Morgan
Stanley fees for its financial advisory services in connection with the Merger
consisting of (i) an opinion fee of $250,000, which was paid at the time of the
delivery of the Morgan Stanley fairness opinion, and (ii) an additional
transaction advisory fee (estimated to be between $3.5 and $4.0 million),
payable only upon consummation of the Merger based on the value of the
transaction as determined at the time of the Merger. The opinion fee will be
credited against the transaction fee. InPhyNet has also agreed to reimburse
Morgan Stanley for its out-of-pocket expenses, including the fees of its legal
counsel, and to indemnify Morgan Stanley for liabilities and expenses arising
out of its engagement and the transactions in connection therewith, including
liabilities under the federal securities laws, incurred in connection with its
services.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the Board of Directors of InPhyNet
with respect to the Plan of Merger and the transactions contemplated thereby,
stockholders of InPhyNet should be aware that certain directors and officers of
InPhyNet have certain interests in the Merger that are in addition to the
interests of the stockholders generally. In accordance with the requirements of
Delaware law, all such interests, which are described below, were identified and
fully disclosed to the Board of Directors of InPhyNet at the special meeting of
the Board of Directors held on January 18, 1997.
The Merger will constitute a "change of control" for purposes of InPhyNet's
executive employment agreements. All of the directors who are officers of
InPhyNet (other than Erie D. Chapman, III) have change of control provisions in
their respective employment agreements that provide for severance payments in an
amount equal to (i) 1.5 times such officer's annual salary if, within 12 months
following a change of control, the officer terminates his employment for any
reason or the Surviving Corporation terminates such officer's employment other
than for disability or cause, and (ii) 0.5 times such officer's annual salary
if, at least 12 but not more than 25 months following a change of control, the
Surviving Corporation terminates such officer's employment other than for
disability or cause or if the officer terminates his employment for good reason.
For InPhyNet's fiscal year ended December 31, 1996, the annual salaries of
InPhyNet's executive officers (other than Mr. Chapman) were as follows: Dr.
Findeiss ($362,500); Mr. McCleary ($350,000); Ms. Prado ($290,000); Dr. Creed
($253,750); Dr. Principe ($203,000); and Dr. Weinstein ($208,075).
Because the Merger constitutes a "change of control" for purposes of
InPhyNet's stock option plans, it will result in the vesting of all options
outstanding under such plans which are currently unvested. Five directors of
InPhyNet have current option grants which will vest as a result of the Merger:
Erie D. Chapman, III (126,667 options at exercise prices ranging from $16.00 to
$17.375 per share); Thomas E. Dewey, Jr. (7,501 options at exercise prices
ranging from $12.00 to $23.625); George W. McCleary, Jr. (64,335 options at
exercise prices ranging from $12.00 to $19.76 per share); Marta Prado (60,668
options at exercise prices ranging from $12.00 to $19.76 per share); and Donald
C. Wegmiller (7,501 options at exercise prices ranging from $12.00 to $23.625).
Assuming the market price of MedPartners Common Stock is $22.00 per share (which
is equivalent to $28.84 per share of InPhyNet Common Stock based on the Exchange
Ratio), the in-
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the-money values of these options are as follows: Mr. Chapman ($1,461,658); Mr.
Dewey ($90,601); Mr. McCleary ($776,970); Ms. Prado ($730,730); and Mr.
Wegmiller ($90,601).
Upon consummation of the Merger, Clifford Findeiss, Chairman of the Board,
Chief Executive Officer and President, will become President of the
Institutional Services Division for MedPartners. The terms and conditions of Dr.
Findeiss's employment with MedPartners, including salary, will continue to be
governed by Dr. Findeiss's existing employment contract with InPhyNet.
McFarland Dewey has been financial advisor to InPhyNet since November 1992,
and has advised the company on financings and merger and acquisition strategy
and implementation since that date. Working in conjunction with Morgan Stanley,
McFarland Dewey advised InPhyNet's management and participated in the meetings
and negotiations described under "-- Background of the Merger". On January 17,
1997, a letter agreement was executed between InPhyNet and McFarland Dewey
formalizing McFarland Dewey's role in connection with the Merger. Pursuant to
the letter agreement, InPhyNet agreed to pay McFarland Dewey an advisory fee
(estimated to be between $1.7 and $2.0 million) based upon the aggregate value
of the transaction, of which $125,000 became payable upon the mailing of this
Prospectus-Proxy Statement and the balance will become payable upon consummation
of the Merger. InPhyNet has also agreed to reimburse McFarland Dewey for its
out-of-pocket expenses, including the fees of its legal counsel, and to
indemnify McFarland Dewey for liabilities and expenses arising out of its
engagement and the transactions in connection therewith, including liabilities
under federal securities laws, incurred in connection with its services. Thomas
E. Dewey, Jr., a director of InPhyNet, is a general partner in McFarland Dewey.
In addition, a brother of InPhyNet's Chief Financial Officer is a general
partner in McFarland Dewey.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon the filing of the Certificate of
Merger, executed in accordance with the relevant provisions of the DGCL, with
the Secretary of State of the State of Delaware, or at such other time as
MedPartners, the Subsidiary and InPhyNet agree should be specified in the
Certificate of Merger. The Plan of Merger requires that all filings required
under the DGCL be made as soon as practicable on or after the date of the
Special Meeting and following satisfaction or waiver of all conditions of each
party to consummate the Merger, or at such other time as may be agreed upon by
MedPartners and InPhyNet. As of the date of this Prospectus-Proxy Statement, the
parties to the Plan of Merger expect that the Certificate of Merger will be
filed, and the Merger consummated, as soon as practicable after the Special
Meeting.
EXCHANGE OF CERTIFICATES
Exchange Agent. Prior to the Effective Time, MedPartners will enter into
an agreement with First Chicago Trust Company of New York, New York, New York
(the "Exchange Agent"), which will provide that MedPartners shall deposit with
the Exchange Agent as of the Effective Time, for the benefit of the holders of
the InPhyNet Shares, (i) certificates representing the shares of MedPartners
Common Stock issuable pursuant to the Plan of Merger and (ii) cash in an amount
equal to the aggregate amount required to be paid in lieu of fractional shares,
together with any dividends or distributions paid with respect to the
MedPartners Common Stock with a record date after the Effective Time.
Exchange Procedures. As soon as reasonably practicable after the Effective
Time, the Exchange Agent will mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding InPhyNet Shares (the "InPhyNet Certificates"), (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the InPhyNet Certificates shall pass, only upon delivery of
the InPhyNet Certificates to the Exchange Agent and shall be in such form and
have such other provisions as MedPartners may reasonably specify), and (ii)
instructions for use in effecting the surrender of the InPhyNet Certificates in
exchange for certificates representing shares of MedPartners Common Stock. Upon
surrender of an InPhyNet Certificate to the Exchange Agent, together with such
letter of transmittal, duly executed, and such other documents as may reasonably
be required by the Exchange Agent, the holder of such InPhyNet Certificate shall
be entitled to receive in exchange therefor a certificate representing that
number of whole shares of MedPartners Common Stock which such holder has the
right to
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receive pursuant to the provisions of the Plan of Merger. In the event of a
transfer of ownership of InPhyNet Shares which is not registered in the transfer
records of InPhyNet, a certificate representing the proper number of shares of
MedPartners Common Stock may be issued to a person other than the person in
whose name the InPhyNet Certificate so surrendered is registered, if such
InPhyNet Certificate shall be properly endorsed or otherwise be in proper form
for transfer and the person requesting such issuance shall pay any transfer or
other taxes required by reason of the issuance of shares of MedPartners Common
Stock to a person other than the registered holder of such InPhyNet Certificate
or establish to the satisfaction of MedPartners that such tax has been paid or
is not applicable. Until surrendered as contemplated by the Plan of Merger, each
InPhyNet Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the certificate
representing shares of MedPartners Common Stock and cash in lieu of any
fractional shares of MedPartners Common Stock as contemplated by the Plan of
Merger. No interest will be paid or will accrue on any cash payable in lieu of
any fractional shares of MedPartners Common Stock. To the extent permitted by
law, former holders of record of InPhyNet Shares shall be entitled to vote after
the Effective Time at any meeting of MedPartners stockholders the number of
whole shares of MedPartners Common Stock into which their respective InPhyNet
Shares are converted, regardless of whether such holders have received their
certificates representing MedPartners Common Stock in accordance with the Plan
of Merger.
No certificates or scrip representing fractional shares of MedPartners
Common Stock shall be issued upon conversion of InPhyNet Shares, and such
fractional share interests will not entitle the owner thereof to vote or to any
rights as a stockholder of MedPartners. Notwithstanding any other provision of
the Plan of Merger, each holder of InPhyNet Shares exchanged pursuant to the
Merger who would otherwise have been entitled to receive a fraction of a share
of MedPartners Common Stock shall receive, in lieu thereof, cash (without
interest) in an amount equal to such fractional part of a share of MedPartners
Common Stock multiplied by the per share closing price of the MedPartners Common
Stock on the NYSE Composite Tape on the date of the Effective Time.
At the Effective Time, holders of InPhyNet Shares immediately prior to the
Effective Time will cease to be, and shall have no rights as, holders of
InPhyNet Shares, other than the right to receive shares of MedPartners Common
Stock into which such shares have been converted and any fractional share
payment and any dividends or other distributions with respect to MedPartners
Common Stock that are payable to holders of record after the Effective Time.
Neither MedPartners nor InPhyNet will be liable to any holder of InPhyNet
Shares for any shares of MedPartners Common Stock (or dividends or other
distributions with respect thereto) or cash in lieu of fractional shares
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
CONDITIONS TO THE MERGER
The obligations of MedPartners and the Subsidiary to consummate the Merger
are subject to, among others, the following conditions (any of which may be
waived by MedPartners and the Subsidiary (see "-- Waiver and Amendment" below)):
(i) InPhyNet shall have performed in all material respects all its obligations
required to be performed by it pursuant to the Plan of Merger at or prior to the
Closing Date; (ii) the representations and warranties of InPhyNet set forth in
the Plan of Merger shall be true and correct in all material respects as of both
the date of the Plan of Merger and the Closing Date, except to the extent an
earlier date is specified, in which case such representations and warranties
shall be true and correct, in all material respects, as of such earlier date;
(iii) MedPartners shall have received the opinion of Haskell Slaughter & Young,
L.L.C. that the Merger constitutes a tax-free reorganization under the Code and
the opinion of Willkie Farr & Gallagher with respect to customary corporate
matters, including corporate authority, capitalization, no conflicts and
compliance with federal securities laws; and (iv) all consents, authorizations,
orders and approvals of (or filings or registrations with) any governmental
commission, board or other regulatory body required in connection with the
execution, delivery and performance of the Plan of Merger shall have been
obtained or made, except for filings in connection with the Merger and any
documents required to be filed after the Effective Time.
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The obligation of InPhyNet to consummate the Merger is subject to, among
others, the following conditions (any of which may be waived by InPhyNet,
subject to the limitations discussed under "-- Waiver and Amendment" below): (i)
MedPartners and the Subsidiary shall have performed in all material respects all
their obligations that are required to be performed by them pursuant to the Plan
of Merger at or prior to the Closing Date; (ii) the representations and
warranties of MedPartners and the Subsidiary set forth in the Plan of Merger
shall be true and correct in all material respects as of both the date of the
Plan of Merger and the Closing Date, except to the extent an earlier date is
specified, in which case such representations and warranties shall be true and
correct, in all material respects, as of such earlier date; (iii) InPhyNet shall
have received the opinion of Willkie Farr & Gallagher that the Merger
constitutes a tax-free reorganization under the Code and the opinion of Haskell
Slaughter & Young, L.L.C. with respect to customary corporate matters, including
corporate authority, capitalization, no conflicts and compliance with federal
securities laws; and (iv) all consents, authorizations, orders and approvals of
(or filings of registrations with) any governmental commission, board or other
regulatory body required in connection with the execution, delivery and
performance of the Plan of Merger shall have been obtained or made, except for
filings in connection with the Merger and any documents required to be filed
after the Effective Time.
The obligation of each of MedPartners, the Subsidiary and InPhyNet to
consummate the Merger is subject to certain additional conditions, including the
following (any of which may be waived by MedPartners, the Subsidiary and
InPhyNet, subject to the limitations discussed under "-- Waiver and Amendment"
below): (i) no order, decree or injunction by a U.S. federal or state court of
competent jurisdiction preventing the consummation of the Merger or imposing any
material limitation on the ability of MedPartners effectively to exercise full
rights of ownership of the common stock of InPhyNet following the Effective Time
or any material portion of the assets or business of InPhyNet, shall be in
effect; (ii) no statute, rule or regulation shall have been enacted by the
government of the United States or any state that makes the consummation of the
Merger or any other transaction contemplated by the Plan of Merger illegal;
(iii) the Merger shall have been approved by the requisite votes of the holders
of the outstanding InPhyNet Shares; (iv) the shares of MedPartners Common Stock
to be issued in connection with the Merger shall have been listed on the NYSE,
upon official notice of issuance, and shall be registered or qualified in
transactions qualified or exempt from registration under applicable securities
laws of such states of the United States as may be required; (v) MedPartners and
InPhyNet shall each have received at closing a letter from Ernst & Young LLP to
the effect that they concur with the conclusion of management of MedPartners and
InPhyNet as to the appropriateness of pooling of interests accounting treatment
under APB Opinion No. 16 if the Merger is closed and consummated in accordance
with the Plan of Merger; and (vi) the Registration Statement, of which this
Prospectus-Proxy Statement forms a part, shall have been declared effective
under the Securities Act and shall not be subject to any stop order.
REPRESENTATIONS AND COVENANTS
Under the Plan of Merger, MedPartners, the Subsidiary and InPhyNet have
each made a number of representations regarding the organization and
capitalization of their respective companies and their affiliates, their
operations, financial condition and other matters, including their authority to
enter into the Plan of Merger and to consummate the Merger. Under the Plan of
Merger, InPhyNet has agreed not to encourage, solicit, participate in or
initiate discussions or negotiations with or provide any information to any
third party concerning any merger, sale of assets, sale of or tender offer for
its shares or similar transactions involving all or any significant portion of
the equity securities of InPhyNet or the assets of InPhyNet and its
subsidiaries, except that InPhyNet may furnish information to and negotiate with
an unsolicited third party consistent with the good faith exercise by its Board
of Directors of its fiduciary obligations.
REGULATORY APPROVALS
As conditions precedent to the consummation of the Merger, the Plan of
Merger requires, among other things, that no statute, rule or regulation shall
have been enacted by the government (or any governmental agency) of the United
States or any state, county, municipality or other political subdivision thereof
that makes the consummation of the Merger and any other transaction contemplated
thereby illegal.
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Certain persons, such as states' attorneys general and private parties,
could challenge the Merger as violative of the antitrust laws and seek to enjoin
the consummation of the Merger and, in the case of private persons, also seek to
obtain treble damages. There can be no assurance that a challenge to the Merger
on antitrust grounds will not be made or, if such a challenge is made, that it
will not be successful. Neither MedPartners nor InPhyNet intends to seek any
further stockholder approval or authorization of the Plan of Merger as a result
of any action that it may take to resist or resolve any objections by the FTC or
other objections, unless required to do so by applicable law.
The HSR Act provides that certain business mergers (including the Merger)
may not be consummated until certain information has been furnished to the DOJ
and the FTC and certain waiting period requirements have been satisfied. On
February 11, 1997, MedPartners and InPhyNet made their respective filings with
the DOJ and the FTC with respect to the Plan of Merger. Under the HSR Act, the
date of MedPartners' and InPhyNet's filings commenced a 30-day waiting period
during which the Merger may not be consummated, unless such waiting period is
terminated earlier. The waiting period has terminated. MedPartners and InPhyNet
believe that the Merger does not violate the antitrust laws and intend to resist
vigorously any assertion to the contrary by the FTC, the DOJ or others. Any such
resistance would delay consummation of the Merger, perhaps for a considerable
period.
The operations of each of MedPartners and InPhyNet are subject to a
substantial body of federal, state, local and accrediting body laws, rules and
regulations relating to the conduct, licensing and development of healthcare
businesses and facilities. As a result of the Merger, a number of the
arrangements between InPhyNet and third-party payors may be deemed to have been
transferred, requiring the approval and consent of such payors. Although no
assurances to this effect can be given, it is not anticipated that the parties
will be unable to obtain any required consent or approval.
BUSINESS PENDING THE MERGER
The Plan of Merger provides that, during the period from the date of the
Plan of Merger to the Effective Time, except as provided in the Plan of Merger,
InPhyNet will use its reasonable best efforts to preserve intact its present
business organization, to keep available to MedPartners and the Surviving
Corporation the services of the present employees of InPhyNet, and to maintain
the goodwill of customers, suppliers and others having business dealings with
InPhyNet.
Under the Plan of Merger, InPhyNet has agreed that it will not (other than
as required pursuant to or contemplated by the terms of the Plan of Merger and
related documents and other than with respect to transactions for which binding
commitments have been entered into prior to the date of the Plan of Merger and
certain other transactions disclosed to MedPartners), without first obtaining
the written consent of MedPartners, enter into certain types of transactions
that are material to the business of InPhyNet.
WAIVER AND AMENDMENT
The Plan of Merger provides that, at any time prior to the Effective Time,
MedPartners and the Subsidiary, on the one hand, and InPhyNet, on the other
hand, may (i) extend the time for the performance of any of the obligations or
other acts of the other party contained in the Plan of Merger; (ii) waive any
inaccuracies in the representations and warranties of the other party contained
in the Plan of Merger or in any document delivered pursuant to the Plan of
Merger; and (iii) subject to the following sentence, waive compliance with the
agreements for the benefit of such party contained in the Plan of Merger or the
conditions to the obligations of such party under the Plan of Merger to
consummate the Merger. See "-- Conditions to the Merger" above. Under the Plan
of Merger and the DGCL, if the Plan of Merger is approved at the Special
Meeting, the Board of Directors of InPhyNet may not amend or waive any covenant
or condition in a manner that would adversely affect the stockholders of
InPhyNet without the requisite approval of InPhyNet's stockholders. Any
determination to amend the Plan of Merger or waive a covenant or condition and
to obtain stockholder approval, if required, would depend on the facts and
circumstances existing at the time of such amendment or waiver and would be made
by InPhyNet's Board of Directors, exercising its fiduciary duties
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and in compliance with Delaware law. As of the date of this Prospectus-Proxy
Statement, the parties to the Plan of Merger have no reason to believe that any
of the material conditions to the Merger will not be satisfied.
TERMINATION
The Plan of Merger may be terminated at any time prior to the Effective
Time, whether before or after the requisite approval of the Plan of Merger by
the stockholders of InPhyNet: (i) by mutual written consent of MedPartners, the
Subsidiary and InPhyNet; (ii) by either MedPartners or InPhyNet, if the Merger
has not been consummated on or before July 31, 1997, unless the failure to
consummate the Merger by such time is due to the willful and material breach of
the Plan of Merger by the party seeking to terminate the Plan of Merger;
provided, however, that the passage of such period shall be tolled for any part
thereof (not to exceed 60 days in the aggregate) during which any party shall be
subject to a non-final order, decree, ruling or action restraining, enjoining or
otherwise prohibiting the consummation of the Merger or the calling or holding
of a meeting of stockholders; (iii) by either MedPartners or InPhyNet, if any
required approval of the Plan of Merger by holders of InPhyNet Shares is not
obtained at the Special Meeting; (iv) by either MedPartners or InPhyNet if any
U.S. federal or state court of competent jurisdiction or other governmental
entity shall have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the Merger and such
order, decree, ruling or other action shall have become final and nonappealable;
(v) by either MedPartners or InPhyNet in the event of a material breach by the
other party of any representation, warranty, covenant or other agreement
contained in the Plan of Merger which (A) would give rise to the failure of a
condition set forth in Section 9.2(a) or (b) or Section 9.3(a) or (b) of the
Plan of Merger, as applicable, and (B) cannot be or has not been cured within 30
days after the later of the occurrence or discovery of such breach (a "Material
Breach") (provided that the terminating party is not then in Material Breach of
any representation, warranty, covenant or other agreement contained in the Plan
of Merger); (vi) by either MedPartners or InPhyNet in the event that (A) all of
the conditions to the obligation of such party to effect the Merger set forth in
Section 9.1 of the Plan of Merger shall have been satisfied and (B) any
condition to the obligation of such party to effect the Merger set forth in
Section 9.2 (in the case of MedPartners) or Section 9.3 (in the case of
InPhyNet) is not capable of being satisfied prior to July 31, 1997; (vii) by
InPhyNet if the Board of Directors of InPhyNet shall have (A) determined, in the
exercise of its fiduciary duties under applicable law, to withdraw its
recommendation to the stockholders of InPhyNet that they approve the Merger or
(B) approved, recommended or endorsed any Acquisition Transaction (as defined
herein) other than the Merger or (C) resolved to do any of the foregoing; (viii)
by InPhyNet if the average last per share sale price of the MedPartners Common
Stock for the ten consecutive trading days ending on the fifth trading day
immediately preceding the date of the Special Meeting as reported on the NYSE
Composite Tape is equal to or less than $17.125; or (ix) by InPhyNet or
MedPartners, respectively, upon the occurrence of a change, addition or event
with respect to the other party that requires MedPartners or InPhyNet, as the
case may be, to notify the other party of such event pursuant to Section 7.22 of
the Plan of Merger, which event (A) would give rise to the failure of a
condition set forth in Section 9.3(b) or 9.2(b), respectively, of the Plan of
Merger and (B) is not capable of being cured prior to July 31, 1997, provided,
that the receiving party shall only be permitted to terminate the Plan of Merger
within ten days after receipt of any such notice and the information reasonably
required by it to evaluate the significance of such event. In the event the Plan
of Merger is terminated by InPhyNet as a result of the Board of Directors of
InPhyNet approving, recommending or endorsing an Acquisition Transaction and
within one year after the effective date of such termination, InPhyNet is the
subject of an Acquisition Transaction with any person, InPhyNet has agreed to
pay MedPartners a breakup fee of $12 million in cash at the time of consummation
of such Acquisition Transaction. See "-- Expenses; Breakup Fees"
NEW YORK STOCK EXCHANGE LISTING
A subsequent listing application will be filed with the NYSE to list the
shares of MedPartners Common Stock to be issued to InPhyNet stockholders in
connection with the Merger. Although no assurance can be given that the shares
of MedPartners Common Stock so issued will be accepted for listing, MedPartners
anticipates that these shares will qualify for listing on the NYSE, upon
official notice of issuance thereof.
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RESALE OF MEDPARTNERS COMMON STOCK BY AFFILIATES
MedPartners Common Stock to be issued to InPhyNet stockholders in
connection with the Merger has been registered under the Securities Act and,
upon consummation of the Merger, will be freely transferable under the
Securities Act, except for shares issued to any person who may be deemed an
"Affiliate" (as defined below) of InPhyNet or MedPartners within the meaning of
Rule 145 under the Securities Act. "Affiliates" are generally defined as persons
who control, are controlled by, or are under common control with InPhyNet or
MedPartners at the time of the Special Meeting (generally, directors and certain
executive officers of InPhyNet or MedPartners and major stockholders of
MedPartners or InPhyNet). Generally, all shares of MedPartners Common Stock
received by such Affiliates may not be sold by them until MedPartners publishes
at least one full calendar month of the combined results of operations of
MedPartners and InPhyNet. MedPartners has agreed to publish (as defined in SEC
Accounting Series Release No. 135) such results in its next succeeding Quarterly
Report on Form 10-Q after the end of the first calendar month following the
Effective Time.
In addition, Affiliates of InPhyNet or MedPartners may not sell their
shares of MedPartners Common Stock acquired in connection with the Merger except
pursuant to an effective registration statement under the Securities Act
covering such shares or in compliance with Rule 145 or another applicable
exemption from the registration requirements of the Securities Act. In general,
under Rule 145 (as recently amended by the SEC to take effect on April 29,
1997), for one year following the Effective Time (the "Restricted Period"), an
Affiliate (together with certain related persons) is entitled to sell shares of
MedPartners Common Stock acquired in connection with the Merger only through
unsolicited "broker transactions" or in transactions directly with a "market
maker", as such terms are defined in Rule 144 under the Securities Act.
Additionally, the number of shares that may be sold by an Affiliate (together
with certain related persons and certain persons acting in concert) within any
three-month period during the Restricted Period for purposes of Rule 145 may not
exceed the greater of (i) 1% of the outstanding shares of MedPartners Common
Stock or (ii) the average weekly trading volume of such stock during the four
calendar weeks preceding such sale. Rule 145 is available to Affiliates only if
MedPartners remains current with its information filings with the SEC under the
Exchange Act. Following the Restricted Period, an Affiliate may sell such
MedPartners Common Stock free of such manner of sale or volume limitations,
provided that MedPartners was current with its Exchange Act information filings
and such Affiliate was not then an Affiliate of MedPartners. Two years after the
Effective Time, an Affiliate may sell such shares of MedPartners Common Stock
without any restrictions so long as such Affiliate was not, and had not been for
at least three months prior thereto, an Affiliate of MedPartners.
ACCOUNTING TREATMENT
InPhyNet and MedPartners expect to receive letters at the closing from
Ernst & Young LLP, as independent auditors of InPhyNet and MedPartners,
regarding such firm's concurrence with the conclusions of managements of
InPhyNet and MedPartners as to the appropriateness of pooling of interests
accounting for the Merger under APB Opinion No. 16 if the Merger is closed and
consummated in accordance with the Plan of Merger. MedPartners, the Subsidiary
and InPhyNet have agreed not to intentionally take any action that would
disqualify treatment of the Merger as a pooling of interests for accounting
purposes. If it is determined that the Merger will not be accounted for as a
pooling of interests and InPhyNet and MedPartners decide to waive compliance
with such condition, InPhyNet would resolicit the consent of its stockholders to
consummate the Merger in light of such changed circumstances.
Under the pooling of interests method of accounting, the historical basis
of the assets and liabilities of MedPartners and InPhyNet will be combined at
the Effective Time and carried forward at their previously recorded amounts, the
stockholders' equity accounts of MedPartners and InPhyNet will be combined on
the consolidated balance sheet of MedPartners and no goodwill or other
intangible assets will be created. Consolidated financial statements of
MedPartners issued after the Merger will be restated retroactively to reflect
the consolidated operations of MedPartners and InPhyNet as if the Merger had
taken place prior to the periods covered by such consolidated financial
statements.
38
<PAGE> 48
The unaudited pro forma financial information contained in this
Prospectus-Proxy Statement has been prepared using the pooling-of-interests
accounting method to account for the Merger. Consistent with pooling of
interests accounting treatment, the direct costs related to the Merger will be
taken as a non-recurring charge to earnings in the quarter in which the Merger
is consummated. See "Pro Forma Condensed Financial Information".
FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material federal income tax
consequences of the Merger and the exchange by the holders of InPhyNet Shares of
such shares for shares of MedPartners Common Stock. This discussion does not
address all aspects of taxation that may be relevant to particular stockholders
in light of their personal investment or tax circumstances, or to certain types
of stockholders (including insurance companies, financial institutions,
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) subject to special treatment under the federal
income tax laws, nor does it discuss any state, local or foreign tax
considerations. Accordingly, each InPhyNet stockholder is urged to consult his
or her own tax advisor as to the specific tax consequences of the Merger
including the applicable federal, state, local and foreign tax consequences of
the Merger.
Neither MedPartners nor InPhyNet has requested or will receive an advance
ruling from the Internal Revenue Service (the "Service") as to the federal
income tax consequences of the Merger. Instead, Haskell Slaughter & Young, L.L.C
and Willkie Farr & Gallagher, counsel to MedPartners and InPhyNet, respectively,
have delivered opinions relating to the federal income tax consequences of the
Merger. Such opinions are based upon facts and assumptions of fact described
therein, and upon certain customary representations provided by MedPartners, the
Subsidiary, InPhyNet and certain InPhyNet stockholders. Such opinions are also
based upon the Code, regulations thereunder, administrative rulings and practice
by the Service, and judicial authority, in each case existing at the time such
opinions were delivered. Any change in applicable law or pertinent facts could
affect the continuing validity of such opinions and this discussion. In
addition, an opinion of counsel is not binding upon the Service, and there can
be no assurance, and none is hereby given, that the Service will not take a
position which is contrary to one or more positions reflected in the opinions of
counsel, or that such opinions will be upheld by the courts if challenged by the
Service. However, MedPartners and InPhyNet have agreed in the Plan of Merger not
to take any action which would disqualify the Merger as a reorganization which
is tax-free to the stockholders of InPhyNet pursuant to Section 368(a) of the
Code. Based on the foregoing, the opinions of such counsel collectively state,
among other matters, that: (i) the Merger will constitute a reorganization
within the meaning of Section 368(a) of the Code, and MedPartners, the
Subsidiary and InPhyNet will each be a party to the reorganization within the
meaning of Section 368(b) of the Code; (ii) no gain or loss will be recognized
by MedPartners, InPhyNet or the Subsidiary as a result of the Merger; (iii) no
gain or loss will be recognized by an InPhyNet stockholder who receives solely
shares of MedPartners Common Stock in exchange for InPhyNet Shares; (iv) the
receipt of cash in lieu of fractional shares of MedPartners Common Stock will be
treated as if the fractional shares were distributed as part of the exchange and
then were redeemed by MedPartners; (v) the tax basis of the shares of
MedPartners Common Stock received by an InPhyNet stockholder will be equal to
the tax basis of the InPhyNet Shares exchanged therefor, excluding any basis
allocable to a fractional share of MedPartners Common Stock for which cash is
received; and (vi) the holding period of the shares of MedPartners Common Stock
received by an InPhyNet stockholder will include the holding period or periods
of the InPhyNet Shares exchanged therefor, provided that the InPhyNet Shares are
held as a capital asset within the meaning of Section 1221 of the Code at the
Effective Time. EACH HOLDER OF INPHYNET SHARES IS URGED TO CONSULT SUCH HOLDER'S
PERSONAL TAX AND FINANCIAL ADVISORS AS TO THE SPECIFIC FEDERAL INCOME TAX
CONSEQUENCES TO SUCH HOLDER, BASED ON SUCH HOLDER'S OWN PARTICULAR STATUS AND
CIRCUMSTANCES, AND ALSO AS TO ANY STATE, LOCAL, FOREIGN OR OTHER TAX
CONSEQUENCES ARISING OUT OF THE MERGER.
39
<PAGE> 49
NO SOLICITATION OF TRANSACTIONS
Under the Plan of Merger, InPhyNet may furnish information and access, in
response to unsolicited requests therefor, concerning InPhyNet to other
corporations, partnerships, persons or other entities or groups, and may
participate in discussions and negotiate with such entities concerning any
proposal to acquire all or any significant portion of the equity securities of
InPhyNet or of the assets of InPhyNet and its subsidiaries upon a merger,
purchase of assets, purchase of or tender offer for shares of InPhyNet Common
Stock or similar transaction (an "Acquisition Transaction"), in response to
unsolicited requests therefor, if the Board of Directors of InPhyNet determines,
in its good faith judgment, in the exercise of its fiduciary duties or the
exercise of its duties under Rule 14e-2 under the Exchange Act that such action
is appropriate in furtherance of the best interest of InPhyNet's stockholders.
Except as described in the preceding sentence, InPhyNet has agreed that it will
not, and will direct each officer, director, employee, representative and agent
of InPhyNet not to, directly or indirectly, encourage, solicit, participate in
or initiate discussions or negotiations with or provide any information to any
corporation, partnership, person or other entity or group (other than
MedPartners or an affiliate or associate or agent of MedPartners) concerning any
merger, sale of assets, sale of or tender offer for its shares or similar
transactions involving all or any significant portion of the equity securities
of InPhyNet or the assets of InPhyNet and its subsidiaries. InPhyNet has further
agreed that it will notify MedPartners if it enters into a confidentiality
agreement with any third party in response to any unsolicited request for
information and access in connection with a possible Acquisition Transaction,
including providing MedPartners with the identity of the third party and the
proposed terms of such Acquisition Transaction.
EXPENSES; BREAKUP FEES
The Plan of Merger provides that all costs and expenses incurred in
connection with the Plan of Merger and the transactions contemplated thereby
shall be paid by the party incurring such expense. In the event the Plan of
Merger is terminated by InPhyNet as a result of the Board of Directors of
InPhyNet approving, recommending or endorsing an Acquisition Transaction and
within one year after the effective date of such termination, InPhyNet is the
subject of an Acquisition Transaction with any person, InPhyNet has agreed to
pay MedPartners a breakup fee of $12 million in cash at the time of the
consummation of such Acquisition Transaction. If a breakup fee shall become due
and payable by InPhyNet, and InPhyNet shall fail to pay such amount when due,
and, in order to obtain such payment, suit is commenced by MedPartners which
results in a judgment against InPhyNet, then, InPhyNet has agreed to pay
MedPartners' reasonable costs and expenses (including reasonable attorneys'
fees) in connection with such suit, together with interest computed on any
amounts determined to be due (computed from the date upon which such amount was
due and payable) and such costs (computed from the dates incurred) at the prime
rate of interest announced from time to time by NationsBank, National
Association (South).
In the event a breakup fee is payable, the payment of any such breakup fee
shall be the sole and exclusive remedy of MedPartners.
INDEMNIFICATION
The Plan of Merger provides that all rights to indemnification for acts or
omissions occurring prior to the Effective Time now existing in favor of the
current or former directors or officers of InPhyNet as provided in its
Certificate of Incorporation and By-laws shall survive the Merger and shall
continue in effect in accordance with their terms. In addition, MedPartners has
agreed to cause the Surviving Corporation either (i) to maintain InPhyNet's
current policy of directors' and officers' liability insurance for current or
former officers and directors of InPhyNet with respect to matters occurring
prior to the Effective Time for a period of at least three years after the
Effective Time or (ii) to substitute for such policy, policies of at least the
same coverage containing terms and conditions which are no less advantageous to
such officers and directors, subject to certain exceptions. After the Effective
Time, MedPartners has agreed to indemnify the officers, directors and employees
of InPhyNet and its subsidiaries who were such at any time prior to the
Effective Time from all liabilities, losses and expenses arising out of the
transactions contemplated by the Plan of Merger to the fullest extent permitted
or required by applicable law.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling MedPartners or
InPhyNet pursuant to the foregoing provisions, MedPartners and InPhyNet have
been informed that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
40
<PAGE> 50
PRO FORMA CONDENSED FINANCIAL INFORMATION
SELECTED PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following selected pro forma financial information for the combined
companies gives effect to the Merger as a pooling of interests. All of the
following selected pro forma financial information should be read in conjunction
with the pro forma financial information, including the notes thereto, appearing
elsewhere in this Prospectus-Proxy Statement. The pro forma financial
information set forth in this Prospectus-Proxy Statement is not necessarily
indicative of the results that actually would have occurred had the Merger been
consummated on the date indicated or that may be obtained in the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1994 1995 1996
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue................................................. $2,909,024 $3,908,717 $5,222,019
Operating expenses:
Affiliated physician services............................. 542,693 800,233 1,132,505
Outside referral expenses................................. 135,525 198,296 410,176
Clinic expenses........................................... 522,073 787,035 1,134,188
Non-clinic goods and services............................. 1,365,203 1,688,075 2,019,895
General and administrative expenses....................... 169,273 172,896 173,428
Depreciation and amortization............................. 44,384 62,394 86,781
Net interest expense...................................... 16,214 19,114 25,802
Merger expenses........................................... -- 69,064 308,945
Loss on investments....................................... -- 86,600 --
Other, net................................................ (143) (192) (1,075)
---------- ---------- ----------
Net operating expenses............................. 2,795,222 3,883,515 5,290,645
---------- ---------- ----------
Income (loss) before pro forma income taxes and discontinued
operations................................................ 113,802 25,202 (68,626)
Pro forma income tax expense (benefit)...................... 50,292 (6,987) (3,821)
---------- ---------- ----------
Income (loss) from continuing operations.................... 63,510 32,189 (64,805)
Income (loss) from discontinued operation................... 25,902 (136,528) (68,698)
---------- ---------- ----------
Pro forma net income (loss)................................. $ 89,412 $ (104,339) $ (133,503)
========== ========== ==========
Pro forma net income (loss) per share(1).................... $ 0.60 $ (0.65) $ (0.76)
========== ========== ==========
Number of shares used in pro forma net income (loss) per
share calculations(1)(2).................................. 148,437 160,079 176,368
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
1996
--------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 127,397
Working capital............................................. 204,351
Total assets................................................ 2,413,101
Long-term debt, less current portion........................ 738,296
Total stockholders' equity.................................. 791,058
</TABLE>
- ---------------
(1) Pro forma net income (loss) per share is computed by dividing net income
(loss) by the number of common equivalent shares outstanding during the
periods in accordance with the applicable rules of the SEC. All stock
options and warrants issued have been considered as outstanding common
share equivalents for all the periods presented, even if anti-dilutive,
under the treasury stock method. Shares of MedPartners Common Stock issued
in February 1995 upon conversion of the then outstanding MedPartners
convertible preferred stock are assumed to be common share equivalents for
all periods presented.
(2) Number of shares used in pro forma net income (loss) per share gives effect
to the Merger by using the fixed Exchange Ratio of 1.311 shares of
MedPartners Common Stock for each share of InPhyNet Common Stock.
41
<PAGE> 51
MEDPARTNERS, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET (UNAUDITED)
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------- PRO FORMA PRO FORMA
MEDPARTNERS INPHYNET ADJUSTMENTS COMBINED
----------- -------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 123,779 $ 3,618 $ -- $ 127,397
Accounts receivable less allowance for bad
debts..................................... 563,519 84,300 -- 647,819
Inventory.................................... 150,156 -- -- 150,156
Prepaid expenses and other current assets.... 107,168 10,671 -- 117,839
Income tax receivable........................ 2,496 5,036 -- 7,532
---------- -------- -------- ----------
Total current assets................. 947,118 103,625 -- 1,050,743
Property and equipment......................... 505,060 11,709 (7,700)(A) 509,069
Intangible assets, net......................... 659,202 36,826 -- 696,028
Deferred tax assets............................ 18,333 -- 18,333
Other assets................................... 136,256 2,672 -- 138,928
---------- -------- -------- ----------
Total assets......................... $2,265,969 $154,832 $ (7,700) $2,413,101
========== ======== ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................... $ 280,060 $ 7,963 $ 20,000(A) $ 338,023
Accrued medical claims payable................. 93,043 21,710 -- 114,753
Other accrued expenses and liabilities......... 375,618 19,402 -- 395,020
Current portion of long-term debt.............. 28,084 512 -- 28,596
---------- -------- -------- ----------
Total current liabilities............ 776,805 49,587 20,000 846,392
Long-term debt, net of current portion......... 715,657 339 22,300(A) 738,296
Other long-term liabilities.................... 34,010 3,345 -- 37,355
Stockholders' equity:
Common stock................................. 165 158 (136)(B) 187
Additional paid-in capital................... 788,636 66,386 136(B) 855,158
Shares held in trust......................... (150,200) -- -- (150,200)
Notes receivable from shareholders........... (1,665) -- -- (1,665)
Accumulated earnings......................... 102,561 35,017 (50,000)(A) 87,578
---------- -------- -------- ----------
Total stockholders' equity........... 739,497 101,561 (50,000) 791,058
---------- -------- -------- ----------
Total liabilities and stockholders'
equity............................. $2,265,969 $154,832 $ (7,700) $2,413,101
========== ======== ======== ==========
</TABLE>
42
<PAGE> 52
MEDPARTNERS, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL PRO PRO
---------------------- FORMA FORMA
MEDPARTNERS INPHYNET ADJUSTMENTS COMBINED
----------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Net revenue..................................... $4,813,499 $408,520 $ -- $5,222,019
Operating expenses:
Affiliated physician services................. 980,429 152,076 -- 1,132,505
Outside referral expenses..................... 311,900 98,276 -- 410,176
Clinic expenses............................... 1,040,629 93,559 -- 1,134,188
Non-clinic goods and services................. 2,019,895 -- -- 2,019,895
General and administrative expenses........... 142,789 30,639 -- 173,428
Depreciation and amortization................. 81,929 4,852 -- 86,781
Net interest expense.......................... 23,930 785 1,087(D) 25,802
Merger expenses............................... 308,695 250 -- 308,945
Other, net.................................... (1,569) 494 -- (1,075)
---------- -------- ------- ----------
Net operating expenses................ 4,908,627 380,931 1,087 5,290,645
---------- -------- ------- ----------
(Loss) income before pro forma income taxes and
discontinued operations....................... (95,128) 27,589 (1,087) (68,626)
Pro forma income tax (benefit) expense.......... (5,297) 10,898 (9,422)(E) (3,821)
---------- -------- ------- ----------
(Loss) income from continuing operations........ (89,831) 16,691 8,335 (64,805)
Loss from discontinued operations............... 68,698 -- -- 68,698
---------- -------- ------- ----------
Pro forma net (loss) income..................... $ (158,529) $ 16,691 $(8,335) $ (133,503)
========== ======== ======= ==========
Pro forma net (loss) income per share........... $ (1.02) $ 1.04 $ (0.76)
========== ======== ==========
Number of shares used in pro forma net (loss)
income per share calculations................. 155,364 16,021 4,983(C) 176,368
========== ======== ======= ==========
</TABLE>
43
<PAGE> 53
MEDPARTNERS, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------- PRO FORMA PRO FORMA
MEDPARTNERS INPHYNET ADJUSTMENTS COMBINED
----------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Net revenue....................................... $3,583,377 $325,340 $ -- $3,908,717
Operating expenses:
Affiliated physician services................... 657,826 142,407 -- 800,233
Outside medical expenses........................ 149,185 49,111 -- 198,296
Clinic expenses................................. 705,369 81,666 787,035
Non-clinic goods and services................... 1,688,075 -- -- 1,688,075
General and administrative expenses............. 148,515 24,381 -- 172,896
Depreciation and amortization................... 58,705 3,689 -- 62,394
Net interest expense............................ 17,621 1,493 -- 19,114
Merger expenses................................. 66,564 2,500 -- 69,064
Loss on investment.............................. 86,600 -- 86,600
Other, net...................................... (192) -- -- (192)
---------- -------- ------ ----------
Net operating expenses.................. 3,578,268 305,247 -- 3,883,515
---------- -------- ------ ----------
Income before pro forma income taxes and
discontinued operations......................... 5,109 20,093 -- 25,202
Pro forma income tax (benefit) expense............ (15,792) 8,805 -- (6,987)
---------- -------- ------ ----------
Income from continuing operations................. 20,901 11,288 -- 32,189
Loss from discontinued operations................. 136,528 -- -- 136,528
---------- -------- ------ ----------
Pro forma net (loss) income....................... $ (115,627) $ 11,288 $ -- $ (104,339)
========== ======== ====== ==========
Pro forma net (loss) income per share............. $ (0.82) $ 0.75 $ (0.65)
========== ======== ==========
Number of shares used in pro forma net (loss)
income per share calculations................... 140,364 15,038 4,677(C) 160,079
========== ======== ====== ==========
</TABLE>
44
<PAGE> 54
MEDPARTNERS, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------- PRO FORMA PRO FORMA
MEDPARTNERS INPHYNET ADJUSTMENTS COMBINED
----------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Net revenue..................................... $2,638,654 $270,370 $ -- $2,909,024
Operating expenses:
Affiliated physician services................. 433,758 108,935 -- 542,693
Outside referral expenses..................... 102,496 33,029 -- 135,525
Clinic expenses............................... 433,091 88,982 -- 522,073
Non-clinic goods and services................. 1,365,203 -- -- 1,365,203
General and administrative expenses........... 148,990 20,283 -- 169,273
Depreciation and amortization................. 41,832 2,552 -- 44,384
Net interest expense.......................... 15,235 979 -- 16,214
Other, net.................................... (143) -- -- (143)
---------- -------- ----- ----------
Net operating expenses................ 2,540,462 254,760 -- 2,795,222
---------- -------- ----- ----------
Income before pro forma income taxes and
discontinued operations....................... 98,192 15,610 -- 113,802
Pro forma income tax expense.................... 44,048 6,244 -- 50,292
---------- -------- ----- ----------
Income from continuing operations............... 54,144 9,366 -- 63,510
Income from discontinued operations............. 25,902 -- -- 25,902
---------- -------- ----- ----------
Pro forma net income............................ $ 80,046 $ 9,366 $ -- $ 89,412
========== ======== ===== ==========
Pro forma net income per share.................. $ 0.61 $ 0.74 $ 0.60
========== ======== ==========
Number of shares used in pro forma net
income per share calculations.............. 131,783 12,703 3,951(C) 148,437
========== ======== ===== ==========
</TABLE>
45
<PAGE> 55
NOTES TO PRO FORMA CONDENSED FINANCIAL INFORMATION
The proposed Merger is intended to be accounted for as a pooling of
interests. The pro forma combined statements of operations assumed that the
Merger was consummated at the beginning of the earliest period presented. The
pro forma condensed combined balance sheet assumes that the transaction was
consummated on December 31, 1996.
The pro forma financial information contains no adjustments to conform the
accounting policies of the companies because any such adjustments have been
determined to be immaterial.
The following adjustments are necessary to reflect the Merger (in
thousands):
A. The pro forma combined statements of operations do not reflect
nonrecurring costs and charges resulting directly from the Merger. These costs
and charges are estimated as follows:
<TABLE>
<CAPTION>
PROPERTY TOTAL
AND ACCOUNTS ACCUMULATED MERGER
EQUIPMENT PAYABLE LTD EARNINGS CHARGE
--------- -------- ------- ----------- -------
<S> <C> <C> <C> <C> <C>
InPhyNet.............................. $(7,700) $20,000 $22,300 $(50,000) $50,000
</TABLE>
The following is a detail of the estimated merger expense:
<TABLE>
<S> <C>
Severance and related benefits.............................. $ 3,000
Operational restructuring................................... 19,000
Lease abandonment........................................... 1,500
Non-compatible technology................................... 6,000
Brokerage fees.............................................. 9,000
Professional fees........................................... 3,000
Other transaction related costs............................. 3,200
Transition costs............................................ 5,000
Filing fees................................................. 300
-------
$50,000
=======
</TABLE>
The non-compatible technology primarily relates to computer hardware and
software that will be abandoned after the Merger. These assets are currently
being utilized in the operations of InPhyNet but are not compatible with the
planned operations for MedPartners. Severance and related benefits represent
anticipated payments to identified employees, as required by their respective
employment agreements, who will be terminated after the Merger. The operational
restructuring and transitional costs of $19,000 and $5,000 respectively,
represent management's best estimate of the costs to consolidate operations of
the thirty-five existing MedPartners physician practices in Florida with the
operations of certain practices of InPhyNet. This plan was formulated by
MedPartners' and InPhyNet's management in order to more efficiently provide
services in markets where multiple locations will exist as a result of the
Merger. The plan of consolidation calls for affected operations to be merged
over a period of twelve to twenty-four months. These costs also include costs
associated with the merging of InPhyNet's and MedPartners' hospital based
operations including the combining of systems, facilities and management
resources as well as costs associated with the formation of a regional operating
and reporting infrastructure.
B. To reflect the exchange of approximately 22,287 shares of MedPartners
Common Stock for all the issued and outstanding shares of InPhyNet Common Stock.
C. To adjust pro forma amounts based on historical share amounts,
converting each outstanding share of InPhyNet Common Stock into MedPartners
Common Stock based on the fixed Exchange Ratio of 1.311.
D. To reflect interest expense related to $22,300 of debt incurred to
facilitate the Merger at 6.5% for nine months.
E. To properly reflect the combined income tax benefit.
46
<PAGE> 56
COMPARISON OF RIGHTS OF INPHYNET STOCKHOLDERS
AND MEDPARTNERS STOCKHOLDERS
Both MedPartners and InPhyNet are incorporated in Delaware. Holders of the
InPhyNet Shares will have their rights and obligations as stockholders of
MedPartners after the Merger governed by Delaware law and the MedPartners
Certificate of Incorporation and the MedPartners By-laws. Set forth below is a
summary comparison of the material rights of a MedPartners stockholder under the
MedPartners Certificate of Incorporation and By-laws, on the one hand, and the
material rights of an InPhyNet stockholder under the InPhyNet Certificate of
Incorporation and By-laws, on the other hand. The information set forth below is
qualified in its entirety by reference to the Certificate of Incorporation and
By-laws of MedPartners and InPhyNet.
CLASSES AND SERIES OF CAPITAL STOCK
InPhyNet. InPhyNet is authorized by its Certificate of Incorporation to
issue up to 70,000,000 shares of capital stock, of which 50,000,000 shares are
designated common stock, par value $.01 per share, and 20,000,000 are designated
preferred stock, par value $.10 per share (the "InPhyNet Preferred Stock").
As of the Record Date, there were 16,370,128 shares of InPhyNet Common
Stock outstanding. In addition, there were outstanding options under InPhyNet's
stock option plans to purchase an additional 1,720,945 shares of InPhyNet Common
Stock. An additional 441,234 shares of InPhyNet Common Stock have been reserved
for future grants under such plans. Each share of InPhyNet Common Stock includes
the associated right to purchase one one-thousandth of a share of Series A
Junior Participating Preferred Stock, par value $.10 per share, pursuant to
InPhyNet's stockholders rights plan.
The Board of Directors of InPhyNet has the authority to issue the InPhyNet
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions for each such series, without any further vote or
action by the stockholders. As of the Record Date, there were no shares of
InPhyNet Preferred Stock issued and outstanding, and the Board of Directors of
InPhyNet has no present intention of issuing shares of InPhyNet Preferred Stock.
MedPartners. MedPartners is authorized by the MedPartners Certificate of
Incorporation to issue up to 410,000,000 shares of capital stock, of which
400,000,000 shares are designated MedPartners Common Stock, par value $.001 per
share, 9,500,000 shares are designated Preferred Stock, par value $.001 per
share (the "MedPartners Preferred Stock"), and 500,000 shares are designated
Series C Junior Participating Preferred Stock, par value $.001 per share (the
"MedPartners Series C Preferred Stock"). As of March 20, 1997, there were
171,449,860 shares of MedPartners Common Stock outstanding. In addition, there
were outstanding options under MedPartners' stock option plans to purchase an
additional 18,320,087 shares of MedPartners Common Stock. An additional 850,746
shares of MedPartners Common Stock have been reserved for future option grants
under such plans.
The Board of Directors of MedPartners has the authority to issue the
MedPartners Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions for each such series, without any
further vote or action by the stockholders. As of March 31, 1997, there were no
shares of MedPartners Preferred Stock issued and outstanding, and the Board of
Directors of MedPartners has no present intention of issuing shares of
MedPartners Preferred Stock.
As a consequence of and following the Merger, InPhyNet stockholders will
not hold InPhyNet Shares and the associated rights to acquire InPhyNet's Series
A Junior Participating Preferred Stock, but will instead hold shares of
MedPartners Common Stock and the associated rights to acquire the MedPartners
Series C Preferred Stock.
SIZE AND ELECTION OF THE BOARD OF DIRECTORS
InPhyNet. The InPhyNet Certificate of Incorporation and the InPhyNet
By-laws provide for the InPhyNet Board of Directors to be divided into three
classes, with the number of directors in each class to be as equal as possible.
Each class serves a staggered three year term. With a classified board of
directors, at least
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two annual meetings of stockholders, instead of one, are required to effect a
change in the majority of the Board of Directors. The InPhyNet Certificate of
Incorporation provides that InPhyNet's Board of Directors will consist of not
less than three nor more than fifteen directors. The InPhyNet By-laws provide
that the size of the InPhyNet Board of Directors shall be fixed by the
resolution of the InPhyNet Board of Directors. Directors are elected by a
plurality of votes cast at the annual meeting of stockholders.
The InPhyNet By-laws state that any vacancy among the directors may be
filled by a majority of the remaining directors, even if less than a quorum,
provided that if stockholders remove a director they may also fill the vacancy
created by such removal and also provided that if the directors fail to fill any
vacancy, the stockholders may fill the vacancy at any special meeting called for
such purpose.
MedPartners. The MedPartners Certificate of Incorporation and the
MedPartners By-laws provide for the MedPartners Board of Directors to be divided
into three classes, as nearly equal in number as is reasonably possible, serving
staggered terms. With a classified board of directors, at least two annual
meetings of stockholders, instead of one, will be required to effect a change in
the majority of the Board of Directors. The MedPartners By-laws provide that the
MedPartners Board of Directors shall consist of not more than thirteen
directors, but in any event shall consist of at least three directors and that
the size of the MedPartners Board of Directors shall be fixed by the resolution
of the MedPartners Board of Directors. Directors of MedPartners are elected by a
plurality of votes cast at the annual meeting of stockholders.
As a consequence of and following the Merger, the rights and obligations of
holders of InPhyNet Shares exchanged for MedPartners Common Stock with respect
to the size and composition of the MedPartners Board of Directors will be
governed by the MedPartners By-laws as described in the preceding paragraph.
REMOVAL OF DIRECTORS
InPhyNet. The InPhyNet By-laws provide that a director may be removed from
office only with cause and only by the vote of the holders of 75% of the shares
of capital stock entitled to vote thereon.
MedPartners. The MedPartners By-laws provide that a director may be
removed only with cause and only by the vote of the holders of a majority of the
shares of capital stock entitled to vote thereon.
As a consequence of and following the Merger, the holders of InPhyNet
Shares exchanged for MedPartners Common Stock will be able to remove a director
from the MedPartners Board of Directors only with cause and only by the vote of
the holders of a majority of the shares of capital stock entitled to vote
thereon.
CONVERSION AND DISSOLUTION
InPhyNet. InPhyNet's Common Stock has no conversion features. The InPhyNet
Certificate of Incorporation provides for the issuance of 20,000,000 shares of
InPhyNet Preferred Stock. The Board of Directors has the authority, without
further action by the stockholders, to designate the rights, preferences,
privileges and restrictions of the InPhyNet Preferred Stock. If the Board of
Directors was to designate a series of InPhyNet Preferred Stock, such InPhyNet
Preferred Stock could be entitled to preferential payments in the event of the
dissolution of InPhyNet.
MedPartners. The MedPartners Common Stock has no conversion features. The
MedPartners Certificate of Incorporation authorizes the issuance of 9,500,000
shares of MedPartners Preferred Stock and provides that such shares of
MedPartners Preferred Stock may have such voting powers, preferences and other
special rights (including, without limitation, the right to convert the shares
of such MedPartners Preferred Stock into shares of MedPartners Common Stock) as
shall be stated in the MedPartners Certificate of Incorporation or resolutions
providing for the issuance of MedPartners Preferred Stock. If the Board of
Directors was to designate such a series of MedPartners Preferred Stock in
addition to the MedPartners Series C Preferred Stock, such MedPartners Preferred
Stock could be entitled to preferential payments in the event of the dissolution
of MedPartners.
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As a consequence of and following the Merger, the rights and obligations of
holders of InPhyNet Shares exchanged for MedPartners Common Stock with respect
to the conversion and dissolution features of the MedPartners Common Stock will
be governed by the MedPartners Certificate of Incorporation as described in the
preceding paragraph.
AMENDMENT OR REPEAL OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS
Under the DGCL, unless a corporation's certificate of incorporation or
by-laws otherwise provide, amendment of a corporation's certificate of
incorporation generally requires the approval of the holders of a majority of
the outstanding stock entitled to vote thereon. If such amendment increases or
decreases the number of authorized shares of any class or series or the par
value of such shares or adversely affects the shares of such class or series,
such amendment requires the approval of the holders of a majority of the
outstanding stock of such class or series.
InPhyNet. The InPhyNet Certificate of Designation, Preferences and Rights
of Series A Junior Participating Preferred Stock states that the Certificate of
Incorporation of InPhyNet shall not be amended in any manner which would
materially alter or change the powers, preferences or special rights of the
Series A Junior Participating Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of a majority of all the shares of
Series A Junior Participating Preferred Stock, if any, that are then
outstanding, voting separately as a class.
The InPhyNet By-laws provide that the affirmative vote of the holders of
80% of the shares of capital stock entitled to vote thereon is required to
amend, alter, change or repeal the article of the InPhyNet By-laws related to
the classification and election of directors. The InPhyNet Certificate of
Incorporation and By-laws provide that the InPhyNet By-laws may be altered,
amended or repealed by a vote of the holders of 75% of the shares of capital
stock or by a majority of the Board of Directors, except to the extent that any
by-laws adopted by the stockholders provide otherwise.
MedPartners. The MedPartners Certificate of Incorporation provides that
the powers and rights of the MedPartners Series C Preferred Stock cannot be
materially altered adversely without the affirmative vote of the holders of a
majority of all the shares of MedPartners Series C Preferred Stock, if any that
are then outstanding, voting separately as a class. The MedPartners Certificate
of Incorporation and the MedPartners By-laws provide that the MedPartners
By-laws may be altered, amended or repealed by a vote of a majority of the
entire MedPartners Board of Directors, as well as by a majority of the
outstanding stock entitled to vote thereon.
As a consequence of and following the Merger, (i) the holders of InPhyNet
Shares exchanged for MedPartners Common Stock will not be able to materially
alter adversely the powers and rights of the MedPartners Series C Preferred
Stock without the affirmative vote of the holders of a majority of the
outstanding MedPartners Series C Preferred Stock, voting separately as a class
and (ii) the MedPartners By-laws may be altered, amended or repealed by a vote
of a majority of the entire MedPartners Board of Directors, as well as by a
majority of the outstanding stock entitled to vote thereon.
SPECIAL MEETINGS OF STOCKHOLDERS
InPhyNet. The InPhyNet By-laws provide that a special meeting of the
InPhyNet stockholders may be called by the Board of Directors, the Chairman of
the Board of Directors and the President, and shall be called by the President
at the request of a majority of the outstanding shares of capital stock entitled
to vote.
MedPartners. The MedPartners By-laws provide that a special meeting of the
MedPartners stockholders may be called by the President and shall be called by
the President or the Secretary at the request in writing by a majority of the
MedPartners Board of Directors or by the holders of at least a majority of the
outstanding shares of capital stock of MedPartners entitled to vote.
As a consequence of and following the Merger, the rights and obligations of
holders of InPhyNet Shares exchanged for MedPartners Common Stock with respect
to special meetings of stockholders will be governed by the MedPartners By-laws
as described in the preceding paragraph.
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LIABILITY OF DIRECTORS
The DGCL permits a corporation to include a provision in its certificate of
incorporation eliminating or limiting the personal liability of a director or
officer to the corporation or its stockholders for damages for breach of the
director's fiduciary duty, subject to certain limitations. Each of the
MedPartners and the InPhyNet Certificates of Incorporation includes such a
provision which limits such liability to the fullest extent permitted under
Delaware law.
Each of the MedPartners and InPhyNet Certificates of Incorporation provides
that a director will not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL, which concerns unlawful payments of dividends or
expenditures of funds for unlawful stock purchases or redemptions or (iv) for
any transaction from which the director derived an improper personal benefit.
While these provisions provide directors with protection from awards of
monetary damages for breaches of their duty of care, they do not eliminate such
duty. Accordingly, these provisions will have no effect on the availability of
equitable remedies such as an injunction or rescission based on a director's
breach of his or her duty of care. The provisions described above apply to an
officer of MedPartners only if he or she is a director of MedPartners and is
acting in his or her capacity as director, and do not apply to officers of
MedPartners who are not directors.
STOCKHOLDER RIGHTS PLAN
InPhyNet. The InPhyNet Common Stock is subject to a rights plan which may
inhibit a change in control of InPhyNet that might be beneficial to InPhyNet's
stockholders.
MedPartners. The MedPartners Common Stock is subject to a rights plan
which may inhibit a change in control of MedPartners that might be beneficial to
MedPartners' stockholders.
As a consequence of and following the Merger, the rights and obligations of
holders of InPhyNet Shares exchanged for MedPartners Common Stock will be
subject to the MedPartners rights plan which may inhibit a change of control of
MedPartners that might be beneficial to MedPartners' stockholders.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER PROPOSALS AND STOCKHOLDER NOMINATIONS
OF DIRECTORS
InPhyNet. The InPhyNet By-laws do not contain specific provisions
requiring advance notice of stockholder nominations of candidates for election
as directors or for other matters to be brought by stockholders before an annual
meeting of stockholders of InPhyNet.
MedPartners. The MedPartners By-laws establish an advance notice procedure
with regard to the nomination, other than by or at the direction of the
MedPartners Board of Directors or a committee thereof, of candidates for
election as directors and with regard to other matters to be brought by
stockholders before an annual meeting of stockholders of MedPartners.
The MedPartners By-laws provide that nominations of persons for election to
the MedPartners Board of Directors may be made at a meeting of stockholders by
or at the direction of the MedPartners Board of Directors, by any nominating
committee or person appointed by the MedPartners Board of Directors, or by any
stockholder of MedPartners who complies with the notice procedures set forth
below. Such nominations, other than those made by or at the direction of the
MedPartners Board of Directors, shall be made pursuant to timely notice in
writing to the Secretary of MedPartners. To be timely, a stockholder's notice
shall be delivered to or mailed and received at the principal executive offices
of MedPartners not less than sixty days nor more than ninety days prior to the
meeting. Such notice shall set forth (i) the name, age, business address and
residence address of the nominee, (ii) the principal occupation or employment of
the nominee, (iii) the class and number of shares of capital stock of
MedPartners which are beneficially owned by the nominee, and (iv) any other
information relating to the nominee that is required to be disclosed in
solicitations for proxies
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for election of directors pursuant to Section 14 of the Exchange Act, and as to
the stockholder giving the notice, (i) the name and address of the stockholder,
(ii) the class or series and number of shares of capital stock of MedPartners
which are owned by the stockholder, (iii) a description of all arrangements or
understandings between the stockholder and each proposed nominee and any other
person or persons (including their names) pursuant to which the nomination(s)
are to be made by the stockholder, (iv) a representation that such stockholder
intends to appear in person or by proxy at the meeting to nominate the persons
named in such notice, and (v) any other information relating to the stockholder
that would be required to be disclosed in a proxy statement or other filings
required to be made in connection with solicitations of proxies for the election
of directors pursuant to Section 14 of the Exchange Act. Such notice must be
accompanied by a written consent of each nominee to serve as a director if
elected. MedPartners may require any proposed nominee to furnish such other
information as may reasonably be required by MedPartners to determine the
eligibility of such proposed nominee to serve as a director of MedPartners.
The MedPartners By-laws provide that at an annual meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the MedPartners Board of Directors, otherwise
properly brought before the meeting by or at the direction of the MedPartners
Board of Directors or otherwise properly brought before the meeting by a
stockholder. In addition to any other applicable requirements, for business to
be properly brought before an annual meeting by a stockholder, the stockholder
must have given timely notice thereof in writing to MedPartners. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of MedPartners, not less than sixty days nor more
than ninety days prior to the meeting. The notice must set forth (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and record address of the stockholder proposing such business, (iii) the class
or series and number of shares of capital stock of MedPartners which are owned
beneficially or of record by the stockholder, (iv) a description of all
arrangements or understandings between the stockholder and any other person or
persons (including their names) in connection with the proposal of such business
by the stockholder and any material interest of the stockholder in such
business, and (v) a representation that the stockholder intends to appear in
person or by proxy at the annual meeting to bring such business before the
meeting.
As a consequence of and following the Merger, InPhyNet stockholders wishing
to nominate candidates to the MedPartners Board of Directors or bring business
before a meeting of stockholders will have to comply with the notice procedures
of MedPartners, including with respect to the time such notice must be given.
ACTION BY WRITTEN CONSENT
InPhyNet. The InPhyNet By-laws provide that any action required or
permitted to be taken by the stockholders of InPhyNet at any annual or special
meeting may be taken without a meeting, without prior notice and without a vote,
if a consent in writing, setting forth the action so taken, is executed by the
holders of the outstanding capital stock having not less than the minimum number
of votes that would be necessary to authorize or take such action at a meeting
at which all shares of capital stock entitled to vote thereon were present and
voted.
MedPartners. The MedPartners Certificate of Incorporation provides that,
since MedPartners Common Stock is listed on a national securities exchange, any
action required or permitted to be taken by the stockholders of MedPartners must
be effected at a duly called meeting and may not be effected by any consent in
writing by such stockholders.
As a consequence of and following the Merger, the holders of InPhyNet
Shares exchanged for MedPartners Common Stock may not effect action by any
consent in writing.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The DGCL permits a corporation to indemnify officers, directors, employees
and agents for actions taken in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interests of the
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corporation, and with respect to any criminal action, which they had no
reasonable cause to believe was unlawful. The DGCL provides that a corporation
may advance expenses of defense (upon receipt of a written undertaking to
reimburse the corporation if indemnification is not appropriate) and must
reimburse a successful defendant for expenses, including attorneys' fees,
actually and reasonably incurred, and permits a corporation to purchase and
maintain liability insurance for its directors and officers. The DGCL provides
that indemnification may not be made for any claim, issue or matter as to which
a person has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the corporation, unless and
only to the extent a court determines that the person is entitled to indemnity
for such expenses as the court deems proper.
InPhyNet. The InPhyNet Certificate of Incorporation provides that each
person who was or is a party, or is threatened to be made a party, to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or she
is or was a director, officer, trustee, employee or agent of InPhyNet or in any
other capacity with another corporation, partnership, joint venture, trust or
other enterprise, will be indemnified by InPhyNet to the fullest extent
permitted by the laws of the State of Delaware, if such person acted in good
faith and in a manner he or she reasonably believed to be in, and not opposed
to, the best interests of InPhyNet, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The InPhyNet By-laws provide that InPhyNet shall indemnify any and all of
its directors or officers, including former directors or officers, and any
employee, who shall serve as an officer or director of any corporation at the
request of InPhyNet, to the fullest extent permitted under and in accordance
with the law of the State of Delaware.
MedPartners. The MedPartners By-laws provide that each person who is
involved in any actual or threatened action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or she
is or was a director, officer, employee or agent of MedPartners, or is or was
serving at the request of MedPartners as a director, officer, employee or agent
of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan, will be
indemnified by MedPartners to the fullest extent permitted by the DGCL, as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits MedPartners to provide broader
indemnification rights than said law permitted prior to such amendment) or by
other applicable laws then in effect.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling MedPartners or
InPhyNet pursuant to the foregoing provisions, MedPartners and InPhyNet have
been informed that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
EXPERTS
The consolidated financial statements of MedPartners and the consolidated
financial statements of InPhyNet appearing in their respective Annual Reports
(Form 10-K) for the year ended December 31, 1996, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports included therein
and incorporated herein by reference. Such consolidated financial statements
referred to above are incorporated herein by reference in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
Representatives of InPhyNet's independent auditors, Ernst & Young LLP, will
be present at the Special Meeting to respond to appropriate questions and will
have the opportunity to make a statement if they desire to do so.
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INPHYNET STOCKHOLDER PROPOSALS
If the Merger is not consummated, InPhyNet will hold a 1997 Annual Meeting
of Stockholders. As noted in InPhyNet's proxy statement relating to the 1996
Annual Meeting of Stockholders, any stockholder proposals intended to be
presented at InPhyNet's 1997 Annual Meeting of Stockholders, if the Merger is
not consummated prior thereto, must have been received by InPhyNet on or before
December 17, 1996 to be eligible for inclusion in the Proxy Statement and form
of proxy to be distributed by the InPhyNet Board of Directors in connection with
such meeting.
LEGAL MATTERS
The validity of the shares of MedPartners Common Stock to be issued to the
stockholders of InPhyNet pursuant to the Merger will be passed upon by Haskell
Slaughter & Young, L.L.C., Birmingham, Alabama.
OTHER BUSINESS
The Board of Directors of InPhyNet is not aware of any business to be acted
upon at the Special Meeting other than as described in the Notice of the Special
Meeting or as otherwise described herein. If, however, other matters are
properly brought before the Special Meeting, or any adjournments or
postponements thereof, the persons appointed as proxies will have discretion to
vote or act thereon according to their best judgment and applicable SEC rules.
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ANNEX A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of January 20, 1997 (the
"Agreement"), among MEDPARTNERS, INC., a Delaware corporation (the "Parent"),
SEABIRD MERGER CORPORATION, a Delaware corporation (the "Subsidiary"), and
INPHYNET MEDICAL MANAGEMENT INC., a Delaware corporation (the "Company").
WHEREAS, the Boards of Directors of the Parent, the Company and the
Subsidiary have approved the merger of the Company with and into the Subsidiary
(the "Merger"), upon the terms and conditions set forth in this Agreement,
whereby each share of Common Stock, par value $.01 per share, of the Company
(the "Company Common Stock"), not owned directly or indirectly by the Company,
will be converted into the right to receive the merger consideration provided
for herein (the Company Common Stock may be sometimes hereinafter referred to as
the "Company Shares");
WHEREAS, each of the Parent, the Subsidiary and the Company desire to make
certain representations, warranties, covenants and agreements in connection with
the Merger and also to prescribe various conditions to the Merger;
WHEREAS, for federal income tax purposes, it is intended that the Merger
(as defined herein) shall qualify as a reorganization under the provisions of
Section 368 of the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a "pooling of interests."
NOW, THEREFORE, in consideration of the premises, and the mutual covenants
and agreements contained herein, the parties hereto do hereby agree as follows:
SECTION 1. THE MERGER
1.1. The Merger. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the General Corporation Law of the State
of Delaware (the "DGCL"), the Company shall be merged with and into the
Subsidiary at the Effective Time (as defined in Section 1.3). Following the
Effective Time, the separate corporate existence of the Company shall cease and
the Subsidiary shall continue as the surviving corporation (the "Surviving
Corporation") as a business corporation incorporated under the laws of the State
of Delaware under the name "InPhyNet Medical Management, Inc." and shall succeed
to and assume all the rights and obligations of the Company in accordance with
the DGCL.
1.2. The Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m. New York City Time on a date to be specified by the parties
(the "Closing Date"), which shall be no later than the second business day after
the satisfaction or waiver of the conditions set forth in Sections 9.1, 9.2 and
9.3, at the offices of Willkie Farr & Gallagher, One Citicorp Center, 153 East
53rd Street, New York, New York, unless another date or place is agreed to in
writing by the parties hereto.
1.3. Effective Time. Subject to the provisions of this Agreement, the
Company and the Subsidiary shall file a Certificate of Merger (the "Certificate
of Merger") executed in accordance with the relevant provisions of the DGCL and
shall make all other filings or recordings required under the DGCL to effect the
Merger as soon as practicable on or after the Closing Date. The Merger shall
become effective at such time as the Certificate of Merger is duly filed with
the Secretary of State of the State of Delaware, or at such other time as the
Parent, the Subsidiary and the Company shall agree should be specified in the
Certificate of Merger (the "Effective Time").
1.4. Effect of the Merger. The Merger shall have the effects set forth in
the DGCL. Without limiting the generality of the foregoing, and subject thereto
and any other applicable laws, at the Effective Time, all the properties,
rights, privileges, powers and franchises of the Company and the Subsidiary
shall vest in the
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Surviving Corporation, and all debts, liabilities, restrictions, disabilities
and duties of the Company and the Subsidiary shall become the debts,
liabilities, restrictions, disabilities and duties of the Surviving Corporation.
SECTION 2. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES
2.1. Effect on Capital Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of any holder of the Company Shares:
(a) Subsidiary Common Stock. Each share of Common Stock, par value
$1.00 per share, of the Subsidiary issued and outstanding immediately prior
to the Effective Time shall remain issued and outstanding.
(b) Cancellation of Certain Shares of Company Common Stock. Each
share of Company Common Stock that is owned by the Company, the Parent or
by any subsidiary of the Company or the Parent shall automatically be
canceled and retired and shall cease to exist, and none of the Common
Stock, par value $.001 per share, of the Parent (the "Parent Common
Stock"), cash or other consideration shall be delivered in exchange
therefor.
(c) Conversion of the Company Shares. At the Effective Time, each
Company Share (other than the Company Shares to be canceled in accordance
with Section 2.1(b)) issued and outstanding immediately prior to the
Effective Time, including the corresponding right (the "Company Right") to
purchase one one-thousandth of a share of Series A Junior Participating
Preferred Stock, par value $.10 per share (the "Company Series A
Preferred"), of the Company pursuant to the terms of the Amended and
Restated Rights Agreement, dated as of November 16, 1995, between the
Company and State Street Bank and Trust Company, as it may be amended from
time to time (the "Company Rights Agreement"), shall be converted into the
right to receive 1.311 shares of Parent Common Stock (the "Exchange
Ratio"), including the corresponding right (the "Parent Right"), with
respect to each share of Parent Common Stock, to purchase one one-hundredth
of a share of Series C Junior Participating Preferred Stock, par value
$.001 per share (the "Parent Series C Preferred Stock"), of the Parent
pursuant to the terms of the Stockholders' Rights Agreement, dated as of
March 1, 1995, among MedPartners, Inc., now MP of Delaware, Inc. and a
wholly owned subsidiary of MedPartners, Inc. and Chemical Bank, a national
banking association, as it may be amended from time to time (the "Parent
Rights Agreement"). All such shares of Parent Common Stock shall be fully
paid and nonassessable and, together with the Parent Rights, are
hereinafter sometimes referred to as the "Parent Shares". Upon such
conversion, all such Company Shares shall be canceled and cease to exist,
and each holder thereof shall cease to have any rights with respect thereto
other than the right to receive the Parent Shares issued in exchange
therefor and cash in lieu of fractional Parent Shares in accordance with
the terms provided herein. Prior to the Distribution Date (as defined in
the Company Rights Agreement) and unless the context otherwise requires,
all references in this Agreement to the Company Common Stock shall be
deemed to include the Company Rights; prior to the Rights Distribution Date
(as defined in the Parents Rights Agreement) and unless the context
otherwise requires, all references in this Agreement to the Parent Company
Stock shall be deemed to include the Parent Rights.
(d) Stock Options. At the Effective Time, all rights with respect to
Company Common Stock pursuant to any Company stock options which are
outstanding at the Effective Time, whether or not then vested or
exercisable, shall be converted into and become rights with respect to
Parent Common Stock, and the Parent shall assume each Company stock option
in accordance with the terms of any stock option plan under which it was
issued and any stock option agreement by which it is evidenced. It is
intended that the foregoing provisions shall be undertaken in a manner that
will not constitute a "modification" as defined in Section 425 of the Code,
as to any stock option which is an "incentive stock option." Each Company
stock option so assumed shall be exercisable for that number of shares of
the Parent Common Stock equal to the number of the Company Shares subject
thereto multiplied by the Exchange Ratio, and shall have an exercise price
per share equal to the Company exercise price divided by the Exchange
Ratio. All options issued pursuant to the Company's 1994 Stock Incentive
Plan and the 1994 Non-
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Employee Director Stock Option Plan shall be fully vested at the Effective
Time in accordance with the terms of such Plans.
(e) Adjustment of Exchange Ratio. If after the date hereof and prior
to the Effective Time the Parent shall have declared a stock split
(including a reverse split) of Parent Common Stock or a dividend payable in
Parent Common Stock, or any other distribution of securities or dividend
(in cash or otherwise) to holders of Parent Common Stock with respect to
their Parent Common Stock (including without limitation such a distribution
or dividend made in connection with a recapitalization, reclassification,
merger, consolidation, reorganization or similar transaction) then the
Exchange Ratio shall be appropriately adjusted to reflect such stock split,
dividend or other distribution of securities.
2.2. Exchange of Certificates.
(a) Exchange Agent. Prior to the Effective Time, the Parent shall
enter into an agreement with First Chicago Trust Company of New York (the
"Exchange Agent"), which provides that the Parent shall deposit with the
Exchange Agent as of the Effective Time, for the benefit of the holders of
the Company Shares, for exchange in accordance with this Section 2.2 and
the Merger Agreement, through the Exchange Agent, (i) certificates
representing the shares of the Parent Common Stock issuable pursuant to
Section 2.1 and (ii) cash in an amount equal to the aggregate amount
required to be paid in lieu of fractional interests of Parent Common Stock
pursuant to Section 2.2(e) (such shares of the Parent Common Stock,
together with any dividends or distributions with respect thereto with a
record date after the Effective Time, and together with the cash referred
to in clause (ii) of this Section 2.2(a), being hereinafter referred to as
the "Exchange Fund") in exchange for outstanding Company Shares.
(b) Exchange Procedures. As soon as practicable after the Effective
Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding Company Shares (the "Certificates") whose shares
were converted into the right to receive the merger consideration provided
for in Section 2.1, (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon delivery of the Certificates to the Exchange Agent
and shall be in such form and have such other provisions as the Parent may
reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing
shares of Parent Common Stock. Upon surrender of a Certificate for
cancellation to the Exchange Agent or to such other agent or agents as may
be appointed by the Parent, together with such letter of transmittal, duly
executed, and such other documents as may reasonably be required by the
Exchange Agent, the holder of such Certificate shall be entitled to receive
in exchange therefor a certificate representing that number of whole shares
of Parent Common Stock and cash which such holder has the right to receive
pursuant to the provisions of Sections 2.1 and 2.2, and the Certificate so
surrendered shall forthwith be canceled. If any cash or any certificate
representing the Parent Shares is to be paid to or issued in a name other
than that in which the Certificate surrendered in exchange therefor is
registered, a certificate representing the proper number of shares of the
Parent Common Stock may be issued to a person other than the person in
whose name the Certificate so surrendered is registered, if such
Certificate shall be properly endorsed or otherwise be in proper form for
transfer and the person requesting such payment shall pay to the Exchange
Agent any transfer or other taxes required by reason of the issuance of
shares of the Parent Common Stock to a person other than the registered
holder of such Certificate or establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not applicable. Until surrendered
as contemplated by this Section 2.2, each Certificate shall be deemed at
any time after the Effective Time to represent only the right to receive
upon such surrender the certificate representing shares of the Parent
Common Stock and cash in lieu of any fractional shares of the Parent Common
Stock as contemplated by this Section 2.2. No interest will be paid or will
accrue on any cash payable in lieu of any fractional shares of the Parent
Common Stock. To the extent permitted by law, former stockholders of record
of the Company shall be entitled to vote after the Effective Time at any
meeting of the Parent's stockholders the number of whole shares of Parent
Common Stock into which their respective Company Shares are converted,
regardless of whether such holders have exchanged their Certificates for
certificates representing Parent Common Stock in accordance with this
Section 2.2.
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(c) Distribution with Respect to Unexchanged Shares. No dividends or
other distributions with respect to Parent Common Stock with a record date
after the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of Parent Common Stock represented
thereby and no cash payment in lieu of fractional shares shall be paid to
any such holder pursuant to Section 2.2(e) until the surrender of such
Certificate in accordance with this Section 2.2. Subject to the effect of
applicable laws, following surrender of any such Certificate, there shall
be paid to the holder of the certificates representing whole shares of
Parent Common Stock issued in exchange therefor, without interest, (i) at
the time of such surrender, the amount of any cash payable in lieu of a
fractional share of Parent Common Stock to which such holder is entitled
pursuant to Section 2.2(e) and the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid
with respect to such whole shares of Parent Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other distributions
with a record date after the Effective Time but prior to such surrender and
with a payment date subsequent to such surrender payable with respect to
such whole shares of Parent Common Stock. If any holder of converted
Company Shares shall be unable to surrender such holder's Certificates
because such Certificates shall have been lost or destroyed, such holder
may deliver in lieu thereof an affidavit and indemnity bond in form and
substance and with surety reasonably satisfactory to the Parent.
(d) No Further Ownership Rights in Company Shares. All shares of
Parent Common Stock issued upon the surrender for exchange of Certificates
in accordance with the terms of this Section 2 (including any cash paid
pursuant to Section 2.2(c) or 2.2(e) shall be deemed to have been issued
(and paid) in full satisfaction of all rights pertaining to the Company
Shares theretofore represented by such Certificates. If, after the
Effective Time, Certificates are presented to the Surviving Corporation or
the Exchange Agent for any reason, they shall be canceled and exchanged as
provided in this Section 2, except as otherwise provided by law.
(e) No Fractional Shares. No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender
for exchange of Certificates, and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a stockholder of the
Parent. Notwithstanding any other provision of this Agreement, each holder
of Company Shares exchanged pursuant to the Merger who would otherwise have
been entitled to receive a fraction of a share of Parent Common Stock
(after taking into account all Certificates delivered by such holder) shall
receive, in lieu thereof, cash (without interest) in an amount equal to
such fractional part of a share of Parent Common Stock multiplied by the
per share closing price on the New York Stock Exchange Composite Tape of
Parent Common Stock on the date of the Effective Time (or, if shares of the
Parent Common Stock do not trade on The New York Stock Exchange, Inc. (the
"NYSE") on such date, the first date of trading of the Parent Common Stock
on the NYSE after the Effective Time).
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the holders of the Certificates for six
months after the Effective Time shall be delivered to the Parent, upon
demand, and any holders of the Certificates who have not theretofore
complied with this Section 2 shall thereafter look only to the Parent for
payment of Parent Common Stock, any cash in lieu of fractional shares of
Parent Common Stock and any dividends or distributions with respect to the
Parent Common Stock.
(g) No Liability. None of the Parent, the Subsidiary, the Company or
the Exchange Agent shall be liable to any person in respect of any shares
of Parent Common Stock (or dividends or distributions with respect thereto)
or cash from the Exchange Fund delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law. If any
Certificates shall not have been surrendered prior to the end of the
applicable period after the Effective Time under escheat laws (or
immediately prior to such earlier date on which any shares of Parent Common
Stock, any cash in lieu of fractional shares of Parent Common Stock or any
dividends or distributions with respect to Parent Common Stock in respect
of such Certificates would otherwise escheat to or become the property of
any governmental entity), any such shares, cash, dividends or distributions
in respect of such Certificates shall, to the extent
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permitted by applicable law, become the property of the Surviving
Corporation, free and clear of all claims or interest of any person
previously entitled thereto.
(h) Investment of Exchange Fund. The Exchange Agent shall invest any
cash included in the Exchange Fund, as directed by the Parent, on a daily
basis. Any interest and other income resulting from such investments shall
be paid to the Parent.
2.3. Certificate of Incorporation of Surviving Corporation. The
Certificate of Incorporation of the Subsidiary, effective immediately following
the Effective Time, shall be the Certificate of Incorporation of the Surviving
Corporation from and after the Effective Time and until thereafter amended as
provided by law.
2.4. By-laws of the Surviving Corporation. The By-laws of the Subsidiary
shall be the By laws of the Surviving Corporation from and after the Effective
Time and until thereafter altered, amended or repealed in accordance with the
DGCL, the Certificate of Incorporation of the Surviving Corporation and the said
Bylaws.
2.5. Directors and Officers. The directors and officers of the Subsidiary
immediately prior to the Effective Time shall be the directors and officers of
the Surviving Corporation, each to hold office in accordance with the
Certificate of Incorporation and By-laws of the Surviving Corporation.
2.6. Assets, Liabilities, Reserves and Accounts. At the Effective Time,
the assets, liabilities, reserves and accounts of each of the Subsidiary and the
Company shall be taken up on the books of the Surviving Corporation at the
amounts at which they respectively shall be carried on the books of said
corporations immediately prior to the Effective Time, except as otherwise set
forth in this Agreement and subject to such adjustments, or elimination of
intercompany items, as may be appropriate in giving effect to the Merger in
accordance with generally accepted accounting principles.
2.7. Corporate Acts of the Subsidiary. All corporate acts, plans,
policies, approvals and authorizations of the Subsidiary, its sole stockholder,
its Board of Directors, committees elected or appointed by the Board of
Directors, and all its officers and agents, valid immediately prior to the
Effective Time, shall be those of the Surviving Corporation and shall be as
effective and binding thereon as they were with respect to the Subsidiary.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Parent and the Subsidiary
as follows:
3.1. Organization, Existence and Good Standing of the Company. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The Company has all necessary corporate power and
authority to own its properties and assets and to carry on its business as
presently conducted. The Company is not, and has not been within the two years
immediately preceding the date of this Agreement, a subsidiary or division of
another corporation, nor has the Company within such time owned, directly or
indirectly, any shares of the Parent Common Stock.
3.2. Subsidiaries or Affiliated Entities.
(a) Attached as Schedule 3.2 to the Disclosure Schedule delivered to
the Parent by the Company at the time of the execution and delivery of this
Agreement (the "Company Disclosure Schedule") is a list of all subsidiaries
of the Company and all professional corporations or professional
associations of which the Company has the right to control the voting
securities (individually, a "Company Subsidiary" and collectively, the
"Company Subsidiaries") and their states of incorporation, and all general
or limited partnerships in which a general partner is the Company, a
Company Subsidiary or another partnership directly or indirectly controlled
by the Company (individually, a "Company Partnership" and collectively, the
"Company Partnerships"), and their states of organization.
(b) Except as set forth in Schedule 3.2 to the Company Disclosure
Schedule, neither the Company, nor any Company Subsidiary nor any Company
Partnership owns an equity interest in or controls, directly or indirectly,
any other corporation, association, partnership, joint venture, business
organization or
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limited liability company or other entity, other than the Company
Subsidiaries and the Company Partnerships.
3.3. Organization, Existence and Good Standing of Company Subsidiaries and
Company Partnerships.
(a) Each Company Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of its respective state of
incorporation. Each Company Subsidiary has all necessary corporate power to
own its properties and assets and to carry on its business as presently
conducted.
(b) Each Company Partnership that is a limited partnership is validly
formed, each Company Partnership that is a general partnership has been
duly organized, and each Company Partnership is in good standing under the
laws of its respective state of organization. Each Company Partnership has
all necessary power to own its property and assets and to carry on its
business as presently conducted.
3.4. Foreign Qualifications. The Company, each Company Subsidiary and each
Company Partnership that is not a general partnership is qualified to do
business as a foreign corporation or foreign limited partnership, as the case
may be, and is in good standing in each jurisdiction where the nature or
character of the property owned, leased or operated by it or the nature of the
business transacted by it makes such qualification necessary, except where the
failure to so qualify would not have a material adverse effect on the Company.
3.5. Capitalization. The Company's authorized capital stock consists of
50,000,000 shares of Common Stock, par value $.01 per share, of which 15,820,597
shares were issued and outstanding as of the close of business on January 17,
1997, and 20,000,000 shares of Preferred Stock, par value $.10 per share, of
which no shares are issued and outstanding and 50,000 shares of Company Series A
Preferred were reserved for issuance upon exercise of the Company Rights. All of
the issued and outstanding Company Shares are duly and validly issued, fully
paid and nonassessable. Except as disclosed in the Company Documents (as herein
defined), and except as set forth in Schedule 3.5 to the Company Disclosure
Schedule, there are no options, warrants or similar rights granted by the
Company, or outstanding securities convertible into Company Common Stock, or any
other agreements to which the Company is a party providing for the issuance or
sale by it of any additional securities which would remain in effect after the
Effective Time. There is no liability for dividends declared or accumulated but
unpaid with respect to any of the Company Shares. There are no obligations,
contingent or otherwise, of the Company or any Company Subsidiary or Company
Partnership to repurchase, redeem or otherwise acquire any shares of Company
Common Stock or the capital stock of or other equity interest in any Company
Subsidiary or Company Partnership.
3.6. Power and Authority; Non-Contravention.
(a) Subject to the satisfaction of the conditions precedent set forth
herein, the Company has all necessary corporate power and authority to
execute, deliver and perform this Agreement and all agreements and other
documents executed and delivered or to be executed and delivered by it
pursuant to this Agreement, and, subject to the satisfaction of the
conditions precedent set forth herein, has taken all action required by its
Certificate of Incorporation, By-laws or otherwise, to authorize the
execution, delivery and performance of this Agreement and such related
documents. The Agreement has been duly and validly executed and delivered
by the Company and, assuming the due authorization, execution and delivery
by the Parent and the Subsidiary, constitutes the legal, valid and binding
obligation of the Company enforceable against the Company in accordance
with its terms.
(b) Except as set forth in Schedule 3.6 to the Company Disclosure
Schedule, the execution and delivery of this Agreement does not and,
subject to the receipt of required stockholder and regulatory approvals and
any other required third-party consents or approvals, the consummation of
the Merger will not, violate any provisions of the Certificate of
Incorporation or By-laws of the Company or any provisions of, or result in
the acceleration of any obligation under, any mortgage, lien, lease,
agreement, instrument, order, arbitration award, judgment or decree, to
which the Company, any Company Subsidiary or any Company Partnership is a
party, or by which it is bound, or violate any restrictions of any kind to
which it is subject which, if violated or accelerated would have a material
adverse effect on the Company; provided, however, nothing contained herein
is intended to constitute a representation or warranty with
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respect to any conflict or violation or other impact upon the Certificate
of Incorporation, By-laws, mortgage, lien, lease, agreement, instrument,
order, arbitration award, judgment or decree to which the Parent or any of
its subsidiaries is a party or to which any such parties are bound.
3.7. Company Public Information. The Company has heretofore made available
to the Parent a true and complete copy of each report, schedule, registration
statement and definitive proxy statement filed by it with the Securities and
Exchange Commission (the "SEC") (as any such documents have since the time of
their original filing been amended, the "Company Documents") since January 1,
1995, which are all the documents (other than preliminary material) that it was
required to file with the SEC since such date. As of their respective dates, the
Company Documents did not contain any untrue statements of material facts or
omit to state material facts required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. As of their respective dates, the Company Documents
complied in all material respects with the applicable requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated under such statutes. The financial statements contained
in the Company Documents, together with the notes thereto, have been prepared in
accordance with generally accepted accounting principles consistently followed
throughout the periods indicated (except as may be indicated in the notes
thereto, or, in the case of the unaudited financial statements, as permitted by
Form 10-Q), reflect all known liabilities of the Company and its consolidated
subsidiaries, fixed or contingent, required to be stated therein, and present
fairly the financial condition of the Company and its consolidated subsidiaries
at said dates and the consolidated results of operations and cash flows of the
Company and its consolidated subsidiaries for the periods then ended. The
consolidated balance sheet of the Company at September 30, 1996, included in the
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1996 of
the Company is herein sometimes referred to as the "Company Balance Sheet."
3.8. Contracts, etc.
(a) All material contracts, leases, agreements and arrangements to which
the Company or any of the Company Subsidiaries or Company Partnerships is a
party (collectively, the "Company Material Contracts") are legally valid and
binding in accordance with their terms and in full force and effect. Except as
disclosed in Schedules 3.8 and 3.10 to the Company Disclosure Schedule, to the
knowledge of the Company, all parties to the Company Material Contracts have
complied with the provisions of such contracts, and to the knowledge of the
Company, no party is in default thereunder, and no event has occurred which, but
for the passage of time or the giving of notice or both, would constitute a
default thereunder, except, in each case, where the noncompliance with or
invalidity of the Company Material Contract or the default or breach thereunder
or thereof would not, individually or in the aggregate, have a material adverse
effect on the Company.
(b) Except as set forth in Schedule 3.8(b) to the Company Disclosure
Schedule, no Company Material Contract will, by its terms, terminate as a result
of the transactions contemplated hereby or require any consent from any obligor
thereto in order to remain in full force and effect immediately after the
Effective Time, except for such Company Material Contracts which, if terminated,
would not have a material adverse effect on the Company.
(c) Except as set forth in Schedule 3.8(c) to the Company Disclosure
Schedule, none of the Company or any Company Subsidiary or Company Partnership
has granted any right of first refusal or similar right in favor of any third
party with respect to any material portion of its properties or assets
(excluding liens described in Section 3.9) or entered into any noncompetition
agreement or similar agreement materially restricting its ability to engage in
any business in any location.
3.9. Properties and Assets. The Company (including, as applicable, the
Company Subsidiaries or the Company Partnerships) owns all of the real and
personal property included in the Company Balance Sheet (except assets recorded
under capital lease obligations and such property as has been disposed of during
the ordinary course of the Company's business since the date of the Company
Balance Sheet), free and clear of any liens, claims, charges, exceptions or
encumbrances, except for those (i) if any, which in the aggregate are not
material and which do not materially affect continued use of such property, or
(ii) which are set forth in Schedule 3.9 to the Company Disclosure Schedule or
in the Company Documents.
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3.10. Legal Proceedings. Except as disclosed in the Company Documents or
as listed in Schedule 3.10 to the Company Disclosure Schedule, there are no
actions, suits or proceedings pending or, to the knowledge of the Company,
threatened against the Company, at law or in equity, relating to or affecting
the Company, any Company Subsidiary or any Company Partnership, which
individually or in the aggregate, could reasonably be expected to have a
material adverse effect on the Company or a material adverse effect on the
ability of the Company to consummate the transactions contemplated hereby. To
the knowledge of the Company, Schedule 3.10 to the Company Disclosure Schedule
sets forth a true and complete list, as of the date hereof, of all pending
professional liability claims, non-professional liability insurance claims and
actions pending before the Equal Employment Opportunity Commission (EEOC) to
which the Company, any Company Subsidiary or any Company Partnership is a named
party.
3.11. Subsequent Events. Except as disclosed in the Company Documents
filed prior to the date hereof or as set forth in Schedule 3.11 to the Company
Disclosure Schedule, the Company (including the Company Subsidiaries and the
Company Partnerships) has not, since the date of the Company Balance Sheet:
(a) Incurred any material adverse change.
(b) Discharged or satisfied any material lien or encumbrance, or paid
or satisfied any material obligation or liability (absolute, accrued,
contingent or otherwise) which discharge or satisfaction would have a
material adverse effect on the Company, other than (i) liabilities shown or
reflected on the Company Balance Sheet or (ii) liabilities incurred since
the date of the Company Balance Sheet in the ordinary course of business.
(c) Incurred any funded indebtedness or increased or established any
reserve for taxes or any other liability on its books or otherwise provided
therefor which would have a material adverse effect on the Company, except
as may have been required due to income or operations of the Company since
the date of the Company Balance Sheet.
(d) Mortgaged, pledged or subjected to any lien, charge or other
encumbrance any of the assets, tangible or intangible, which assets are
material to the consolidated business or financial condition of the
Company.
(e) Sold or transferred any of the assets material to the consolidated
business of the Company, canceled any material debts or claims or waived
any material rights, except in the ordinary course of business.
(f) Except for annual increases in the base rates of compensation and
bonuses of officers and employees in the ordinary course of business,
granted any general or uniform increase in the rates of pay of employees or
any material increase in salary payable or to become payable by the Company
to any officer or employee, consultant or agent (other than normal merit
increases), or by means of any bonus or pension plan, contract or other
commitment, increased in a material respect the compensation of any
officer, employee, consultant or agent.
(g) Except for this Agreement and any other agreement executed and
delivered pursuant to this Agreement, entered into any material transaction
other than in the ordinary course of business or permitted under this
Agreement.
(h) Issued any stock, bonds or other securities or any options or
rights to purchase any of its securities (other than stock issued upon the
exercise of outstanding options under the Company's stock option plans or
stock purchase plans).
(i) Declared, set aside or paid any dividend or made any other
distribution or payment with respect to any shares of its capital stock or
directly or indirectly redeemed, purchased or otherwise acquired any shares
of its capital stock or the capital stock or equity interests of any
Company Subsidiary or Company Partnership.
(j) Changed in any material respect the accounting methods or
practices followed by the Company, including any material change in any
assumption underlying, or method of calculating, any bad debt,
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contingency or other reserve, except as may be required by changes in
generally accepted accounting principles.
3.12. Accounts Receivable.
(a) Since the date of the Company Balance Sheet, the Company has not
changed any principle or practice with respect to the recordation of
accounts receivable or the calculation of reserves therefor, or any
material collection, discount or write-off policy or procedure, except as
may be required by changes in generally accepted accounting principles.
(b) The Company (including the Company Subsidiaries and the Company
Partnerships) is in compliance with the terms and conditions of all
third-party payor arrangements relating to its accounts receivable, except
to the extent that such noncompliance would not have a material adverse
effect on the Company. Without limiting the generality of the foregoing,
neither the Company nor any Company Subsidiary or Company Partnership has
received notice from any government authority alleging that the Company or
any Company Subsidiary or Company Partnership is in violation of any
Medicare and Medicaid provider agreements to which it is a party.
3.13. Tax Returns. The Company has filed all tax returns required to be
filed by it or requests for extensions to file such returns or reports have been
timely filed and granted and have not expired, except to the extent that such
failures to file, taken together, do not have a material adverse effect on the
Company. The Company has made all payments shown as due on such returns. Except
as reflected in Schedule 3.13 to the Company Disclosure Schedule, the Company
has not been notified that any material tax returns of the Company are currently
under audit by the Internal Revenue Service or any state or local tax agency.
The Company is not a party to any agreement for the extension of time or the
waiver of the statute of limitations for the assessment or payment of any
federal, state or local taxes.
3.14. Employee Benefit Plans; Employment Matters.
(a) Except as disclosed in the Company Documents or as set forth in
Schedule 3.14(a) to the Company Disclosure Schedule, neither the Company
nor any Company Subsidiary or Company Partnership has established or
maintains or is obligated to make contributions to or under or otherwise
participate in (i) any bonus or other type of incentive compensation plan,
program, agreement, policy, commitment, contract or arrangement, (whether
or not set forth in a written document), (ii) any pension, profit-sharing,
retirement or other plan, program or arrangement, or (iii) any other
employee benefit plan, fund or program, including but not limited to, those
described in Section 3(3) of ERISA. All such plans disclosed in the Company
Documents or listed in Schedule 3.14(a) (individually, a "Company Plan" and
collectively, the "Company Plans") have to the knowledge of the Company,
and except as set forth in Schedule 3.14(a) been operated and administered
in all material respects in accordance with, as applicable, ERISA, the
Code, Title VII of the Civil Rights Act of 1964, as amended, the Equal Pay
Act of 1967, as amended, the Age Discrimination in Employment Act of 1967,
as amended, and the related rules and regulations adopted by those federal
agencies responsible for the administration of such laws. No act or failure
to act by the Company or any Company Subsidiary or Company Partnership has
resulted in a "prohibited transaction" (as defined in ERISA) with respect
to the Company Plans that has had a material adverse effect and that is not
subject to a statutory or regulatory exception. To the knowledge of the
Company, no "reportable event" (as defined in ERISA) has occurred with
respect to any of the Company Plans which is subject to Title IV of ERISA
except as set forth in Schedule 3.14(a). Neither the Company nor any
Company Subsidiary or Company Partnership has previously made, is currently
making, or is obligated in any way to make, any contributions to any
multi-employer plan within the meaning of the Multi-Employer Pension Plan
Amendments Act of 1980.
(b) Except as disclosed in the Company Documents or as set forth in
Schedule 3.14(b) to the Company Disclosure Schedule, neither the Company
nor any Company Subsidiary or Company Partnership is a party to any oral or
written (i) union, guild or collective bargaining agreement which agreement
covers employees in the United States (nor is it aware of any union
organizing activity
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currently being conducted in respect to any of its employees), (ii)
agreement with any executive officer or other key employee the benefits of
which are contingent, or the terms of which are materially altered, upon
the occurrence of a transaction of the nature contemplated by this
Agreement and which provides for the payment of in excess of $25,000, or
(iii) agreement or plan, including any stock option plan, stock
appreciation rights plan, restricted stock plan or stock purchase plan, any
of the benefits of which will be increased, or the vesting the benefits of
which will be accelerated by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement.
3.15. Compliance with Laws. Except as disclosed in the Company Documents
or as set forth in Schedule 3.15 to the Company Disclosure Schedule, neither the
Company nor any Company Subsidiary or Company Partnership has received any
notices of material violations of any federal, state and local laws, regulations
and ordinances relating to its business and operations, including, without
limitation, the Occupational Safety and Health Act, the Americans with
Disabilities Act, the applicable Medicare or Medicaid statutes and regulations
and any Environmental Laws, and no notice of any pending inspection or violation
of any such law, regulation or ordinance has been received by the Company or any
Company Subsidiary or any Company Partnership which, if it were determined that
a violation had occurred, would have a material adverse effect on the Company.
3.16. Regulatory Approvals. Except as disclosed in the Company Documents
or in Schedule 3.16 to the Company Disclosure Schedule, the Company and each
Company Subsidiary or Company Partnership, as applicable, holds all licenses,
certificates of need and other regulatory approvals required or necessary to be
applied for or obtained in connection with its business as presently conducted
or as proposed to be conducted, except where the failure to obtain or hold such
license, certificate of need or regulatory approval would not have a material
adverse effect on the Company. All such licenses, certificates of need and other
regulatory approvals related to the business, operations and facilities of the
Company and each Company Subsidiary or Company Partnership are in full force and
effect, except where any failure of such license, certificate of need or
regulatory approval to be in full force and effect would not have a material
adverse effect on the Company. Any and all past litigation concerning such
licenses, certificates of need and regulatory approvals, and all claims and
causes of action raised therein, has been finally adjudicated. No such license,
certificate of need or regulatory approval has been revoked, conditioned (except
as may be customary) or restricted, and no action (equitable, legal or
administrative), arbitration or other process is pending, or to the best
knowledge of the Company, threatened, which in any way challenges the validity
of, or seeks to revoke, condition or restrict any such license, certificate of
need, or regulatory approval. Subject to compliance with applicable securities
laws and the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
("HSR Act"), the consummation of the Merger will not violate any law or
restriction to which the Company is subject which, if violated, would have a
material adverse effect on the Company.
3.17. Brokers. Except for fees payable to Morgan Stanley & Co.
Incorporated and McFarland Dewey & Co. pursuant to their respective engagement
letters, dated January 15, 1997 and January 17, 1997, there are no valid claims
for brokerage commissions or finder's or similar fees in connection with the
transactions contemplated by this Agreement which may be now or hereafter
asserted against the Parent or the Company or any subsidiary or other controlled
entity of the Parent or the Company resulting from any action taken by the
Company or its officers, directors or agents, or any of them.
3.18. Vote Required. The affirmative vote of the holders of a majority of
the outstanding Company Shares entitled to vote thereon is the only vote of the
holders of any class or series of the Company capital stock necessary for the
Company to approve this Agreement, the Merger and the transactions contemplated
thereby.
3.19. Pooling Matters. To the best knowledge of the Company, neither the
Company nor any of its affiliates has taken or agreed to take any action that
(without giving effect to any actions taken or agreed to be taken by the Parent
or any of its affiliates) would prevent the Parent from accounting for the
business combination to be effected by the Merger as a pooling of interests for
financial reporting purposes.
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3.20. No Untrue Representations. No representation or warranty by the
Company in this Agreement, and no Schedule or certificate issued by the Company
and furnished or to be furnished to the Parent pursuant hereto, or in connection
with the transactions contemplated hereby, contains or will contain any untrue
statement of a material fact, or omits or will omit to state a material fact
necessary to make the statements or facts contained therein not misleading in
light of all of the circumstances then prevailing.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE SUBSIDIARY
RELATED TO THE SUBSIDIARY
The Subsidiary and the Parent, jointly and severally, hereby represent and
warrant to the Company as follows:
4.1. Organization, Existence, Good Standing and Capitalization of the
Subsidiary. The Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. The Subsidiary's
authorized capital consists of 1,000 shares of Common Stock, par value $.01 per
share, all of which shares are issued and registered in the name of and owned by
the Parent. The Subsidiary has not, within the two years immediately preceding
the date of this Agreement, owned, directly or indirectly, any Company Shares.
4.2. Power and Authority; Non-Contravention.
(a) The Subsidiary has all necessary corporate power and authority to
execute, deliver and perform this Agreement and all agreements and other
documents executed and delivered, or to be executed and delivered, by it
pursuant to this Agreement, and, subject to the satisfaction of the
conditions precedent set forth herein, has taken all actions required by
law, its Certificate of Incorporation, its By-laws or otherwise, to
authorize the execution and delivery of this Agreement and such related
documents. The Agreement has been duly and validly executed and delivered
by the Subsidiary and, assuming the due authorization, execution and
delivery by the Company, constitutes the legal, valid and binding
obligation of the Subsidiary in accordance with its terms.
(b) The execution and delivery of this Agreement does not and, subject
to the receipt of required regulatory approvals and any other required
third-party consents or approvals, the consummation of the Merger
contemplated hereby will not, violate any provisions of the Certificate of
Incorporation or By-laws of the Subsidiary, or any agreement, instrument,
order, judgment or decree to which the Subsidiary is a party or by which it
is bound, violate any restrictions of any kind to which the Subsidiary is
subject, or result in the creation of any lien, charge or encumbrance upon
any of the property or assets of the Subsidiary.
4.3. Brokers. There are no claims for brokerage commissions, investment
bankers' fees or finder's fees in connection with the transaction contemplated
by this Agreement resulting from any action taken by the Subsidiary or any of
its officers, directors or agents.
4.4. No Subsidiaries. The Subsidiary does not own stock in, and does not
control directly or indirectly, any other corporation, association or business
organization. The Subsidiary is not a party to any joint venture or partnership.
4.5. Legal Proceedings. There are no actions, suits or proceedings pending
or threatened against the Subsidiary, at law or in equity, relating to or
affecting the Subsidiary, including the Merger. The Subsidiary does not know or
have any reasonable grounds to know of any justification for any such action,
suit or proceeding.
4.6. No Contracts or Liabilities. The Subsidiary was formed solely for the
purpose of engaging in the transactions contemplated hereby, has engaged in no
other business activities and has conducted its operations only as contemplated
hereby. Other than the obligations created under this Agreement, the Subsidiary
has no obligations or liabilities (contingent or otherwise) under any contracts,
claims, leases, loans or otherwise.
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SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE PARENT
The Parent hereby represents and warrants to the Company as follows:
5.1. Organization, Existence and Good Standing of the Parent. The Parent
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The Parent has all necessary corporate power to
own its properties and assets and to carry on its business as presently
conducted. The Parent is not, and has not been within the two years immediately
preceding the date of this Agreement, a subsidiary or division of another
corporation, nor has the Parent within such time owned, directly or indirectly,
any of the Company Shares.
5.2. Subsidiaries and Affiliated Entities.
(a) Attached as Schedule 5.2 to the Parent Disclosure Schedule
delivered to the Company by the Parent at the time of the execution and
delivery of this Agreement (the "Parent Disclosure Schedule") is a list of
all subsidiaries of the Parent (individually, a "Parent Subsidiary," and
collectively, the "Parent Subsidiaries") and their states of incorporation
and all professional corporations or professional associations of which the
Parent has control and their states of incorporation. Except as set forth
in Schedule 5.2 to the Parent Disclosure Schedule, the Parent does not own
stock in and does not control, directly or indirectly, any other
corporation, association, partnership or business organization.
(b) Also disclosed in Schedule 5.2 to the Parent Disclosure Schedule
is a list of all general or limited partnerships in which a general partner
is the Parent, a Parent Subsidiary or another partnership controlled by the
Parent (individually a "Parent Partnership" and collectively, the "Parent
Partnerships"), and all limited liability companies in which the Parent, or
a Parent Subsidiary or a Parent Partnership is a member (individually, a
"Parent LLC," the Parent Partnerships and the Parent LLCs being
collectively called the "Other Parent Entities"), and their states of
organization.
(c) Except as set forth in Schedule 5.2 to the Parent Disclosure
Schedule, neither the Parent nor any Parent Subsidiary owns an equity
interest in, nor does such entity control, directly or indirectly, any
other joint venture or partnership.
(d) Although the financial results of the medical groups affiliated
with the Parent physician practice management business are consolidated for
accounting purposes on the Parent Balance Sheet, the terms "Parent
Subsidiary" and "Other Parent Entity" do not include any affiliated medical
groups.
(e) For the purposes of the representations and warranties of the
Parent set forth in this Agreement, any act, event, development or state of
facts affecting or otherwise relating to any professional corporation or
professional association of which the Parent has, directly or indirectly,
control or with which the Parent, any Parent Subsidiary or Other Parent
Entity has a long-term management contract, which act, event, development
or state of facts has or could reasonably be expected to adversely affect
the Parent, any Parent Subsidiary or Other Parent Entity, shall be deemed
an act, event, development or state of facts affecting or relating to the
Parent, any Parent Subsidiary or Other Parent Entity, as the case may be,
to the extent of such adverse effect.
5.3. Organization, Existence and Good Standing of Parent Subsidiaries and
Other Parent Entities.
(a) Each Parent Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of its respective state of
incorporation. Each Parent Subsidiary has all necessary corporate power to
own its properties and assets and to carry on its business as presently
conducted.
(b) Each Parent Partnership that is a limited partnership is validly
formed, each Parent Partnership that is a general partnership has been duly
organized, and each Parent Partnership is in good standing under the laws
of its respective state of organization. Each Parent Partnership has all
necessary power to own its property and assets and to carry on its business
as presently conducted.
(c) Each Parent LLC is a limited liability company validly formed and
in good standing under the laws of its respective state of organization.
Each Parent LLC has all necessary power to own its property and assets and
to carry on its business as presently conducted.
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5.4. Foreign Qualifications. The Parent, each Parent Subsidiary and each
Other Parent Entity that is not a general partnership is qualified to do
business as a foreign corporation, foreign limited partnership or foreign
limited liability company, as the case may be, and is in good standing in each
jurisdiction where the nature or character of the property owned, leased or
operated by it or the nature of the business transacted by it makes such
qualification necessary, except where the failure to so qualify would not have a
material adverse effect on the Parent.
5.5. Capitalization. The Parent's authorized capital stock consists of
400,000,000 shares of Common Stock, par value $.001 per share, of which
166,684,478 shares were issued and outstanding as of the close of business on
January 17, 1997, and no shares are held in treasury, and 9,500,000 shares of
Preferred Stock, par value $.001 per share, of which no shares are issued and
outstanding, and no shares are held in treasury, and 500,000 shares of Parent
Series C Preferred Stock reserved for issuance upon the exercise of the Parent
Rights, of which no shares are issued and outstanding and no shares are held in
treasury. All of the issued and outstanding shares of the Parent Common Stock
have been duly and validly issued and are fully paid and nonassessable. Except
as disclosed in the Parent Documents (as herein defined), and except as
described in Schedule 5.5 to the Parent Disclosure Schedule, there are no
options, warrants or similar rights granted by the Parent or any other
agreements to which the Parent is a party providing for the issuance or sale by
it of any additional securities. There is no liability for dividends declared or
accumulated but unpaid with respect to any shares of the Parent Common Stock.
There are no obligations, contingent or otherwise, of the Parent or any Parent
Subsidiary or Other Parent Entity to repurchase, redeem or otherwise acquire any
shares of Parent Common Stock or the capital stock of or other equity interest
in any Parent Subsidiary or Other Parent Entity.
5.6. Parent Common Stock. On the Closing Date, the Parent will have a
sufficient number of authorized but unissued and/or treasury shares of its
Common Stock available for issuance to the holders of the Company Shares in
accordance with the provisions of this Agreement. The Parent Common Stock to be
issued pursuant to this Agreement will, when so delivered, be (i) duly and
validly issued, fully paid and nonassessable, and (ii) listed on the NYSE, upon
official notice of issuance.
5.7. Power and Authority; Non-Contravention.
(a) Subject to the satisfaction of the conditions precedent set forth
herein, the Parent has all necessary corporate power and authority to
execute, deliver and perform this Agreement and all agreements and other
documents executed and delivered, or to be executed and delivered, by it
pursuant to this Agreement, and, subject to the satisfaction of the
conditions precedent set forth herein has taken all actions required by
law, its Certificate of Incorporation, its By-laws or otherwise, to
authorize the execution and delivery of this Agreement and such related
documents. This Agreement has been duly and validly executed and delivered
by the Parent and, assuming the due authorization, execution and delivery
by the Company, constitutes the legal, valid and binding obligation of the
Parent enforceable against the Parent in accordance with its terms.
(b) The execution and delivery of this Agreement does not and, subject
to the receipt of required stockholder and regulatory approvals and any
other required third-party consents or approvals, the consummation of the
Merger contemplated hereby will not, violate any provisions of the
Certificate of Incorporation or By-laws of the Parent, or any provision of,
or result in the acceleration of any obligation under, any mortgage, lien,
lease, agreement, instrument, order, arbitration award, judgment or decree
to which the Parent, any Parent Subsidiary or Other Parent Entity is a
party or by which it is bound, or violate any restrictions of any kind to
which the Parent is subject which, if violated or accelerated, would have a
material adverse effect on the Parent.
5.8. Parent Public Information. The Parent has heretofore made available
to the Company a true and complete copy of each report, schedule, registration
statement and definitive proxy statement filed by it or its predecessors,
MedPartners, Inc. and MedPartners/Mullikin Inc., with the SEC (as any such
documents have since the time of their original filing been amended, the "Parent
Documents") since January 1, 1995, which are all the documents (other than
preliminary material) that it was required to file with the SEC since such date.
As of their respective dates, the Parent Documents did not contain any untrue
statements of material facts or omit to state material facts required to be
stated therein or necessary to make the statements therein,
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in light of the circumstances under which they were made, not misleading. As of
their respective dates, the Parent Documents complied in all material respects
with the applicable requirements of the Securities Act and the Exchange Act, and
the rules and regulations promulgated under such statutes. The financial
statements contained in the Parent Documents, together with the notes thereto,
have been prepared in accordance with generally accepted accounting principles
consistently followed throughout the periods indicated (except as may be
indicated in the notes thereto, or, in the case of the unaudited financial
statements, as permitted by Form 10-Q), reflect all known liabilities of the
Parent, fixed or contingent, required to be stated therein, and present fairly
the financial condition of the Parent at said dates and the consolidated results
of operations and cash flows of the Parent for the periods then ended. The
consolidated balance sheet of the Parent at September 30,1996, included in the
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1996 of
the Parent is herein sometimes referred to as the "Parent Balance Sheet."
5.9. Contracts, etc.
(a) All material contracts, leases, agreements and arrangements to
which the Parent or any of the Parent Subsidiaries or Other Parent Entities
is a party (collectively, the "Parent Material Contracts") are legally
valid and binding in accordance with their terms and in full force and
effect. To the knowledge of the Parent, all parties to the Parent Material
Contracts have complied with the provisions of such Contracts, and to the
knowledge of the Parent, no party is in default thereunder, and no event
has occurred which, but for the passage of time or the giving of notice or
both, would constitute a default thereunder, except, in each case, where
the noncompliance with or invalidity of the Parent Material Contract or the
default or breach thereunder or thereof would not, individually or in the
aggregate, have a material adverse effect on the Parent.
(b) Except as set forth in Schedule 5.9 to the Parent Disclosure
Schedule, no Parent Material Contract will by its terms, terminate as a
result of the transactions contemplated hereby or require any consent from
any obligor thereto in order to remain in full force and effect immediately
after the Effective Time, except for such Parent Material Contracts which,
if terminated, would not have a material adverse effect on the Parent.
5.10. Legal Proceedings. Except as listed in Schedule 5.10 to the Parent
Disclosure Schedule, there are no actions, suits or proceedings pending or, to
the knowledge of the Parent, threatened against the Parent, any Parent
Subsidiary or Other Parent Entity at law or in equity, relating to or affecting
the Parent, any Parent Subsidiary or any Other Parent Entity, including the
Merger, which individually or in the aggregate, could reasonably be expected to
have a material adverse effect on the Parent, or a material adverse effect on
the ability of the Parent to consummate the transactions contemplated hereby.
5.11. Subsequent Events. Except as set forth on Schedule 5.11 to the
Parent Disclosure Schedule, the Parent (including the Parent Subsidiaries and
the Other Parent Entities) has not, since the date of the Parent Balance Sheet:
(a) Incurred any material adverse change.
(b) Discharged or satisfied any material lien or encumbrance, or paid
or satisfied any material obligation or liability (absolute, accrued,
contingent or otherwise) which discharge or satisfaction would have a
material adverse effect on the Parent, other than (i) liabilities shown or
reflected on the Parent Balance Sheet or (ii) liabilities incurred since
the date of the Parent Balance Sheet in the ordinary course of business.
(c) Incurred any funded Indebtedness or increased or established any
reserve for taxes or any other liability on its books or otherwise provided
therefor which would have a material adverse effect on the Parent, except
as may have been required due to income or operations of the Parent since
the date of the Parent Balance Sheet.
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(d) Mortgaged, pledged or subjected to any lien, charge or other
encumbrance any of the assets, tangible or intangible, which assets are
material to the consolidated business or financial condition of the Parent.
(e) Sold or transferred any of the assets material to the consolidated
business of the Parent, canceled any material debts or claims or waived any
material rights, except in the ordinary course of business.
(f) Except for annual increases in the base rates of compensation and
bonuses of officers and employees in the ordinary course of business,
granted any general or uniform increase in the rates of pay of employees or
any material increase in salary payable or to become payable by the Parent
to any officer or employee, consultant or agent (other than normal merit
increases), or by means of any bonus or pension plan, contract or other
commitment, increased in a material respect the compensation of any
officer, employee, consultant or agent.
(g) Except for this Agreement and any other agreement executed and
delivered pursuant to this Agreement, entered into any material transaction
other than in the ordinary course of business or permitted under other
Sections of this Agreement.
(h) Issued any stock, bonds or other securities or any options or
rights to purchase any of its securities (other than stock issued upon the
exercise of outstanding options under the Parent's stock option plans).
(i) Declared, set aside or paid any dividend or made any other
distribution or payment with respect to any shares of its capital stock or
directly or indirectly redeemed, purchased or otherwise acquired any shares
of its capital stock or the capital stock or equity interests of any Parent
Subsidiary or Other Parent Entity.
(j) Changed in any material respect the accounting methods or
practices followed by the Company, including any material change in any
assumption underlying, or method of calculating any bad debt, contingency
or other reserve, except as may be required by changes in generally
accepted accounting principles.
5.12. Accounts Receivable.
(a) Since the date of the Parent Balance Sheet, the Parent has not
changed any principle or practice with respect to the recordation of
accounts receivable or the calculation of reserves therefor, or any
material collection, discount or write-off policy or procedure, except as
may be required by changes in generally accepted accounting principles.
(b) The Parent (including the Parent Subsidiaries and the Other Parent
Entities) is in compliance with the terms and conditions of all third-party
payor arrangements relating to its accounts receivable, except to the
extent that such noncompliance would not have a material adverse effect on
the Parent. Without limiting the generality of the foregoing, neither the
Parent nor any Parent Subsidiary or Other Parent Entity has received notice
from any governmental authority alleging that the Parent or any Parent
Subsidiary is in violation of any Medicare and Medicaid provider agreements
to which it is a party, which violation would have a material adverse
effect on the Parent.
5.13. Tax Returns. The Parent has filed all tax returns required to be
filed by it or requests for extensions to file such returns or reports have been
timely filed and granted and have not expired, except to the extent that such
failures to file, taken together, do not have a material adverse effect on the
Parent. The Parent has made all payments shown as due on such returns.
5.14. Compliance with Laws. Neither the Parent nor any Parent Subsidiary
or Other Parent Entity has received any notices of material violations of any
federal, state and local laws, regulations and ordinances relating to its
business and operations, including, without limitation, the Occupational Safety
and Health Act, the Americans with Disabilities Act, Medicare or applicable
Medicaid statutes and regulations and any Environmental Laws, and no notice of
any pending inspection or violation of any such law, regulation or
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ordinance has been received by the Parent or any Parent Subsidiary or Other
Parent Entity which, if it were determined that a violation had occurred, would
have a material adverse effect on the Parent.
5.15. Regulatory Approvals. Except as disclosed in the Parent Documents or
in Schedule 5.15 to the Parent Disclosure Schedule, the Parent and each Parent
Subsidiary or Other Parent Entity, as applicable, holds all licenses,
certificates of need and other regulatory approvals required or necessary to be
applied for or obtained in connection with its business as presently conducted
or as proposed to be conducted, except where the failure to obtain or hold such
license, certificate of need or regulatory approval would not have a material
adverse effect on the Parent. All such licenses, certificates of need and other
regulatory approvals relating to the business, operations and facilities of the
Parent and each Parent Subsidiary or Other Parent Entity are in full force and
effect, except where any failure of such license, certificate of need or
regulatory approval to be in full force and effect would not have a material
adverse effect on the Parent. Any and all past litigation concerning such
licenses, certificates of need and regulatory approvals, and all claims and
causes of action raised therein, have been finally adjudicated. No such license,
certificate of need or regulatory approval has been revoked, conditioned (except
as may be customary) or restricted, and no action (equitable, legal or
administrative), arbitration or other process is pending, or to the best
knowledge of the Parent, threatened, which in any way challenges the validity
of, or seeks to revoke, condition or restrict any such license, certificate of
need, or regulatory approval. Subject to compliance with applicable securities
laws and the HSR Act, the consummation of the Merger will not violate any law or
restriction to which the Parent is subject which, if violated, would have a
material adverse effect on the Parent.
5.16. Investment Intent. The Parent is acquiring the Company Shares
hereunder for its own account and not with a view to the distribution or sale
thereof, and the Parent has no understanding, agreement or arrangement to sell,
distribute, partition or otherwise transfer or assign all or any part of the
Company Shares to any other person, firm or corporation.
5.17. Brokers. Except for the fee payable to Smith Barney Inc. pursuant to
the engagement letter, dated November 8, 1996, there are no valid claims for
brokerage commissions, finder's fees or similar fees in connection with the
transactions contemplated by this Agreement which may be now or hereafter
asserted against the Parent or the Company or any subsidiary or other controlled
entity of the Parent or the Company resulting from any action taken by the
Parent or any of its officers, directors or agents or any of them.
5.18. No Stockholder Vote Required. No vote is required of the holders of
the outstanding capital stock of the Parent to approve this Agreement, the
Merger and the transactions contemplated hereby.
5.19. Pooling Matters. To the best knowledge of the Parent, neither the
Parent nor any of its affiliates has taken or agreed to take any action that
(without giving effect to any actions taken or agreed to be taken by the Company
or any of its affiliates) would prevent the Company from accounting for the
business combination to be effected by the Merger as a pooling of interests for
financial reporting purposes.
5.20. No Untrue Representations. No representation or warranty by the
Parent in this Agreement, and no Schedule or certificate issued by the Parent
and furnished or to be furnished to the Parent pursuant hereto, or in connection
with the transactions contemplated hereby, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make the statements or facts contained therein not misleading in
light of all of the circumstances then prevailing.
SECTION 6. ACCESS TO INFORMATION AND DOCUMENTS
6.1. Access to Information.
(a) Between the date hereof and the Closing Date, each of the Company
and the Parent will give to the other party and its counsel, accountants
and other representatives reasonable access to all the properties,
documents, contracts, personnel files and other records of such party and
shall furnish the other party with copies of such documents and with such
information with respect to the affairs of such party as the other party
may from time to time reasonably request. Each party will disclose and make
available to the other party and its representatives all books, contracts,
accounts, personnel records, letters of intent, papers, records,
communications with regulatory authorities and other documents relating to
the
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business and operations of such party. In addition, the Company shall make
available to the Parent all such banking, investment and financial
information as shall be necessary to allow for the efficient integration of
the Company's banking, investment and financial arrangements with those of
the Parent at the Effective Time.
(b) The Company hereby agrees to provide the Parent with such
information and documentation as the lenders under the Revolving Credit and
Reimbursement Agreement, dated as of September 5, 1996, between the Parent
and NationsBank National Association (South), as agent for the lenders
named therein, shall reasonably request in connection with their review of
the Merger.
6.2. Return of Records. If the transactions contemplated hereby are not
consummated and this Agreement terminates, each party agrees to promptly return
all documents, contracts, records or properties of the other party and all
copies thereof furnished pursuant to this Section 6 or otherwise. All
information disclosed by any party or any affiliate or representative of any
party shall be deemed to be "Evaluation Material" under the terms of the
Confidentiality Agreement, dated September 18, 1996, between the Company and the
Parent (the "Confidentiality Agreement").
6.3. Effect of Access.
(a) Nothing contained in this Section 6 shall be deemed to create any
duty or responsibility on the part of either party to investigate or
evaluate the value, validity or enforceability of any contract, lease or
other asset included in the assets of the other party.
(b) With respect to matters as to which any party has made express
representations or warranties herein, the parties shall be entitled to rely
upon such express representations and warranties irrespective of any
investigations made by such parties, except to the extent that such
investigations result in actual knowledge of the inaccuracy or falsehood of
particular representations and warranties.
SECTION 7. COVENANTS
7.1. Preservation of Business. Except as contemplated by this Agreement,
each of the Company and the Parent will use its reasonable best efforts to
preserve its business organization intact, to keep available to the Parent and
the Surviving Corporation the services of their present employees, and to
preserve for the Parent and the Surviving Corporation the goodwill of the
suppliers, customers and others having business relations with them and their
respective subsidiaries.
7.2. Material Transactions. Except as contemplated by this Agreement,
prior to the Effective Time, neither the Company nor any Company Subsidiary nor
Company Partnership will (other than as required pursuant to the terms of this
Agreement and the related documents), without first obtaining the written
consent of the Parent:
(a) Encumber any asset or enter into any transaction or make any
contract or commitment relating to the properties, assets and business of
the Company or the Company Subsidiaries or the Company Partnerships, other
than in the ordinary course of business or as otherwise disclosed herein.
(b) Enter into any employment contract or similar agreement in which
the cash compensation is in excess of $100,000 per annum, or the term is
greater than one year, which is not terminable upon notice of 90 days or
less, at will, and without penalty to the Company or such Company
Subsidiary or Company Partnership, other than physician contracts entered
into in the ordinary course of business.
(c) Enter into any contract or agreement (i) which cannot be performed
within three months or less, or (ii) which involves the expenditure of over
$1,000,000, other than in the ordinary course of business.
(d) Issue or sell, or agree to issue or sell, any shares of capital
stock or other securities of the Company or such Company Subsidiary or
Company Partnership, except upon exercise of currently outstanding stock
options.
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(e) Make any payment or distribution to the trustee under any bonus,
pension, profit-sharing or retirement plan or incur any obligation to make
any such payment or contribution which is not in accordance with the
Company's usual past practice, or make any payment or contributions or
incur any obligation pursuant to or in respect of any other plan or
contract or arrangement providing for bonuses, executive incentive
compensation, pensions, deferred compensation, retirement payments,
profit-sharing or the like, establish or enter into any such plan, contract
or arrangement, or terminate any plan.
(f) Extend credit to anyone, except in the ordinary course of business
consistent with prior practices.
(g) Guarantee the obligation of any person, firm or corporation,
except in the ordinary course of business consistent with prior practices.
(h) Amend its Certificate or Articles of Incorporation or By-laws.
(i) Take any action of a character described in Section 3.11(a) to
3.11(j), inclusive.
7.3. Meeting of Stockholders. The Company will take all steps necessary in
accordance with its Certificate of Incorporation and By-laws to call, give
notice of, convene and hold meetings of its stockholders (the "Stockholder
Meeting") as soon as practicable after the effectiveness of the Registration
Statement (as defined in Section 7.4 hereof), for the purpose of approving and
adopting this Agreement and the transactions contemplated hereby and for such
other purposes as may be necessary. Unless this Agreement shall have been
validly terminated as provided herein, the Board of Directors of the Company
(subject to the provisions of Section 8.1(d) hereof) will (i) recommend to its
stockholders the approval and adoption of this Agreement, the transactions
contemplated hereby and any other matters to be submitted to the stockholders in
connection therewith, to the extent that such approval is required by applicable
law in order to consummate the Merger, and (ii) use its reasonable, good faith
efforts to obtain the approval by its stockholders of this Agreement and the
transactions contemplated hereby.
7.4. Registration Statement.
(a) The Parent shall prepare and file with the SEC and any other
applicable regulatory bodies, as soon as reasonably practicable, a
Registration Statement on Form S-4 with respect to the shares of the Parent
Common Stock to be issued in the Merger (the "Registration Statement"), and
will otherwise proceed promptly to satisfy the requirements of the
Securities Act, including Rule 145 thereunder. Such Registration Statement
shall contain a proxy statement of the Company containing the information
required by the Exchange Act (the "Proxy Statement"). The Parent shall use
its reasonable best efforts to cause the Registration Statement to be
declared effective and to maintain such effectiveness until all of the
shares of the Parent Common Stock covered thereby have been distributed.
The Parent shall promptly amend or supplement the Registration Statement to
the extent necessary in order to make the statements therein not misleading
or to correct any statements which have become false or misleading. The
Parent shall use its reasonable best efforts to have the Proxy Statement
approved by the SEC under the provisions of the Exchange Act. The Parent
shall provide the Company with copies of all filings made pursuant to this
Section 7.4 and shall consult with the Company on responses to any comments
made by the Staff of the SEC with respect thereto.
(b) The information specifically designated as being supplied by the
Company for inclusion or incorporation by reference in the Registration
Statement shall not, at the time the Registration Statement is declared
effective, at the time the Proxy Statement is first mailed to holders of
the Company Common Stock, at the time of the Stockholder Meeting and at the
Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order
to make the statements therein, not misleading. The information
specifically designated as being supplied by the Company for inclusion or
incorporation by reference in the Proxy Statement shall not, at the date
the Proxy Statement (or any amendment thereof or supplement thereto) is
first mailed to holders of the Company Common Stock, at the time of the
Stockholder Meeting and at the Effective Time, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in the light
of the circumstances under which they are
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made, not misleading. If at any time prior to the Effective Time, any event
or circumstance relating to the Company, or its officers or directors,
should be discovered by the Company which should be set forth in an
amendment to the Registration Statement or a supplement to the Proxy
Statement, the Company shall promptly inform the Parent. All documents, if
any, that the Company is responsible for filing with the SEC in connection
with the transactions contemplated hereby will comply as to form and
substance in all material respects with the applicable requirements of the
Securities Act and the rules and regulations thereunder and the Exchange
Act and the rules and regulations thereunder.
(c) The information specifically designated as being supplied by the
Parent for inclusion or incorporation by reference in the Registration
Statement shall not, at the time the Registration Statement is declared
effective, at the time the Proxy Statement is first mailed to holders of
the Company Common Stock, at the time of the Stockholder Meeting and at the
Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order
to make the statements therein, not misleading. The information
specifically designated as being supplied by the Parent for inclusion or
incorporation by reference in the Proxy Statement in connection with the
Stockholder Meeting shall not, at the date the Proxy Statement (or any
amendment thereof or supplement thereto) is first mailed to holders of the
Company Common Stock, at the time of the Stockholder Meeting or at the
Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order
to make the statements therein, not misleading. If at any time prior to the
Effective Time any event or circumstance relating to the Parent or its
officers or Directors, should be discovered by the Parent which should be
set forth in an amendment to the Registration Statement or a supplement to
the Proxy Statement, the Parent shall promptly inform the Company and shall
promptly file such amendment to the Registration Statement. All documents
that the Parent is responsible for filing with the SEC in connection with
the transactions contemplated herein will comply as to form and substance
in all material respects with the applicable requirements of the Securities
Act and the rules and regulations thereunder and the Exchange Act and the
rules and regulations thereunder.
(d) Prior to the Closing Date, the Parent shall use its reasonable
best efforts to cause the shares of Parent Common Stock to be issued
pursuant to the Merger to be registered or qualified under all applicable
securities or Blue Sky laws of each of the states and territories of the
Untied States, and to take any other actions which may be necessary to
enable the Common Stock to be issued pursuant to the Merger to be
distributed in each such jurisdiction.
(e) Prior to the Closing Date, the Parent shall file a Subsequent
Listing Application with the NYSE relating to the shares of the Parent
Common Stock to be issued in connection with the Merger, and shall cause
such shares of the Parent Common Stock to be listed on the NYSE, upon
official notice of issuance, prior to the Closing Date.
(f) The Company shall furnish all information to the Parent with
respect to the Company and the Company Subsidiaries as the Parent may
reasonably request for inclusion in the Registration Statement, the Proxy
Statement and shall otherwise cooperate with the Parent in the preparation
and filing of such documents.
7.5. Exemption from State Takeover Laws. The Company shall take all
reasonable steps necessary to exempt the Merger from the requirements of any
state takeover statute or other similar state law which would prevent or impede
the consummation of the transactions contemplated hereby, by action of the
Company's Board of Directors or otherwise.
7.6. HSR Act Compliance. The Parent and the Company shall promptly make
their respective filings, and shall thereafter use their reasonable best efforts
to promptly make any required submissions, under the HSR Act with respect to the
Merger and the transactions contemplated hereby. The Parent and the Company will
use their respective reasonable best efforts to obtain all other permits,
authorizations, consents and approvals from third parties and governmental
authorities necessary to consummate the Merger and the transactions contemplated
hereby.
7.7. Public Disclosures. The Parent and the Company will consult with each
other before issuing any press release or otherwise making any public statement
with respect to the transactions contemplated by this
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Agreement, and shall not issue any such press release or make any such public
statement prior to such consultation except as may be required by applicable law
or requirements of the NYSE or Nasdaq. The parties shall issue a joint press
release, mutually acceptable to the Parent and the Company, promptly upon
execution and delivery of this Agreement.
7.8. No Solicitations. The Company may, directly or indirectly, furnish
information and access, in response to unsolicited requests therefor, to the
same extent permitted by Section 6.1, to any corporation, partnership, person or
other entity or group, pursuant to appropriate confidentiality agreements, and
may participate in discussions and negotiate with such corporation, partnership,
person or other entity or group concerning any proposal to acquire all or any
significant portion of the equity securities of the Company or of the assets of
the Company and the Company Subsidiaries and Company Partnerships upon a merger,
purchase of assets, purchase of or tender offer for shares of its Common Stock
or similar transaction (an "Acquisition Transaction"), if the Board of Directors
of the Company determines in its good faith judgment in the exercise of its
fiduciary duties or the exercise of its duties under Rule 14e-2 under the
Exchange Act, after consultation with legal counsel and its financial advisors,
that such action is appropriate in furtherance of the best interest of its
stockholders. Except as set forth above, the Company shall not, and will direct
each officer, director, employee, representative and agent of such party not to,
directly or indirectly, encourage, solicit, participate in or initiate
discussions or negotiations with or provide any information to any corporation,
partnership, person or other entity or group (other than the Parent or an
affiliate or associate or agent of the Parent, respectively) concerning any
merger, sale of assets, sale of or tender offer for its shares or similar
transactions involving all or any significant portion of the equity securities
of the Company or of the assets of the Company and the Company Subsidiaries and
Company Partnerships. The Company shall promptly notify the Parent if it shall,
on or after the date hereof, have entered into a confidentiality agreement with
any third party in response to any unsolicited request for information and
access in connection with a possible Acquisition Transaction, such notification
to include the identity of such third party and the proposed terms of such
possible Acquisition Transaction. In addition, the Company shall notify the
Parent within one day of determining to provide information to any corporation,
partnership, person or other entity or group in connection with any possible
Acquisition Transaction.
7.9. Other Actions. Subject to the provisions of Section 7.8 hereof, none
of the Company, the Parent and the Subsidiary shall knowingly or intentionally
take any action, or omit to take any action, if such action or omission would,
or reasonably might be expected to, result in any of its representations and
warranties set forth herein being or becoming untrue in any material respect, or
in any of the conditions to the Merger set forth in this Agreement not being
satisfied, or (unless such action is required by applicable law) which would
materially adversely affect the ability of the Company or the Parent to obtain
any consents or approvals required for the consummation of the Merger without
imposition of a condition or restriction which would have material adverse
effect on the Surviving Corporation or which would otherwise materially impair
the ability of the Company or the Parent to consummate the Merger in accordance
with the terms of this Agreement or materially delay such consummation.
7.10. Accounting Methods. Neither the Parent nor the Company shall change,
in any material respect, its methods of accounting in effect at its most recent
fiscal year end, except as required by changes in generally accepted accounting
principles as concurred by such parties' independent accountants.
7.11. Pooling and Tax-Free Reorganization Treatment. Neither the Parent
nor the Company shall intentionally take or cause to be taken any action,
whether on or before the Effective Time, which would disqualify the Merger as a
"pooling of interests" for accounting purposes or as a "reorganization" within
the meaning of Section 368(a) of the Code.
7.12. Affiliate and Pooling Agreements. The Parent and the Company will
each use their respective reasonable best efforts to causes each of their
respective directors and executive officers and each of their respective
"affiliates" (within the meaning of Rule 145 under the Securities Act) to
execute and deliver to the Parent as soon as practicable an agreement in the
form attached hereto as Exhibit 7.12 relating to the disposition of shares of
the Company Common Stock and shares of the Parent Common Stock held by such
person and the shares of the Parent Common Stock issuable pursuant to this
Agreement.
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7.13. Cooperation.
(a) The Parent and the Company shall together, or pursuant to an
allocation of responsibility agreed to between them, (i) cooperate with one
another in determining whether any filings required to be made or consents
required to be obtained in any jurisdiction prior to the Effective Time in
connection with the consummation of the transactions contemplated hereby
and cooperate in making any such filings promptly and in seeking to obtain
timely any such consents, (ii) use their respective best efforts to cause
to be lifted any injunction prohibiting the Merger, or any part thereof, or
the other transactions contemplated hereby, and (iii) furnish to one
another and to one another's counsel all such information as may be
required to effect the foregoing actions.
(b) Subject to the terms and conditions herein provided, and unless
this Agreement shall have been validly terminated as provided herein, each
of the Parent and the Company shall use all reasonable efforts (i) to take,
or cause to be taken, all actions necessary to comply promptly with all
legal requirements which may be imposed on such party (or any subsidiaries
or affiliates of such party) with respect to the Agreement and to
consummate the transactions contemplated hereby, subject, in the case of
the Company, to the vote of its stockholders described above, and (ii) to
obtain (and to cooperate with the other party to obtain) any consent,
authorization, order or approval of, or any exemption by, any governmental
entity which is required to be obtained or made by such party or any of its
subsidiaries or affiliates in connection with this Agreement and the
transactions contemplated hereby. Each of the Parent and the Company will
promptly cooperate with and furnish information to the other in connection
with any such burden suffered by, or requirement imposed upon, either of
then or any of their subsidiaries or affiliates in connection with the
foregoing.
7.14. Company Stock Options.
(a) As soon as reasonably practicable after the Effective Time, the
Parent shall deliver to the holders of the Company stock options,
appropriate notices setting forth such holders' rights pursuant to any
stock option plans under which such Company stock options were issued and
any stock option agreements evidencing such options which shall continue in
full force and effect on the same terms and conditions (subject to the
adjustments required by Section 2.1(d) or this Section 7.14 after giving
effect to the Merger and the assumption of such options by the Parent as
set forth herein) as in effect immediately prior to the Effective Time. The
Parent shall comply with the terms of the stock option plans, and the stock
option agreements as so adjusted, and shall use its reasonable best efforts
to ensure, to the extent required by, and subject to the provisions of,
such plans or agreements, that the Company stock options which qualified as
incentive stock options prior to the Effective Time shall continue to
qualify as incentive stock options after the Effective Time.
(b) The Parent shall take all corporate action necessary to reserve
for issuance a sufficient number of shares of the Parent Common Stock for
delivery upon exercise of the Company stock options assumed by the Parent
in accordance with Section 2.1(d). As soon as practicable after the
Effective Time, the Parent shall file with the SEC a registration statement
on Form S-8 with respect to shares of the Parent Common Stock subject to
such assumed Company stock options and shall use its best efforts to
maintain the effectiveness of a registration statement or registration
statements covering such options (and maintain the current status of the
prospectus or prospectuses contained therein) for so long as such the
Company stock options remain outstanding. The Parent shall administer the
plans assumed pursuant to Section 2.1(d) hereof in a manner that complies
with Rule 16b-3 promulgated under the Exchange Act to the extent the
applicable plan complied with such rule prior to the Merger.
(c) Except to the extent otherwise agreed to by the parties, all
restrictions or limitations on transfer and vesting with respect to the
Company stock options awarded under any plan, program, or arrangement of
the Company or any of its subsidiaries, to the extent that such
restrictions or limitations shall not have already lapsed, shall remain in
full force and effect with respect to such options after giving effect to
the Merger and the assumption by the Parent as set forth above.
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7.15. Publication of Combined Results. The Parent agrees that after the
end of the first full calendar month after the Effective Time, the Parent shall
cause publication of the combined results of operations of the Parent and the
Company in the First Quarterly Report on Form 10-Q which shall be filed after
such period. For purposes of this Section 7.15, the term "publication" shall
have the meaning provided in SEC Accounting Series Release No. 135.
7.16. Tax Opinion Certificates. Each of the Parent and the Company agrees
that it shall provide certificates containing reasonable representations to
counsel for the Parent and the Company in connection with such counsels'
rendering of their opinions as to the federal income tax consequences of the
Merger provided for in Section 9 of this Agreement.
7.17. Consents; Amendments, Etc.
(a) The Parent, the Subsidiary and the Company shall use their
reasonable best efforts, consistent with sound business judgment, to obtain
all material consents, approvals and authorizations of third parties with
respect to all material agreements to which such parties are parties, which
consents, approvals and authorizations are required of such third parties
by such documents, in form and substance acceptable to the Parent or the
Company, as the case may be, except where the failure to obtain such
consent, approval or authorization would not have a material adverse effect
on the business of the Surviving Corporation.
(b) The Parent, the Subsidiary and the Company shall use their best
efforts to obtain, or obtain the transfer of, any licenses and other
regulatory approvals necessary to allow the Surviving Corporation to
operate the Company's business, unless the failure to obtain such transfer
or approval would not have a material adverse effect on the Company.
7.18. Compensation Plans. The Parent confirms that the consummation of the
Merger constitutes a "Change in Control" or "Change of Control" of the Company
for all purposes within the meaning of all the Company Plans and compensation
plans or compensation agreements of the Company.
7.19. Insurance; Indemnification; Benefits.
(a) The Parent shall, or shall cause the Surviving Corporation to,
maintain in effect for not less than three years after the Effective Time
the Company's current policy of directors' and officers' liability
insurance for the benefit of the individuals who, at or before the
Effective Time, were directors or officers of the Company with respect to
matters occurring prior to the Effective Time; provided, however, that (i)
the Parent may substitute therefor policies of at least the same coverage
containing terms and conditions which are no less advantageous to the
covered officers and directors and (ii) the Parent shall not be required to
pay an annual premium for such insurance in excess of two times the last
annual premium paid prior to the date hereof, but in the event such premium
shall exceed such amount shall purchase as much coverage as possible for
such amount.
(b) From and after the Effective Time, the Parent shall indemnify,
defend and hold harmless the officers, directors and employees of the
Company and the Company Subsidiaries who were such at any time prior to the
Effective Time (the "Indemnified Parties") from and against all losses,
expenses, claims, damages or liabilities arising out of the transactions
contemplated by this Agreement to the fullest extent permitted or required
under applicable law, provided, however that the requirement to advance
expenses shall be limited to those instances in which the indemnified party
undertakes to repay such amount if it shall ultimately be determined that
he is not required to be indemnified under Section 145(c) of the DGCL. The
Parent agrees that all rights to indemnification existing in favor of the
directors, officers and employees of the Company and the Company
Subsidiaries as provided in the Company's or the Company's Subsidiaries'
Certificate of Incorporation or By-laws, as applicable and as in effect as
of the date hereof, with respect to matters occurring through the Effective
Time, shall survive the Merger and shall continue in full force and effect
from and after the Effective Time, and the Parent shall, and shall cause
the Surviving Corporation to, indemnify and hold harmless such persons to
the extent so provided. In the event of any actual or threatened claim,
action, suit, proceeding or investigation in respect of any indemnifiable
matter under this Section 7.19, (i) the Parent shall cause the Surviving
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Corporation to pay the reasonable fees and expenses of counsel selected by
the Indemnified Party in advance of the final disposition of any such
action to the fullest extent permitted by applicable law, upon receipt of
any undertaking required by applicable law, and (ii) the Parent shall cause
the Surviving Corporation to cooperate in the defense of any such matter.
(c) The Parent covenants and agrees that, following the Effective
Time, it will, or it will cause the Surviving Corporation to, (A) honor in
accordance with their terms all benefits accrued or vested under the
Company Plans as of the Effective Time, and (B) honor in accordance with
their terms all contracts, arrangements, commitments, or understandings
described in Schedule 3.14(b) to the Company Disclosure Schedule.
(d) The provisions of this Section 7.19 and Sections 7.14 and 7.18
shall survive the Merger, and are intended to be for the benefit of, and
shall be enforceable by, any officer, director, employee, trustee or agent
of the Company (or any Company Subsidiary or Company Partnership), and such
person's heirs or representatives, that is the subject of such Section as
the case may be (the expenses, including reasonable attorneys' fees, that
may be incurred thereby in enforcing such provisions to be paid by the
Parent).
7.20. Company Rights Agreement. The Company will amend, prior to the
Effective Time, the Company Rights Agreement to the extent necessary to provide
that the execution, delivery and performance of this Agreement and the
transactions contemplated hereby will not (i) cause the Parent or any of its
affiliates to become an Acquiring Person (as defined in the Company Rights
Agreement), or (ii) otherwise affect the rights of the holders of Company
Rights, including by causing such Company Rights to separate from the underlying
shares or by giving such holders the right to acquire securities of any party
hereto.
7.21. Resignation of Company Directors. On or prior to the Closing Date,
the Company shall deliver to the Parent evidence satisfactory to the Company of
the resignations of Directors of the Company, such resignations to be effective
immediately after the Effective Time.
7.22. Notice of Subsequent Events. The Parent and the Company shall notify
each other of any changes, additions or events occurring after the date hereof
which would cause any material adverse change or material adverse effect with
respect to the notifying party, promptly after obtaining knowledge of the same.
7.23. Conduct of Business by Parent Pending the Merger. Prior to the
Effective Time, unless the Company shall otherwise agree in writing or except as
otherwise required by this Agreement, the Parent shall not, nor shall it permit
any of the Parent Subsidiaries or Other Parent Entities to: (i) issue or sell,
or agree to issue or sell, other than in an acquisition approved by the Parent's
Board of Directors in accordance with the policies and procedures adopted by the
Parent's Board of Directors for such acquisitions, any shares of capital stock
or other securities (except for options granted under the Parent's existing
stock option plans at an exercise price not less than the fair market value at
the time of grant) of the Parent or such Parent Subsidiary or Other Parent
Entity, except upon exercise of currently outstanding stock options or pursuant
to stock purchase plans, or (ii) amend its Certificate of Incorporation or
Articles of Incorporation, except to increase the authorized number of shares of
capital stock of the Parent, or amend its By-laws in any manner which would have
a material adverse effect on the Merger. In addition, during the period from the
date hereof to the Effective Time, the Subsidiary shall not engage in any
activities of any nature except as provided in or contemplated by this
Agreement.
7.24. Restructuring the Merger. If the Company and the Parent mutually
determine that a forward subsidiary merger would adversely affect the ability of
the parties to consummate the Merger and that a reverse subsidiary merger would
not, the Merger will be restructured in the form of a reverse subsidiary merger
of the Subsidiary into the Company, with the Company being the Surviving
Corporation. In such event, this Agreement shall be appropriately modified to
reflect such form of merger.
7.25. Tax Covenants Following the Effective Time. Following the Effective
Time, the Parent shall not, and shall cause the Surviving Corporation not to,
take any action following the Effective Time which could disqualify the Merger
as a "reorganization" within the meaning of Section 368(a) of the Code.
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SECTION 8. TERMINATION, AMENDMENT AND WAIVER
8.1. Termination. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of matters presented in
connection with the Merger by the holders of the Company Common Stock and the
holders of the Parent Common Stock:
(a) by mutual written consent of the Parent, the Subsidiary and the
Company;
(b) by either the Parent or the Company;
(i) if, upon a vote at a duly held meeting of stockholders or any
adjournment thereof, any required approval of the holders of the Company
Common Stock shall not have been obtained;
(ii) if the Merger shall not have been consummated on or before
July 31, 1997, unless the failure to consummate the Merger is the result
of a willful and material breach of this Agreement by the party seeking
to terminate this Agreement; provided, however, that the passage of such
period shall be tolled for any part thereof (but not exceeding 60 days
in the aggregate) during which any party shall be subject to a nonfinal
order, decree, ruling or action restraining, enjoining or otherwise
prohibiting the consummation of the Merger or the calling or holding of
a meeting of stockholders;
(iii) if a United States federal or state court of competent
jurisdiction or other United States federal or state governmental entity
shall have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the Merger
and such order, decree, ruling or other action shall have become final
and nonappealable; provided, that the party seeking to terminate this
Agreement shall have used all reasonable efforts to remove such order,
decree, ruling or other action; or
(iv) in the event of a material breach by the other party of any
representation, warranty, covenant or other agreement contained in this
Agreement which (A) would give rise to the failure of a condition set
forth in Section 9.2(a) or (b) or Section 9.3(a) or (b), as applicable,
and (B) cannot be or has not been cured within 30 days after the
occurrence or discovery of such breach by the breaching party, whichever
is later (a "Material Breach") (provided that the terminating party is
not then in Material Breach of any representation, warranty, covenant or
other agreement contained in this Agreement); or
(c) by either the Parent or the Company in the event that (i) all of
the conditions to the obligation of such party to effect the Merger set
forth in Section 9.1 shall have been satisfied and (ii) any condition to
the obligation of such party to effect the Merger set forth in Section 9.2
(in the case of the Parent) or Section 9.3 (in the case of the Company) is
not capable of being satisfied prior to the end of the period referred to
in Section 8.1(b)(ii); or
(d) by the Company, if the Company's Board of Directors shall have (i)
determined, in the exercise of its fiduciary duties under applicable law,
not to recommend the Merger to the holders of Company Shares or shall have
withdrawn such recommendation or (ii) approved, recommended or endorsed any
Acquisition Transaction (as defined in Section 7.8) other than this Merger
or (iii) resolved to do any of the foregoing; or
(e) by the Company, if the average of the last per share sale price of
the Parent Common Stock for the ten consecutive trading days ending on the
fifth trading day immediately preceding the date set for the Stockholder
Meeting as reported on the NYSE Composite Tape is equal to or less than
$17.125; or
(f) by the Company, upon the occurrence of a change, addition or event
requiring the Parent to give notice pursuant to Section 7.22 that (x) would
give rise to the failure of a condition set forth in Section 9.3(b) and (y)
is not capable of being cured prior to the end of the period referred to in
Section 8.1(b)(ii); provided, that the Company shall only be permitted to
terminate the Agreement within ten days after receipt of any such notice
and the information reasonably requested by it in order to evaluate the
significance of such change, addition or event; and provided, further, that
if the Company does not give the Parent written notice of termination
within such 10-day period, the Company shall be deemed to
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have consented to such change, addition or event and shall not be entitled
thereafter to assert that such change, addition or event gives rise to a
failure of a condition set forth in Section 9.3(b); or
(g) by the Parent, upon the occurrence of a change, addition or event
requiring the Company to give notice pursuant to Section 7.22 that (x)
would give rise to the failure of a condition set forth in Section 9.2(b)
and (y) is not capable of being cured prior to the end of the period
referred to in Section 8.1(b)(ii); provided, that the Company shall only be
permitted to terminate the Agreement within ten days after receipt of any
such notice and the information reasonably requested by it in order to
evaluate the significance of such change, addition or event; and provided,
further, that if the Parent does not give the Company written notice of
termination within such 10-day period, the Parent shall be deemed to have
consented to such change, addition or event and shall not be entitled
thereafter to assert that such change, addition or event gives rise to a
failure of a condition set forth in Section 9.2(b).
8.2. Effect of Termination. In the event of termination of this Agreement
as provided in Section 8.1, this Agreement shall forthwith become void and have
no effect, without any liability or obligation on the part of any party, other
than the provisions of Sections 6.2, 7.7, 8.2 and 8.6, and except to the extent
that such termination results from the willful and material breach by a party of
any of its representations, warranties, covenants or other agreements set forth
in this Agreement.
8.3. Amendment. This Agreement may be amended by the parties at any time
before or after any required approval of matters presented in connection with
the Merger by the holders of the Company Shares; provided, however, that after
such approval, there shall be made no amendment that pursuant to Section 251(d)
of the DGCL requires further approval by such stockholders without such further
approval. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties.
8.4. Extension; Waiver. At any time prior to the Effective Time, the
parties may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties contained in this Agreement or in any document
delivered pursuant to this Agreement or (c) subject to the proviso of Section
8.3, waive compliance with any of the agreements or conditions contained in this
Agreement. Any agreement on the part of a party to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party. The failure of any party to this Agreement to assert any of its
rights under this Agreement or otherwise shall not constitute a waiver of such
rights.
8.5. Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 8.1, an amendment of this
Agreement pursuant to Section 8.3, or an extension or waiver pursuant to Section
8.4 shall, in order to be effective, require in the case of each of the Parent,
the Subsidiary and the Company, action by its Board of Directors or the duly
authorized designee of the Board of Directors.
8.6. Expenses; Break-up Fees.
(a) All costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party
incurring such expense, except that expenses (other than legal, accounting
and investment banking costs, which shall be paid by the party incurring
such expenses) incurred in connection with preparing, filing, printing and
mailing the Proxy Statements and the Registration Statement shall be shared
equally by the Parent and the Company.
(b) In the event of a termination of this Agreement by the Company
pursuant to Section 8.1(d) as a result of the Board of Directors approving,
recommending or endorsing an Acquisition Transaction and within one year
after the effective date of such termination, the Company is the subject of
an Acquisition Transaction with any Person (as defined in Sections 3(a)(9)
and 13(d)(3) of the Exchange Act) (other than a party hereto), then at the
time of the consummation of such Acquisition Transaction, the Company shall
pay to the Parent a break-up fee of $12 million in immediately available
funds.
(c) The Company acknowledges that the provisions for the payment of
break-up fees and the allocation of expenses contained in this Section 8.6
are an integral part of the transactions contemplated
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by this Agreement and that, without these provisions, the Parent and the
Subsidiary would not have entered into this Agreement. Accordingly, if a
break-up fee shall become due and payable by the Company, and the Company
shall fail to pay such amount when due pursuant to this Section, and, in
order to obtain such payment, suit is commenced by the Parent which results
in a judgment against the Company therefor, the Company shall pay the
Parent's reasonable costs and expenses (including reasonable attorneys'
fees) in connection with such suit, together with interest computed on any
amounts determined to be due pursuant to this Section (computed from the
date upon which such amounts were due and payable pursuant to this Section)
and such costs (computed from the dates incurred) at the prime rate of
interest announced from time to time by NationsBank, National Association
(South). The obligations of the Company under this Section 8.6 shall
survive any termination of this Agreement.
In the event a break-up fee is payable pursuant to this Section 8.6, the
payment of any such break-up fee shall be the sole and exclusive remedy of the
Parent.
SECTION 9. CONDITIONS TO CLOSING
9.1. Mutual Conditions. The respective obligations of each party to effect
the Merger shall be subject to the satisfaction, at or prior to the Closing
Date, of the following conditions (any of which may be waived in writing by the
Parent, the Subsidiary and the Company):
(a) None of the Parent, the Subsidiary or the Company nor any of their
respective subsidiaries shall be subject to any order, decree or injunction
by a United States federal or state court of competent jurisdiction which
(i) prevents the consummation of the Merger or (ii) would impose any
material limitation on the ability of the Parent effectively to exercise
full rights of ownership of the Common Stock of the Surviving Corporation
or any material portion of the assets or business of the Company and the
Company Subsidiaries and the Company Partnerships, taken as a whole.
(b) No statute, rule or regulation shall have been enacted by the
government (or any governmental agency) of the United States or any state
that makes the consummation of the Merger and any other transaction
contemplated hereby illegal.
(c) Any waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated.
(d) The holders of shares of the Company Common Stock shall have
approved the adoption of this Agreement and any other matters submitted to
them for the purpose of approving the transactions contemplated hereby.
(e) The shares of the Parent Common Stock to be issued in connection
with the Merger shall have been listed on the NYSE, upon official notice of
issuance, and shall have been issued in transactions qualified or exempt
from registration under applicable securities or Blue Sky laws of such
states and territories of the United States as may be required.
(f) The Merger shall qualify for "pooling of interests" accounting
treatment, and the Parent and the Company shall each have received a
letter, dated the Closing Date, from Ernst & Young LLP as to their
concurrence with the Parent and the Company to that effect if the Merger is
consummated in accordance with the terms and provisions of this Agreement.
(g) The Registration Statement shall have been declared effective and
no stop order with respect to the Registration Statement shall be in
effect.
9.2. Conditions to Obligations of the Parent. The obligations of the
Parent to consummate the Merger and the other transactions contemplated hereby
shall be subject to the satisfaction, at or prior to the Closing Date, of the
following conditions (any of which may be waived by the Parent):
(a) The agreements of the Company to be performed at or prior to the
Closing Date pursuant to the terms hereof shall have been duly performed in
all material respects, and the Company shall have
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<PAGE> 89
performed, in all material respects, all of the acts required to be
performed by it at or prior to the Closing Date by the terms hereof.
(b) The representations and warranties of the Company set forth in
Section 3.11(a) shall be true and correct as of the date of this Agreement
and as of the Closing Date as described in the next sentence. The
representations and warranties of the Company set forth in this Agreement
that are qualified as to materiality shall be true and correct, and those
that are not so qualified shall be true and correct in all material
respects, as of the date of this Agreement and as of the Closing as though
made at and as of such time, except to the extent such representations and
warranties expressly relate to an earlier date (in which case such
representations and warranties that are qualified as to materiality shall
be true and correct, and those that are not so qualified shall be true and
correct in all material respects, as of such earlier date); provided,
however, that the Company shall not be deemed to be in breach of any such
representations or warranties by taking any action permitted (or approved
by the Parent) under this Agreement. The Parent and the Subsidiary shall
have been furnished with a certificate, executed by a duly authorized
officer of the Company, dated the Closing Date, certifying as to the
fulfillment of the foregoing conditions.
(c) The Parent shall have received an opinion from Haskell Slaughter &
Young, L.L.C. to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code, which
opinion may be based upon reasonable representations of fact provided by
officers of the Parent, the Company and the Subsidiary.
(d) The Parent shall have received an opinion from Willkie Farr &
Gallagher substantially to the effect set forth in Exhibit 9.2(d) hereto.
(e) All consents, authorizations, orders and approvals of (or filings
or registrations with) any governmental commission, board or other
regulatory body required to execute, deliver and perform this Agreement
shall have been obtained or made, except for filings in connection with the
Merger and any other documents required to be filed after the Effective
Time.
9.3. Conditions to Obligations of the Company. The obligations of the
Company to consummate the Merger and the other transactions contemplated hereby
shall be subject to the satisfaction, at or prior to the Closing Date, of the
following conditions (any of which may be waived by the Company):
(a) The agreements of the Parent and the Subsidiary to be performed at
or prior to the Closing Date pursuant to the terms hereof shall have been
duly performed, in all material respects, and the Parent and the
Subsidiaries shall have performed, in all material respects, all of the
acts required to be performed by them at or prior to the Closing Date by
the terms hereof.
(b) The representations and warranties of the Parent set forth in
Section 5.11(a) shall be true and correct as of the date of the Agreement
and as of the Closing Date as described in the next sentence. The
representations and warranties of the Parent and the Subsidiary set forth
in this Agreement that are qualified as to materiality shall be true and
correct, and those that are not so qualified shall be true and correct in
all material respects, as of the date of this Agreement and as of the
Closing as though made at and as of such time, except to the extent such
representations and warranties expressly relate to an earlier date (in
which case such representations and warranties that are qualified as to
materiality shall be true and correct, and those that are not so qualified
shall be true and correct in all material respects, as of such earlier
date). The Company shall have been furnished with a certificate, executed
by duly authorized officers of the Parent and the Subsidiary, dated the
Closing Date, certifying in such detail as the Company may reasonably
request as to the fulfillment of the foregoing conditions.
(c) The Company shall have received an opinion from Willkie Farr &
Gallagher to the effect that the Merger will constitute a reorganization
with the meaning of Section 368(a) of the Code which opinion may be based
upon reasonable representations of fact provided by officers of the Parent,
the Company and the Subsidiary.
(d) The Company shall have received an opinion from Haskell Slaughter
& Young, L.L.C. substantially to the effect set forth in Exhibit 9.3(d)
hereto.
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<PAGE> 90
(e) All consents, authorizations, orders and approvals of (or filings
or registrations with) any governmental commission, board or other
regulatory body required in connection with the execution, delivery and
performance of this Agreement shall have been obtained or made, except for
filings in connection with the Merger and any other documents required to
be filed after the Effective Time.
SECTION 10. MISCELLANEOUS
10.1. Nonsurvival of Representations and Warranties. Unless expressly
provided otherwise, none of the representations and warranties in this Agreement
or in any instrument delivered pursuant to this Agreement shall survive the
Effective Time. All covenants and agreements set forth in this Agreement shall
survive in accordance with their terms.
10.2. Notices. Any communications required or desired to be given
hereunder shall be deemed to have be properly given if sent by hand delivery or
by facsimile and overnight courier to the parties hereto at the following
addresses, or at such other address as either party may advise the other in
writing from time to time:
If to the Parent or the Subsidiary:
MedPartners, Inc.
3000 Galleria Tower
Suite 1000
Birmingham, Alabama 35244
Attention: President
Fax: (205) 733-4154
with a copy to:
Haskell, Slaughter & Young, L.L.C.
1200 AmSouth/Harbert Plaza
Birmingham, Alabama 35244
Attention: F. Hampton McFadden, Jr., Esq.
Fax: (205) 324-1133
If to the Company:
InPhyNet Medical Management, Inc.
1200 South Pine Island Road, Suite 600
Fort Lauderdale, Florida 33324
Attention: President
Fax: (954) 424-2939
with a copy to:
InPhyNet Medical Management, Inc.
1200 South Pine Island Road, Suite 600
Fort Lauderdale, Florida 33324
Attention: General Counsel
Fax: (954) 424-7903
and with a copy to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Attention: William N. Dye, Esq.
Fax: (212) 821-8111
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<PAGE> 91
All such communications shall be deemed to have been delivered on the date
of hand delivery or on the next business day following the deposit of such
communications with the overnight courier.
10.3. Further Assurances. Each party hereby agrees to perform any further
acts and to execute and deliver any documents which may be reasonably necessary
to carry out the provisions of this Agreement.
10.4. Governing Law. This Agreement shall be interpreted, construed and
enforced with the laws of the State of Delaware, applied without giving effect
to any conflicts-of-law principles.
10.5. "Knowledge." "To the knowledge", "to the best knowledge, information
and belief", or any similar phrase shall be deemed to refer to the knowledge of
the Chairman of the Board, Chief Executive Officer or Chief Financial Officer of
a party and to include the assurance that such knowledge is based upon a
reasonable investigation, unless otherwise expressly provided.
10.6. "Material adverse change" or "material adverse effect." "Material
adverse change" or "material adverse effect" means, when used in connection with
the Company or the Parent, any change, effect, event or occurrence that has, or
is reasonably likely to have, individually or in the aggregate, a material
adverse impact on the business or financial position of such party and its
subsidiaries and other controlled entities identified herein or in any Schedule
or Disclosure Schedule delivered pursuant to this Agreement, including the
subsidiaries and other entities, taken as a whole; provided, however, that
"material adverse change" and "material adverse effect" shall be deemed to
exclude the impact of (i) changes in generally accepted accounting principles,
(ii) changes in applicable law and (iii) any changes resulting from any
restructuring or other similar charges or write-offs taken by the Company with
the consent of the Parent; provided, however, that no such charges or write-offs
will be taken if such would adversely affect pooling-of-interests accounting
treatment for the Merger.
10.7. "Hazardous Materials." The term "Hazardous Materials" means any
material which has been determined by any applicable governmental authority to
be harmful to the health or safety of human or animal life or vegetation,
regardless of whether such material is found on or below the surface of the
ground, in any surface or underground water, airborne in ambient air or in the
air inside any structure built or located upon or below the surface of the
ground or in building materials or in improvements of any structures, or in any
personal property located or used in any such structure, including, but not
limited to, all hazardous substances, imminently hazardous substances, hazardous
wastes, toxic substances, infectious wastes, pollutants and contaminants from
time to time defined, listed, identified, designated or classified as such under
any Environmental Laws (as defined in Section 10.8 regardless of the quantity of
any such material).
10.8. "Environmental Laws." The term "Environmental Laws" means any
federal, state or local statute, regulation, rule or ordinance, and any judicial
or administrative interpretation thereof, regulating the use, generation,
handling, storage, transportation, discharge, emission, spillage or other
release of Hazardous Materials or relating to the protection of the environment.
10.9. Captions. The captions or headings in this Agreement are made for
convenience and general reference only and shall not be construed to describe,
define or limit the scope or intent of the provisions of this Agreement.
10.10. Entire Agreement. This Agreement, the Company Disclosure Schedule,
the Parent Disclosure Schedule, the Appendices attached hereto and the
Confidentiality Agreement contain the entire agreement of the parties and
supersede any and all prior or contemporaneous agreements between the parties,
written or oral, with respect to the transactions contemplated hereby.
10.11. Counterparts. This Agreement may be executed in several
counterparts, each of which, when so executed, shall be deemed to be an
original, and such counterparts shall, together, constitute and be one and the
same instrument.
10.12. Binding Effect. This Agreement shall be binding on, and shall inure
to the benefit of, the parties hereto, and their respective successors and
assigns, and, except as expressly provided in Section 7.19(d), no other person
shall acquire or have any right under or by virtue of this Agreement. No party
may assign any right or obligation hereunder without the prior written consent
of the other parties.
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<PAGE> 92
10.13. No Rule of Construction. The parties agree that, because all
parties participated in negotiating and drafting this Agreement, no rule of
construction shall apply to this Agreement which construes ambiguous language in
favor of or against any party by reason of that party's role in drafting this
Agreement.
IN WITNESS WHEREOF, the Parent, the Subsidiary and the Company have caused
this Agreement to be executed by their respective duly authorized officers, all
as of the day and year first above written.
MEDPARTNERS, INC.
By: /s/ LARRY R. HOUSE
------------------------------------
Name: Larry R. House
Title: Chairman, President and
Chief Executive Officer
SEABIRD MERGER CORPORATION
By: /s/ LARRY R. HOUSE
------------------------------------
Name: Larry R. House
Title: Chairman, President and
Chief Executive Officer
INPHYNET MEDICAL MANAGEMENT INC.
By: /s/ CLIFFORD FINDEISS
------------------------------------
Name: Clifford Findeiss
Title: Chairman, President and
Chief Executive Officer
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<PAGE> 93
ANNEX B
OPINION OF INPHYNET'S FINANCIAL ADVISOR
[Letterhead of Morgan Stanley & Co. Incorporated]
January 20, 1997
Board of Directors
InPhyNet Medical Management Inc.
1200 South Pine Island Road
Suite 600
Fort Lauderdale, FL 33324
Members of the Board:
We understand that InPhyNet Medical Management Inc. ("InPhyNet" or the
"Company"), MedPartners, Inc. ("MedPartners") and Seabird Merger Corporation, a
wholly owned subsidiary of MedPartners ("Merger Sub"), have entered into an
Agreement and Plan of Merger, dated as of January 20, 1997 (the "Merger
Agreement"), which provides, among other things, for the merger (the "Merger")
of InPhyNet with and into Merger Sub. Pursuant to the Merger, each issued and
outstanding share of common stock, par value $.01 per share, of InPhyNet (the
"InPhyNet Common Stock"), other than shares held in treasury or held by
MedPartners or any direct or indirect wholly owned subsidiary of MedPartners or
InPhyNet, will be converted into the right to receive 1.311 shares (the
"Exchange Ratio") of common stock, par value $.001 per share, of MedPartners
(the "MedPartners Common Stock"). The terms and conditions of the Merger are
more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the Exchange Ratio pursuant to
the Merger Agreement is fair from a financial point of view to the holders of
InPhyNet Common Stock.
For purposes of the opinion set forth herein, we have:
- reviewed certain publicly available financial statements and other
information of InPhyNet and MedPartners, respectively;
- reviewed certain internal financial statements and other financial
and operating data concerning InPhyNet and MedPartners prepared by the
managements of InPhyNet and MedPartners, respectively;
- analyzed certain financial projections prepared by the managements
of InPhyNet and MedPartners, respectively;
- discussed the past and current operations and financial condition
and the prospects of InPhyNet and MedPartners with senior executives of
InPhyNet and MedPartners, respectively;
- reviewed the reported prices and trading activity for the InPhyNet
Common Stock and the MedPartners Common Stock;
- compared the financial performance of InPhyNet and MedPartners and
the prices and trading activity of the InPhyNet Common Stock and the
MedPartners Common Stock with that of certain other comparable companies
and their securities;
- reviewed and discussed with the senior managements of InPhyNet and
MedPartners the strategic objectives of the Merger and certain other
benefits of the Merger;
- analyzed certain pro forma financial projections for the combined
company prepared by InPhyNet and MedPartners;
- reviewed and discussed with the senior managements of InPhyNet and
MedPartners their estimates of the synergies and cost savings expected to
result from the Merger;
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<PAGE> 94
- reviewed the financial terms, to the extent publicly available, of
certain comparable merger transactions;
- participated in discussions and negotiations among representatives
of InPhyNet and MedPartners and their financial and legal advisors;
- reviewed the Merger Agreement and certain related documents; and
- performed such other analyses and considered such other factors as
we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for purposes of this
opinion. With respect to the financial projections, including the estimates of
synergies and other benefits expected to result from the Merger, we have assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of
InPhyNet and MedPartners, respectively. We have not made any independent
valuation or appraisal of the assets or liabilities of InPhyNet and MedPartners,
nor have we been furnished with any such appraisals. We have also assumed that
the Merger will be accounted for as a "pooling-of-interests" business
combination in accordance with U.S. Generally Accepted Accounting Principals,
will qualify as a reorganization under the provisions of section 368 of the
Internal Revenue Code of 1986 and will be consummated in accordance with the
terms set forth in the Merger Agreement. Our opinion is necessarily based on
economic, market and other conditions as in effect on, and the information made
available to us as of the date hereof.
We have acted as financial advisor to the Board of Directors of InPhyNet in
connection with this transaction and will receive a fee for our services. In the
past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services to InPhyNet and MedPartners and have
received fees from MedPartners for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of InPhyNet, except that this opinion may be included in its entirety
in any filing made by InPhyNet with the Securities and Exchange Commission with
respect to the Merger. We express no opinion and make no recommendation as to
how the stockholders of InPhyNet should vote at the stockholders' meeting held
in connection with the Merger.
Based on and subject to the foregoing, we are of the opinion on the date
hereof that the Exchange Ratio pursuant to the Merger Agreement is fair from a
financial point of view to the holders of InPhyNet Common Stock.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ MARY ANNE CITRINO
------------------------------------
Mary Anne Citrino
Principal
B-2
<PAGE> 95
ANNEX C
INPHYNET MEDICAL MANAGEMENT INC.
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS, MAY , 1997
The undersigned hereby appoints Clifford Findeiss, M.D. and George W.
McCleary, Jr., jointly and severally, as proxy for the undersigned, with full
power of substitution, to represent the undersigned and to vote all of the
shares of the common stock of InPhyNet Medical Management Inc. ("InPhyNet")
which the undersigned is entitled to vote at the special meeting (the "Special
Meeting") of stockholders of InPhyNet to be held on May , 1997, and at any and
all adjournments thereof, to:
1. Approve and adopt the Agreement and Plan of Merger, dated as of January
20, 1997 ("the Merger Agreement"), by and among MedPartners, Inc.
("MedPartners"), Seabird Merger Corporation ("Seabird") and InPhyNet
whereby (i) InPhyNet will merge with and into Seabird and become a
wholly-owned subsidiary of MedPartners and (ii) each share of common
stock, par value $0.01 per share, of InPhyNet will be converted, upon
the consummation of the Merger, into the right to receive 1.311 shares
of Common Stock, par value $0.001 per share, of MedPartners.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
THE BOARD OF DIRECTORS OF INPHYNET RECOMMENDS A VOTE FOR THIS PROPOSAL.
2. Authorize the Board of Directors of InPhyNet to adjourn or postpone the
Special Meeting to permit the further solicitation of proxies, if
necessary.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
THE BOARD OF DIRECTORS OF INPHYNET RECOMMENDS A VOTE FOR THIS PROPOSAL.
3. Approve, in the discretion of the persons named above, any other matters
that may properly come before the Special Meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS and will be
voted as directed herein. If this proxy is returned and no direction is given,
this proxy will be voted FOR the proposals in paragraphs 1 and 2 and, in the
discretion of the proxies, upon such other business as may properly come before
the Special Meeting, and any adjournment or postponement thereof.
Dated , 1997
------------------
-----------------------------
Signature of Stockholder
-----------------------------
Title
-----------------------------
Signature, if held jointly
When shares are held by
joint tenants, both should
sign. When signing as
attorney, executor,
administrator, trustee,
guardian, corporate officer or
partner, please give full
title as such. If a
corporation, please sign in
corporate name by President or
other authorized officer. If a
partnership, please sign in
partnership name by authorized
person. This Proxy votes all
shares held in all capacities.
PLEASE MARK, SIGN, DATE AND MAIL PROMPTLY.
C-1
<PAGE> 96
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
MEDPARTNERS, INC.
Section 102(b)(7) of the DGCL grants corporations the right to limit or
eliminate the personal liability of their directors in certain circumstances in
accordance with provisions therein set forth. The MedPartners Certificate of
Incorporation contains a provision eliminating or limiting director liability to
MedPartners and its stockholders for monetary damages arising from acts or
omissions in the director's capacity as a director. The provision does not,
however, eliminate or limit the personal liability of a director (i) for any
breach of such director's duty of loyalty to MedPartners or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under the Delaware statutory
provision making directors personally liable, under a negligence standard, for
unlawful dividends or unlawful stock purchases or redemptions, or (iv) for any
transaction from which the director derived an improper personal benefit. This
provision offers persons who serve on the Board of Directors of MedPartners
protection against awards of monetary damages resulting from breaches of their
duty of care (except as indicated above). As a result of this provision, the
ability of MedPartners or a stockholder thereof to successfully prosecute an
action against a director for a breach of his duty of care is limited. However,
the provision does not affect the availability of equitable remedies such as an
injunction or rescission based upon a director's breach of his duty of care. The
SEC has taken the position that the provision will have no effect on claims
arising under the federal securities laws.
Section 145 of the DGCL grants corporations the right to indemnify their
directors, officers, employees and agents in accordance with the provisions
therein set forth. The MedPartners By-laws provide for mandatory indemnification
rights, subject to limited exceptions, to any director, officer, employee, or
agent of MedPartners who, by reason of the fact that he or she is a director,
officer, employee, or agent of MedPartners, is involved in a legal proceeding of
any nature. Such indemnification rights include reimbursement for expenses
incurred by such director, officer, employee, or agent in advance of the final
disposition of such proceeding in accordance with the applicable provisions of
the DGCL.
MedPartners has entered into agreements with all of its directors and its
executive officers pursuant to which MedPartners has agreed to indemnify such
directors and executive officers against liability incurred by them by reason of
their services as a director or executive officer to the fullest extent
allowable under applicable law. In addition, MedPartners has purchased insurance
containing customary terms and conditions as permitted by Delaware law on behalf
of its directors and officers, which may cover liabilities under the Securities
Act of 1933.
See Item 22 of this Registration Statement on Form S-4.
INPHYNET MEDICAL MANAGEMENT INC.
Section 145 of the DGCL empowers a Delaware corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of such corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. A corporation may indemnify such person
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. A corporation may, in
advance of the final disposition of any civil, criminal, administrative or
investigative action, suit or proceeding, pay the expenses (including attorneys'
fees) incurred by any officer or director in defending such
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<PAGE> 97
action, provided that the director or officer undertake to repay such amount if
it shall be ultimately determined that he is not entitled to be indemnified by
the corporation.
A Delaware corporation may indemnify officers and directors in an action by
or in the right of the corporation to procure a judgment in its favor under the
same conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation.
Where an officer or director is successful on the merits or otherwise in the
defense of any action referred to above, the corporation must indemnify him
against the expenses (including attorneys' fees) which he actually and
reasonably incurred in connection therewith. The indemnification provided is not
deemed to be exclusive of any other rights to which an officer or director may
be entitled under any corporation's by-laws, agreement, vote or otherwise.
InPhyNet's Certificate of Incorporation provides that a director of
InPhyNet shall not be personally liable to InPhyNet or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the officer's or director's duty of loyalty to
InPhyNet or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL, or (iv) for any transaction from which the director
derived any improper personal benefit.
InPhyNet's By-laws provide that, to the extent permitted by the DGCL,
InPhyNet shall indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was or has agreed to serve as a director or officer of InPhyNet,
or is or was serving or has agreed to serve at the request of InPhyNet as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding and any
appeal therefrom. Such indemnification shall not be deemed exclusive of any
other rights to which those seeking indemnification may be entitled under any
by-law of InPhyNet, agreement, vote of stockholders or disinterested directors
or otherwise, including insurance purchased and maintained by InPhyNet, both as
to action in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person. The By-laws further
provide that such indemnification provisions shall be deemed to be a contract
between InPhyNet and each officer and director who serves in any such capacity
at any time while such provisions as well as the relevant DGCL provisions are in
effect and any repeal or modification thereof shall not adversely affect any
right or obligation then existing with respect to any state of facts then or
previously existing or any action, suit or proceeding previously or thereafter
brought or threatened based in whole or in part upon any such state of acts.
Such a contract right may not be modified retroactively without the consent of
the officer or director.
ITEM 21. EXHIBITS
Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S> <C>
(2)-1 -- Agreement and Plan of Merger, dated as of January 20, 1997,
among MedPartners, Inc., Seabird Merger Corporation and
InPhyNet Medical Management Inc., attached to this
Registration Statement as Annex A to the Prospectus-Proxy
Statement for InPhyNet, is hereby incorporated herein by
reference. List of Exhibits to Agreement and Plan of Merger.
(3)-1 -- MedPartners, Inc. Third Restated Certificate of
Incorporation, filed as Exhibit (3)-1 to MedPartners Annual
Report on Form 10-K for the fiscal year ended December 31,
1996, is hereby incorporated herein by reference.
(3)-2 -- MedPartners, Inc. Second Amended and Restated Bylaws, filed
as Exhibit (3)-2 to the Company's Registration Statement on
Form S-1 (Registration No. 333-12465), is hereby
incorporated herein by reference.
</TABLE>
II-2
<PAGE> 98
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S> <C>
(4)-1 -- MedPartners, Inc. Stockholders' Rights Agreement, filed as
Exhibit (4)-1 to MedPartners' Registration Statement on Form
S-4 (Registration No. 333-00774), is hereby incorporated
herein by reference.
(4)-2 -- Amendment No. 1 to the Rights Plan of MedPartners, Inc.,
filed as Exhibit (4)-2 to MedPartners Annual Report on Form
10-K for the fiscal year ended December 31, 1996, is hereby
incorporated herein by reference.
(4)-3 -- Amendment No. 2 to the Rights Agreement of MedPartners,
Inc., filed as Exhibit (4)-2 to MedPartners' Registration
Statement on Form S-3 (Registration No. 333-17339), is
hereby incorporated herein by reference.
(5) -- Opinion of Haskell Slaughter & Young L.L.C., as to the
legality of the shares of MedPartners Common Stock being
registered.*
(8)-1 -- Opinion of Haskell Slaughter & Young L.L.C. as to certain
federal income tax consequences of the Merger.*
(8)-2 -- Opinion of Willkie Farr & Gallagher as to certain federal
income tax consequences of the Merger.*
(10)-1 -- Consulting Agreement, dated as of August 7, 1996, by and
among Caremark International Inc., MedPartners, Inc. and
C.A. Lance Piccolo, filed as Exhibit (10)-1 to the Company's
Registration Statement on Form S-4 (Registration No.
333-09767), is hereby incorporated herein by reference.
(10)-2 -- Consulting Agreement, dated as of August 7, 1996, by and
among Caremark International Inc., MedPartners, Inc. and
Thomas W. Hodson, filed as Exhibit (10)-2 to the Company's
Registration Statement on Form S-4 (Registration No.
333-09767), is hereby incorporated herein by reference.
(10)-3 -- Consulting Agreement, dated as of November 29, 1995, by and
between MedPartners, Inc. and Walter T. Mullikin, M.D.,
filed as Exhibit (10)-1 to the Company's Registration
Statement on Form S-1 (Registration No. 333-1130), is hereby
incorporated herein as reference.
(10)-4 -- Termination Agreement, dated as of November 29, 1995, by and
between MedPartners/ Mullikin, Inc. and Walter T. Mullikin,
filed as Exhibit (10)-2 to the Company's Registration
Statement on Form S-1 (Registration No. 333-1130), is hereby
incorporated herein by reference.
(10)-5 -- Consulting Agreement, dated as of November 29, 1995, by and
between MedPartners/ Mullikin, Inc. and John S. McDonald,
filed as Exhibit (10)-3 to the Company's Registration
Statement on Form S-1 (Registration No. 333-1130), is hereby
incorporated herein by reference.
(10)-6 -- Termination Agreement, dated as of November 29, 1995 by and
between MedPartners/ Mullikin, Inc. and John S. McDonald,
filed as Exhibit (10)-4 to the Company's Registration
Statement on Form S-1 (Registration No. 333-1130), is hereby
incorporated herein by reference.
(10)-7 -- Employment Agreement, dated July 24, 1996, by and between
MedPartners, Inc. and Larry R. House, filed as Exhibit
(10)-7 to the Company's Registration Statement on Form S-1
(Registration No. 333-12465), is hereby incorporated herein
by reference.
(10)-8 -- Employment Agreement, dated July 24, 1996, by and between
MedPartners, Inc. and Mark L. Wagar, filed as Exhibit (10)-8
to the Company's Registration Statement on Form S-1
(Registration No. 333-12465), is hereby incorporated herein
by reference.
(10)-9 -- Employment Agreement, dated July 24, 1996, by and between
MedPartners, Inc. and Harold O. Knight, Jr., filed as
Exhibit (10)-9 to the Company's Registration Statement on
Form S-1 (Registration No. 333-12465), is hereby
incorporated herein by reference.
</TABLE>
II-3
<PAGE> 99
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S> <C>
(10)-10 -- Employment Agreement, dated July 24, 1996, by and between
MedPartners, Inc. and Tracy P. Thrasher, filed as Exhibit
(10)-10 to the Company's Registration Statement on Form S-1
(Registration No. 333-12465), is hereby incorporated herein
by reference.
(10)-11 -- Credit Agreement, dated September 5, 1996, by and among
MedPartners, Inc., NationsBank, National Association
(South), as administrative agent for the Lenders, The First
National Bank of Chicago, as Documentation Agent for the
Lenders, and the Lenders thereto, filed as Exhibit (10)-17
to the Company's Registration Statement on Form S-1
(Registration No. 333-12465), is hereby incorporated herein
by reference.
(10)-12 -- Amendment No. 1 to Credit Agreement and Consent, dated
September 5, 1996, by and among MedPartners, Inc.,
NationsBank, National Association (South), as administrative
agent for the Lenders, The First National Bank of Chicago,
as Documentation Agent for the Lenders, and the Lenders
thereto, filed as Exhibit (10)-18 to the Company's
Registration Statement on Form S-1 (Registration No.
333-12465), is hereby incorporated herein by reference.
(10)-13 -- MedPartners/Mullikin, Inc. 1993 Stock Option Plan, filed as
Exhibit (4)-1 to the Company's Registration Statement on
Form S-8 (Registration No. 333-00234), is hereby
incorporated herein by reference.
(10)-14 -- MedPartners/Mullikin, Inc. 1995 Stock Option Plan, as
amended, filed as Exhibit (4)-2 to the Company's
Registration Statement on Form S-4 (Registration No.
333-00774), is hereby incorporated herein by reference.
(10)-15 -- MedPartners Incentive Compensation Plan, filed as Exhibit
(4)-2 to the Company's Registration Statement of Form S-8
(Registration No. 333-11875), is hereby incorporated herein
by reference.
(10)-16 -- Caremark International, Inc. 1992 Stock Option Plan for
Non-Employee Directors, filed as Exhibit (4)-2 to the
Company's Registration Statement on Form S-8 (Registration
No. 333-14163), is hereby incorporated herein by reference.
(10)-17 -- MedPartners 1997 Long Term Incentive Compensation Plan,
dated as of February 25, 1997, filed as Exhibit (10)-17 to
MedPartners Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, is hereby incorporated herein by
reference.
(11) -- Statement re: Computation of Per Share Earnings, filed as
Exhibit (11) to MedPartners Annual Report on Form 10-K for
the fiscal year ended December 31, 1996, is hereby
incorporated herein by reference.
(21) -- Subsidiaries of MedPartners, filed as Exhibit (21) to
MedPartners Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, is hereby incorporated herein by
reference.
(23)-1 -- Consent of Ernst & Young LLP. See pages immediately
following signature pages to the Registration Statement.
(23)-2 -- Consent of Haskell Slaughter & Young L.L.C. (included in the
opinions filed as Exhibit (5) and (8)-1).
(23)-3 -- Consent of Willkie Farr & Gallagher (included in the opinion
filed as Exhibit (8)-2).
(24) -- Powers of Attorney. See the signature page to the original
filing of this Registration Statement.
(99)-1 -- InPhyNet Proxy attached to this Registration Statement as
Annex C to the Prospectus-Proxy Statement for InPhyNet is
hereby incorporated herein by reference.
</TABLE>
- ---------------
* To be filed by amendment
ITEM 22. UNDERTAKINGS
(1) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise,
II-4
<PAGE> 100
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) The undersigned Registrant hereby undertakes as follows: that
prior to any public re-offering of the securities registered hereunder
through use of a prospectus which is part of the registration statement, by
any person or party who is deemed to be an underwriter within the meaning
of Rule 145(c), the issuer undertakes that such re-offering prospectus will
contain the information called for by the applicable registration form with
respect to re-offerings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(3) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (2) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(4) The undersigned Registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not subject of and
included in the registration statement when it became effective.
(5) The undersigned Registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the
prospectus pursuant to Items 4, 10(b), 11, or 13 of this form, within one
business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date
of the Registration Statement through the date of responding to the
request.
II-5
<PAGE> 101
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Birmingham, State of
Alabama, on April 4, 1997.
MEDPARTNERS, INC.
By /s/ LARRY R. HOUSE
------------------------------------
Larry R. House
Chairman of the Board, President and
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Larry R. House and Harold O. Knight, Jr., and
each of them, his attorney-in-fact with power of substitution for him in any and
all capacities, to sign any amendments, supplements, subsequent registration
statements relating to the offering to which this Registration Statement
relates, or other instruments he deems necessary or appropriate, and to file the
same, with exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact or his substitute may do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
/s/ LARRY R. HOUSE Chairman of the Board, President April 4, 1997
- ----------------------------------------------------- and Chief Executive Officer
Larry R. House and Director
/s/ HAROLD O. KNIGHT, JR. Executive Vice President and April 4, 1997
- ----------------------------------------------------- Chief Financial Officer
Harold O. Knight, Jr. (Principal Financial and
Accounting Officer)
/s/ RICHARD M. SCRUSHY Director April 4, 1997
- -----------------------------------------------------
Richard M. Scrushy
/s/ LARRY D. STRIPLIN, JR. Director April 4, 1997
- -----------------------------------------------------
Larry D. Striplin, Jr.
/s/ CHARLES W. NEWHALL III Director April 4, 1997
- -----------------------------------------------------
Charles W. Newhall III
/s/ TED H. MCCOURTNEY Director April 4, 1997
- -----------------------------------------------------
Ted H. McCourtney
/s/ WALTER T. MULLIKIN, M.D. Director April 4, 1997
- -----------------------------------------------------
Walter T. Mullikin, M.D.
/s/ JOHN S. MCDONALD, J.D. Director April 4, 1997
- -----------------------------------------------------
John S. McDonald, J.D.
/s/ RICHARD J. KRAMER Director April 4, 1997
- -----------------------------------------------------
Richard J. Kramer
/s/ ROSALIO J. LOPEZ, M.D. Director April 4, 1997
- -----------------------------------------------------
Rosalio J. Lopez, M.D.
</TABLE>
II-6
<PAGE> 102
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
/s/ C.A. LANCE PICCOLO Director April 4, 1997
- -----------------------------------------------------
C.A. Lance Piccolo
/s/ THOMAS W. HODSON Director April 4, 1997
- -----------------------------------------------------
Thomas W. Hodson
/s/ ROGER L. HEADRICK Director April 4, 1997
- -----------------------------------------------------
Roger L. Headrick
/s/ HARRY M. JANSEN KRAEMER, JR. Director April 4, 1997
- -----------------------------------------------------
Harry M. Jansen Kraemer, Jr.
</TABLE>
II-7
<PAGE> 103
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C> <C>
(2)-1 -- Agreement and Plan of Merger, dated as of January 20, 1997,
among MedPartners, Inc., Seabird Merger Corporation and
InPhyNet Medical Management Inc., attached to this
Registration Statement as Annex A to the Prospectus-Proxy
Statement for InPhyNet, is hereby incorporated herein by
reference. List of Exhibits to Agreement and Plan of Merger.
(3)-1 -- MedPartners, Inc. Third Restated Certificate of
Incorporation, filed as Exhibit (3)-1 to MedPartners Annual
Report on Form 10-K for the fiscal year ended December 31,
1996, is hereby incorporated herein by reference.
(3)-2 -- MedPartners, Inc. Second Amended and Restated Bylaws, filed
as Exhibit (3)-2 to the Company's Registration Statement on
Form S-1 (Registration No. 333-12465), is hereby
incorporated herein by reference.
(4)-1 -- MedPartners, Inc. Stockholders' Rights Agreement, filed as
Exhibit (4)-1 to MedPartners' Registration Statement on Form
S-4 (Registration No. 333-00774), is hereby incorporated
herein by reference.
(4)-2 -- Amendment No. 1 to the Rights Plan of MedPartners, Inc.,
filed as Exhibit (4)-2 to MedPartners Annual Report on Form
10-K for the fiscal year ended December 31, 1996, is hereby
incorporated herein by reference.
(4)-3 -- Amendment No. 2 to the Rights Agreement of MedPartners,
Inc., filed as Exhibit (4)-2 to MedPartners' Registration
Statement on Form S-3 (Registration No. 333-17339), is
hereby incorporated herein by reference.
(5) -- Opinion of Haskell Slaughter & Young L.L.C., as to the
legality of the shares of MedPartners Common Stock being
registered.*
(8)-1 -- Opinion of Haskell Slaughter & Young L.L.C. as to certain
federal income tax consequences of the Merger.*
(8)-2 -- Opinion of Willkie Farr & Gallagher as to certain federal
income tax consequences of the Merger.*
(10)-1 -- Consulting Agreement, dated as of August 7, 1996, by and
among Caremark International Inc., MedPartners, Inc. and
C.A. Lance Piccolo, filed as Exhibit (10)-1 to the Company's
Registration Statement on Form S-4 (Registration No.
333-09767), is hereby incorporated herein by reference.
(10)-2 -- Consulting Agreement, dated as of August 7, 1996, by and
among Caremark International Inc., MedPartners, Inc. and
Thomas W. Hodson, filed as Exhibit (10)-2 to the Company's
Registration Statement on Form S-4 (Registration No.
333-09767), is hereby incorporated herein by reference.
(10)-3 -- Consulting Agreement, dated as of November 29, 1995, by and
between MedPartners, Inc. and Walter T. Mullikin, M.D.,
filed as Exhibit (10)-1 to the Company's Registration
Statement on Form S-1 (Registration No. 333-1130), is hereby
incorporated herein as reference.
(10)-4 -- Termination Agreement, dated as of November 29, 1995, by and
between MedPartners/Mullikin, Inc. and Walter T. Mullikin,
filed as Exhibit (10)-2 to the Company's Registration
Statement on Form S-1 (Registration No. 333-1130), is hereby
incorporated herein by reference.
</TABLE>
<PAGE> 104
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C> <C>
(10)-5 -- Consulting Agreement, dated as of November 29, 1995, by and
between MedPartners/Mullikin, Inc. and John S. McDonald,
filed as Exhibit (10)-3 to the Company's Registration
Statement on Form S-1 (Registration No. 333-1130), is hereby
incorporated herein by reference.
(10)-6 -- Termination Agreement, dated as of November 29, 1995 by and
between MedPartners/Mullikin, Inc. and John S. McDonald,
filed as Exhibit (10)-4 to the Company's Registration
Statement on Form S-1 (Registration No. 333-1130), is hereby
incorporated herein by reference.
(10)-7 -- Employment Agreement, dated July 24, 1996, by and between
MedPartners, Inc. and Larry R. House, filed as Exhibit
(10)-7 to the Company's Registration Statement on Form S-1
(Registration No. 333-12465), is hereby incorporated herein
by reference.
(10)-8 -- Employment Agreement, dated July 24, 1996, by and between
MedPartners, Inc. and Mark L. Wagar, filed as Exhibit (10)-8
to the Company's Registration Statement on Form S-1
(Registration No. 333-12465), is hereby incorporated herein
by reference.
(10)-9 -- Employment Agreement, dated July 24, 1996, by and between
MedPartners, Inc. and Harold O. Knight, Jr., filed as
Exhibit (10)-9 to the Company's Registration Statement on
Form S-1 (Registration No. 333-12465), is hereby
incorporated herein by reference.
(10)-10 -- Employment Agreement, dated July 24, 1996, by and between
MedPartners, Inc. and Tracy P. Thrasher, filed as Exhibit
(10)-10 to the Company's Registration Statement on Form S-1
(Registration No. 333-12465), is hereby incorporated herein
by reference.
(10)-11 -- Credit Agreement, dated September 5, 1996, by and among
MedPartners, Inc., NationsBank, National Association
(South), as administrative agent for the Lenders, The First
National Bank of Chicago, as Documentation Agent for the
Lenders, and the Lenders thereto, filed as Exhibit (10)-17
to the Company's Registration Statement on Form S-1
(Registration No. 333-12465), is hereby incorporated herein
by reference.
(10)-12 -- Amendment No. 1 to Credit Agreement and Consent, dated
September 5, 1996, by and among MedPartners, Inc.,
NationsBank, National Association (South), as administrative
agent for the Lenders, The First National Bank of Chicago,
as Documentation Agent for the Lenders, and the Lenders
thereto, filed as Exhibit (10)-18 to the Company's
Registration Statement on Form S-1 (Registration No.
333-12465), is hereby incorporated herein by reference.
(10)-13 -- MedPartners/Mullikin, Inc. 1993 Stock Option Plan, filed as
Exhibit (4)-1 to the Company's Registration Statement on
Form S-8 (Registration No. 333-00234), is hereby
incorporated herein by reference.
(10)-14 -- MedPartners/Mullikin, Inc. 1995 Stock Option Plan, as
amended, filed as Exhibit (4)-2 to the Company's
Registration Statement on Form S-4 (Registration No.
333-00774), is hereby incorporated herein by reference.
(10)-15 -- MedPartners Incentive Compensation Plan, filed as Exhibit
(4)-2 to the Company's Registration Statement of Form S-8
(Registration No. 333-11875), is hereby incorporated herein
by reference.
</TABLE>
2
<PAGE> 105
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C> <C>
(10)-16 -- Caremark International, Inc. 1992 Stock Option Plan for
Non-Employee Directors, filed as Exhibit (4)-2 to the
Company's Registration Statement on Form S-8 (Registration
No. 333-14163), is hereby incorporated herein by reference.
(10)-17 -- MedPartners 1997 Long Term Incentive Compensation Plan,
dated as of February 25, 1997, filed as Exhibit (10)-17 to
MedPartners Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, is hereby incorporated herein by
reference.
(11) -- Statement re: Computation of Per Share Earnings, filed as
Exhibit (11) to MedPartners Annual Report on Form 10-K for
the fiscal year ended December 31, 1996, is hereby
incorporated herein by reference.
(21) -- Subsidiaries of MedPartners, filed as Exhibit (21) to
MedPartners Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, is hereby incorporated herein by
reference.
(23)-1 -- Consent of Ernst & Young LLP. See pages immediately
following signature pages to the Registration Statement.
(23)-2 -- Consent of Haskell Slaughter & Young L.L.C. (included in the
opinions filed as Exhibit (5) and (8)-1).
(23)-3 -- Consent of Willkie Farr & Gallagher (included in the opinion
filed as Exhibit (8)-2).
(24) -- Powers of Attorney. See the signature page to the original
filing of this Registration Statement.
(99)-1 -- InPhyNet Proxy attached to this Registration Statement as
Annex C to the Prospectus-Proxy Statement for InPhyNet is
hereby incorporated herein by reference.
</TABLE>
- ---------------
* To be filed by amendment
3
<PAGE> 1
EXHIBIT (23)-1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4, No. 333-XXXXX) and the related Prospectus of
MedPartners, Inc. for the registration of shares of its Common Stock and the
incorporation by reference therein of our report dated February 3, 1997, with
respect to the consolidated financial statements of MedPartners, Inc., and our
report dated February 14, 1997, with respect to the consolidated financial
statements and schedule of InPhyNet Medical Management Inc. and Subsidiaries,
included in their respective Annual Reports (Form 10-K) for the year ended
December 31, 1996, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Birmingham, Alabama
April 4, 1997
<PAGE> 1
EXHIBIT 5
[HASKELL SLAUGHTER & YOUNG, L.L.C.]
PLEASE REPLY TO: BIRMINGHAM
April __, 1997
MedPartners, Inc.
3000 Galleria Tower, Suite 1000
Birmingham, Alabama 35244-2331
RE: REGISTRATION STATEMENT ON FORM S-4 --
MEDPARTNERS, INC. / INPHYNET MEDICAL MANAGEMENT INC.
OUR FILE NO. 48367-071
Gentlemen:
We have served as counsel for MedPartners, Inc., a corporation organized
and existing under the laws of the State of Delaware (the "Company"), in
connection with the registration under the Securities Act of 1933, as amended,
pursuant to the Company's Registration Statement on Form S-4 (Commission File
No. 333-_______) (the "Registration Statement") of up to _________ shares of
Common Stock, par value $.001 per share, of the Company (the "Shares") to be
issued pursuant to that certain Agreement and Plan of Merger, dated as of
January 20, 1997, by and among the Company, Seabird Merger Corporation, a
Delaware corporation, and InPhyNet Medical Management Inc., a Delaware
corporation. This opinion is furnished to you pursuant to the requirements of
the Registration Statement.
In connection with this opinion, we have examined and are familiar with
originals or copies (certified or otherwise identified to our satisfaction) of
such documents, corporate records and other instruments relating to the
incorporation of the Company and to the authorization and issuance of the
Shares and the authorization and adoption of the Agreement as we have deemed
necessary and appropriate.
Based upon the foregoing, and having regard for such legal considerations
as we have deemed relevant, it is our opinion that:
<PAGE> 2
MedPartners, Inc.
April __, 1997
Page 2
1. The Shares have been duly authorized.
2. Upon issuance, sale and delivery of the Shares as contemplated in
the Registration Statement and the Agreement, the Shares will be legally issued,
fully paid and nonassessable.
We do hereby consent to the reference to our firm under the heading "Legal
Matters" in the Registration Statement and to the filing of this Opinion as an
Exhibit thereto.
Very truly yours,
HASKELL SLAUGHTER & YOUNG, L.L.C.
By
-------------------------------
Robert E. Lee Garner
<PAGE> 1
EXHIBIT(8)-1
[insert date]
MedPartners, Inc.
3000 Galleria Tower, Suite 1000
Birmingham, Alabama 35244
RE: AGREEMENT AND PLAN OF MERGER AMONG MEDPARTNERS, INC., SEABIRD MERGER
CORPORATION AND INPHYNET MEDICAL MANAGEMENT INC.
Gentlemen:
We have acted as counsel to MedPartners, Inc., a Delaware corporation
("Parent"), in connection with the proposed merger (the "Merger") of Inphynet
Medical Management Inc., a Delaware corporation ("Company"), with and into
Seabird Merger Corporation, a Delaware corporation ("Subsidiary") and
wholly-owned subsidiary of Parent, pursuant to the terms of the Agreement and
Plan of Merger, dated as of January 20, 1997 (the "Plan of Merger"), by and
among Parent, Subsidiary and Company, as described in more detail in the Plan
of Merger and in the Registration Statement on Form S-4 (Commission File No.
333-_____) to be filed by Parent with the Securities and Exchange Commission on
__________ ___, 1997, as amended (the "Registration Statement"). This opinion
is being provided in satisfaction of the conditions set forth in Section 9.2(c)
of the Plan of Merger. All capitalized terms, unless otherwise specified, have
the meaning assigned to them in the Registration Statement.
In connection with this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
(i) the Plan of Merger, (ii) the Registration Statement, and (iii) such other
documents as we have deemed necessary or appropriate in order to enable us to
render the opinion below. In our examination, we have assumed the genuineness
of all signatures, the legal capacity of all natural persons, the authenticity
of all documents submitted to us as originals, the conformity to original
documents of all documents submitted to us as certified, conformed or
photostatic copies and the authenticity of the originals of such copies. In
rendering the opinion set forth below, we have relied upon certain written
representations and covenants of Parent, Subsidiary and Company which are
annexed hereto (the "Representations and Warranties").
- 1 -
<PAGE> 2
In rendering our opinion, we have considered the applicable provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations, pertinent judicial authorities, interpretive rulings of the
Internal Revenue Service and such other authorities as we have considered
relevant.
Based upon and subject to the foregoing and assuming that, as of the
Effective Time of the Merger and following the Merger there will be no acts or
omissions which will violate or be inconsistent with any of the Representations
and Warranties, we are of the opinion that:
(i) Provided the Merger qualifies as a statutory merger under
the General Corporation Law of the State of Delaware, the Merger
will constitute a reorganization within the meaning of Section
368(a) of the Code, and Parent, Subsidiary and Company will each
be a "party to the reorganization" within the meaning of Section
368(b) of the Code;
(ii) No gain or loss will be recognized by Parent, Subsidiary
or Company as a result of the Merger;
(iii) No gain or loss will be recognized by a Company
stockholder who receives solely shares of Parent Common Stock in
exchange for Company Shares;
(iv) The receipt of cash in lieu of fractional shares of
Parent Common Stock will be treated as if the fractional shares
were distributed as part of the exchange and then were redeemed by
Parent. These payments will be treated as having been received as
distributions in full payment in exchange for the stock redeemed
as provided in Section 302(a) of the Code, provided the redemption
is not essentially equivalent to a dividend;
(v) The tax basis of the shares of Parent Common Stock
received by a Company stockholder will be equal to the tax bases
of the Company Shares exchanged therefor, excluding any basis
allocable to a fractional share of Parent Common Stock for which
cash is received; and
(vi) The holding period of the shares of Parent Common Stock
received by a Company stockholder will include the holding period
or periods of the Company Shares exchanged therefor, provided that
the Company Shares are held as a capital asset within the meaning
of Section 1221 of the Code at the Effective Time of the Merger.
The Merger should have no immediate federal income tax consequences to
Parent stockholders.
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<PAGE> 3
Except as set forth above, we express no opinion as to the tax
consequences, whether federal, state, local or foreign, to any party to the
Merger or of any transactions related to the Merger or contemplated by the Plan
of Merger.
We hereby consent to the reference to our Firm under the heading "Legal
Matters" in the Prospectuses which form a part of the Registration Statement,
and to the filing of this opinion as an Exhibit thereto.
Very truly yours,
HASKELL SLAUGHTER & YOUNG, L.L.C.
By
-------------------------------
Ross N. Cohen
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<PAGE> 1
EXHIBIT (8)-2
[Letterhead of Willkie Farr & Gallagher]
April [ ], 1997
InPhyNet Medical Management Inc.
1200 South Pine Island Road, Suite 600
Fort Lauderdale, Florida 33324
Gentlemen:
This opinion is being delivered to you pursuant to Section 9.3(c) of
the Agreement and Plan of Merger, dated as of January 20, 1997 (the
"Agreement"), between MedPartners, Inc., a Delaware corporation ("Parent"),
Seabird Merger Corporation, a Delaware corporation and wholly owned subsidiary
of Parent ("Subsidiary"), and InPhyNet Medical Management Inc., a Delaware
corporation (the "Company"). Pursuant to the Agreement, the Company will merge
with and into Subsidiary (the "Merger"). Subsidiary will survive the Merger and
remain a wholly owned subsidiary of Parent.
Except as otherwise provided, capitalized terms referred to herein have
the meanings ascribed to them in the Agreement. All section references are to
the Internal Revenue Code of 1986, as amended (the "Code").
We have acted as your legal counsel in connection with certain aspects
of the Merger. In rendering the opinions expressed herein, we have examined and,
with your consent, relied upon (without any independent investigation thereof)
statements and representations in the following documents (including all
schedules and exhibits thereto): (i) the Agreement; (ii) the Prospectus-Proxy
Statement on Form S-4 (Commission File No. 333 -[____] ) filed with the
Securities and Exchange Commission on April 4, 1997 (the "Prospectus-Proxy
Statement"); (iii) an opinion of Haskell Slaughter & Young, LLC addressed to
Parent and dated the date hereof, that the Merger will qualify as a
reorganization under Section 368 (a) of the Code; and (iv) such other
instruments and documents related to the formation, organization and operation
of Parent, Subsidiary and the Company or to the consummation of the Merger and
the transactions contemplated or completed in connection therewith as we have
deemed necessary or appropriate.
In our examination of the foregoing documents, we have assumed, with
your consent: (i) that original documents (including signatures) are authentic,
documents submitted to us as copies conform to their original documents, and
there has been, or will have been, due execution and delivery of all documents
where due execution and delivery are prerequisites to the effectiveness thereof;
(ii) that all representations and statements set forth in such documents are
true and correct at all times; (iii) that any representation or statement made
"to the knowledge of "or similarly qualified is correct and accurate without
such qualification at all times; and (iv) that all obligations imposed by any
such documents on the parties thereto have been or will be performed or
satisfied in accordance with their terms and that there will be no change in
facts or applicable law prior to the Effective Time which would change any of
the opinions set forth in this letter. With your consent we have also assumed,
and this opinion is subject to the condition, that the Merger qualifies as a
statutory merger under the General Corporation Law of the State of Delaware.
<PAGE> 2
For purposes of rendering the opinions expressed herein, we also have
assumed, with your consent, the accuracy of the statements contained in letters
of representation provided to us from Parent, Subsidiary and the Company as well
as representations contained in certificates provided to us by certain Company
stockholders, all of which are dated the date hereof. These representations
relate to the Merger and its qualification as a reorganization under the Code.
Based upon such facts, assumptions and representations and subject to
the qualifications stated below, we are of the following opinions:
(i) the Merger will qualify as a reorganization within the meaning of
Section 368(a) of the Code and Parent, Subsidiary and the Company will each be a
party to the reorganization within the meaning of Section 368(b) of the Code;
(ii) no gain or loss will be recognized by the Company as a result of
the Merger;
(iii) no gain or loss will be recognized by a Company stockholder who
receives solely shares of Parent Common Stock in exchange for Company Shares;
(iv) the receipt of cash in lieu of fractional shares of Parent Common
Stock will be treated as if the fractional shares were distributed as part of
the exchange and then were redeemed by Parent;
(v) the tax basis of the shares of Parent Common Stock received by a
Company stockholder will be equal to the tax basis of the Company Shares
exchanged therefor, excluding any basis allocable to a fractional share of
Parent Common Stock for which cash is received; and
(vi) the holding period of the shares of Parent Common Stock received
by a Company stockholder will include the holding period or periods of the
Company Shares exchanged therefor, provided that the Company Shares are held as
a capital asset of the Company stockholder within the meaning of Section 1221 of
the Code at the Effective Time.
In addition to the assumptions set forth above, this opinion is subject
to the exceptions, limitations and qualifications set forth below.
1. This opinion addresses only the classification of the Merger as a
reorganization under Section 368(a) of the Code, and does not address any other
federal, state, local or foreign tax consequences that may result from the
Merger or any other transaction (including any transactions that may be
undertaken in connection with the Merger). In particular, we express no opinion
regarding: (i) whether and the extent to which any Company stockholder who has
provided or will provide services to Parent, Subsidiary or the Company will have
compensation income under any provision of the Code; (ii) the effects of such
compensation income, including, but not limited to, the effect upon the basis
and holding period of the Parent Common Stock received by any such stockholder
in the Merger; (iii) the potential application of the "golden parachute"
provisions (Sections 280G, 3121(v)(2) and 4999) of the Code; the alternative
minimum tax provisions (Sections 55, 56 and 57) of the Code or Sections 341 or
708 of the Code or the regulations promulgated thereunder; (iv) the survival
and/or availability of any tax attributes or elections of the Company, after
application of any provisions of the Code, as well as the regulations
promulgated thereunder and judicial interpretations thereof; (v) the tax
consequences of any transaction in which Company stock or a right to acquire
Company stock was received; and (vi) the tax consequences of the Merger
(including the opinions set forth above) as applied to stockholders of the
Company with special tax status or circumstances (and/or holders of options or
warrants for Company stock) or that may be relevant to particular classes of
Company stockholders (and/or holders of options or warrants for Company stock)
such as corporate stockholders subject to the alternative minimum tax, foreign
persons, and holders of shares acquired upon the exercise of stock options or in
other compensatory transactions.
<PAGE> 3
2. This opinion is given as of the date hereof and represents and is
based upon our best judgment regarding the application of federal income tax
laws arising under the Code, judicial decisions, administrative regulations and
published rulings and procedures, all existing as of the date hereof. In the
event of a material change in the federal tax law or pertinent facts prior to
the Effective Time, our opinions might be adversely affected and may not be
relied upon and we may not be in a position to issue a similar opinion as of the
Effective Time. Our opinion is not binding on the Internal Revenue Service or
the courts, and there can be no assurance that the Internal Revenue Service will
not asset a contrary position. Furthermore, no assurance can be given that
future legislative, judicial or administrative changes, either on a prospective
or retroactive basis, would not adversely affect the accuracy of the conclusions
stated herein. Nevertheless, we undertake no responsibility to inform you of new
developments in the application or interpretation of the federal income tax
laws.
3. No opinion is expressed as to any transaction other than the Merger
as described in the Agreement or to any transaction whatsoever, including the
Merger, if all the transactions described in the Agreement are not consummated
in accordance with the terms of such Agreement and without waiver or breach of
any material portion thereof, or if all of the representations, warranties,
statements and assumptions upon which we have relied are not true and accurate
at all relevant times. In the event that one of the statements, representations,
warranties or assumptions upon which we have relied is incorrect, or is
materially changed prior to the Effective Time, our opinions might be adversely
affected and may not be relied upon.
4. This opinion is being delivered to you in connection with, and
pursuant to the Agreement and is intended solely for your benefit; it may not be
relied upon for any other purpose or by any other person or entity without our
prior written consent.
5. We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent we do not thereby admit that we
come within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
